UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-9872
COLUMBUS ENERGY CORP.
(Exact name of registrant as specified in its charter)
Colorado 84-0891713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
1660 Lincoln St., Denver, CO 80264
(Address of principal executive offices) (Zip Code)
(303) 861-5252
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 10, 1997
Common stock, $.20 par value 3,101,845
<PAGE>
COLUMBUS ENERGY CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
February 28, 1997 and
November 30, 1996 .............................. 3
Consolidated Statements of Income -
Three Months Ended February 28,
1997 and February 29, 1996 ..................... 5
Consolidated Statement of
Stockholders' Equity -
Three Months Ended February 28, 1997 ........... 6
Consolidated Statements of Cash Flows -
Three Months Ended February 28, 1997
and February 29, 1996 .......................... 7
Notes to the Financial Statements ................ 9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations .......................... 17
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.............................. 24
Items 2-5. Not Applicable
Item 6. Exhibits and Reports
on Form 8-K ................................. 24
Signatures ................................................ 25
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLUMBUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, November 30,
1997 1996
-------- --------
(unaudited)
(in thousands)
Current assets:
Cash and cash equivalents ...................... $ 1,608 $ 1,396
Accounts receivable:
Joint interest partners ...................... 1,287 889
Oil and gas sales ............................ 1,711 1,544
Less allowance for doubtful accounts ......... (116) (116)
Deferred income taxes (Note 3) ................. 479 631
Inventory of oil field equipment,
at lower of average cost or market ........... 96 115
Other .......................................... 49 77
-------- --------
Total current assets ..................... 5,114 4,536
-------- --------
Property and equipment:
Oil and gas assets, successful efforts
method (Note 2) .............................. 29,194 28,031
Other property and equipment ................... 1,982 2,001
-------- --------
31,176 30,032
Less: Accumulated depreciation,
depletion and amortization
and valuation allowance ..................... (13,677) (12,943)
-------- --------
Net property and equipment ............... 17,499 17,089
-------- --------
$ 22,613 $ 21,625
======== ========
(continued)
3
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS - (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
February 28, November 30,
1997 1996
-------- --------
(unaudited)
(in thousands)
Current liabilities:
Accounts payable ................................. $ 1,637 $ 1,292
Undistributed oil and gas
production receipts ............................. 8 54
Accrued production and property taxes ............ 330 555
Prepayments from joint interest owners ........... 321 258
Accrued expenses ................................. 314 348
Income taxes payable (Note 3) .................... 107 33
Other ............................................ 13 30
-------- --------
Total current liabilities .................. 2,730 2,570
-------- --------
Long-term bank debt (Note 2) ....................... 1,300 2,200
Deferred income taxes (Note 3) ..................... 1,105 630
Commitments and contingent liabilities (Note 2)
Stockholders' equity:
Preferred stock authorized 5,000,000
shares, no par value, none issued .............. -- --
Common stock authorized 20,000,000 shares
shares of $.20 par value; shares issued
3,538,873 in 1997, and 3,499,915 in 1996
(outstanding 3,181,690 in 1997 and
3,155,346 in 1996) ............................. 708 700
Additional paid-in capital ....................... 17,589 17,361
Retained earnings, since
December 1, 1987 ............................... 1,863 720
-------- --------
20,160 18,781
Less: Treasury stock at cost
357,183 shares in 1997 and
344,569 shares in 1996 ................... (2,682) (2,556)
-------- --------
Total stockholders' equity ................. 17,478 16,225
-------- --------
$ 22,613 $ 21,625
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
------------------
February 28, February 29,
1997 1996
------ ------
(in thousands, except
per share data)
Revenues:
Oil and gas sales .............................. $3,765 $2,592
Operating and management
services ..................................... 276 288
Interest and other income ...................... 37 204
------ ------
Total revenues ............................ 4,078 3,084
------ ------
Costs and expenses:
Lease operating expenses ....................... 518 565
Property and production taxes .................. 321 265
Operating and management
services ..................................... 197 202
General and administrative ..................... 338 211
Depreciation, depletion and
amortization ................................. 753 675
Impairment of long-lived assets ................ -- 165
Exploration expense ............................ 62 33
Litigation (Note 4) ............................ 7 9
------ ------
Total costs and expenses ................... 2,196 2,125
------ ------
Operating income ........................... 1,882 959
------ ------
Other expenses (income):
Interest ....................................... 35 71
Other .......................................... 3 1
------ ------
38 72
------ ------
Earnings before income taxes ............... 1,844 887
Provision for income taxes
(Note 3) ....................................... 701 337
------ ------
Net earnings ............................... $1,143 $ 550
====== ======
Earnings per share ............................... $ .36 $ .18
====== ======
Average number of common shares .................. 3,171 3,058
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended February 28, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
--------------------- Paid-in Retained ----------------------
Shares Amount Capital Earnings Shares Amount
--------- --------- --------- --------- --------- ---------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 1, 1996 .... 3,499,915 $ 700 $ 17,361 $ 720 344,569 $ (2,556)
Exercise of employee
stock options ....... 36,045 7 199 -- 13,333 (131)
Purchase of shares .... -- -- -- -- 14 --
Shares issued for Stock
Purchase Plan ....... 2,913 1 29 -- (733) 5
Net earnings .......... -- -- -- 1,143 -- --
--------- --------- --------- --------- --------- ---------
Balances,
February 28, 1997 ... 3,538,873 $ 708 $ 17,589 $ 1,863 357,183 $ (2,682)
========= ========= ========= ========= ========= =========
</TABLE>
6
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------
February 28, February 29,
1997 1996
------- -------
(in thousands)
Net earnings ......................... $ 1,143 $ 550
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation, depletion, and
amortization ................... 753 675
Impairment of assets ............. -- 165
Deferred income tax provision .... 627 302
Gain on asset sale ............... -- (176)
Other ............................ 14 19
Net change in operating assets and
liabilities ........................ (366) (984)
------- -------
Net cash provided by
operating activities ....... 2,171 551
------- -------
Cash flows from investing activities:
Additions to oil and gas properties (1,163) (3,530)
Additions to other assets .......... -- (11)
Proceeds from sale of assets ....... -- 330
------- -------
Net cash used in
investing activities ....... (1,163) (3,211)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt ....... -- 2,700
Reduction in long-term debt ........ (900) (300)
Proceeds from issuance of
common stock ..................... 235 26
Purchase of treasury stock ......... (131) (113)
------- -------
Net cash provided by (used in)
financing activities ....... (796) 2,313
------- -------
Net increase (decrease) in cash and
cash equivalents ................... 212 (347)
Cash and cash equivalents at
beginning of period ................ 1,396 1,414
------- -------
Cash and cash equivalents at
end of period ...................... $ 1,608 $ 1,067
======= =======
(continued)
7
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
Three Months Ended
------------------
February 28, February 29,
1997 1996
------- -------
(in thousands)
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 48 $ 61
======= ========
Income taxes $ -0- $ -0-
======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Columbus Energy Corp. ("Columbus") and its wholly-owned subsidiary, Columbus Gas
Services, Inc.("CGSI"). All significant intercompany balances have been
eliminated in consolidation. The term "Company" as used herein includes Columbus
and its subsidiary.
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles and require the use of
managements' estimates. The financial statements contain all adjustments
(consisting only of normal recurring accruals) which, in the opinion of
management, are necessary to present fairly the financial position of the
Company as of February 28, 1997 and November 30, 1996, the results of its
operations and cash flows for the three months ended February 28, 1997 and
February 29, 1996. The results of operations for such interim periods are not
necessarily indicative of results to be expected for the full year.
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. Hedging activities are included in cash flow from
operations in the cash flow statements.
The Company uses crude oil and natural gas swaps to manage price exposure.
Realized gains and losses on the swaps are recognized in oil and gas sales as
settlement occurs.
Earnings per share are computed using the weighted average number of common
shares outstanding. Stock options are included as common stock equivalents, when
dilutive, using the treasury stock method. Common stock equivalents include
shares issuable upon assumed exercise of dilutive stock options using the
average price for primary shares and the period end price, if higher, for fully
diluted shares. For 1997 and 1996 such common stock equivalents were not
dilutive.
9
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
Oil and Gas Properties
The Company follows the successful efforts method of accounting. Lease
acquisition and development costs (tangible and intangible) for expenditures
relating to proved oil and gas properties are capitalized. Delay and surface
rentals are charged to expense in the year incurred. Dry hole costs incurred for
exploratory operations are expensed. Dry hole costs associated with developing
proved fields are capitalized. Expenditures for additions, betterments and
renewals are capitalized. Exploratory geological and geophysical costs are
expensed when incurred.
Upon sale or retirement of proved properties, the cost thereof and the
accumulated depreciation or depletion are removed from the accounts and any gain
or loss is credited or charged to income if significant. Abandonment,
restoration, and dismantlement costs and salvage value are taken into account in
determining depletion rates. These costs are generally about equal to the
proceeds from equipment salvage upon abandonment of such properties. When
estimated abandonment costs exceed the salvage value, the excess cost is accrued
and expensed. Maintenance and repairs are charged to operating expenses.
Provision for depreciation and depletion of capitalized exploration and
development costs are computed on the unit-of-production method based on proved
developed reserves of oil and gas, as estimated by petroleum engineers, on a
property by property basis. Unproved properties are assessed periodically to
determine whether they are impaired. When impairment occurs, a loss is
recognized by providing a valuation allowance. When leases for unproved
properties expire, any remaining cost is expensed.
An impairment loss on oil and gas properties is reported as a component of
income from continuing operations. The Company recognizes an impairment loss
when the carrying value exceeds the expected undiscounted future net cash flows
of each property pool at which time the property pool is written down to the
fair value. Fair value is estimated to be a discounted present value of expected
future net cash flows with appropriate risk consideration.
The Company follows the entitlements method of accounting for gas balancing
of gas production. The Company's gas imbalances are immaterial at November 30,
1996 and February 28, 1997.
10
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
Other Property and Equipment
Depreciation of other assets are provided on the straight line method over
their estimated useful lives. Gains and losses from retirement or replacement of
other properties and equipment are included in income. Betterments and renewals
are capital ized. Maintenance and repairs are charged to operating expenses.
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued Statement No. 123 on the
"Accounting for Stock-Based Compensation". This statement prescribes the
accounting and reporting standards for stock-based employee compensation plans
and is effective for the Company's 1997 fiscal year. The Company has determined
it will use the alternative pro forma disclosures as provided.
(2) LONG-TERM DEBT
The Company has a credit agreement with Norwest Bank Denver, N.A. that was
amended and restated on October 23, 1996. The credit is collateralized by a
first lien on oil and gas proper ties.
As requested by the Company, the borrowing base is limited to $7,000,000,
without regard to the maximum allowable amount that would be set by the bank
during its semi-annual redetermina tion. A commitment fee of .25% is payable for
any unused portion of the credit which is the difference between the borrowing
base and the outstanding borrowings.
(3) INCOME TAXES
The Company files a consolidated income tax return with CGSI and has
executed a tax allocation agreement which provides for an allocation and payment
of income taxes based upon each company's separate tax liability calculation.
Consolidated income taxes are payable only when taxable income exceeds available
net operating loss carryforwards and other credits.
Pursuant to provisions enacted as part of the Tax Reform Act of 1986,
utilization of these corporate tax carryforwards in any one taxable year is
limited if a corporation experiences a 50% change of ownership. Columbus
experienced such a change of ownership in October 1987 effectively limiting the
utilization of pre-change ownership net operating losses to approximately
$900,000 in each subsequent year. Subsequent additional ownership changes
accumulated to more than 50% by August 25, 1993 thereby causing a second
ownership change to occur. Approximately $160,000 of these restricted post-1987
net operating loss carryforwards are available for fiscal 1997 or subsequent
years.
11
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
The Company uses the asset and liability method to account for income
taxes. Under this method, deferred tax liabilities and assets are determined
based on the temporary differences between financial statement and tax basis of
assets and liabili ties using enacted rates in effect for the year in which the
differences are expected to reverse. Tax assets (net of a valuation allowance)
primarily result from net operating loss carryforwards, percentage depletion and
certain accrued but unpaid employee benefits. Deferred tax liabilities result
from the recognition of depreciation, depletion and amortization in different
periods for financial reporting and tax purposes.
Because of the Company's previous 1987 quasi-organization, the Company is
required to report the effect of its net deferred tax asset arising prior to
December 1, 1987 as an increase in stockholders' equity rather than as an
increase to net earnings.
12
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
The provision for income taxes consists of the following (in thousands):
Three Months Ended
--------------------------------------
February 28, 1997 February 29, 1996
----------------- -----------------
Current:
Federal $ 18 $ 17
State 56 18
------ ------
74 35
------ ------
Deferred:
Federal 471 (49)
Use of loss carryforwards 156 351
------ ------
627 302
------ ------
Total income tax expense $ 701 $ 337
====== ======
The total tax provision has resulted in effective tax rates which differ
from the statutory Federal income tax rates. The reasons for these differences
are:
Percent of Pretax Earnings
--------------------------
Three Months Ended
------------------
February 28, 1997 February 29, 1996
----------------- -----------------
U.S. Statutory rate 34% 34%
State income taxes 3 2
Other 1 2
----- -----
38% 38%
===== =====
13
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
During the three months of fiscal 1997, certain tax assets (shown in the
table below) were utilized. The tax effect of significant temporary differences
representing deferred tax assets and liabilities and changes were estimated as
follows (in thousands):
Current Year
---------------------------------------
Dec. 1, Feb. 28,
1996 Operations 1997
------- ---------- --------
Deferred tax assets:
Pre-1987 loss carryforwards $ 1,361 $ - $ 1,361
Post-1987 loss carryforwards 596 (149) 447
Percentage depletion
carryforwards 1,130 - 1,130
State income tax loss
carryforwards 88 (7) 81
Other 308 4 312
------- ------- -------
Total 3,483 (152) 3,331
Valuation allowance (1,469) - (1,469)
------- ------- -------
Deferred tax assets 2,014 (152) 1,862
------- ------- -------
Deferred tax liabilities-
Depreciation, depletion and
amortization and other (2,013) (475) (2,488)
------- ------- -------
Net tax asset (liability) $ 1 $ (627) $ (626)
======= ======= =======
The Company has net operating loss carryforwards (in thousands) available
at November 30, 1996 as follows:
Net
Expiration Year Operating loss
--------------- --------------
1999 $ 2,710
2000 907
2001 386
2003 45
2004 115
2010 1,593
-------
$ 5,756
=======
For Alternative Minimum Tax purposes the Company had net operating loss
carryforwards of approximately $6,900,000 as of November 30, 1996. The Company
also has percentage depletion carryforwards of $2,974,000 which do not expire.
State income tax operating loss carryforwards of $1,450,000 were available at
November 30, 1996.
14
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
(4) LITIGATION
Management is unaware of any asserted or unasserted claims or assessments
against the Company which would materially effect the Company's future financial
position or results of operations.
(5) CONTINGENCY
The Company entered into a natural gas swap by selling 60,000 Mmbtu per
month for the period from March 1997 through October 1997 at $2.20 per Mmbtu.
This volume represents approximately 20% of Columbus' first quarter gas
production.
Columbus also entered into a crude oil swap by selling a strip of 10,000
barrels per month for the twelve month period from November 1996 through October
1997 at an average daily price of $21.17 per barrel. This amount represents
approximately 50% of Columbus' current crude oil production. The difference
between the hedge price and the actual daily closing price on the New York
Mercantile Exchange ("NYMEX") is settled monthly.
The Company's natural gas and crude oil swaps are considered financial
instruments with off-balance sheet risk which were in the normal course of
business to reduce its exposure to fluctuations in the price of crude oil and
natural gas. Those instruments involve, to varying degrees, elements of market
and credit risk in excess of the amount recognized in the balance sheets. The
Company had natural gas and crude oil swaps outstanding subsequent to February
28, 1997 as follows:
Notional Market Value as of
Value 2/28/97
-------- ------------------
Natural gas
(3/97-10/97) $1,056,000 $1,183,000
Crude oil
(3/97-10/97) 1,694,000 1,804,000
15
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(6) RELATED PARTY TRANSACTIONS
CEC Resources Ltd. ("Resources") was a wholly-owned subsidiary of Columbus
prior to its divestiture on February 24, 1995. Reimbursement is made by
Resources to Columbus for services provided by Columbus officers and employees
for managing Resources and reduces general and administrative expense. This
reimbursement totaled $67,000 and $72,000 for the first three months of 1997 and
1996, respectively.
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following summarizes the Company's financial condition and results of
operations and should be read in conjunction with the consolidated financial
statements and related notes.
Liquidity and Capital Resources
During the first quarter of 1997 the Company achieved record results.
Significantly improved crude oil and natural gas prices and production increased
sales for 1997 by 45% compared to 1996. This was made up of 68% higher natural
gas revenues and 14% crude oil revenues due to increased average prices of 43%
and 25% while production was up 18% and down 8%, respectively. Net earnings of
$1,143,000, or $.36 per share for 1997 more than doubled the net earnings of
$550,000, or $.18 per share, in 1996. As of the end of the first quarter 1997,
shareholders' equity was $17,478,000 compared to $16,225,000 at November 30,
1996. Substantial positive working capital of $2,384,000 on that date plus the
Company's forecasted future cash flow for the year should be more than a
sufficient source of capital to meet its approved budget of $7.1 million to
develop its undeveloped reserves as well as fund its proposed exploratory
program. The $7,000,000 bank borrowing base of its credit facility has been
designated by management for acquisitions of new oil and gas properties although
the loan can be used for any legal corporate purpose and would be available if
needed. Notwithstanding the Company's presently favorable swap positions of
crude oil and natural gas, expected future decreases in oil and gas prices
subsequent to February 28, 1997 will probably result in reduced cash flows and
net earnings for the remaining three fiscal quarters unless the results of the
drilling program with expected production increases therefrom should prove
sufficient to offset those price declines.
Generally accepted accounting principles ("GAAP") require cash flows from
operating activities to be presented after working capital changes. Accordingly,
net cash provided by operating activities was $2,171,000 for the first quarter
of 1997 compared to $551,000 during 1996's quarter. Management believes that an
important alternative measure (commonly used in the industry although not GAAP)
of a company's cash flow is one determined before any consideration is given to
working capital changes and without deduction of exploration expenses. This is
generally known as discretionary cash flow ("DCF") for successful efforts
companies and is important for comparability purposes because under the full
cost accounting method used by a majority of smaller capitalization independent
energy companies exploration costs are capitalized and therefore do not
adversely affect operating cash flow or net earnings. Since exploration costs
can be increased or decreased by management decision, DCF would be more
comparable to cash flow of full cost companies. Columbus' DCF for first quarter
1997 was $2,599,000 compared to $1,568,000 in 1996 which 66% increase reflects
higher natural gas and crude oil prices and improved natural gas production this
year. DCF is calculated before debt retirement but in Columbus' case is not
restricted since its long-term bank debt does not require principal payments
before July 1999. Interest expense on outstanding debt has been relatively
insignificant but is deducted when arriving at DCF anyway.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Management continues to take a strong exception to Financial Accounting
Standards Board Statement No. 95 which directs that operating cash flow should
be determined after consideration of working capital changes. It reflects that
position on this matter in all of its public filings and reports because such a
requirement ignores entirely the significant impact on working capital that the
timing of income received for, and expenses incurred on behalf of, third party
owners in wells can have on a company where it primarily serves as an operator
of properties with only a small working interest as does Columbus.
Neither discretionary cash flow nor operating cash flow before working
capital represent cash flows that can be substituted for net income or cash
available from operations as defined by GAAP. No matter how defined, cash flows
do not necessarily indicate that they are sufficient to fund all cash
requirements.
Columbus' hedges (swaps) of natural gas and oil prices are discussed below
in Results of Operations as well as in Note 5 to the financial statements.
The Company's operation and management services segment remains profitable
but has not contributed meaningfully to earnings since Resources was spun-off.
Columbus had outstanding borrowings of $1,300,000 as of February 28, 1997
against its line of credit with Norwest Bank Denver, N.A. which has a current
borrowing base of $7,000,000. The credit is collateralized by oil and gas
properties. At the end of the first quarter 1997, the ratio of bank debt to
shareholders' equity was 0.07 and to total assets was 0.06. The debt outstanding
used a LIBOR option at an interest rate of 6.9%. The net increase or decrease in
long-term debt affects reported financing activities cash flow as does the
purchase of treasury stock and proceeds from the exercise of stock options.
Working capital at February 28, 1997 remained positive at $2,384,000
compared to $1,966,000 at November 30, 1996. This was achieved despite
expenditures of $1,163,000 for new additions to oil and gas properties for the
quarter out of total budgeted development and exploratory capital expenditures
for 1997 of over $7,000,000. It is noteworthy that working capital as the
quarter ended exceeded outstanding bank debt. In that regard, at its regular
February meeting, the Board of Directors voted to withdraw a previously filed
registration statement covering a proposed rights offering to shareholders of a
Series A Convertible Preferred Stock issue because of the rapid paydown of bank
debt that had occurred since August 1996 as well as the accelerating cash flow
realized during that period.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
A 300,000-share repurchase was previously authorized in February 1995 which
could be purchased from time to time out of available cash (excluding bank
borrowings) at a price not to exceed $8.75 per share. Through February 1997, the
Company had acquired 284,000 shares while the remaining 16,000 shares were
purchased in early March. An overall average repurchase price of $7.21 per share
was achieved for the block.
Subsequently, during March 1997, an additional 100,000-share repurchase was
authorized at a price not to exceed $9.75 per share. To date, 65,500 shares have
been acquired at an average price of $9.22 per share excluding commissions.
RESULTS OF OPERATIONS
During 1997's first quarter, the Company's revenues increased by 32% and
operating income increased 96% compared to first quarter 1996. Other comparisons
appear below.
As indicated, a record drilling budget has been approved for 1997 so it is
expected there will be a record number of well participations during the year.
During the first quarter, five gross wells (0.88 net) were completed which
resulted in four (0.54 net) successful gas wells in the Laredo area and one
(0.34 net) pumping oil well in Oklahoma. No exploratory wells were completed but
an Austin Chalk horizontal well re-entry at the Morrow 23 #1-H in Avoyelles
Parish, Louisiana was in progress with the first lateral about to be commenced
as the quarter closed. Columbus owns a 12.5% working interest after payout of
the costs of this well and owns a lesser interest during payout which percentage
can only be determined when final costs are known. The Company owns 6,189 net
acres of working interest leaseholds and minerals under approxi mately 49,512
net (57,451 gross) acres of leaseholds and minerals in the three township Area
of Mutual Interest ("AMI") in Avoyelles and St. Landry Parishes. Also in
progress was a Red River replacement well completion located at the apex of the
SE Froid field structure. The McCabe #1-X will allow the junked well bore at the
McCabe #1 to be abandoned in the Red River formation and be recompleted as an
oil producer in one of three uphole prospective horizons.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Oil and Gas Revenues and Operating Costs
The following table shows comparative crude oil and natural gas revenues,
sales volumes, average prices and percentage changes between periods for the
first quarters of 1997 and 1996 and the first quarter of 1997 versus the fourth
quarter of 1996.
<TABLE>
<CAPTION>
First Quarter
--------------------- % Fourth Qtr. %
1997 1996 Change 1996 Change
------ ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C>
Natural gas revenues M$ $2,511 $1,496 68% $ 1,512 66 %
Oil revenue M$ $1,254 $1,096 14% $ 1,315 (5)%
Natural gas sales volumes:
Millions of cubic feet 777 661 18% 729 7 %
MCF/day 8,628 7,262 8,014
Oil sales volumes:
Barrels 57,801 63,087 (8)% 60,522 (4)%
Barrels/day 642 693 665
Average price received:
Natural gas - $/MCF $ 3.23 $ 2.26 43% $ 2.07 56 %
Oil - $/BBL $21.69 $17.37 25% $21.73 - %
</TABLE>
Natural gas revenues increased 68% in the first quarter of 1997 when
compared to 1996's quarter primarily from higher volumes and prices. Average
prices for natural gas rose 43% in the first quarter of 1997 compared with last
year due to increased demand and limited excess deliverability nationwide which
affected storage injections. Sales volumes improved by 18% over 1996's first
quarter as a result of numerous wells developed during the intervening months.
The first quarter of 1997 compared to fourth quarter of 1996 showed a sales
volume increase of 7% as a result of new well connections and an increase of 56%
in average prices received. These factors combined to increase revenues by 66%
in 1997's quarter.
Oil revenues for the first quarter were up 14% over the similar 1996
quarter as a result of a 25% increase in the average price received and despite
8% lower sales volumes. Crude oil production has continued its natural decline
with insufficient new development wells to offset same during most quarters for
the past several years. Total oil revenues in the first quarter of 1997 were
reduced by $92,660 or $1.60 per barrel, from swaps of crude oil. Total oil
revenues first quarter 1996 were reduced by $30,000, or $.47 per barrel, due to
swaps of crude oil for January and February of that year.
Columbus' average sales volume of natural gas of 8,628 Mcfd and oil
production of 642 barrels per day for 1997's quarter equates to daily production
of 2,080 barrels of oil equivalent (BOE) which is still 5% below the previous
record quarter for U.S. daily production of 2,200 BOE. For the month of February
1997, the daily average reached 2,100 BOE (or 12,600 MCFE) and was closing on
the record in March.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
When a comparison is made with the fourth quarter of 1996, first quarter
1997 oil revenues were 5% lower because of a 4% decrease in quarterly oil
production with less than 1% decrease in average price per barrel.
Lease operating expenses for the 1997 quarter were lower than first quarter
1996 because of last year's expensive work-overs and repairs performed on a few
older wells. Accordingly, lease operating costs on a barrel of oil equivalent
basis were $2.76 in 1997 compared to $3.24 in 1996. Operating costs as a
percentage of revenues have decreased in 1997 to 14% compared to 22% in 1996's
first quarter due to lower costs and significantly improved revenues.
Production and property taxes approximated 9% of revenues in 1997 and 10%
in 1996 and varies based on production in Texas where oil production tax rates
are lower than gas production tax rates. The relationship of taxes and revenue
is not always directly proportional because some local jurisdiction's taxes are
based upon reserve evaluations as opposed to actual revenues or production for a
given period.
Operating and Management Services
This segment of the Company's U.S. business is comprised of operations and
services conducted on behalf of third parties and includes compressor rentals.
Operating and management services profit is fairly consistent between
quarters. There was a $79,000 profit during first quarter 1997 compared to an
$86,000 profit for the equivalent quarter in 1996, but was only $38,000 for the
fourth quarter of 1996 due to annual state workmen's compensation premium,
increased vacation accrual and more time allocated to operations by personnel
during fourth quarter.
Interest Income
Interest income is earned primarily from short-term invest ments whose
rates fluctuate with changes in the commercial paper rates and the prime rate.
Interest income increased in 1997 to $37,000 from $28,000 in 1996's first
quarter primarily as result of an increased amount of investments and stable
short-term interest rates.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
General and Administrative Expenses
General and administrative expenses are considered to be those which relate
to the direct costs of the Company which do not originate from operation of
properties or providing of services. Corporate expense represents a major part
of this category although other nonbillable expenses are included herein.
The Company's general and administrative expenses in the first quarter of
1997 were higher than last year because of intervening grants of salary
increases in May and November 1996 for officers and employees and $56,000 of
costs associated with the withdrawn preferred stock offer and professional
services related thereto.
Reimbursement for services provided by Columbus officers and employees for
managing Resources is expected to decrease later in fiscal 1997 assuming that
Canadian-based management would take over following a business combination with
another junior oil and gas company. Columbus' general and administrative expense
will increase accordingly since no further staff reductions are planned.
Reimbursement of $67,000 compares with $72,000 for first quarter 1996 for
providing services to Resources.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization of oil and gas assets are
calculated based upon the units of production compared to proved reserves of
each field. The expense is not only directly related to the level of production,
but also is dependent upon past costs to find, develop, and recover those
reserves. Depreciation and amortization of office equipment and computer
software is also included in the total charge.
Total charges for depletion expense for oil and gas properties increased
from 1996 due to increased production. The 1997 first quarter depletion rate was
$3.88 per barrel of oil equivalent compared to $3.68 per barrel of oil
equivalent in the like period of fiscal 1996 and $3.86 per barrel of oil
equivalent for all of 1996. These amounts are below the industry average
primarily because of historically low finding costs.
A non-cash impairment loss of $165,000 was recognized during the 1996 first
quarter because a development well drilled in Oklahoma proved to be uneconomic
and its costs exceeded the remaining cash flows from other producing properties
in the field at that time.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Exploration Expense
In general, the exploration expense category includes the cost of
Company-wide efforts to acquire and explore new prospective areas. The
successful efforts method of accounting for oil and gas properties requires that
the cost of drilling unsuccessful exploratory wells and other exploratory costs
be currently expensed. Exploration expenses for comparative first quarters
amounted to $62,000 for 1997 and $33,000 for 1996. These explora tion expenses
reduce reported cash flow from operations, as well as net earnings, even though
they are discretionary expenses; however, such charges are added back for
purposes of determining discre tionary cash flow.
Over $500,000 of total seismic costs has been budgeted for 1997 in the S.E.
Froid and Hay Creek areas in Montana and to the extent these are necessary for
locating exploratory well sites this will increase exploration charges during
future quarters regardless of success.
Interest Expense
Interest expense varies in a direct proportion to the amount of bank debt
and the level of bank interest rates. The average amount of bank debt
outstanding has been lower for the 1997 first quarter than in 1996. The average
bank interest rate paid this quarter was 7.0% for debt which compares to 7.5% in
1996.
Income Taxes
During the first quarter of 1997 the U.S. net deferred tax asset became a
net liability of $626,000 as a result of expected use of net operating loss
carryforwards. The net liability is comprised of $479,000 current deferred tax
asset and $1,105,000 long-term tax liability. The estimated utilization of
deferred tax assets was $627,000 during the quarter. The valuation allowance was
unchanged so far in 1997. The effective tax rate for 1997 was 38%. See also Note
3 to the consolidated financial statements for further explanation of income
taxes.
Statement Pursuant to Safe Harbor Provision of the Private Securities
Litigation Reform Act of 1995
This report may contain certain "forward-looking statements" that have been
based on imprecise assumptions with regard to production levels, price
realizations, and expenditures for exploration and development and anticipated
results therefrom. Such statements are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in or
implied by the statements.
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Management is unaware of any asserted or unasserted claims or assessments
against the Company which would materially affect the Company's future financial
position or results of operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Computation of per share earnings
27 - Financial data schedule
(b) Reports on 8-K
Report dated January 13, 1997 related to regis tration covering
400,000 shares of Series A 7% Convertible Preferred Stock.
Report dated February 12, 1997 related to the withdrawal of the
previously filed registration statement of 400,000 shares of
Series A 7% Convertible Preferred Stock.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBUS ENERGY CORP.
(Registrant)
DATE: April 10, 1997 /s/ Harry A. Trueblood, Jr.
-------------- ---------------------------
Harry A. Trueblood, Jr.
Chairman, President and
Chief Executive Officer
(a duly authorized officer)
DATE: April 10, 1997 /s/ Ronald H. Beck
-------------- ------------------
Ronald H. Beck
Vice President
(Chief Accounting Officer)
25
<PAGE>
Commission File No. 1-9872
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED FEBRUARY 28, 1997
COLUMBUS ENERGY CORP.
(Exact Name of Registrant)
1660 Lincoln Street
Denver, Colorado 80264
(Address of Principal Executive Office)
EXHIBIT 11
COLUMBUS ENERGY CORP.
Statement of Computation of Per Share Earnings
(Unaudited)
(In Thousands Except Per Share Data)
Three Months Ended
-------------------------------------
February 28, 1997 February 29, 1996
----------------- -----------------
Primary:
Based on weighted average
shares outstanding including
the effect of common stock
equivalents:
Weighted average shares
outstanding: 3,171 3,058
Incremental shares attributable
to dilutive stock options and
warrants outstanding based on
average market price during
the period calculated using
the treasury method 75 1
------ ------
Total average common and
common equivalent shares 3,246 3,059
====== ======
Net earnings $1,143 $ 550
====== ======
Earnings per share $ .36 $ .18
====== ======
Note:Full diluted incremental shares in 1997 and 1996 were 75,000 and 1,000 with
total average common and common share equivalent shares 3,246,000 and
3,059,000, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The consolidated balance sheet as of February 28, 1997 and the
consolidated statement of income for the three months ended
February 28, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<EXCHANGE-RATE> 1
<CASH> 1,608
<SECURITIES> 0
<RECEIVABLES> 2,998
<ALLOWANCES> 116
<INVENTORY> 96
<CURRENT-ASSETS> 5,114
<PP&E> 31,176
<DEPRECIATION> 13,677
<TOTAL-ASSETS> 22,613
<CURRENT-LIABILITIES> 2,730
<BONDS> 0
0
0
<COMMON> 708
<OTHER-SE> 19,768
<TOTAL-LIABILITY-AND-EQUITY> 22,613
<SALES> 3,765
<TOTAL-REVENUES> 4,078
<CGS> 839
<TOTAL-COSTS> 2,196
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 1,844
<INCOME-TAX> 701
<INCOME-CONTINUING> 1,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,143
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
