<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Under Section 13 or 15(d)
[X] of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995 or
Transition Report Pursuant to Section 13 or 15(d)
[ ] of the Securities Act of 1934 for the
Transition Period from __________ to ___________
COMMISSION FILE NO. 1-10762
________________________________________
BENTON OIL AND GAS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 77-0196707
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1145 EUGENIA PLACE, SUITE 200
CARPINTERIA, CALIFORNIA 93013
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 566-5600
___________________________________________
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
_____ _____
___________________________________________
At November 10, 1995, 25,118,108 shares of the
Registrant's Common Stock were outstanding.
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BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1995
(Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Nine
Months Ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the Three
Months Ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 21
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
---------------- ----------------
(UNAUDITED)
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ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 14,779,849 $ 14,192,568
Restricted cash (Note 4) 19,550,000 19,550,000
Accounts receivable:
Accrued oil and gas revenue 17,582,060 9,357,782
Joint interest and other 7,255,647 3,880,808
Property held for sale (Note 2) 14,887,700
Prepaid expenses and other 2,411,301 563,839
-------------- --------------
TOTAL CURRENT ASSETS 61,578,857 62,432,697
OTHER ASSETS 1,554,664 2,550,607
PROPERTY AND EQUIPMENT (Notes 1, 4, 7 and 8):
Oil and gas properties (full cost method - costs of
$13,458,382 and $16,695,284 excluded
from amortization in 1995 and 1994, respectively) 174,091,497 116,209,554
Furniture and fixtures 2,154,789 1,439,484
-------------- --------------
176,246,286 117,649,038
Accumulated depletion and depreciation (31,235,459) (20,071,223)
------------- -------------
145,010,827 97,577,815
------------- -------------
$208,144,348 $162,561,119
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Revenue distribution $ 1,894,058 $ 594,782
Trade and other 18,268,635 11,426,105
Accrued interest payable, payroll and related taxes 2,779,858 1,199,096
Income taxes payable 2,556,634
Short term borrowings (Note 4) 21,779,335 21,035,401
Current portion of long term debt (Note 3) 7,533,898 6,392,114
-------------- --------------
TOTAL CURRENT LIABILITIES 54,812,418 40,647,498
LONG TERM DEBT (Note 3) 52,606,620 31,911,164
MINORITY INTEREST (Note 8) 4,828,923 1,743,660
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY (Notes 3 and 8):
Preferred stock, par value $0.01 a share;
authorized 5,000,000 shares; outstanding, none
Common stock, par value $0.01 a share;
authorized 40,000,000 shares; issued and
outstanding 25,127,256 and 24,899,848
at September 30, 1995 and December 31, 1994,
respectively 251,272 248,998
Additional paid-in capital 94,500,456 92,921,115
Retained earnings (deficit) 1,144,659 (4,911,316)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 95,896,387 88,258,797
-------------- --------------
$208,144,348 $162,561,119
============== ==============
See notes to consolidated financial statements.
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<TABLE>
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(unaudited)
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NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1995 1994
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REVENUES
Oil and gas sales $41,816,499 $19,946,431
Gain on exchange rates 773,028 943,584
Investment earnings, partnership reimbursements
and other 1,570,740 843,108
-------------- ---------------
44,160,267 21,733,123
-------------- ---------------
EXPENSES
Lease operating costs and production taxes 8,244,738 5,981,616
Depletion, depreciation and amortization 11,195,985 5,982,553
General and administrative 6,583,804 3,749,833
Interest 5,715,208 2,423,028
-------------- ---------------
31,739,735 18,137,030
-------------- ---------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 12,420,532 3,596,093
INCOME TAX EXPENSE 3,279,294 270,000
-------------- ---------------
INCOME BEFORE MINORITY INTEREST 9,141,238 3,326,093
MINORITY INTEREST (Note 8) 3,085,263 1,498,433
-------------- ---------------
NET INCOME $ 6,055,975 $ 1,827,660
============== ===============
NET INCOME PER COMMON SHARE $ 0.23 $ 0.07
============== ===============
See notes to consolidated financial statements.
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BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1995 1994
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REVENUES
Oil and gas sales $16,987,239 $8,777,559
Gain on exchange rates 654,242 494,097
Investment earnings, partnership reimbursements
and other 648,390 301,442
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18,289,871 9,573,098
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EXPENSES
Lease operating costs and production taxes 2,957,667 2,033,348
Depletion, depreciation and amortization 4,722,583 2,561,518
General and administrative 2,700,198 1,305,064
Interest 2,354,167 826,335
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12,734,615 6,726,265
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 5,555,256 2,846,833
INCOME TAX EXPENSE 1,308,192 270,000
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INCOME BEFORE MINORITY INTEREST 4,247,064 2,576,833
MINORITY INTEREST (Note 8) 1,342,690 750,836
------------- ------------
NET INCOME $ 2,904,374 $ 1,825,997
============= ============
NET INCOME PER COMMON SHARE $ 0.11 $ 0.07
============= ============
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,055,975 $ 1,827,660
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 11,195,985 5,982,553
Net earnings from limited partnerships (53,121) (57,609)
Amortization of financing costs 137,553 85,734
Loss on disposition of assets 12,482
Minority interest in undistributed earnings of subsidiary 3,085,263 1,498,433
Increase in accounts receivable (11,599,117) (6,405,981)
Increase in prepaid expense and other (1,847,462) (153,094)
Increase in accounts payable 8,141,806 3,530,102
Increase in deferred revenue, accrued interest payable,
payroll and related taxes 1,580,762 68,452
Increase (decrease) in income taxes payable 2,556,634 (27,025)
--------------- ---------------
TOTAL ADJUSTMENTS 13,210,785 4,521,565
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,266,760 6,349,225
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 15,420,441 162,403
Additions of property and equipment (47,934,120) (24,414,737)
Increase in restricted cash (19,250,000)
Distributions from limited partnerships 502,167
Payment for purchase of Benton-Vinccler interest, net of cash
acquired (2,501,973)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (32,513,679) (45,502,140)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 686,615 51,460
Proceeds from commercial paper and other short term borrowings 24,704,477
Proceeds from issuance of notes payable 22,720,000 15,000,000
Payments on commercial paper, other short term borrowings
and notes payable (9,195,028) (23,220,606)
Increase in other assets (377,387) (106,795)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,834,200 16,428,536
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 587,281 (22,724,379)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,192,568 36,308,118
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,779,849 $13,583,739
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense $ 4,094,082 $ 2,337,485
=============== ===============
Cash paid during the period for income taxes $ 840,556 $ 422,164
=============== ===============
</TABLE>
(continued)
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SUPPLEMENTAL SCHEDULE OF ON CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1995, $127,000 of the Company's 8%
convertible notes and $768,000 of the Company's 8% convertible debentures were
retired in exchange for 10,827 and 77,679 shares of the Company's common stock,
respectively.
During the nine months ended September 30, 1995, the Company financed the
purchase of oil and gas equipment and services in the amount of $9,896,729 and
leased office equipment in the amount of $54,473.
During the nine months ended September 30, 1994, the Company converted $143,658
of accounts payable into a note payable.
On March 4, 1994, the Company acquired capital stock from Vinccler representing
an additional 30% ownership interest in Benton-Vinccler for $3 million in cash,
$10 million in non-interest bearing notes payable (with a present value of $9.2
million assuming a 10% interest rate) and 200,000 shares of the Company's
common stock. The excess of the purchase price over the net book value of
assets acquired was $13,880,100, which was allocated to oil and gas properties.
See notes to consolidated financial statements.
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8
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Benton Oil and Gas Company (the "Company") engages in the exploration,
development, and management of oil and gas properties in Venezuela, the United
States and Russia.
The Company and its subsidiary, Benton Oil and Gas Company of Louisiana,
formerly Energy Partners, participate as the managing general partner of three
oil and gas limited partnerships formed during 1989 through 1991. Under the
provisions of the limited partnership agreements, the Company receives
compensation as stipulated therein, and functions as an agent for the
partnerships to arrange for the management, drilling, and operation of
properties, and assumes customary contingent liabilities for partnership
obligations. In November 1995, the Company made an offer to holders of the
limited partnership interests to exchange their interests for 171,880 shares of
common stock and warrants to purchase 592,373 shares of common stock at $11 per
share. The exchange offer expires in January 1996.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company's investments in limited partnerships and the
Russia joint venture ("GEOILBENT") are proportionately consolidated based on
the Company's ownership interest. All material intercompany profits,
transactions and balances have been eliminated.
INTERIM REPORTING
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1995, and the results of operations for the three and nine month
periods ended September 30, 1995 and 1994. The unaudited financial statements
are presented in accordance with the requirements of Form 10-Q and do not
include all disclosures normally required by generally accepted accounting
principles. References should be made to the Company's consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1994 for additional disclosures, including
a summary of the Company's accounting policies.
The results of operations for the nine month period ended September 30, 1995
are not necessarily indicative of the results to be expected for the full year.
EARNINGS PER SHARE
Primary earnings per common share are computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares are shares which may be issued upon exercise of
outstanding stock options and warrants. Total weighted average common stock
equivalent shares outstanding during the three and nine month periods ended
September 30, 1995 were 26,706,084 and 26,541,919, respectively. Total
weighted average common shares outstanding during the three and nine month
periods ended September 30, 1994 were 25,420,716 and 25,242,809 respectively.
Fully diluted earnings per common share are not presented since the conversion
of the Company's 8% Convertible Subordinated Notes and 8% Convertible
Subordinated Debentures would have an antidilutive effect.
PROPERTY AND EQUIPMENT
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with the acquisition,
exploration, and development of oil and gas reserves are capitalized as
incurred, including exploration overhead of $1,653,677 and $1,168,363 for the
nine months ended September 30, 1995 and 1994, respectively. Only overhead
which is directly identified with acquisition, exploration or development
activities is
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capitalized. All costs related to production, general corporate overhead or
similar activities are expensed as incurred. The costs of oil and gas
properties are accumulated in cost centers on a country by country basis,
subject to a cost center ceiling (as defined by the Securities and Exchange
Commission).
All capitalized costs of oil and gas properties, excluding unevaluated property
acquisition and exploration costs and including the estimated future costs to
develop proved reserves, are depleted over the estimated useful lives of the
properties by application of the unit-of-production method using only proved
oil and gas reserves. Excluded costs attributable to the Venezuela, United
States and Russia cost centers at September 30, 1995 were $6,619,686,
$4,409,049 and $2,429,647, respectively. Excluded costs attributable to the
Venezuela, United States and Russia cost centers at December 31, 1994 were
$6,743,012, $7,523,454 and $2,428,818, respectively. Depletion expense
attributable to the Venezuela cost center for the nine months ended September
30, 1995 and 1994 was $7,055,634 and $2,791,981 ($1.99 and $1.77 per equivalent
barrel), respectively. Depletion expense attributable to the United States
cost center for the nine months ended September 30, 1995 and 1994 was
$2,499,313 and $2,469,244 ($6.12 and $6.47 per equivalent barrel),
respectively. Depletion expense attributable to the Russia cost center for the
nine months ended September 30, 1995 and 1994 was $1,397,363 and $566,757
($2.85 and $3.61 per equivalent barrel), respectively. Depreciation of
furniture and fixtures is computed using the straight-line method, with
depreciation rates based upon the estimated useful life applied to the cost of
each class of property. Depreciation expense was $243,675 and $154,571 for the
nine months ended September 30, 1995 and 1994, respectively.
RECLASSIFICATIONS
Certain items in 1994 have been reclassified to conform to the 1995 financial
statement presentation.
NOTE 2 - PROPERTY SALES
In July 1995, the Company sold its interest in the Umbrella Point Field for net
proceeds of approximately $0.8 million with proceeds from the sale being used
for working capital purposes.
NOTE 3 - LONG TERM DEBT
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Long term debt consists of the following:
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
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Senior unsecured notes with interest at 13% due on
June 30, 2007. Interest payments are due on
June 30 and December 31. Principal payments of
$4 million are due on each June 30 beginning in 2003. $20,000,000
Senior unsecured notes with interest at 13% due on
September 30, 2002. Interest payments are due on
March 31 and September 30. Principal
payments of $3 million are due on each
September 30 beginning in 1998. 15,000,000 $15,000,000
Revolving secured credit facility. Interest
payments are due quarterly. Principal payments are
due quarterly beginning March 31, 1997. 5,000,000 5,000,000
Convertible subordinated debentures with
interest at 8% due on May 1, 2002. Interest
payments are due on May 1 and November 1. 5,660,000 6,428,000
Convertible subordinated notes with interest
at 8% due on October 1, 2001. Interest payments are
due on April 1 and October 1. 4,535,000 4,662,000
Non-interest bearing promissory notes
payable with a face value of $2 million
discounted using a 10% interest rate.
The notes are due in various installments
through January 1996. See Note 8. 1,975,509 5,747,878
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Bank financing with interest at LIBOR plus
7.5% due on January 16, 1996.
Secured by certain GEOILBENT oil export proceeds.
Principal and interest payments due monthly in
varying installments. 850,000 1,292,000
Vendor financing with interest ranging from 10 to 13.5%.
Principal and interest payments are due in varying
installments through May 1997. Unsecured. 6,980,966
Other 139,043 173,400
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60,140,518 38,303,278
Less current portion 7,533,898 6,392,114
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$52,606,620 $31,911,164
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</TABLE>
On June 30, 1995, the Company issued $20 million in senior unsecured notes due
June 30, 2007, with interest at 13% per annum, payable semi-annually on June
30 and December 31. Annual principal payments of $4 million are due on June 30
of each year beginning on June 30, 2003. Early payment of the notes could
result in a substantial prepayment penalty. The note agreement contains
financial covenants including a minimum ratio of current assets to current
liabilities and a maximum ratio of funded liabilities to net worth and to
domestic oil and gas reserves. The note agreement also provides for
limitations on liens, additional indebtedness, certain capital expenditures,
dividends, sales of assets and mergers. Additionally, in connection with the
issuance of the notes, the Company issued warrants entitling the holder to
purchase 125,000 shares of common stock at $17.09 per share, subject to
adjustment in certain circumstances, that are exercisable on or before June 30,
2007.
In August 1994, GEOILBENT entered into an agreement with International Moscow
Bank for a $4 million loan with the following terms: 14 monthly payments,
interest at LIBOR plus 7.5%, with interest only payments for the first four
months and monthly principal and interest payments thereafter. In connection
with this agreement, the Company provided to International Moscow Bank a
guarantee of payment under which the Company has agreed to pay such loan in
full if GEOILBENT fails to make the scheduled payments. In March 1995,
GEOILBENT's credit facility with International Moscow Bank was expanded to $6
million, with interest only payments for 3 months and monthly principal and
interest payments thereafter. The Company has similarly guaranteed this
indebtedness, through which the Company fulfilled substantially all of its
remaining charter fund contribution requirements. At September 30, 1995, the
Company's share of the outstanding balance was $0.9 million.
NOTE 4 - SHORT TERM BORROWINGS
In February 1994, Benton-Vinccler borrowed $15 million from Morgan Guaranty
Trust Company of New York ("Morgan Guaranty"). Benton-Vinccler subsequently
borrowed from the same bank an additional $7 million for working capital
requirements. Benton-Vinccler made a payment of $2.75 million in September
1994, leaving a balance of $19.25 million. The credit facility is
collateralized in full by time deposits from the Company, bears interest at
LIBOR plus 3/4%, and is renewed on a monthly basis. The loan arrangement
contains no restrictive covenants and no financial ratio covenants. The
Company is presently pursuing certain options to replace this loan arrangement
with a long term facility.
During the fourth quarter of 1994 and the first nine months of 1995,
Benton-Vinccler acquired approximately $4.0 million of drilling and production
equipment from trading companies and suppliers under terms which include
payment within a 12-month period in monthly and quarterly installments at
interest rates from 6.7% to 10.75%. The outstanding balances related to these
transactions at September 30, 1995 and December 31, 1994 were approximately
$1.3 and $1.5 million, respectively.
In June 1994, GEOILBENT entered into a payment advance agreement with NAFTA
Moscow, the export agency which markets GEOILBENT's oil production to
purchasers in Europe. The payment advance of $2.5 million against future oil
shipments, which bore an effective discount rate of 12%, was repaid through
withholdings from oil sales on a monthly basis through December 1994. In March
and August 1995, GEOILBENT received $3.0 million and $2.0 million,
respectively, in production payment advances pursuant to similar agreements
with NAFTA Moscow containing similar terms. At September 30, 1995, the
Company's share of the outstanding liability was approximately $1.0 million.
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NOTE 5- COMMITMENTS AND CONTINGENCIES
The state leases relating to the West Cote Blanche Bay Field, the portion of
the Belle Isle Field owned by Texaco and the Rabbit Island Field, were the
subject of litigation between Texaco and the State of Louisiana. The Company's
interests in the Fields, which include substantially all of the Company's
domestic reserves, were originally owned by Texaco under certain leases granted
by the State. Although the Company was not a party to this litigation, its
interests in the Fields were subject to the litigation. In February 1994, the
State and Texaco entered into a Global Settlement Agreement to settle all
disputes related to this litigation. As a result of this agreement, Texaco has
committed to certain acreage development and drilling obligations which may
affect the Company and certain of its Louisiana properties. The Company
believes that the settlement should have no effect on its proved reserves and
should have no material adverse effect on the Company.
In the normal course of its business, the Company may periodically become
subject to actions threatened or brought by its investors or partners in
connection with the operation or development of its properties or the sale of
securities. Prior to 1992, the Company was engaged in the formation and
operation of oil and gas limited partnership interests. In 1992, the Company
ceased raising funds through such sales. In connection with its role as
managing general partner of certain limited partnerships, the Company may
become subject to actions brought by limited partners of these partnerships.
Certain of such limited partners have brought an action against the Company in
connection with the Company's operation of several of the limited partnerships
in which it acted as managing general partner. The plaintiffs seek actual and
punitive damages for alleged actions and omissions by the Company in operating
the partnerships and alleged misrepresentations made by the Company in selling
the limited partnership interests. The plaintiff's representative and the
Company have entered into an arbitration agreement to resolve these issues.
The Company intends to vigorously defend these actions and does not believe the
claims raised are meritorious. However, new developments could alter this
conclusion at any time.
The Company is also a defendant in an action brought by investors in a series
of unaffiliated limited partnerships for whose general partner the Company
provided all or a substantial portion of the drilling prospects and drilled and
operated a number of wells. The plaintiffs allege that the Company aided the
general partner in misrepresentations, fraud and breaches of fiduciary duties,
and seek an unspecified amount of compensatory and punitive damages. The
Company has to date vigorously defended these actions and does not believe the
claims raised are meritorious. However, the Company believes that in this
matter a prolonged defense may be less in the best interest of the Company than
a mutually acceptable settlement. Therefore, the Company has entered into
certain settlement discussions with the plaintiffs. The Company is hopeful of
an acceptable settlement being achieved as early as practicable. However,
given the number of plaintiffs involved and the substantial terms yet to be
negotiated, the Company is unable to predict or estimate the outcome of such
discussions, although the Company believes that a settlement could occur within
the fourth quarter of 1995. If settlement discussions result in no outcome
acceptable to the Company, then the Company will continue to defend the action
vigorously.
The Company is also subject to ordinary litigation that is incidental to its
business. The Company will be forced to expend time and financial resources to
defend or resolve all such matters, whether incidental or otherwise. However,
none of the above matters are expected to have a material adverse effect on the
Company.
NOTE 6 - TAXES ON INCOME
As of December 31, 1994, the Company had, for federal income tax purposes,
operating loss carryforwards of approximately $33.8 million, expiring in the
years 2003 through 2009. If the carryforwards are ultimately realized,
approximately $3.0 million will be credited to additional paid-in capital for
tax benefits associated with deductions for income tax purposes related to
stock options. The Company has available approximately $12.4 million and
approximately $1.5 million of net operating loss carryforwards for state and
foreign income tax purposes, respectively.
NOTE 7 - RUSSIA JOINT VENTURE
In December 1991, a joint venture agreement forming GEOILBENT, Limited, between
the Company and two Russian partners, Purneftegasgeologia and Purneftegas, was
approved by the appropriate regulatory bodies in Russia. GEOILBENT's charter
is to explore, develop, produce and market oil, condensate and natural gas from
the North Gubkinskoye field in the West Siberia region of Russia, approximately
two thousand miles northeast of Moscow. At the
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time of GEOILBENT's formation, the field, which covers an area approximately
15 miles long and 4 miles wide, had been delineated with over 60 wells, had
been production tested and had logged numerous oil and gas sands, but had
never been commercially produced. The joint venture agreement calls for the
Company to have a 34% working interest and the two Russian partners each to
have a 33% working interest in the joint venture. Production commenced during
the third quarter of 1993.
The Company is obligated under the terms of the GEOILBENT charter agreement
with its partners to make contributions of approximately $25.8 million by
December 31, 1995. At September 30, 1995, GEOILBENT had recognized Company
contributions of approximately $24.4 million. During 1994, a combination of
volatile crude oil prices and a relatively high export tariff (30 ECUs or
approximately $4.75 per Bbl), among other factors, constrained the pace of
development of the field by GEOILBENT. In September 1994, GEOILBENT received a
recommendation from the Inter-departmental Commission of the Ministry of Fuel
and Energy for a waiver for one-year from the export tariff. Such waiver was
received in March 1995, effective retroactively to January 1, 1995. GEOILBENT
expects to apply for renewal of the waiver for 1996 and 1997. (The export
tariff was reduced from 30 ECUs per ton to 20 ECUs per ton for 1995). However,
the Russian regulatory environment continues to be volatile and the Company is
unable to predict the future availability of the waiver. The Company continues
to evaluate the economic and political environment in Russia to assess the
potential effect on the Company and its Russian operations.
NOTE 8 - VENEZUELA JOINT VENTURE
On July 31, 1992, the Company and its partner, Venezolana de Inversiones y
Construcciones Clerico, C.A. ("Vinccler"), signed an operating service
agreement to reactivate and further develop three oil fields with Lagoven,
S.A., an affiliate of the national oil company, Petroleos de Venezuela, S.A.
The operating service agreement covers the Uracoa, Bombal and Tucupita fields
that comprise the South Monagas unit. Under the terms of the operating service
agreement, Benton-Vinccler, a corporation owned 80% by the Company and 20% by
Vinccler, is a contractor for Lagoven and is responsible for overall operations
of the South Monagas unit, including all necessary investments to reactivate
and develop the fields comprising the unit. Benton-Vinccler receives an
operating fee in U.S. dollars deposited into a U.S. commercial bank account for
each barrel of crude oil produced (subject to periodic adjustments to reflect
changes in a special energy index of the U.S. Consumer Price Index) and may be
reimbursed according to a prescribed formula in U.S. dollars for its capital
costs, provided that such operating fee and cost recovery fee cannot exceed the
maximum dollar amount per barrel set forth in the agreement (which amount is
periodically adjusted to reflect changes in the average of certain world crude
oil prices). The Venezuelan government maintains full ownership of all
hydrocarbons in the fields.
Pursuant to the original joint venture agreement, the Company and Vinccler each
owned a 50% interest in a joint venture which operated the South Monagas unit.
Effective January 1, 1994, the operating service agreement and the joint
venture assets and liabilities were transferred to Benton-Vinccler, a
corporation in which the Company and Vinccler each owned 50% of the capital
stock. On March 4, 1994, the Company acquired capital stock from Vinccler
representing an additional 30% ownership interest in Benton-Vinccler for $3
million in cash, $10 million in non-interest bearing notes payable (with a
present value of $9.2 million assuming a 10% interest rate) payable in various
installments over 24 months and 200,000 shares of the Company's common stock.
The excess of the purchase price over the book value of the 30% interest was
allocated to oil and gas properties.
Prior to the acquisition of the additional 30% interest in Benton-Vinccler, the
Company's interest in the Venezuelan joint venture was proportionately
consolidated based on its ownership interest. Effective with the acquisition
of the additional 30% interest in Benton-Vinccler, the Company has included
Benton-Vinccler in its consolidated financial statements, with the 20% owned by
Vinccler reflected as a minority interest.
<PAGE> 13
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
VENEZUELA
In July 1992, the Company and Vinccler, a Venezuelan construction and
engineering company, entered into an operating service agreement to reactivate
and further develop three oil fields with Lagoven, an affiliate of PDVSA.
Under the agreement, Benton-Vinccler, a corporation owned 80% by the Company
and 20% by Vinccler, receives an operating fee paid quarterly in U.S. dollars
(deposited directly into its U.S. bank account) for each Bbl of crude oil
produced (subject to periodic adjustments to reflect changes in the special
energy index of the U.S. Consumer Price Index) and may be reimbursed in U.S.
dollars for its capital expenditures, provided that such operating fee and
capital recovery fee cannot exceed the maximum fee amount per Bbl set forth in
the agreement (which amount will be periodically adjusted to reflect changes in
the average of certain world crude oil prices). Accordingly, the per Bbl
revenues and expenses are not comparable to the domestic and Russian operating
data and financial results.
UNITED STATES
Substantially all of the Company's domestic activity is focused in the Gulf
Coast region of Louisiana. The Company has acquired and earned significant
interests in Gulf Coast fields operated by Texaco Inc., Apache Corporation and
Oryx Energy Corporation by acquiring working interests in the West Cote Blanche
Bay Field and by completing 3-D seismic surveys and certain development
activities in order to earn the right to drill future wells as a working
interest partner in the Rabbit Island and Belle Isle Fields. See Note 5 of
Notes to Consolidated Financial Statements.
In 1993, the Company entered into an agreement with Tenneco Ventures
Corporation whereby Tenneco purchased a 50% interest in the Company's
operations in the Rabbit Island and Belle Isle Fields in Louisiana and was
given the right to participate as a 50% partner in all of the Company's future
activities in the Gulf Coast for five years, excluding the West Cote Blanche
Bay Field. In November 1994, the Company sold to Tenneco a 10.8% working
interest (24.9% of the Company's 43.3% working interest) in the West Cote
Blanche Bay Field for approximately $5.8 million and future consideration of up
to $3.7 million. The Company believes that its relationship with Tenneco will
provide it with the ability to accelerate the development of such fields, as
well as provide an alternative outlet to market its Gulf Coast natural gas
production. In March 1995, as part of an effort to focus on deeper gas and oil
zones at West Cote Blanche Bay, the Company, its affiliates and Tenneco sold
their working interest in certain depths (above approximately 10,575 feet) to
WRT Energy Corporation for an aggregate purchase price of $20 million. Of the
aggregate purchase price, the Company received approximately $14.7 million.
RUSSIA
The Company is a partner in GEOILBENT, a Russian-American joint venture which
develops, produces and markets oil from the North Gubkinskoye Field in the West
Siberia region of Russia. GEOILBENT's production from the field is exported
and sold for currency freely convertible into U.S. dollars. In the event of
any distribution by GEOILBENT, the Company has the right to receive such
distribution in the form of freely convertible currency (provided that under
certain circumstances distributions may be made in the form of export quality
Urals grade crude). The Company will not receive distributions from GEOILBENT
until it has fulfilled its financial contribution requirements under the terms
of the GEOILBENT joint venture and charter fund agreements. As of September
30, 1995, GEOILBENT has recognized Company contributions of approximately $24.4
million of a total of $25.8 million the Company is required to contribute by
the end of 1995 pursuant to the GEOILBENT agreements. The Company expects
that after it has satisfied such contribution commitments, it will not receive
any significant distributions from GEOILBENT for several years because
substantially all of the money received by GEOILBENT from the North Gubkinskoye
Field will be reinvested to fund future development activities. The joint
venture agreement grants the Company a 34% interest and each of the two Russian
partners a 33% interest in GEOILBENT. The Company's investment in GEOILBENT is
proportionately consolidated based on the Company's ownership interest.
During 1994, a combination of volatile crude oil prices and a relatively high
export tariff (30 ECUs or approximately $4.75 per Bbl), among other factors,
constrained the pace of development of the field by GEOILBENT. In September
1994, GEOILBENT received a recommendation from the Inter-departmental
Commission of the Ministry of Fuel and Energy for a waiver from the export
tariff for one-year. Such waiver was received in March 1995, effective
retroactively to January 1, 1995. GEOILBENT expects to apply for renewal of
the waiver for 1996 and 1997. (The
<PAGE> 14
14
export tariff was reduced from 30 ECUs per ton to 20 ECUs per ton for 1995).
However, the Russian regulatory environment continues to be volatile and the
Company is unable to predict the availability of the waiver during the
remainder of 1995 or for the future. The Company continues to evaluate the
economic and political environment in Russia to assess the potential effect on
the Company and its Russian operations.
GROWTH IN INTERNATIONAL ACTIVITIES
The Company's costs of operations in Venezuela and Russia in 1993 and 1994
included certain fixed or minimum office, administrative, legal and personnel
related costs and certain start up costs, including short term facility
rentals, organizational costs, contract services and consultants, etc. The
operating and overhead costs are expected to grow over time as operations
increase, but in the aggregate to become less significant on a unit of
production basis. The start up costs are expected to decrease over time both
in the aggregate and on a per unit basis. In Venezuela, for the year ended
December 31, 1993, the operating costs and general and administrative expenses
were $7.26 and $2.25 per Bbl, respectively. However, for the year ended
December 31, 1994 the operating costs and general and administrative expenses
decreased to $1.51 and $0.66 per Bbl, respectively. For the period ended
September 30, 1995, operating costs and general and administrative expenses
further decreased to $1.33 and $0.60 per Bbl, respectively. In Russia, for the
year ended December 31, 1993, the operating costs and general and
administrative expenses were $16.22 and $12.96 per Bbl, respectively,
decreasing to $9.63 and $1.58 per Bbl, respectively, for the year ended
December 31, 1994. For the period ended September 30, 1995, operating costs
and general and administrative expenses further decreased to $2.70 and $1.16
per Bbl, respectively. The Company's Venezuelan operations grew considerably
during 1994 and are expected to grow for some time thereafter, and its
operating costs and general and administrative expenses are expected to
increase in magnitude but to remain relatively low or decrease on a per unit
basis. The Company's Russian operations grew less significantly during 1994.
Consequently, the operating costs and general and administrative costs grew
less rapidly than those in Venezuela; however, the per unit costs are expected
to decrease over time. Also, capital expenditures through 1993 in both
Venezuela ($8 million) and Russia ($17 million) focused more on start-up
infrastructure items such as roads, pipelines, and facilities rather than
drilling. Since the beginning of 1994, a higher proportion of capital
expenditures ($54.3 million and $19.1 million in Venezuela and Russia,
respectively) has been and will continue to be spent on drilling and production
activities, particularly in Venezuela. Future infrastructure costs will be
related to enhancing production rather than start-up operations.
OTHER
The Company follows the full-cost method of accounting for its investments in
oil and gas properties. The Company capitalizes all acquisition, exploration,
and development costs incurred. The Company accounts for its oil and gas
properties using cost centers on a country by country basis. Proceeds from
sales of oil and gas properties are credited to the full-cost pools.
Capitalized costs of oil and gas properties are amortized within the cost
centers on an overall unit-of-production method using proved oil and gas
reserves as determined by independent petroleum engineers. Costs amortized
include all capitalized costs (less accumulated amortization), the estimated
future expenditures (based on current costs) to be incurred in developing
proved reserves, and estimated dismantlement, restoration and abandonment
costs. See Note 1 of Notes to Consolidated Financial Statements.
The following discussion of the Company's results of operations for the nine
months ended September 30, 1995 and 1994 and financial condition as of
September 30, 1995 and December 31, 1994 should be read in conjunction with the
Company's Consolidated Financial Statements and related notes thereto included
in PART I, Item 1, "FINANCIAL STATEMENTS."
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The Company had revenues of $18,289,871 for the three months ended September
30, 1995. Expenses incurred during the period consisted of lease operating
costs and production taxes of $2,957,667, depletion, depreciation and
amortization expense of $4,722,583, general and administrative expense of
$2,700,198, interest expense of $2,354,167, income tax expense of $1,308,192
and minority interest of $1,342,690. The net income for the period was
$2,904,374 or $0.11 per share.
<PAGE> 15
15
By comparison, the Company had revenues of $9,573,098 for the three months
ended September 30, 1994. Expenses incurred during the period consisted of
lease operating costs and production taxes of $2,033,348, depletion,
depreciation and amortization expense of $2,561,518, general and administrative
expense of $1,305,064, interest expense of $826,335, income tax expense of
$270,000, and a minority interest of $750,836. The net income for the period
was $1,825,997 or $0.07 per share.
Revenues increased $8,716,773, or 91%, during the three months ended September
30, 1995 compared to the corresponding period of 1994 primarily due to
increased oil sales in Venezuela and Russia, increased domestic gas sales and
gain on exchange rates. The increase was partially offset, however, by reduced
oil sales due to the sale of the Company's working interest in certain depths
(above approximately 10,575 feet) in the West Cote Blanche Bay Field on March
31, 1995. Sales quantities for the three months ended September 30, 1995, from
Venezuela and Russia were 1,453,717 Bbl and 217,056 Bbl, respectively, compared
to 659,607 Bbl and 62,675 Bbl, respectively, for the corresponding period of
the preceding year. Prices per Bbl of crude oil averaged $8.75 (pursuant to
terms of an operating service agreement) from Venezuela and $11.06 from Russia,
for the period ended September 30, 1995 compared to $8.94 from Venezuela and
$12.46 from Russia, for the corresponding period of the preceding year.
Domestic sales quantities for the three months ended September 30, 1995 were
10,462 Bbl of crude oil and condensate and 1,217,813 Mcf of natural gas
compared to 55,763 Bbl of crude oil and condensate and 699,078 Mcf of natural
gas for the three months ended September 30, 1994. Domestic prices for crude
oil and natural gas averaged $13.61 per Bbl and $1.50 per Mcf during the three
months ended September 30, 1995 compared to $14.41 per Bbl and $1.85 per Mcf
during the corresponding period of 1994. The Company also reported $857,354 in
exchange rate gains during 1995 as a result of certain Venezuelan national debt
trading activities permitted by the Venezuelan government which resulted in
effective rates of exchange between the U.S. dollar and the Venezuelan bolivar
in excess of the officially controlled rate of exchange. (See Effects of
Inflation, Changing Prices and Foreign Exchange Rates.) Additionally, during
the three months ended September 30, 1995, the Company incurred a loss of
$109,227 related to a commodity hedge agreement compared to $152,628 in the
corresponding period of the preceding year.
Lease operating costs and production taxes increased $924,319 or 45%, during
the three months ended September 30, 1995 compared to the corresponding period
in 1994, primarily due to the growth of the Company's Venezuelan and Russian
operations. The increase was partially offset by reduced operating costs at
the West Cote Blanche Bay Field as a result of the sale of the Company's
working interest in certain depths (above approximately 10,575 feet) on March
31, 1995. Depletion, depreciation and amortization increased $2,161,065, or
84%, during the three months ended September 30, 1995 compared to the
corresponding period in 1994 primarily due to increased oil production in
Venezuela and in Russia. Depletion expense per barrel of oil equivalent
produced from Venezuela, United States and Russia during the three months ended
September 30, 1995 was $2.00, $5.20 and $2.82, respectively, compared to $1.77,
$6.41 and $3.90 in Venezuela, United States and Russia, respectively, during
the corresponding period of the preceding year. The increase in general and
administrative expense of $1,395,134, or 107%, during the three months ended
September 30, 1995 compared to the corresponding period in 1994 was primarily
due to the Company's increased corporate activity associated with the growth of
the Company's business. Interest expense increased $1,527,832, or 185%, during
the three months ended September 30, 1995 compared to the corresponding period
in 1994 primarily due to increased borrowing to fund operations in Venezuela
and Russia. Income tax expense in Venezuela and Russia was $1,073,901 and
$234,291, respectively, for the period ended September 30, 1995 compared to
$270,000 in Venezuela for the corresponding period in 1994.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The Company had revenues of $44,160,267 for the nine months ended September 30,
1995. Expenses incurred during the period consisted of lease operating costs
and production taxes of $8,244,738, depletion, depreciation and amortization
expense of $11,195,985, general and administrative expenses of $6,583,804,
interest expense of $5,715,208, income tax expense of $3,279,294, and minority
interest of $3,085,263. The net income for the period was $6,055,975 or $0.23
per share.
By comparison, the Company had revenues of $21,733,123 for the nine months
ended September 30, 1994. Expenses incurred during the period consisted of
lease operating costs and production taxes of $5,981,616, depletion,
depreciation and amortization expense of $5,982,553, general and administrative
expense of $3,749,833, interest expense of $2,423,028, income tax expense of
$270,000, and minority interest of $1,498,433. Net income for the period was
$1,827,660 or $0.07 per share.
<PAGE> 16
16
Revenues increased $22,427,144 or 103%, during the nine months ended September
30, 1995 compared to the corresponding period of 1994 primarily due to
increased oil sales in Venezuela and Russia and increased domestic gas sales.
The increase was partially offset by the sale of the Company's working interest
in certain depths (above approximately 10,575 feet) in the West Cote Blanche
Bay Field on March 31, 1995. Sales quantities for the nine months ended
September 30, 1995, from Venezuela and Russia were 3,542,181 Bbl and 490,960
Bbl, respectively, compared to 1,581,441 Bbl and 156,877 Bbl, respectively, for
the corresponding period of the preceding year. Prices per Bbl of crude oil
averaged $9.09 (pursuant to the terms of an operating service agreement) from
Venezuela and $12.25 from Russia, for the nine month period ended September 30,
1995 compared to $8.42 from Venezuela and $11.42 from Russia for the
corresponding period of the prior fiscal year. Domestic sales quantities for
the nine months ended September 30, 1995 were 55,422 Bbl of crude oil and
condensate and 2,117,399 Mcf of natural gas compared to 172,652 Bbl of crude
oil and condensate and 1,254,973 Mcf of natural gas for the nine months ended
September 30, 1994. Domestic prices for crude oil and natural gas averaged
$15.76 per Bbl and $1.56 per Mcf during the nine months ended September 30,
1995 compared to $14.36 per Bbl and $1.89 per Mcf during the corresponding
period of 1994. The Company also reported $857,354 in exchange rate gains
during 1995 as a result of certain Venezuelan national debt trading activities
permitted by the Venezuelan government which resulted in effective rates of
exchange between the U.S. dollar and the Venezuelan bolivar in excess of the
officially controlled rate of exchange. (See Effects of Inflation, Changing
Prices and Foreign Exchange Rates.) Additionally, during the nine months ended
September 30, 1995, the Company incurred a loss of $566,668 related to a
commodity hedge agreement compared to $252,784 in the corresponding period of
the preceding year.
Lease operating costs and production taxes increased $2,263,122, or 38%, during
the nine months ended September 30, 1995 compared to the corresponding period
in 1994, primarily due to the growth of the Company's Venezuelan and Russian
operations. The increase was partially offset by the sale of the Company's
interest in certain depths (above 10,575 feet) in the West Cote Blanche Bay
Field. Depletion, depreciation and amortization increased $5,213,432, or 87%
during the nine months ended September 30, 1995 compared to the corresponding
period in 1994 primarily due to increased oil production in Venezuela and
Russia. Depletion expense per barrel of oil equivalent produced from
Venezuela, United States and Russia during the nine months ended September 30,
1995 was $1.99, $6.12 and $2.85, respectively, compared to $1.77, $6.47 and
$3.61, respectively, during the corresponding period of the preceding year.
The increase in general and administrative expenses of $2,833,971 or 76%,
during the nine months ended September 30, 1995 compared to the corresponding
period in 1994 was primarily due to the Company's increased corporate activity
associated with the growth of the Company's business. Interest expense
increased $3,292,180, or 136 %, during the nine months ended September 30, 1995
compared to the corresponding period in 1994 primarily due to increased
borrowing to fund operations in Venezuela and Russia. Income tax expense in
Venezuela and Russia was $2,770,594 and $508,700 for the period ended September
30, 1995 compared to $270,000 in Venezuela for the corresponding period in
1994.
CAPITAL RESOURCES AND LIQUIDITY
The oil and gas industry is a highly capital intensive business. The Company
requires capital principally to fund the following costs: (i) drilling and
completion costs of wells and the cost of production and transportation
facilities; (ii) capital expenditures under certain agreements for geological,
geophysical and seismic costs; (iii) purchase of leases and other interests in
oil and gas producing properties; and (iv) general and administrative expenses.
The amount of available capital will affect the scope of the Company's
operations and the rate of its growth.
The net funds raised and/or used in operating, investing and financing
activities for the nine months ended September 30, 1995 and 1994 are summarized
in the following table and discussed in further detail below.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Net cash provided by operating activities $ 19,266,760 $ 6,349,225
Net cash used in investing activities (32,513,679) (45,502,140)
Net cash provided by financing activities 13,834,200 16,428,536
-------------- -------------
Net increase (decrease) in cash $ 587,281 $ (22,724,379)
============== =============
</TABLE>
<PAGE> 17
17
The Company has issued senior unsecured notes totalling $35 million. The
senior unsecured notes, $15 million of which mature in September 2002 and $20
million of which mature in June 2007, bear interest at 13% per annum, with
annual principal payments of $3 million due on September 30, 1998 through
September 30, 2002 and $4 million due on June 30, 2003 through June 30, 2007.
The Company has a secured credit facility which provides for borrowings up to
$15 million, with the initial available principal limited to $10 million.
Borrowings under this facility, which expires in December 1999, are secured by
the Company's domestic reserves. At the Company's option, borrowings bear
interest at either a floating rate (higher of prime rate plus 3% or the Federal
Funds Rate plus 5%) or a fixed rate (rate of interest at which deposits of
dollars are available to lender in the interbank eurocurrency market plus
4.5%). At September 30, 1995, $5 million was outstanding under the credit
facility agreement, with no additional borrowing capacity available.
Both the senior unsecured notes and the secured credit facility provide for
certain limitations on liens, dividends, capital expenditures, sales of assets
and mergers, and each contain financial covenants including a minimum ratio of
current assets to current liabilities (not less than 1.1 to 1.0). The secured
credit facility also includes a maximum ratio of certain liabilities to net
worth (cannot exceed .60 to 1.0) and to 100% of U.S. and 10% of Venezuelan oil
and gas reserves (cannot exceed 1.0 to 1.0). The senior unsecured notes also
include a maximum ratio of funded liabilities to net worth (cannot exceed .60
to 1.0) and to 100% of U.S. and 10% of Venezuelan oil and gas reserves (cannot
exceed 1.0 to 1.0). At September 30, 1995, the Company was in compliance with
all such ratios.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
During the nine months ended September 30, 1995, the Company had capital
expenditures of $47.9 million, of which $31.1 million related to the
development of the South Monagas Unit in Venezuela, $10.5 million related to
the development of the North Gubkinskoye Field in Russia and $6.3 million was
attributable to the United States and other projects.
During the nine months ended September 30, 1995, the Company derived proceeds
of approximately $15.4 million from the sale of certain property interests in
the West Cote Blanche Bay and Umbrella Point Fields, $22.7 million from
additional borrowings in the United States and Russia and $0.7 million from the
exercise of stock options and warrants.
The Company has borrowed $5 million under a $15 million revolving credit
facility secured in part by mortgages on the Company's U.S. properties and in
part by a guarantee by a financial institution. As a result of the sale of
certain property interests in the West Cote Blanche Bay Field in March 1995,
the Company does not expect to borrow further against this facility until it
increases the security value of its U.S. properties or increases the guarantee
from the financial institution.
On June 30, 1995, the Company issued $20 million in senior unsecured notes due
June 30, 2007, with interest at 13% per annum. Interest is payable
semi-annually on June 30 and December 31 beginning December 1995. Annual
principal payments of $4 million are due on June 30 of each year beginning on
June 30, 2003. Early payment of the notes could result in a substantial
prepayment penalty. The note agreement contains financial covenants including
a minimum ratio of current assets to current liabilities and a maximum ratio of
funded liabilities to net worth and to domestic oil and gas reserves. The note
agreement also provides for limitations on liens, additional indebtedness,
certain capital expenditures, dividends, sales of assets and mergers.
Additionally, in connection with the issuance of the notes, the Company issued
warrants entitling the holder to purchase 125,000 shares of common stock at
$17.09 per share, subject to adjustment in certain circumstances, that are
exercisable on or before June 30, 2007.
The Company is currently in discussions with several financial institutions in
Venezuela and the United States to restructure or refinance a portion or all of
Benton-Vinccler's existing indebtedness and to provide further financing for a
portion of Benton-Vinccler's capital expenditures or working capital
requirements. Such financing may have no or limited recourse to the Company,
in which case restricted cash securing Benton-Vinccler's existing indebtedness
in amounts equal to any such refinanced amounts would become unrestricted.
There is no assurance that such financing will become available on terms
acceptable to Benton-Vinccler or that such financing will result in the
reclassification of any of the Company's restricted cash.
<PAGE> 18
18
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
During the nine months ended September 30, 1994, the Company had capital
expenditures of $24.4 million, of which $13.6 million was attributable to the
development of the South Monagas Unit in Venezuela, $4.4 million related to
drilling activity in the West Cote Blanche Bay Field, $5.3 million related to
the development of the North Gubkinskoye Field in Russia and $1.1 million was
attributable to other projects. In addition, the Company acquired capital
stock from Vinccler representing an additional 30% ownership interest in
Benton-Vinccler for $3 million cash, $10 million in non-interest bearing notes
payable (with a present value of $9.2 million assuming a 10% interest rate) and
200,000 shares of the Company's common stock.
During the first nine months of 1994, the Company derived net proceeds of $15
million from the issuance of long-term notes and approximately $24.7 million
from short term borrowings used to fund operations in Venezuela and repay $23.2
million of commercial paper, short-term borrowings and notes payable.
VENEZUELAN OPERATIONS
In February 1994, the Company and Benton-Vinccler entered into a loan
arrangement with Morgan Guaranty. Borrowings under this loan arrangement are
secured by cash collateral in the form of a time deposit from the Company. The
loan arrangement contains no restrictive covenants and no financial ratio
requirements. The principal amount of such loan outstanding at September 30,
1995 was $19.3 million.
In March 1994, the Company acquired capital stock from Vinccler representing an
additional 30% ownership interest in Benton-Vinccler and thus increased its
ownership from 50% to 80%. The purchase price was $3.0 million in cash, the
issuance of non-interest bearing promissory notes with a face value of $10.0
million (present value of $9.2 million) payable in various installments through
January 1996 and the issuance of 200,000 shares of the Company's common stock.
At September 30, 1995, the present value of the notes outstanding was
approximately $2.0 million. In addition, the Company has agreed to arrange for
all of Benton-Vinccler's future financing and to provide any further collateral
or guarantees if required for such financing.
To date, Benton-Vinccler has acquired approximately $11.6 million of drilling
and production equipment from trading companies and suppliers under agreements
which include payment terms ranging from 12 to 24 months at interest rates
varying from 6.7 to 13.5%. The Company expects that other such trade financing
may be available to Benton-Vinccler.
The Company has budgeted approximately $12-15 million for capital expenditures
in Venezuela during the remainder of 1995, which will be financed from
Benton-Vinccler's cash flow from operations and certain portions of the
Company's recent long-term borrowings. The Company is presently pursuing
several options for working capital financing for Benton-Vinccler. There can
be no assurance that such financing will be available on terms acceptable to
Benton-Vinccler. To the extent such working capital financing cannot be
secured, Benton-Vinccler will fund its operations from the Company's long-term
facilities and cash flow from operations, which may result in rescheduled or
reduced capital expenditures.
In June 1994, the Venezuelan government, amid economic uncertainties and bank
crises, implemented certain exchange and price controls. Currently, many of
these controls remain in place, with no indication of when or how much such
controls will be lifted or relaxed. To date, neither the current economic
uncertainties nor the currency exchange and price controls have had an adverse
effect on the Company's operations in Venezuela, although the controls have
limited the potential sources of credit financing for Benton-Vinccler's growth.
However, as described below, continuation of exchange rate controls in an
inflationary environment will likely have an adverse affect on Benton-Vinccler.
At September 30, 1995, $13.4 million of the Company's accounts receivable were
attributable to its Venezuelan operations. The Company continues to evaluate
the economic and political environment in Venezuela to assess the potential
effect on the Company and its Venezuelan operations.
RUSSIAN OPERATIONS
Under the terms of GEOILBENT's joint venture agreement, the Company has
committed to make cumulative equity contributions totaling approximately $25.8
million by December 31, 1995. As of September 30, 1995, GEOILBENT has
recognized Company contributions since inception totalling approximately
$24.4 million. The Company expects
<PAGE> 19
19
to contribute a total of $1-2 million to GEOILBENT during the remainder of
1995. The Company continues to retain Morgan Guaranty as a financial advisor
to develop appropriate financial plans and to determine potential funding
sources for the venture.
In June 1994, GEOILBENT entered into a payment advance agreement with NAFTA
Moscow, the export agency which markets GEOILBENT's oil production to
purchasers in Europe. The $2.5 million payment advance, which bore an
effective discount rate of 12%, was repaid through withholdings from oil sales
on a monthly basis through December 1994. During the nine months ended
September 30, 1995, GEOILBENT received $5.0 million in production payment
advances pursuant to a similar agreement with NAFTA Moscow containing similar
terms. At September 30, 1995, the Company's share of the outstanding liability
was approximately $1.0 million.
In August 1994, GEOILBENT entered into an agreement with International Moscow
Bank for a $4 million loan with the following terms: 14 monthly payments,
interest at LIBOR plus 7.5%, with interest only payments for the first four
months and monthly principal and interest payments thereafter. In connection
with this agreement, the Company provided to International Moscow Bank a
guarantee of payment under which the Company has agreed to pay such loan in
full if GEOILBENT fails to make the scheduled payments. In March 1995,
GEOILBENT's credit facility with International Moscow Bank was expanded to $6
million, with interest only payments for 3 months and monthly principal and
interest payments thereafter. The Company has similarly guaranteed this
indebtedness. At September 30, 1995, the Company's share of the outstanding
balance was $0.9 million.
ANTICIPATED CAPITAL REQUIREMENTS
The Company anticipates funding its total 1995 capital expenditures, which it
expects to be approximately $60-65 million, from cash flow from operations,
sales of property interests, project and trade financing sources or the
issuance of debt or equity securities. In the first nine months of 1995, the
Company received approximately $38.1 million from the issuance of debt
securities and from sales of property interests and generated approximately
$19.3 million from net cash provided by operating activities. These proceeds
have been or will be used to fund certain portions of the Company's 1995
drilling and development activities and for working capital and debt service
purposes. There can be no assurance that financing for the remaining portion
of the Company's capital expenditure plan will become available under terms and
conditions acceptable to the Company, which may result in rescheduled or
reduced capital expenditures in any or all three of the Company's principal
areas of operations.
EFFECTS OF INFLATION, CHANGING PRICES AND FOREIGN EXCHANGE RATES
The Company's results of operations and cash flow are affected by changing oil
and gas prices. If the price of oil and gas increases, there could be a
corresponding increase in the cost to the Company for drilling and related
services, as well as an increase in revenues. Continued fluctuating oil and
gas prices may affect the Company's total planned development activities and
capital expenditure program.
Within the United States, inflation has had a minimal effect on the Company.
During periods in which the rate of inflation in Venezuela or Russia exceeds
the rate of devaluation of their local currencies to the U.S. Dollar, the
Company's costs of operations in those countries are adversely affected by
inflation, but the Company cannot predict the future extent of such effect.
With respect to GEOILBENT, substantially all of the sources of funds, including
the Company's contributions and the proceeds from oil sales and credit
financings, are denominated in U.S. dollars, which may help to limit the impact
of inflation in Russia.
With respect to Benton-Vinccler, the Venezuelan government has imposed controls
over the exchange rate between the U.S. dollar and the Venezuelan bolivar,
freezing the rate at 170 bolivars per dollar and limiting the access to dollars
in exchange for bolivars. Although substantially all of Benton-Vinccler's
sources of funding are denominated in U.S. dollars, if exchange rate controls
continue in Venezuela, then inflation will likely have an adverse affect on
Benton-Vinccler. Beginning in the third quarter of 1995, however, in part in
reaction to pent up demand in Venezuela for dollars, the government has allowed
to exist an unofficial secondary currency market by permitting deeply
discounted purchases of dollar denominated Venezuelan national debt (Brady
Bonds) using bolivars in the Caracas stock market. During the third quarter of
1995, Benton-Vinccler utilized the Brady Bond market mechanism to convert $1.87
million dollars into 463.7 million bolivars, realizing an effective conversion
rate of 248 bolivars per dollar, which helped offset the effect of inflation in
Venezuela during 1995. Benton-Vinccler expects to continue to utilize this
mechanism for substantially all its conversions of dollars into bolivars to
satisfy its bolivar denominated obligations as long as the combination of
exchange controls and available secondary markets exist, although there
<PAGE> 20
20
is no certainty as to how long such conditions will continue or to what extent
the secondary market conversion rate will exceed the officially controlled
exchange rate.
Effective May 1, 1994, the Company entered into a commodity hedge agreement
designed to reduce a portion of the Company's risk from oil price movements.
Pursuant to the hedge agreement, with respect to the period from May 1, 1994
through the end of 1996, the Company will receive $16.82 per Bbl and the
Company will pay the average price per Bbl of West Texas Intermediate Light
Sweet Crude Oil ("WTI") (determined in the manner set forth in the hedge
agreement). Such payments will be made with respect to production of 1,250 Bbl
of oil per day for 1995 and 1,500 Bbl of oil per day for 1996. During the
quarter ended September 30, 1995, the average price per Bbl of WTI was $17.77
and the Company's net expense for the nine months was $566,668. Total expense
for the year ended December 31, 1994 under the hedge agreement was $328,868.
The Company's oil production is not materially affected by seasonality. The
returns under the hedge agreement are affected by world-wide crude oil prices,
which are subject to wide fluctuation in response to a variety of factors that
are beyond the control of the Company.
To the extent practicable, while oil sales and financings have been in U.S.
dollars, local transactions in Russia and Venezuela are conducted in local
currency. Benton-Vinccler and GEOILBENT pay their employees and purchase
certain equipment and services in local currency. This allows both
Benton-Vinccler and GEOILBENT to maximize benefits when possible from the
current favorable exchange rates. Payments to Benton-Vinccler under the
Operating Service Agreement and payments to GEOILBENT for delivery and sale of
oil are made in U.S. dollars or currency that is freely exchangeable for U.S.
dollars. There are no restrictions in either Venezuela or Russia that affect
the conversion of U.S. dollars into local currency. However, during 1994,
Venezuela implemented currency exchange controls which significantly limit the
ability to convert local currency into U.S. dollars. Because payments to
Benton-Vinccler are made in U.S. dollars into its United States bank account,
and Benton-Vinccler is not required to repatriate those payments back into
Venezuela, the currency exchange controls have not had a material adverse
effect on Benton-Vinccler or the Company. As described above, secondary
exchange market mechanisms existed during the third quarter which provided
certain relief to the exchange controls, but there can be no assurance as to
the continued availability or extent of such relief.
During the nine months ended September 30, 1995, GEOILBENT had substantial net
monetary liabilities denominated in Russian rubles. The ruble value declined
significantly during the first quarter of 1995, but strengthened in the second
and third quarters. As a result, the Company realized net foreign exchange
losses of $84,326 during the period ended September 30, 1995. The Company
cannot predict the extent of future gains or losses, but attempts to minimize
its exposure to losses by managing its net monetary assets and liabilities to
the extent possible.
<PAGE> 21
21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of the Stockholders of the Company held on
July 26, 1995, the following items were voted upon by the
Stockholders:
<TABLE>
<CAPTION>
1. Election of Directors
VOTES AGAINST/ ABSTENTIONS/
VOTES IN FAVOR WITHHELD BROKER NON-VOTES
--------------- -------------- -----------------
<S> <C> <C> <C> <C>
Alex E. Benton 22,324,573 123,136 0
Bruce M. McIntrye 22,325,323 122,386 0
Michael B. Wray 22,318,757 128,952 0
Richard W. Fetzner 22,322,050 125,659 0
William H. Gumma 22,324,990 122,719 0
2. To approve an amendment to the Directors' Stock Option Plan to
increase the number of shares issuable pursuant to the plan
from 200,000 shares to 400,000 shares.
ABSTENTIONS/
VOTES IN FAVOR VOTES AGAINST BROKER NON-VOTES
--------------- ------------- ----------------
18,034,112 4,188,731 224,866
3. To approve and ratify the appointment of Deloitte & Touche LLP as
independent auditors for the fiscal year ending December 31,
1995:
ABSTENTIONS/
VOTES IN FAVOR VOTES AGAINST BROKER NON-VOTES
--------------- ------------- ----------------
22,273,604 90,033 84,082
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of per share earnings.
(b) Reports on Form 8-K.
On April 17, 1995, the Company filed a report on Form 8-K under
Item 2. "Acquisition or Disposition of Assets" regarding the
sale of working interests in the West Cote Blanche Bay Field in a
series of two similar transactions and Item 7. "Financial
Statements and Exhibits" containing pro-forma financial
information and purchase and sale agreements.
On May 31, 1995, the Company filed a report on Form 8-K regarding
the adoption of a shareholder rights plan.
</TABLE>
<PAGE> 22
22
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BENTON OIL AND GAS COMPANY
Dated: November 13, 1995 By: /S/ A. E. Benton
----------------------------
A. E. Benton,
President
Dated: November 13, 1995 By: /S/ David H. Pratt
-----------------------------
David H. Pratt,
Vice President of Finance,
Chief Financial Officer
<PAGE> 1
<TABLE>
EXHIBIT 11.1
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended September 30,
---------------------------------
1995 1994
------------ -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
--------------------------
Net income attributable to common stock $ 2,904,374 $ 1,825,997
============ =============
Weighted average number of common shares outstanding 25,112,294 24,887,728
============ =============
Primary earnings per share $ 0.12 $ 0.07
============ =============
ADDITIONAL PRIMARY COMPUTATION (a)
------------------------------
Net income attributable to common stock $ 2,904,374 $ 1,825,997
============ ============
Shares:
Weighted average number of common shares outstanding 25,112,294 24,887,728
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased at the average
market price during the period with the proceeds from exercise
of such options 1,593,790 532,988
------------ ------------
Primary weighted average number of common shares outstanding
as adjusted 26,706,084 25,420,716
============ ============
Primary earnings per share (b) $ 0.11 $ 0.07
============ ============
ASSUMING FULL DILUTION
----------------------
Net income attributable to common stock $ 2,904,374 $ 1,825,997
============ ============
Shares:
Weighted average number of common shares outstanding 25,112,294 24,887,728
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased at the ending
market price during the period with the proceeds from exercise
of such options 1,593,790 541,100
------------ ------------
Weighted average number of common shares outstanding as
adjusted 26,706,084 25,428,828
============ ============
Earnings per common share assuming full dilution (b) $ 0.11 $ 0.07
============ ============
ADDITIONAL FULLY DILUTED COMPUTATION
------------------------------------
Additional adjustment to net income as adjusted per fully
diluted computation above:
Net income attributable to common stock $ 2,904,374 $ 1,825,997
Add after tax interest expense attributable to convertible notes 90,700 93,240
Add after tax interest expense attributable to convertible
debentures 113,200 128,560
------------ ------------
Net income as adjusted $ 3,108,274 $ 2,047,797
============ ============
Additional adjustment to weighted average number of shares
outstanding:
Weighted average number of common shares outstanding 25,112,294 24,887,728
Add shares assuming conversion of convertible debentures 572,529 650,237
Add shares assuming conversion of convertible notes 386,650 397,477
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased at the ending
market price during the period with the proceeds from exercise
of such options 1,593,790 541,100
-------------- --------------
Weighted average number of common shares outstanding as
adjusted 27,665,263 26,476,542
============== ==============
Earnings per common share assuming full dilution (c) $ 0.11 $ 0.08
============== ==============
<FN>
(a) These figures agree with the related amounts in the statements of
operations.
(b) This calculation is submitted in accordance with Regulations S-K
Item 601(b)(11).
(c) This calculation is submitted in accordance with Regulation S-K Item
601 (b)(11) although it is contrary to paragraph 40 of APB Opinion
No. 15 because it produces an anti-dilutive result.
</TABLE>
<PAGE> 2
<TABLE>
EXHIBIT 11.1
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
--------------------------
Net income attributable to common stock $ 6,055,975 $ 1,827,660
============ ============
Weighted average number of common shares outstanding 25,026,099 24,835,778
============ ============
Primary earnings per share $ 0.24 $ 0.07
============ ============
ADDITIONAL PRIMARY COMPUTATION (a)
------------------------------
Net income attributable to common stock $ 6,055,975 $ 1,827,660
============ ============
Shares:
Weighted average number of common shares outstanding 25,026,099 24,835,778
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased at the average
market price during the period with the proceeds from exercise
of such options 1,515,820 407,031
------------ ------------
Primary weighted average number of common shares outstanding
as adjusted 26,541,919 25,242,809
============ ============
Primary earnings per share (b) $ 0.23 $ 0.07
============ ============
ASSUMING FULL DILUTION
----------------------
Net income attributable to common stock $ 6,055,975 $ 1,827,660
============ ============
Shares:
Weighted average number of common shares outstanding 25,026,099 24,835,778
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased at the ending
market price during the period with the proceeds from exercise
of such options 1,675,329 457,671
------------ ------------
Weighted average number of common shares outstanding as
adjusted 26,701,428 25,293,449
============ ============
Earnings per common share assuming full dilution (b) $ 0.23 $ 0.07
============ ============
ADDITIONAL FULLY DILUTED COMPUTATION
------------------------------------
Additional adjustment to net income as adjusted per fully
diluted computation above:
Net income attributable to common stock $ 6,055,975 $ 1,827,660
Add after tax interest expense attributable to convertible notes 272,100 279,720
Add after tax interest expense attributable to convertible
debentures 339,600 385,680
------------ ------------
Net income as adjusted $ 6,667,675 $ 2,493,060
Additional adjustment to weighted average number of shares
outstanding:
Weighted average number of common shares outstanding 25,026,099 24,835,778
Add shares assuming conversion of convertible debentures 572,549 650,237
Add shares assuming conversion of convertible notes 386,650 397,477
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased at the ending
market price during the period with the proceeds from exercise
of such options 1,675,329 457,671
------------ ------------
Weighted average number of common shares outstanding as
adjusted 27,660,627 26,341,163
============ ============
Earnings per common share assuming full dilution (c) $ 0.24 $ 0.09
============ ============
(a) These figures agree with the related amounts in the statements of
operations.
(b) This calculation is submitted in accordance with Regulations S-K
Item 601(b)(11).
(c) This calculation is submitted in accordance with Regulation S-K Item
601 (b)(11) although it is contrary to paragraph 40 of APB Opinion
No. 15 because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,779,849
<SECURITIES> 0
<RECEIVABLES> 24,837,707
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,578,857
<PP&E> 176,246,286
<DEPRECIATION> 31,235,459
<TOTAL-ASSETS> 208,144,348
<CURRENT-LIABILITIES> 54,812,418
<BONDS> 52,606,620
<COMMON> 251,272
0
0
<OTHER-SE> 95,645,115
<TOTAL-LIABILITY-AND-EQUITY> 208,144,348
<SALES> 41,816,499
<TOTAL-REVENUES> 44,160,267
<CGS> 19,440,743
<TOTAL-COSTS> 26,024,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,715,208
<INCOME-PRETAX> 12,420,532
<INCOME-TAX> 3,279,294
<INCOME-CONTINUING> 6,055,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,055,975
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
</TABLE>
