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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 June 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 August 11, 1995, 25,116,739 shares of the
Registrant's Common Stock were outstanding.
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2
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 1995
(Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Six
Months Ended June 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the Three
Months Ended June 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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JUNE 30, December 31,
1995 1994
------------ ------------
(UNAUDITED)
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ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 25,416,122 $ 14,192,568
Restricted cash (Note 4) 19,550,000 19,550,000
Accounts receivable:
Accrued oil and gas revenue 11,412,303 9,357,782
Joint interest and other 3,745,439 3,880,808
Property held for sale (Note 2) 756,872 14,887,700
Prepaid expenses and other 1,903,825 563,839
------------ ------------
TOTAL CURRENT ASSETS 62,784,561 62,432,697
OTHER ASSETS 1,438,315 2,550,607
PROPERTY AND EQUIPMENT (Notes 1, 4, 7 and 8):
Oil and gas properties (full cost method - costs of
$13,383,439 and $16,695,284 excluded
from amortization in 1995 and 1994, respectively) 150,552,235 116,209,554
Furniture and fixtures 1,948,965 1,439,484
------------ ------------
152,501,200 117,649,038
Accumulated depletion and depreciation (26,514,848) (20,071,223)
------------ ------------
125,986,352 97,577,815
------------ ------------
$190,209,228 $162,561,119
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Revenue distribution $ 866,461 $ 594,782
Trade and other 9,591,452 11,426,105
Accrued interest payable, payroll and related taxes 1,173,599 1,199,096
Income taxes payable 1,586,616
Short term borrowings (Note 4) 21,534,318 21,035,401
Current portion of long term debt (Note 3) 5,893,160 6,392,114
------------ ------------
TOTAL CURRENT LIABILITIES 40,645,606 40,647,498
LONG TERM DEBT (Note 3) 53,268,253 31,911,164
MINORITY INTEREST (Note 8) 3,486,233 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 25,105,493 and 24,899,848 at
June 30, 1995 and December 31, 1994, respectively 251,054 248,998
Additional paid-in capital 94,317,797 92,921,115
Accumulated deficit (1,759,715) (4,911,316)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 92,809,136 88,258,797
------------ ------------
$190,209,228 $162,561,119
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</TABLE>
See notes to consolidated financial statements.
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BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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SIX MONTHS ENDED JUNE 30,
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1995 1994
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REVENUES
Oil and gas sales $ 24,829,260 $ 11,168,872
Gain on exchange rates 118,786 449,487
Investment earnings 873,521 513,579
Partnership reimbursements and other 48,829 28,087
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25,870,396 12,160,025
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EXPENSES
Lease operating costs and production taxes 5,287,071 3,948,268
Depletion, depreciation and amortization 6,473,402 3,421,035
General and administrative 3,883,606 2,444,769
Interest 3,361,041 1,596,693
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19,005,120 11,410,765
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 6,865,276 749,260
INCOME TAX EXPENSE 1,971,102
------------ -----------
INCOME BEFORE MINORITY INTEREST 4,894,174 749,260
MINORITY INTEREST (Note 8) 1,742,573 747,597
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NET INCOME $ 3,151,601 $ 1,663
============ ===========
NET INCOME PER COMMON SHARE $ 0.12 $ 0.00
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</TABLE>
See notes to consolidated financial statements.
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5
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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THREE MONTHS ENDED JUNE 30,
-------------------------------------
1995 1994
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REVENUES
Oil and gas sales $ 12,748,781 $ 7,670,211
Gain (loss) on exchange rates (12,931) 519,020
Investment earnings 449,287 261,034
Partnership reimbursements and other 24,093 27,587
------------ -----------
13,209,230 8,477,852
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EXPENSES
Lease operating costs and production taxes 3,041,069 2,182,246
Depletion, depreciation and amortization 3,328,335 2,248,291
General and administrative 2,214,834 1,302,727
Interest 1,742,915 915,956
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10,327,153 6,649,220
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 2,882,077 1,828,632
INCOME TAX EXPENSE 891,686
------------ -----------
INCOME BEFORE MINORITY INTEREST 1,990,391 1,828,632
MINORITY INTEREST (Note 8) 879,898 684,843
------------ -----------
NET INCOME $ 1,110,493 $ 1,143,789
============ ===========
NET INCOME PER COMMON SHARE $ 0.04 $ 0.05
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</TABLE>
See notes to consolidated financial statements.
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BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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SIX MONTHS ENDED JUNE 30,
-------------------------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,151,601 $ 1,663
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 6,473,402 3,421,035
Net earnings from limited partnerships (20,435) (38,488)
Amortization of financing costs 90,640 57,156
Loss on disposition of assets 10,632
Amortization of note discount 265,232
Minority interest in undistributed earnings of subsidiary 1,742,573 747,597
Increase in accounts receivable (1,919,152) (6,627,742)
Increase in prepaid expense and other (1,339,986) (4,937)
Increase (decrease) in accounts payable (1,562,974) 5,324,484
Increase (decrease) in deferred revenue, accrued interest payable,
payroll and related taxes (25,497) 153,032
Increase in income taxes payable 1,586,616
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TOTAL ADJUSTMENTS 5,035,819 3,297,369
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NET CASH PROVIDED BY OPERATING ACTIVITIES 8,187,420 3,299,032
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 14,708,863 128,113
Additions of property and equipment (27,130,397) (17,896,570)
Increase in restricted cash (22,000,000)
Distributions from limited partnerships 1,492
Payment for purchase of Benton-Vinccler interest, net of cash acquired (2,501,973)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (12,421,534) (42,268,938)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 611,738 22,727
Proceeds from commercial paper and other short term borrowings 23,060,188
Proceeds from issuance of notes payable 22,040,000
Payments on commercial paper, other short term borrowings
and notes payable (6,980,406) (18,114,953)
Increase in other assets (213,664) (19,623)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,457,668 4,948,339
----------- -----------
NET INCREASE (DECREASE) IN CASH 11,223,554 (34,021,567)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,192,568 36,308,118
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,416,122 $ 2,286,551
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense $ 3,215,165 $ 1,136,493
=========== ===========
Cash paid during the period for income taxes $ 368,427 $ 160,594
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</TABLE>
(continued)
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1995, $117,000 of the Company's 8%
convertible notes and $670,000 of the Company's 8% convertible debentures were
retired in exchange for 9,975 and 67,768 shares of the Company's common stock,
respectively.
During the six months ended June 30, 1995, the Company financed the purchase of
oil and gas equipment and services in the amount of $7,029,985 and leased
office equipment in the amount of $54,473.
During the six months ended June 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
SIX MONTHS ENDED JUNE 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.
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
June 30, 1995, and the results of operations for the three and six month
periods ended June 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 six month period ended June 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 six month periods ended June
30, 1995 were 26,880,445 and 26,459,123, respectively. Total weighted
average common shares outstanding during the three and six month periods ended
June 30, 1994 were 25,348,330 and 25,153,248 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 $1,090,375 and $784,268 for the six
months ended June 30, 1995 and 1994, respectively. Only overhead which is
directly identified with acquisition, exploration or development activities is
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).
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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 June 30, 1995 were $6,576,655, $4,377,966 and
$2,428,818, 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 six months ended June 30, 1995 and 1994 was $4,147,913 and
$1,627,301 ($1.99 and $1.77 per equivalent barrel), respectively. Depletion
expense attributable to the United States cost center for the six months ended
June 30, 1995 and 1994 was $1,389,665 and $1,364,783 ($7.13 and $6.51 per
equivalent barrel), respectively. Depletion expense attributable to the Russia
cost center for the six months ended June 30, 1995 and 1994 were $785,008 and
$322,175 ($2.87 and $3.42 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 $143,724 and $72,904 for the
six months ended June 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. The proceeds from the sale will be
used for working capital purposes and have been reflected as property held for
sale at June 30, 1995.
NOTE 3 - LONG TERM DEBT
Long-term debt consists of the following:
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JUNE 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. 5,758,000 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. 4,545,000 4,662,000
Non-interest bearing promissory notes
payable with a face value of $3 million
discounted using a 10% interest rate.
The notes are due in various installments
through January 1996. See Note 8. 1,926,933 5,747,878
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. 1,564,000 1,292,000
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Vendor financing with interest ranging from 10.5 to 13.5%.
Principal and interest payments are due in varying
installments through June 1997. Unsecured. 5,200,106
Other 167,374 173,400
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59,161,413 38,303,278
Less current portion 5,893,160 6,392,114
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$53,268,253 $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 and certain Venezuelan 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 intends to fulfill substantially all of
its remaining charter fund contribution requirements. At June 30, 1995, the
Company's share of the outstanding balance was $1.6 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.
During the fourth quarter of 1994 and the first six months of 1995,
Benton-Vinccler acquired approximately $3.4 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 both June 30, 1995 and December 31, 1994 were approximately
$1.5 million.
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 2future oil
shipments, which bore an effective discount rate of 12%, was repaid through
withholdings from oil sales on a monthly basis through December 1994. During
the quarter ended March 31, 1995, GEOILBENT received $3.0 million in production
payment advances pursuant to a similar agreement with NAFTA Moscow containing
similar terms. At June 30, 1995, the Company's share of the outstanding
liability was approximately $0.5 million.
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,
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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 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 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 will be forced to expend time and
financial resources to defend or resolve all such matters. The Company is also
subject to ordinary litigation that is incidental to its business. 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 $34.3 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 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 June 30, 1995, GEOILBENT had recognized Company
contributions of approximately $22.2 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, and there
have been certain discussions regarding further reductions in the future.
However, the Russian regulatory environment continues to be volatile and the
Company is unable to predict the availability of the
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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.
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 Venezuelan 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 is 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 Venezuelan 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 will 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, Apache and Oryx by incurring
capital expenditures to purchase working interests in the West Cote Blanche Bay
Field and to complete 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 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 the
next 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 June 30,
1995, GEOILBENT has recognized Company contributions of approximately $22.2
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 for one-year from
the export tariff. Such waiver was received in March 1995, effective
<PAGE> 14
14
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 and there have been certain discussions
regarding further reductions in the future. 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 June
30, 1995, operating costs and general and administrative expenses further
decreased to $1.43 and $0.57 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 June 30, 1995, operating costs and general and administrative
expenses further decreased to $5.24 and $1.24 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 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 six
months ended June 30, 1995 and 1994 and financial condition as of June 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 JUNE 30, 1995 AND 1994
The Company had revenues of $13,209,230 for the three months ended June 30,
1995. Expenses incurred during the period consisted of lease operating costs
and production taxes of $3,041,069, depletion, depreciation and amortization
expense of $3,328,335, general and administrative expense of $2,214,834,
interest expense of $1,742,915, income tax expense of $891,686 and minority
interest of $879,898. The net income for the period was $1,110,493 or $0.04
per share.
<PAGE> 15
15
By comparison, the Company had revenues of $8,477,852 for the three months
ended June 30, 1994. Expenses incurred during the period consisted of lease
operating costs and production taxes of $2,182,246, depletion, depreciation and
amortization expense of $2,248,291, general and administrative expense of
$1,302,727, interest expense of $915,956, and a minority interest of $684,843.
The net income for the period was $1,143,789 or $0.05 per share.
Revenues increased $4,731,378, or 56%, during the three months ended June 30,
1995 compared to the corresponding period of 1994 primarily due to increased
oil sales in Venezuela and Russia. 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 June 30,
1995, from Venezuela and Russia were 1,026,371 Bbl and 155,040 Bbl,
respectively, compared to 614,159 Bbl and 67,278 Bbl, respectively, for the
corresponding period of the preceding year. Prices per Bbl of crude oil
averaged $9.63 (pursuant to terms of an operating service agreement) from
Venezuela and $13.26 from Russia, for the period ended June 30, 1995 compared
to $8.52 from Venezuela and $10.59 from Russia, for the corresponding period of
the preceding year. Domestic sales quantities for the three months ended June
30, 1995 were 12,643 Bbl of crude oil and condensate and 553,038 Mcf of natural
gas compared to 55,071 Bbl of crude oil and condensate and 478,052 Mcf of
natural gas for the three months ended June 30, 1994. Domestic prices for
crude oil and natural gas averaged $14.14 per Bbl and $1.65 per Mcf during the
three months ended June 30, 1995 compared to $15.03 per Bbl and $1.88 per Mcf
during the corresponding period of 1994. Additionally, during the three months
ended June 30, 1995, the Company recorded a loss of $284,034 related to its
commodity hedge agreement with Morgan Guaranty compared to $100,162 in the
corresponding period of the preceding year.
Lease operating costs and production taxes increased $858,823 or 39%, during
the three months ended June 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 $1,080,044, or
48%, during the three months ended June 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 June 30, 1995
was $1.99, $7.26 and $2.95, respectively, compared to $1.75, $6.53 and $3.54 in
Venezuela, United States and Russia, respectively, during the corresponding
period of the preceding year. The increase in general and administrative
expense of $912,107, or 70%, during the three months ended June 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 $826,959, or 90%, during the three months
ended June 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 $617,277 and $274,409, respectively, for
the period ended June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
The Company had revenues of $25,870,396 for the six months ended June 30, 1995.
Expenses incurred during the period consisted of lease operating costs and
production taxes of $5,287,071, depletion, depreciation and amortization
expense of $6,473,402, general and administrative expenses of $3,883,606,
interest expense of $3,361,041, income tax expense of $ 1,971,102, and
minority interest of $1,742,573. The net income for the period was $3,151,601
or $0.12 per share.
By comparison, the Company had revenues of $12,160,025 for the six months ended
June 30, 1994. Expenses incurred during the period consisted of lease
operating costs and production taxes of $3,948,268, depletion depreciation and
amortization expense of $3,421,035, general and administrative expense of
$2,444,769, interest expense of $1,596,693, and minority interest of $747,597.
Net income for the period was $1,663 or $0.00 per share.
Revenues increased $13,710,371 or 113%, during the six months ended June 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 six months ended June 30,
1995, from Venezuela and Russia were 2,088,464 Bbl and 273,904 Bbl,
respectively, compared to 921,834 Bbl and 94,202 Bbl, respectively, for the
corresponding period of the preceding year. Prices per Bbl of crude oil
averaged $9.32 (pursuant to the terms of an operating service agreement) from
Venezuela and
<PAGE> 16
16
$13.20 from Russia, for the six month period ended June 30, 1995 compared to
$8.04 from Venezuela and $10.72 from Russia for the corresponding period of the
prior fiscal year. Domestic sales quantities for the six months ended June 30,
1995 were 44,960 Bbl of crude oil and condensate and 899,586 Mcf of natural gas
compared to 116,889 Bbl of crude oil and condensate and 555,895 Mcf of natural
gas for the six months ended June 30, 1994. Domestic prices for crude oil and
natural gas averaged $16.27 per Bbl and $1.64 per Mcf during the six months
ended June 30, 1995 compared to $14.33 per Bbl and $1.93 per Mcf during the
corresponding period of 1994. Additionally, during the six months ended June
30, 1995, the Company recorded a loss of $457,441 related to its commodity
hedge agreement with Morgan Guaranty compared to $100,162 in the corresponding
period of the preceding year.
Lease operating costs and production taxes increased $1,338,803, or 34%, during
the six months ended June 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 $3,052,367, or 89%
during the six months ended June 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 six months ended June 30, 1995 was $1.99, $7.13
and $2.87, respectively, compared to $1.77, $6.51 and $3.42, respectively,
during the corresponding period of the preceding year. The increase in general
and administrative expenses of $1,438,837 or 59%, during the six months ended
June 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 $1,764,348, or 111%, during the
six months ended June 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 $1,696,693 and $274,409
for the period ended June 30, 1995.
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 each of the operating, investing and
financing activities for the six months ended June 30, 1995 and 1994 are
summarized in the following table and discussed in further detail below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
1995 1994
------------- ------------
<S> <C> <C>
Net cash provided by operating activities $ 8,187,420 $ 3,299,032
Net cash used in investing activities (12,421,534) (42,268,938)
Net cash provided by financing activities 15,457,668 4,948,339
------------- ------------
Net increase (decrease) in cash $ 11,223,554 $(34,021,567)
============= ============
</TABLE>
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 June 30, 1995, $5 million was outstanding under the credit facility
agreement, with no additional borrowing capacity available.
<PAGE> 17
17
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 U.S. 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 June
30, 1995, the Company was in compliance with all such covenants.
FOR THE SIX MONTHS ENDED JUNE 30, 1995
During the six months ended June 30, 1995, the Company had capital expenditures
of $34.2 million, of which $25.9 million related to the development of the
South Monagas Unit in Venezuela, $5.9 million related to the development of the
North Gubkinskoye Field in Russia and $2.4 million was attributable to the
United States and other projects.
During the six months ended June 30, 1995, the Company derived proceeds of
approximately $14.7 million from the sale of certain property interests in the
West Cote Blanche Bay Field, $22.0 million from additional borrowings in the
United States and Russia and $0.6 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 certain 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 and 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.
FOR THE SIX MONTHS ENDED JUNE 30, 1994
During the six months ended June 30, 1994, the Company had capital expenditures
of $17.9 million, of which $4.3 million related to the development of the North
Gubkinskoye Field in Russia, $2.8 million related to drilling activity in the
West Cote Blanche Bay Field, $9.4 million was attributable to the development
of the South Monagas Unit in Venezuela and $1.4 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 six months of 1994, the Company derived net proceeds of
approximately $23.1 million from short term borrowings used to fund operations
in Venezuela and repay $18 million of commercial paper, short-term borrowings
and notes payable.
<PAGE> 18
18
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 June 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 June 30, 1995, the present value of the notes outstanding was approximately
$1.9 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.
During the fourth quarter of 1994 and the first six months of 1995,
Benton-Vinccler acquired approximately $7.0 million of drilling and production
equipment from trading companies and suppliers under terms which include 12
month financing. The Company expects that other such trade financing may be
available to Benton-Vinccler.
The Company has budgeted approximately $25-30 million for capital expenditures
in Venezuela during the second half 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 June 30, 1995, $9.7 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 June 30, 1995, GEOILBENT has recognized
Company contributions since inception totalling approximately $22.2 million.
The Company expects to contribute a total of $3-4 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 six months ended June 30,
1995, GEOILBENT received $3 million in production payment advances pursuant to
a similar agreement with NAFTA Moscow containing similar terms. At June 30,
1995, the Company's share of the outstanding liability was approximately $0.5
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
<PAGE> 19
19
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 June 30, 1995, the Company's share of the outstanding balance
was $1.6 million.
ANTICIPATED CAPITAL REQUIREMENTS
The Company anticipates funding its total 1995 capital expenditures, which it
expects to be approximately $50-60 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 six months of 1995, the
Company received approximately $37 million from the issuance of debt securities
and from sales of property interests and generated approximately $8 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.
Under current conditions the Company's foreign operations are to a certain
extent adversely affected by inflation in Venezuela and Russia. 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 to the extent that the rate of devaluation of the ruble
matches the rate of inflation. With respect to Benton-Vinccler, the Venezuelan
government has imposed controls over the exchange rate of the U.S. dollar to
the Venezuelan bolivar, freezing the rate at 170 bolivars per dollar. 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.
Effective May 1, 1994, the Company entered into a commodity hedge agreement
with Morgan Guaranty 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 from
Morgan Guaranty $16.82 per Bbl and the Company will pay to Morgan Guaranty 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 June 30, 1995,
the average price per Bbl of WTI was $19.32 and the Company's net exposure for
the six months was $457,441. Total exposure 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 subject to regulations requiring the conversion or
repatriation of those dollars back into the country, the currency exchange
controls have not had a material adverse effect on Benton-Vinccler or the
Company.
<PAGE> 20
20
During the six months ended June 30, 1995, GEOILBENT had substantial net
monetary liabilities denominated in Russian rubles. The ruble value declined
significantly during the first quarter of 1995, but increased slightly in the
second quarter. As a result of the net decline in the value of the ruble
during this period, the Company realized net foreign exchange gains of
$118,786. 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
<TABLE>
<CAPTION>
<S> <C> <C>
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of per share earnings.
</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: August 11, 1995 By: /S/A. E. Benton
----------------------------
A. E. Benton,
President
Dated: August 11, 1995 By: /S/David H. Pratt
-----------------------------
David H. Pratt,
Vice President of Finance,
Chief Financial Officer
<PAGE> 1
EXHIBIT 11.1
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
--------------------------
Net income attributable to common stock $ 1,110,493 $ 1,143,789
=========== ===========
Weighted average number of common shares outstanding 25,049,214 24,880,749
=========== ===========
Primary earnings per share $ 0.04 $ 0.05
=========== ===========
ADDITIONAL PRIMARY COMPUTATION (a)
------------------------------
Net income attributable to common stock $ 1,110,493 $ 1,143,789
=========== ===========
Shares:
Weighted average number of common shares outstanding 25,049,214 24,880,749
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 1,831,231 467,581
----------- -----------
Primary weighted average number of common shares outstanding
as adjusted 26,880,445 25,348,330
=========== ===========
Primary earnings per share (b) $ 0.04 $ 0.05
=========== ===========
ASSUMING FULL DILUTION
----------------------
Net income attributable to common stock $ 1,110,493 $ 1,143,789
=========== ===========
Shares:
Weighted average number of common shares outstanding 25,049,214 24,880,749
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 1,991,319 554,971
----------- -----------
Weighted average number of common shares outstanding as
adjusted 27,040,533 25,435,720
=========== ===========
Earnings per common share assuming full dilution (b) $ 0.04 $ 0.04
=========== ===========
ADDITIONAL FULLY DILUTED COMPUTATION
------------------------------------
Additional adjustment to net income as adjusted per fully
diluted computation above:
Net income attributable to common stock $ 1,110,493 $ 1,143,789
Add after tax interest expense attributable to convertible notes 90,900 93,240
Add after tax interest expense attributable to convertible
debentures 115,160 128,560
----------- -----------
Net income as adjusted $ 1,316,553 $ 1,365,589
=========== ===========
Additional adjustment to weighted average number of shares
outstanding:
Weighted average number of common shares outstanding 25,049,214 24,880,749
Add shares assuming conversion of convertible debentures 582,462 650,237
Add shares assuming conversion of convertible notes 387,502 397,477
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 1,991,319 554,971
----------- -----------
Weighted average number of common shares outstanding as
adjusted 28,010,497 26,483,434
=========== ===========
Earnings per common share assuming full dilution (c) $ 0.05 $ 0.05
=========== ===========
<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
EXHIBIT 11.1
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
--------------------------
Net income attributable to common stock $ 3,151,601 $ 1,663
=========== ===========
Weighted average number of common shares outstanding 24,982,288 24,809,196
=========== ===========
Primary earnings per share $ 0.13 $ 0.00
=========== ===========
ADDITIONAL PRIMARY COMPUTATION (a)
------------------------------
Net income attributable to common stock $ 3,151,601 $ 1,663
=========== ===========
Shares:
Weighted average number of common shares outstanding 24,982,288 24,809,196
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 1,476,835 344,052
----------- -----------
Primary weighted average number of common shares outstanding
as adjusted 26,459,123 25,153,248
=========== ===========
Primary earnings per share (b) $ 0.12 $ 0.00
=========== ===========
ASSUMING FULL DILUTION
----------------------
Net income attributable to common stock $ 3,151,601 $ 1,663
=========== ===========
Shares:
Weighted average number of common shares outstanding 24,982,288 24,809,196
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 1,716,099 415,956
----------- -----------
Weighted average number of common shares outstanding as
adjusted 26,698,387 25,225,152
=========== ===========
Earnings per common share assuming full dilution (b) $ 0.12 $ 0.00
=========== ===========
ADDITIONAL FULLY DILUTED COMPUTATION
------------------------------------
Additional adjustment to net income as adjusted per fully
diluted computation above:
Net income attributable to common stock $ 3,151,601 $ 1,663
Add after tax interest expense attributable to convertible notes 181,800 186,480
Add after tax interest expense attributable to convertible
debentures 230,320 257,120
----------- -----------
Net income as adjusted $ 3,563,721 $ 445,263
=========== ===========
Additional adjustment to weighted average number of shares
outstanding:
Weighted average number of common shares outstanding 24,982,288 24,809,196
Add shares assuming conversion of convertible debentures 582,462 650,237
Add shares assuming conversion of convertible notes 387,502 397,477
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 1,716,099 415,956
----------- -----------
Weighted average number of common shares outstanding as
adjusted 27,668,351 26,272,866
=========== ===========
Earnings per common share assuming full dilution (c) $ 0.13 $ 0.02
=========== ===========
<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 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 JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 25,416,122
<SECURITIES> 0
<RECEIVABLES> 15,157,742
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,784,561
<PP&E> 152,501,200
<DEPRECIATION> 26,514,848
<TOTAL-ASSETS> 190,209,228
<CURRENT-LIABILITIES> 40,645,606
<BONDS> 53,268,253
<COMMON> 0
0
251,054
<OTHER-SE> 92,809,136
<TOTAL-LIABILITY-AND-EQUITY> 190,209,228
<SALES> 24,829,260
<TOTAL-REVENUES> 25,870,396
<CGS> 11,760,473
<TOTAL-COSTS> 15,644,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,361,041
<INCOME-PRETAX> 6,865,276
<INCOME-TAX> 1,971,102
<INCOME-CONTINUING> 3,151,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,151,601
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0
</TABLE>
