<PAGE> 1
UNITED STATES
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, 1996 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)
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<S> <C>
DELAWARE 77-0196707
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1145 EUGENIA PLACE, SUITE 200
CARPINTERIA, CALIFORNIA 93013
(Address of principal executive offices) (Zip Code)
</TABLE>
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 12, 1996, 27,577,638 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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Page
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<S> <C> <C> <C>
Consolidated Balance Sheets at June 30, 1996
(Unaudited) and December 31, 1995................................................... 3
Consolidated Statements of Income for the Three
Months Ended June 30, 1996 and 1995 (Unaudited)..................................... 4
Consolidated Statements of Income for the Six
Months Ended June 30, 1996 and 1995 (Unaudited)..................................... 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 (Unaudited)..................................... 6
Notes to Consolidated Financial Statements............................................... 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................................... 14
PART II. OTHER INFORMATION
Signatures...................................................................................................... 21
</TABLE>
<PAGE> 3
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
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<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 13,785,231 $ 6,179,998
Restricted cash (Notes 3, 4 and 5) 38,314,000 20,314,000
Marketable securities 79,909,144
Accounts receivable:
Accrued oil and gas revenue 31,546,475 22,069,217
Joint interest and other 3,900,629 2,869,962
Prepaid expenses and other 686,748 214,622
------------- -------------
TOTAL CURRENT ASSETS 168,142,227 51,647,799
OTHER ASSETS 5,847,917 3,434,760
PROPERTY AND EQUIPMENT (Notes 3 and 5):
Oil and gas properties (full cost method - costs of
$19,965,879 and $17,925,371 excluded from
amortization in 1996 and 1995, respectively) 186,767,248 177,110,550
Furniture and fixtures 3,262,018 2,539,233
------------- -------------
190,029,266 179,649,783
Accumulated depletion and depreciation (33,187,314) (19,982,244)
------------- -------------
156,841,952 159,667,539
------------- -------------
$ 330,832,096 $ 214,750,098
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Revenue distribution $ 868,810 $ 2,692,751
Trade and other 19,655,776 19,777,018
Accrued interest payable, payroll and related taxes 5,295,130 1,687,648
Income taxes payable 9,042,995 1,039,166
Short term borrowings (Note 4) 21,371,228 21,905,480
Current portion of long term debt (Note 3) 1,477,355 7,433,339
------------- -------------
TOTAL CURRENT LIABILITIES 57,711,294 54,535,402
LONG TERM DEBT (Note 3) 127,173,617 49,486,306
MINORITY INTEREST (Note 8) 11,447,056 7,047,791
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, 7 and 9)
STOCKHOLDERS' EQUITY (Note 3):
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 27,305,825 and 25,508,605 shares at
June 30, 1996 and December 31, 1995, respectively 273,058 255,086
Additional paid-in capital 118,422,354 97,745,794
Retained earnings 15,804,717 5,679,719
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 134,500,129 103,680,599
------------- -------------
$ 330,832,096 $ 214,750,098
============= =============
</TABLE>
See notes to consolidated financial statements.
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4
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
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<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES
Oil and gas sales $ 33,086,049 $ 12,748,781
Gain on sale of properties (Note 2) 7,153,253
Gain (loss) on exchange rates 528,205 (12,931)
Investment earnings and other 1,122,166 473,380
------------ ------------
41,889,673 13,209,230
------------ ------------
EXPENSES
Lease operating costs and production taxes 5,183,497 3,041,069
Depletion, depreciation and amortization 7,066,905 3,328,335
General and administrative 5,303,675 2,214,834
Interest 3,380,877 1,742,915
------------ ------------
20,934,954 10,327,153
------------ ------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 20,954,719 2,882,077
INCOME TAX EXPENSE 4,992,506 891,686
------------ ------------
INCOME BEFORE MINORITY INTEREST 15,962,213 1,990,391
MINORITY INTEREST (Note 8) 2,072,656 879,898
------------ ------------
INCOME BEFORE EXTRAORDINARY CHARGE 13,889,557 1,110,493
EXTRAORDINARY CHARGE FOR EARLY RETIREMENT OF
DEBT, NET OF TAX BENEFIT OF $879,000. (Note 2) 10,074,799
------------ ------------
NET INCOME $ 3,814,758 $ 1,110,493
============ ============
INCOME (LOSS) PER COMMON SHARE:
Primary:
Income before extraordinary charge $ 0.47 $ 0.04
Extraordinary charge (0.34) --
------------ ------------
Net Income $ 0.13 $ 0.04
============ ============
Fully Diluted:
Income before extraordinary charge $ 0.46 $ 0.04
Extraordinary charge (0.33) --
------------ ------------
Net Income $ 0.13 $ 0.04
============ ============
</TABLE>
See notes to consolidated financial statements.
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5
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
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<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
REVENUES
Oil and gas sales $ 64,370,972 $24,829,260
Gain on sale of properties (Note 2) 7,153,253
Gain on exchange rates 1,655,920 118,786
Investment earnings and other 1,648,275 922,350
------------ -----------
74,828,420 25,870,396
------------ -----------
EXPENSES
Lease operating costs and production taxes 9,256,017 5,287,071
Depletion, depreciation and amortization 14,799,706 6,473,402
General and administrative 8,951,135 3,883,606
Interest 5,640,872 3,361,041
Partnership exchange expenses (Note 2) 2,139,655
------------ -----------
40,787,385 19,005,120
------------ -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 34,041,035 6,865,276
INCOME TAX EXPENSE 9,441,973 1,971,102
------------ -----------
INCOME BEFORE MINORITY INTEREST 24,599,062 4,894,174
MINORITY INTEREST (Note 8) 4,399,265 1,742,573
------------ -----------
INCOME BEFORE EXTRAORDINARY CHARGE 20,199,797 3,151,601
EXTRAORDINARY CHARGE FOR EARLY RETIREMENT OF
DEBT, NET OF TAX BENEFIT OF $879,000. (Note 2) 10,074,799
------------ -----------
NET INCOME $ 10,124,998 $ 3,151,601
============ ===========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Income before extraordinary charge $ 0.70 $ 0.12
Extraordinary charge (0.35) --
------------ -----------
Net Income $ 0.35 $ 0.12
============ ===========
Fully Diluted:
Income before extraordinary charge $ 0.67 $ 0.12
Extraordinary charge (0.33) --
------------ -----------
Net Income $ 0.34 $ 0.12
============ ===========
</TABLE>
See notes to consolidated financial statements.
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6
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
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<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,124,998 $ 3,151,601
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 14,799,706 6,473,402
Net earnings from limited partnerships (20,435)
Amortization of financing costs 139,053 90,640
(Gain) loss on disposition of assets (6,928,253) 10,632
Partnership exchange expenses 2,139,655
Minority interest in undistributed earnings of subsidiary 4,399,265 1,742,573
Extraordinary charge for early retirement of debt 10,074,799
Increase in accounts receivable (10,629,480) (1,919,152)
Increase in prepaid expense and other (472,126) (1,339,986)
Decrease in accounts payable (1,741,679) (1,562,974)
Increase (decrease) in accrued interest payable,
payroll and related taxes 3,607,482 (25,497)
Increase in income taxes payable 8,003,829 1,586,616
------------- ------------
TOTAL ADJUSTMENTS 23,392,251 5,035,819
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 33,517,249 8,187,420
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 34,726,680 14,708,863
Additions of property and equipment (36,276,443) (27,130,397)
Increase in restricted cash (18,000,000)
Increase in marketable securities (79,909,144)
Distributions from limited partnerships 277,469
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (99,181,438) (12,421,534)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 11,811,229 611,738
Proceeds from issuance of notes payable 129,603,228 22,040,000
Payments on short term borrowings
and notes payable (52,992,808) (6,980,406)
Prepayment premiums on debt retirement, net of tax (10,074,799)
Increase in other assets (5,077,428) (213,664)
------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 73,269,422 15,457,668
------------- ------------
NET INCREASE (DECREASE) IN CASH 7,605,233 11,223,554
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,179,998 14,192,568
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,785,231 $ 25,416,122
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense $ 3,888,311 $ 3,215,165
============= ============
Cash paid during the period for income taxes $ 645,841 $ 368,427
============= ============
</TABLE>
(continued)
<PAGE> 7
7
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1996, $3,226,000 principal amount of the
Company's 8% convertible notes and $2,460,000 principal amount of the Company's
8% convertible debentures were retired upon conversion into 275,081 and 248,793
shares of the Company's common stock, respectively.
During the six months ended June 30, 1996, the Company financed the purchase of
oil and gas equipment and services in the amount of $272,655. Also during the
six months ended June 30, 1996, the Company acquired the partners' interests in
each of the three limited partnerships sponsored by the Company in exchange for
an aggregate of 168,362 shares of the Company's common stock and warrants to
purchase 587,783 shares of common stock at $11.00 per share, with a total value
of $3,996,601.
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.
See notes to consolidated financial statements.
<PAGE> 8
8
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Benton Oil and Gas Company (the "Company") engages in the exploration,
development, production and management of oil and gas properties.
The Company and its former subsidiary, Benton Oil and Gas Company of Louisiana,
participated 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 received compensation as stipulated
therein, and functioned as an agent for the partnerships to arrange for the
management, drilling, and operation of properties, and assumed customary
contingent liabilities for partnership obligations. In January 1996, the Company
issued an aggregate of 168,362 shares of common stock and warrants to purchase
587,783 shares of common stock at $11 per share in exchange for all outstanding
limited partnership interests and liquidated the partnerships.(See Note 2.)
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company's investment in the Russia joint venture
("GEOILBENT") is proportionately consolidated based on the Company's ownership
interest. Beginning in 1995, GEOILBENT (owned 34% by the Company) has been
included in the consolidated financial statements based on a fiscal period
ending September 30. This change was made to provide adequate time for the
accumulation and review of financial information from the joint venture for both
quarterly and annual reporting purposes. This change did not have a material
effect on the consolidated financial statements. 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,
1996, and the results of operations for the three and six month periods ended
June 30, 1996 and 1995. 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, 1995 for additional disclosures, including a summary of the Company's
accounting policies.
The results of operations for the six month period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
EARNINGS PER SHARE
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 issuable upon exercise of outstanding
stock options and warrants. Total weighted average common stock equivalent
shares used to calculate earnings per common share were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary shares 29,371,716 26,880,445 28,522,953 26,459,123
Fully diluted shares 30,314,901 26,880,445 30,097,576 26,459,123
</TABLE>
<PAGE> 9
9
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 $528,893 and $1,090,375 for the six months ended June
30, 1996 and 1995, respectively. Only overhead which is directly identified with
acquisition, exploration or development activities is capitalized. All costs
related to production, general corporate overhead and 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 the estimated future costs of developing
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 Venezuelan, Russian and other cost
centers at June 30, 1996 were $16,361,568, $2,611,279, and $993,032,
respectively. Excluded costs attributable to the Venezuelan, Russian and other
cost centers at December 31, 1995 were $14,001,386, $3,214,849 and $709,136,
respectively. Depletion expense attributable to the Venezuelan, Russian and
United States cost centers for the six months ended June 30, 1996 was
$11,643,621, $1,348,231 and $214,571 ($2.07, $3.40 and $6.47 per equivalent
barrel), respectively. Depletion expense attributable to the Venezuelan, Russian
and United States cost centers for the six months ended June 30, 1995 was
$4,147,913, $785,008 and $1,389,665 ($1.99, $2.87 and $7.13 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 $212,409 and $143,724 for the six months ended June 30, 1996 and 1995,
respectively.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of their aggregate cost or market
value. They are comprised of high-grade debt instruments, demand or time
deposits, bankers' acceptances and certificates of deposit or acceptances of
large U.S. financial institutions and commercial paper of highly rated U.S.
corporations; all having maturities of no more than 180 days.
RECLASSIFICATIONS
Certain items in 1995 have been reclassified to conform to the 1996 financial
statement presentation.
NOTE 2 - PROPERTY SALES AND PARTNERSHIP EXCHANGE OFFER
In March 1995, the Company sold its 32.5% working interest in certain depths
(above approximately 10,575 feet) in the West Cote Blanche Bay Field for
approximately $14.9 million. In April 1996, the Company sold its remaining
interests in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields
located in the Gulf Coast of Louisiana for approximately $35.4 million,
resulting in a gain of approximately $7.2 million after adjustments for revenues
and expenses subsequent to the effective date of December 31, 1995 and
satisfaction of a net profits interest associated with the properties. In
conjunction with this sale and to obtain the required consents for such sale,
the Company agreed to repay $35 million in senior unsecured notes and a $5
million revolving credit facility which was secured in part by these properties.
Debt prepayment premiums and related costs totalling approximately $11.0 million
($10.1 million net of tax benefits) have been recognized as an extraordinary
loss in the second quarter of 1996. (See Note 3.)
In January 1996, the Company completed an exchange offer under which it issued
an aggregate of 168,362 shares of common stock and warrants to purchase 587,783
shares of common stock at $11 per share in exchange for all outstanding limited
partnership interests in the three remaining limited partnerships sponsored by
the Company. The shares of common stock were valued at $1.9 million (based upon
the current market price at the time of the offer), which was allocated to oil
and gas properties. Substantially all of the oil and gas properties were
immediately sold at their approximate book value. The warrants, issued as an
inducement to the participants to accept the exchange offer, were valued at
$3.64 each for a total of $2.1 million, which was charged to expense in the
first quarter of 1996.
<PAGE> 10
10
NOTE 3 - LONG TERM DEBT
Long term debt consists of the following:
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<CAPTION>
JUNE 30 DECEMBER 31,
1996 1995
---------------- ---------------
<S> <C> <C>
Senior unsecured notes with interest at 11.625%.
See description below. $125,000,000
Senior unsecured notes with interest at 13.0%.
See description below. $35,000,000
Revolving secured credit facility. Interest
payments due quarterly beginning
March 31, 1995. Principal payments due
quarterly beginning March 31, 1997.
See description below. 5,000,000
Convertible subordinated debentures with
interest at 8.0%. See description below. 1,850,000 4,310,000
Convertible subordinated notes with interest
at 8.0%. See description below. 3,269,000
Promissory note due on July 1, 1996 with
interest at 13.0% from January 1, 1996.
Unsecured. 1,000,000
Vendor financing with interest ranging from 10.5 - 13.5%.
Principal and interest payments are due in varying
installments through April 1997. Unsecured. 6,234,357
Bank financing with interest at LIBOR plus
7.5% to 8.0%. Secured by certain GEOILBENT
oil export proceeds. See description below. 1,717,000 850,000
Other--various equipment leases and bank financing with
interest and/or principal payments due monthly from
$180 to $3,381. Interest rates vary from 9.75% to
16.91%. Notes and leases mature from March 1997 to
March 2000.
Secured by equipment and residential real estate. 83,972 1,256,288
--------------- -------------
128,650,972 56,919,645
Less current portion 1,477,355 7,433,339
-------------- ------------
$127,173,617 $49,486,306
============ ===========
</TABLE>
In May 1996, the Company issued $125 million in 11.625% senior unsecured notes
due May 1, 2003. Interest on the notes is due May 1 and November 1 of each year,
beginning November 1, 1996. The indenture agreement provides for certain
limitations on liens, additional indebtedness, certain capital expenditures,
dividends, mergers and sales of assets. Pursuant to the terms of the senior
unsecured notes, the Company has filed a registration statement to exchange such
notes. In the event that the Company does not consummate an exchange offer
within the time periods prescribed, additional interest (in addition to the
interest otherwise due on the notes) will accrue at an annual rate of 0.50%
until such exchange offer is consummated. A portion of the proceeds from the
notes was used to repay certain long term indebtedness and certain short term
obligations and the remainder will be used for capital expenditure and working
capital purposes.
In September 1994 and June 1995, the Company issued $15 million and $20 million
in 13% senior unsecured notes due 2002 and 2007, respectively. Additionally, in
connection with the two issuances of notes, the Company issued warrants
entitling the holder to purchase 250,000 shares of common stock at $9.00 per
share and 125,000 shares at $17.09 per share, subject to adjustment in certain
circumstances, that are exercisable on or before September 30, 2002 and June 30,
2007, respectively. In April and May 1996, in conjunction with the sale of the
Company's Gulf Coast properties and the issuance of $125 million of debt, the
Company repaid the outstanding 13% notes, accrued interest, and corresponding
prepayment premiums of $11.0 million. (See Note 2.)
In December 1994, the Company entered into a $10 million revolving credit
facility, secured in part by mortgages on the Company's U.S. properties and in
part by a guarantee provided by the financial institution which arranged the
credit facility. In exchange for the credit enhancement, the Company issued to
the arranging financial institution
<PAGE> 11
11
and lending commercial bank warrants entitling the holders to purchase 50,000
shares of common stock at $12.00 per share, subject to adjustment in certain
circumstances, that are exercisable on or before December 2004, and the Company
granted to the arranging institution a 5% net profits interest in the Company's
properties whose development was financed by the facility. In conjunction with
the sale of the Company's Gulf Coast properties in April 1996, the Company
repaid the outstanding balance of $5.0 million to the lending institution. (See
Note 2.)
In May 1992, the Company issued $6,428,000 aggregate principal amount of
publicly offered 8% convertible subordinated debentures due May 1, 2002,
convertible at the option of the note holders at 101.157 shares per $1,000
principal amount. As of March 31, 1996, $4,252,000 of the debentures were
outstanding. In May 1996, the holders of the notes were notified of the
Company's intention to prepay the debentures on July 23, 1996 at 103% of the
principal amount plus accrued interest. As a result, during the three months
ended June 30, 1996, holders of debentures with a principal amount of $2,402,000
elected to convert their notes for 242,928 shares of common stock. Subsequent to
June 30, 1996, the Company issued an aggregate of 187,079 shares of common stock
upon the conversion of the remaining debentures.
In October 1991, the Company issued $4,662,000 aggregate principal amount of
privately placed 8% convertible subordinated notes due October 1, 2001,
convertible at the option of the note holders at 85.259 shares per $1,000
principal amount. In December 1995, the holders of the notes were notified of
the Company's intention to prepay the notes on February 12, 1996 at 103% of the
principal amount plus accrued interest. As a result, substantially all of the
holders elected to convert their notes for shares of common stock. During the
first quarter of 1996, the Company issued an aggregate of 275,081 shares of
common stock upon the conversion of notes with a principal amount of $3,226,000
and prepaid the remaining note principal of $43,000 plus premium and accrued
interest.
Beginning in August 1994, GEOILBENT had entered into various agreements with
International Moscow Bank ("IMB") for credit facilities with the following
terms: amounts of $4-6 million, repayment over 14 to 17 months, and interest at
LIBOR plus 7.5 to 8.0%. In December 1995, GEOILBENT signed a new credit facility
with IMB for $5 million, payable over 17 months with interest at LIBOR plus
8.0%. At June 30, 1996 and December 31, 1995, the Company's proportionate share
of the outstanding balances was $1.7 million and $0.9 million, respectively.
While the repayment of loans under earlier agreements was guaranteed by the
Company, repayment under the current agreement is not.
NOTE 4 - SHORT TERM BORROWINGS
In 1994, Benton-Vinccler entered into a $25 million credit facility with Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") to repay commercial paper
and for working capital requirements. The credit facility is collateralized in
full by time deposits from the Company, bears interest at LIBOR plus 3/4% (6.2%
and 6.9% at June 30, 1996 and 1995, respectively) and is renewed on a monthly
basis. The loan arrangement contains no restrictive covenants and no financial
ratio covenants. The outstanding balance under the credit facility at June 30,
1996 and December 31, 1995 was $19.25 million. In August 1996 the facility was
replaced by a long term agreement for $50 million. (See Note 9.)
Beginning in the fourth quarter of 1994, Benton-Vinccler acquired approximately
$4.1 million of drilling and production equipment from trading companies and
suppliers under terms which include repayment within a 12-month period in
monthly and quarterly installments at interest rates from 6.7% to 10.75%. In
June 1996, the Company paid the balance remaining on these purchases with
proceeds from the issuance in May 1996 of $125 million of debt. (See Note 3.) At
December 31, 1995, approximately $0.7 million related to these loans was
outstanding.
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. During the period ended June 30, 1996, GEOILBENT
repaid the original NAFTA Moscow advances. Funding for the repayment was
provided largely by entering into other oil payment advance arrangements and
similar short term borrowings with other oil purchasers and with Russian
commercial banks. GEOILBENT also entered into an agreement with Morgan Guaranty
for a short term credit facility under which the Company provides cash
collateral for the loans to GEOILBENT. GEOILBENT's obligations under the new
agreements with the Russian commercial
<PAGE> 12
12
banks and oil purchaser are not guaranteed by the Company. At June 30, 1996, the
Company's proportionate share of the outstanding liabilities of GEOILBENT was
$2.1 million, $1.1 million of which was cash collateralized by the Company.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
In May 1996, the Company entered into an agreement with Morgan Guaranty which
provides for a $20 million revolving credit facility and an $18 million cash
collateralized 5-year letter of credit to secure the Company's performance of
the minimum exploration work program required in the Delta Centro Block in
Venezuela. The revolving credit facility can be drawn upon until December 1996,
and calls for interest at LIBOR plus 3% through June 1997 and LIBOR plus 3.75%
thereafter. Any amount outstanding at the end of the revolving period will
automatically convert into a term loan due 15 months thereafter. The credit
facility contains financial covenants requiring that the Company maintain a
current ratio of at least 1.1 to 1.0 and a minimum net worth of $100 million at
the end of each fiscal quarter.
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. Certain limited partners in limited
partnerships sponsored by the Company have brought an action against the Company
in connection with the Company's operation of the limited partnerships 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. In May 1995, the Company agreed to a binding arbitration
proceeding with respect to such claims. As of June 30, 1996, the plaintiffs had
not commenced discovery. The Company intends to vigorously defend this action
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 any 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, 1995, for federal income tax purposes the Company had
operating loss carryforwards of approximately $41.0 million, expiring in the
years 2003 through 2010. 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 provisions for income taxes for 1996 and 1995 consist primarily of
foreign taxes currently payable.
NOTE 7 - RUSSIAN EXPORT TARIFF
GEOILBENT received a waiver from the Russian oil export tariff for 1995. In July
1996, the oil export tariff was terminated. The Company anticipates that the
tariff on oil exporters will be replaced by an excise, pipeline or other tax
levied on all oil producers, but it is currently unclear how such other tax
rates and regimes will be set and administered. The Russian regulatory
environment continues to be volatile and the Company is unable to predict the
impact of such changes in tariffs, taxes and duties.
<PAGE> 13
13
NOTE 8 - VENEZUELA OPERATIONS
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.
NOTE 9 - SUBSEQUENT EVENTS
In August 1996, Benton-Vinccler entered into a $50 million, 2 year credit
facility with Morgan Guaranty to repay the balance outstanding under a short
term credit facility (See Note 4) and to repay certain advances received from
the Company. The credit facility is collateralized in full by a time deposit of
the Company and bears interest at LIBOR plus 6%. The Company will receive
interest on its time deposit and a security fee on the outstanding principal of
the loan, for a combined total of approximately LIBOR plus 5.75%. The loan
arrangement contains no restrictive covenants and no financial ratio covenants.
<PAGE> 14
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
PRINCIPLES OF CONSOLIDATION AND ACCOUNTING METHODS
The Company has included the results of operations of Benton-Vinccler in its
consolidated statement of operations and has reflected the 20% ownership
interest of Vinccler as a minority interest. Beginning in 1995, GEOILBENT has
been included in the consolidated financial statements based on a fiscal period
ending September 30. Results of operations reported in the first half of 1996
for Russia reflect the six months ended March 31, 1996. The Company's investment
in GEOILBENT is proportionately consolidated based on the Company's ownership
interest, and for oil and gas reserve information, the Company reports its 34%
share of the reserves attributable to GEOILBENT.
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 to Consolidated
Financial Statements.
The following discussion of the Company's results of operations for the six
months ended June 30, 1996 and 1995 and financial condition at June 30, 1996 and
December 31, 1995 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
The Company's results of operations for the three and six months ended June 30,
1996 reflect the substantial growth of Benton Vinccler, C.A. in Venezuela, the
relative slow growth of GEOILBENT in Russia, and the sale of the Company's U.S.
operations. Benton-Vinccler accounted for more than 85% of the Company's
production, oil and gas sales and net income for the first half of 1996, and
reported increases of more than 150% in these areas over the corresponding
period of 1995. Benton Vinccler's significant growth has resulted in increases
in both oil and gas sales and expenses compared to the corresponding period in
1995, although expenses have declined both on a per barrel basis and as a
percent of oil and gas sales as production volumes have increased. Other major
influences on the Company's results of operations during the second quarter of
1996 were the sale of its Gulf Coast operations, resulting in a gain of $7.2
million and the restructuring of its long term debt, resulting in the issuance
of $125 million of senior unsecured notes and an extraordinary charge of $11.0
million ($10.1 million net of tax benefits) against earnings for the early
retirement of certain privately placed notes. In the first quarter of 1996, the
Company completed a partnership exchange offer, resulting in a noncash charge
of $2.1 million related to the issuance of certain warrants.
The following table presents selected expense items from the Company's
consolidated income statement as a percentage of oil and gas sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---------- --------- --------- --------
<S> <C> <C> <C> <C>
Lease Operating Costs and Production Taxes 15.7% 23.9% 14.4% 21.3%
Depletion, Depreciation and Amortization 21.4 26.1 23.0 26.1
General and Administrative 16.0 17.4 13.9 15.6
Interest 10.2 13.7 8.8 13.5
</TABLE>
<PAGE> 15
15
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The Company had revenues of $41.9 million for the three months ended June 30,
1996. Expenses incurred during the period consisted of lease operating costs and
production taxes of $5.2 million, depletion, depreciation and amortization
expense of $7.1 million, general and administrative expense of $5.3 million,
interest expense of $3.4 million, income tax expense of $5.0 million, minority
interest of $2.1 million and an extraordinary charge for early retirement of
debt, net of tax benefit, of $10.1 million. Income before extraordinary charge
for the period was $13.9 million or $0.46 per share. Net income was $3.8 million
or $0.13 per share.
By comparison, the Company had revenues of $13.2 million for the three months
ended June 30, 1995. Expenses incurred during the period consisted of lease
operating costs and production taxes of $3.0 million, depletion, depreciation
and amortization expense of $3.3 million, general and administrative expense of
$2.2 million, interest expense of $1.7 million, income tax expense of $0.9
million and minority interest of $0.9 million. Net income for the period was
$1.1 million or $0.04 per share.
Revenues increased $28.7 million, or 217%, during the three months ended June
30, 1996 compared to the corresponding period of 1995 primarily due to increased
oil sales in Venezuela and a $7.2 million gain on the sale of properties. Sales
quantities for the three months ended June 30, 1996 from Venezuela and Russia
were 3,011,155 Bbl and 173,461 Bbl, respectively, compared to 1,026,371 Bbl and
155,040 Bbl, respectively, for the three months ended June 30, 1995. Prices for
crude oil averaged $10.32 per Bbl (pursuant to terms of an operating service
agreement) from Venezuela and $13.85 per Bbl from Russia for the three months
ended June 30, 1996 compared to $9.63 per Bbl from Venezuela and $13.26 per Bbl
from Russia for the corresponding period of 1995. Domestic sales quantities for
the three months ended June 30, 1996 were 713 Bbl of crude oil and condensate
and 194,706 Mcf of natural gas compared to 12,643 Bbl of crude oil and
condensate and 553,038 Mcf of natural gas for the three months ended June 30,
1995. Domestic prices for crude oil and natural gas averaged $21.94 per Bbl and
$1.63 per Mcf during the three months ended June 30, 1996 compared to $14.14 per
Bbl and $1.65 per Mcf during the corresponding period of 1995. The decrease in
domestic production is primarily due to the sale of substantially all of the
Company's domestic properties in two separate transactions in March 1995 and
April 1996. (See Note 2.) Revenues for the three months ended June 30, 1996 were
reduced by a loss of $0.7 million related to a commodity hedge agreement
compared to a loss of $0.3 million during the corresponding period of 1995.
Investment earnings increased $0.6 million, or 137%, during the three months
ended June 30, 1996 compared to the three months ended June 30, 1995 due to
increased cash and marketable securities resulting primarily from the issuance
of senior unsecured notes in May 1996 and sale of property interests in
Louisiana. Revenues for the three months ended June 30, 1996 were increased by a
foreign exchange gain of $0.5 million compared to an insignificant loss during
the corresponding period of 1995.
Lease operating costs and production taxes increased $2.2 million, or 70%,
during the three months ended June 30, 1996 compared to the three months ended
June 30, 1995 primarily due to the growth of the Company's Venezuelan operations
and the payment of the export tariff in Russia, but decreased substantially as a
percentage of oil and gas sales. Depletion, depreciation and amortization
increased $3.8 million, or 112%, during the three months ended June 30, 1996
compared to the corresponding period of 1995 primarily due to the increased oil
production in Venezuela, but decreased as a percentage of oil and gas sales.
Depletion expense per barrel of oil equivalent produced from Venezuela, Russia
and the United States during the three months ended June 30, 1996 was $2.05,
$3.24 and $6.47, respectively, compared to $1.99, $2.95 and $7.26, respectively,
during the corresponding period of the previous year. General and administrative
expenses increased $3.1 million, or 139%, during the three months ended June 30,
1996 compared to the corresponding period of 1995 primarily due to the
implementation of certain consulting and related arrangements among
Benton-Vinccler, the Company and Vinccler, Venezuelan municipal taxes (which are
a function of growing oil revenues) and the Company's increased corporate
activity associated with the growth of the Company's business; but decreased
slightly as a percentage of oil and gas sales. Interest expense increased $1.7
million, or 94%, during the three months ended June 30, 1996 compared to the
three months ended June 30, 1995 primarily due to increased borrowing to fund
operations in Venezuela and Russia, but decreased slightly as a percentage of
oil and gas sales. Income tax expense increased $4.1 million, or 460%, during
the three months ended June 30, 1996 compared to the corresponding period of
1995 due primarily to increases in profitability in Venezuela. Net income
attributable to minority interest increased $1.2 million, or 136%, for the three
months ended June 30, 1996 compared to the three months ended June 30, 1995 as a
result of the increased profitability of Benton-Vinccler's operations in
Venezuela. The Company recorded an extraordinary charge for early retirement of
debt, net of tax benefit, of $10.1 million during the three months ended June
30, 1996 as a result of prepayment premiums due upon the early repayment of
senior unsecured notes. (See Note 2.)
<PAGE> 16
16
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The Company had revenues of $74.8 million for the six months ended June 30,
1996. Expenses incurred during the period consisted of lease operating costs and
production taxes of $9.3 million, depletion, depreciation and amortization
expense of $14.8 million, general and administrative expense of $9.0 million,
interest expense of $5.6 million, partnership exchange expense of $2.1 million,
income tax expense of $9.4 million, minority interest of $4.4 million and an
extraordinary charge for early retirement of debt, net of tax benefit, of $10.1
million. Income before extraordinary charge for the period was $20.2 million or
$0.67 per share. Net income was $10.1 million or $0.34 per share.
By comparison, the Company had revenues of $25.9 million for the six months
ended June 30, 1995. Expenses incurred during the period consisted of lease
operating costs and production taxes of $5.3 million, depletion, depreciation
and amortization expense of $6.5 million, general and administrative expense of
$3.9 million, interest expense of $3.4 million, income tax expense of $2.0
million and minority interest of $1.7 million. Net income for the period was
$3.2 million or $0.12 per share.
Revenues increased $48.9 million, or 189%, during the six months ended June 30,
1996 compared to the corresponding period of 1995 primarily due to increased oil
sales in Venezuela and a $7.2 million gain on the sale of properties. Sales
quantities for the six months ended June 30, 1996 from Venezuela and Russia were
5,634,599 Bbl and 396,858 Bbl, respectively, compared to 2,088,464 Bbl and
273,904 Bbl, respectively, for the six months ended June 30, 1995. Prices for
crude oil averaged $10.00 per Bbl (pursuant to terms of an operating service
agreement) from Venezuela and $11.87 per Bbl from Russia for the six months
ended June 30, 1996 compared to $9.32 per Bbl from Venezuela and $13.20 per Bbl
from Russia for the corresponding period of 1995. Domestic sales quantities for
the six months ended June 30, 1996 were 5,876 Bbl of crude oil and condensate
and 1,443,834 Mcf of natural gas compared to 44,960 Bbl of crude oil and
condensate and 899,586 Mcf of natural gas for the six months ended June 30,
1995. Domestic prices for crude oil and natural gas averaged $20.18 per Bbl and
$2.92 per Mcf during the six months ended June 30, 1996 compared to $16.27 per
Bbl and $1.64 per Mcf during the corresponding period of 1995. Revenues for the
six months ended June 30, 1996 were reduced by a loss of $1.0 million related to
a commodity hedge agreement compared to a loss of $0.5 million during the
corresponding period of 1995. Investment earnings increased $0.7 million, or
79%, during the six months ended June 30, 1996 compared to the six months ended
June 30, 1995 due to increased cash and marketable securities resulting
primarily from the issuance of senior unsecured notes in May 1996 and sale of
property interests in Louisiana. Revenues for the six months ended June 30, 1996
were increased by a foreign exchange gain of $1.7 million compared to a gain of
$0.1 million during the corresponding period of 1995.
Lease operating costs and production taxes increased $4.0 million, or 75%,
during the six months ended June 30, 1996 compared to the six months ended June
30, 1995 primarily due to the growth of the Company's Venezuelan operations, but
decreased substantially as a percentage of oil and gas sales. Depletion,
depreciation and amortization increased $8.3 million, or 129%, during the six
months ended June 30, 1996 compared to the corresponding period of 1995
primarily due to the increased oil production in Venezuela, but decreased as a
percentage of oil and gas sales. Depletion expense per barrel of oil equivalent
produced from Venezuela, Russia and the United States during the six months
ended June 30, 1996 was $2.07, $3.40 and $6.47, respectively, compared to $1.99,
$2.87 and $7.13, respectively, during the corresponding period of the previous
year. General and administrative expenses increased $5.1 million, or 130%,
during the six months ended June 30, 1996 compared to the corresponding period
of 1995 primarily due to the implementation of certain consulting and related
arrangements among Benton-Vinccler, the Company and Vinccler, Venezuelan
municipal taxes (which are a function of growing oil revenues) and the Company's
increased corporate activity associated with the growth of the Company's
business; but decreased slightly as a percentage of oil and gas sales. Interest
expense increased $2.2 million, or 68%, during the six months ended June 30,
1996 compared to the six months ended June 30, 1995 primarily due to increased
borrowing to fund operations in Venezuela and Russia, but decreased
substantially as a percentage of oil and gas sales. The Company incurred
partnership exchange expenses of $2.1 million during the six months ended June
30, 1996 as a result of the completion of an exchange offer resulting in the
liquidation of three limited partnerships. Income tax expense increased $7.4
million, or 379%, during the six months ended June 30, 1996 compared to the
corresponding period of 1995 due primarily to increases in profitability in
Venezuela. Net income attributable to minority interest increased $2.7 million,
or 152%, for the six months ended June 30, 1996 compared to the six months ended
June 30, 1995 as a result of the increased profitability of Benton-Vinccler's
operations in Venezuela. The Company recorded an extraordinary charge for early
retirement of debt, net of tax benefit, of $10.1 million during the six months
ended June 30, 1996 as a result of prepayment premiums due upon the early
repayment of senior unsecured notes. (See Note 2.)
<PAGE> 17
17
INTERNATIONAL OPERATIONS
The Company's costs of operations in Venezuela and Russia beginning in 1993 have
included certain fixed or minimum office, administrative, legal and personnel
related costs and certain start up costs, including short term facilities
rentals, organizational costs, contract services and consultants. Such costs are
expected to grow over time as operations increase. In the last two years such
costs have become less significant on a unit of production basis, but such costs
can be expected to fluctuate in the future based upon a number of factors. For
the six months ended June 30, 1996, the operating costs and general and
administrative expenses for Venezuela were $0.92 and $0.51 per Bbl,
respectively. For the six months ended June 30, 1995, the operating costs and
general and administrative expenses for Venezuela were $1.43 and $0.57 per Bbl,
respectively. The Company's Venezuelan operations have grown considerably since
inception, and are expected to continue to grow, and its operating costs and
general and administrative expenses are expected to increase both in the
aggregate and on a per unit basis. In Russia, for the six months ended June 30,
1996, the operating costs and general and administrative expenses were $9.10 and
$1.81 per Bbl, respectively. For the six months ended June 30, 1995, the
operating costs and general and administrative expenses for Russia were $5.24
and $1.24 per Bbl, respectively. The Company's Russian operations have grown
less significantly than the Venezuelan operations. Capital expenditures through
1993 in both Venezuela and Russia focused on start-up infrastructure items such
as roads, pipelines, and facilities rather than drilling. Beginning in 1994, a
higher proportion of capital expenditures have been and will continue to be
spent on drilling and production activities.
As a private contractor, Benton-Vinccler is subject to a statutory income tax
rate of 34%. However, Benton-Vinccler reported lower effective tax rates due to
significant non-cash tax deductible expenses resulting from devaluations in
Venezuela when Benton-Vinccler had net monetary liabilities in U.S. dollars. The
Company cannot predict the timing or impact of future devaluations in Venezuela.
GEOILBENT is subject to a statutory income tax rate of 35%. GEOILBENT has also
been subject to various other tax burdens, including an oil export tariff. The
export tariff was 30 ECU's per ton through 1995, although GEOILBENT obtained an
exemption from such tariff for 1995. The tariff was reduced to 20 ECU's per ton
in January 1996 and terminated effective July 1996 . The Company anticipates
that the tariff on oil exporters will be replaced by an excise, pipeline or
other tax levied on all oil producers, but it is currently unclear how such
other tax rates and regimes will be set and administered.
In January 1996, a consortium consisting of the Company (30%) and two bidding
partners (35% each) were awarded the right to explore and develop the Delta
Centro Block in Venezuela. Formal agreements were finalized and executed in July
1996. The agreements require a minimum exploration work program consisting of
completing a 1,300 kilometer seismic survey and drilling three wells to depths
ranging from 12,000 to 18,000 feet, within the next five years. PDVSA estimates
that such work will cost $60 million. The Company and its partners have provided
performance guarantees or letters of credit for their pro rata shares of the
minimum work program. The venture will be operated by one of the Company's
partners, Louisiana Land and Exploration Company. The venture intends to conduct
a 3-D seismic survey beginning in 1996 at a total cost to the Company of $4-6
million. The first well is tentatively scheduled for 1997 at a cost of $1.5-2.0
million to the Company. Future seismic and drilling programs will be based on
the results of 1996-97 activity.
If commercial production results from exploration activities at Delta Centro,
then an affiliate of PDVSA will participate in the venture at an interest
ranging from 1 to 35% at its discretion. Any oil and gas produced at Delta
Centro will be sold at market prices and will be subject to the oil and gas
taxation regime in Venezuela and to the terms of a profit sharing agreement with
PDVSA. Under current oil and gas tax law, a royalty of 16.7% will be paid to the
state, and an income tax rate of 66.7% will be applied to the venture's pre-tax
profits. Under the terms of the profit sharing agreement, the venture will share
41% of pre-tax income with PDVSA for the period of time during which the first
$1 billion of revenues is produced; thereafter, the profit sharing may increase
to up to 50% according to a formula based on return on assets.
EFFECTS OF CHANGING PRICES, FOREIGN EXCHANGE RATES AND INFLATION
The Company's results of operations and cash flow are affected by changing oil
and gas prices. However, the Company's Venezuelan revenues are based on a fee
adjusted quarterly by the percentage change of a basket of crude oil prices
instead of by absolute dollar changes, which dampens both any upward and
downward effects of changing prices on the Company's Venezuelan revenues and
cash flows. If the price of oil and gas increases, there
<PAGE> 18
18
could be an increase in the cost to the Company for drilling and related
services because of increased demand, as well as an increase in revenues.
Fluctuations in oil and gas prices may affect the Company's total planned
development activities and capital expenditure program.
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, 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 1,500 Bbl of
oil per day for 1996. During the six months ended June 30, 1996, the average
price per Bbl of WTI was $19.57 and the Company's net exposure for the six
months was $1.0 million. 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.
There are presently no restrictions on conversion of currency in either
Venezuela or Russia. However, from June 1994 through April 1996, Venezuela
implemented exchange controls which significantly limited the ability to convert
local currency into U.S. dollars. Because payments made 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 exchange controls did not have a material
adverse effect on Benton-Vinccler or the Company.
Within the United States, inflation has had a minimal effect on the Company, but
is potentially an important factor in results of operations in Venezuela and
Russia. With respect to Benton-Vinccler and GEOILBENT, substantially all of the
sources of funds, including the proceeds from oil sales, the Company's
contributions and credit financings, are denominated in U.S. dollars, while
local transactions in Russia and Venezuela are conducted in local currency.
Following the announcement of a Venezuelan preliminary loan accord with the IMF
and the lifting of certain exchange and price controls, inflation could be
expected to have an adverse effect on Benton-Vinccler if devaluation of the
local currency does not substantially offset the effects of inflation.
During the six months ended June 30, 1996, the Company realized net foreign
exchange gains, primarily as a result of the decline in the value of the
Venezuelan bolivar during periods when Benton-Vinccler had substantial net
monetary liabilities denominated in bolivares. The Company has recognized
significant exchange gains and losses in the past, resulting from fluctuations
in the relationship of the Venezuelan and Russian currencies to the U.S. dollar.
However, there are many factors affecting foreign exchange rates and resulting
exchange gains and losses, many of which are beyond the influence of the
Company. It is not possible to predict the extent to which the Company may be
affected by future changes in exchange rates and exchange controls.
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) geological, geophysical and seismic costs; and (iii)
acquisition of interests in oil and gas properties. 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, 1996 and 1995 are
summarized in the following table and discussed in further detail below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Net cash provided by operating activities $ 33,517,249 $ 8,187,420
Net cash used in investing activities (99,181,438) (12,421,534)
Net cash provided by financing activities 73,269,422 15,457,668
------------- --------------
Net increase in cash $ 7,605,233 $ 11,223,554
============= ==============
</TABLE>
At June 30, 1996, the Company had current assets of $168.1 million (including
$19.3 million and $1.1 million of cash restricted as collateral for loans to
Benton-Vinccler and GEOILBENT, respectively, and $18 million of cash restricted
as collateral for the Delta Centro letter of credit), and current liabilities of
$57.7 million (including loans of $19.3 million and $2.1 million collateralized
by restricted cash), resulting in working capital of $110.4 million and a
current
<PAGE> 19
19
ratio of 2.9:1. This compares to the Company's working capital deficit of $2.9
million at December 31, 1995. The increase of $113.3 million was due primarily
to increased cash as a result of the issuance of $125 million in senior
unsecured notes and the sale of property interests in the Gulf Coast of
Louisiana. (See Notes 2 and 3.)
CASH FLOW FROM OPERATING ACTIVITIES. During the six months ended June 30, 1996
and 1995, respectively, net cash provided by operating activities was
approximately $33.5 million and $8.2 million, respectively. Cash flow from
operating activities increased by $25.3 million during the six months ended June
30, 1996 over the corresponding period of the prior year due primarily to
increased oil and gas production in Venezuela.
CASH FLOW FROM INVESTING ACTIVITIES. During the six months ended June 30, 1996
and 1995, the Company had drilling and production related capital expenditures
of approximately $38.4 million and $34.2 million, respectively. Of the 1996
expenditures, $30.0 million was attributable to the development of the South
Monagas Unit in Venezuela, $3.0 million related to the development of the North
Gubkinskoye Field in Russia, $2.0 million related to drilling activity in the
West Cote Blanche Bay, Rabbit Island and Belle Isle Fields in Louisiana, and
$3.4 million was attributable to other projects. The Company received proceeds
from the sale of property and equipment of $34.7 million during the six months
ended June 30, 1996, primarily as a result of the sale of all of its remaining
interest in the West Cote Blanche Bay, Rabbit Island and Belle Isle Fields; the
Company received $14.7 million during the six months ended June 30, 1995, from
the sale of its working interest in certain depths in the West Cote Blanche Bay
Field. (See Note 2.)
CASH FLOW FROM FINANCING ACTIVITIES. In May 1996, the Company issued $125
million in 11.625% senior unsecured notes due May 1, 2003. A portion of the
proceeds were used to repay certain long term indebtedness and certain short
term obligations. The remainder will be used for capital expenditure and working
capital purposes.
(See Note 3.)
The Company expects 1996 capital expenditures of approximately $110-125 million.
Funding for the 1996 and subsequent capital expenditure programs is expected to
come from the Company's recent issuance of senior unsecured notes and sale of
property interests, its cash flow from operations, future sales of property
interests, or issuance of debt or equity securities. Included in the 1996 budget
are approximately $12 million in expenditures for Russia (net to the Company's
interest), which are dependent on proposed nonrecourse financing from the
European Bank for Reconstruction and Development ("EBRD"). Negotiations are
currently underway with EBRD, but there can be no assurance that such financing
will become available under terms and conditions acceptable to GEOILBENT or the
Company.
<PAGE> 20
20
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
None.
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.
None.
<PAGE> 21
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BENTON OIL AND GAS COMPANY
Dated: August 14, 1996 By: /S/ A. E. Benton
---------------
A. E. Benton,
Chairman and Chief Executive Officer
Dated: August 14, 1996 By: /S/ Michael B. Wray
------------------
Michael B. Wray
President and Chief Financial Officer
<PAGE> 1
EXHIBIT 11.1
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
- --------------------------
Net income attributable to common stock $ 10,124,998 $ 3,151,601
============ ===========
Weighted average number of common shares outstanding 26,327,231 24,982,288
============ ===========
Primary earnings per share $ 0.38 $ 0.13
============ ===========
ADDITIONAL PRIMARY COMPUTATION
- ------------------------------
Net income attributable to common stock $ 10,124,998 $ 3,151,601
============ ===========
Shares:
Weighted average number of common shares outstanding 26,327,231 24,982,288
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased with the
proceeds from exercise of such options 2,195,722 1,476,835
------------ -----------
Primary weighted average number of common shares outstanding
as adjusted 28,522,953 26,459,123
============ ===========
Primary earnings per share $ 0.35 $ 0.12
============ ===========
ASSUMING FULL DILUTION
- ----------------------
Net income attributable to common stock $ 10,124,998 $ 3,151,601
============ ===========
Shares:
Weighted average number of common shares outstanding 26,327,231 24,982,288
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased with the
proceeds from exercise of such options 3,341,488 1,716,099
------------ -----------
Weighted average number of common shares outstanding as
adjusted 29,668,719 26,698,387
============ ===========
Earnings per common share assuming full dilution (a) $ 0.34 $ 0.12
============ ===========
ADDITIONAL FULLY DILUTED COMPUTATION
- ------------------------------------
Additional adjustment to net income as adjusted per fully diluted
computation above:
Net income attributable to common stock $ 10,124,998 $ 3,151,601
Add after tax interest expense attributable to convertible notes (70,880) 181,800
Add after tax interest expense attributable to convertible
debentures 128,241 230,320
------------ -----------
Net income as adjusted $ 10,182,359 $ 3,563,721
============ ===========
Additional adjustment to weighted average number of shares outstanding:
Weighted average number of common shares outstanding 26,327,231 24,982,288
Add shares assuming conversion of convertible debentures 384,180 582,462
Add shares assuming conversion of convertible notes 44,677 387,502
Add shares assuming exercise of options reduced by the number of shares
which could have been purchased with the
proceeds from exercise of such options 3,341,488 1,716,099
------------ -----------
Weighted average number of common shares outstanding as
adjusted 30,097,576 27,668,351
============ ===========
Earnings per common share assuming full dilution (b) $ 0.34 $ 0.13
============ ===========
<FN>
(a) This calculation is submitted in accordance with Regulations S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion 15 for 1995 because it results in dilution of less than 3% for the
six months ended June 30, 1995.
(b) 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 for the six months ended June
30, 1995.
</TABLE>
<PAGE> 1
EXHIBIT 11.2
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
- --------------------------
Net income attributable to common stock $ 3,814,758 $ 1,110,493
=========== ===========
Weighted average number of common shares outstanding 26,780,667 25,049,214
=========== ===========
Primary earnings per share $ 0.14 $ 0.04
=========== ===========
ADDITIONAL PRIMARY COMPUTATION
- ------------------------------
Net income attributable to common stock $ 3,814,758 $ 1,110,493
=========== ===========
Shares:
Weighted average number of common shares outstanding 26,780,667 25,049,214
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased with the
proceeds from exercise of such options 2,591,049 1,831,231
----------- -----------
Primary weighted average number of common shares outstanding
as adjusted 29,371,716 26,880,445
=========== ===========
Primary earnings per share (a) $ 0.13 $ 0.04
=========== ===========
ASSUMING FULL DILUTION
- ----------------------
Net income attributable to common stock $ 3,814,758 $ 1,110,493
=========== ===========
Shares:
Weighted average number of common shares outstanding 26,780,667 25,049,214
Add shares assuming exercise of options reduced by the number
of shares which could have been purchased with the
proceeds from exercise of such options 3,197,137 1,991,319
----------- -----------
Weighted average number of common shares outstanding as
adjusted 29,977,804 27,040,533
=========== ===========
Earnings per common share assuming full dilution (a) $ 0.13 $ 0.04
=========== ===========
ADDITIONAL FULLY DILUTED COMPUTATION
- ------------------------------------
Additional adjustment to net income as adjusted per fully diluted
computation above:
Net income attributable to common stock $ 3,814,758 $ 1,110,493
Add after tax interest expense attributable to convertible notes 0 90,900
Add after tax interest expense attributable to convertible
debentures 43,974 115,160
----------- -----------
Net income as adjusted $ 3,858,732 $ 1,316,553
=========== ===========
Additional adjustment to weighted average number of shares outstanding:
Weighted average number of common shares outstanding 26,780,667 25,049,214
Add shares assuming conversion of convertible debentures 337,097 582,462
Add shares assuming conversion of convertible notes -- 387,502
Add shares assuming exercise of options reduced by the number of shares
which could have been purchased with the
proceeds from exercise of such options 3,197,137 1,991,319
----------- -----------
Weighted average number of common shares outstanding as
adjusted 30,314,901 28,010,497
=========== ===========
Earnings per common share assuming full dilution (b) $ 0.13 $ 0.05
=========== ===========
<FN>
(a) This calculation is submitted in accordance with Regulations S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion 15 for 1995 because it results in dilution of less than 3% for the
three months ended June 30, 1995.
(b) 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 for the three months ended June
30, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 13,785,231
<SECURITIES> 79,909,144
<RECEIVABLES> 35,447,104
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 168,142,227
<PP&E> 190,029,266
<DEPRECIATION> (33,187,314)
<TOTAL-ASSETS> 330,832,096
<CURRENT-LIABILITIES> 57,711,294
<BONDS> 127,173,617
<COMMON> 273,058
0
0
<OTHER-SE> 134,227,071
<TOTAL-LIABILITY-AND-EQUITY> 330,832,096
<SALES> 64,370,972
<TOTAL-REVENUES> 74,828,420
<CGS> 24,055,723
<TOTAL-COSTS> 24,055,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,640,872
<INCOME-PRETAX> 34,041,035
<INCOME-TAX> 9,441,973
<INCOME-CONTINUING> 20,199,797
<DISCONTINUED> 0
<EXTRAORDINARY> 10,074,799
<CHANGES> 0
<NET-INCOME> 10,124,998
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
