<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 March 31, 1997 or
Transition Report Pursuant to Section 13 or 15(d)
[ ] of the Securities Act of 1934 for the
Transition Period from to
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Commission File No. 1-10762
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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 May 9, 1997, 29,013,136 shares of the
Registrant's Common Stock were outstanding.
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2
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 (Unaudited)......................................................3
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1996 (Unaudited).......................................4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 (Unaudited).......................................5
Notes to Consolidated Financial Statements..................................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................12
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..........................................................................17
Item 2. CHANGES IN SECURITIES......................................................................17
Item 3. DEFAULTS UPON SENIOR SECURITIES............................................................17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................17
Item 5. OTHER INFORMATION..........................................................................17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...........................................................17
Signatures................................................................................................................18
</TABLE>
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3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 41,450 $ 32,432
Restricted cash 4,500 4,500
Marketable securities 45,058 52,004
Accounts receivable:
Accrued oil and gas revenue 53,044 50,137
Joint interest and other 8,601 9,860
Prepaid expenses and other 1,080 1,591
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TOTAL CURRENT ASSETS 153,733 150,524
RESTRICTED CASH 68,000 68,000
OTHER ASSETS 6,456 6,186
PROPERTY AND EQUIPMENT:
Oil and gas properties (full cost method - costs of
$27,368 and $25,987 excluded from
amortization in 1997 and 1996, respectively) 275,478 259,622
Furniture and fixtures 4,341 4,283
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279,819 263,905
Accumulated depletion and depreciation (62,548) (52,870)
--------- ---------
217,271 211,035
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$ 445,460 $ 435,745
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Revenue distribution $ 279 $ 305
Trade and other 30,885 42,952
Accrued interest payable, payroll and related taxes 9,132 5,975
Income taxes payable 4,911 889
Short term borrowings 1,530 853
Current portion of long term debt 917 1,133
--------- ---------
TOTAL CURRENT LIABILITIES 47,654 52,107
DEFERRED INCOME TAXES 16,928 16,679
LONG TERM DEBT 176,554 175,028
MINORITY INTEREST 19,753 17,032
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 a share;
authorized 5,000 shares; outstanding, none
Common stock, par value $0.01 a share;
authorized 40,000 shares; issued
and outstanding 28,966 and 28,898 shares at
March 31, 1997 and December 31, 1996, respectively 290 289
Additional paid-in capital 141,691 140,648
Retained earnings 42,590 33,962
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TOTAL STOCKHOLDERS' EQUITY 184,571 174,899
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$ 445,460 $ 435,745
========= =========
</TABLE>
See notes to consolidated financial statements.
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4
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
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<S> <C> <C>
REVENUES
Oil and gas sales $ 43,476 $31,285
Gain (loss) on exchange rates (6) 1,128
Investment earnings and other 2,829 526
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46,299 32,939
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EXPENSES
Lease operating costs and production taxes 8,281 4,073
Depletion, depreciation and amortization 9,711 7,733
General and administrative 5,489 3,647
Interest 5,485 2,260
Partnership exchange expenses 2,140
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28,966 19,853
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 17,333 13,086
INCOME TAXES 5,984 4,449
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INCOME BEFORE MINORITY INTEREST 11,349 8,637
MINORITY INTEREST 2,721 2,327
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NET INCOME $ 8,628 $ 6,310
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NET INCOME PER COMMON SHARE:
Primary $ 0.28 $ 0.23
======== =======
Fully Diluted $ 0.28 $ 0.22
======== =======
</TABLE>
See notes to consolidated financial statements.
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5
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,628 $ 6,310
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 9,711 7,733
Amortization of financing costs 265 281
Loss on disposition of assets 4
Partnership exchange expenses 2,140
Minority interest in undistributed earnings of subsidiary 2,721 2,327
Deferred income taxes 249
Changes in operating assets and liabilities:
Accounts receivable (1,648) (9,609)
Prepaid expenses and other 511 (439)
Accounts payable (10,564) 2,420
Accrued interest payable, payroll and related taxes 3,157 733
Income taxes payable 4,022 3,880
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NET CASH PROVIDED BY OPERATING ACTIVITIES 17,056 15,776
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 1,317
Additions of property and equipment (15,951) (15,530)
Increase in restricted cash (1,000) (1,000)
Decrease in restricted cash 1,000
Purchases of marketable securities (645)
Maturities of marketable securities 7,591
Distributions from limited partnerships 264
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NET CASH USED IN INVESTING ACTIVITIES (9,005) (14,949)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 1,044 1,071
Proceeds from short term borrowings 1,552
Proceeds from issuance of notes payable 1,190 1,692
Payments on short term borrowings and notes payable (732) (3,562)
Decrease (increase) in other assets (535) 44
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NET CASH PROVIDED BY FINANCING ACTIVITIES 967 797
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NET INCREASE IN CASH AND CASH EQUIVALENTS 9,018 1,624
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,432 6,180
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,450 $ 7,804
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense $ 1,621 $ 1,727
======== ========
Cash paid during the period for income taxes $ 1,216 $ 425
======== ========
</TABLE>
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1997, certain trade payables of
GEOILBENT were converted to long term debt. The Company's proportionate share of
the converted payables is $1,528,777.
During the three months ended March 31, 1996, $3,226,000 principal amount of the
Company's 8% convertible notes and $58,000 principal amount of the Company's 8%
convertible debentures were retired upon conversion into 275,082 and 5,865
shares of the Company's common stock, respectively.
During the three months ended March 31, 1996, the Company financed the purchase
of oil and gas equipment and services in the amount of $272,655. Also during the
three months ended March 31, 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.
See notes to consolidated financial statements.
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7
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Three Months Ended March 31, 1997
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 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
acquired the limited partnership interests for an aggregate of 168,362 shares of
common stock and warrants to purchase 587,783 shares of common stock at $11 per
share, 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. GEOILBENT (owned 34% by the Company) has been included in the
consolidated financial statements based on a fiscal period ending September 30.
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 March 31,
1997, and the results of operations for the three month periods ended March 31,
1997 and 1996. 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. Reference 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, 1996
for additional disclosures, including a summary of the Company's accounting
policies.
The results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable securities are carried at amortized cost. They may be 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. The Company's marketable securities at cost, which
approximates fair value, at March 31, 1997, consisted of $20.2 million in
treasury securities or repurchase agreements thereof, $19.9 million in
commercial paper and $5.0 in
<PAGE> 8
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certificates of deposit and at December 31, 1996 consisted of $26.2 million in
treasury securities or repurchase agreements thereof, $19.8 million in
commercial paper and $6.0 million in bankers' acceptances.
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 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
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<S> <C> <C>
Primary shares 31,065 27,674
Fully diluted shares 31,065 28,748
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share" which
will be effective for the Company beginning December 31, 1997. SFAS 128 replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share based upon the weighted average number of common shares for
the period. It also requires dual presentation of basic and diluted earnings per
share of companies with complex capital structures. Had earnings per share been
determined consistent with SFAS 128, basic and diluted earnings per share would
have been:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------------------------------- ------------------------------------
Weighted Weighted
Average Shares Net Income Per Average Shares Net Income Per
(in thousands) Share (in thousands) Share
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic 28,962 $0.30 25,874 $0.24
Diluted 31,065 $0.28 28,194 $0.22
</TABLE>
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 $429,894 and $452,937 for the three months ended March
31, 1997 and 1996, 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 Venezuela, Russia, China and other
cost centers at March 31, 1997 were $9,955,904, $809,204, $15,520,124, and
$1,083,143, respectively. Excluded costs attributable to the Venezuela, Russia,
China and other cost centers at December 31, 1996 were $8,935,183, $809,204,
$15,385,043 and $857,851, respectively. Depletion expense attributable to the
Venezuela and Russia cost centers for the three months ended March 31, 1997, was
$8,571,653 and $942,215 ($2.35 and $3.38 per equivalent barrel), respectively.
Depletion expense attributable to the Venezuela, Russia and other cost centers
for the three months ended March 31, 1996, was $5,475,593, $786,140 and
$1,380,070 ($2.09, $3.52 and $6.47 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 $188,115 and
$90,537 for the three months ended March 31, 1997 and 1996, respectively.
<PAGE> 9
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NOTE 2 - ACQUISITIONS AND SALES
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 per warrant (an aggregate of $2.1 million), which was charged to expense
in 1996.
In March 1997, the Company signed an agreement to acquire an interest in, and
serve as operator for, three California state offshore oil and gas leases. As
operator of the leases, the Company may drill one well during the fourth quarter
of 1997, which would require an outlay of approximately $4 million consisting of
its initial contribution to the project and share of the well's cost.
NOTE 3 - LONG TERM DEBT
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
Senior unsecured notes with interest at 11.625%
See description below $125,000 $125,000
Benton-Vinccler credit facility with interest at
LIBOR plus 6%. Collateralized by a time deposit
of the Company earning approximately LIBOR plus 5.75%
See description below 50,000 50,000
Bank financing with interest at LIBOR plus
7.5% to 8.0%. Secured by certain GEOILBENT
oil export proceeds. See description below. 901 1,105
Other 1,570 56
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177,471 176,161
Less current portion 917 1,133
-------- --------
$176,554 $175,028
======== ========
</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.
The indenture agreement provides for certain limitations on liens, additional
indebtedness, certain investment and capital expenditures, dividends, mergers
and sales of assets. At March 31, 1997, the Company was in compliance with all
covenants of the indenture.
In August 1996, Benton-Vinccler entered into a $50 million, 2-year credit
facility with Morgan Guaranty Trust Company of New York ("Morgan Guaranty") to
repay the balance outstanding under a short term credit facility 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.
In December 1995, GEOILBENT signed a credit facility with IMB for $5 million,
payable over 17 months with interest at LIBOR plus 8.0%. At March 31, 1997 and
December 31, 1996, the Company's proportionate share of the outstanding balances
was $0.9 million and $1.1 million, respectively. While the repayment of loans
under earlier agreements was guaranteed by the Company, repayment under the
current agreement is not.
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NOTE 4 - COMMITMENTS AND CONTINGENCIES
In May 1996, the Company entered into an agreement with Morgan Guaranty which
provides for 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.
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. In April 1997, the plaintiffs 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's
financial statements.
NOTE 5 - TAXES ON INCOME
At December 31, 1996, the Company had, for federal income tax purposes,
operating loss carryforwards of approximately $71 million, expiring in the years
2003 through 2011. If the carryforwards are ultimately realized, approximately
$9 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 not provided for United States income taxes on $65 million of
foreign subsidiaries' unremitted earnings at December 31, 1996 which are
expected to be reinvested indefinitely. It is not practicable to determine the
amount of income taxes that might be payable if such earnings are ultimately
repatriated.
NOTE 6 - RUSSIA OPERATIONS
The European Bank for Reconstruction and Development ("EBRD") and International
Moscow Bank ("IMB") have agreed to lend a total of $65 million to GEOILBENT
(owned 34% by the Company). Funding of the loans will occur upon finalization of
loan documentation and satisfaction of certain precedent conditions. The loans'
proceeds will be used by GEOILBENT to develop the North Gubkinskoye and
Prisklonovoye fields in Western Russia.
For the period January 1 through June 30, 1996, GEOILBENT was subject to the
Russian export tariff. In July 1996, such oil export tariffs were terminated.
Excise, pipeline and other taxes continue to be levied on all oil producers and
certain exporters. The Russian regulatory environment continues to be volatile
and the Company is unable to predict the impact of taxes, duties and other
burdens for the future.
NOTE 7 - 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
("PDVSA"). The operating service agreement covers the Uracoa, Bombal and
Tucupita fields that comprise the South Monagas Unit ("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 Unit, including all
<PAGE> 11
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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.
In January 1996, the Company and its bidding partners, Louisiana Land &
Exploration ("LL&E") and Norcen Energy Resources, LTD ("Norcen") were awarded
the right to explore and develop the Delta Centro Block in Venezuela. The
contract requires a minimum exploration work program consisting of completing a
1,300 kilometer seismic survey and drilling three wells to depths of 12,000 to
18,000 feet within five years. PDVSA estimates that this minimum exploration
work program will cost $60 million and requires that the Company, LL&E and
Norcen each post a performance surety bond or standby letter of credit for its
pro rata share of the estimated work commitment expenditures. The Company has a
30% interest in the exploration venture, with LL&E and Norcen each owning a 35%
interest. Under the terms of the operating agreement, which establishes the
management company of the project, LL&E will be the operator of the field and,
therefore, the Company will not be able to exercise control of the operations of
the venture. Corporation Venezolana del Petroleo, S.A., an affiliate of PDVSA,
has a 35% interest in the management company, which dilutes the voting power of
the partners on a pro rata basis. In July 1996, formal agreements were finalized
and executed and the Company posted an $18 million standby letter of credit,
which is collateralized in full by a time deposit of the Company, to secure its
30% share of the minimum exploration work program (see Note 4).
NOTE 8 - CHINA OPERATIONS
In December 1996, the Company acquired Crestone Energy Corporation, a privately
held corporation headquartered in Denver, Colorado, for 628,142 shares of common
stock and options to purchase 107,571 shares of the Company's common stock at
$7.00 per share, valued at $14.6 million. Crestone's primary asset is a large
undeveloped acreage position in the South China Sea, under a petroleum contract
with China National Offshore Oil Corporation ("CNOOC") of the People's Republic
of China for an area known as Wan'An Bei, WAB-21. Crestone will, as a wholly
owned subsidiary of the Company, continue as the operator and contractor of
WAB-21. Crestone has submitted an exploration program and budget to CNOOC for
1997. However, due to certain territorial disputes over the sovereignty of the
contract area, it is unclear when such program will commence.
NOTE 9 - RELATED PARTY TRANSACTIONS
During 1996 and 1997, the Company made loans to Mr. A.E. Benton, its Chief
Executive Officer, and Mr. M.B. Wray, its President and Chief Financial Officer,
each loan bearing interest at 6%. At December 31, 1996, the balances owed to the
Company by Mr. Benton and Mr. Wray were $277,854 and $619,430, respectively. At
March 31, 1997, the balances owed to the Company by Mr. Benton and Mr. Wray were
$328,198 and $628,307, respectively.
<PAGE> 12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this report or made by management of the Company involve risks and uncertainties
and are subject to change based on various important factors. The following
factors, among others, in some cases have affected and could cause actual
results and plans for future periods to differ materially from those expressed
or implied in any such forward-looking statements: fluctuations in oil and gas
prices, changes in operating costs, overall economic conditions, political
stability, acts of terrorism, currency and exchange risks, changes in existing
or potential tariffs, duties or quotas, availability of additional exploration
and development opportunities, availability of sufficient financing, changes in
weather conditions, and ability to hire, retain and train management and
personnel.
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. GEOILBENT has been included in the
consolidated financial statements based on a fiscal period ending September 30.
Results of operations reported in the first quarter of 1996 and 1997 for Russia
reflect the three months ended December 31, 1995 and 1996, respectively. The
Company's investment in GEOILBENT is proportionately consolidated based on the
Company's ownership interest.
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 three
months ended March 31, 1997 and 1996 and financial condition at March 31, 1997
and December 31, 1996 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 following table presents selected expense items from the Company's
consolidated income statement items as a percentage of oil and gas sales:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Lease Operating Costs and Production Taxes 19.0% 13.0%
Depletion, Depreciation and Amortization 22.3 24.7
General and Administrative 12.6 11.7
Interest 12.6 7.2
</TABLE>
<PAGE> 13
13
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company had revenues of $46.3 million for the three months ended March 31,
1997. Expenses incurred during the period consisted of lease operating costs and
production taxes of $8.3 million, depletion, depreciation and amortization
expense of $9.7 million, general and administrative expense of $5.5 million,
interest expense of $5.5 million, income tax expense of $6.0 million and a
minority interest of $2.7 million. Net income for the period was $8.6 million or
$0.28 per share (fully diluted).
By comparison, the Company had revenues of $32.9 million for the three months
ended March 31, 1996. Expenses incurred during the period consisted of lease
operating costs and production taxes of $4.1 million, depletion, depreciation
and amortization expense of $7.7 million, general and administrative expense of
$3.7 million, interest expense of $2.3 million, partnership exchange expense of
$2.1 million, income tax expense of $4.4 million and a minority interest of $2.3
million. Net income for the period was $6.3 million or $0.22 per share (fully
diluted).
Revenues increased $13.4 million, or 41%, during the three months ended March
31, 1997 compared to the corresponding period of 1996 primarily due to increased
oil sales in Venezuela. Sales quantities for the three months ended March 31,
1997 from Venezuela and Russia were 3,643,898 and 278,555 Bbl, respectively,
compared to 2,623,444 and 223,397 Bbl, respectively, for the three months ended
March 31, 1996. Prices for crude oil averaged $11.06 per Bbl (pursuant to terms
of an operating service agreement) from Venezuela and $11.43 per Bbl from Russia
for the three months ended March 31, 1997 compared to $9.63 per Bbl from
Venezuela and $10.32 per Bbl from Russia for the corresponding period of 1996.
Domestic sales quantities for the three months ended March 31, 1996 were 5,163
Bbl of crude oil and condensate and 1,249,128 Mcf of natural gas. Domestic
prices for crude oil and natural gas averaged $19.94 per Bbl and $3.26 per Mcf
during the three months ended March 31, 1996. Revenues for the three months
ended March 31, 1996 were reduced by a loss of $0.4 million related to a
commodity hedge agreement. Revenues for the three months ended March 31, 1997
were nominally affected by foreign exchange losses compared to a gain of $1.1
million during the corresponding period of 1996.
Lease operating costs and production taxes increased $4.2 million, or 102%,
during the three months ended March 31, 1997 compared to the three months ended
March 31, 1996 primarily due to the growth of the Company's Venezuelan
operations and penalties related to late payments of various taxes in Russia by
GEOILBENT. The increase in lease operating costs and production taxes was
partially offset, however, by the sale of substantially all of the Company's
domestic properties in April 1996. Depletion, depreciation and amortization
increased $2.0 million, or 26%, during the three months ended March 31, 1997
compared to the corresponding period of 1996 primarily due to the increased oil
production in Venezuela, but decreased slightly as a percentage of oil and gas
sales. Depletion expense per barrel of oil equivalent produced from Venezuela
and Russia during the three months ended March 31, 1997 was $2.35 and $3.38,
respectively, compared to $2.09, $3.52 and $6.47 from Venezuela, Russia and the
United States, respectively, during the corresponding period of the previous
year. General and administrative expenses increased $1.8 million, or 49%, during
the three months ended March 31, 1997 compared to the corresponding period of
1996 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. Interest expense increased $3.2 million, or 139%, during the three
months ended March 31, 1997 compared to the three months ended March 31, 1996
primarily due to the issuance of $125 million in 11.625% senior unsecured notes
in May 1996. The Company incurred partnership exchange expenses of $2.1 million
during the three months ended March 31, 1996 as a result of the completion of an
exchange offer resulting in the liquidation of three limited partnerships.
Income tax expense increased $1.6 million, or 36%, during the three months ended
March 31, 1997 compared to the corresponding period of 1996 due primarily to
increased profitability in Venezuela. The net income attributable to the
minority interest increased $0.4 million, or 17%, for the three months ended
March 31, 1997 compared to the three months ended March 31, 1996 as a result of
the increased profitability of Benton-Vinccler's operations in Venezuela.
INTERNATIONAL OPERATIONS
As a private contractor, Benton-Vinccler is subject to a statutory income tax
rate of 34%. However, Benton-Vinccler reported significantly lower effective tax
rates for 1996 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.
<PAGE> 14
14
A 3-D seismic survey is being conducted over the southwestern portion of the
Delta Centro Block in Venezuela with an expected total cost to the Company
during 1997 of approximately $6-7 million. Following the initial interpretation
of the seismic data, an exploration well is expected to be drilled during 1998
at a cost to the Company of approximately $4 million. Subsequent seismic and
drilling programs will be based on the results of the 1997-1998 activity. The
Company's operations related to Delta Centro will be subject to oil and gas
industry taxation, which currently provides for royalties of 16.67% and income
taxes of 66.67%.
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 which
was terminated effective July 1, 1996. Excise, pipeline and other taxes continue
to be levied on all oil producers and certain exporters. The Russian regulatory
environment continues to be volatile and the Company is unable to predict the
impact of taxes, duties and other burdens for the future.
In December 1996, the Company acquired Crestone Energy Corporation, a privately
held company headquartered in Denver, Colorado. Crestone's principal asset is a
petroleum contract with China National Offshore Oil Company for an area known as
Wan'An Bei, WAB-21. The WAB-21 petroleum contract covers 6.2 million acres in
the South China Sea, with an option for another one million acres under certain
circumstances, and lies within an area which is the subject of a territorial
dispute between the People's Republic of China and Vietnam. Vietnam has also
executed an agreement on a portion of the same offshore acreage with Conoco, a
unit of DuPont Corporation. The territorial dispute has existed for many years,
and there has been limited exploration and no development activity in the area
under dispute. It is uncertain when or how this dispute will be resolved, and
under what terms the various countries and parties to the agreements may
participate in the resolution, although certain proposed economic solutions
currently under discussion would result in the Company's interest being reduced.
The Company, through Crestone, has submitted plans and budgets to CNOOC for an
initial seismic program to survey the area. However, exploration activities will
be subject to resolution of such territorial dispute. The Company has recorded
no reserves attributable to this petroleum contract.
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 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.
There are presently no restrictions in either Venezuela or Russia that restrict
converting U.S. dollars into local currency. 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. Currently,
there are no exchange controls in Venezuela or Russia that restrict conversion
of local currency into U.S. dollars.
Within the United States, inflation has had a minimal effect on the Company, but
it 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. If
the rate of increase in the value of the dollar compared to the bolivar
continues to be less than the rate of inflation in Venezuela, then inflation
could be expected to have an adverse effect on Benton-Vinccler.
During the three months ended March 31, 1997, the Company did not recognize
significant foreign exchange gains or losses. However, there are many factors
affecting foreign exchange rates and resulting exchange gains and losses, many
of which are beyond the control of the Company. The Company has recognized
significant exchange gains and losses in the past, resulting from fluctuations
in the relationship of the Venezuelan and Russian
<PAGE> 15
15
currencies to the U.S. dollar. 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 three months ended March 31, 1997 and 1996 are
summarized in the following table and discussed in further detail below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1997 1996
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 17,056 $ 15,776
Net cash used in investing activities (9,005) (14,949)
Net cash provided by financing activities 967 797
-------- --------
Net increase in cash $ 9,018 $ 1,624
======== ========
</TABLE>
At March 31, 1997, the Company had current assets of $153.7 million (including
$4.5 million of cash restricted as collateral for a loan to GEOILBENT), and
current liabilities of $47.6 million (including a $1.5 million loan
collateralized by restricted cash), resulting in working capital of $106.1
million and a current ratio of 3.2:1. This compares to the Company's working
capital of $98.4 million at December 31, 1996. The increase of $7.7 million was
due primarily to increased oil sales in Venezuela.
CASH FLOW FROM OPERATING ACTIVITIES. During the three months ended March 31,
1997 and 1996, net cash provided by operating activities was approximately $17.1
million and $15.8 million, respectively. Cash flow from operating activities
increased by $1.3 million during the three months ended March 31, 1997 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 three months ended March 31,
1997 and 1996, the Company had drilling and production related capital
expenditures of approximately $17.3 million and $17.4 million, respectively. Of
the 1997 expenditures, $16.3 million was attributable to the development of the
South Monagas Unit in Venezuela, $0.4 million related to the development of the
North Gubkinskoye Field in Russia, $0.1 million related to a 3-D seismic survey
in the Delta Centro Block in Venezuela and $0.5 million was attributable to
other projects.
CASH FLOW FROM FINANCING ACTIVITIES. 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. The indenture agreement provides for
certain limitations on liens, additional indebtedness, certain investment and
capital expenditures, dividends, mergers and sales of assets. At March 31, 1997,
the Company was in compliance with all covenants of the indenture. A portion of
the proceeds from the notes was used to repay certain long term indebtedness and
certain short term obligations, and the remainder has been or will be used for
capital expenditure and working capital purposes.
The European Bank for Reconstruction and Development ("EBRD") and International
Moscow Bank ("IMB") have agreed to lend a total of $65 million to GEOILBENT
(owned 34% by the Company). Funding of the loans will occur upon finalization of
loan documentation and satisfaction of certain precedent conditions. The loans'
proceeds will be used by GEOILBENT to develop the North Gubkinskoye and
Prisklonovoye fields in Western Russia.
<PAGE> 16
16
The Company expects 1997 capital expenditures to be approximately $140 million,
including $19 million in expenditures for Russia (net to the Company's
interest), which is dependent on EBRD or other financing. Funding is expected to
come from the issuance of debt or equity securities, cash flow from operations,
sales of property interests, or project and trade financing sources. There can
be no assurance that such financing will become available under terms and
conditions acceptable to the Company, which may result in reduced capital
expenditures in the Company's principal areas of operations.
The Company continues to evaluate and pursue domestic and international
opportunities which fit within the Company's business strategy. The Company is
currently evaluating certain development and/or acquisition opportunities, but
it is not presently known whether, or on what terms, such evaluations will
result in future agreements or acquisitions.
<PAGE> 17
17
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> 18
18
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: May 13, 1997 By: /S/A. E. Benton
------------------------
A. E. Benton,
Chairman and Chief Executive Officer
Dated: May 13, 1997 By: /S/Michael B. Wray
------------------------
Michael B. Wray
President and Chief Financial Officer
<PAGE> 1
19
EXHIBIT 11.1
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------- --------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income attributable to common stock $ 8,628 $ 6,310
======= ========
Weighted average number of common shares outstanding 28,962 25,874
======= ========
Primary earnings per share $ 0.30 $ 0.24
======= ========
ADDITIONAL PRIMARY COMPUTATION
Net income attributable to common stock $ 8,628 $ 6,310
======= ========
Shares:
Weighted average number of common shares outstanding 28,962 25,874
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 2,103 1,800
------- --------
Primary weighted average number of common shares outstanding as adjusted 31,065 27,674
======= ========
Primary earnings per share $ 0.28 $ 0.23
======= ========
ASSUMING FULL DILUTION
Net income attributable to common stock $ 8,628 $ 6,310
======= ========
Shares:
Weighted average number of common shares outstanding 28,962 25,874
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 2,103 2,354
------- --------
Weighted average number of common shares outstanding as adjusted 31,065 28,228
======= ========
Earnings per common share assuming full dilution $ 0.28 $ 0.22
======= ========
ADDITIONAL FULLY DILUTED COMPUTATION
Additional adjustment to net income as adjusted per fully
diluted computation above:
Net income attributable to common stock $ 8,628 $ 6,310
======= ========
Add after tax interest expense attributable to convertible notes 0 (70)
Add after tax interest expense attributable to convertible debentures 0 84
------- --------
Net income as adjusted $ 8,628 $ 6,324
======= ========
Additional adjustment to weighted average number of shares
outstanding:
Weighted average number of common shares outstanding 28,962 25,874
Add shares assuming conversion of convertible debentures 0 434
Add shares assuming conversion of convertible notes 0 86
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 2,103 2,354
------- --------
Weighted average number of common shares outstanding as adjusted 31,065 28,748
======= ========
Earnings per common share assuming full dilution $ 0.28 $ 0.22
======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 41,450
<SECURITIES> 45,058
<RECEIVABLES> 61,645
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 153,733
<PP&E> 279,819
<DEPRECIATION> 62,548
<TOTAL-ASSETS> 445,460
<CURRENT-LIABILITIES> 47,654
<BONDS> 176,554
<COMMON> 290
0
0
<OTHER-SE> 184,281
<TOTAL-LIABILITY-AND-EQUITY> 445,460
<SALES> 43,476
<TOTAL-REVENUES> 46,299
<CGS> 17,992
<TOTAL-COSTS> 17,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,485
<INCOME-PRETAX> 17,333
<INCOME-TAX> 5,984
<INCOME-CONTINUING> 8,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,628
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
