<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, 1998 or
Transition Report Pursuant to Section 13 or 15(d)
[ ] of the Securities Act of 1934 for the
Transition Period from to
--------- ----------
COMMISSION FILE NO. 1-10762
BENTON OIL AND GAS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 77-0196707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 11, 1998, 29,576,896 shares of the
Registrant's Common Stock were outstanding.
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2
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 (Unaudited)......................................................3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 (Unaudited).......................................4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 (Unaudited).......................................5
Notes to Consolidated Financial Statements..................................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS...............................................................................20
Item 2. CHANGES IN SECURITIES...........................................................................20
Item 3. DEFAULTS UPON SENIOR SECURITIES.................................................................20
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................20
Item 5. OTHER INFORMATION...............................................................................20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................20
Signatures................................................................................................................21
</TABLE>
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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,
1998 1997
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ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 23,722 $ 11,940
Restricted cash 48 48
Marketable securities 130,532 156,436
Accounts receivable:
Accrued oil and gas revenue 26,192 45,379
Joint interest and other 15,206 8,029
Prepaid expenses and other 2,351 2,463
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TOTAL CURRENT ASSETS 198,051 224,295
RESTRICTED CASH 74,366 74,288
OTHER ASSETS 9,636 12,497
PROPERTY AND EQUIPMENT:
Oil and gas properties (full cost method - costs of
$39,037 and $31,588 excluded from
amortization in 1998 and 1997, respectively) 406,554 367,756
Furniture and fixtures 6,226 5,734
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412,780 373,490
Accumulated depletion, impairment and depreciation (128,813) (100,293)
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283,967 273,197
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$ 566,020 $ 584,277
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade and other $ 42,243 $ 43,490
Accrued interest payable 11,663 5,533
Payroll and related taxes 1,025 1,799
Income taxes payable 1,112 4,535
Short term borrowings 1,546 1,530
Current portion of long term debt 1,011 1,463
--------- ---------
TOTAL CURRENT LIABILITIES 58,600 58,350
DEFERRED INCOME TAXES 23,398 24,811
LONG TERM DEBT 283,893 280,016
MINORITY INTEREST 22,989 23,368
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01 a share;
authorized 5,000 shares; outstanding, none
Common stock, par value $0.01 a share;
authorized 40,000 shares; issued
29,571 and 29,522 shares at March 31, 1998 and
December 31, 1997, respectively 296 295
Additional paid-in capital 146,518 146,125
Retained earnings 31,025 52,011
Treasury stock, at cost, 50 shares in 1997 (699) (699)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 177,140 197,732
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$ 566,020 $ 584,277
========= =========
</TABLE>
See notes to consolidated financial statements.
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4
BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
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REVENUES
Oil and gas sales $ 28,501 $ 43,476
Gain (loss) on exchange rates 613 (6)
Investment earnings and other 4,144 2,829
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33,258 46,299
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EXPENSES
Lease operating costs and production taxes 13,241 8,281
Depletion, depreciation and amortization 11,066 9,711
Write-down of oil and gas properties 17,500
General and administrative 5,406 5,489
Interest 8,080 5,485
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55,293 28,966
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INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (22,035) 17,333
INCOME TAXES (670) 5,984
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INCOME (LOSS) BEFORE MINORITY INTEREST (21,365) 11,349
MINORITY INTEREST (379) 2,721
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NET INCOME (LOSS) $(20,986) $ 8,628
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NET INCOME (LOSS) PER COMMON SHARE:
Basic $ (0.71) $ 0.30
======== ========
Diluted $ (0.71) $ 0.28
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</TABLE>
See notes to consolidated financial statements.
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BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands, unaudited)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(20,986) $ 8,628
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: 11,066 9,711
Depletion, depreciation and amortization 17,500
Write-down of oil and gas properties 284 265
Amortization of financing costs
Loss on disposition of assets 4
Minority interest in undistributed earnings of subsidiary (379) 2,721
Deferred income taxes (1,413) 249
Changes in operating assets and liabilities:
Accounts receivable 14,608 (1,648)
Prepaid expenses and other 112 511
Accounts payable (1,247) (10,905)
Accrued interest payable 6,130 3,602
Payroll and related taxes (774) (104)
Income taxes payable (3,423) 4,022
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NET CASH PROVIDED BY OPERATING ACTIVITIES 21,478 17,056
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment (39,333) (15,951)
Increase in restricted cash (4,625) (1,000)
Decrease in restricted cash 4,547 1,000
Purchases of marketable securities (41,404) (645)
Maturities of marketable securities 67,308 7,591
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NET CASH USED IN INVESTING ACTIVITIES (13,507) (9,005)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 394 1,044
Proceeds from issuance of short term borrowings and notes payable 3,468 1,190
Payments on short term borrowings and notes payable (27) (732)
Increase in other assets (24) (535)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,811 967
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NET INCREASE IN CASH AND CASH EQUIVALENTS 11,782 9,018
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,940 32,432
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,722 $ 41,450
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense $ 1,558 $ 1,621
======== ========
Cash paid during the period for income taxes $ 2,401 $ 1,216
======== ========
</TABLE>
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1998, the Company converted financing
costs in the amount of $2,598,000 to an account receivable from GEOILBENT.
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 $1,529,000.
See notes to consolidated financial statements.
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BENTON OIL AND GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998 (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
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
1998, and the results of operations for the three month periods ended March 31,
1998 and 1997. 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, 1997
for additional disclosures, including a summary of the Company's accounting
policies.
The results of operations for the three month period ended March 31, 1998 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. The marketable securities
the Company may purchase are limited to those defined as Cash Equivalents in the
indentures for its senior unsecured notes. Cash Equivalents 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, 1998, consisted of $9.2 million in
government backed notes and $121.3 million in commercial paper and at December
31, 1997, consisted of $12.6 million in government backed notes, $139.4 million
in commercial paper, $2.4 million in agreements to repurchase treasury
securities and $2.0 million in bankers' acceptances.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share." 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 for companies with complex capital structures. SFAS 128 was
adopted by the Company in December 1997 and earnings per share for all prior
periods have been restated. The numerator (income) and denominator (shares) of
the basic and diluted earnings per share computations for income were (in
thousands, except per share amounts):
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INCOME SHARES AMOUNT PER SHARE
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FOR THE THREE MONTHS ENDED MARCH 31, 1998
BASIC EPS
Loss attributable to common stockholders $ (20,986) 29,496 $ ( 0.71)
========= ====== ========
DILUTED EPS
Loss attributable to common stockholders $ (20,986) 29,496 $ (0.71)
========= ====== ========
FOR THE THREE MONTHS ENDED MARCH 31, 1997
BASIC EPS
Income available to common stockholders $ 8,628 28,962 $ 0.30
========== ====== =======
Effect of Dilutive Securities:
Stock options and warrants - 2,103
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DILUTED EPS
Income available to common stockholders
and assumed conversions $ 8,628 31,065 $ 0.28
========== ====== =======
</TABLE>
For the three months ended March 31, 1998 and 1997, an aggregate 3,842,000 and
440,000 options, respectively, were excluded from the earnings per share
calculations because they were anti-dilutive.
TREASURY STOCK
In June 1997, the Board of Directors instituted a treasury stock repurchase
program under which the Company is authorized to purchase up to 1,500,000 shares
of its common stock. The shares will be used for re-issuance in connection with
the Company's employee stock option plan, treasury stock or for other corporate
purposes to be determined in the future. During 1997, the Company repurchased
50,000 shares at an average price of $13.99 per share.
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 $614,000 and $430,000 for the three months ended March
31, 1998 and 1997, 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). At March 31, 1998, the
Company recognized a write-down of oil and gas properties in the Venezuela cost
center of $17.5 million pursuant to the ceiling limitation as a result of
declines in world crude oil prices.
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, Jordan
and other cost centers at March 31, 1998 were $10,673,000, $922,000,
$16,522,000, $4,218,000, and $6,702,000, respectively. Excluded costs
attributable to the Venezuela, Russia, China, Jordan and other cost centers at
December 31, 1997 were $7,742,000, $842,000, $16,473,000, $1,694,000 and
$4,837,000, respectively. Depletion expense attributable to the Venezuela and
Russia cost centers for the three months ended March 31, 1998, was $10,321,000
and $468,000 ($2.83 and $3.67 per equivalent barrel), respectively. Depletion
expense attributable to the Venezuela and Russia cost centers for the three
months ended March 31, 1997, was $8,572,000 and $942,000 ($2.35 and $3.38 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 $274,000 and $188,000 for the three months ended March
31, 1998 and 1997, respectively.
RECLASSIFICATIONS
Certain items in 1997 have been reclassified to conform to the 1998 financial
statement presentation.
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NOTE 2 - LONG TERM DEBT
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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Senior unsecured notes with interest at 9.375%
See description below $105,000 $105,000
Senior unsecured notes with interest at 11.625%
See description below 125,000 125,000
Benton-Vinccler credit facility with interest at
LIBOR plus 6.125%. Collateralized by a time deposit of the Company earning
approximately LIBOR plus 5.75%
See description below 50,000 50,000
Non-recourse, reserve-based loans with average interest rate of
LIBOR plus 5.25%. See description below 3,452 --
Other 1,452 1,479
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284,904 281,479
Less current portion 1,011 1,463
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$283,893 $280,016
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</TABLE>
In November 1997, the Company issued $115 million in 9.375% senior unsecured
notes due November 1, 2007, of which the Company subsequently repurchased $10
million at their par value. 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 agreements provide for certain
limitations on liens, additional indebtedness, certain investment and capital
expenditures, dividends, mergers and sales of assets. At March 31, 1998, the
Company was in compliance with all covenants of the indentures.
In October 1997, GEOILBENT (owned 34% by the Company) borrowed $10.2 million
under parallel reserve-based, non-recourse loan agreements with the European
Bank for Reconstruction and Development ("EBRD") and International Moscow Bank
("IMB"). EBRD and IMB have agreed to lend up to a total of $65 million to
GEOILBENT based on achieving certain reserve and production milestones. The
loans bear an average interest rate of LIBOR plus 5.25% payable on January 27
and July 27 each year. Principal payments will be due in varying installments
every six months beginning January 27, 2000 until July 27, 2004. The loan
agreements require that GEOILBENT meet certain financial ratios and covenants,
including a minimum current ratio and provides for certain limitations on liens,
additional indebtedness, certain investment and capital expenditures, dividends,
mergers and sales of assets. At March 31, 1998, GEOILBENT was in compliance with
all loan covenants.
In August 1996, Benton-Vinccler entered into a $50 million, long term 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, bears interest at LIBOR
plus 6.125% and matures in August 1999. 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.
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NOTE 3 - COMMITMENTS AND CONTINGENCIES
On February 17, 1998, the WRT Creditors Liquidation Trust filed suit in the
United States Bankruptcy Court, Western District of Louisiana against the
Company and Benton Oil and Gas Company of Louisiana, a.k.a. Ventures Oil & Gas
of Louisiana ("BOGLA"), seeking a determination that the sale by BOGLA to Tesla
Resources Corporation ("Tesla"), a wholly owned subsidiary of WRT Energy
Corporation, of the West Cote Blanche Bay Properties for $15.1 million,
constituted a fraudulent conveyance under 11 U.S.C. Sections 544, 548 and 550
(the "Bankruptcy Code"). The alleged basis of the claim is that at the time of
Tesla's acquisition, it was insolvent and that it paid a price in excess of the
fair value of the property. The Company intends to vigorously contest the suit
and in its management's opinion, while it is unlikely that the suit will result
in a material adverse effect on the Company's financial statements, it is too
early to assess the probability of such an outcome.
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.
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.
The Company has entered into a 15 year lease agreement for office space
currently under construction in Carpinteria, California. It is anticipated that
the building will be ready for occupancy in late 1998. The Company will lease
the entire building (50,000 square feet) for $72,500 per month, subject to
adjustments for tenant improvements, with annual rent adjustments based on
certain changes in the Consumer Price Index. The Company intends to sublet a
portion of the building which would not be immediately needed for operations.
NOTE 4 - TAXES ON INCOME
At December 31, 1997, the Company had, for federal income tax purposes,
operating loss carryforwards of approximately $63 million, expiring in the years
2003 through 2012. If the carryforwards are ultimately realized, approximately
$13 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 $93 million of
foreign subsidiaries' unremitted earnings at December 31, 1997 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.
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NOTE 5 - RUSSIA OPERATIONS
The EBRD and IMB have agreed to lend a total of $65 million to GEOILBENT (owned
34% by the Company) under parallel reserve-based, non-recourse loan agreements
("GEOILBENT Credit Facility"). The proceeds from the loans are to be used by
GEOILBENT to develop the North Gubkinskoye and Prisklonovoye fields in West
Siberia, Russia. Initial funding of $10.2 million and $1.8 million occurred in
October 1997 and January 1998, respectively, upon satisfaction of certain
conditions precedent. Additional borrowings will be based on achieving certain
reserve and production milestones.
GEOILBENT is subject to excise, pipeline and other taxes. Although the Russian
regulatory environment has become less volatile, the Company is unable to
predict the impact of taxes, duties and other burdens for the future.
NOTE 6 - 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., then one of three exploration and production affiliates of the national
oil company, Petroleos de Venezuela, S.A ("PDVSA"), which have subsequently all
been combined into PDVSA Petroleo Y Gas, S.A. ("P&G"). 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 P&G and is responsible for overall operations of the 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.
In January 1996, the Company and its bidding partners, Louisiana Land &
Exploration ("LL&E"), which was recently acquired by Burlington Resources Inc.,
and Norcen Energy Resources, LTD ("Norcen"), recently acquired by Union Pacific
Resources Groups Inc., 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 an 839 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. Corporacion
Venezolana del Petroleo, S.A., an affiliate of PDVSA, has the right to obtain 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 3). As of March 31,
1998, the Company's share of the costs incurred to date were $6.5 million.
NOTE 7 - CHINA OPERATIONS
In December 1996, the Company acquired Crestone Energy Corporation ("Crestone"),
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. However, due to certain territorial disputes over the sovereignty of
the contract area, it is unclear when such program will commence.
<PAGE> 12
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In October 1997, the Company signed a farmout agreement with Shell Exploration
(China) Limited ("Shell") whereby the Company will acquire a 50% participation
interest in Shell's Liaohe area onshore exploration project in northeast China.
Shell holds a petroleum contract with China National Petroleum Corporation
("CNPC") to explore and develop the deep rights in the Qingshui Block, 563
square kilometers (approximately 140,000 acres) in the delta of the Liaohe
River. Shell will be the operator of the project. The Company is required to pay
to Shell 50% of Shell's costs to date, estimated to be approximately $4.0
million ($2 million to the Company) and to pay 100% of the first $8.0 million of
the costs for the phase one exploration period, after which, any resulting
development costs will be shared equally. If the first phase of the exploration
period results in a commercial discovery and if the Company elects to continue
to phase two, then the Company will pay 100% of the first $8.0 million of the
costs of the second phase of the exploration period, after which, any resulting
development costs will be shared equally. The Company and Shell will share costs
equally for the third exploration phase if the Company elects to continue to
this phase. As of March 31, 1998, the Company had incurred $0.3 million related
to the farmout agreement.
NOTE 8 - SANTA BARBARA OPERATIONS
In March 1997, the Company acquired a 40% participation interest in three
California State offshore oil and gas leases from Molino Energy. The project
area covers the Molino, the Gaviota and the Caliente fields, located
approximately 35 miles west of Santa Barbara, California. Molino Energy holds a
100% working interest in each of the leases. The Company serves as operator of
the project. In consideration of the 40% participation interest, the Company
will initially pay 100% of the costs of the first well to be drilled on the
block, which began in March 1998. The Company's cost participation in the first
well will be reduced to 53% when an amount equal to 70% of costs of $2.5 million
incurred by Molino Energy prior to the agreement with the Company is paid from
47% of the Company's initial cost participation. The Company will then pay 40%
of all subsequent costs. As of March 31, 1998, the Company had incurred $4.0
million related to the project.
NOTE 9 - JORDAN OPERATIONS
In August 1997, the Company acquired the rights to an Exploration and Production
Sharing Agreement ("PSA") with Jordan's Natural Resources Authority ("NRA") to
explore, develop and produce the Sirhan block in southeastern Jordan. The Sirhan
block consists of approximately 1.2 million acres (4,827 square kilometers) and
is located in the Sirhan basin adjacent to the Saudi Arabia border. Under the
terms of the PSA, the Company is obligated to make certain capital and operating
expenditures in up to three phases over eight years. The Company is obligated to
spend $5.1 million in the first exploration phase, which is expected to last
approximately two years. If the Company ultimately elects to continue through
phases two and three, it would be obligated to spend an additional $18 million
over the succeeding six years. During the first quarter of 1998, the Company
reentered two wells and tested two different reservoirs. The WS-10 well was
tested in the Umm Sahm formation and did not result in the production of
commercial amounts of hydrocarbons. The WS-9 well was tested in the Dubaydib
formation and yielded good shows of gas with traces of light oil. The well was
temporarily abandoned pending the evaluation of additional data. The remainder
of 1998 will be devoted to reprocessing and remapping seismic data and
conducting geological studies on the remaining prospectivity of the block. At
March 31, 1998, the Company had incurred $3.9 million related to the PSA.
NOTE 10 - SENEGAL OPERATIONS
In December 1997, the Company signed a memorandum of understanding with Societe
des Petroles du Senegal ("Petrosen"), the state oil company of the Republic of
Senegal, to receive a minimum 45% working interest in and to operate the
approximately one million acre onshore Thies Block in western Senegal. In
addition, the Company obtained rights from Petrosen to evaluate and reprocess
geophysical data for Senegal's shallow near-offshore acreage, an area
encompassing approximately 7.5 million acres extending from the Mauritania
border in the north to the Guinea Bissau border in the south, and to choose
certain blocks for further data acquisition and exploration drilling. The
Company's working interest in any offshore discovery will be 85% with the
remainder held by Petrosen.
The Company's $5.4 million work commitment on the Thies Block, where Petrosen
has recently drilled and completed the Gadiaga #2 discovery well, consists of
hooking up the existing well, drilling two additional wells and constructing a
41 kilometer (approximately 25 mile) gas pipeline en route to Senegal's main
electric generating facility near Dakar. As of March 31, 1998, the Company had
incurred $0.4 million related to the project.
<PAGE> 13
13
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996, 1997 and the first three months of 1998, the Company made loans to
Mr. A.E. Benton, its Chief Executive Officer, Mr. M.B. Wray, its Vice Chairman,
and Mr. J.M. Whipkey, its Chief Financial Officer, each loan bearing interest at
6%. At December 31, 1997, the balances owed to the Company by Mr. Benton, Mr.
Wray and Mr. Whipkey were $2.0 million, $0.7 million and $0.5 million,
respectively. At March 31, 1998, the balances owed to the Company by Mr. Benton,
Mr. Wray and Mr. Whipkey were $2.4 million, $0.7 million and $0.5 million,
respectively.
NOTE 12 - SUBSEQUENT EVENT
In April 1998, the Company signed an agreement to earn a 40% equity interest in
the Russian Open Joint Stock Company Severneftegaz. Severneftegaz owns the
exclusive rights to evaluate, develop and produce the natural gas, condensate,
and oil reserves in the Samburg and Evo-Yakha license blocks in West Siberia,
Russia. The two blocks comprise 837,000 acres within and adjacent to the Urengoy
field, Russia's largest producing natural gas field. The Company will earn a 40%
equity interest in exchange for providing the initial capital needed to achieve
early natural gas production. The Company's capital commitment will be in the
form of a $100 million loan to the project, the terms of which have yet to be
finalized, which is expected to be disbursed over the initial two-year
development phase.
<PAGE> 14
14
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. When used in this
report, the words budget, budgeted, anticipate, expect, believes, goals or
projects and similar expressions are intended to identify forward-looking
statements. In accordance with the provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that important factors could
cause actual results to differ materially from those in the forward-looking
statements. Such factors include the Company's substantial concentration of
operations in Venezuela, the political and economic risks associated with
international operations, the anticipated future development costs for the
Company's undeveloped proved reserves, the risk that actual results may vary
considerably from reserve estimates, the dependence upon the abilities and
continued participation of certain key employees of the Company, the risks
normally incident to the operation and development of oil and gas properties and
the drilling of oil and gas wells, and the price for oil and natural gas, and
other risks indicated in filings with the Securities and Exchange Commission.
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 three months of 1997 and 1998 for
Russia reflect the three months ended December 31, 1996 and 1997, 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, 1998 and 1997 and financial condition at March 31, 1998
and December 31, 1997 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 months ended March 31, 1998,
reflected the results for Benton Vinccler, C.A. in Venezuela. As a result of
declines in world crude oil prices, oil sales in Venezuela were lower in the
first three months of 1998 compared to 1997 due to a 34% decrease in realized
fees per barrel (from $11.06 in 1997 to $7.26 in 1998) and the Company
recognized a full cost ceiling limitation write-down of its oil and gas
properties in Venezuela of $17.5 million. Benton-Vinccler also experienced
increased operating expenses primarily in the areas of workovers, transportation
and chemical costs, and increased capital requirements for production
facilities. The increased costs resulted in increased per barrel lease operating
and depletion expenses and, especially when combined with the decreased fee
realizations, represented a significantly higher percentage of oil sales
revenues during the period than in the prior period.
<PAGE> 15
15
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,
----------------------------
1998 1997
------- --------
<S> <C> <C>
Lease Operating Costs and Production Taxes 46.5% 19.0%
Depletion, Depreciation and Amortization 38.8 22.3
General and Administrative 19.0 12.6
Interest 28.3 12.6
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company had revenues of $33.3 million for the three months ended March 31,
1998. Expenses incurred during the period consisted of lease operating costs and
production taxes of $13.2 million, depletion, depreciation and amortization
expense of $11.1 million, write-down of oil and gas properties of $17.5 million,
general and administrative expense of $5.4 million, interest expense of $8.1
million, income tax benefit of $0.7 million and a minority interest reduction of
$0.4 million. Net loss was $21.0 million or $0.71 per share (diluted).
By comparison, 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 (diluted).
Revenues decreased $13.0 million, or 28.1%, during the three months ended March
31, 1998 compared to the corresponding period of 1997 primarily due to decreased
oil sales revenue in Venezuela as a result of declines in world crude oil
prices. Sales quantities for the three months ended March 31, 1998 from
Venezuela and Russia were 3,645,593 Bbls and 127,402 Bbls, respectively,
compared to 3,643,898 Bbls and 278,555 Bbls, respectively, for the three months
ended March 31, 1997. Oil production from Russia for the period ended March 31,
1998 was 196,191 Bbls, of which 68,789 Bbls were held in inventory and sold in
the subsequent quarter. Prices for crude oil averaged $7.26 per Bbl (pursuant to
terms of an operating service agreement) from Venezuela and $11.61 per Bbl from
Russia for the three months ended March 31, 1998 compared to $11.06 per Bbl from
Venezuela and $11.43 per Bbl from Russia for the corresponding period of 1997.
Investment earnings increased $1.3 million, or 46.4%, during the three months
ended March 31, 1998 compared to the three months ended March 31, 1997 due to
higher average cash and marketable securities balances. Revenues for the three
months ended March 31, 1998 were increased by a foreign exchange gain of $0.6
million compared to a minor loss during the corresponding period of 1997.
Lease operating costs and production taxes increased $4.9 million, or 59.0%,
during the three months ended March 31, 1998 compared to the three months ended
March 31, 1997 primarily due to the continuing maturation of the Uracoa oil
field resulting in higher water handling, gas handling, workover, transportation
and chemical costs in Venezuela. Depletion, depreciation and amortization
increased $1.4 million, or 14.4%, during the three months March 31, 1998
compared to the corresponding period of 1997 primarily due to the increased
capital requirements in Venezuela. Depletion expense per barrel of oil
equivalent produced from Venezuela and Russia during the three months ended
March 31, 1998 was $2.83 and $3.67, respectively, compared to $2.35 and $3.38,
respectively, during the corresponding period of the previous year.
Additionally, at March 31, 1998, the Company recognized a write-down of oil and
gas properties in the Venezuela cost center of $17.5 million pursuant to the
ceiling limitation prescribed by the full cost method of accounting. The
write-down is a result of the effect of declines in world crude oil prices on
the price realized by the Company for its Venezuelan oil sales. General and
administrative expenses decreased $0.1 million, or 1.8%, during the three months
ended March 31, 1998 compared to the corresponding period of 1997. Interest
expense increased $2.6 million, or 47.3%, during the three months ended March
31, 1998 compared to the three months ended March 31, 1997 primarily due to the
issuance of $115 million in senior unsecured notes in November 1997. As the
Company experienced a loss before income taxes and minority interest of $22.0
million during the period ended March 31, 1998 as compared to income of $17.3
million in the corresponding period of 1997, income tax expense decreased $6.7
million, or 111.7%. The net income (loss) attributable to the minority interest
decreased $3.1 million, or 114.8%, for the three months ended March 31, 1998
compared to the three months ended March 31, 1997 as a result of decreased net
income from Benton-Vinccler's operations in Venezuela.
<PAGE> 16
16
INTERNATIONAL OPERATIONS
As a private contractor, Benton-Vinccler is subject to a statutory income tax
rate of 34%. However, Benton-Vinccler reported a significantly lower effective
tax rate 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.
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 1998 of approximately $4.0 million. Following the initial interpretation
of the seismic data, an initial exploration well is expected to be drilled
during the fourth quarter of 1998 at a cost to the Company of approximately $4.3
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 Venezuelan oil and gas industry taxation, which currently provides
for royalties of 16.66% and income taxes of 67.7%.
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 ("Crestone"),
a privately held company headquartered in Denver, Colorado. Crestone's principal
asset is a petroleum contract with China National Offshore Oil Corporation
("CNOOC") 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.
In August 1997, the Company acquired the rights to an Exploration and Production
Sharing Agreement ("PSA") with Jordan's Natural Resources Authority ("NRA") to
explore, develop and produce the Sirhan block in southeastern Jordan. The Sirhan
block consists of approximately 1.2 million acres (4,827 square kilometers) and
is located in the Sirhan basin adjacent to the Saudi Arabia border. Under the
terms of the PSA, the Company is obligated to make certain capital and operating
expenditures in up to three phases over eight years. The Company is obligated to
spend $5.1 million in the first exploration phase, which is expected to last
approximately two years. If the Company ultimately elects to continue through
phases two and three, it would be obligated to spend an additional $18.0 million
over the succeeding six years.
In October 1997, the Company signed a farmout agreement with Shell Exploration
(China) Limited ("Shell") whereby the Company will acquire a 50% participation
interest in Shell's Liaohe area onshore exploration project in northeast China.
Shell holds a petroleum contract with China National Petroleum Corporation
("CNPC") to explore and develop the deep rights in the Qingshui Block, 563
square kilometers (approximately 140,000 acres) in the delta of the Liaohe
River. Shell will be the operator of the project. The Company is required to pay
to Shell 50% of Shell's costs to date, estimated to be approximately $4.0
million ($2 million to the Company) and to pay 100% of the costs for the phase
one exploration period, with a maximum required expenditure of $8.0 million. If
the first phase of the exploration period results in a commercial discovery and
if the Company elects to continue to phase two, then the Company will pay 100%
of the costs of the second phase of the exploration period, with a maximum
required expenditure of $8.0 million. The Company and Shell will be responsible
for the costs of the third exploration phase and the costs of development
activities associated with any of the three phases in proportion to their
interests.
In December 1997, the Company signed a memorandum of understanding with Societe
des Petroles du Senegal ("Petrosen") to receive a minimum 45% working interest
in and to operate the approximately one million acre onshore Thies Block in
western Senegal. In addition, the Company obtained rights from Petrosen to
evaluate and reprocess geophysical data for Senegal's shallow near-offshore
acreage, an area encompassing approximately 7.5 million acres extending from the
Mauritania border in the north to the Guinea Bissau border in the south, and to
choose certain
<PAGE> 17
17
blocks for further data acquisition and exploration drilling. The Company's
working interest in any offshore discovery will be 85% with the remainder held
by Petrosen.
The Company's $5.4 million work commitment on the Thies Block, where Petrosen
has recently drilled and completed the Gadiaga #2 discovery well, consists of
hooking up the existing well, drilling two additional wells and constructing a
41 kilometer (approximately 25 mile) gas pipeline en route to Senegal's main
electric generating facility near Dakar. The Company's minimum commitment
related to the offshore blocks involves seismic reprocessing to be followed by
additional data acquisition and drilling at the Company's discretion.
In April 1998, the Company reached an agreement to earn a 40% equity interest in
the Russian Open Joint Stock Company Severneftegaz. Severneftegaz owns the
exclusive rights to evaluate, develop and produce the natural gas, condensate,
and oil reserves in the Samburg and Evo-Yakha license blocks in West Siberia,
Russia. The two blocks comprise 837,000 acres within and adjacent to the Urengoy
field, Russia's largest producing natural gas field. The Company will earn a 40%
equity interest in exchange for providing the initial capital needed to achieve
early natural gas production. The Company's capital commitment will be in the
form of a $100 million loan to the project, the terms of which have yet to be
finalized, which is expected to be disbursed over the initial two-year
development phase.
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. As a result of declines in world crude oil prices during the first
quarter, the Company recognized a full cost ceiling test write-down of oil and
gas properties in the Venezuela cost center of $17.5 million at March 31, 1998.
Continued declines in world crude oil prices could result in further full cost
ceiling test write-downs. 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 Venezuela, 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, 1998, the Company realized net foreign
exchange gains, primarily as a result of the decline in the value of the
Venezuelan bolivar and the Russian rouble during periods when the Company's
Venezuela-related subsidiaries and GEOILBENT had substantial net monetary
liabilities denominated in bolivares and roubles. During the three months ended
March 31, 1998, the Company's net foreign exchange gains attributable to its
Venezuelan and Russian operations were $0.5 million and $0.1 million,
respectively. 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 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.
<PAGE> 18
18
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 each of the three months ended March 31, are summarized
in the following table and discussed in further detail below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
(In thousands)
1998 1997
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 21,478 $ 17,056
Net cash used in investing activities (13,507) (9,005)
Net cash provided by financing activities 3,811 967
-------- --------
Net increase in cash $ 11,782 $ 9,018
======== ========
</TABLE>
At March 31, 1998, the Company had current assets of $198.1 million and current
liabilities of $58.6 million resulting in working capital of $139.5 million and
a current ratio of 3.38:1. This compares to the Company's working capital of
$165.9 million and a current ratio of 3.84:1 at December 31, 1997. The decrease
of $26.4 million was due primarily to expenditures related to the exploration
and development in Venezuela, Russia, Jordan and Santa Barbara, California and
lower oil sales as a result of declines in world oil prices.
CASH FLOW FROM OPERATING ACTIVITIES. During the three months ended March 31,
1998 and 1997, net cash provided by operating activities was approximately $21.5
million and $17.1 million, respectively. Cash flow from operating activities
increased by $4.4 million during the three months ended March 31, 1998 over the
corresponding period of the prior year due primarily to the collection of
accrued oil revenues substantially offset by reduced revenues, increased lease
operating costs and interest expense.
CASH FLOW FROM INVESTING ACTIVITIES. During the three months ended March 31,
1998 and 1997, the Company had drilling and production related capital
expenditures of approximately $32.1 million and $17.1 million, respectively. Of
the 1998 expenditures, $21.3 million was attributable to the development of the
South Monagas Unit in Venezuela, $3.5 million related to the development of the
North Gubkinskoye Field in Russia, $2.5 million related to a 3-D seismic survey
in the Delta Centro Block in Venezuela, $1.2 million related to the development
of the Gaviota lease in Santa Barbara County, California, $2.5 million related
to the development of the Sirhan Block in Jordan, and $1.1 million was
attributable to other projects.
In April 1998, the Company reached an agreement to earn a 40% equity interest in
the Russian Open Joint Stock Company Severneftegaz. The Company will earn a 40%
equity interest in exchange for providing the initial capital needed to achieve
early natural gas production. The Company's capital commitment will be in the
form of a $100 million loan to the project, the terms of which have yet to be
finalized, which is expected to be disbursed over the initial two-year
development phase.
The Company expects 1998 capital expenditures of approximately $125.0 million,
including $22.0 million in expenditures by GEOILBENT in Russia, net to the
Company's interest (which will be funded from borrowings under the GEOILBENT
Credit Facility, cash flow from operations or other financings). Additionally,
the Company anticipates loaning up to $100 million over the next two years to
Severneftegaz pursuant to an equity acquisition agreement signed in April 1998.
Funding for the currently anticipated 1998 capital expenditures and the loan to
Severneftegaz is expected to come from working capital, cash flow from
operations or sales of property interests. The Company's indentures contain
provisions which restrict the manner in which the Company can invest in certain
of its current operations, including GEOILBENT. Although the Company believes it
has sufficient funding for its expected capital requirements from working
capital and cash flow from operations or sales of property interests, the
Company may be limited in the manner of funding certain of such capital
requirements due to such restrictions in the indentures.
The Company continues to evaluate and pursue domestic and international
opportunities that fit within the Company's business strategy, including
exploration, development and acquisition opportunities. It is not presently
known whether, or on what terms, such evaluations will result in future
agreements or acquisitions.
<PAGE> 19
19
CASH FLOW FROM FINANCING ACTIVITIES. In May 1996, the Company issued $125
million in 11.625% senior unsecured notes due May 1, 2003. In November 1997, the
Company issued $115 million in 9.375% senior unsecured notes due November 1,
2007, of which the Company subsequently repurchased $10 million at their par
value. The indenture agreements provide for certain limitations on liens,
additional indebtedness, certain investment and capital expenditures, dividends,
mergers and sales of assets. At March 31, 1998, the Company was in compliance
with all covenants of the indentures.
The EBRD and IMB have agreed to lend a total of $65 million to GEOILBENT (owned
34% by the Company) under parallel reserve-based, non-recourse loan agreements.
Initial funding of $10.2 million and $1.8 million occurred in October 1997 and
January 1998. The proceeds from the loans will be used by GEOILBENT to develop
the North Gubkinskoye and Prisklonovoye fields in West Siberia, Russia.
Additional borrowings will be based on achieving certain reserve and production
milestones.
YEAR 2000 COMPLIANCE
The Company does not expect the cost of converting its computer systems to year
2000 compliance will be material to its financial condition. The Company
believes that it will be able to achieve year 2000 compliance by the end of
1999, and does not currently anticipate any disruption in its operations as a
result of any failure by the Company to be in compliance. The Company does not
currently have any information concerning the year 2000 compliance status of its
suppliers and customers.
STOCK REPURCHASE PROGRAM
In June 1997, the Board of Directors instituted a treasury stock repurchase
program under which the Company is authorized to purchase up to 1.5 million
shares of its common stock. The shares will be used for re-issuance in
connection with the Company's employee stock option plan, treasury stock or for
other corporate purposes to be determined in the future. During 1997, the
Company repurchased 50,000 shares at an average price of $13.99 per share.
<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
None.
(b) Reports on Form 8-K.
None.
<PAGE> 21
21
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.
<TABLE>
<CAPTION>
BENTON OIL AND GAS COMPANY
<S> <C>
Dated: May 12, 1998 By: /S/A.E. Benton
---------------
A.E. Benton
President and Chief Executive Officer
Dated: May 12, 1998 By: /S/James M. Whipkey
-------------------
James M. Whipkey
Senior Vice President and Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,722
<SECURITIES> 130,532
<RECEIVABLES> 41,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 198,051
<PP&E> 412,780
<DEPRECIATION> 128,813
<TOTAL-ASSETS> 566,020
<CURRENT-LIABILITIES> 58,600
<BONDS> 283,893
0
0
<COMMON> 296
<OTHER-SE> 176,844
<TOTAL-LIABILITY-AND-EQUITY> 566,020
<SALES> 28,501
<TOTAL-REVENUES> 33,258
<CGS> 24,307
<TOTAL-COSTS> 24,307
<OTHER-EXPENSES> 17,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,080
<INCOME-PRETAX> (22,035)
<INCOME-TAX> (670)
<INCOME-CONTINUING> (20,986)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,986)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
