FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10509
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SNYDER OIL CORPORATION
- -----------------------------------------------------------------------------
Delaware 75-2306158
- ------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Main Street, Fort Worth, Texas 76102
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (817) 338-4043
-----------------
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,
if changed since last report.)
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 .
32,345,367 Common Shares were outstanding as of November 7, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared in
conformity with generally accepted accounting principles. The statements are
unaudited, but reflect all adjustments which, in the opinion of management, are
necessary to fairly present the Company's financial position and results of
operations.
2
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents $ 22,868 $ 27,922
Accounts receivable 37,573 58,944
Inventory and other 7,547 11,212
------------ ------------
67,988 98,078
------------ ------------
Investments 145,046 129,681
------------ ------------
Oil and gas properties, successful efforts method 944,797 887,721
Accumulated depletion, depreciation and amortization (319,695) (252,334)
------------ ------------
625,102 635,387
------------ ------------
Gas facilities and other 30,828 28,111
Accumulated depreciation and amortization (12,509) (11,798)
------------ ------------
18,319 16,313
------------ ------------
$ 856,455 $ 879,459
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 47,675 $ 51,867
Accrued liabilities 43,330 37,043
------------ ------------
91,005 88,910
------------ ------------
Senior debt 72,001 188,231
Subordinated notes 271,290 103,094
Convertible subordinated notes - 80,748
Deferred taxes payable 26,532 9,034
Other noncurrent liabilities 20,629 28,064
Minority interest 77,938 86,710
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par, 10,000,000 shares authorized, 6% Convertible
preferred stock, 1,033,500 shares
issued and outstanding 10 10
Common stock, $.01 par, 75,000,000 shares authorized,
31,685,432 and 31,456,027 shares issued 317 315
Capital in excess of par value 262,359 260,221
Retained earnings 41,953 25,711
Common stock held in treasury, 2,002,100 and 250,000 shares at cost (34,218) (3,510)
Unrealized gains on investments 26,639 11,921
------------ ------------
297,060 294,668
------------ ------------
$ 856,455 $ 879,459
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 52,156 $ 46,347 $ 168,992 $ 126,799
Gas transportation, processing and marketing 487 4,702 6,692 13,497
Gains (losses) on sales of equity interests
in investees (168) 924 32,800 4,119
Gains on sales of properties 3,824 7,987 8,666 11,109
----------- ----------- ---------- ----------
56,299 59,960 217,150 155,524
----------- ----------- ---------- ----------
Expenses
Direct operating 13,127 13,084 39,651 36,463
Cost of gas and transportation 423 3,976 6,371 11,087
Exploration 7,212 1,996 12,602 2,800
General and administrative 5,178 4,732 15,990 11,309
Financing costs
Interest expense 7,845 7,012 21,609 16,752
Interest income (266) (292) (961) (428)
Other expense (income) (243) (1,516) 932 (864)
(Gain) loss on sale of subsidiary interest (10,000) - - 15,481
Depletion, depreciation and amortization 22,067 23,154 67,572 61,436
Property impairments 4,735 1,519 5,827 2,753
----------- ----------- ----------- -----------
Income (loss) before taxes, minority interest
and extraordinary item 6,221 6,295 47,557 (1,265)
----------- ----------- ----------- -----------
Provision for income taxes
Current - - 500 33
Deferred 1,898 652 13,387 317
----------- ----------- ----------- -----------
1,898 652 13,887 350
----------- ----------- ----------- -----------
Minority interest in subsidiaries 690 83 4,119 1,031
----------- ----------- ----------- -----------
Income (loss) before extraordinary item 3,633 5,560 29,551 (2,646)
Extraordinary item-early extinguishment of debt,
net of benefit for income taxes of $1,533 - - 2,848 -
----------- ----------- ----------- -----------
Net income (loss) 3,633 5,560 26,703 (2,646)
Preferred dividends 1,548 1,553 4,648 4,658
----------- ----------- ----------- -----------
Net income (loss) applicable to common $ 2,085 $ 4,007 $ 22,055 $ (7,304)
=========== =========== =========== ===========
Net income (loss) per common share before
extraordinary item $ .07 $ .13 $ .83 $ (.23)
=========== =========== =========== ===========
Net income (loss) per common share $ .07 $ .13 $ .73 $ (.23)
=========== =========== =========== ===========
Weighted average shares outstanding 29,504 31,337 30,121 31,363
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Preferred Stock Common Stock Capital in Retained
------------------ ------------------- Excess of Earnings Treasury
Shares Amount Shares Amount Par Value (Deficit) Stock
------ -------- ------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,035 $ 10 31,430 $ 314 $ 265,911 $ (29,001) $ (2,457)
Common stock grants and
exercise of options - - 267 3 3,179 - (258)
Issuance of common - - 399 4 3,689 - -
Repurchase of common - - (640) (6) (6,243) - (795)
Repurchase of preferred (1) - - - (142) - -
Dividends - - - - (6,173) (8,238) -
Net income - - - - - 62,950 -
----- ------ ------ ------- --------- --------- ---------
Balance, December 31, 1996 1,034 10 31,456 315 260,221 25,711 (3,510)
Common stock grants and
exercise of options - - 228 2 2,113 - -
Issuance of treasury - - - - - - 8,655
Conversion of subordinated
notes into common - - 1 - 25 - -
Repurchase of common - - - - - - (39,363)
Dividends - - - - - (10,461) -
Net income - - - - - 26,703 -
----- ------ ------ ------- --------- ---------- ---------
Balance, September 30, 1997
(Unaudited) 1,034 $ 10 31,685 $ 317 $ 262,359 $ 41,953 $ (34,218)
===== ====== ====== ======= ========= ========== =========
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Operating activities
Net income (loss) $ 26,703 $ (2,646)
Adjustments to reconcile net income (loss)
to net cash provided by operations
Amortization of deferred credits - (1,052)
Gains on sales of equity interests in investees (32,800) (4,119)
Gains on sales of properties (8,666) (11,109)
Equity in earnings of investees (549) (453)
Exploration expense 12,602 2,800
Loss on sale of subsidiary interest - 15,481
Depletion, depreciation and amortization 67,572 61,436
Property impairments 5,827 2,753
Deferred taxes 11,854 317
Minority interest in subsidiaries 4,119 1,031
Loss on early extinguishment of debt 4,381 -
Changes in operating assets and liabilities
Decrease (increase) in
Accounts receivable 21,371 (6,429)
Inventory and other 587 2,838
Increase (decrease) in
Accounts payable (4,192) 12,052
Accrued liabilities (1,414) 585
Other liabilities (3,054) (515)
----------- ------------
Net cash provided by operations 104,341 72,970
----------- ------------
Investing activities
Acquisition, exploration and development (104,832) (69,003)
Proceeds from investments 39,221 3,328
Outlays for investments - (7,093)
Proceeds from sales of properties 10,634 45,346
----------- -----------
Net cash used by investing (54,977) (27,422)
----------- -----------
Financing activities
Issuance of common 2,140 834
Repurchase of stock (39,363) (7,044)
Repurchase of subordinated notes - (4,790)
Increase (decrease) in indebtedness (2,353) (10,903)
Loss on early extinguishment of debt (4,381) -
Dividends (10,461) (10,831)
Deferred credits - (120)
----------- -----------
Net cash used by financing (54,418) (32,854)
----------- -----------
Increase in cash (5,054) 12,694
Cash and equivalents, beginning of period 27,922 27,263
----------- -----------
Cash and equivalents, end of period $ 22,868 $ 39,957
=========== ===========
Noncash investing and financing activities
Acquisition of properties and stock via stock issuances $ 8,655 $ 3,693
Exchange of subsidiary stock for stock of investee 30,923 -
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE>
SNYDER OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Snyder Oil Corporation (the "Company") is engaged in the production,
development, acquisition and exploration of domestic oil and gas properties,
primarily in the Gulf of Mexico, the Rockies and northern Louisiana. The Company
also has investments in two international exploration and production companies,
SOCO International plc ("SOCI plc") and Cairn Energy plc ("Cairn"). The Company,
a Delaware corporation, is the successor to a company formed in 1978.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Snyder Oil
Corporation ("SOCO") and its subsidiaries (collectively, the "Company").
Affiliates in which the Company owns more than 50% but less than 100% are fully
consolidated, with the related minority interest being deducted from subsidiary
earnings and stockholders' equity. Affiliates in which the Company owns between
20% and 50% are accounted for using the equity method. Affiliates in which the
Company owns less than 20% are accounted for using the cost method. The Company
accounts for its interest in joint ventures and partnerships using the
proportionate consolidation method, whereby its share of assets, liabilities,
revenues and expenses are consolidated.
Risks and Uncertainties
Historically, the market for oil and gas has experienced significant price
fluctuations. Prices for gas in the Rocky Mountain region, where the Company
produces a substantial portion of its natural gas, have traditionally been
particularly volatile. Prices are significantly impacted by the local weather,
supply in the area, seasonal variations in local demand and limited
transportation capacity to other regions of the country. Increases or decreases
in prices received, particularly in the Rocky Mountains, could have a
significant impact on the Company's future results of operations.
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.
Producing Activities
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Consequently, leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. During the
nine months ended September 30, 1997, the Company provided unproved property
impairments of $1.4 million. Exploratory expenses, including geological and
geophysical expenses and delay rentals, are charged to expense as incurred.
Exploratory drilling costs are initially capitalized, but charged to expense if
and when the well is determined to be unsuccessful. Costs of productive wells,
unsuccessful developmental wells and productive leases are capitalized and
amortized on a unit-of-production basis over the life of the remaining proved or
proved developed reserves, as applicable. Gas is converted to equivalent barrels
at the rate of 6 Mcf to 1 barrel. Amortization of capitalized costs is generally
provided on a property-by-property basis. Estimated future abandonment costs
(net of salvage values) are accrued at unit-of-production rates and taken into
account in determining depletion, depreciation and amortization.
7
<PAGE>
The Company follows Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS 121 requires the Company to assess
the need for an impairment of capitalized costs of oil and gas properties and
other assets. Oil and gas properties are assessed on a property-by-property
basis. If an impairment is indicated based on undiscounted expected future cash
flows, then it is recognized to the extent that net capitalized costs exceed
discounted expected future cash flows. During the nine months ended September
30, 1997, the Company provided $4.4 million of such impairments.
Section 29 Tax Credits
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $2.1 million and $1.9 million during the nine month periods
ended September 30, 1997 and 1996, respectively. These arrangements are expected
to continue through 2002.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recognized based on the cash received rather than the
proportionate share of gas produced. Gas imbalances at year end 1996 and
September 30, 1997 were insignificant.
Financial Instruments
The following table sets forth the book values and estimated fair values of
financial instruments (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------------- -----------------------
Book Fair Book Fair
Value Value Value Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and equivalents $ 22,868 $ 22,868 $ 27,922 $ 27,922
Investments 145,046 145,046 129,681 163,477
Senior debt (72,001) (72,001) (188,231) (188,231)
Subordinated notes (271,290) (274,300) (103,094) (105,650)
Convertible subordinated notes - - (80,748) (82,866)
Long-term commodity contracts - 9,158 - 5,040
Interest rate swap - - - (19)
</TABLE>
The book value of cash and equivalents approximates fair value because
of the short maturity of those instruments. See Note (3) for a discussion of the
Company's investments. The fair value of senior debt is presented at face value
given its floating rate structure. The fair value of certain of the subordinated
notes and all of the convertible subordinated notes are estimated based on their
September 30, 1997 and December 31, 1996 closing prices on the New York Stock
Exchange. The fair value of the remaining subordinated notes are estimated based
on their bid price as of September 30, 1997.
From time to time, the Company enters into commodity contracts to
hedge the price risk of a portion of its production. Gains and losses on such
contracts are deferred and recognized in income as an adjustment to oil and gas
sales in the period to which the contracts relate. In 1994, the Company entered
into a long-term gas swap arrangement in order to lock in the price differential
between the Rocky Mountain and Henry Hub prices on a portion of its Rocky
Mountain gas production. The contract covers 20,000 MMBtu per day through 2004.
At September 30, 1997, that volume represented approximately 15% of the
Company's consolidated Rocky Mountain gas production. The fair value of the
contract was based on the market price quoted for a similar instrument.
8
<PAGE>
In September 1995, the Company entered into an interest rate swap
covering $50 million of its bank debt. The agreement required payment to a
counterparty based on a fixed rate of 5.585% and required the counterparty to
pay the Company interest at the then current 30 day LIBOR rate. Accounts
receivable or payable under this agreement were recorded as adjustments to
interest expense and were settled on a monthly basis. The agreement matured in
September 1997. At December 31, 1996, the fair value of the agreement was
estimated at the net present value discounted at 10%.
Other
All liquid investments with an original maturity of three months or
less are considered to be cash equivalents. Certain amounts in prior years
consolidated financial statements have been reclassified to conform with current
classification. In the opinion of management, those adjustments to the financial
statements (all of which are of a normal and recurring nature, unless otherwise
disclosed) necessary to present fairly the financial position and results of
operations have been made. These interim financial statements should be read in
conjunction with the 1996 annual report on Form 10-K.
(3) INVESTMENTS
The Company has investments in foreign and domestic energy companies.
The following table sets forth the book values and estimated fair values of
these investments:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------- -------------------------
(In thousands)
Book Fair Book Fair
Value Value Value Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity method investments $ - $ - $ 8,789 $ 42,585
Marketable securities 145,046 145,046 115,558 115,558
Long-term notes receivable - - 5,334 5,334
--------- --------- --------- ---------
$ 145,046 $ 145,046 $ 129,681 $ 163,477
========= ========= ========= =========
</TABLE>
The Company follows SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities", which requires that investments in marketable
securities accounted for using the cost method and long-term notes receivable
must be adjusted to their market value with a corresponding increase or decrease
to stockholders' equity. The pronouncement does not apply to investments
accounted for using the equity method.
Command Petroleum Limited
From May 1993 to November 1996, the Company had an investment in
Command Petroleum Limited ("Command"), an Australian oil company, which was
accounted for using the equity method. In November 1996, the Company accepted an
offer for its interest in Command. The Company received 16.2 million shares of
freely marketable common stock of Cairn, an international independent oil
company based in Edinburgh, Scotland whose shares are listed on the London Stock
Exchange. The Company recognized a gain of $65.5 million as a result of this
exchange. The Company's investment in Cairn is accounted for using the cost
method and is reflected as marketable securities in the table above. Immediately
prior to the acceptance of Cairn's offer, the Company accrued for a transaction
in which a director of the Company exchanged his option to purchase 10% of the
outstanding common stock of SOCO International, Inc. (through which the
investment in Command was held) and issued promissory notes to the Company
totaling $591,000 for 10% of the outstanding common stock of two SOCO
International, Inc. subsidiaries, SOCO International Holdings, Inc. ("Holdings")
and SOCO International Operations, Inc. ("Operations"). As a result of this
transaction, the Company recorded a $260,000 loss. Additionally, minority
9
<PAGE>
interest expense of $4.3 million was recorded related to the director's 10%
ownership as a result of the Command gain. The actual exchange occurred in
December 1996 and the promissory notes remained outstanding at September 30,
1997. In July 1997, the Company exchanged 530,000 shares of the Company's
treasury stock for the director's 10% interest in Holdings. As a result,
Holdings is now a wholly owned subsidiary.
SOCO International Operations, Inc. and SOCO International plc
In 1993, SOCO Perm Russia, Inc. ("SOCO Perm"), was organized by the
Company and a U.S. industry participant. SOCO Perm and a Russian partner formed
the Permtex joint venture to develop proven oil fields in the Volga-Urals Basin
of Russia. In April 1996, SOCO Perm closed a private placement which reduced the
Company's interest to 34.91%. The Company recognized a gain of $2.6 million as a
result of this transaction.
In 1994, the Company formed a consortium to explore the Tamtsag Basin
of eastern Mongolia, SOCO Tamtsag Mongolia, Inc. ("SOCO Tamtsag"). In 1996, the
Company completed the exchange of a portion of its interest to an industry
participant for consulting services valued at $1.5 million. As a result of this
transaction, the Company's ownership was reduced to 42% and an $832,000 gain was
recognized.
In May 1997, a newly formed entity, SOCI plc, completed an initial
public offering of its shares on the London Stock Exchange. Simultaneously with
the offering, the Company exchanged its shares of Operations, which included the
Company's interests in Russia, Mongolia and Thailand, for shares of SOCI plc.
Certain minority interest owners in these ventures also contributed their
interests. As part of the listing, SOCI plc acquired Cairn's UK onshore company
as well as certain assets in Yemen and Tunisia that were formerly owned by
Command. The offering raised approximately $75 million of new equity capital for
SOCI plc. The Company received 7.8 million shares (15.9% of the total) of SOCI
plc, which it has agreed not to sell for the two year period following the
listing. The Company recognized a gain of $19.8 million as a result of this
exchange. The Company's investment in SOCI plc is accounted for using the cost
method.
Marketable Securities
The Company has investments in equity securities of two publicly
traded foreign energy companies, Cairn and SOCI plc. Both investments are
accounted for using the cost method. In the first quarter of 1997, the Company
sold 4.5 million Cairn shares at an average price of $8.81 per share realizing
$39.2 million in proceeds. These transactions resulted in a gain of $13.0
million. The Company's total cost basis in the Cairn and SOCI plc shares was
$73.1 million and $30.9 million, respectively, at September 30, 1997. The market
value of the Cairn and SOCI plc shares approximated $95.0 million and $50.0
million, respectively, at September 30, 1997. In accordance with SFAS 115, at
September 30, 1997 and December 31, 1996, respectively, investments were
increased by $41.0 million and $20.4 million in gross unrealized holding gains,
stockholders' equity was increased by $26.6 million and $11.9 million and
deferred taxes payable were increased by $14.4 million and $7.2 million.
Minority interest liability was increased by $1.3 million at December 31, 1996.
Notes Receivable
The Company held long-term notes receivable due from privately held
corporations and a director, with a book value of zero and $591,000 at September
30, 1997 and December 31, 1996. At December 31, 1996, the Company also held a
long-term note receivable due from SOCO Tamtsag which was contributed to SOCI
plc along with the Company's interest in SOCO Tamtsag in May 1997. The notes
from other privately held corporations are secured by certain assets, including
stock and oil and gas properties. The notes from a director, which originated in
connection with an option to purchase 10% of the Company's international
affiliates, are secured by shares of the Company owned by the director and are
due April 10, 1998. The notes, which had a book value of $634,000 at September
30, 1997, are classified as inventory and other in the accompanying financial
statements. At September 30, 1997 and December 31, 1996, the fair value of the
notes receivable, based on existing market conditions and the anticipated future
net cash flow related to the notes, approximated their carrying cost.
10
<PAGE>
(4) OIL AND GAS PROPERTIES AND GAS FACILITIES
The cost of oil and gas properties at September 30, 1997 and December
31, 1996 includes $31.9 million and $32.7 million of unevaluated leasehold. Such
properties are held for exploration, development or resale. The following table
sets forth costs incurred related to oil and gas properties and gas processing
and transportation facilities:
<TABLE>
<CAPTION>
Nine
Months Ended Year Ended
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
<S> <C> <C>
Proved acquisitions $ 1,441 $ 273,088
Acreage acquisitions 1,575 24,589
Development 58,683 43,075
Exploration 12,894 4,588
Gas processing, transportation and other 2,170 3,612
----------- ----------
$ 76,763 $ 348,952
=========== ==========
</TABLE>
Of the $58.7 million development expenditures, the majority was
concentrated in the Gulf of Mexico and the Rockies. The Company placed 69 wells
on sales during the nine months ended September 30, 1997 and had 27 wells in
progress at quarter end.
Exploration costs include the costs of two exploratory dry holes in
the Gulf of Mexico and continuing seismic programs in the Gulf of Mexico, the
Rockies and northern Louisiana.
Proved acquisitions during 1996 included $218.4 million related to the
formation of Patina Oil & Gas Corporation ("Patina") and the subsequent May 1996
acquisition of Gerrity Oil & Gas Corporation ("GOG"). At September 30, 1997, the
Company owned 74% of Patina and it was consolidated into the Company's financial
statements. Subsequent to the quarter end, the Company disposed of its interest
in Patina. See Note (9) for a discussion of the disposition and pro forma
results.
(5) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
<S> <C> <C>
SOCO bank facility $ 1 $ 93,731
Patina bank facility 72,000 94,500
------------ -----------
Senior debt $ 72,001 $ 188,231
============ ===========
SOCO subordinated notes $ 173,607 $ -
Patina subordinated notes 97,683 103,094
------------ -----------
Subordinated notes $ 271,290 $ 103,094
============ ===========
SOCO convertible subordinated notes $ - $ 80,748
============ ===========
</TABLE>
SOCO maintains a $500 million revolving credit facility ("SOCO
Facility"). The facility is divided into a $400 million long-term portion and a
$100 million short-term portion. Credit availability is adjusted semiannually to
11
<PAGE>
reflect changes in reserves and asset values. The borrowing base available under
the facility was $120 million at September 30, 1997. The majority of the
borrowings under the facility currently bear interest at LIBOR plus .75% with
the remainder at prime, with an option to select CD plus .75%. The margin on
LIBOR or CD increases to 1% when the Company's consolidated senior debt becomes
greater than 80% of its consolidated tangible net worth as defined. During the
nine months ended September 30, 1997, the average interest rate under the
facility was 6.5%. The Company pays certain fees based on the unused portion of
the borrowing base. Among other requirements, covenants require maintenance of a
current working capital ratio of 1 to 1 as defined, limit the incurrence of debt
and restrict dividends, stock repurchases, certain investments, other
indebtedness and unrelated business activities. Such restricted payments are
limited by a formula that includes proceeds from certain securities, cash flow
and other items. Based on such limitations, more than $100 million was available
for the payment of dividends and other restricted payments at September 30,
1997.
Patina maintains a $140 million revolving credit facility ("Patina
Facility"). The borrowing base available under the facility was $110 million at
September 30, 1997. During the nine months ended September 30, 1997, the average
interest rate under the facility was 6.8%. As a result of the Patina disposition
subsequent to quarter end, Patina's indebtedness will not be included in the
Company's consolidated financial statements in future periods.
In June 1997, SOCO issued $175.0 million of 8.75% Senior Subordinated
Notes ("Notes") due June 15, 2007. The Notes were sold at a discount resulting
in an 8.875% effective interest rate. The net proceeds of the offering were
$168.3 million. The Notes are redeemable at the option of the Company on or
after June 15, 2002, initially at 104.375% of principal, and at prices declining
to 100% of principal on or after June 15, 2005. Upon the occurrence of a change
of control, as defined in the Notes, SOCO would be obligated to make an offer to
purchase all outstanding Notes at a price of 101% of the principal amount
thereof. In addition, SOCO would be obligated, subject to certain conditions, to
make offers to purchase the Notes with the net cash proceeds of certain asset
sales or other dispositions of assets at a price of 100% of the principal amount
thereof. The Notes are unsecured general obligations of SOCO and are
subordinated to all senior indebtedness of SOCO and to any existing and future
indebtedness of SOCO's subsidiaries. The Notes contain covenants that, among
other things, limit the ability of SOCO to incur additional indebtedness, pay
dividends, engage in transactions with shareholders and affiliates, create
liens, sell assets, engage in mergers and consolidations and make investments in
unrestricted subsidiaries.
In 1996, as part of an acquisition, Patina recorded $98.8 million of
11.75% Subordinated Notes ("Patina Notes") due July 15, 2004. The Patina Notes
were recorded at a market value of $104.6 million or 105.875% of their principal
amount. Patina assumed the Patina Notes in March 1997 when a wholly owned
subsidiary was merged into Patina. During 1996, $1.5 million of the Patina Notes
were repurchased by Patina and retired. During the nine months ended September
30, 1997, $6.2 million of the Notes were repurchased by Patina and retired. As a
result of the Patina disposition subsequent to quarter end, Patina's
indebtedness will not be included in the Company's consolidated financial
statements in future periods.
In 1994, SOCO issued $86.3 million of 7% convertible subordinated
notes due May 15, 2001. The net proceeds were $83.4 million. The notes were
convertible into common stock at $22.57 per share. During 1996 and the first six
months of 1997, the Company repurchased $3.8 million and $824,000, respectively,
of these notes in accordance with a repurchase program. The notes were redeemed
by the Company in June 1997 at 103.51% of principal. As a result of the note
redemption, the Company incurred a loss of $4.4 million, $2.8 million net of
tax, which has been recorded as an extraordinary item in the accompanying
financial statements.
Scheduled maturities of indebtedness for the next five years are zero
in 1997 and 1998, $85.0 million in 1999, $12.0 million in 2000 and zero in 2001.
The long-term portion of the SOCO Facility is scheduled to expire in 2000.
However, it is management's policy to renew both the short-term and long-term
facilities and extend their maturities on a regular basis.
Consolidated cash payments for interest were $20.8 million and $13.8
million, respectively, for the nine month periods ended September 30, 1997 and
1996.
12
<PAGE>
(6) FEDERAL INCOME TAXES
At September 30, 1997, the Company had no liability for foreign taxes.
A reconciliation of the United States federal statutory rate to the Company's
effective income tax rate for the nine month periods ended September 30, 1997
and 1996 follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------ -----------
<S> <C> <C>
Federal statutory rate 35% (35%)
Loss in excess of net deferred tax liability - 35%
Utilization of net deferred tax asset (6%) -
Net change in valuation allowance - 25%
Alternative minimum taxes - 3%
----- -----
Effective income tax rate 29% 28%
===== =====
</TABLE>
For tax purposes, Patina is not included in the Company's consolidated
United States federal income tax return. The Company, excluding Patina, had
regular net operating loss carryforwards of $112 million and alternative minimum
tax loss carryforwards of $28.9 million at December 31, 1996. These
carryforwards expire between 1997 and 2010. At December 31, 1996, the Company,
excluding Patina, had long-term capital loss carryforwards of $3.9 million which
will expire in 2000. At December 31, 1996, the Company, excluding Patina, also
had alternative minimum tax credit carryforwards of $644,000 which are available
indefinitely. Current income taxes shown in the financial statements reflect
cash taxes paid based on estimates of alternative minimum taxes.
(7) STOCKHOLDERS' EQUITY
A total of 75 million common shares, $.01 par value, are authorized of
which 31.7 million were issued and 29.7 million were outstanding at September
30, 1997. The Company also had 2.1 million warrants outstanding at September 30,
1997. The warrants were exercisable at a price of $21.04 per share. Under the
terms of the warrants, common stock dividends not paid out of retained earnings
reduced the exercise price when paid and increased the number of warrants
outstanding. Half of the warrants were to expire in each of February 1998 and
February 1999. Subsequent to quarter end, the Company issued 300,000 shares of
its common stock in cancellation of the warrants. In 1996, the Company issued
666,000 shares of common stock, with 399,000 shares issued in exchange for the
remaining outstanding stock of SOCO Offshore, Inc. and 267,000 shares issued
primarily for the exercise of stock options. In 1996, the Company repurchased
725,000 shares of common stock for $7.0 million. During the nine months ended
September 30, 1997, the Company issued 229,000 shares of common stock primarily
for the exercise of stock options and 530,000 shares of treasury stock in
exchange for a director's 10% interest in Holdings. During the nine months ended
September 30, 1997, the Company repurchased 2.3 million shares of common stock
for $39.4 million. Quarterly dividends of $.065 per share were paid in 1996 and
the first nine months of 1997. For book purposes, for the period between June
1995 and September 1996, the common stock dividends were in excess of retained
earnings and as such were treated as distributions of capital.
A total of 10 million preferred shares, $.01 par value, are authorized.
In 1993, 4.1 million depositary shares (each representing a quarter interest in
a share of $100 liquidation value stock) of 6% preferred stock were sold through
an underwriting. The net proceeds were $99.3 million. The stock is convertible
into common stock at $20.46 per share. Under the terms of the stock, common
stock dividends not paid out of retained earnings reduce the conversion price
when paid. The stock is exchangeable at the option of the Company for 6%
convertible subordinated debentures on any dividend payment date. The 6%
convertible preferred stock is currently redeemable at the option of the
Company. The liquidation preference is $25.00 per depositary share, plus accrued
and unpaid dividends. At September 30, 1997, the redemption price was $25.90 per
depositary share. The redemption price declines $.15 per year to $25.00 per
depositary share in 2003. During 1996, the Company repurchased 6,000 depositary
shares for $142,000. Subsequent to quarter end, the Company redeemed one-half of
the depositary shares, issuing 2.3 million shares of common stock and paying
13
<PAGE>
approximately $4.2 million in cash. After the redemption, the Company announced
that it is calling the remaining one-half of its depositary shares for
redemption. The Company paid $4.6 million ($1.50 per 6% convertible depositary
share per annum) in preferred dividends during the nine months ended September
30, 1997 and 1996.
Earnings per share are computed by dividing net income, less dividends
on preferred stock, by weighted average shares outstanding. Differences between
primary and fully diluted earnings per share were insignificant for all periods
presented.
The Company maintains a stock option plan for certain employees
providing for the issuance of options at prices not less than fair market value.
Options to acquire up to three million shares of common stock may be outstanding
at any given time. The specific terms of grant and exercise are determined by a
committee of independent members of the Board. A stock grant and option plan is
also maintained by the Company whereby each nonemployee Director receives 500
common shares quarterly in payment of their annual retainer. It also provides
for 2,500 options to be granted annually to each nonemployee Director. The
majority of currently outstanding options vest over a three year period (30%,
60%, 100%) and expire five years from the date of grant.
(8) COMMITMENTS AND CONTINGENCIES
The Company rents offices at various locations under noncancelable
operating leases. Minimum future payments under such leases approximate $625,000
for the remainder of 1997, $2.4 million for 1998, $2.6 million for 1999, $2.6
million for 2000 and $1.6 million for 2001.
In September 1996, the Company and other interest owners in a lease in
southern Texas were sued by the royalty owners in Texas state court in Brooks
County, Texas. The Company's working interest in the lease is approximately 20%.
The complaint alleges, among other things, that the defendants have failed to
pay proper royalties under the lease and have breached their duties to
reasonably develop the lease. The plaintiffs also claim damages for fraud and
trespass, and demand actual and punitive damages. Although the complaint does
not specify the amount of damages claimed, an earlier letter from plaintiffs
claimed damages in excess of $50 million. The Company and the other interest
owners have filed an answer denying the claims and intend to contest the suit
vigorously.
At this time, the Company is unable to estimate the range of potential
loss, if any, from the foregoing uncertainty. However, the Company believes its
resolution should not have a material adverse effect upon the Company's
financial position, although an unfavorable outcome in any reporting period
could have a material impact on the Company's results of operations for that
period. The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.
The Company's operations are affected by political developments and
federal and state laws and regulations. Oil and gas industry legislation and
administrative regulations are periodically changed for a variety of political,
economic and other reasons. Numerous departments and agencies, federal, state,
local and Indian, issue rules and regulations binding on the oil and gas
industry, some of which carry substantial penalties for failure to comply. The
regulatory burden on the oil and gas industry increases the Company's cost of
doing business, decreases flexibility in the timing of operations and may
adversely affect the economics of capital projects.
(9) SUBSEQUENT EVENT
On October 21, 1997, the Company completed a series of transactions
which resulted in the sale of all of the 14 million shares of common stock of
Patina held by the Company. The Company sold 10.9 million shares of Patina stock
in a secondary offering with the remainder being repurchased by Patina.
14
<PAGE>
The net proceeds from the transaction were approximately $127.3
million. Based on the expected terms of the disposition at June 30, 1997, a $10
million loss provision was recorded by the Company in the second quarter of
1997. However, based on the actual terms, the Company expects the disposition to
result in a gain in the fourth quarter. Therefore, the $10 million loss
provision was reversed in the third quarter.
The following table summarizes the unaudited pro forma effects on the
Company's financial statements assuming the Patina divestiture had been
consummated September 30, 1997 (for balance sheet data) and on January 1, 1997
and 1996 (for statement of operations data). Future results may differ
substantially from pro forma results due to changes in oil and gas prices,
production declines and other factors. Therefore, pro forma statements cannot be
considered indicative of future operations.
<TABLE>
<CAPTION>
As of or for the Nine
Months Ended September 30,
----------------------------
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
Total assets $582,314 N/A
Total debt $173,608 N/A
Oil and gas sales $ 95,627 $ 74,253
Total revenues $143,785 $102,978
Production direct operating margin $ 69,483 $ 47,352
Income (loss) before extraordinary item $ 32,098 $ (6,208)
Net income (loss) $ 29,250 $ (6,208)
Net income (loss) per common share $ .82 $ (.35)
Weighted average shares outstanding 30,121 31,363
Production volume (MBOE) 6,570 5,597
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Snyder Oil Corporation (the "Company") is engaged in the production,
development, acquisition and exploration of domestic oil and gas properties,
primarily in the Gulf of Mexico, the Rockies and northern Louisiana. The Company
also has investments in two international exploration and production companies,
SOCO International plc ("SOCI plc") and Cairn Energy plc ("Cairn").
In May 1996, the Company consolidated its properties in the Wattenberg
Field of Colorado with those of Gerrity Oil and Gas Corporation ("GOG") to
create Patina Oil and Gas Corporation ("Patina"), thereby converting its working
interest in the field initially into a 70% interest (74% at September 30, 1997)
in the field's largest producer. Patina is reflected in the Company's financial
statements as a consolidated subsidiary, with the related minority interest
being deducted from subsidiary earnings and stockholders' equity.
On October 21, 1997, the Company completed a series of transactions
which resulted in the sale of all of the 14 million shares of common stock of
Patina held by the Company. The Company sold 10.9 million shares of Patina stock
in a secondary offering with the remainder being repurchased by Patina.
Unless indicated otherwise, amounts in this discussion reflect the
consolidated results of the Company, including Patina. References to the Company
"excluding Patina" refer to the Company on a consolidated basis but after
excluding amounts attributable to Patina.
Results of Operations
Net income for the third quarter was $3.6 million as compared to $5.6
million in the same period in 1996. Net income was boosted by higher oil and gas
sales of $5.8 million and the reversal of a $10.0 million loss provision. In the
second quarter, based on the expected terms of the Patina disposition, the
Company recorded a $10.0 million loss provision. However, based on the actual
terms of the disposition, the Company received net proceeds of approximately
$127 million thus resulting in a gain in the fourth quarter. Therefore, the loss
provision was reversed. These positive items were offset by a $4.2 million
decrease in gains on sales of properties, higher exploration expenses due to a
$4.8 million exploratory dry hole in the Gulf of Mexico and property impairments
of $4.7 million.
16
<PAGE>
The following table sets forth certain operating information of the
Company for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- Increase -------------------- Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
-------- -------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Oil and gas sales $ 52,156 $ 46,347 13% $168,992 $126,799 33%
Production margin $ 39,029 $ 33,263 17% $129,341 $ 90,336 43%
Production:
Oil (MBbl) 970 1,040 (7%) 3,003 2,880 4%
Gas (MMcf) 17,567 14,202 24% 50,306 40,711 24%
Equivalent barrels (MBOE) 3,898 3,407 14% 11,387 9,666 18%
Average Prices:
Oil ($/Bbl) $ 18.09 $ 20.25 (11%) $ 19.21 $ 19.67 (2%)
Gas ($/Mcf) $ 1.97 $ 1.78 11% $ 2.21 $ 1.72 28%
Equivalent barrels ($/BOE) $ 13.38 $ 13.60 (2%) $ 14.84 $ 13.12 13%
Production DD&A $ 5.51 $ 6.03 (9%) $ 5.64 $ 5.80 (3%)
</TABLE>
Oil and gas sales increased 13% in the quarter ended September 30, 1997
due to continued production increases as compared to the prior year. Average
daily production for the quarter reached a record level of 42,366 BOE per day as
Gulf of Mexico gas production tripled and oil production there doubled from the
comparable prior year period. The Gulf of Mexico increase is due primarily to
two fourth quarter 1996 acquisitions. The Rocky Mountain Division also had
increased production, but the increase was offset by the effect of the sales of
nonstrategic properties throughout 1996.
Daily production, excluding Patina, was 25,513 BOE. Even with the
disposition of Patina, and before any acquisitions, the Company expects the
continuation of the increasing production trend from the core properties to
largely replace Patina's production contribution by the end of 1998.
Oil and gas sales for the nine months ended September 30, 1997 exceeded
1996 by 33%. The increase is a combination of a 13% rise in the price received
per BOE (primarily in the first quarter) and an 18% increase in BOE production.
The production increase is due to the items mentioned above along with the
inclusion of nine months of Patina production in 1997 as compared to five months
in 1996.
Production margin (oil and gas sales less direct operating expenses)
for the quarter ended September 30, 1997 increased 17% from the same period in
1996. Excluding Patina, production margin was $22.0 million. The increased
production margin was primarily due to higher production and prices. Even with
higher production levels, total operating expenses for the third quarter of 1997
remained constant at $13.0 million compared to the same period in 1996. This is
primarily due to the sale of noncore properties which tended to have higher
operating costs and an increased emphasis on operating efficiencies. Operating
costs per BOE were $3.37 compared to $3.84 in the same period in 1996.
Gains on sales of properties were $3.8 million for the quarter compared
to $8.0 million in the prior year quarter. The gain in the third quarter of 1997
was due to the sale of a nonstrategic property in the Gulf of Mexico in exchange
for the assumption of the abandonment liability. The gain in the third quarter
of 1996 was primarily due to a $7.4 million gain on the sale of a 50% interest
in the Green River Basin holdings for $16.9 million.
Exploration expenses were $7.2 million compared to $2.0 million in
1996. The increase is due to an exploratory dry hole drilled in the Gulf of
Mexico. The Company has now been successful on two of four exploratory wells in
the Gulf of Mexico.
17
<PAGE>
General and administrative expenses, net of reimbursements, for the
third quarter 1997 were $5.2 million, a $446,000 increase from the same period
in 1996 as several of the properties sold during 1996, although having high
operating costs and depletion, depreciation and amortization rates, provided
significant general and administrative expense reimbursements. The Company's
general and administrative expenses continue to decrease compared to the last
three quarters as shown below. Excluding Patina, these expenses totaled $4.0
million during the quarter ended September 30, 1997.
<TABLE>
<CAPTION>
Costs % Decrease
------- ----------
<S> <C> <C>
Fourth quarter 1996 $ 5,834 -
First quarter 1997 5,492 6%
Second quarter 1997 5,320 3%
Third quarter 1997 5,178 3%
</TABLE>
Interest expense was $7.8 million during the third quarter of 1997,
$4.0 million of which was incurred by Patina, compared to $7.0 million during
the same period in 1996. The majority of the increase is the result of higher
average interest rates due to subordinated notes representing a higher
percentage of total debt.
Depletion, depreciation and amortization expense for the third quarter
decreased to $22.1 million from $23.2 million in the same period in 1996. The
decrease, in spite of increased production, is due to a decrease in the total
depletion, depreciation and amortization rate per BOE from $6.80 in the third
quarter of 1996 to $5.66 during the same period in 1997. The decrease is
primarily due to higher 1996 amortization costs on a noncompete agreement at
Patina but was also the result of lower production depletion, depreciation and
amortization rates. Excluding Patina, total depletion, depreciation and
amortization expense was $10.6 million reflecting an overall rate of $4.51 per
BOE.
Property impairments included a $4.5 million impairment recorded on the
Uinta field. At year end, Uinta prices benefited from a low oil supply and very
high Rocky Mountain area energy prices. Since then, new supplies have depressed
the oil market and prices in the area have returned to more normal levels. This
adjustment in carrying value will not impact future development plans in the
area.
Acquisition, Exploration and Development
During the nine months ended September 30, 1997, the Company incurred
$76.8 million in capital expenditures, including $58.7 million for development,
$12.9 million for exploration, $3.0 million for property acquisitions and $2.2
million for fixed assets. Of the $58.7 million of development expenditures,
$21.4 million was concentrated in the Gulf of Mexico, $8.6 million in the
Washakie Basin of southern Wyoming, $7.0 million in the Green River Basin of
southern Wyoming and $4.4 million in the Piceance Basin of western Colorado. In
addition, Patina incurred $11.3 million of the total expenditures of the
Company. The Company placed 69 wells on sales during the nine months ended
September 30, 1997 and had 27 wells in progress at quarter end.
Exploration costs include the costs of two exploratory dry holes in the
Gulf of Mexico and continuing seismic programs in the Gulf of Mexico, the
Rockies and northern Louisiana. Patina incurred $121,000 of exploration costs
during the nine month period ended September 30, 1997.
Financial Condition and Capital Resources
During the nine months ended September 30, 1997, net cash provided by
operations was $104.3 million, an increase of $31.4 million compared to the 1996
period. Excluding Patina, net cash from operations was $55.6 million. As of
September 30, 1997, commitments for capital expenditures, primarily for new
production facilities in the Gulf of Mexico, totaled $17.0 million. Patina's
commitments were $275,000.
18
<PAGE>
The Company anticipates that 1997 capital expenditures, excluding
acquisitions, will approximate $116 million. The level of these and other future
expenditures is largely discretionary, and the amount of funds devoted to any
particular activity may increase or decrease significantly, depending on
available opportunities and market conditions. The Company plans to finance its
ongoing acquisition, exploration and development expenditures using internally
generated cash flow, existing credit facilities and proceeds from sales of
investments and nonstrategic properties. In addition, joint ventures or future
public offerings of debt or equity securities may be utilized.
SOCO maintains a $500 million revolving credit facility (the "SOCO
Facility"). The SOCO Facility is divided into a $100 million short-term portion
and a $400 million long-term portion that expires on December 31, 2000.
Management's policy is to renew the facility on a regular basis. The borrowing
base available under the facility at September 30, 1997 was $120 million. During
the nine months ended September 30, 1997, the average interest rate under the
revolver was 6.5%. At September 30, 1997, the Company had $1,000 outstanding
under the facility.
In June 1997, SOCO issued $175.0 million of 8.75% Senior Subordinated
Notes due June 15, 2007. The net proceeds of the offering were $168.8 million
which were used to redeem the Company's convertible subordinated notes due May
15, 2001, and reduce the balance outstanding under the SOCO Facility. Through
the issuance of the new notes and the redemption of the old notes, the Company
has effectively extended its debt maturity by over six years.
Patina maintains separate credit facilities with $72.0 million
outstanding on its revolver at September 30, 1997 and Subordinated Notes of
$97.7 million. As a result of the Patina disposition subsequent to quarter end,
Patina's indebtedness will not be included in the Company's consolidated
financial statements in future periods.
The Patina disposition provided cash proceeds of approximately $127
million. With the elimination of Patina's indebtedness, the Company's only debt
will be the Senior Subordinated Notes. Immediately following the transaction,
the Company had over $125 million cash plus the marketable security position in
Cairn and SOCI plc totaling approximately $140 million.
At September 30, 1997, total capitalization was $718.3 million, of
which 41% was represented by stockholders' equity, 38% by subordinated debt, 10%
by senior debt and 11% by minority interest. Excluding Patina, total
capitalization was $470.7 million, of which 63% was represented by stockholders'
equity and 37% by subordinated debt.
The Company seeks to diversify its exploration and development risks by
seeking partners for its significant development projects and maintaining a
program to divest of marginal properties and assets which do not fit its long
range plans. During the first nine months of 1997, the Company received $10.6
million in proceeds from sales of properties which were used primarily to fund
development expenditures. None of the sales were individually significant.
The Board has authorized the repurchase of up to $70 million of the
Company's securities. During 1996 and the first nine months of 1997, the Company
repurchased 3.0 million common shares for $46.3 million, 6,000 preferred
depositary shares for $142,000 and $4.6 million principal amount convertible
subordinated notes for $4.3 million.
Subsequent to quarter end, the Company redeemed one-half of its
preferred depositary shares, issuing 2.3 million shares of common stock and
paying approximately $4.2 million in cash. After the redemption, the Company
announced that it is calling the remaining one-half of its preferred shares for
redemption. The call will require the repurchase of the $25.00 par value
depositary shares at a redemption price of $25.90 for a potential cash outlay of
approximately $53.5 million. The depositary shares are convertible into 1.2221
shares of common at a conversion price of $20.46. At the time of the call, the
common stock was trading above that level which may result in conversion rather
than redemption of the shares.
The Company believes that its capital resources are adequate to meet
the requirements of its business. However, future cash flows are subject to a
number of variables including the level of production and oil and gas prices,
and there can be no assurance that operations and other capital resources will
provide cash in sufficient amounts to maintain planned levels of capital
expenditures or that increased capital expenditures will not be undertaken.
19
<PAGE>
Inflation and Changes in Prices
While certain of its costs are affected by the general level of
inflation, factors unique to the petroleum industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and gas prices. Although it is difficult to estimate future prices of oil
and gas, price fluctuations have had, and will continue to have, a material
effect on the Company.
The following table indicates the average oil and gas prices received
over the last five years and highlights the price fluctuations by quarter for
1997 and 1996. Average gas prices for the nine months ended September 30, 1997
and the year ended December 31, 1996 were increased by $.02 and $.08 per Mcf,
respectively, by the benefit of the Company's hedging activities. Average price
computations exclude contract settlements and other nonrecurring items to
provide comparability. Average prices per equivalent barrel indicate the
composite impact of changes in oil and gas prices. Natural gas production is
converted to oil equivalents at the rate of 6 Mcf per barrel.
<TABLE>
<CAPTION>
Average Prices
-------------------------------------------
Crude Oil
and Natural Equivalent
Liquids Gas Barrels
--------- --------- ----------
(Per Bbl) (Per Mcf) (Per BOE)
<S> <C> <C> <C>
Annual
------
1992 $ 18.87 $ 1.74 $ 13.76
1993 15.41 1.94 13.41
1994 14.80 1.67 11.82
1995 16.96 1.35 11.00
1996 20.39 1.97 14.35
Quarterly
---------
1996
----
First $ 17.95 $ 1.78 $ 12.80
Second 20.52 1.62 12.90
Third 20.25 1.78 13.60
Fourth 22.26 2.64 17.69
1997
----
First $ 21.18 $ 2.83 $ 18.10
Second 18.33 1.85 13.09
Third 18.09 1.97 13.38
</TABLE>
In September 1997, the Company received an average of $18.03 per barrel
and $2.06 per Mcf for its production.
Forward-looking Information
All statements other than statements of historical fact contained in
this report are forward-looking statements with the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove correct. All
forward-looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of
uncertainties and risks that could significantly affect current plans,
anticipated actions, the timing of such actions and the Company's financial
condition and results of operations. The risks and uncertainties associated with
such forward-looking statements include generally the volatility of hydrocarbon
prices and hydrocarbon-based financial derivatives prices; basis risk and
counterparty credit risk in executing hydrocarbon price risk management
20
<PAGE>
activities; economic, political, judicial and regulatory developments;
developments in financial markets, both domestic and foreign; competition in the
industry, as well as competition from other sources of energy; the economics of
producing certain reserves; hydrocarbon demand and supply; the ability to find
or acquire and develop and market reserves of natural gas and crude oil; and the
actions of customers and competitors. As a consequence, actual results may
differ materially from expectations, estimates or assumptions expressed in any
forward-looking statements made by or on behalf of the Company.
21
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
11.1 Computation of Per Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Dividends.
27 Financial Data Schedule.
(b) The following reports on Form 8-K were filed during the quarter ended
September 30, 1997:
October 22, 1997 - Item 2. Acquisition or Disposition of Assets;
Item 5. Other Events;
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SNYDER OIL CORPORATION
By (Mark A. Jackson)
--------------------------------
Mark A. Jackson
Senior Vice President and Chief Financial Officer
November 12, 1997
23
<TABLE>
EXHIBIT 11.1
SNYDER OIL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
---------------------------------- -------------------
1994 1995 1996 1997
--------- --------- --------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Net income (loss) $12,372 ($39,831) $62,950 $26,703
Dividends on preferred stock (10,806) (6,210) (6,210) (4,648)
------- -------- ------- -------
Net income (loss) available to common $ 1,566 ($46,041) $56,740 $22,055
======= ======== ======= =======
Weighted average shares outstanding 23,704 30,186 31,308 30,121
Assumed exercise of vested common stock options
net of treasury shares repurchased 290 138 179 443
Assumed conversion of 6% preferred stock 4,881 4,881 5,052 5,052
------- ------- ------- -------
Weighted average common stock and equivalents outstanding 28,875 35,205 36,539 35,616
======= ======= ======= =======
Primary net income (loss) per common share:
Net income (loss) $0.52 ($1.32) $2.01 $0.88
Dividends on preferred stock (0.45) (0.21) (0.20) (0.15)
------- ------- ------- -------
Net income (loss) available to common $0.07 ($1.53) $1.81 $0.73
======= ======= ======= =======
Fully diluted net income (loss) per common share:
Net income (loss) $0.43 ($1.13) $1.72 $0.75
Dividends on preferred stock 0.00 0.00 0.00 0.00
------- ------- ------- -------
Net income (loss) available to common $0.43 ($1.13) $1.72 $0.75
======= ======= ======= =======
</TABLE>
<TABLE>
EXHIBIT 12
SNYDER OIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<CAPTION>
Nine
Year Ended December 31, Months Ended
------------------------------------------------------------------------ September 30,
1992 1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------ ----------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes, minority
interest and extraordinary item $15,027 $22,538 $13,510 ($40,604) $74,701 $47,557
Interest expense 4,997 5,315 10,337 21,679 23,587 21,609
------------ ------------ ----------- ------------ ------------ -----------
Earnings before taxes, minority
interest, extraordinary item and
interest expense $20,024 $27,853 $23,847 ($18,925) $98,288 $69,166
============ ============ =========== ============ ============ ===========
Interest expense $4,997 $5,315 $10,337 $21,679 $23,587 $21,609
Preferred stock dividends of
majority owned subsidiary - - - - 1,520 1,474
------------ ------------ ----------- ------------ ------------ -----------
Total fixed charges $4,997 $5,315 $10,337 $21,679 $25,107 $23,083
============ ============ =========== ============ ============ ===========
Ratio of earnings to fixed charges 4.01 5.24 2.31 N/A(1) 3.91 3.00
============ ============ =========== ============ ============ ===========
<FN>
(1) Earnings were inadequate to cover fixed charges by $40.6 million.
</FN>
</TABLE>
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(Unaudited)
<CAPTION>
Nine
Months Ended
Year Ended December 31, September 30,
----------------------------------------------------------------------- ---------------
1992 1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------ -------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes, minority
interest and extraordinary item $15,027 $22,538 $13,510 ($40,604) $74,701 $47,557
Interest expense 4,997 5,315 10,337 21,679 23,587 21,609
------------ ------------ ----------- ------------ ------------ ------------
Earnings before taxes, minority
interest, extraordinary item and
interest expense $20,024 $27,853 $23,847 ($18,925) $98,288 $69,166
============ ============ =========== ============ ============ ============
Interest expense $4,997 $5,315 $10,337 $21,679 $23,587 $21,609
Preferred stock dividends 4,800 9,100 10,806 6,210 6,210 4,648
Adjustment to tax effect preferred
stock dividends - - - - 429 2,069
Preferred stock dividends of
majority owned subsidiary - - - - 1,520 1,474
------------ ------------ ----------- ------------ ------------ -------------
Total fixed charges $9,797 $14,415 $21,143 $27,889 $31,746 $29,800
============ ============ =========== ============ ============ =============
Ratio of earnings
to combined fixed charges
and preferred dividends 2.04 1.93 1.13 N/A(1) 3.10 2.32
============ ============ =========== ============ ============ =============
<FN>
(1) Earnings were inadequate to cover combined fixed charges and preferred dividends by $46.8 million.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000860713
<NAME> Snyder Oil Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 22,868
<SECURITIES> 0
<RECEIVABLES> 37,573
<ALLOWANCES> 0
<INVENTORY> 5,256
<CURRENT-ASSETS> 67,988
<PP&E> 964,811
<DEPRECIATION> 328,082
<TOTAL-ASSETS> 856,455
<CURRENT-LIABILITIES> 91,005
<BONDS> 343,291
0
10
<COMMON> 317
<OTHER-SE> 296,733
<TOTAL-LIABILITY-AND-EQUITY> 856,455
<SALES> 175,684
<TOTAL-REVENUES> 217,150
<CGS> 103,319
<TOTAL-COSTS> 135,411
<OTHER-EXPENSES> 12,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,609
<INCOME-PRETAX> 47,557
<INCOME-TAX> 13,887
<INCOME-CONTINUING> 29,551
<DISCONTINUED> 0
<EXTRAORDINARY> 2,848
<CHANGES> 0
<NET-INCOME> 26,703
<EPS-PRIMARY> .73
<EPS-DILUTED> .75
</TABLE>
