UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
---------------------------------------------------------
Commission file number 1-10509
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 .
33,556,285 Common Shares were outstanding as of August 4, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
---------- ------------
(In thousands)
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents $ 40,134 $ 89,443
Accounts receivable 22,583 21,521
Inventory and other 3,614 2,911
---------- -----------
66,331 113,875
---------- -----------
Investments 81,919 143,066
---------- -----------
Oil and gas properties, successful efforts method 477,656 410,973
Accumulated depletion, depreciation and amortization (158,267) (136,669)
---------- -----------
319,389 274,304
---------- -----------
Gas facilities and other 23,453 21,317
Accumulated depreciation and amortization (7,977) (6,474)
---------- -----------
15,476 14,843
---------- -----------
$ 483,115 $ 546,088
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 21,226 $ 23,278
Accrued liabilities 35,481 34,271
---------- -----------
56,707 57,549
---------- -----------
Senior debt 1 1
Subordinated notes 173,715 173,635
Deferred taxes payable 10,815 31,649
Other noncurrent liabilities 19,374 19,498
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par, 75,000,000 shares authorized,
35,965,143 and 35,696,213 shares issued 360 357
Capital in excess of par value 237,467 234,118
Retained earnings 41,100 44,390
Common stock held in treasury, 2,450,110 and 2,366,891 shares at cost (42,030) (40,461)
Unrealized gain or loss on investments (14,394) 25,352
---------- -----------
222,503 263,756
---------- -----------
$ 483,115 $ 546,088
========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 34,581 $ 48,988 $ 67,403 $116,836
Gas transportation, processing and marketing 776 2,194 1,630 6,764
Gains on sales of equity interests in investees - 19,968 - 32,968
Gains on sales of properties 1,302 2,235 1,303 4,842
--------- --------- --------- --------
36,659 73,385 70,336 161,410
--------- --------- --------- --------
Expenses
Direct operating 9,340 12,503 17,788 26,524
Cost of gas and transportation 365 1,757 767 5,948
Exploration 7,305 3,690 10,518 5,390
General and administrative 4,156 5,320 8,306 10,812
Financing costs, net 2,918 6,490 5,669 13,069
Other (154) 500 (31) 1,734
Loss on sale of subsidiary interest - 10,000 - 10,000
Depletion, depreciation and amortization 13,925 22,764 25,687 45,972
Property impairments - 625 - 625
--------- --------- --------- --------
Income (loss) before income taxes, minority interest
and extraordinary item (1,196) 9,736 1,632 41,336
--------- --------- --------- --------
Provision (benefit) for income taxes
Current - 500 - 500
Deferred (419) 2,618 571 11,489
--------- --------- --------- --------
(419) 3,118 571 11,989
--------- --------- --------- --------
Minority interest in subsidiaries - 626 - 3,429
--------- --------- --------- --------
Income (loss) before extraordinary item (777) 5,992 1,061 25,918
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit of $1,533 - 2,848 - 2,848
--------- --------- --------- --------
Net income (loss) (777) 3,144 1,061 23,070
Preferred dividends - 1,550 - 3,100
--------- --------- --------- --------
Net income (loss) applicable to common $ (777) $ 1,594 $ 1,061 $ 19,970
========= ========= ========= ========
Income (loss) per common share before
extraordinary item $ (.02) $ .15 $ .03 $ .75
========= ========= ========= ========
Net income (loss) per common share $ (.02) $ .05 $ .03 $ .66
========= ========= ========= ========
Income (loss) per common share before
extraordinary item - assuming dilution $ (.02) $ .15 $ .03 $ .73
========= ========= ========= ========
Net income (loss) per common
share - assuming dilution $ (.02) $ .05 $ .03 $ .65
========= ========= ========= ========
Weighted average shares outstanding 33,494 29,841 33,433 30,435
========= ========= ========= ========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Total Unrealized Common Capital in
Stockholders' Gains on Stock Held Retained Excess of Common Preferred
Equity Investments in Treasury Earnings Par Value Stock Stock
------------- ----------- ----------- -------- ---------- ------ ---------
(In thousands) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $294,668 $ 11,921 $ (3,510) $ 25,711 $ 260,221 $ 315 $ 10
Net income 32,617 - - 32,617 - - -
Other comprehensive income,
net of tax
Unrealized gain on investments 13,431 13,431 - - - - -
--------
Comprehensive income 46,048
--------
Issuance of 607,000 shares for
common stock grants and
exercise of stock options 2,957 - - - 2,951 6 -
Conversion of subordinated
notes into common shares 25 - - - 25 - -
Issuance of 530,000 shares held
in treasury 8,655 - 8,655 - - - -
Repurchase of 2,647,000 shares
of common (45,606) - (45,606) - - - -
Repurchase of 291,000 shares
of preferred (30,102) - - (1,049) (29,050) - (3)
Conversion of 743,000 shares of
preferred to 3,632,000 shares
of common - - - - (29) 36 (7)
Dividends (12,889) - - (12,889) - - -
-------- ---------- ---------- ---------- --------- ------ -------
Balance, December 31, 1997 263,756 25,352 (40,461) 44,390 234,118 357 -
Net income 1,061 - - 1,061 - - -
Other comprehensive loss,
net of tax
Unrealized loss on investments (39,746) (39,746) - - - - -
---------
Comprehensive loss (38,685)
---------
Issuance of 268,930 shares for
common stock grants and
exercise of stock options 3,352 - - - 3,349 3
Repurchase of 83,219 shares
of common (1,569) - (1,569) - - - -
Dividends (4,351) - - (4,351) - - -
-------- ---------- ---------- ---------- --------- ------ -------
Balance, June 30, 1998 $222,503 $ (14,394) $ (42,030) $ 41,100 $ 237,467 $ 360 $ -
======== ========== ========== ========== ========= ====== =======
<FN>
(1) Represents total accumulated other comprehensive income.
</FN>
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 1,061 $ 23,070
Adjustments to reconcile net income to net
cash provided by operations
Gains on sales of equity interests in investees - (32,968)
Gains on sales of properties (1,303) (4,842)
Equity in earnings of investees - (367)
Exploration expense 10,518 5,390
Loss on sale of subsidiary interest - 10,000
Depletion, depreciation and amortization 25,687 45,972
Property impairments - 625
Amortization of discount on subordinated notes 72 -
Deferred taxes 571 9,956
Minority interest in subsidiaries - 3,429
Loss on early extinguishment of debt - 4,381
Changes in current and other assets and liabilities
Decrease (increase) in
Accounts receivable 2,938 21,122
Inventory and other (1,350) 1,253
Increase (decrease) in
Accounts payable (2,052) (6,423)
Accrued liabilities 1,287 (957)
Other liabilities 1,096 (7,609)
----------- -----------
Net cash provided by operations 38,525 72,032
----------- -----------
Investing activities
Acquisition, exploration and development (86,003) (80,889)
Proceeds from sales of investments - 38,631
Proceeds from sales of properties 90 11,597
----------- -----------
Net cash used by investing (85,913) (30,661)
----------- -----------
Financing activities
Issuance of common 3,352 1,249
Issuance of subordinated notes - 168,261
Decrease in indebtedness - (62,947)
Early extinguishment of convertible subordinated notes - (85,199)
Dividends (4,351) (7,192)
Repurchase of stock (922) (39,363)
----------- ------------
Net cash used by financing (1,921) (25,191)
----------- -----------
Increase (decrease) in cash (49,309) 16,180
Cash and equivalents, beginning of period 89,443 27,922
----------- -----------
Cash and equivalents, end of period $ 40,134 $ 44,102
=========== ===========
Noncash investing and financing activities
Exchange of Company stock to retire notes receivable $ 647 $ -
Exchange of subsidiary stock for stock of investee - 30,923
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
SNYDER OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
These unaudited financial statements have been prepared by Snyder Oil
Corporation (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. Certain amounts in the prior periods' consolidated
financial statements have been reclassified to conform with current
classification. These financial statements should be read in conjunction with
the financial statements and the summary of significant accounting policies and
notes thereto included in the Company's most recent Annual Report on Form 10-K.
In October 1997, the Company sold its 74 percent interest in Patina Oil
and Gas Corporation ("Patina"). Net proceeds from the sale were approximately
$127 million resulting in a $2.8 million gain, net of tax. For informational and
comparative purposes, the following table represents the Company's condensed
income statements, excluding Patina for 1997. Future results may differ
substantially from these condensed statements due to changes in oil and gas
prices, production declines and other factors. Therefore, such statements cannot
be considered indicative of future operations.
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- --------- --------- --------
(In thousands, except per share and production data)
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 34,581 $ 26,315 $ 67,403 $ 64,723
Other 2,078 24,397 2,933 44,574
-------- --------- --------- --------
36,659 50,712 70,336 109,297
Expenses
Direct operating 9,340 8,156 17,788 17,202
Exploration 7,305 3,687 10,518 5,328
General and administrative 4,156 4,036 8,306 8,201
Financing costs, net 2,918 2,446 5,669 4,584
Other 211 2,438 736 7,909
Loss on sale of subsidiary interest - 10,000 - 10,000
Depletion, depreciation and amortization 13,925 10,416 25,687 21,196
Property impairments - 625 - 625
-------- --------- --------- --------
Income (loss) before income taxes, minority interest
and extraordinary item (1,196) 8,908 1,632 34,252
Provision (benefit) for income taxes (419) 3,118 571 11,989
Minority interest - (73) - 615
Extraordinary item - 2,848 - 2,848
-------- --------- --------- --------
Net income (loss) $ (777) $ 3,015 $ 1,061 $ 18,800
======== ========= ========= ========
Net income (loss) per common share $ (.02) $ .05 $ .03 $ .52
======= ========= ========= ========
Weighted average shares outstanding 33,494 29,841 33,433 30,435
======== ========= ========= ========
Daily oil production (Bbls) 5,447 5,763 5,272 5,789
Daily gas production (Mcf) 157,855 101,643 147,008 105,256
</TABLE>
(2) INVESTMENTS
The Company holds marketable securities of two foreign energy companies
accounted for using the cost method. The Company follows Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities," which requires that such investments be adjusted
to their fair value with a corresponding increase or decrease to stockholders'
equity. The following table sets forth the book/fair values and carrying costs
of these investments (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
---------------------------- ----------------------------
Book/Fair Carrying Book/Fair Carrying
Value Cost Value Cost
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cairn $ 53,414 $ 73,140 $ 96,062 $ 73,140
SOCI plc 28,505 30,923 47,004 30,923
----------- ----------- ----------- -----------
$ 81,919 $ 104,063 $ 143,066 $ 104,063
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
Cairn
In November 1996, the Company exchanged its interest in Command
Petroleum Ltd. for 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. In the first quarter of
1997, the Company sold 4.5 million shares at an average price of $8.81 per share
realizing $39.2 million in proceeds resulting in a gain of $13.0 million. In
accordance with SFAS 115, at June 30, 1998, investments were decreased by $19.7
million in gross unrealized holding losses, stockholders' equity was decreased
by $12.8 million and deferred taxes payable was decreased by $6.9 million. At
December 31, 1997, investments were increased by $22.9 million in gross
unrealized holding gains, stockholders' equity was increased by $14.9 million
and deferred taxes payable was increased by $8.0 million.
SOCI plc
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 SOCO International Operations,
Inc., which included the Company's interests in projects in Russia, Mongolia and
Thailand, for 7.8 million shares (15.9 percent of the total) of SOCI plc. The
offering raised approximately $75 million of new equity capital for SOCI plc to
fund its ongoing projects. The Company recognized a gain of $19.8 million as a
result of this exchange and is restricted from selling its shares until May
1999. In accordance with SFAS 115, at June 30, 1998, investments were decreased
by $2.4 million in gross unrealized holding losses, stockholders' equity was
decreased by $1.6 million and deferred taxes payable was decreased by $850,000.
At December 31, 1997, investments were increased by $16.1 million in gross
unrealized holding gains, stockholders' equity was increased by $10.5 million
and deferred taxes payable was increased by $5.6 million.
Notes Receivable
The Company held notes receivable due from a director at December 31,
1997, which originated in connection with an option to purchase 10 percent of
the Company's international affiliates due April 10, 1998. In March 1998, the
director tendered 31,000 shares of Company common stock to retire the notes.
(3) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Comprehensive income includes net income and other comprehensive income, which
includes, but is not limited to, unrealized gains for marketable securities and
future contracts, foreign currency translation adjustments and minimum pension
liability adjustments. The accompanying consolidated financial statements for
the Company reflect other comprehensive income consisting of unrealized gains or
losses for marketable securities. SFAS 130 did not have any effect on the
Company's financial condition or operations.
8
<PAGE>
(4) EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" which prescribes
standards for computing and presenting earnings per share and supersedes APB
Opinion No. 15, "Earnings per Share." In accordance with SFAS 128, income
applicable to common has been calculated based on the weighted average shares
outstanding during the year and income applicable to common-assuming dilution
has been calculated assuming the exercise or conversion of all dilutive
securities as of January 1, 1998 and 1997, or as of the date of issuance if
later. The following table illustrates the calculation of earnings per share for
income from continuing operations.
<TABLE>
<CAPTION>
Income Shares Per-Share
------------ ----------- ------------
For the Three Months Ended June 30, 1998
----------------------------------------
<S> <C> <C> <C>
Loss applicable to common shareholders $ (777) 33,494 $ (.02)
Effect of dilutive securities
Stock options - 633
----------- -----------
Loss applicable to common-assuming dilution $ (777) 34,127 $ (.02)
============ ===========
For the Three Months Ended June 30, 1997
----------------------------------------
Income before extraordinary item $ 5,992
Preferred dividends (1,550)
-----------
Income before extraordinary item
available to common shareholders 4,442 29,841 $ .15
Effect of dilutive securities
Stock options - 429
----------- -----------
Income before extraordinary item
applicable to common-assuming dilution $ 4,442 30,270 $ .15
=========== ===========
</TABLE>
9
<PAGE>
<TABLE>
Income Shares Per-Share
----------- ----------- -------------
For the Six Months Ended June 30, 1998
--------------------------------------
<S> <C> <C> <C>
Income applicable to common shareholders $ 1,061 33,433 $ .03
Effect of dilutive securities
Stock options - 1,212
----------- -----------
Income before extraordinary item
applicable to common-assuming dilution $ 1,061 34,645 $ .03
=========== ===========
For the Six Months Ended June 30, 1997
--------------------------------------
Income before extraordinary item $ 25,918
Preferred dividends (3,100)
-----------
Income available to common shareholders 22,818 30,435 $ .75
Effect of dilutive securities
Stock options - 238
Convertible preferred stock 3,100 5,052
----------- -----------
Income before extraordinary item
applicable to common-assuming dilution $ 25,918 35,725 $ .73
=========== ===========
</TABLE>
As of June 30, 1998, the only potentially dilutive securities
outstanding were stock options that have yet to be exercised.
(5) COMMITMENTS AND CONTINGENCIES
The Company rents offices at various locations under noncancelable
operating leases. Minimum future payments under such leases approximate $1.5
million for the remainder of 1998, $3.6 million for 1999, $3.7 million for 2000,
$2.7 million for 2001 and $1.0 million for 2002.
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
percent. The complaint alleges, among other things, that the defendants have
failed to pay proper royalties under the lease, have unlawfully comingled
production with production from other leases and have breached their duties to
reasonably develop the lease. The plaintiffs also claim damages for fraud,
comingling, trespass and similar matters, and demand actual and punitive
damages. Although the complaint does not specify the amount of damages claimed,
plaintiffs have submitted calculations showing total damages against all owners
in excess of $100 million. The Company and the other interest owners have filed
an answer denying the claims and intend to contest the suit vigorously. The suit
is currently in discovery.
At this time, the Company is unable to estimate the range of potential
loss, if any, from the foregoing uncertainty. However, the Company believes that
resolution should not have a material adverse effect on 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 and its subsidiaries and affiliates are named defendants in
lawsuits and involved from time to time in governmental proceedings, all arising
in the ordinary course of business. Although the outcome of these lawsuits and
10
<PAGE>
proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position of the
Company.
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.
The financial statements reflect favorable legal proceedings only upon
receipt of cash, final judicial determination or execution of a settlement
agreement. 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.
(6) RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," was released. The statement requires disclosure of certain
information about operating segments and geographic areas of operation. SFAS 131
will be adopted in the December 31, 1998 financial statements and will not have
any effect on the Company's financial condition or operations.
In June 1998, Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities,"
was released. The statement establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that derivatives be
recognized as assets or liabilities and measured at their fair value. SFAS 133
will be adopted in 2000 and is not expected to have a material effect on the
Company's financial condition or operations.
(7) OTHER
The Company also completed a non-cash acquisition in the second quarter
of 1998. The Company acquired 75 percent of Amoco Production Company's ("Amoco")
interest in the Beaver Creek Unit and two associated gas plants in the Wind
River Basin in Wyoming in exchange for the Jonah Field portion of the Company's
properties in the Deep Green River Basin project in Wyoming. Under terms of the
agreement, effective January 1, 1998, SOCO also received Amoco's interest in the
Deep Green River project outside the Jonah Field area and retains the deep
rights in Jonah beneath the Mesa Verde horizon at about 12,250 feet.
11
<PAGE>
Item 2. 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 Rocky Mountains and North Louisiana. The
Company also has investments in two international exploration and production
companies, SOCO International plc ("SOCI plc") and Cairn Energy plc ("Cairn"),
both listed on the London Stock Exchange.
In October 1997, the Company sold its 74 percent interest in Patina Oil
and Gas Corporation ("Patina"). Net proceeds from the sale were approximately
$127 million resulting in a $2.8 million gain, net of tax.
Excluding Patina, the Company's production was 40 percent higher in the
second quarter of 1998 compared to the second quarter of 1997. This marks the
Company's fourth consecutive quarterly increase in production reflecting the
success of the exploration and development programs. Exploration during the
quarter achieved four successes among five tests drilled with discoveries at
Main Pass 260, Viosca Knoll 780 and 824 and Mississippi Canyon 546 in the Gulf
of Mexico.
During the second quarter, the Board of Directors authorized a 40
percent increase in the Company's capital spending program for a total of
approximately $200 million for 1998. This will allow the Company to pursue new
drilling opportunities such as the recently announced Flex Trend discoveries in
the Gulf of Mexico. The acquisition of 75 percent of Amoco's interest in the
Beaver Creek Unit established an additional significant core operating area
within the Rockies.
Financial Performance
The Company reported a net loss in the second quarter of $777,000 or
($.02) per share compared to net income for the 1997 quarter of $3.1 million or
$.05 per share. Excluding gains on sales of properties, the 1998 quarter
resulted in a net loss of $1.6 million compared to a net loss of $3.7 million in
the 1997 quarter, excluding Patina, gains on sales of equity interests in
investees, gains on sales of properties, loss on sale of subsidiary interest,
minority interest and the extraordinary item. The six month period reported net
income of $1.1 million compared to $23.1 million in 1997. Excluding Patina and
the same one time adjustments, net income was $214,000 for the 1998 six month
period and $1.1 million available to common in the 1997 period. Higher
exploration expense and 37 percent lower oil prices offset the 40 percent
increase in gas production for the comparable six month periods, excluding
Patina.
Net cash provided by operating activities decreased to $38.5 million
during the six months ended June 30, 1998, as compared to $72.0 million during
the same period in 1997. This decrease is attributed to the sale of Patina which
accounted for $33.5 million of last year's cash flow.
12
<PAGE>
Results of Operations
Oil and Gas Production
The following tables reflect activities for the Company's oil and gas
properties for the three months and six months ended June 30, 1998 and 1997. Two
columns are provided for 1997 to show the effect of the October 1997 disposition
of Patina. The discussion following the tables will concentrate on differences
between 1998 and 1997, excluding Patina.
<TABLE>
Three Months Ended June 30,
-----------------------------------------------------
1997
Excluding
1998 Patina 1997
------------- ------------- -------------
(In thousands, except production, average
price and cost data)
<S> <C> <C> <C>
Oil and gas sales $ 34,581 $ 26,315 $ 48,988
Direct operating costs (9,340) (8,156) (12,503)
------------- ------------- -------------
Production margin $ 25,241 $ 18,159 $ 36,485
============= ============= =============
Average daily production:
Oil (Bbls) 5,447 5,763 11,325
Gas (Mcf) 157,855 101,643 178,756
Average oil price (per Bbl) $ 11.10 $ 17.60 $ 18.33
Average gas price (per Mcf) 2.02 1.85 1.85
Direct operating costs (per BOE):
Lease operating $ 2.44 $ 2.98 $ 2.39
Production taxes .67 .64 .77
Workovers .12 .33 .18
------------- ------------- -------------
Total direct operating costs $ 3.23 $ 3.95 $ 3.34
============= ============= =============
Depletion, depreciation and amortization $ 4.82 $ 5.04 $ 6.08
============= ============= =============
</TABLE>
13
<PAGE>
<TABLE>
Six Months Ended June 30,
-----------------------------------------------------
1997
Excluding
1998 Patina 1997
------------- ------------- -------------
(In thousands, except production, average
price and cost data)
<S> <C> <C> <C>
Oil and gas sales $ 67,403 $ 64,723 $ 116,836
Direct operating costs (17,788) (17,202) (26,524)
------------- ------------- -------------
Production margin $ 49,615 $ 47,521 $ 90,312
============= ============= =============
Average daily production:
Oil (Bbls) 5,272 5,789 11,231
Gas (Mcf) 147,008 105,256 180,880
Average oil price (per Bbl) $ 12.05 $ 19.22 $ 19.74
Average gas price (per Mcf) 2.10 2.34 2.34
Direct operating costs (per BOE):
Lease operating $ 2.48 $ 2.95 $ 2.44
Production taxes .69 .87 .95
Workovers .13 .26 .15
------------- ------------- -------------
Total direct operating costs $ 3.30 $ 4.08 $ 3.54
============= ============= =============
Depletion, depreciation and amortization $ 4.77 $ 5.02 $ 6.14
============= ============= =============
</TABLE>
An increase in gas production partially offset by a decline in oil
prices drove oil and gas sales up in both the three and six months ended June
30, 1998. Increased gas production, primarily from the Gulf of Mexico, is
attributed to the installation of a production platform at Main Pass 261, which
began production at the end of March 1998, and development drilling in the Gulf
of Mexico. Also, production from the Rocky Mountain Region continues to
experience steady growth from an active development program. The decline in oil
production reflects the delay of workovers and drilling where feasible on oil
projects in light of low oil prices.
Gas prices received at the wellhead during the three and six months
ended June 30, 1998 were $1.92 and $1.95 per Mcf, respectively, with downstream
activities adding $.10 and $.15 per Mcf to the reported prices. These compare to
$1.77 and $2.27 per Mcf at the wellhead and $.08 and $.07 per Mcf from
downstream activities for the same periods in 1997. Oil prices received at the
wellhead during the three and six months ended June 30, 1998 were $11.10 and
$12.05 per Bbl, respectively, with no downstream activities. These compare to
$17.25 and $18.67 per Bbl at the wellhead and $.35 and $.55 per Bbl from
downstream activities for the same periods in 1997.
Direct Operating Costs
Direct operating costs decreased $.72 and $.78 per BOE for the three
and six months ended June 30, 1998 due to ongoing cost cutting efforts, lower
workover costs and the absence of production taxes on the growing production in
the Gulf of Mexico.
Depletion, Depreciation and Amortization
DD&A expense for the three and six months ended June 30, 1998 increased
by $3.5 million and $4.5 million from the same periods in 1997 due to the
significant increase in production. DD&A per BOE decreased $.22 and $.25 from
14
<PAGE>
the three and six months ended June 30, 1997 to the same periods in 1998,
respectively. This decrease is attributable to the Company's successful drilling
programs.
Non-Recurring Gains and Losses
Non-recurring gains and losses added approximately $27.3 million to
income before taxes, minority interest and extraordinary item in the first six
months of 1997. Gains on sales of equity interests in investees during the six
months ended June 30, 1997 included a $13.0 million gain on the sale of Cairn
stock in the first quarter and a $20.0 million gain in the second quarter
related to the initial public offering of SOCI plc. Gains on sales of properties
recorded during the six months ended June 30, 1997 included a $2.1 million gain
in the first quarter on the sale of an offshore block in the Gulf of Mexico and
a $2.2 million gain in the second quarter on the sale of the Company's Santa Fe
Springs Unit in California. Neither of these properties was included in the
Company's long-term strategic plans. Also during the second quarter of 1997, a
$10 million pretax loss was recorded based on the expected terms of the
transaction to dispose of the Company's interest in Patina. For the first six
months of 1998, only $1.3 million was included in earnings from gains on sales
of properties.
Exploration Expense
Exploration expense of $7.3 million for the 1998 quarter represents an
increase from the 1997 quarter's expense of $3.6 million, which included a $3.2
million dry hole at South Timbalier 234. Exploration expense for the six months
ended June 30, 1998 was $10.5 million compared to $5.3 million in 1997. The 1998
periods included a $4.2 million dry hole in the Gulf of Mexico and increased
expenditures for the purchase and evaluation of 3-D seismic which support our
exploration efforts in the Gulf of Mexico and North Louisiana. This reflects the
change in focus from primarily exploitation projects to a more balanced approach
through exploitation and exploration.
General and Administrative Expenses
General and administrative expenses, net of reimbursements, for the
three and six months ended June 30, 1998 were relatively consistent with the
same periods in 1997 at $4.2 million and $8.3 million, respectively.
Financing Costs
Interest expense, net of interest income, was $2.9 million and $5.7
million for the three and six months ended June 30, 1998, respectively, compared
to $2.4 million and $4.6 million for the same periods in 1997. The increase is a
result of the higher principal balance and effective interest rate from the
subordinated notes issued in June 1997, offset partially by higher interest
income. Interest income for the three and six months ended June 30, 1998 was
$946,000 and $2.0 million compared to $487,000 and $695,000 for the same periods
in 1997, as the Company had a higher average cash balance due to the proceeds
from the disposition of Patina which have yet to be fully redeployed.
Minority Interest in Subsidiaries
Minority interest recognized during 1997 related to the 10 percent of
SOCO International Holdings, Inc. which was owned by a director of the Company
and the minority share of Patina. SOCO International Holdings, Inc. was taken
public on the London Exchange and is now accounted for on the cost basis. The
Company's investment in Patina was sold in the fourth quarter of 1997.
15
<PAGE>
Extraordinary Items
The extraordinary item recorded in the second quarter of 1997 related
to the early extinguishment of the Company's convertible subordinated notes.
Capital Expenditures
Exploration and Development Activities
During the first six months of 1998, the Company incurred $66.5 million
on exploration and development activities while placing 30 operated wells on
production with 22 in progress at quarter end. In the Gulf of Mexico,
development activity included $10.3 million to complete the installation of a
production platform at Main Pass 261. An additional $13.6 million was incurred
for two development wells with three in progress at quarter end. Exploration
activities included $10.7 million for four exploration successes and $4.2
million for one unsuccessful test. Additionally, $1.2 million was incurred for
3-D seismic acquisition and evaluation.
The Company experienced a continuation of its successful drilling
program in the Rockies. Expenditures totaled $15.7 million to place 28 wells on
production with 14 wells in progress at quarter end.
The Company spent $1.3 million in North Louisiana with three wells in
progress at quarter end from which results are anticipated in the third quarter
of 1998. An additional $3.7 million of exploration expense was incurred for
additional acquisition and evaluation of 3-D seismic in the area.
Acquisitions
During the six months ended June 30, 1998, the Company spent $10.8
million to acquire producing properties and $4.8 million on acreage purchases in
and around the Company's operating hubs. Of the producing property acquisitions,
$5.4 million was incurred to purchase an incremental interest in the Main Pass
properties operated by the Company in the Gulf of Mexico. The Company also spent
$2.6 million in North Louisiana to purchase producing properties and a gas
processing facility and $2.5 million to purchase incremental interests in
properties in the Piceance Basin of western Colorado and East Washakie Basin of
southern Wyoming.
The Company also completed a non-cash acquisition in the second quarter
of 1998. The Company acquired 75 percent of Amoco Production Company's ("Amoco")
interest in the Beaver Creek Unit and two associated gas plants in the Wind
River Basin in Wyoming in exchange for the Jonah Field portion of the Company's
properties in the Deep Green River Basin project in Wyoming. Under terms of the
agreement, effective January 1, 1998, SOCO also received Amoco's interest in the
Deep Green River project outside the Jonah Field area and retains the deep
rights in Jonah beneath the Mesa Verde horizon at about 12,250 feet.
Capital Commitments
As of June 30, 1998, commitments for capital expenditures totaled
approximately $40.0 million. The Company anticipates that 1998 expenditures for
exploration and development will approximate $200 million. The level of these
and other future expenditures is largely discretionary, and the amount of funds
16
<PAGE>
devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions.
Capital Resources and Liquidity
Capital Resources
The Company's primary needs for cash are for exploration, development
and acquisition of oil and gas properties, payment of interest on outstanding
indebtedness and working capital obligations. The Company's primary capital
resources are available cash, net cash provided by operating activities,
existing credit facilities and proceeds from sales of marketable securities and
nonstrategic assets. The Company expects that these resources will be sufficient
to fund its capital commitments in 1998.
Net cash provided by operating activities was $38.5 million during the
six months ended June 30, 1998. During the six months ended June 30, 1997, $33.5
million of the $72.0 million in net cash provided by operations was generated by
Patina.
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.
In May 1998, the Company reduced the borrowing base under the existing
credit facility to $100 million from $120 million in order to reduce fees
associated with the available balance. As the Company continues to pursue
balanced growth through exploitation, exploration and acquisitions, the Company
may utilize alternative financing sources, including the issuance of fixed rate
long-term public debt, convertible securities or preferred stock. The Company
may also issue securities in exchange for oil and gas properties, stock or other
interests in other oil and gas companies or related assets.
The Board of Directors has authorized, at management's discretion, the
repurchase of up to $70 million of the Company's securities. From 1996 through
the second quarter of 1998, the Company repurchased $57.3 million of its
securities including 3.4 million common shares for $52.8 million under this
plan. In addition, during 1997, the Company redeemed its preferred depositary
shares by issuing 3.6 million shares of common stock and paying $30.1 million in
cash.
The Company has developed a plan to ensure its systems are compliant
with the requirements to process transactions in the year 2000 and beyond. The
majority of the Company's systems are already compliant, with a detailed plan
for the remaining systems scheduled to be modified or replaced within one year.
The costs associated with final compliance are not considered material.
Liquidity
At June 30, 1998, the Company had $40.1 million of cash and cash
equivalents on hand, compared to $89.4 million at December 31, 1997. The
Company's ratio of current assets to current liabilities was 1.17 at June 30,
1998, down from 1.98 at December 31, 1997 due to the redeployment of cash for
exploration and development projects.
Forward-Looking Information
All statements other than statements of historical fact contained in
this Quarterly Report on Form 10-Q and other materials filed or to be filed by
the Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) contain or will contain or include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may be or may concern, among other things, capital
expenditures, drilling activity, acquisitions and dispositions, development or
exploratory activities, cost savings efforts, production activities and volumes,
17
<PAGE>
hydrocarbon reserves, hydrocarbon prices, hedging activities and the results
thereof, financing plans, liquidity, regulatory matters, competition and the
Company's ability to realize efficiencies related to certain transactions or
organizational changes.
Forward-looking statements generally are accompanied by words such as
"anticipate," "believe," "estimate," "expect," "intend," "plan," "project,"
"potential" or similar statements. 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. Factors that
could cause the Company's results to differ materially from the results
discussed in such forward-looking statements include the risks described under
"Risk Factors and Investment Considerations" in the Company's Annual Report on
Form 10-K, such as the fluctuations of the prices received or demand for the
Company's oil and gas, the ability to replace depleting reserves, potential
additional indebtedness, the requirements for capital, drilling risks, operating
hazards, the cost and availability of drilling rigs, acquisition risks, the
uncertainty of reserve estimates, competition and the effects of governmental
and environmental regulation. All forward-looking statements are expressly
qualified in their entirety by the cautionary statements in this section.
While production levels are somewhat controllable by the Company, the
majority of the Company's sales of oil and gas are made in the spot market, or
pursuant to contracts based on spot market prices, and not pursuant to long-term
fixed-price contracts. Accordingly, the prices received by the Company for oil
and gas production are dependent upon numerous factors beyond the control of the
Company. These factors include, but are not limited to, the level of seasonal
demand for oil and gas products, governmental regulations and taxes, the price
and availability of alternative fuels, the level of foreign imports of oil and
gas, and the overall economic environment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
18
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The only matter submitted to a vote of the Company's stockholders at
the Company's Annual Meeting, held on May 20, 1998 was the election of
directors. All management's nominees for director, as listed in the Company's
Proxy Statement, were elected with over 99 percent of votes cast in favor of
each nominee.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
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 June
30, 1998:
June 1, 1998 - Item 5. Other Events.
19
<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
(Principal Financial and Accounting Officer)
August 7, 1998
<TABLE>
EXHIBIT 12
SNYDER OIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<CAPTION>
Six
Months Ended
June 30, Year Ended December 31,
-------------- ---------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------------- ----------- ---------- ---------- ---------- ----------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes, minority
interest and extraordinary item $ 1,632 $ 57,440 $ 74,701 $ (40,604) $ 13,510 $ 22,538
Interest expense 7,728 25,472 23,587 21,679 10,337 5,315
-------------- --------- ---------- ---------- ---------- ---------
Earnings before taxes, minority
interest, extraordinary item and
interest expense $ 9,360 $ 82,912 $ 98,288 $ (18,925) $ 23,847 $ 27,853
============== ========= ========== ========== ========== =========
Interest expense $ 7,728 $ 25,472 $ 23,587 $ 21,679 $ 10,337 $ 5,315
Preferred stock dividends of
majority owned subsidiary - 1,474 1,520 - - -
-------------- --------- ---------- ---------- ---------- ---------
Total fixed charges $ 7,728 $ 26,946 $ 25,107 $ 21,679 $ 10,337 $ 5,315
============== ========= ========== ========== ========== =========
Ratio of earnings to fixed charges 1.21 3.08 3.91 N/A (1) 2.31 5.24
============== ========= ========== ========== ========== =========
<FN>
(1) Earnings were inadequate to cover fixed charges by $40.6 million.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
EXHIBIT 12
SNYDER OIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(Unaudited)
<CAPTION>
Six
Months Ended
June 30, Year Ended December 31,
-------------- --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------------- ---------- ---------- ---------- ---------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes, minority
interest and extraordinary item $ 1,632 $ 57,440 $ 74,701 $ (40,604) $ 13,510 $ 22,538
Interest expense 7,728 25,472 23,587 21,679 10,337 5,315
-------------- ---------- ---------- ---------- ---------- ---------
Earnings before taxes, minority
interest, extraordinary item and
interest expense $ 9,360 $ 82,912 $ 98,288 $ (18,925) $ 23,847 $ 27,853
============== ========== ========== ========== ========== =========
Interest expense $ 7,728 $ 25,472 $ 23,587 $ 21,679 $ 10,337 $ 5,315
Preferred stock dividends - 4,929(1) 6,210 6,210 10,806 9,100
Adjustment to tax effect preferred
stock dividends - 2,428 429 - - -
Preferred stock dividends of
majority owned subsidiary - 1,474 1,520 - - -
-------------- ---------- ---------- ---------- ---------- ---------
Total fixed charges $ 7,728 $ 34,303 $ 31,746 $ 27,889 $ 21,143 $ 14,415
============== ========== ========== ========== ========== =========
Ratio of earnings
to combined fixed charges
and preferred dividends 1.21 2.42 3.10 N/A (2) 1.13 1.93
============== ========== ========== ========== ========== =========
<FN>
(1) Excludes redemption premium of $1.0 million.
(2) Earnings were inadequate to cover combined fixed charges and preferred dividends by $46.8 million.
</FN>
</TABLE>
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 40,134
<SECURITIES> 0
<RECEIVABLES> 22,583
<ALLOWANCES> 0
<INVENTORY> 2,503
<CURRENT-ASSETS> 66,331
<PP&E> 501,109
<DEPRECIATION> 166,244
<TOTAL-ASSETS> 483,115
<CURRENT-LIABILITIES> 56,707
<BONDS> 173,716
0
0
<COMMON> 360
<OTHER-SE> 222,143
<TOTAL-LIABILITY-AND-EQUITY> 483,115
<SALES> 69,033
<TOTAL-REVENUES> 70,336
<CGS> 40,528
<TOTAL-COSTS> 52,548
<OTHER-EXPENSES> 10,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,669
<INCOME-PRETAX> 1,632
<INCOME-TAX> 571
<INCOME-CONTINUING> 1,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,061
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
