<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-19136 (Common Stock)
and 333-9045 (Senior Notes)
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1400 ONE ENERGY SQUARE
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(Address of principal executive offices)
(214) 692-9211
(Registrant's telephone number, including area code)
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
------------------------
36,327,899 shares of the registrant's Common Stock, $0.01 par value, was
outstanding on August 6, 1997.
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<PAGE>
NATIONAL ENERGY GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at June 30, 1997 and December 31, 1996 (Unaudited).............................. 1
Statements of Operations for the three and six months ended June 30, 1997 and 1996
(Unaudited).................................................................................. 2
Statements of Cash Flows for the six months ended June 30, 1997 and 1996 (Unaudited)........... 3
Statement of Stockholders' Equity for the six months ended June 30, 1997 (Unaudited)........... 4
Notes to Financial Statements (Unaudited)...................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................................................... 16
</TABLE>
<PAGE>
NATIONAL ENERGY GROUP, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 12,258,779 $ 14,182,246
Accounts receivable--oil and gas sales............................................ 8,190,016 6,812,358
Accounts receivable--joint interest and other..................................... 6,235,243 3,003,661
Other............................................................................. 1,640,965 1,131,736
------------- -------------
Total current assets................................................................ 28,325,003 25,130,001
Oil and gas properties, at cost (full cost method):
Proved oil and gas properties..................................................... 203,903,895 169,863,109
Unproved oil and gas properties................................................... 29,099,468 24,682,425
------------- -------------
233,003,363 194,545,534
Accumulated depreciation, depletion, and amortization............................. 25,432,124 15,039,999
Net oil and gas properties.......................................................... 207,571,239 179,505,535
Other property and equipment........................................................ 3,503,727 2,869,227
Accumulated depreciation............................................................ 504,051 347,841
------------- -------------
Net other property and equipment.................................................... 2,999,676 2,521,386
Other assets, net................................................................... 5,585,882 4,878,234
------------- -------------
Total assets........................................................................ $ 244,481,800 $ 212,035,156
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade........................................................... $ 10,497,140 $ 12,012,655
Accounts payable--revenue and other............................................... 7,162,321 7,281,271
Accrued merger costs.............................................................. 559,578 1,462,724
Accrued interest.................................................................. 1,936,554 1,791,667
------------- -------------
Total current liabilities........................................................... 20,155,593 22,548,317
Other long-term liabilities......................................................... 865,921 1,786,813
Bank Credit Facility................................................................ 33,000,000 --
10 3/4% Senior Notes due 2006....................................................... 100,000,000 100,000,000
Deferred income taxes............................................................... 8,230,842 7,273,829
Stockholders' equity:
Convertible preferred stock, $1.00 par:
Authorized shares 1,000,000
Issued and outstanding shares--242,500
Aggregate liquidation preference--$24,250,000................................... 242,500 242,500
Common stock, $.01 par value:
Authorized shares--100,000,000
Issued and outstanding shares--36,120,459 and 35,977,140
at June 30, 1997 and December 31, 1996, respectively.......................... 361,205 359,771
Additional paid-in capital........................................................ 110,709,821 110,293,386
Deficit........................................................................... (29,084,082) (30,469,460)
------------- -------------
Total stockholders' equity.......................................................... 82,229,444 80,426,197
------------- -------------
Total liabilities and stockholders' equity.......................................... $ 244,481,800 $ 212,035,156
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
1
<PAGE>
NATIONAL ENERGY GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales................................. $ 11,782,265 $ 3,896,134 $ 24,747,292 $ 7,691,337
Well operator fees................................ 342,808 45,942 730,544 99,156
------------- ------------- ------------- -------------
12,125,073 3,942,076 25,477,836 7,790,493
Costs and expenses:
Lease operating................................... 1,817,574 594,667 3,619,747 1,201,731
Oil and gas production taxes...................... 593,780 205,403 1,410,047 393,189
Depreciation, depletion, and amortization......... 5,667,816 1,554,405 10,552,189 3,205,059
General and administrative........................ 1,148,851 538,381 2,213,558 1,046,950
------------- ------------- ------------- -------------
9,228,021 2,892,856 17,795,541 5,846,929
------------- ------------- ------------- -------------
Operating income.................................... 2,897,052 1,049,220 7,682,295 1,943,564
Interest expense.................................... (2,251,841) (500,175) (5,105,539) (975,996)
Interest income and other, net...................... 43,255 6,310 238,134 29,182
Loss on sale of marketable securities............... -- (119,619) -- (127,723)
------------- ------------- ------------- -------------
Income before income taxes.......................... 688,466 435,736 2,814,890 869,027
Provision for income taxes.......................... 234,028 -- 957,012 --
------------- ------------- ------------- -------------
Net income.......................................... $ 454,438 $ 435,736 $ 1,857,878 $ 869,027
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per common share......................... $ .00 $ .02 $ .03 $ .03
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding....................................... 36,148,855 12,116,273 36,138,936 12,071,604
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
2
<PAGE>
NATIONAL ENERGY GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................ $ 1,857,877 $ 869,027
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization....................................... 10,552,189 3,205,059
Amortization of debt issuance costs............................................. 269,841 45,278
Amortization of deferred compensation........................................... 19,156 17,679
Provision for deferred income taxes............................................. 957,010 --
Common stock, options, and warrants issued for services......................... 84,260 25,848
-------------- --------------
Cash flow from operations before operating changes............................ 13,740,333 4,162,891
Changes in operating assets and liabilities:
Accounts receivable........................................................... (4,609,240) (805,137)
Other current assets.......................................................... (531,104) (1,633,402)
Accounts payable and accrued liabilities...................................... (2,373,974) 12,920
-------------- --------------
Net cash provided by operating activities......................................... 6,226,015 1,737,272
-------------- --------------
INVESTING ACTIVITIES
Purchases of marketable securities................................................ -- (9,008)
Proceeds from sale of marketable securities....................................... -- 1,750,270
Purchases of other property and equipment......................................... (634,500) (516,700)
Oil and gas acquisition, exploration, and development expenditures................ (38,914,981) (11,358,979)
Purchases of other long term assets............................................... (553,802) --
Other............................................................................. (3,457) 1,802
-------------- --------------
Net cash used by investing activities............................................. (40,106,740) (10,132,615)
-------------- --------------
FINANCING ACTIVITIES
Proceeds from issuance of note payable............................................ -- 1,940,003
Proceeds from issuance of long-term debt, net..................................... 32,978,502 7,532,000
Repayments of note payable........................................................ -- (3,000,000)
Repayments of other long-term liabilities......................................... (776,026) --
Proceeds from exercise of stock options and warrants.............................. 227,282 135,594
Preferred stock dividends......................................................... (472,500) (472,500)
-------------- --------------
Net cash provided (used) by financing activities.................................. 31,957,728 (2,398,097)
-------------- --------------
Decrease in cash and cash equivalents............................................. (1,923,467) (5,997,246)
Cash and cash equivalents at beginning of period.................................. 14,182,246 6,076,199
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 12,258,779 $ 78,593
-------------- --------------
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash............................................................. $ 5,378,708 $ 1,090,474
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
3
<PAGE>
NATIONAL ENERGY GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS'
-------------------- --------------------- PAID-IN ------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- --------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... 242,500 $ 242,500 35,977,140 $ 359,771 $110,293,386 $(30,469,460) $80,426,197
Common stock issued upon exercise
of options and warrants.......... -- -- 110,465 1,105 226,177 -- 227,282
Common stock, options, and warrants
issued for services.............. -- -- 32,854 329 190,258 -- 190,587
Dividends on Series B Preferred
Stock............................ -- -- -- -- -- (262,500) (262,500)
Dividends on Series C Preferred
Stock............................ -- -- -- -- -- (210,000) (210,000)
Net income......................... -- -- -- -- -- 1,857,878 1,857,878
--------- --------- ---------- --------- ------------ ------------ ------------
Balance at June 30, 1997............. 242,500 $ 242,500 36,120,459 $ 361,205 $110,709,821 $(29,084,082) $82,229,444
--------- --------- ---------- --------- ------------ ------------ ------------
--------- --------- ---------- --------- ------------ ------------ ------------
</TABLE>
See accompanying notes.
4
<PAGE>
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
In management's opinion, the accompanying financial statements contain all
adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the financial position of National Energy Group, Inc. (the
"Company") as of June 30, 1997 and December 31, 1996, the results of operations
for the three and six month periods ended June 30, 1997 and 1996, and the cash
flows for the six month periods ended June 30, 1997 and 1996.
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
The Company capitalizes internal general and administrative costs that can
be directly identified with acquisition, exploration, and development
activities. These costs totaled $672,936 for the six months ended June 30, 1997
and $66,800 for the six months ended June 30, 1996. During the three months
ended June 30, 1997, the Company capitalized interest costs of $726,000, related
to its unproved oil and gas properties.
Certain previously reported amounts have been reclassified to conform with
the current presentation.
The results of operations for the six months ended June 30, 1997, are not
necessarily indicative of the results expected for the full year.
Primary earnings per common and common equivalent share data is computed by
dividing net income, adjusted for preferred stock dividend requirements of
$472,500 for the six months ended June 30, 1997 and 1996, and $236,250 for the
three months ended June 30, 1997 and 1996, by the weighted average number of
common and common equivalent shares outstanding during each period. Shares
issuable upon exercise of options and warrants and upon conversion of the
Company's Convertible Preferred Stock Series D and Series E are included in the
computation of earnings per common and common equivalent share to the extent
they are dilutive. Cash proceeds from the assumed exercise of options and
warrants is assumed to be used to repurchase Common Stock of the Company at the
price of the Company's Common Stock as of June 30, 1997, which was $3.00 per
share. Fully diluted earnings per share computations also assume conversion of
the Company's Convertible Preferred Stock, Series B and Series C, if such
conversions have a dilutive effect. The number of shares used in the per share
calculations were 43,589,774 and 12,071,604 for the six months ended June 30,
1997 and 1996, respectively, and 43,599,693 and 12,116,273 for the three months
ended June 30, 1997 and 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE, ("SFAS 128")
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options,
warrants and the Convertible Preferred Stock, Series D and Series E, will be
excluded. Adoption of SFAS 128 will not impact primary earnings per share for
the periods ended June 30, 1997 and 1996 because the dilutive effect of options,
warrants and the
5
<PAGE>
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION (CONTINUED)
convertible preferred stock was not significant. The impact of SFAS 128 on the
calculation of fully diluted earnings per share is not expected to be
significant.
2. ACQUISITIONS
In January 1996, the Company completed the acquisition of oil and gas
properties in offshore Nueces County, Texas, adjacent to the Company's Mustang
Island property, from C/A Limited, Chartex Petroleum Company, and Petrotex
Engineering Company (the "CA Acquisition"). The acquisition included interests
in five wells, a pipeline and separation facility related to Mustang Island. The
consideration for this acquisition consisted of 140,857 shares of the Company's
Common Stock and $675,000 in cash.
In February 1996, the Company completed the acquisition of two oil and gas
wells on one offshore block, interests in five other offshore blocks, and a
related production platform and equipment in offshore Nueces County, Texas,
adjacent to the Company's Mustang Island property, from UMC Petroleum
Corporation (the "UMC Acquisition"). The consideration for this acquisition
consisted of $1.5 million in cash, which was funded primarily from borrowings
under a credit agreement with BankOne.
In April 1996, the Company won exploration rights on 16 offshore tracts
(covering 7,765 acres) in the Mustang Island area in offshore Nueces County,
Texas, through successful bids with the State of Texas ("Offshore Lease
Acquisition"). The Company paid $1,437,302 in cash for these rights, and the
purchase was funded by borrowings under a credit facility with BankOne and
available cash.
On August 29, 1996, the Company completed the acquisition of Alexander
Energy Corporation ("Alexander"). The transaction consisted of a merger (the
"Merger") of Alexander with and into National Energy Group of Oklahoma, Inc.,
formerly known as NEG-OK, Inc., a wholly owned subsidiary of the Company
("NEG-OK"). Pursuant to the Merger, (a) the separate corporate existence of
Alexander terminated, (b) each share of Alexander common stock, par value $.03
per share ("Alexander Common Stock"), together with certain rights associated
with the Alexander Common Stock outstanding immediately before the Merger, were
converted into 1.7 shares of the Company's Common Stock, and (c) all outstanding
options and warrants to purchase Alexander Common Stock were assumed by the
Company and converted into options and warrants to purchase Common Stock. In
lieu of fractional shares, Alexander shareholders otherwise entitled to receive
fractional shares of Common Stock were paid in cash an amount equal to $4.375
multiplied by the fraction of a share of Common Stock to be received. On
December 31, 1996, NEG-OK was merged into and with the Company and its separate
corporate existence ceased to exist.
In connection with the Merger, on August 29, 1996, the Company, NEG-OK, and
Boomer Marketing Corporation ("Boomer Marketing"), a wholly owned subsidiary of
NEG-OK, entered into a new credit facility. See Note 3. On August 29, 1996, the
Company also closed the sale of 100,000 shares of its Convertible Preferred
Stock, Series D, $1.00 par value per share, the sale of 50,000 shares of its
Convertible Preferred Stock, Series E, $1.00 par value per share, and warrants
to purchase 1,050,000 shares of Common Stock.
The following pro forma data presents the results of the Company for the
three and six months ended June 30, 1996, as if the acquisition of NEG-OK and
the issuance of the Convertible Preferred Stock, Series D and Series E, had
occurred on January 1, 1996. The pro forma results of operations are presented
6
<PAGE>
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 1997
2. ACQUISITIONS (CONTINUED)
for comparative purposes only and are not necessarily indicative of the results
which would have been obtained had the acquisition been consummated as
presented. The following data reflect pro forma adjustments for oil and gas
revenues, production costs, depreciation, and depletion related to the
properties acquired, interest on borrowed funds, and the related income tax
effects (in thousands, except per share amounts).
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Total revenues (in thousands).................................. $ 9,085 $ 17,937
------ -------
------ -------
Net income (in thousands)...................................... $ 337 $ 1,219
------ -------
------ -------
Net income per share........................................... $ 0.00 $ 0.02
------ -------
------ -------
</TABLE>
In September 1996, the Company acquired an approximate 87.5% working
interest in two wells and certain proved undeveloped reserves in the South Lake
Boeuf Field, La Fourche Parish, Louisiana (the "Lake Boeuf Acquisition") for
approximately $7.2 million, consisting of $1.5 million in cash and 1,758,460
shares of Common Stock.
In October 1996, the Company acquired certain leasehold interests located in
the East Bayou Sorrel Field, Iberville Parish, Louisiana, from W&T Offshore,
Inc. (the "W&T Acquisition"). The consideration paid by the Company consisted of
$3,300,000 in cash. In November 1996, the Company completed the acquisition of
oil and natural gas properties and related facilities located in the Bayou
Sorrel Field, Iberville Parish, Louisiana (the "Bayou Sorrel Acquisition"). The
consideration paid by the Company consisted of $9,025,000 cash, 477,612 shares
of the Company's Common Stock and conveyance of 3% overriding royalty interest
in the property acquired, limited to production below 11,000 feet. In December
1996, the Company acquired certain oil and natural gas properties located in the
East Bayou Sorrel Field, Iberville Parish, Louisiana (the "MCNIC Acquisition").
The consideration paid by the Company consisted of $7,000,000 in cash. The
Company increased its 17% working interest in the East Bayou Sorrel Field to 60%
working interest, as a result of the W & T Acquisition and MCNIC Acquisition.
The Company funded the cash portion of these acquisitions from available cash.
These acquisitions consisted principally of proved developed nonproducing and
unproved properties and, accordingly, did not have a significant impact on the
Company's results of operations for 1996.
In January 1997, the Company acquired, for $4.0 million in cash, John
Hancock Mutual Life Insurance Company's limited partnership interests in certain
limited partnerships in which the Company was the general partner. The limited
partnerships owned working interests the Anadarko and Arkoma Basin areas of
Oklahoma and the Giddings area of Texas.
3. CREDIT FACILITIES
The Company has a revolving credit agreement with a group of banks (the
"Credit Facility") with an initial borrowing base of $25.0 million, limited to
$15.0 million for general corporate purposes and $10.0 million for acquisitions
of producing oil and gas properties. The borrowing base will be redetermined
7
<PAGE>
NATIONAL ENERGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 1997
3. CREDIT FACILITIES (CONTINUED)
at least semiannually and may require mandated monthly principal reductions by
an amount determined by the Banks from time to time. In May 1997, the borrowing
base was increased to $40.0 million with proceeds to be used for development
drilling expenditures and acquisition of producing oil and gas properties and
the above restrictions on the use of funds was eliminated. The principal is due
at maturity, August 29, 2000. Interest is payable monthly and is calculated at
the BankOne base rate, as determined from time to time by BankOne (which
increases by .25% if the outstanding loan balance is greater than 75% of the
borrowing base). The Company may elect to calculate interest under the
EuroDollar Rate, as defined in the Credit Facility. The EuroDollar Rate
increases by (i) 2.25% if the outstanding loan balance is greater than 75% of
the borrowing base, (ii) 2.0% if the outstanding loan balance is greater than
50% but less than 75% of the borrowing base or (iii) 1.75% if the outstanding
loan amount is less than 50% of the borrowing base. At June 30, 1997, the
Company had $33,000,000 indebtedness under the amended Credit Facility. On July
3, 1997, the Company reduced its borrowings under the amended Credit Facility to
$23,000,000.
The Company paid a facility fee equal to 3/4% of the initial borrowing base
under the Credit Facility and is required to pay a commitment fee on the unused
portion of the borrowing base equal to 1% per annum.
The Company has granted to the Banks liens on substantially all of the
Company's oil and natural gas properties, whether currently owned or hereafter
acquired, and a negative pledge on all other oil and natural gas properties. The
Credit Facility requires, among other things, semiannual engineering reports
covering oil and natural gas properties, and maintenance of certain financial
ratios, including the maintenance of a minimum interest coverage, a current
ratio, and a minimum tangible net worth.
The Credit Facility includes other covenants prohibiting cash dividends,
distributions, loans, or advances to third parties, except that cash dividends
on preferred stock will be allowed so long as no event of default exists or
would exist as a result of the payment thereof. In addition, if the Company is
required to purchase or redeem any portion of the Notes (as hereinafter
defined), or if any portion of the Notes become due, the borrowing base is
subject to reduction. At June 30, 1997, the Company was not in violation of any
covenants of the Credit Facility as amended.
4. 10 3/4% SENIOR NOTES DUE 2006
On November 1, 1996, the Company closed the offering of $100 million of its
Senior Notes. The net proceeds of the Senior Notes of approximately $96.1
million were used to repay approximately $62.0 million of borrowings under the
Credit Facility and to increase the Company's working capital. In 1997, the
Senior Notes were exchanged for the Exchange Notes which are substantially
identical to the Senior Notes. Collectively, the Senior Notes and Exchange Notes
are referred to as the "Notes." The Notes bear interest at 10 3/4% per annum,
payable semi-annually on May 1 and November 1, commencing May 1, 1997. The Notes
mature November 1, 2006, but may be redeemed after November 1, 2001, at the
Company's option. The Indenture governing the Notes contains certain covenants,
including, but not limited to, covenants restricting the Company's and its
Restricted Subsidiaries', as defined in the Indenture, ability to incur
additional indebtedness.
8
<PAGE>
NATIONAL ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In the fourth quarter of 1996 the Company began an accelerated development
and exploration program (the "Drilling Program") using the net proceeds from the
Notes. The Company has budgeted $57 million for the Drilling Program during
1997, of which $45 million is designated for development drilling and $12
million is designated for exploration drilling. The Company has spent
approximately $34.9 million during the first half of 1997 related to the
Drilling Program of which $32.8 million was for development drilling and $2.1
million was for exploratory drilling.
RESULTS OF OPERATIONS
The following table sets forth certain information regarding the production
volumes, oil and natural gas sales, average sales prices, lease operating
expenses ("LOE"), general and administrative expenses ("G&A") and depreciation,
depletion, and amortization ("DD&A") associated with the Company's oil and
natural gas sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net production:
Oil (Bbls)................................. 261,096 113,802 498,417 224,343
Natural gas (Mcf).......................... 3,389,527 759,004 6,273,564 1,592,494
Natural gas equivalent (Mcfe).............. 4,956,104 1,441,816 9,264,067 2,938,552
Oil and natural gas sales:
Oil........................................ $ 4,941,203 $ 2,320,141 $ 10,139,018 $ 4,476,246
Natural gas................................ 6,841,062 1,575,993 14,608,274 3,215,091
------------- ------------ ------------- ------------
Total...................................... $ 11,782,265 $ 3,896,134 $ 24,747,292 $ 7,691,337
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Average sales price:
Oil (Bbls)................................. $ 18.92 $ 20.39 $ 20.34 $ 19.95
Natural gas (Mcf).......................... 2.02 2.08 2.33 2.02
Natural gas equivalent (Mcfe).............. 2.38 2.70 2.67 2.62
LOE per Mcfe................................. .37 .41 .39 .41
G&A expenses per Mcfe........................ .23 .37 .24 .36
DD&A per Mcfe................................ 1.13 1.08 1.13 1.09
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
REVENUES
Total revenues increased by $17.7 million (226.9%) to $25.5 million for 1997
from $7.8 million in 1996. The increase in revenues is due to the increase in
production primarily from the Merger with Alexander completed in August 1996,
and the Drilling Program. Also contributing to the increased production is the
UMC Acquisition, the CA Acquisition, the Lake Boeuf Acquisition and the Bayou
Sorrel Acquisition (hereinafter referred to as the "1996 Acquisitions")
completed during 1996. In 1997, the Company produced 498,417 barrels of oil, an
increase of 122.2% over 224,343 barrels in 1996, and 6,273,564 Mcf of natural
gas, an increase of 294.0% over 1,592,494 Mcf in the same period of 1996.
9
<PAGE>
NATIONAL ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Also contributing to the increase in revenues was the increase in average
oil prices of $.39 per barrel to $20.34 for 1997 from $19.95 for 1996, and the
increase in average natural gas prices of $.31 per Mcf to $2.33 per Mcf for 1997
from $2.02 for 1996.
COSTS AND EXPENSES
Lease operating expenses increased $2.4 million (200.0%) to $3.6 million for
1997 from $1.2 million for 1996 primarily due to the Merger, the Drilling
Program and the 1996 Acquisitions. Lease operating expenses per Mcfe decreased
to $.39 per Mcfe for 1997 from $.41 per Mcfe for 1996.
Production taxes increased $1,016,858 (258.6%) to $1,410,047 for 1997
compared to $393,189 for 1996. This increase is a direct result from the
increase in total oil and natural gas revenues discussed above.
DD&A increased $7.4 million (231.3%) to $10.6 million for 1997 compared to
$3.2 million for 1996. This increase is due to the increased production from the
Drilling Program, the 1996 Acquisitions, and the Merger. The depletion rate per
Mcfe was $1.13 for 1997 compared to $1.09 for 1996. This increase in the
depletion rate is primarily due to the acquisition costs associated with the
Merger.
Although G&A increased $1.2 million to $2.2 million for 1997, G&A per Mcfe
decreased 33.3% to $.24 for 1997 from $.36 for 1996. This decrease is
attributable to the increase in production from the Drilling Program, the 1996
Acquisitions and, to a lesser extent, the Merger, without a proportionate
increase in the G&A costs to the Company.
OTHER INCOME AND EXPENSES
The increase of $4.1 million (410.0%) in interest expense to $5.1 million
for 1997 from $1.0 million for 1996, was due to the issuance of the Notes offset
by $.7 million of interest costs related to the Company's unproved oil and gas
properties which was capitalized in 1997. The balance outstanding under the
Notes during 1997 was $100.0 million as compared to average debt outstanding
under credit facilities of $20.5 million for 1996. The weighted average interest
rate for 1997 was 10.5% compared to 8.8% for the same period of 1996.
NET INCOME
Net income of $1.8 million was generated for 1997, compared with net income
of $.9 million for 1996, resulting principally from the increase in operating
income, partially offset by the increase in interest expense and the provision
for income taxes.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
REVENUES
Total revenues increased by $8.2 million (210.3%) to $12.1 million for 1997
from $3.9 million in 1996. The increase in revenues is due to the increase in
production primarily from the Merger with Alexander, the Drilling Program and
the 1996 Acquisitions. In 1997, the Company produced 261,096 barrels of oil, an
increase of 129.4% over 113,802 barrels in 1996, and 3,389,527 Mcf of natural
gas, an increase of 346.6% over 759,004 Mcf in the same period of 1996.
Offsetting the increase in production was the decrease in average oil prices
of $1.47 per barrel to $18.92 for 1997 from $20.39 for 1996, and the decrease in
average natural gas prices of $.06 per Mcf to $2.02 per Mcf for 1997 from $2.08
for 1996.
10
<PAGE>
NATIONAL ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COSTS AND EXPENSES
Lease operating expenses increased $1.2 million (200.0%) to $1.8 million for
1997 from $.6 million for 1996 primarily due to the Merger, the Drilling Program
and the 1996 Acquisitions. However, lease operating expenses per Mcfe decreased
to $.37 per Mcfe for 1997 compared to $.41 per Mcfe for 1996.
Production taxes increased $388,377 (189.1%) to $593,780 for 1997 compared
to $205,403 for 1996. This increase is a direct result from the increase in
total oil and natural gas revenues discussed above.
DD&A increased $4.1 million (253.3%) to $5.7 million for 1997 compared to
$1.6 million for 1996. This increase is due to the increased production from the
Drilling Program, the 1996 Acquisitions, and the Merger. The depletion rate per
Mcfe was $1.13 for 1997 compared to $1.08 for 1996. This increase in the
depletion rate is primarily due to the acquisition costs associated with the
Merger.
Although G&A increased $.6 million to $1.1 million for 1997, G&A per Mcfe
decreased 37.8% to $.23 for 1997 from $.37 for 1996. This decrease is
attributable to the increase in production from the Drilling Program, the 1996
Acquisitions and, to a lesser extent, the Merger, without a proportionate
increase in the G&A costs to the Company.
OTHER INCOME AND EXPENSES
The increase of $1.7 million (340.0%) in interest expense to $2.2 million
for 1997 from $.5 million for 1996, was due to the issuance of the Notes offset
by $.7 million of interest costs related to the Company's unproved oil and gas
properties which was capitalized in 1997. The balance outstanding under the
Notes during the second quarter of 1997 was $100.0 million as compared to
average debt outstanding under credit facilities of $22.4 million for 1996. The
weighted average interest rate for 1997 was 10.3% compared to 8.2% for the same
period of 1996.
NET INCOME
Net income of $.5 million was generated for 1997, compared with net income
of $.4 million for 1996, resulting principally from the increase in operating
income, offset by the increase in interest expense and the provision for income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996.
Net cash provided by operating activities was $6.2 million for the six
months ended June 30, 1997, compared to $1.7 million for the same period in
1996. The increase in cash flow from operating activities is primarily due to
the significant increase in income from operations before DD&A, resulting from
results of the Drilling Program, the 1996 Acquisitions and the Merger discussed
above.
Net cash used by investing activities was $40.1 million for 1997 compared
with $10.1 million for 1996. The cash used by investing activities for 1997
primarily consisted of oil and gas acquisition, exploration and development
expenditures related to the Company's Drilling Program.
Net cash provided by financing activities was $31.9 million for 1997
compared with $2.4 million net cash used by financing activities for 1996. The
cash used by financing activities during 1997 primarily consisted of proceeds
from the Credit Facility offset by repayments of long-term debt. In 1996, cash
used
11
<PAGE>
NATIONAL ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
by financing activities consisted primarily of repayments of long-term debt
offset by proceeds from issuance of long-term debt.
The Company's working capital surplus at June 30, 1997, was $8.2 million
compared to a working capital surplus at December 31, 1996, of $2.6 million. The
surplus increase was due primarily to borrowing under the Credit Facility offset
by the expenditures of cash for oil and gas acquisition, exploration, and
development activities.
FUTURE CAPITAL REQUIREMENTS
The Company has made, and will continue to make, substantial capital
expenditures for acquisition, development, and production of oil and natural gas
reserves, particularly since a substantial portion of the proved reserves of the
Company consists of proved undeveloped reserves.
The Company has established an aggregate development and exploration capital
budget for its existing properties of approximately $57.0 million for 1997, of
which approximately $34.9 million was spent during the first six months of 1997.
The Company is not contractually committed to expend the budgeted funds. The
Company currently expects that available cash, cash flows from operations, and
available borrowings under the Credit Facility shall be sufficient to fund
planned capital expenditures for its existing properties through 1997 in
addition to funding interest requirements on the Notes. However, the Company may
need to raise additional capital to fund any acquisitions.
For the periods following 1997, the Company may seek additional capital, if
required, from traditional reserve base borrowings, equity, and debt offerings
or joint ventures to further develop and explore its properties and to acquire
additional properties. There is no assurance that the Company will be able to
access additional capital or that, if available, it will be at prices or on
terms acceptable to the Company. Should the Company be unable to access the
capital markets or should sufficient capital not be available, the development
and exploration of the Company's properties could be delayed or reduced and,
accordingly, oil and natural gas revenues and operating results may be adversely
affected.
NOTES
On November 1, 1996, the Company closed the offering of $100 million of its
Senior Notes. The net proceeds of the Senior Notes of approximately $96.1
million were used to repay approximately $62.0 million of borrowings under the
Credit Facility and to increase the Company's working capital. In 1997, the
Senior Notes were exchanged for the Exchange Notes which are substantially
identical to the Senior Notes. Collectively, the Senior Notes and Exchange Notes
are referred to as the "Notes." The Notes bear interest at 10 3/4% per annum,
payable semi-annually on May 1 and November 1, commencing May 1, 1997. The Notes
mature November 1, 2006, but may be redeemed after November 1, 2001, at the
Company's option. The Indenture governing the Notes contains certain covenants,
including, but not limited to, covenants restricting the Company's and its
Restricted Subsidiaries', as defined, ability to incur additional indebtedness.
CREDIT FACILITIES
The Company's Credit Facility is a revolving line of credit with an initial
borrowing base of $25.0 million. In May 1997, the borrowing base was increased
to $40 million with proceeds to be used for development drilling expenditures
and acquisition of producing oil and gas properties. The Credit Facility
12
<PAGE>
NATIONAL ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
contains certain covenants, including maintenance of a minimum interest coverage
ratio, a current ratio, and a minimum tangible net worth. See Note 3 of Notes to
the Financial Statements.
FINANCIAL REPORTING IMPACT OF FULL COST METHOD OF ACCOUNTING
The Company follows the full cost method of accounting for oil and natural
gas properties. Under such method, the net book value of such properties, less
related deferred income taxes, may not exceed a calculated "ceiling." The
ceiling is the estimated after-tax future net revenues from proved oil and
natural gas properties, discounted at 10% per year. In calculating future net
revenues, prices and costs in effect at the time of the calculation are held
constant indefinitely, except for changes which are fixed and determinable by
existing contracts. The net book value is compared to the ceiling on a quarterly
and yearly basis. The excess, if any, of the net book value above the ceiling is
required to be written off as a non-cash expense. At June 30, 1997, the net book
value of the Company's oil and natural gas properties did not exceed the
ceiling. Sustained decreases in oil and natural gas prices could result in write
downs during future periods.
CHANGES IN PRICES AND INFLATION
The Company's revenues and value of its oil and natural gas properties have
been and will continue to be affected by changes in oil and gas prices. Oil and
gas prices are subject to seasonal and other fluctuations that are beyond the
Company's ability to control or predict.
During 1996, the Company hedged crude oil and natural gas prices through the
use of commodity swap agreements in an effort to reduce the effects of the
volatility of the price of crude oil and natural gas on the Company's
operations. These agreements involved the receipt of fixed-price amounts in
exchange for variable payments based on NYMEX prices and specific volumes. In
connection with the commodity swap agreements, the Company may also enter into
basis swap agreements to reduce the effects of unusual fluctuations between
prices actually received at the wellhead and NYMEX prices. Through the use of
commodity price and basis swap agreements, the Company can fix the price to be
received for specified volumes of production to the commodity swap price less
the basis swap price. The differential to be paid or received, under the swap
agreement, is accrued in the month of the related production and recognized as a
component of crude oil and natural gas sales. The Company does not hold or issue
financial instruments for trading purposes.
While the use of hedging arrangements limits the downside risk of adverse
price movements, it may also limit future gains from favorable movements. All
hedging has been accomplished pursuant to swap agreements based upon standard
forms. The Company addresses market risk by selecting instruments whose value
fluctuations correlate strongly with the underlying commodity being hedged.
Credit risk related to hedging activities is managed by requiring minimum credit
standards for counter parties, periodic settlements, and market to market
valuations. The Company has not been required to provide collateral relating to
hedging activities. At June 30, 1997, the Company had no hedging or basis swap
agreements outstanding. During the three months ended June 30, 1996, the Company
recognized a net gain of $28,419 related to hedging transactions.
Although certain of the Company's costs and expenses are affected by the
level of inflation, inflation has not had a significant effect on the Company's
results of operations during the three months ended June 30, 1997 and 1996.
13
<PAGE>
NATIONAL ENERGY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE, ("SFAS 128")
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options,
warrants and the Convertible Preferred Stock, Series D and Series E, will be
excluded. Adoption of SFAS 128 will not impact primary earnings per share for
the quarters ended June 30, 1997 and 1996 because the dilutive effect of
options, warrants and the convertible preferred stock was not significant. The
impact of SFAS 128 on the calculation of fully diluted earnings per share is not
expected to be significant.
14
<PAGE>
NATIONAL ENERGY GROUP, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 30, 1995, the Company filed a lawsuit in the District Court of
Ector County, Texas, against R.E. Steakley in which the Company seeks to enjoin
Mr. Steakley from interfering with its operations on the surface property
controlled by Mr. Steakley. The lawsuit alleges tortuous interference with the
Company's access to its facilities and wrongful conduct with respect to the
Company's personnel.
On August 31, 1995, R.E. Steakley and N.M. Steakley filed a lawsuit in the
District Court of Harris County, Texas, against Amoco Production Company,
Phillips Petroleum Company, the Company, and others. The lawsuit alleges certain
environmental claims and related tortuous and contractual claims and seeks
unspecified damages. On December 19, 1996, the Court in Harris County, Texas,
signed an order transferring the R.E. Steakley claim to the court in Ector
County, Texas as a part of the Company's claim against R.E. Steakley.
Subsequently, R.E. Steakley filed a Fourth Amended Original Answer and Original
Counterclaims against the Company in Ector County District Court in which he
reasserts the claims filed in the Harris County action. The Company believes
that it is operating in compliance with applicable environmental laws and
regulations and believes, based on the advice of counsel, that the ultimate
resolution of the lawsuit will not have a material effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 5, 1997, an annual meeting of the shareholders of the Company was
held. George B. McCullough, Norman C. Miller, Miles D. Bender, Robert H. Kite,
George N. McDonald, Jim L. David, Bob J. Alexander and Robert A. West were
elected directors at such annual meeting to serve for a term of one year until
the next annual meeting of shareholders and until their successors are duly
elected or appointed and qualified or until their death, resignation or removal.
In addition, the holders of a majority of the Series B Preferred Stock appointed
Robert V. Sinnot as director, a majority of the holders of the Series C
Preferred Stock appointed Elwood W. Schafer as director and the holders of the
Series D Preferred Stock appointed Robert G. Mitchell as director of the
Company.
At the meeting three proposals were voted upon and the following sets forth
the number of votes that were cast for and against the proposals and the number
of abstentions and broker no votes on the proposals:
(i) Proposal to elect eight nominees as directors of the Company to serve
until the next annual meeting of shareholders:
<TABLE>
<CAPTION>
NAME OF DIRECTOR
------------------------------------------------------------------------------------------------------
JIM L. BOB J. ROBERT A. MILES D. ROBERT H. GEORGE B. GEORGE N. NORMAN L.
DAVID ALEXANDER WEST BENDER KITE MCCULLOUGH MCDONALD MILLER
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For................... 27,188,990 27,188,804 27,188,815 27,180,357 27,187,990 27,175,635 27,188,685 27,185,180
Withheld Authority.... 1,144,669 1,144,855 1,144,844 1,153,302 1,145,669 1,158,024 1,144,974 1,148,479
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total................. 28,333,659 28,333,659 28,333,659 28,333,659 28,333,659 28,333,659 28,333,659 28,333,659
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(ii) To approve the adoption of the National Energy Group, Inc. 1996
Incentive Compensation Plan (the "1996 Plan") under which the Board of
Directors or a committee composed of directors will
15
<PAGE>
have the authority to issue incentive and nonqualified stock options,
restricted stock and appreciation rights to employees and directors of
the Company and its subsidiaries.
<TABLE>
<S> <C>
For................................................................. 14,978,674
Against............................................................. 2,881,020
Abstain............................................................. 274,491
Broker No Votes..................................................... 15
----------
Total............................................................. 18,134,200
----------
----------
</TABLE>
(iii) Proposal to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year ended December 31,
1997:
<TABLE>
<S> <C>
For................................................................. 27,771,268
Against............................................................. 68,396
Abstain............................................................. 124,954
Broker No Votes..................................................... 15
----------
Total............................................................. 27,964,633
----------
----------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The list of exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Index to Exhibits.
(b) No reports on Form 8-K were filed during the three months ended June 30,
1997.
16
<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.
NATIONAL ENERGY GROUP, INC.
NAME TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ MILES D. BENDER
- ----------------------------------- President and Chief August 8, 1997
Miles D. Bender Executive Officer
/s/ ROBERT A. IMEL Chief Financial Officer
- ----------------------------------- and Senior Vice August 8, 1997
Robert A. Imel President
/s/ MELISSA H. RUTLEDGE
- ----------------------------------- Controller and Chief August 8, 1997
Melissa H. Rutledge Accounting Officer
17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated June 6, 1996, among the Company, NEG-OK,
Inc. ("NEG-OK"), and Alexander Energy Corporation ("Alexander") (1)
2.2 First Amendment to Agreement and Plan of Merger, dated as of June 20, 1996,
among the Company, NEG-OK, and Alexander (2)
2.3 Mutual Waiver Agreement dated as of August 29, 1996 by and among the Company,
NEG-OK and Alexander (3)
3.1 Certificate of Incorporation of the Company, which includes the Certificate of
Incorporation of the Company filed with the Secretary of State of Delaware on
November 20, 1990 (4), the Certificate of Elimination of the Redeemable
Convertible Preferred Stock, Series A of the Company, filed with the office of
the Secretary of State of the State of Delaware on June 2, 1994 (3), the
Certificate of Amendment of Certificate of Incorporation of the Company, filed
with the office of the Secretary of State of the State of Delaware on August
29, 1996 (3), the Certificate of Designations of the Company of 10% Cumulative
Convertible Preferred Stock, Series B (5), the Certificate of Designations of
the Company of 10 1/2% Cumulative Convertible Preferred Stock, Series (6), the
Certificate of Designations of the Company of Convertible Preferred Stock,
Series D (3), and the Certificate of Designations of the Company of
Convertible Preferred Stock, Series E (3)
3.2 By-laws of the Company (4)
4.1 Certificate of Designations of the Company of 10% Cumulative Convertible
Preferred Stock, Series B (5)
4.2 Certificate of Designations of the Company of 10 1/2% Cumulative Convertible
Preferred Stock, Series C (6)
4.3 Certificate of Designations of the Company of Convertible Preferred Stock,
Series D (3)
4.4 Certificate of Designations of the Company of Convertible Preferred Stock,
Series E (3)
4.5 Indenture dated as of November 1, 1996, among the Company, National Energy Group
of Oklahoma, Inc. (the "Guarantor"), formerly NEG-OK, and BankOne, Columbus,
N.A. (8)
10.1 National Energy Group, Inc. 1996 Incentive Plan (10)
11.0 Computation of Earnings Per Share (11)
27.1 Financial Data Schedule (9)
99.39 Certificate of Merger with respect to the merger of Alexander with and into
NEG-OK, filed with the offices of the Secretary of State of the State of
Delaware and the Secretary of State of State of Oklahoma on August 29, 1996
(3)
</TABLE>
- ------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 333-9045), dated July 29, 1996.
(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (No. 333-9045), dated August 7, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 29, 1996.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 33-38331), dated April 23, 1991.
(5) Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 17, 1994.
18
<PAGE>
(6) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 18, 1995.
(7) Incorporated by reference to Alexander's Form 10-K for the fiscal year
ended December 31, 1994.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(9) The Financial Data Schedule, is filed herewith for EDGAR filings only.
(10) Incorporated by reference to the Company's Schedule 14A filed April 25,
1997.
(11) Filed herewith.
19
<PAGE>
EXHIBIT 11
NATIONAL ENERGY GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
------------- -------------
<S> <C> <C>
Income applicable to common stockholders:
Net Income....................................................................... $ 1,857,878 $ 1,857,878
Preferred dividend requirements.................................................. (472,500) --
------------- -------------
Income applicable to common stockholders......................................... $ 1,385,378 $ 1,857,878
------------- -------------
------------- -------------
Common and common equivalent shares:
Weighted average number of common shares outstanding............................. 36,138,936 36,183,936
Shares issuable upon exercise of options and warrants............................ 3,416,535 3,416,535
Less shares assumed repurchased.................................................. (2,632,363) (2,632,363)
------------- -------------
Shares issuable upon conversion of Convertible Preferred Stock:
Series B and Series C.......................................................... 5,230,769
Series D and Series E.......................................................... 6,666,666 6,666,666
------------- -------------
Common and common equivalent shares.............................................. 43,589,774 48,820,543
------------- -------------
------------- -------------
Net income per common and common equivalent share.................................. $ .028 $ .035
------------- -------------
------------- -------------
</TABLE>
Note: Fully diluted net income per common share data is not presented because
the effect of assumed conversion of the Convertible Preferred Stock,
Series B and C, is antidilutive.
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
------------- -------------
<S> <C> <C>
Income applicable to common stockholders:
Net Income....................................................................... $ 454,438 $ 454,438
Preferred dividend requirements.................................................. (472,500) --
------------- -------------
Income applicable to common stockholders......................................... $ (18,062) $ 454,438
------------- -------------
------------- -------------
Common and common equivalent shares:
Weighted average number of common shares outstanding............................. 36,148,855 36,148,855
Shares issuable upon exercise of options and warrants............................ 3,416,535 3,416,535
Less shares assumed repurchased.................................................. (2,632,363) (2,632,363)
------------- -------------
Shares issuable upon conversion of Convertible Preferred Stock:
Series B and Series C.......................................................... -- 5,230,769
Series D and Series E.......................................................... 6,666,666 6,666,666
------------- -------------
Common and common equivalent shares.............................................. 43,599,693 48,830,462
------------- -------------
------------- -------------
Net income per common and common equivalent share.................................. $ .000 $ .035
------------- -------------
------------- -------------
</TABLE>
Note: Fully diluted net income per common share data is not presented because
the effect of assumed conversion of the Convertible Preferred Stock,
Series B and C, is antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,258,779
<SECURITIES> 0
<RECEIVABLES> 16,066,224
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,325,003
<PP&E> 236,507,090
<DEPRECIATION> 25,936,175
<TOTAL-ASSETS> 244,481,800
<CURRENT-LIABILITIES> 20,155,593
<BONDS> 133,000,000
0
242,500
<COMMON> 361,205
<OTHER-SE> 81,625,739
<TOTAL-LIABILITY-AND-EQUITY> 244,481,800
<SALES> 24,747,292
<TOTAL-REVENUES> 25,477,836
<CGS> 5,029,794
<TOTAL-COSTS> 17,795,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,105,539
<INCOME-PRETAX> 2,814,890
<INCOME-TAX> 957,012
<INCOME-CONTINUING> 957,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 957,012
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
