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, 1996
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 1-11516
BOX ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2369148
(I.R.S. employer identification no.)
8201 Preston Road, Suite 600, Dallas, Texas 75225-6211
(Address of principal executive offices) (Zip code)
(214) 890-8000
(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
There were 3,250,110 outstanding shares of Class A (Voting) Common Stock,
$1 par value, on August 14, 1996. There were also 17,553,010 outstanding shares
of Class B (Non-Voting) Common Stock, $1 par value, on such date.
<PAGE>
BOX ENERGY CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1996
and December 31, 1995 3
Condensed Statements of Income - Three Months
Ended June 30, 1996 and 1995 4
Condensed Statements of Income - Six Months
Ended June 30, 1996 and 1995 5
Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BOX ENERGY CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
1996 1995
_______ ________
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 5,118 $ 21,644
Marketable securities - available for sale 38,363 24,757
Accounts receivable - oil and natural gas 6,817 8,048
Accounts receivable - other 776 606
Prepaid expenses and other current assets 1,787 663
________ ________
Total current assets 52,861 55,718
________ ________
Properties
Oil and natural gas properties (successful-
efforts method) 172,326 165,454
Other properties 3,260 3,096
Accumulated depreciation,
depletion and amortization (101,802) (93,651)
________ ________
Total properties 73,784 74,899
________ ________
Other assets
Deferred income tax asset
(net of valuation allowance) 13,594 13,027
Deferred charges
(net of accumulated amortization) 1,716 1,847
________ ________
Total other assets 15,310 14,874
________ ________
Total assets $ 141,955 $ 145,491
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,791 $ 4,829
Accrued interest payable 391 391
Accrued transportation payable - related party 214 289
Net Profits expense payable 1,695 2,858
________ ________
Total current liabilities 6,091 8,367
________ ________
Convertible subordinated notes payable 55,077 55,077
________ ________
Total liabilities 61,168 63,444
________ ________
Commitments and contingencies (Note 3)
Stockholders' equity
Common stock, $1.00 par value
Class A (voting) - 15,000,000 shares
authorized; 3,250,110 shares issued
and outstanding 3,250 3,250
Class B (non-voting) - 30,000,000 shares
authorized; 17,553,010 shares issued
and outstanding 17,553 17,553
Additional paid-in capital 25,197 25,197
Retained earnings 35,148 36,204
Valuation allowance for
marketable securities (361) (157)
________ ________
Total stockholders' equity 80,787 82,047
________ ________
Total liabilities and
stockholders' equity $ 141,955 $ 145,491
======== ========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
June 30,
1996 1995
Revenues ________ ________
Oil Sales $ 4,472 $ 3,051
Natural gas sales 12,163 8,438
Other income 1,226 1,067
________ ________
Total revenues 17,861 12,556
________ ________
Costs and expenses
Operating costs 1,858 1,134
Net Profits expense 2,838 2,421
Exploration expense 9,686 1,047
Depreciation, depletion and amortization 4,197 3,299
General and administrative expenses 3,348 2,101
Interest and financing costs 1,204 1,220
________ ________
Total costs and expenses 23,131 11,222
________ ________
Income (loss) before income taxes (5,270) 1,334
Income tax expense (benefit) (1,797) 498
________ ________
Net Income (loss) $ (3,473) $ 836
======== ========
Primary earnings (loss) per share $ (0.17) $ 0.04
======== ========
Weighted average shares of common stock and
common stock equivalents outstanding 20,803 20,803
======== ========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended
June 30,
1996 1995
_________ _________
Revenues
Oil Sales $ 8,905 $ 5,832
Natural gas sales 25,660 18,655
Other income 2,369 2,584
_________ _________
Total revenues 36,934 27,071
_________ _________
Costs and expenses
Operating costs 3,344 2,538
Net Profits expense 7,059 5,235
Exploration expense 12,153 3,746
Depreciation, depletion and amortization 8,181 6,222
General and administrative expenses 5,265 4,051
Reorganization costs - 723
Interest and financing costs 2,445 2,380
_________ _________
Total costs and expenses 38,447 24,895
_________ _________
Income (loss) before income taxes (1,513) 2,176
Income tax expense (benefit) (457) 599
_________ _________
Net Income (loss) $ (1,056) $ 1,577
========= =========
Primary earnings (loss) per share $ (0.05) $ 0.08
========= =========
Weighted average shares of common stock and
common stock equivalents outstanding 20,803 20,803
========= =========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
1996 1995
________ ________
Cash flow from operations
Cash received from customers for oil and
natural gas sales $ 35,796 $ 23,883
Cash received from other sources 1,225 680
Cash received from interest income 1,010 1,090
Cash paid to suppliers and employees (12,585) (9,348)
Cash paid to Net Profits interest owner (8,222) (5,957)
Cash paid for interest and financing expense (2,314) (2,309)
________ ________
Net cash flow from operations 14,910 8,039
________ ________
Cash flow from investments
Payments for capital expenditures (17,481) (10,333)
Sales of marketable securities 6,020 -
Investment in marketable securities (20,023) -
Proceeds from sale of property 48 850
________ ________
Net cash flow used for investments (31,436) (9,483)
________ ________
Net (decrease) in cash and cash
equivalents (16,526) (1,444)
Cash and cash equivalents at beginning
of period 21,644 17,496
________ ________
Cash and cash equivalents at end of period $ 5,118 $ 16,052
======== ========
Reconciliation of net income (loss) to
net cash flow from operations:
Net income (loss) $ (1,056) $ 1,577
Depreciation, depletion and amortization 8,181 6,222
Amortization of deferred charges 131 124
Amortization of premium
on marketable securities 7 8
Dry hole and impaired property costs 10,414 1,151
(Gain) loss on sale of assets 29 (824)
Deferred income tax expense (benefit) (457) 599
(Increase) decrease in accounts receivable 1,061 (601)
(Increase) in prepaid expenses
and other current assets (1,124) (120)
Increase (decrease) in accounts payable (1,113) 625
(Decrease) in Net Profits expense payable (1,163) (722)
________ ________
Net cash flow from operations $ 14,910 $ 8,039
======== ========
See accompanying Notes to Financial Statements.
<PAGE>
BOX ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
Note 1. Accounting Policies and Basis of Presentation
These financial statements include the accounts of Box Energy
Corporation, a Delaware corporation (the "Company"). Formed in 1991, the
Company was inactive until it acquired all of the assets and liabilities of
OKC Limited Partnership (the "Predecessor Partnership") on April 15, 1992
in exchange for the common stock of the Company, which stock was
distributed to the general partners, limited partners and other unitholders
of the Predecessor Partnership (the "Corporate Conversion"). The Corporate
Conversion was accounted for in a manner similar to a pooling of interests
as the unitholders of the Predecessor Partnership received an equivalent
equity interest in the Company. Accordingly, the assets and liabilities
were recorded at the historical cost of the Predecessor Partnership, except
for a deferred income tax asset that resulted from an increase in the
federal income tax basis of the Company's assets because of the Corporate
Conversion. Certain reclassifications for prior periods have been made to
conform with the presentation of the current period.
The financial statements have been prepared according to the
instructions to Form 10-Q and, therefore, may not include all disclosures
required in financial statements prepared in conformity with generally
accepted accounting principles. Financial information provided in this
report reflects all transactions and adjustments that are, in the opinion
of management, necessary for a fair statement of results of operations and
financial position for the interim periods presented. All adjustments are
of a normal recurring nature. The condensed balance sheet as of December
31, 1995 was derived from audited financial statements but does not include
all disclosures required by generally accepted accounting principles. These
financial statements should be read in conjunction with the audited
financial statements of the Company for the year ended December 31, 1995,
which were included in the Company's 1995 Annual Report to Shareholders.
The results of operations of the Company for the three and six months ended
June 30, 1996 are not necessarily indicative of the results for the full
year 1996. No material changes in the significant accounting policies or
details of accounts were made during the interim periods presented, except
as described below regarding Marketable Securities, Notes Payable, Common
Stock and Employee Severance Agreements.
Marketable Securities
The Company held $24.8 million of United States Treasury Notes
("Treasury Notes") at December 31, 1995. Marketable securities of $38.4
million held at June 30, 1996 consisted of the following classifications:
Treasury Notes, Federal Agency debt securities and high-grade corporation
debt securities in the amounts of $23.5 million, $2.9 million and $12.0
million, respectively. The marketable securities will mature as follows:
$11.5 million within one year and $26.9 million between one and five years.
Notes Payable
In December 1992, the Company issued $55.1 million of 8 1/4%
Convertible Subordinated Notes ("Notes"), which are currently outstanding
and are due and payable at maturity on December 1, 2002. In the event of a
"change in control," as defined in the Indenture for the Notes, the Company
is required to make an offer to purchase the Notes from the holders,
subject to certain restrictions and conditions, at 100% of the principal
amount thereof, plus accrued interest.
The Indenture for the Notes provides that a change of control will
have occurred in the event that at least three Independent Directors serve
on the Board of Directors of the Company. On July 30, 1996, John L. Kelsey,
Norman W. Smith and Ewell Doak Walker resigned from the Board of Directors.
Another director Kent R. Hance, Sr. had resigned on June 13, 1996. The
Company does not believe that those resignations resulted in a change of
control because the Written Consent (defined below) also became effective
on July 30, 1996 and resulted in the Board of Directors, as elected by the
Written Consent, being comprised of five Independent Directors. See Note 3.
Commitments and Contingencies - Written Consent. Thus absent a contrary
opinion from the Delaware Chancery Court, in an action currently pending
under Section 225 of the Delaware General Corporate Law, as to the validity
of the Written Consent, no change of control, as defined in the Indenture
for the Notes, has occurred. See Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Common Stock
On May 2, 1996 the United States Court of Appeals for the Fifth
Circuit ("Fifth Circuit") issued its opinion in the Griffin, et al. v. Box,
et al. litigation (the "Griffin" case) resolving certain issues and
remanding certain other issues for a new trial concerning the issuance of
Class A (Voting) Common Stock and Class B (Non-Voting) Common Stock as part
of the Corporate Conversion. See Note 3. Commitments and Contingencies -
Griffin Cases. As a result of this opinion and upon the recommendation of
the Company's General Counsel, the Board of Directors engaged an outside
law firm to examine the Company's records relating to the Corporate
Conversion to determine whether the issuance of shares of the Company in
the Corporate Conversion as Class B (Non-Voting) Common Stock, rather than
Class A (Voting) Common Stock, to certain holders was in accordance with
the Fifth Circuit's opinion in the Griffin Case. The law firm engaged an
independent accounting firm to assist in the examination, and on August 9,
1996, the firms issued a preliminary report (the "Report") to the Board of
Directors. While the Report does not constitute a legal opinion of the
outside law firm, based on the Report, management and the Board of
Directors have concluded that the Written Consent together with the written
consents executed by Messrs. Georges and Rutherford are effective in
accordance with their terms.
The Board of Directors will carefully consider the Report and other
information and seek the advice of the Company's counsel to determine
whether the issuance of certain shares of the Company in the Corporate
Conversion as Class B (Non-Voting) Common Stock was in accordance with the
Fifth Circuit opinion in the Griffin Case or otherwise legally appropriate
and defensible and will take whatever action, if any, that it deems proper
in respect thereof.
Employee Severance Agreements
The Company entered into individual severance agreements with its
employees in December 1995. The severance agreements become effective upon
a "change in control" of the Company, as defined in the agreements, and a
termination of employment, in accordance with the terms of the agreement,
during a period of two years after the change in control. A change in
control is defined in the severance agreements as the acquisition of 25% or
more of the combined voting power of the then outstanding Class A (Voting)
Common Stock, the cessation of membership of at least one-third of the
eight member Board of Directors of the Company on August 16, 1995, a
merger, consolidation or reorganization of the Company, a plan of complete
liquidation or dissolution of the Company or an agreement to sell or
otherwise dispose of substantially all of the assets of the Company.
On June 13, 1996, one of the eight members of the August 16, 1995
Board of Directors resigned, and on July 30, 1996 three more of the eight
members of the August 16, 1995 Board of Directors resigned. Those
resignations did not cause a change of control as defined in the severance
agreements. However, because the Written Consent (defined below) became
effective on July 30, 1996, absent a contrary ruling from the Delaware
Chancery Court, a change of control occurred on July 30, 1996 because the
new Board of Directors set forth in the Written Consent consisted of less
than two-thirds of the members of the Board of Directors as of August 16,
1996. See Note 3. Commitments and Contingencies - Written Consent.
The severance agreements provide for cash payment to the terminated
employee equal to the following: (1) all accrued compensation and a pro-
rata bonus, (2) severance pay ranging from six to eighteen months of the
employee's base salary and (3) the excess of the expected retirement
benefit, including an additional three years of credited service, over the
accrued retirement benefit presently earned. In addition, the severance
agreements provide for the continuation of life, disability, medical,
dental and hospitalization insurance for six to eighteen months and for the
full vesting and lapsing of all restrictions on any stock options granted
to the employee. The total estimated cost under the severance agreements,
if all severance agreement became effective, is $3.7 million. The severance
agreements expire on December 12, 1997 unless a change in control occurs
before that date. In July 1996, the Company established and funded a trust
to make payments to terminated employees equal to the Company's estimated
obligations under the severance agreements. The trust is irrevocable upon a
change in control.
Note 2. Related Party Transactions
The Amended and Restated Certificate and Articles of Limited
Partnership of the Predecessor Partnership (the "Partnership Agreement")
provided that the Predecessor Partnership could transact business with an
affiliate if such transaction was fair and reasonable to the Predecessor
Partnership and on terms no less favorable to the Predecessor Partnership
than could be obtained from an unrelated party. Similarly, the Board of
Directors of the Company has authorized the Company to enter into
transactions with affiliates of the Company so long as the Board of
Directors decides that such a transaction is fair and reasonable to the
Company and is on terms no less favorable to the Company than can be
obtained from an unaffiliated party in an arm's length transaction.
Box Brothers Holding Company ("Box Brothers"), a Delaware
corporation, owns approximately 57% of the Class A (Voting) Common Stock of
the Company and 94% of the outstanding stock of CKB Petroleum, Inc. ("CKB
Petroleum") and CKB & Associates, Inc. ("Associates"). In March 1985, CKB
Petroleum purchased a minority interest in the pipeline transporting oil
from wells in the Company's South Pass blocks to Venice, Louisiana. Before
that date, an unaffiliated party charged the Predecessor Partnership an oil
transportation tariff of $2.75 per barrel for transporting oil from the
South Pass blocks to Venice, Louisiana. Since that date, CKB Petroleum has
charged the Predecessor Partnership, and then the Company, an oil
transportation tariff of $2.75 per barrel for such transportation services.
Such tariff was published and filed with the Federal Energy Regulatory
Commission, which regulates such rates. The rate has remained uniform since
1982 among all owners of the pipeline from South Pass Block 89 Field. For
the three and six months ended June 30, 1996, the Company incurred oil
pipeline transportation charges payable to CKB Petroleum of $678,000 and
$1.4 million, respectively. For the three and six months ended June 30,
1995, the Company incurred oil pipeline transportation charges payable to
CKB Petroleum of $584,000 and $1.1 million, respectively. See Note 3.
Contingencies.
The purchase and subsequent ownership of this pipeline interest have
been the subject of litigation in the Griffin case. This case was recently
reversed on appeal by the Fifth Circuit and remanded for a new trial with
respect to certain derivative claims against the Estate of Cloyce K. Box
(the "Estate") and Associates and in favor of the Company. See Note 3.
Commitments and Contingencies - Griffin Cases. Cloyce K. Box and
Associates (collectively, the "General Partners") were the general partners
of the Predecessor Partnership during its existence from May 1981 until the
Corporate Conversion in April 1992. Cloyce K. Box passed away in October
1993, and his Estate was substituted for him in the Griffin case.
The Partnership Agreement provided that the litigation expenses of
the General Partners were to be advanced by the Predecessor Partnership in
certain situations in which the General Partners were sued in their
capacity as general partners of the Predecessor Partnership. Accordingly,
the Predecessor Partnership, and later the Company, advanced the legal
expenses and other defense costs of the General Partners during a large
portion of the Griffin case. Such advances were required under the
Partnership Agreement because of the General Partners' execution of a
written undertaking to repay the Company for any such litigation expenses
advanced for them if it was later decided that such advancements were not
subject to indemnification by the Company. In March 1994, the Company
stopped advancing the legal expenses and other defense costs of the General
Partners. Because this case was reversed on appeal and remanded for a new
trial, the General Partners requested reimbursement for litigation costs
and expenses totaling $1.4 million incurred by the defendants from March
1994 to April 1996. The Company accrued a liability for these litigation
expenses on June 30, 1996 and paid such amount thereafter as advances
subject to the undertaking for repayment.
Even if another judgment is obtained against the Estate on retrial of
the Griffin case, it is doubtful that a significant portion of the
judgment, if any, including attorneys fees and costs, will be recovered by
the Company because of uncertainties surrounding the value and liquidity
of the net assets of the Estate and Associates and the amount of other
claims pending against the Estate.
In March 1995, the same plaintiffs as in the Griffin case named the
Company's then current Board of Directors, two of its former directors and
several of its then current officers as defendants in a lawsuit filed in
state district court in Dallas, Texas. In addition, the Company's then
current directors were named as defendants in two class action lawsuits
filed in the Delaware Chancery Court in Wilmington. See Note 3. Commitments
and Contingencies - Griffin Cases and Devere and Nealon Cases. In
accordance with the By-laws of the Company, the defendants executed a
written undertaking to repay the Company for any such expenses advanced on
their behalf if it is later found that such costs were not subject to
indemnification by the Company. Although the plaintiffs in the Griffin case
have requested that the court prohibit the advancement of such defense
costs, the Company believes it has indemnification obligations to the
defendants because of the lawsuits.
Note 3. Commitments and Contingencies
Griffin Cases
The case of Griffin case was filed in November 1987 in the United
States District Court for the Northern District of Texas in Dallas. The
plaintiffs are a small group of former unitholders of the Predecessor
Partnership, including J.R. Simplot, whose units of the Predecessor
Partnership have since been converted to approximately 15% of the Company's
Class B (Non-Voting) Common Stock. The defendants are the General Partners,
certain of their affiliates and the Predecessor Partnership. The Estate was
substituted in the place of Cloyce K. Box in the litigation after his death
in October 1993. Because of the Company's assumption of the Predecessor
Partnership's rights and obligations as part of the Corporate Conversion,
the Company will receive all benefits, and will suffer all detriments, if
any, of the Predecessor Partnership in the litigation.
Plaintiffs made two types of claims. First, plaintiffs sought
individual damages for alleged securities law violations and a declaratory
judgment regarding their voting rights. All of the plaintiffs' claims for
individual damages and voting rights were denied by the district court at
trial in October 1992.
Secondly, plaintiffs brought derivative claims on behalf of the
Predecessor Partnership alleging that the General Partners breached the
Partnership Agreement, breached fiduciary duties and violated an implied
covenant of good faith and fair dealing in relation to three transactions.
The derivative defendants' motion that the plaintiffs lacked standing on
the derivative claims was rejected by the district court. The first
transaction was the 1985 purchase of an interest in an oil pipeline by CKB
Petroleum. See Note 2. Related Party Transactions. The second transaction
involved the amount of general and administrative expenses paid by the
Predecessor Partnership before the Corporate Conversion. The third
transaction was a loan made by the Predecessor Partnership to an
unaffiliated individual. Plaintiffs alleged actual damages of $20.0 million
and punitive damages of $60.0 million. In addition, plaintiffs alleged that
the General Partners engaged in racketeering activities in relation to the
three transactions.
In October 1992, the jury returned a verdict on the derivative claims
finding that the General Partners did not breach the Partnership Agreement
but breached fiduciary duties and an implied covenant of good faith and
fair dealing arising from the Partnership Agreement. The jury awarded
actual damages of approximately $20.0 million and future damages of
approximately $6.2 million in favor of the Predecessor Partnership and
against the General Partners relating to the pipeline transaction. Minor
damages were awarded on the general and administrative expenses issue while
no damages were awarded based on the loan transaction. In addition, the
jury found no violation of the racketeering statutes. Punitive damages of
approximately $2.2 million were awarded against Cloyce K. Box.
In March 1994, the district court entered its initial judgment in
favor of the Company and against the Estate and Associates for $20.1
million for past damages and against the Estate for $2.2 million for
punitive damages. In addition, the judgment imposed a constructive trust
for the benefit of the Company upon the pipeline interest owned by CKB
Petroleum, in lieu of the $6.2 million in future damages included in the
verdict. The judgment also dismissed the plaintiffs' claims for individual
damages and voting rights for their Class B (Non-Voting) Common Stock.
In October 1994, the district court amended its final judgment to
include prejudgment and post judgment interest. In a separate order, the
district court granted the plaintiffs' motion for attorneys' fees and costs
without specifying the amount awarded. The plaintiffs sought $3.5 million
in attorneys' fees and costs.
Following trial, the plaintiffs filed a motion with the district
court challenging the foreclosure transaction in February 1994 in which Box
Brothers acquired all of the Class A (Voting) Common Stock of the Company
formerly owned by the Estate. The district court denied this motion without
prejudice on the basis that it has no jurisdiction to rule on the motion.
Following this ruling by the district court, the plaintiffs filed an
adversary proceeding in the bankruptcy case of Box Brothers then pending in
Wilmington, Delaware. In February and March 1995, the bankruptcy court
dismissed the adversary proceeding with prejudice and granted Box Brothers'
objection to plaintiffs' proof of claim, respectively, and held that Box
Brothers has no liability to the plaintiff group. In April 1995, the plan
of reorganization of Box Brothers was approved by the bankruptcy court. The
plaintiffs' appeals of the rulings in the adversary proceeding, the proof
of claim and the confirmation order were denied by the United States
District Court in February 1996. The plaintiffs have now appealed all three
rulings to the United States Court of Appeals for the Third Circuit.
The plaintiffs, the Estate, Associates and CKB Petroleum all filed
notices of appeal in the Griffin case to the Fifth Circuit. In its opinion
in the Griffin case issued May 2, 1996 the Fifth Circuit (i) reversed the
judgment and related damages against the Estate and Associates, and
remanded the case for a new trial because of the jury's inconsistent
answers to the liability issues; (ii) ruled that the trial court's
imposition of the constructive trust was improper; (iii) affirmed the trial
court's dismissal of the plaintiffs' individual claims for monetary
damages; (iv) ruled that one plaintiff, James Lyle, was an original limited
partner and remanded the case for a new trial to decide the number of
voting shares to which he is entitled; (v) remanded the case for further
fact findings to decide whether two other plaintiffs, Hayden McIlroy and B.
R. Griffin, were original limited partners and the amount, if any, of
voting stock to which they are entitled; (vi) affirmed the trial court's
judgment that plaintiffs J. R. Simplot and David Hawk were not entitled to
voting stock; and (vii) found that the trial court had erred in granting
plaintiffs' attorneys fees. The Plaintiffs have filed an appeal to the
United States Supreme Court. The Company cannot accurately predict when or
how the Supreme Court will rule on this appeal.
In March 1995, the same plaintiffs as in the Griffin case filed an
action against the Company, all of its then current directors, two of its
former directors, its then current vice president and chief financial
officer, its senior vice president/operations and its vice president and
controller in the state district court in Dallas, Texas. In their action,
the plaintiffs allege that the defendants breached their fiduciary duty to
the Company in relation to the collection of the trial court judgment
entered in favor of the Company in the Griffin case. The plaintiffs further
allege conflicts of interest among the directors, misappropriation of
corporate assets, breaches of good faith and fair dealing, and wrongful
payment of certain attorney's fees in the Griffin case. These claims are
apparently alleged both on behalf of the plaintiffs as individuals and
derivatively on behalf of the Company. The damages sought exceed $50.0
million plus $100.0 million in punitive damages against each defendant. The
action has been abated pending resolution of the underlying case by the
Fifth Circuit. The defendants are expected to defend the action vigorously.
The Company anticipates that it will be required to advance the defense
costs of the defendants during the litigation although the plaintiffs have
requested that the court prohibit the advancement of such defense costs. In
addition, the Company may have indemnification obligations to the
defendants because of the lawsuit.
Phillips Petroleum Case
In August 1990, Phillips Petroleum Company ("Phillips") brought an
action against the Predecessor Partnership now pending in state court in
Orleans Parish, Louisiana, claiming that Phillips is entitled, pursuant to
its 33% Net Profits interest in South Pass Block 89, to receive an
overriding royalty interest for months in which monthly net profits were
not achieved. In addition, Phillips claims that the net profits account is
being charged an excessive oil transportation fee. In September 1991, this
lawsuit was amended by Phillips to include a claim that the entire $69.6
million lump sum cash payment received by the Predecessor Partnership in
its 1990 settlement of litigation with Texas Eastern Transmission
Corporation ("Texas Eastern Settlement") should have been credited to the
net profits account. Under this latter claim, Phillips alleges damages in
excess of $21.5 million. The Company previously credited the net profits
account with $5.8 million of the $69.6 million received in the Texas
Eastern Settlement, which is all of the Texas Eastern Settlement proceeds
that the Company believes should be credited to the net profits account. On
the first two claims, Phillips alleges aggregate damages of several million
dollars. Phillips further seeks double damages, interest, attorneys' fees
and cancellation of the farmout agreement. The Company is vigorously
defending the litigation on the basis that such amounts are not payable
under the Net Profits interest and that Phillips is not entitled to any of
the damages sought. In March 1993, Phillips filed a motion for summary
judgment on its claim relating to the Texas Eastern Settlement. That motion
was denied by the court in July 1993. Discovery is ongoing by both parties.
A trial date of September 26, 1996 has been set by the court.
Devere and Nealon Cases
Two class actions, one styled Melissa Devere v. John F. Arning, Don
D. Box, Thomas D. Box, Kent R. Hance, Sr., John L. Kelsey, Alan C. Shapiro,
Norman W. Smith, Ewell Doak Walker and Box Energy Corporation, and the
other styled Caren M. Nealon and B. Peter Knudson v. John F. Arning, Don D.
Box, Thomas D. Box, Kent R. Hance, Sr., John L. Kelsey, Alan C. Shapiro,
Norman W. Smith, Ewell Doak Walker, Richard S. Whitesell, Jr. and Box
Energy Corporation, were filed in the Chancery Court of Delaware in
Wilmington in April and May 1995, respectively. In both cases the
plaintiffs are shareholders of the Company's Class B (Non-Voting) Common
Stock. The defendants are the Company and its then current Board of
Directors. Richard S. Whitesell, Jr., a former director, has been dismissed
from the cases. The actions allege that the Company failed to make a proper
response to offers or overtures previously made to purchase the Company's
stock by J.R. Simplot and Phoenix Canada Oil Co. Ltd. and has failed to
solicit other offers for the sale of the Company. The Company believes
these class actions are without legal merit and will defend the suits
vigorously. The cases have been consolidated. All of the defendants have
filed or joined a motion seeking to dismiss the consolidated case. Further,
the defendants have filed a motion to stay discovery while the motion to
dismiss is pending. The court has yet to set a briefing schedule for either
motion. The Company cannot predict when these motions will be resolved or
the outcome of these cases.
Other Contingencies
The Company is not a party to any material pending legal proceedings
other than that described or referred to above. If the Company is not
successful in one or more of the foregoing suits, an adverse judgment could
have a material adverse effect on the Company.
Potential Royalties Liability
In May 1993, the United States Department of the Interior's Minerals
Management Service ("MMS") stated a new position that royalties are payable
on gas contract settlement proceeds to resolve take-or-pay, buy-out, buy-
down or pricing disputes involving a federal government oil and gas lease.
The Company has complied with all filing requirements and disclosed the
Texas Eastern Settlement to the MMS. Relying on the holding by the Fifth
Circuit in a case styled Diamond Shamrock Exploration Co. v. Hodel and a
prior rule of the MMS, the Company paid a one-sixth royalty to the MMS on
$5.8 million of the $69.6 million received in the Texas Eastern Settlement,
which is all of the royalty that the Company believes is due on the Texas
Eastern Settlement proceeds. It is uncertain whether the MMS will accept
the Company's calculation of royalty on the Texas Eastern Settlement. The
ultimate outcome of these events or potential claims made by the MMS
against the Company, if any, cannot be determined at this time.
Written Consent
On June 27, 1996 Box Brothers, as the record and beneficial holder of
approximately 57% of the outstanding Class A (Voting) Common Stock of the
Company, delivered a written consent executed by Box Brothers pursuant to
Section 228 of the Delaware General Corporation Law (the " Written
Consent"), that (i) amended the Company's By-Laws to permit the removal of
directors without cause, (ii) removed all the then current directors except
Don D. Box and Alan C. Shapiro, (iii) fixed the number of the directors of
the Company at seven and elected the following as directors of the Company
to serve with Don D. Box and Alan C. Shapiro: Glen Adams; Daryl L.
Buchanan; Richard D. Squires; Thomas D. Rollins; and Bernay C. Box. The
effective date of the Written Consent was July 30, 1996.
In connection with the Written Consent, Box Brothers filed an action
under Section 225 of the Delaware General Corporate Law in the Chancery
Court in Delaware seeking to confirm the validity of the Written Consent.
Named as defendants in the Section 225 action are Thomas D. Box, John F.
Arning, John L. Kelsey, Norman W. Smith and Ewell Doak Walker. The Company
is named as a nominal defendant. The Section 225 action is set for trial in
mid-September should the Delaware Chancery Court determine that trial is
necessary. Prior to the July 30, 1996 effective date of the written
consent, Box Brothers filed additional written consents from Basil Georges
and Pat Rutherford, who own an additional 14% and 9% of the Class A
(Voting) Common Stock of the Company, respectively. The additional written
consents effected the same actions as the Written Consent.
Note 4. Subsequent Events
On July 30, 1996, John L. Kelsey, Norman W. Smith and Ewell Doak
Walker resigned from the Board of Directors. Another director, Kent R.
Hance, Sr., had resigned on June 13, 1996. Pursuant to the Written Consent
and written consents executed by Messrs. Georges and Rutherford, on July
30, 1996, the following were elected as directors of the Company: Don D.
Box; Alan C. Shapiro; Glen Adams; Daryl L. Buchanan; Richard D. Squires;
Thomas D. Rollins; and Bernay C. Box.
On August 8, 1996, the Company's Board of Directors terminated Thomas
D. Box as President and Chief Executive Officer, Jill M. Killam as Vice
President and Chief Financial Officer, and Rob J. Bencsh as director of
Investor Relations. Don D. Box was elected President and Chief Executive
Officer. On August 8, 1996, W. Jefferson Burnett resigned as General
Counsel and Secretary. Replacements for the above, other than, Thomas D.
Box have not yet been made.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In addition to historical information, this discussion contains
certain forward-looking statements that involve risks and uncertainties
about the business, long-term strategy, financial condition and future of
the Company. Factors that may affect future results are included in the
discussion below and in Part I, Items 1 and 2 of the Company's Form 10-K
for the year ended December 31, 1995. Actual results could differ
materially from those forward-looking statements.
Liquidity and Capital Resources
On June 30, 1996, the Company's current assets exceeded its current
liabilities by $46.8 million. Cash, cash equivalents and marketable
securities totaled $43.5 million on that date. The ratio of the Company's
current assets to current liabilities on June 30, 1996 was 8.7 to 1.
Cash flow from operations for the first six months of 1996 increased
by $6.9 million, or 85%, to $14.9 million when compared to the first six
months of 1995. The increase resulted primarily from a 50% increase in cash
received from oil and natural gas sales because of higher oil and natural
gas production. Oil production increased primarily because of original
production from South Pass Block 87 and several new onshore properties.
Natural gas production increased primarily because of new production from
South Pass Block 87 and Main Pass Block 262 and increased production from
South Pass Block 89.
Oil and natural gas production from South Pass Block 87 began in May
1995 and was producing 1,200 BOPD and 8.2 MMcfgd, net to the Company's
interest, in June 1996. Main Pass Block 262 began producing natural gas in
March 1996. This block was one of the three blocks that the Company
acquired at the offshore Gulf of Mexico lease sale in May 1995 and is part
of the Company's diversification efforts in the Gulf of Mexico. The Company
anticipates drilling a third well in this block during the third quarter of
1996.
South Pass Block 89 natural gas sales from Platform "B" increased for
the first six months of 1996, when compared to the first six months of
1995, because of production from Well B-13S, which was recompleted in
September 1995, and production from Well B-11S, which commenced in August
1995. In addition, a five-day gas deliverability test for three Platform
"B" gas wells resulted in increased natural gas sales by the Company
effective October 1, 1995 under its long-term gas sales contract. In April
1996, a new five-day gas deliverability test was conducted for the three
Platform "B" gas wells. The test reduced the Company's net working interest
deliverability ("Seller's Delivery Capacity") by 38% to 10.1 MMcfgd. The
decrease resulted from curtailed production from Well B-11S, which began
producing high levels of sand in March 1996, and the natural depletion of
the reservoir associated with Well B-13S.
The Company's long-term natural gas sales contract covering
production from South Pass Block 89 requires the gas purchaser to take or
pay for 80% of the Seller's Delivery Capacity from the Company's gas wells,
which is now 8.1 MMcfgd, or 6.7 MMcfgd after payment of royalties. The gas
contract does not limit the sales of casinghead gas from the Company's oil
wells in South Pass Block 89. The Company is currently sidetracking Well B-
11S into the U-sand gas cap reservoir and expects such activity to be
finished during the third or fourth quarter of this year.
Future revenues, net income and cash flow from operations are
dependent upon natural gas produced from U-sand gas wells in the Platform
"B" area because of the high production rate from a limited number of such
wells and the high contract price for natural gas production from those
wells. Unforeseen mechanical or other failures of these wells or
significant reductions in estimated natural gas reserves can potentially
have an immediate and significant impact on the operations and
profitability of the Company. The Company will attempt to reduce these
risks by establishing and maintaining multiple take points from this
reservoir and by continuing its on-going efforts to diversify its oil and
natural gas production by obtaining production from other areas.
Significant fluctuations in oil and natural gas prices can materially
affect the Company's revenue, net income and cash flow from operations,
although the Company's long-term gas sales contract with fixed prices
escalating each year until July 2002 is thought to provide relative
stability for pricing related to natural gas production from South Pass
Block 89.
The Company's capital expenditures for the first six months of 1996
increased by 70% to $17.5 million from $10.3 million for the same six-month
period in the prior year. The following table presents the capital
expenditures by area for the six months ended June 30, 1996 and the capital
expenditures budget for the remaining six months of 1996.
Remaining Six
Six Months Ended Months Ended
Area June 30, 1996 December 31, 1996
________________________ ________________ _________________
(In thousands)
South Pass Blocks 86, 87
and 89 and West Delta
Block 128 $ 587 $ 5,430
Gulf of Mexico 12,862 6,550
West Texas / New Mexico 1,487 1,550
South Texas 1,027 1,675
Alabama / Mississippi 1,156 3,120
Miscellaneous 362 536
_______________ ________________
Total Capital Expenditures $ 17,481 $ 18,861
=============== ================
Capital expenditures for the Gulf of Mexico area included
approximately $4.4 million for platform fabrication, drilling and
completion costs of two Main Pass Block 262 wells and $7.8 million for an
exploratory well in Ship Shoal Block 352. Other Gulf of Mexico capital
expenditures include costs incurred in acquiring five additional offshore
blocks in April 1996 at the federal offshore oil and gas lease sale for the
central portion of the Gulf of Mexico. The five blocks include a 33%
working interest in Ship Shoal Block 116; a 50% working interest in Ship
Shoal Blocks 309 and 353; a 50% working interest in South Timbalier Block
214 and a 100% working interest in South Timbalier Block 279. The Company
may sell or exchange part of its working interest in one or more of the
above blocks for interests in other offshore blocks. During the first six
months of 1996, the Company drilled six wells in the West Texas / New
Mexico area, three wells in South Texas and two wells in the Alabama /
Mississippi area. Four of these eleven wells are completed or being
completed. Additional reserves from these wells have not yet been
estimated.
The capital investment and exploration budget for the remaining six
months of 1996 include amounts budgeted for five exploratory wells and one
development well in the Gulf of Mexico area, five wells in the West Texas /
New Mexico area, six wells in the South Texas and seven wells in the
Alabama / Mississippi area. The Company believes that its capital
investment and exploration budget will be primarily funded from cash flow
from operations throughout the year with additional capital requirements
being met by existing cash and cash equivalents or sales of marketable
securities, if required.
On June 27, 1996 Box Brothers, as the record and beneficial holder of
approximately 57% of the outstanding Class A (Voting) Common Stock of the
Company, delivered the Written Consent executed by Box Brothers pursuant to
Section 228 of the Delaware General Corporation Law. The Written Consent
(i) amended the Company's By-Laws to permit the removal of directors
without cause, (ii) removed all the present directors except Don D. Box and
Alan C. Shapiro, (iii) fixed the number of the directors of the Company at
seven and elected the following as directors of the Company: Don D. Box;
Alan C. Shapiro; Glen Adams; Daryl L. Buchanan; Richard D. Squires; Thomas
D. Rollins; and Bernay C. Box. The effective date of the Written Consent
was July 30, 1996. On August 8, 1996, the Company's Board of Directors
terminated Thomas D. Box as President and Chief Executive Officer, Jill M.
Killam as Vice President and Chief Financial Officer, and Rob J. Bensh as
Director of Investor Relations. Don D. Box was elected as Presiudent and
Chief Executive Officer. On August 8, 1996, W. Jefferson Burnett resigned
as General Counsel and Secretary. Replacements for the above, other than,
Thomas D. Box, have not yet been made. The new Board of Directors and Chief
Executive Officer have not yet addressed the Company's capital investment
and exploration budget for the remaining six months of 1996 or the long-
term strategy of the Company. The new Board of Directors has indicated that
the Company will continue to implement its previously announced long-term
strategy for enhancing shareholder value and that the Board will also study
other methods for improving shareholder value.
During the first half of 1996, the Company purchased high-grade fixed
income securities with excess cash in order to obtain a higher yield on
cash and cash equivalents. The securities have an "AA" rating, or higher,
and maturities of less than ten years. The Company's line of credit
facility with a bank in the amount of $25.0 million was renewed in June
1996 and will be effective until June 1997. The line of credit with a
current unused borrowing base of $10.0 million is collateralized by the
Company's South Pass oil and gas properties. The Company has issued letters
of credit to the MMS totaling $100,000 against this line of credit in
connection with the Company's oil and gas leases in the Gulf of Mexico.
The Company's liquidity and capital resources could be adversely
affected if the Company were to make a significant acquisition of
properties, by certain possible outcomes of litigation, a material decline
in oil or natural gas prices received by the Company or a material decline
in oil or natural gas production or reserves.
Results of Operations
The Company recorded a net loss for the second quarter of 1996 of
$3.5 million, or $0.17 per share, and a net loss of $1.1 million, or $0.05
per share, for the first six months of 1996. The loss primarily resulted
from dry hole costs totaling $7.8 million for Ship Shoal Block 352 Well #1.
This expense was partially offset by 42% and 36% increases in total
revenues for the three and six month periods ended June 30, 1996,
respectively, when compared to the same periods in the prior year.
Net sales volumes and average sales prices of the Company's oil and
natural gas production (including the proceeds from the sale of liquids
extracted from the natural gas) for the three and six months ended June 30,
1996 and 1995 were as follows:
Three Months Ended Six Months Ended
June 30, % June 30, %
1996 1995 Change 1996 1995 Change
______ _______ ______ ______ _______ ______
Net sales volumes:
Oil (MBbls):
Platform "B" 45 68 -34% 108 155 -30%
Platform "C" 44 71 -38% 99 151 -34%
Platform "D" 117 34 244% 227 34 568%
Other-all
onshore 18 0 n/a 32 0 n/a
_______ _______ _______ ______ _______ ______
Total oil
volumes 224 173 29% 466 340 37%
======= ======= ======= ====== ======= ======
Natural gas
(MMcf):
Platform "B" 696 724 -4% 1,697 1,662 2%
Platform "C" 263 389 -32% 642 783 -18%
Platform "D" 746 85 778% 1,104 85 1199%
Main Pass
Block 262 713 0 n/a 775 0 n/a
Other-all
onshore 6 0 n/a 17 0 n/a
_______ _______ _______ ______ _______ ______
Total natural
gas volumes 2,424 1,198 102% 4,235 2,530 67%
======= ======= ======= ====== ======= ======
Average sales prices:
Oil (per Bbl) $19.98 $17.55 14% $19.12 $17.12 12%
Natural gas
(per Mcf) $ 5.02 $ 7.06 -29% $ 6.06 $ 7.37 -18%
Total oil revenues increased by $1.4 million, or 47%, during the second
quarter of 1996 and by $3.1 million, or 53%, during the first six months of
1996 when compared to the second quarter of 1995 and first six months of
1995, respectively. Production from new sources, primarily Platform "D",
added $2.1 million and $4.2 million to oil revenues for the respective
three and six month periods ended June 30, 1996, respectively, compared to
the same periods in the prior year. In addition, 14% and 12% increases in
average oil prices for the second quarter and first half of 1996,
respectively, added $442,000 and $671,000 to oil revenues, respectively. An
offsetting decrease in oil revenues of $1.0 million for the three months
ended June 30, 1996 and $1.9 million for the first six months of 1996, when
compared to the prior year periods, is attributed to the natural depletion
of oil reserves on Platforms "B" and "C".
Natural gas revenues increased by $3.7 million, or 44%, for the
second quarter of 1996 and by $7.0 million, or 38%, for the first half of
1996 when compared to the same periods in the prior year. The increases
resulted principally from the following two reasons: increased natural gas
production and increased natural gas prices. First, natural gas revenues
increased by $1.7 million and by $2.9 million for the three and six months
ended June 30, 1996, respectively, as a result of natural gas production
from Platform "D" and by $1.6 million and by $1.8 million for the three
and six months ended June 30, 1996, respectively, from initial non-South
Pass natural gas production, primarily from Main Pass Block 262. Second,
natural gas prices from wells in South Pass Block 89 increased by 10% in
accordance with the Company's long-term gas sales contract, and natural gas
prices for wells in South Pass Block 86 and 87 increased by 27% and 40% for
the second quarter of 1996 and first six months of 1996, respectively, when
compared to the same periods of 1995. The increase in sales prices added
$1.0 million and $2.3 million to natural gas revenues for the three and six
months ended June 30, 1996, respectively.
Natural gas production from Platform "B" for the six months ended
June 30, 1996 increased by 35 MMcf as the result of the higher first
quarter production for the following three reasons: initial production from
Well B-11S, increased production from Well B-13S, and the increased
deliverability under the Company's long-term gas contractresulting from the
September 1995 deliverability test. The natural gas sales volumes for
Platform "B" decreased during the second quarter of 1996 when compared to
the second quarter of 1995 because a new five-day gas deliverability test
conducted in April 1996 for the three Platform "B" gas wells reduced the
Company's Seller's Delivery Capacity by 38% to 10.1 MMcfgd. The decrease
resulted from curtailed production from Well B-11S after it began producing
high levels of sand in March 1996 and the natural depletion of the
reservoir associated with Well B-13S. The increase in natural gas
production for the six months ended June 30, 1996 increased natural gas
sales by $367,000 for that six-month period, while a decrease in natural
gas production for the second quarter decreased natural gas sales by
$282,000 for the second quarter of 1996. Decreases in Platform "C"
production for the three and six months ended June 30, 1996 resulting from
the natural depletion of the natural gas reserves in that area caused
natural gas revenue to decrease by $357,000 and $438,000 for the respective
periods in the prior year.
Operating expenses increased by 64%, or $724,000, for the second
quarter of 1996 compared to the second quarter of 1995 and by 32%, or
$806,000, for the first half of 1996 compared to the first half of 1995.
The increase resulted from the beginning of operations on several new
properties, primarily South Pass Block 87 and Main Pass Block 262 but also
including several new on-shore properties. Net Profits expense increased by
$417,000, or 17%, and by $1.8 million, or 35%, during the three and six
months ended June 30, 1996, respectively, when compared to the same periods
in 1995. Increased natural gas production from Platform "B" and lower
capital expenditures in South Pass Block 89 caused the increase.
Exploration expense increased by $8.6 million for the three months
ended June 30, 1996 and by $8.4 million for the six months ended June 30,
1996 primarily because of an increase in dry hole expense. During the
second quarter of 1996, the Company drilled a non-commercial well on Ship
Shoal Block 352 at a total cost of $7.8 million. Depreciation, depletion
and amortization expense increased by $898,000, or 27%, for the second
quarter of 1996 and by $2.0 million, or 31%, for the first half of 1996
when compared to the same periods in the prior year. This increase was due
to the commencement of depreciation, depletion and amortization of Platform
"D" and other new oil and natural gas properties.
General and administrative expenses increased by 59%, or $1.2
million, and by 30%, or $1.2 million, for the three and six months ended
June 30, 1996, respectively. The increase was attributable to an accrual
for reimbursement of legal fees and costs payable to the Estate for
litigation costs incurred with respect to the Griffin case. Payment was
required because of the General Partners' execution of a written
undertaking to repay the Company for any such litigation expenses advanced
for them if it is later decided that such advancements were not subject to
indemnification by the Company. Non-recurring reorganization costs totaling
$723,000 were incurred during the first quarter of 1995 by discontinuing
certain administrative positions in the Dallas office and closing other
offices. The costs included severance payments, rent expense on closed
offices, and health insurance and related benefits for terminated
employees. No such costs were incurred in the second quarter of 1995 or the
first half of 1996. Deferred income tax expense decreased for the second
quarter and first six months of 1996 because of the net loss incurred
during both periods.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated herein by this reference is the discussion of litigation
set forth in Part I, Item 1, Note 3 of this Form 10-Q.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 27, 1996 Box Brothers, as the record and beneficial holder of
approximately 57% of the outstanding Class A (Voting) Common Stock of
the Company, delivered a Written Consent executed by Box Brothers
pursuant to Section 228 of the Delaware General Corporation Law that (i)
amended the Company's By-Laws to permit the removal of directors
without cause, (ii) removed all the then current directors except Don D.
Box and Alan C. Shapiro, (iii) fixed the number of the directors of the
Company at seven and elected the following as directors of the
Company: Don D. Box; Alan C. Shapiro; Glen Adams; Daryl L. Buchanan;
Richard D. Squires; Thomas D. Rollins; and Bernay C. Box. The effective
date of the Written Consent was July 30, 1996. Subsequently, written
consents to the same effect, executed by Messrs. Georges and Rutherford,
the record holders of 23% of the Company's Class A (Voting) Common Stock,
were delivered to the Company.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1* Form of Indenture.
10.1* Amended and Restated Certificate and Articles of Limited
Partnership of OKC Limited Partnership.
10.2* Restatement and Amendment of Gas Purchase Contract Dated
July 15, 1982, as amended October 5, 1982 and
December 21, 1982 and December 26, 1984.
10.3* Offshore Operating Agreement (SLAM Group), dated as of
January 1, 1977, as amended.
10.4* Farmout Agreement with Aminoil USA, Inc., effective
May 1, 1977, dated May 9, 1977.
10.5* Assignment of Lease, dated May 26, 1977.
10.6* Oil and Gas Lease of Submerged Lands under the Outer
Continental Shelf Lands Act dated July 1, 1967, covering
all of Block 89, South Pass Area, South and East
Addition, by the United States of America, as Lessor,
dated July 1, 1967, said lease having been assigned to Box
Energy Corporation as of April 15, 1992.
10.7* Oil and Gas Lease of Submerged Lands under the Outer
Continental Shelf Lands Act dated July 1, 1967, covering
all of Block 86, South Pass Area, South and East
Addition, by the United States of America, as Lessor,
dated July 1, 1983, said lease having been assigned to Box
Energy Corporation as of April 15, 1992.
10.8* Oil and Gas Lease of Submerged Lands under the Outer
Continental Shelf Lands Act dated July 1, 1967, covering
all of Block 87, South Pass Area, South and East
Addition, by the United States of America, as Lessor,
dated September 1, 1985, said lease having been assigned
to Box Energy Corporation as of April 15, 1992.
10.9* Transportation Agreement with CKB Petroleum, Inc. dated
March 1, 1985, as amended on April 19, 1989.
10.10* Agreement of Compromise and Amendment to Farmout
Agreement, dated July 3, 1989.
10.11* Settlement Agreement with Texas Eastern Transmission
Corporation, dated November 14, 1990.
10.12* Guarantee of Panhandle Eastern Corporation, dated
November 21, 1990.
10.13* Bill of Sale and Assumption of Obligations from OKC
Limited Partnership, dated April 15, 1992.
10.14* Asset Purchase Agreement, dated April 15, 1992.
10.15* Sales Agreement with Marathon Oil Company, effective
April 1, 1992, dated June 2, 1992, with Amendment,
effective June 8, 1992.
10.16* Sales Agreement with Marathon Oil Company, effective
April 1, 1992, dated June 18, 1992.
10.17* 1992 Incentive Stock Option Plan of Box Energy
Corporation.
10.18* 1992 Non-Qualified Stock Option Plan of Box Energy
Corporation.
10.19** Pension Plan of Box Energy Corporation, effective
April 16, 1992.
10.20# First Amendment to the Pension Plan of Box Energy
Corporation dated December 16, 1993.
10.21# Platform Sharing Agreement, effective December 10, 1993,
regarding Platform "D" in South Pass Block 87.
10.22## Secured Revolving Credit Loan Agreement by and between
Box Energy Corporation, as borrower, and Comerica
Bank-Texas, as lender, dated May 13, 1994.
10.23## Revolving Credit Note dated May 13, 1994, in the
maximum principal amount of $25.0 million executed by Box
Energy Corporation, payable to Comerica Bank-Texas.
10.24## Act of Mortgage and Security Agreement dated May 13,
1994, executed by Box Energy Corporation in favor of
Comerica Bank-Texas.
10.25## Second Amendment to the Pension Plan of Box Energy
Corporation dated December 31, 1994.
10.26+ Form of Executive Severance Agreements dated as of
December 12, 1995 by and between Box Energy Corporation
and key employees.
10.27+ Form of Letter Agreements regarding severance benefits
dated as of December 12, 1995 by and between Box Energy
Corporation and employees not covered by Executive
Severance Agreements.
10.28+ First Amendment to Secured Revolving Credit Loan
Agreement dated May 13, 1996 by and between Box Energy
Corporation and Comerica Bank-Texas.
10.29+ Renewal and Extension Revolving Credit Note dated
May 13, 1996, in the maximum principal amount of $25.0
million executed by Box Energy Corporation, payable to
Comerica Bank-Texas.
11.1 Statement regarding computation of earnings per share.
27 Financial Data Schedule
(b) The Company did not file a Form 8-K for the quarter ended
June 30, 1996.
[FN]
_________________
*Incorporated by reference to the Company's Registration Statement on
Form S-2 (file number 33-52156) filed with the Commission and effective on
December 1, 1992.
**Incorporated by reference to the Company's Form 10-K (file number
0-19967) for the fiscal year ended December 31, 1992 filed with the
Commission and effective on or about March 30, 1993.
#Incorporated by reference to the Company's Form 10-K (file number
0-19967) for the fiscal year ended December 31, 1993 filed with the
Commission and effective on or about March 30, 1994.
##Incorporated by reference to the Company's Form 10-K (file number
0-19967) for the fiscal year ended December 31, 1994 filed with the
Commission and effective on or about March 30, 1995.
+Incorporated by reference to the Company's Form 10-K (file number
0-19967) for the fiscal year ended December 31,1995 filed with the
Commission and effective on or about March 30, 1996.
[/FN]
<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.
BOX ENERGY CORPORATION
Date: August 14, 1996 By: (Don D. Box)
____________________ _________________________________
Don D. Box
President and Chief Executive Officer
Date: August 14, 1996 By: (Edward V. Howard)
___________________ _________________________________
Edward V. Howard
Vice President and Controller
BOX ENERGY CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Exhibit 11.1
(In thousands, except per share amounts)
Three Months Ended June 30,
1996 1995
_____________ _____________
Net income (loss) for primary
earnings (loss) per share $ (3,473) $ 838
Interest expense on 8 1/4%
convertible subordinated notes 1,133 1,133
Income tax effect (assumed to
be 35%) (397) (396)
____________ _____________
Net income (loss) for
fully-diluted earnings (loss)
per share $ (2,737) $1,575
============= =============
Primary earnings (loss) per share $ (0.17) $ 0.04
============= =============
Fully-diluted earnings (loss)
per share $ (0.10) $ 0.06
============= =============
Calculation of weighted average
shares
Class A (Voting) Common Stock 3,250 3,250
Class B (Non-voting) Common
Stock 17,553 17,553
Stock options considered
common stock equivalents 0 0
_____________ _____________
Total shares used for
primary earnings (loss)
per share 20,803 20,803
Contingent shares from remaining
stock options granted 604 243
Contingent shares from 8 1/4%
convertible subordinated notes 5,007 5,007
_____________ _____________
Total shares used for
fully-diluted earnings
(loss) per share 26,414 26,053
============= =============
Six Months Ended June 30,
1996 1995
_____________ _____________
Net income (loss) for primary
earnings (loss) per share $ (1,056) $ 1,577
Interest expense on 8 1/4%
convertible subordinated notes 2,266 2,253
Income tax effect (assumed to
be 35%) (793) (789)
_____________ _____________
Net income (loss) for
fully-diluted earnings (loss)
per share $ 417 $ 3,041
============= =============
Primary earnings (loss) per share $ (0.05) $ 0.08
============= =============
Fully-diluted earnings (loss)
per share $ 0.02 $ 0.12
============= =============
Calculation of weighted average
shares
Class A (Voting) Common Stock 3,250 3,250
Class B (Non-voting) Common
Stock 17,553 17,553
Stock options considered common
stock equivalents 0 0
_____________ ____________
Total shares used for primary
earnings (loss) per share 20,803 20,803
Contingent shares from remaining
stock options granted 601 268
Contingent shares from 8 1/4%
convertible subordinated notes 5,007 5,007
_____________ ____________
Total shares used for
fully-diluted earnings
(loss) per share 26,411 26,078
============= ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BOX
ENERGY CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874992
<NAME> BOX ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5118
<SECURITIES> 38363
<RECEIVABLES> 7593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52861
<PP&E> 175586
<DEPRECIATION> 101802
<TOTAL-ASSETS> 141955
<CURRENT-LIABILITIES> 6091
<BONDS> 55077
0
0
<COMMON> 20803
<OTHER-SE> 59984
<TOTAL-LIABILITY-AND-EQUITY> 141955
<SALES> 34565
<TOTAL-REVENUES> 36934
<CGS> 30737
<TOTAL-COSTS> 36002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2445
<INCOME-PRETAX> (1513)
<INCOME-TAX> (457)
<INCOME-CONTINUING> (1056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1056)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
