SECURITIES AND EXCHANGE COMMISSION
Washington DC 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, 1999
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
REMINGTON OIL AND GAS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2369148
(State or other jurisdiction of IRS employer identification no.)
incorporation or organization)
8201 Preston Road, Suite 600, Dallas, Texas 75225-6211
(Address of principal executive offices)
(Zip code)
(214) 210-2650
(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 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 21,268,440 outstanding shares of Common Stock, $0.01 par value, on
August 12, 1999.
<PAGE>
Remington Oil and Gas Corporation
Table of Contents
PART I, FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 11
PART II, OTHER INFORMATION 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
<PAGE>
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements
Remington Oil and Gas Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share data)
June 30, December 31,
1999 1998
Assets ----------- ------------
Current assets (Unaudited)
Cash and cash equivalents $ 2,034 $ 19,018
Restricted cash and cash equivalents 10,792 8,750
Accounts receivable 4,458 3,212
Prepaid expenses and other current assets 1,919 1,871
----------- ------------
Total current assets 19,203 32,851
----------- ------------
Properties
Oil and natural gas properties
(successful-efforts method) 270,087 260,649
Other properties 2,861 2,706
Accumulated depreciation, depletion and
amortization (177,065) (167,053)
----------- ------------
Total properties 95,883 96,302
----------- ------------
Other assets 959 1,076
----------- ------------
Total assets $ 116,045 $ 130,229
=========== ============
Liabilities and stockholders' equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 6,480 $ 7,264
Phillips judgment payable 18,392 18,165
Short-term notes payable and current
portion of long-term notes payable 2,681 8,651
----------- ------------
Total current liabilities 27,553 34,080
----------- ------------
Other liabilities
Long-term accounts payable 2,335 2,913
Notes payable 28,076 3,500
8 1/4% Convertible subordinated notes
payable due in 2002 5,950 29,950
----------- ------------
Total other liabilities 36,361 36,363
----------- ------------
Total Liabilities 63,914 70,443
----------- ------------
Commitments and contingencies (Note 4)
Minority interest in subsidiaries 121 87
Stockholders' equity
Preferred stock, $0.01 par value, 25,000,000
shares authorized, shares issued - none - -
Common stock, $0.01 par value, 100,000,000
shares authorized, shares issued - 21,474,415
in 1999 and 21,453,453 in 1998, shares
outstanding - 21,268,440 in 1999 and
21,247,478 in 1998 213 213
Additional paid-in capital 44,195 44,117
Retained earnings 7,602 15,369
----------- ------------
Total stockholders' equity 52,010 59,699
----------- ------------
Total liabilities and stockholders' equity $ 116,045 $ 130,229
=========== ============
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
Remington Oil and Gas Corporation
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Oil sales $ 4,364 $ 3,981 $ 7,096 $ 8,308
Gas sales 4,868 7,427 8,525 14,755
Other income 791 648 1,851 1,500
---------- ---------- ---------- ----------
Total revenues 10,023 12,056 17,472 24,563
---------- ---------- ---------- ----------
Costs and expenses
Operating costs and expenses 1,878 2,124 3,551 4,494
Net Profits interest expense 456 1,411 690 3,043
Exploration expenses 633 1,758 5,155 3,631
Depreciation, depletion and amortization 5,504 5,573 10,260 11,934
General and administrative 1,203 1,220 2,257 2,382
Legal expense 522 61 752 170
Interest and financing expense 872 1,066 2,528 2,061
---------- --------- ---------- ----------
Total costs and expenses 11,068 13,213 25,193 27,715
---------- --------- ---------- ----------
Income (loss) before taxes and minority
interest (1,045) (1,157) (7,721) (3,152)
---------- --------- ---------- ----------
Income tax expense 6 - 6 -
Minority interest in income of subsidiaries 22 - 20 -
---------- --------- ---------- ----------
Net income (loss) (1,073) (1,157) (7,747) (3,152)
---------- --------- ---------- ----------
Other comprehensive income (loss)
(net of taxes) - - - -
---------- --------- ---------- ----------
Comprehensive income (loss) $ (1,073) $ (1,157) $ (7,747) $ (3,152)
========== ========= ========== ==========
Basic and diluted (loss) per share $ (0.05) $ (0.06) $ (0.36) $ (0.15)
========== ========= ========== ==========
Basic and diluted comprehensive (loss)
per share $ (0.05) $ (0.06) $ (0.36) $ (0.15)
========== ========= ========== ==========
Weighted average shares outstanding 21,311 20,387 21,286 20,370
========== ========= ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
Remington Oil and Gas Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
------------------------
1999 1998
---------- ----------
Cash flow provided by operations
Net income (loss) $ (7,747) $ (3,152)
Adjustments to reconcile net income
Depreciation, depletion and amortization 10,260 11,934
Amortization of deferred charges 672 120
Dry hole costs 4,185 1,255
Minority interest in income of subsidiaries 20 -
Stock issued to directors and employees for
compensation 78 409
(Gain) on sale of properties (95) (70)
Changes in working capital
(Increase) decrease in accounts receivable (1,259) 1,244
(Increase) decrease in prepaid expenses and
other current assets (48) 266
Increase (decrease) in accounts payable and
accrued expenses (557) 4
(Increase) in deferred charges - (104)
(Increase) in restricted cash (2,042) -
---------- ----------
Net cash flow provided by operations 3,467 11,906
---------- ----------
Cash from investing activities
Payments for capital expenditures (14,026) (16,540)
Principal repayments - S-Sixteen Holding Company - 883
Proceeds from property sales 95 112
---------- ----------
Net cash (used in) investing activities (13,931) (15,545)
---------- ----------
Cash from financing activities
Proceeds from note payable 30,628 3,800
Debt issuance costs for line of credit (528) -
Payments on notes payable and long-term
accounts payable (36,600) (100)
Dividends paid to minority stockholders of
subsidiaries (20) -
---------- ----------
Net cash provided by (used in) financing activities (6,520) 3,700
---------- ----------
Net increase (decrease) in cash and cash equivalents (16,984) 61
Cash and cash equivalents at beginning of period 19,018 4,552
---------- ----------
Cash and cash equivalents at end of period $ 2,034 $ 4,613
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
Remington Oil and Gas Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 1999
Note 1. Accounting Policies and Basis of Presentation
Remington Oil and Gas Corporation is an independent oil and gas
exploration and production company incorporated in Delaware. Our oil and gas
properties are located in three areas, offshore Gulf of Mexico,
Mississippi/Alabama, and onshore Gulf Coast.
We prepared these financial statements according to the instructions for
Form 10-Q. Therefore, the financial statements do not include all disclosures
required by generally accepted accounting principles. However, we have
recorded all transactions and adjustments necessary to fairly present the
financial statements included in this Form 10-Q. The adjustments made are
normal and recurring. The following notes describe only the material changes
in accounting policies, account details or financial statement notes during
the first six months of 1999. Therefore, please read these financial
statements and notes to the financial statements together with the audited
financial statements and notes to financial statements in our 1998 Form 10-K.
The income statements for the three and six months ended June 30, 1999,
cannot necessarily be used to project results for the full year.
Note 2. Notes Payable
In December 1998, we replaced our two classes of common stock with one
class of common stock. The indenture for the 8 1/4% Convertible Subordinated
Notes (of which $38.4 million were outstanding at December 31, 1998) defined
this transaction as a "change in control." As required under the indenture
after a "change in control," we made an offer to purchase the notes. In
February 1999, we repurchased $32.4 million of the notes outstanding
following this offer.
In February 1999, we replaced our line of credit with a new line of
credit from a different bank. The new line of credit, a $50.0 million
facility with a borrowing base of $32.0 million, expires in 2003. We pledged
our oil and gas properties as collateral for the new line of credit. Interest
on the line of credit accrues at varying rates based on premiums of from
1.625 to 2.375 percentage points over the London Interbank Offered Rates. On
February 24, 1999, we borrowed $24.5 million on this line of credit and used
the proceeds to buy a portion of the convertible notes. We have since
borrowed $6.1 million for capital expenditures and other corporate purposes.
Note 3. Related Party Transactions
The following information about related party transactions includes the
transactions between Remington Oil and Gas Corporation and S-Sixteen Holding
Company and its subsidiaries prior to the merger of the two companies in
December 1998. Before the merger, S-Sixteen Holding Company owned
approximately 57% of Remington's voting common stock. The primary operating
subsidiary, CKB Petroleum, Inc., owns an undivided interest in a pipeline
that transports oil from our South Pass blocks, offshore Gulf of Mexico, to
Venice, Louisiana. For the three and six months ended June 30, 1998, we paid
transportation costs to CKB Petroleum, Inc. totaling $863,000 and $1.7
million. In addition, during the same three and six month periods, Remington
received interest income totaling $139,000 and $283,000, and principal
payments totaling $336,000 and $883,000 from S-Sixteen Holding Company.
Note 4. Contingencies
Phillips Petroleum Litigation
In August 1998, the state court in New Orleans, Louisiana, entered a
judgment against us in litigation with Phillips Petroleum Company. The
judgment in the amount of $10.9 million plus interest, was based upon claims
that we credited an insufficient amount from our 1990 litigation settlement
with Texas Eastern Transmission Corporation to Phillips' net profits account
covering South Pass Block 89 and that Philips was due an overriding royalty
payment for months in which there were no net profits. Phillips also claimed
at trial that we charged an excessive transportation fee to the net profits
account and that they were entitled to lease cancellation and double damages.
The court dismissed the claims regarding the transportation fee, lease
cancellation, and double damages. Phillips had sought aggregate damages in
excess of $44.0 million at trial. Phillips appealed substantially all of the
judgment. We appealed the judgment of $1.6 million regarding the overriding
royalty payment but not the $9.3 million portion of the judgment relating to
the Texas Eastern settlement. Oral arguments on the appeal are scheduled for
September 13, 1999. In connection with the appeal, we have posted a bond in
the amount of $18.0 million, collateralized with $9.0 million of restricted
cash.
We also currently have litigation pending with Phillips in state court
in Collin County, Texas. This litigation centers on our termination of the
gas contract with Texas Eastern in 1998 for $49.8 million, and what, if any,
of the termination amount we received should be credited to the net profits
account. The court in Collin County stayed the case pending resolution of the
Louisiana appeals. Certain possible outcomes of the litigation with Phillips
could have a material adverse effect on us.
Minority Shareholders Litigation
Two individuals own a combined 5.8824% in two of our subsidiaries, CKB
Petroleum, Inc. and CKB & Associates, Inc. We acquired the two subsidiaries
when we merged with S-Sixteen Holding Company in December 1998. In their
lawsuit, filed in state court in Dallas, Texas, the minority stockholders
allege that the defendants misappropriated and/or wasted corporate assets
through excessive salaries, bonuses and expenses in addition to making
improper loans and cash advances. The two minority stockholders seek to have
these purported improper payments declared constructive dividends with a pro-
rata share of such dividends paid to them. In addition, they seek a court
ordered buy-out of their interests. We are vigorously defending what we
believe to be a baseless suit. The state court recently disqualified counsel
for the minority stockholders. We have no indication that the minority
stockholders have obtained new counsel. The suit is set for trial in December
1999.
Minerals Management Service Issues
During the first quarter of 1999, the Minerals Management Service
informed us of certain audit issues. The issues involve alleged underpaid
royalties on the use of FERC-approved tariffs for oil transportation
allowances from our South Pass blocks, and alleged underpaid crude oil
royalties on our South Pass blocks. During the second quarter of 1999, the
MMS issued orders to pay additional royalties on these issues. We disagree
with the MMS position on these issues and have posted bonds totaling $3.6
million (collateralized with $1.8 million of restricted cash) on these issues
in order to suspend the orders and appeal their allegations. In addition, we
are currently engaged in discussions with the MMS over what additional amount
of royalties, if any, we may be required to pay on our litigation settlement
with Texas Eastern in 1990. Because these discussions are in their infancy
and the MMS is in the process of gathering information regarding various re-
characterizations of the original settlement between royalty bearing and non
royalty bearing portions, it is impossible to determine what additional
royalty, if any, we may owe. Certain possible outcomes of these proceedings
could have a material adverse effect on Remington.
We have no other material pending legal proceedings other than the
litigation mentioned above.
Contingent Stock Grant
In June 1999, the Board of Directors approved a contingent stock grant
to our employees and directors. In the event our common stock's closing price
is at or above $10.42 per share for twenty consecutive trading days prior to
the expiration of the five-year period beginning June 17, 1999, each grant of
stock will become effective. The number of shares granted each employee and
director is relative to the employee's salary (or base number in the case of
directors) and the closing stock price on June 17, 1999. The grants, if
effective, will vest 50% in three years, 75% in four years, and 100% in five
years. The total number of shares that could be issued under this contingent
stock grant is 679,937.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion will assist in the understanding our financial
position and results of operations. The information below should be read in
conjunction with the financial statements, the related notes to financial
statements, and our Form 10-K for the year ended December 31, 1998.
Our discussion contains both historical and forward-looking information.
We assess the risks and uncertainties about our business, long-term strategy,
and financial condition before we make any forward-looking statements, but we
cannot guarantee that our assessment is accurate or that our goals and
projections can or will be met. Statements concerning results of future
exploration, exploitation, development, and acquisition expenditures as well
as revenue, expense, and reserve levels are forward-looking statements. We
make assumptions about commodity prices, drilling results, production costs,
administrative expenses and interest costs that we believe are reasonable
based on currently available information of known facts and trends.
This discussion is primarily an update to the Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
1998 Form 10-K. We recommend that you read this discussion in conjunction
with the Form 10-K.
Our long-term strategy is to increase shareholder value by economically
increasing reserves, production, and cash flow on an annual basis. At the
same time, we believe it is important to maintain a strong balance sheet by
keeping our total debt at a manageable level. We will balance our capital
expenditures, financed primarily by operating cash flow and bank debt, among
exploration, development, and acquisitions.
Liquidity and Capital Resources
On June 30, 1999, our current liabilities exceeded our current assets by
$8.4 million. Excluding the Phillips judgment payable from current
liabilities and the restricted cash and cash equivalents from current assets,
would result in our current liabilities exceeding our current assets by
$750,000. From December 31, 1998, to June 30, 1999, our current assets
decreased by $13.6 million. Current assets decreased primarily because we
used cash to purchase a portion of the 8 1/4% Convertible Subordinated Notes
and our capital expenditures exceeded cash flow from operations during the
first two quarters of 1999.
Because of the merger and the exchange of our common stock in December
1998, we were required to offer to purchase any tendered 8 1/4% Convertible
Subordinated Notes. Of the $38.4 million outstanding at December 31, 1998, we
were required to purchase $32.4 million on February 25, 1999. We refinanced
$24.0 million of the purchase with a long-term bank line of credit and used
cash to purchase the remaining $8.4 million of the tendered notes.
Cash flow from operations decreased by $8.4 million primarily because of
lower gas revenues from South Pass Block 89 during the first six months of
1999. Cash flow from operations before changes in working capital accounts
decreased by $3.1 million. Cash flow from operations decreased primarily
because total gas sales for the first six months decreased by $6.2 million or
42%. The average price received for gas from South Pass Block 89 decreased
from $8.69 per Mcf during the first two quarters of 1998 to $2.14 during the
first six months of 1999. The decrease in the average price occurred because
we terminated the gas sales contract that covered gas produced from this
block effective July 1, 1998. Increased production from other areas partially
offset the decrease in gas revenue from South Pass Block 89. Excluding South
Pass Block 89, total gas production increased by 641,000 Mcf for the first
six months of 1999.
During the first two quarters of 1999, we incurred capital expenditures
totaling $14.0 million. We drilled five new wells in the Gulf of Mexico and
fourteen wells in South Texas. During the second half of 1999, we will incur
costs to complete several of the South Texas wells, Eugene Island Block 135
well #3, Galveston Block 333 #A-3 and High Island Block 87 #3. We expect to
drill a test well in the "V" sands interval below the existing "U" sand in
South Pass Block 87, a shallow well in Eugene Island Block 297, five to six
additional wells in South Texas, and two wells in Mississippi.
In February 1999, we replaced our line of credit with a new line of
credit from a different bank. The new line of credit with a borrowing base of
$32.0 million expires in 2003. We pledged our oil and gas properties as
collateral for the new line of credit. On February 24, 1999, we borrowed
$24.5 million on this line of credit and used the majority of the proceeds to
buy a portion of the convertible notes. At June 30, 1999, we had $1.3 million
of unused borrowing base on the line of credit. The bank will review the
borrowing base semi-annually and may increase or decrease the borrowing base
relative to the redetermined estimate of proved oil and gas reserves.
Year 2000 Issue
The year 2000 issue relates to computer programs written with two digits
defining a year rather than four. Computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 instead of 2000 or
not at all. This inability to recognize or properly treat the year 2000 may
cause a breakdown of both information technology and non-information
technology systems and cause these systems to process critical financial and
operational information incorrectly.
We have assessed and continue to assess the year 2000 issue and its
impact on our partners, suppliers, customers and us. We identified three
areas related to the year 2000 issue that we believed would be most critical
to us. The first area included our ability to continue producing oil and gas,
to accurately measure the production, and to receive payment for the
production sold. The second area addressed our access to complete and
accurate financial and operational information stored on our internal
computer network. The final area included the management of our financial
assets including cash and securities held with financial institutions.
Twelve properties account for approximately 90% of our revenue. The
properties have seven different operators. Six companies purchase and/or pay
us for the oil and gas production from these properties. We have surveyed the
operators and purchasers regarding the ability to continue production and to
accurately measure the production. We have surveyed the purchasers to
determine their ability to pay us for our production in a timely manner. We
have received favorable written responses to many of the questionnaires. We
anticipate that we will receive favorable responses from the remaining
operators and purchasers. In June of this year, we tested both the hardware
and software in our internal computer network and found that no material year
2000 problems should arise in connection with either of these items. In
addition, the company that provides our financial and accounting software
package has informed us that the software is year 2000 compliant. We have
received a letter from our primary bank confirming that it is year 2000
compliant.
<PAGE>
Results of Operations
The following table reflects the increase or decrease in oil and gas
sales revenue due to the changes in prices and the increase or decrease in
production volumes.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- --------
(In thousands, except prices)
<S> <C> <C> <C> <C>
Oil production volume (MBbls) 320 355 619 694
Oil sales revenue $ 4,364 $ 3,981 $ 7,096 $ 8,308
Price per barrel $ 13.64 $ 11.22 $ 11.47 $ 11.97
Increase (decrease) in oil sales
revenue due to:
Change in prices $ 859 $ (347)
Change in production volume (476) (865)
--------- ---------
Total increase (decrease) in oil
sales revenue $ 383 $ (1,212)
========= =========
Gas production volume (MMcf)
South Pass Block 89 272 434 520 915
Other properties 1,997 1,535 3,494 2,853
--------- --------- --------- ---------
Total 2,269 1,969 4,014 3,768
========= ========= ========= =========
Gas sales revenue
South Pass Block 89 $ 590 $ 3,781 $ 1,113 $ 7,953
Other properties 4,278 3,646 7,412 6,802
--------- --------- --------- ---------
Total $ 4,868 $ 7,427 $ 8,525 $ 14,755
========= ========= ========= =========
Price per Mcf
South Pass Block 89 $ 2.17 $ 8.71 $ 2.14 $ 8.69
Other properties $ 2.14 $ 2.38 $ 2.12 $ 2.38
Increase (decrease) in gas sales
revenue due to:
Change in prices
South Pass Block 89 $ (2,838) $ (5,993)
Other properties (368) (742)
Change in production volume
South Pass Block 89 (353) (847)
Other properties 1,000 1,352
--------- ---------
Total increase (decrease) in gas
sales revenue $ (2,559) $ (6,230)
========= =========
</TABLE>
Oil production during the second quarter and first six months of 1999
decreased when compared to the same period in 1998, primarily because of
natural depletion from existing wells in the South Pass area blocks.
Increased oil production from offshore Gulf of Mexico properties Eugene
Island Blocks 135 and 148, West Cameron Block 170, Galveston Block 333, and
the Parker Creek field in Mississippi partially offset the decrease in
production from the South Pass area blocks. We purchased Eugene Island Block
148 and Galveston Block 333 in December 1998.
During the first and second quarters of 1998, we sold gas at prices
substantially higher than spot prices from South Pass Block 89 under a long-
term gas sales contract. We terminated this contract effective July 1, 1998.
In addition, gas production from South Pass Block 89 decreased as a result of
natural depletion from existing wells in the producing reservoirs. The
combination of the lower price per Mcf and lower production volumes caused
gas sales revenue from South Pass Block 89 to decrease by a total of $3.2
million in the second quarter of 1999 compared to 1998 and by $6.8 million
during the first six months of 1999 compared to the prior year period.
However, we partially offset the decrease from South Pass Block 89 with
production from other properties, primarily from six offshore Gulf of Mexico
properties we purchased in December 1998, High Island Block 86, and West
Cameron Block 170.
Operating expenses decreased by $246,000 during the three months ended
June 30, 1999, compared to the three months ended June 30, 1998. In addition,
operating expenses decreased by $942,000 during the first half of 1999
compared to the first half of 1998. The decrease resulted from lower
transportation expenses, which decreased after we purchased CKB Petroleum,
Inc. in December 1998. CKB Petroleum, Inc. owns a partial interest in the
pipeline that transports oil from our offshore South Pass blocks to onshore
Louisiana. The decrease was partially offset by increased operating expenses
from new or purchased properties. Net profits expense decreased by $955,000
during the second quarter of 1999 and by $2.4 million for the first six
months of 1999 when compared to the same periods in the prior year because of
the lower oil and gas revenue on South Pass Block 89.
Exploration expense decreased during the second quarter of 1999 because
of lower dry hole costs incurred. Exploration expense for the first six
months of 1999 increased by $2.6 million because of dry hole costs incurred
during the first quarter of 1999 when we drilled a sidetrack to an
exploratory well on Main Pass Block 262. The sidetrack did not encounter
commercial oil or gas reserves. Depreciation, depletion, and amortization
expense decreased by $1.7 million during the first six months of 1999 because
of lower property costs subject to depreciation, depletion, and amortization
on South Pass Block 89. In addition, oil and gas reserves on other offshore
properties increased which lowered the depreciation, depletion, and
amortization rate. The lower depreciable basis on South Pass Block 89
resulted from impairment charges incurred in 1998 after we terminated our
long-term gas sales contract.
Expenses primarily related to the Phillips litigation caused legal fees
to increase by $461,000 during the second quarter of 1999 and by $582,000
during the first six months of 1999 when compared to the same periods in the
prior year. Interest and financing expense increased by $467,000 during the
first six months because we accelerated the amortization of the offering
costs on the 8 1/4% Convertible Subordinated Notes after we purchased
approximately 85% of the outstanding notes in February 1999. However, the
reduction in outstanding debt during the second quarter of 1999 caused
interest and financing expense to be $194,000 lower than the second quarter
of 1998.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risk sensitive instrument at June 30, 1999, is a revolving
line of credit from a bank. At June 30, 1999, the unpaid principal balance
under the line was $30.6 million. The interest rate on this debt is sensitive
to market fluctuations, however, we do not believe that significant
fluctuations in the market rate of interest have a material effect on our
consolidated financial position, results of operations, or cash flow from
operations.
<PAGE>
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated herein by reference is the discussion of litigation set
forth in Part I, Item 1, Notes to the Financial Statements - Note 4.
Contingencies 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 17, 1999, we held our annual stockholders' meeting to elect
members to the company's board of directors, ratify Arthur Andersen LLP as
the independent auditors for 1999, and increase the maximum number of stock
options issuable to a single individual under the 1997 Stock Option Plan. The
stockholders voted as follows:
Election of Directors For Withheld/Against Abstained
Don D. Box 18,302,923 730,380
John E. Goble, Jr. 18,303,523 729,780
William E. Greenwood 18,302,523 730,780
David H. Hawk 18,303,023 730,280
James Arthur Lyle 18,303,523 729,780
David E. Preng 18,303,523 729,780
Thomas W. Rollins 18,303,523 729,780
Alan C. Shapiro 18,303,523 729,780
James A. Watt 18,303,023 730,280
Ratification of independent
auditors for 1999 18,922,910 59,445 50,948
Stock option plan amendment 17,554,123 1,342,032 137,148
The members of the board of directors do not serve staggered terms of
office. All directors elected at the meeting were already members of the
board at the time of election. No director serving at the time of the
election failed to retain his seat on the board.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.0+++ Agreement and Plan of Merger dated as of June 22, 1998, by
and between Remington Oil and Gas Corporation and S-Sixteen Holding Company.
3.1* Certificate of Incorporation, as amended.
3.2.1+++ Certificate of Amendment of Certificate of Incorporation of
Remington Oil and Gas Corporation.
3.3### By-Laws as amended.
4.1* Form of Indenture Box Energy Corporation to United States
Trust Company of New York, Trustee, dated December 1, 1992, 8 1/4%
Convertible Subordinated Notes due December 1, 2002.
10.1* Farmout Agreement with Aminoil USA, Inc., effective May 1,
1977, dated May 9, 1977.
10.2* Transportation Agreement with CKB Petroleum, Inc. dated March
1, 1985, as amended on April 19, 1989.
10.3* Agreement of Compromise and Amendment to Farmout Agreement
dated July 3, 1989.
10.4* 1992 Incentive Stock Option Plan of Box Energy Corporation.
10.5** Pension Plan of Box Energy Corporation, effective April 16,
1992.
10.6# First Amendment to the Pension Plan of Box Energy Corporation
dated December 16, 1993.
10.7## Second Amendment to the Pension Plan of Box Energy
Corporation dated December 31, 1994.
10.8+ Form of Executive Severance Agreement dated as of December
12, 1995 by and between Box Energy Corporation and key employees.
10.9+ Form of Letter Agreement regarding severance benefits dated
as of December 12, 1995 by and between Box Energy Corporation and employees
not covered by Executive Severance Agreements.
10.10*** Amended and Restated Promissory Note between Box Energy
Corporation and Box Brothers Holding Company.
10.11*** Amended and Restated Pledge Agreement between Box Energy
Corporation and Box Brothers Holding Company.
10.12++ Agreement by and between Box Energy Corporation and James A.
Watt.
10.13*** Box Energy Corporation Severance Plan.
10.14 Box Energy Corporation 1997 Stock Option Plan (as amended
June 17, 1999).
10.15*** Box Energy Corporation Non-Employee Director Stock Purchase
Plan.
10.16*** Form of Executive Employment Agreement, effective August 29,
1997, by and between Box Energy Corporation and two executive officers.
11.1 Statement regarding Computation of Income per share.
27 Financial Data Schedule
(b) No Forms 8-K were filed during the quarter ended June 30, 1999.
- ------------
* 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 April 1, 1996.
++ Incorporated by reference to the Company's Form 10-Q (file number
1-11516) for the fiscal quarter ended June 30, 1997, filed with the
Commission and effective on or about August 12, 1997
*** Incorporated by reference to the Company's Form 10-K (file number
1-11516) for the fiscal year ended December 31, 1997, filed with the
Commission and effective on or about March 30, 1998.
+++ Incorporated by reference to the Company's Registration Statement
on Form S-4 (file number 333-61513) filed with the Commission and effective
on November 27, 1998.
### Incorporated by reference to the Company's Form 10-K (file number
1-11516) for the fiscal year ended December 31, 1998, filed with the
Commission and effective on or about March 30, 1999.
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.
REMINGTON OIL AND GAS CORPORATION
Date: August 13, 1999 By: (James A. Watt)
----------------- --------------------------------
James A. Watt
President and Chief Executive Officer
Date: August 13, 1999 By: (J. Burke Asher)
----------------- ---------------------------------
J. Burke Asher
Vice President/Finance
<PAGE>
Exhibit 10.14
BOX ENERGY CORPORATION
1997 STOCK OPTION PLAN
(As Amended June 17, 1999)
1. Purpose. The purpose of this 1997 Stock Option Plan (the "Plan") is
to advance the interests of Box Energy Corporation (the "Company") by
encouraging certain employees of the Company and its subsidiaries and non-
employee directors of the Company to acquire a proprietary interest in the
Company through ownership of Class B Common Stock of the Company (the "Common
Stock") and thereby to provide such employees and directors additional
incentives in the success of the Company, to encourage such employees to
remain with the Company and to attract other qualified persons to become
employees.
2. Administration. The Plan shall be administered by a Committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board
of Directors"), which Committee shall be composed of not less than two
directors of the Company who each qualify as (i) a "Non-Employee Director"
under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor provision and (ii) an "outside
director" under Treasury Regulations Section 1.162-27 promulgated under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
or any successor provision. Subject to the provisions of the Plan, the
Committee is authorized to determine participants to whom options will be
granted, the times at which options will be granted, the periods during which
they will be exercisable, and the number of shares, the exercise price and
other terms and conditions of such options. The Committee shall have full
and final authority to interpret the Plan and options granted thereunder, to
prescribe, amend and rescind rules and regulations relating to the Plan and
the options, and to make other determinations necessary or advisable for the
administration of the Plan, all of which determinations shall be conclusive
and binding on all persons. A majority of the Committee shall constitute a
quorum, and the Committee shall act pursuant to a majority vote or by
unanimous written consent. The Board of Directors also may grant options to
directors and employees under the Plan, and any authority and discretion
provided to the Committee with respect to the granting of stock options by
the Committee hereunder shall also apply to the Board of Directors with
respect to stock options granted by the Board of Directors.
3. Eligibility. Directors of the Company, and such key employees of
the Company and any of its subsidiaries as the Committee shall determine from
time to time, shall be eligible to be granted options under the Plan.
4. Stock Subject to Options. The aggregate number of shares of Common
Stock that may be issued upon the exercise of options granted under the Plan
shall not exceed 2,750,000, subject to adjustment under the provisions of
paragraph 12. In addition, the maximum number of shares of Common Stock that
may be issued to any individual under the Plan shall be no more than 25% of
the aggregate available under the Plan , subject to adjustment under the
provisions of paragraph 12. Such shares of Common Stock may be either
authorized but unissued shares or previously issued shares that shall have
been reacquired by the Company. If any outstanding option under the Plan is
forfeited, expires or is terminated for any reason, the shares of Common
Stock subject to the unexercised portion of such option shall again be
available for issuance pursuant to the grant of stock options.
5. Types of Options. Options granted pursuant to the Plan may be
either "incentive stock options" under Section 422 of the Code or "non-
qualified stock options" that do not qualify as incentive stock options. The
Committee shall have full authority to determine which options, if any, shall
be incentive stock options and which shall be non-qualified stock options.
The grant of an option under the Plan shall be evidenced by a written
agreement executed by the Company and the optionee, in such form and
containing such terms and conditions as the Committee may determine, subject
to the provisions and limitations contained in the Plan.
6. Transferability of Options. The Committee may in its discretion
provide in any stock option agreement that all or a portion of such option
may be transferred by the optionee on such terms and subject to such
limitations set forth in the stock option agreement. Unless a stock option
agreement specifically permits transfer of an option, no option shall be
transferable by the optionee otherwise than by will or the laws of descent
and distribution, and each option shall be exercisable during the lifetime of
the optionee only by the optionee or by his or her guardian or legal
representative.
7. Allotment of Shares; Exercise Price. The Committee shall determine,
subject to the limitations set forth in paragraph 4, the total number of
shares covered by each option and the exercise price therefor (which may not
be less than the par value of the Common Stock) to be granted to each
optionee under the Plan. The exercise price with respect to incentive stock
options shall not be less than the Fair Market Value (as hereinafter defined)
on the date of grant, nor less than 110% of such Fair Market Value in the
case of any incentive stock option granted to any individual who, at the time
the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, any of its
subsidiaries or its parent. "Fair Market Value" of the Common Stock as of
any date shall be the closing price on such date (or if no trades occurred on
such date on the next preceding day on which trading occurred) as reported
for consolidated transactions on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or on the NASDAQ
National Market System or SmallCap Market System, or if not so listed or
admitted to trading, the average of the high bid and low asked prices of the
Common Stock on such date in the over-the-counter market as reported by the
NASDAQ reporting system or other system then in use.
8. Term of Option. Each option shall be granted for such term as the
Committee shall determine; provided, that no option shall be exercisable more
than 10 years after the date of grant, and no incentive stock option granted
to an individual who, at the time the option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, any of its subsidiaries or its parent shall by its
terms be exercisable more than five years from the date of grant.
9. Exercises. Except as otherwise set forth herein, each option shall
be exercisable over such period and at such times as the Committee shall
determine. In addition to any other limitations set forth herein, the
aggregate Fair Market Value of the shares of Common Stock with respect to
which incentive stock options are exercisable for the first time by an
optionee in any calendar year (under all plans of the Company and its
subsidiaries and its parent) shall not exceed $100,000. No option shall be
exercised for fewer than 100 shares unless the remaining shares purchasable
under the option are fewer than 100 shares. The Committee may provide in any
stock option agreement that upon a Change in Control (as hereinafter defined)
all previously granted, unexpired options of an optionee will immediately
become fully exercisable to the extent of shares then covered by such option.
A "Change in Control" shall mean any of the following events:
(i) a merger or consolidation to which the Company is a party if
the individuals and entities who were stockholders of the Company immediately
prior to the effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of less than 50%
of the total combined voting power for election of directors of the surviving
corporation following the effective date of such merger or consolidation;
(ii) the acquisition or holding of direct or indirect beneficial
ownership (as defined under Rule 13d-3 of the Exchange Act) of securities of
the Company representing in the aggregate 30% or more of the total combined
voting power of the Company's then issued and outstanding voting securities
by any person, entity or group of associated persons or entities acting in
concert, other than S-Sixteen Holding Company, any employee benefit plan of
the Company or of any subsidiary of the Company, or any entity holding such
securities for or pursuant to the terms of any such plan, beginning from and
after such time as S-Sixteen Holding Company shall no longer have direct or
indirect beneficial ownership (as so defined) of securities of the Company
representing in the aggregate a larger percentage of the total combined
voting power of the Company's then issued and outstanding securities than
that held by any other person, entity or group;
(iii) the sale of all or substantially all of the assets of the
Company to any person or entity that is not a wholly owned subsidiary of the
Company; or
(iv) the approval by the stockholders of the Company of any plan
or proposal for the liquidation of the Company or its material subsidiaries,
other than into the Company.
10. Payment for Shares.
(a) Purchase Price. The purchase price of each share of Common Stock
purchased upon the exercise of any option granted hereunder shall be paid in
full at the time of such purchase, and a stock certificate representing such
shares shall be delivered therefor. Until the stock certificate for such
shares is issued in the optionee's name, such optionee will have no rights of
a stockholder of the Company. Payment may be made in whole or in part in
cash or, unless the Committee shall object, in common stock of the Company
previously owned by the optionee for such period as the Committee may
require, valued at Fair Market Value on the day preceding the date of
exercise.
(b) Tax Withholding. It shall be a condition to the performance of the
Company's obligation to issue or transfer shares of Common Stock upon
exercise of an option that the optionee pay, or make provision satisfactory
to the Company for the payment of, any taxes which the Company is obligated
to collect with respect to the issuance or transfer of such shares. The
Committee may provide the optionee with the right to satisfy federal or state
tax obligations by delivery of previously owned shares, or electing to have
the Company withhold shares otherwise issuable upon exercise of a non-
qualified stock option, the Fair Market Value of which does not exceed the
amount required to cover the federal or state tax obligation (including FICA)
incurred in connection with the exercise of such option.
11. Termination of Options.
(a) Death or Disability. In the event of the death or total and
permanent disability (as provided in the Company's disability insurance
policy, under Company policy or under procedures established by the
Committee) of an optionee, any option granted hereunder and held by such
optionee may thereafter be exercised, to the extent exercisable on the date
of such death or disability, or to such greater extent as the Committee may
at any time determine, for a period of one year from the date of death or
disability, but in no event after the expiration of the term of such option.
(b) Retirement or Resignation with Consent of the Company. In the
event of the retirement of an optionee at the normal retirement age in
accordance with the retirement policy of the Company, or the resignation of
the optionee with the written consent of the Company, or the ceasing to be a
member of the Board of Directors in the case of a director who is not an
employee of the Company, any option held by such optionee may thereafter be
exercised, to the extent exercisable on the date of such retirement,
resignation or ceasing to be a director, or to such greater extent as the
Committee may at any time determine, for a period of 60 days following the
date of such retirement, resignation, or ceasing to be a director, but in no
event after the expiration of the term of such option.
(c) Other Termination. In the event of a termination of employment of
an optionee other than by reason of death, disability, normal retirement or
resignation with the written consent of the Company, unless otherwise
determined by the Committee, any option granted hereunder and held by such
optionee shall, to the extent not previously exercised, forthwith terminate
on the date of such termination of employment.
12. Adjustment of Options. In the event of any stock dividend, stock
split, combination of shares, merger, consolidation, recapitalization,
reclassification or other similar capital or corporate structure change, the
number of shares of Common Stock at the time of such change remaining subject
to the Plan, the maximum number of shares issuable to any individual, the
number of shares subject to any outstanding options and the exercise price
thereof and any other relevant provisions of such options shall be
appropriately adjusted to reflect such change, and the Committee's
determination as to the terms of any such adjustments shall be binding and
conclusive on all persons.
13. Effective Date. The Plan shall become effective on the date of
approval of the Plan by the holders of a majority of the shares of Class A
Common Stock of the Company present at a duly held meeting of stockholders.
14. Amendment. The Board of Directors may at any time suspend or
terminate the Plan or amend it from time to time in any respect, except that
without the appropriate approval of the holders of Class A Common Stock, no
such amendment shall increase the maximum number of shares subject to the
Plan, increase the maximum number of shares issuable to any person or change
the designation of the class of persons eligible to receive options.
15. Legal Compliance. The obligation of the Company to sell and
deliver shares of Common Stock pursuant to the exercise of an option is
subject to such compliance as the Company deems necessary or advisable with
federal and state laws, rules and regulations applying to the authorization,
issuance, listing or sale of securities. The Company may also require in
connection with any grant or exercise of an incentive stock option that the
optionee agree to notify the Company when making any disposition of the
shares received on exercise of such incentive stock option, whether by sale,
gift or otherwise, within two years of the date of grant or within one year
of the date of exercise.
16. No Employment Right. Nothing contained in the Plan or in any
option granted thereunder shall confer upon any optionee any right to
continued employment by the Company, any of its subsidiaries or parent, or to
continued membership on the Board of Directors, or limit in any way the right
of the Company, any of its subsidiaries or its parent to terminate the
optionee's employment at any time. The granting of any option hereunder
shall impose no obligation upon the optionee to exercise any option.
17. Indemnification. In addition to any other rights of
indemnification as members of the Board of Directors of the Company and to
the extent permitted by law, the members of the Committee shall be
indemnified and held harmless by the Company against all loss, damage and
expenses, including reasonable attorneys' fees, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding to
which any of them may be a party by reason of any action taken or any failure
to act under or in connection with the Plan or any option granted thereunder,
and against all amounts paid by them in settlement thereof approved by legal
counsel to the Company, provided that such members shall have notified the
Company promptly after the institution of any such action, suit or
proceeding.
<PAGE>
Remington Oil and Gas Corporation
Computation of Earnings per Share
Exhibit 11.1
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands, except prices)
<S> <C> <C> <C> <C>
Net income (loss) available for basic
income per share $ (1,071) $ (1,157) $ (7,747) $ (3,152)
Interest expense on the Notes (net
of tax) (1) - - - -
--------- --------- --------- ---------
Net income (loss) available for diluted
income per share $ (1,071) $ (1,157) $ (7,747) $ (3,152)
========= ========= ========= =========
Basic income (loss) per share $ (0.05) $ (0.06) $ (0.36) $ (0.15)
========= ========= ========= =========
Diluted income (loss) per share $ (0.05) $ (0.06) $ (0.36) $ (0.15)
========= ========= ========= =========
Weighted average
Common Stock and common stock
Equivalents 21,311 - 21,286 -
Class A Stock 3,222 3,222
Class B Stock 17,165 17,148
--------- --------- --------- ---------
Total common shares for basic income
(loss) per share 21,311 20,387 21,286 20,370
--------- --------- --------- ---------
Dilutive stock options outstanding
(treasury stock method) (1) - - - -
Shares assumed issued by conversion of
the Notes (1) - - - -
--------- --------- --------- ---------
Total common shares for diluted income
(loss) per share 21,311 20,387 21,286 20,370
========= ========= ========= =========
(1) Non dilutive.
Potential increase to net income for
diluted income per share
Interest expense on Notes (net of tax) $ 80 $ 736 $ 420 $ 1,464
Potential issues of common stock for
diluted income per share
Weighted average stock options
outstanding 1,207 801 1,207 755
Weighted average warrant outstanding 300 - 300 -
Weighted average shares issued assuming
conversion of Notes 541 3,488 1,437 3,488
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REMINGTON
OIL AND GAS CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD AND FIRST SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874992
<NAME> REMINGTON OIL AND GAS CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 2,034 2,034
<SECURITIES> 0 0
<RECEIVABLES> 4,458 4,458
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,203 19,203
<PP&E> 272,948 272,948
<DEPRECIATION> 177,065 177,065
<TOTAL-ASSETS> 116,045 116,045
<CURRENT-LIABILITIES> 27,553 27,553
<BONDS> 5,950 5,950
0 0
0 0
<COMMON> 213 213
<OTHER-SE> 51,797 51,797
<TOTAL-LIABILITY-AND-EQUITY> 116,045 116,045
<SALES> 9,232 15,621
<TOTAL-REVENUES> 10,023 17,472
<CGS> 8,471 19,656
<TOTAL-COSTS> 10,196 22,665
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 872 2,528
<INCOME-PRETAX> (1,045) (7,721)
<INCOME-TAX> 6 6
<INCOME-CONTINUING> (1,073) (7,747)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,073) (7,747)
<EPS-BASIC> (0.05) (0.36)
<EPS-DILUTED> (0.05) (0.36)
</TABLE>
