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 March 31, 2000
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 than 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 21,467,822 outstanding shares of Common Stock, $0.01 par value, on
May 10, 2000.
<PAGE>
Remington Oil and Gas Corporation
INDEX
PART I FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income and Comprehensive 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 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II OTHER INFORMATION 14
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Remington Oil and Gas Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share data)
March 31, December 31,
Assets 2000 1999
----------- ------------
Current assets (Unaudited)
Cash and cash equivalents $ 6,676 $ 4,356
Restricted cash and cash equivalents 11,042 11,042
Accounts receivable 8,475 6,421
Prepaid expenses and other current assets 2,069 2,054
----------- ------------
Total current assets 28,262 23,873
----------- ------------
Properties
Oil and natural gas properties
(successful-efforts method) 287,544 275,690
Other properties 2,648 2,862
Accumulated depreciation, depletion and
amortization (187,895) (183,971)
----------- ------------
Total properties 102,297 94,581
----------- ------------
Other assets 1,968 872
----------- ------------
Total assets $ 132,527 $ 119,326
=========== ============
Liabilities and stockholders' equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 10,178 $ 6,613
Phillips judgment payable 19,076 18,894
Short-term notes payable and current portion
of long-term notes payable 5,348 2,635
----------- ------------
Total current liabilities 34,602 28,142
----------- ------------
Other liabilities
Long-term accounts payable and accrued
liabilities 4,664 1,598
Notes payable 26,513 27,526
8 1/4% Convertible subordinated notes payable
due in 2002 5,950 5,950
----------- ------------
Total other liabilities 37,127 35,074
----------- ------------
Total Liabilities 71,729 63,216
----------- ------------
Commitments and contingencies (Note 2)
Minority interest in subsidiaries - 56
Temporary equity (Note 2) 798 -
Stockholders' equity
Preferred stock, $.01 par value, 25,000,000
shares authorized, no shares outstanding
Common stock, $.01 par value, 100,000,000 shares
authorized, 21,502,181 shares issued and
21,467,822 shares outstanding in 2000, 21,491,170
shares issued and 21,285,195 outstanding in 1999 215 213
Additional paid-in capital 44,451 44,273
Retained earnings 15,334 11,568
----------- ------------
Total stockholders' equity 60,000 56,054
----------- ------------
Total liabilities and stockholders' equity $ 132,527 $ 119,326
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Remington Oil and Gas Corporation
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended March 31,
----------------------------
2000 1999
------------ ------------
Revenues
Oil sales $ 7,473 $ 2,732
Gas sales 8,398 3,657
Other income 571 1,059
------------ ------------
Total revenues 16,442 7,448
------------ ------------
Costs and expenses
Operating costs 1,788 1,674
Net Profits expense 594 234
Exploration expense 282 4,522
Depreciation, depletion and amortization 4,419 4,756
General and administrative expenses 1,348 1,284
Royalty settlement 3,216 -
Interest and financing costs 1,016 1,656
------------ ------------
Total costs and expenses 12,663 14,126
------------ ------------
Income (loss) before income taxes and minority
interest 3,779 (6,678)
Income tax expense - -
Minority interest in income of subsidiaries (5) (2)
------------ ------------
Net income (loss) $ 3,784 $ (6,676)
------------ ------------
Comprehensive income (loss)
Other comprehensive income (loss) (net of taxes) - -
------------ ------------
Comprehensive net income (loss) $ 3,784 $ (6,676)
============ ============
Basic and diluted income (loss) per share $ 0.18 $ (0.31)
============ ============
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Remington Oil and Gas Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
--------------------
2000 1999
--------- ---------
Cash flow provided by operations
Net income (loss) $ 3,784 $ (6,676)
Adjustments to reconcile net income
Depreciation, depletion and amortization 4,419 4,756
Amortization of deferred charges 39 633
Dry hole costs 60 3,801
Minority interest in net income of subsidiaries (5) (2)
Stock issued to directors for compensation 46 40
Royalty settlement 3,216 -
(Gain) on sale of properties (13) (95)
Changes in working capital
(Increase) in accounts receivable (2,056) (372)
(Increase) decrease in prepaid expenses and other
current assets 436 (284)
Increase (decrease) in accounts payable and accrued
expenses 2,849 (483)
(Increase) in restricted cash - (250)
--------- ---------
Net cash flow provided by operations 12,775 1,068
--------- ---------
Cash from investing activities
Payments for capital expenditures (12,001) (7,238)
Proceeds from property sales 232 95
--------- ---------
Net cash used in investing activities (11,769) (7,143)
--------- ---------
Cash from financing activities
Proceeds from note payable 1,790 26,528
Debt issuance costs for line of credit - (528)
Payments on notes payable and long-term accounts
payable (458) (36,252)
Dividends paid to minority stockholders of
subsidiaries (18) (20)
--------- ---------
Net cash (used in) provided by financing activities 1,314 (10,272)
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,320 (16,347)
Cash and cash equivalents at beginning of period 4,356 19,018
--------- ---------
Cash and cash equivalents at end of period $ 6,676 $ 2,671
========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Remington Oil and Gas Corporation
Notes to Condensed Consolidated Financial Statements
March 31, 2000
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 three months of 2000. 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 1999 Form 10-K.
The income statements for the three months ended March 31, 2000, cannot
necessarily be used to project results for the full year.
Note 2. Contingencies
Phillips Petroleum Litigation
In 1977, Phillips Petroleum Company assigned its interest in South Pass 89,
offshore Louisiana, to OKC Limited Partnership, predecessor to Remington Oil
and Gas Corporation. The assignment was accomplished through a farmout
agreement in which Phillips retained a 33% net profits interest. Paragraph
IV of the farmout states that Phillips' net profits shall be "thirty-three
percent (33%) of one-fourth (1/4) of eight-eighths (8/8)" of production.
Paragraph IV (a) states that Phillips "shall look exclusively to the oil,
gas, condensate, and other hydrocarbons, ... produced from the subject lease
for the satisfaction and realization of the net profits interest."
Subparagraph IV (d) (4) states the net profits account shall be credited with
"an amount equal to the proceeds of all judgments and claims collected on
account of its ownership of the subject lease." Subparagraph IV (d) (5)
states the net profits account shall be credited with "an amount equal to
all monies and things of value received by or inuring to the benefit by
virtue of its ownership interest in the subject lease" of Remington. The
interpretation of Paragraph IV and its subparagraphs has been the primary
subject of the recent litigation between Phillips and us. Our claim, upheld
by the trial court, is that Phillips can only look to actual production for
satisfaction of the net profits interest according to the clear language of
Paragraph IV. It is our position that Subparagraphs IV (d) (4) and (5) merely
define types of production to be credited to the net profits account.
Phillips claims that Subparagraphs IV (d) (4) and (5) should stand alone and
not as subsets of Paragraph IV and entitle Phillips to amounts received by us
beyond revenues from or associated with production. We believe that if
Phillips, as drafter of the farmout agreement, intended Subparagraphs IV (d)
(4) and (5) to be controlling, no reference to production would have been
necessary in the farmout.
The current litigation between Phillips and us involves three issues related
to the interpretation of Paragraph IV and its subparagraphs -- the TETCO
issue, the Overriding Royalty issue, and the Pipeline Tariff issue detailed
below.
TETCO - We entered into a gas purchase agreement with TETCO in 1982
dedicating our gas from South Pass 89 to TETCO for specified prices. In
1989, TETCO sued us in an attempt to terminate this high priced gas contract.
In November of 1990, we settled with TETCO and received $69.6 million to
"settle all causes of action, claims and controversies between them
pertaining to the Litigation." Furthermore, we agreed to a new contract
price for gas sold to TETCO in exchange for its agreement to drop its legal
challenges to the gas contract. TETCO also paid us an additional $5.4
million (over and above the $69.6 million) for past production which we
credited to the net profits account. In May of 1991, we allocated $5.8
million of the $69.6 million as production to the net profits account.
Phillips claims the whole $69.6 million should have been credited to the net
profits account. After a three week trial in 1997, the Louisiana trial court
ruled that we should have credited $41.2 million to the net profits account
as production and thus owed an additional $9.3 million plus interest to
Phillips. As part of its ruling, the trial court supported our claim that
Phillips could only look to actual production for its net profits interest
and that the remaining $28.4 million of the TETCO payment was for settlement
of Remington's counterclaims against TETCO. Phillips appealed this ruling
and on January 5, 2000, the Court of Appeal, Fourth Circuit, State of
Louisiana, overturned the trial court and held that the full $69.6 million
should be allocated to the net profits account based on Phillips' contention
that all proceeds of all judgments and claims must be included in the net
profits account regardless of whether they related to production or to the
lease. We have requested a rehearing on this matter and are awaiting the
decision of the Appellate Court.
Overriding Royalty - Phillips claims that in months when no net profits are
achieved, its net profits interest should revert to an overriding royalty. We
claim that once net profits are achieved, Phillips' net profits interest does
not revert to an overriding royalty position until cumulative net profits are
depleted. The trial court ruled in Phillips favor and awarded Phillips $1.6
million plus interest. We appealed this issue, but the appellate court
upheld the trial court's ruling. We believe that both the trial court and the
appellate court are wrong on this issue and continue to appeal these rulings.
Pipeline Tariff - The farmout agreement allows transportation costs to be
charged to the net profits account. Initially, Marathon constructed and
operated the oil pipeline from the South Pass complex to Venice, Louisiana,
and charged us a tariff of $2.75 per barrel for transportation. This tariff
was charged to the net profits account with no complaint from Phillips from
inception of production in 1982 until 1989. In 1984, CKB Petroleum, Inc.
purchased an interest in the pipeline and entered into a 20-year
transportation agreement with us for $2.75 per barrel to transport all of our
oil. At the time, Cloyce Box owned approximately 9% of Remington and
controlled over 50% of the stock of CKB Petroleum. Accordingly, for the
purposes of certain financial statement disclosures, Remington and CKB
Petroleum, Inc. were considered "related parties." All liabilities
associated with the pipeline interest were assumed by CKB Petroleum, Inc. and
Cloyce Box, individually. Before CKB Petroleum purchased its interest,
Phillips was given the right to purchase the interest under a preferential
right clause of the pipeline operating agreement, but declined to do so.
Phillips claimed that we should charge not what we paid to CKB Petroleum,
Inc. for transportation but only a lesser amount which Phillips claimed was
our "actual cost" of transportation. The trial court dismissed this claim.
The appellate court reversed the trial court and awarded Phillips $7.3
million plus interest. In reaching its decision, the appellate court
contended that we owned the pipeline, which is clearly incorrect. The
pipeline interest was purchased by us in December of 1998. We have requested
a rehearing on this matter and are awaiting a ruling on this request from the
court.
The total judgment awarded by the trial court in 1998 including interest was
$18 million. We recorded an $18 million charge to income in the third
quarter of 1998 and continue to accrue interest on this liability each
quarter. The current total liability is $19.1 million. The appellate court
ruling of January 2000, if it stands, would change this liability to
approximately $55 million. If unsuccessful on our rehearing request, we
intend to appeal to the Louisiana Supreme Court. Because we believe that it
is probable that the decision of the appellate court will not stand, we have
not recorded any additional contingent liability on our books. Statement of
Financial Accounting Standards No. 5 entitled "Accounting for Contingencies"
requires that when a loss contingency exists, it be accrued if it is
reasonably estimable and it is probable that an unfavorable outcome will
occur. In reaching our conclusion we rely on our legal counsel who have
informed us that in their opinion, the appellate court incorrectly applied
the law and made erroneous findings of fact in reversing the trial court's
judgment. They have further advised us that in their opinion it is as likely
as not that the Court of Appeal's errors will be corrected on rehearing or on
appeal to the Louisiana Supreme Court. Currently, we have $9 million in
restricted cash set aside for this litigation. If the complete appellate
opinion is upheld and the company owes Phillips an additional $46 million
over the amount of restricted capital, our financial position and liquidity
could be seriously affected. It could constitute an event of default under
our bank loan agreement, which might result in acceleration of our long-term
debt. When the litigation is concluded and the amount, if any, of our
liability is finally determined, we intend to use a combination of property
sales and/or additional debt financing or, as a last resort, protection from
creditors under applicable law to fulfill the amount of any judgment. This
process could take up to two years to conclude.
In August of 1998, we terminated the TETCO gas contract and received $49.8
million. We did not credit any of this termination payment to the net
profits account, as it was not from production. Phillips has claimed that
this full $49.8 million payment should be credited to the net profits
agreement. Litigation on this issue was initiated in Collin County, Texas,
and subsequently stayed pending the resolution of all the appeals in
Phillips' Louisiana suit. If the trial court opinion stating that Phillips
can only look to production for its net profits interest is upheld, we
anticipate this case would be dismissed. If the Louisiana appellate court
opinion is upheld we will have to litigate whether the entire amount of the
buyout must be credited to the net profits interest. Total liability for
this claim would be $16.4 million plus statutory interest until the date of
settlement. The trial and appeals regarding this issue could take an
additional two years to resolve once the Louisiana litigation is concluded.
Minerals Management Service Issues
In 1999, Minerals Management Service (MMS) issued orders to pay additional
royalty on three issues regarding our South Pass 89 lease. MMS demanded
payment of royalty on $63.4 million of the $69.6 million TETCO settlement
received in 1990. Royalty was paid in 1990 on $5.8 million of the settlement
which was allocated to production, and no royalty was due on the remaining
$.4 million of the settlement. Prior to this time, MMS had never questioned
our initial allocation to production or our payment of royalty on this
allocation. This new MMS demand is the same claim that Phillips has been
litigating since 1990. After demonstrating to the MMS that a significant
portion of the 1990 payment was for settlement of litigation between TETCO
and Remington and not associated with production, we have reached an
agreement in principle with the MMS that we would pay additional royalties in
the amount of $4.8 million. Thirty-three percent (33%) of this amount will
be charged to the net profits interest. The result will be a $3.2 million
charge to earnings in the first quarter of 2000.
In this settlement, MMS agreed no royalty would be due on the $49.8 million
termination payment received from TETCO by us in July of 1998, as it was not
from production.
MMS has also made a claim that since CKB Petroleum, Inc. was an affiliated
entity of the company, we could not charge MMS our actual cost of $2.75 per
barrel for transportation of their oil, but could only charge Marathon's
actual operating charges to CKB Petroleum. We strongly disagree with MMS's
position on this issue and have provided documentation showing that we
actually paid the $2.75 per barrel tariff, that the $2.75 per barrel was the
actual cost to us and our public stockholders, that the costs to CKB
Petroleum were significantly more than the operating charges from Marathon,
and that the tariff of $2.75 per barrel was approved by FERC. Additionally,
MMS has alleged that we underpaid royalties on certain oil sold from South
Pass 89 through exchange agreements. This underpayment involves a rule
change by the MMS, which effectively disallowed exchanges of this type in
early 1998. We began crediting MMS with the full value of these exchanges in
May of 1999. We have posted bonds totaling $3.6 million while negotiations
are in progress to resolve these issues with the MMS. We cannot predict at
this time if additional royalties may be due on these claims.
Minority Shareholders Litigation
Prior To March 21, 2000, two individuals owned a combined 5.8824% in two of
our subsidiaries, CKB Petroleum, Inc. and CKB & Associates, Inc. The two
subsidiaries were acquired when we merged with S-Sixteen Holding Company in
December 1998. The minority interest liability reflects their percentage of
the total combined equity in the two subsidiaries. Before the merger, the two
shareholders, who are former officers of the companies, filed suit against S-
Sixteen Holding Company and the two subsidiaries.
During the first quarter of this year, we reached an agreement to settle all
claims and purchase their minority interest in the two subsidiaries. As part
of the settlement, we transferred to the individuals 171,616 shares of our
common stock that was held by CKB & Associates, Inc. In addition, we issued
a put option to the individuals that allows the holders to require us to
purchase from them 159,500 shares of our common stock at $5.00 per share. The
individuals can exercise the put option during the period March 19, 2002,
through April 9, 2002. The option will expire after April 9, 2002, or will
expire if our common stock trades at $5.00 per share or more for 10
consecutive trading days during the two-year holding period.
We recorded $798,000 as temporary equity because the put option on the
159,500 shares only allows for the physical settlement, which would require
us to buy back the shares at $5.00 per share. In accordance with Emerging
Issues Task Force Bulletin 96-13, we measured the put option at fair value
and recorded that amount in permanent equity. We then transferred an amount
equal to the cash redemption of the shares to temporary equity. The temporary
equity will be eliminated if the put option agreement is exercised, or will
be transferred to permanent equity if the option expires.
We have no other material pending legal proceedings other than the litigation
mentioned above.
<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, 1999.
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 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 our
1999 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 March 31, 2000, our current liabilities exceeded our current assets by
$6.3 million. Excluding the Phillips judgment payable from current
liabilities and the related restricted cash and cash equivalents from the
current assets, results in our current assets exceeding our current
liabilities by $1.7 million. From December 31, 1999, to March 31, 2000, our
current assets increased by $4.4 million.
Cash flow from operations increased by $11.7 million primarily because of
increased oil and gas revenues during the first quarter of 2000. Gas sales
increased by $4.7 million or 130% and oil sales increased by $4.7 million or
174%. The increase in gas sales relates to increased production and gas
prices and the increase in oil revenues relates primarily to increased oil
prices.
During the first quarter of 2000, we incurred capital expenditures totaling
$12.0 million. The capital expenditures included drilling four successful
exploration wells in the Gulf of Mexico and nine successful wells in
Mississippi and South Texas. During the remainder of 2000, we will incur
costs to build two platforms, complete two offshore wells and drill
approximately 15 additional wells. We have budgeted $35.0 million for capital
expenditures during the remainder of the year. We expect that our cash flow
from operations will be adequate to fund the capital budget for the reminder
of this year.
In March 2000, our bank amended the terms of our line of credit to increase
the borrowing base from $32.0 million to $35.0 million. The line of credit
expires in 2003. We pledged our oil and gas properties as collateral for the
increased new line of credit and agreed not to pay dividends. On March 31,
2000, we had $3.2 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.
Phillips Petroleum Litigation
In 1977, Phillips Petroleum Company assigned its interest in South Pass 89,
offshore Louisiana, to OKC Limited Partnership, predecessor to Remington Oil
and Gas Corporation. The assignment was accomplished through a farmout
agreement in which Phillips retained a 33% net profits interest. Paragraph
IV of the farmout states that Phillips' net profits shall be "thirty-three
percent (33%) of one-fourth (1/4) of eight-eighths (8/8)" of production.
Paragraph IV (a) states that Phillips "shall look exclusively to the oil,
gas, condensate, and other hydrocarbons, ... produced from the subject lease
for the satisfaction and realization of the net profits interest."
Subparagraph IV (d) (4) states the net profits account shall be credited with
"an amount equal to the proceeds of all judgments and claims collected on
account of its ownership of the subject lease." Subparagraph IV (d) (5)
states the net profits account shall be credited with "an amount equal to
all monies and things of value received by or inuring to the benefit by
virtue of its ownership interest in the subject lease" of Remington. The
interpretation of Paragraph IV and its subparagraphs has been the primary
subject of the recent litigation between Phillips and us. Our claim, upheld
by the trial court, is that Phillips can only look to actual production for
satisfaction of the net profits interest according to the clear language of
Paragraph IV. It is our position that Subparagraphs IV (d) (4) and (5) merely
define types of production to be credited to the net profits account.
Phillips claims that Subparagraphs IV (d) (4) and (5) should stand alone and
not as subsets of Paragraph IV and entitle Phillips to amounts received by us
beyond revenues from or associated with production. We believe that if
Phillips, as drafter of the farmout agreement, intended Subparagraphs IV (d)
(4) and (5) to be controlling, no reference to production would have been
necessary in the farmout.
The current litigation between Phillips and us involves three issues related
to the interpretation of Paragraph IV and its subparagraphs -- the TETCO
issue, the Overriding Royalty issue, and the Pipeline Tariff issue detailed
below.
TETCO - We entered into a gas purchase agreement with TETCO in 1982
dedicating our gas from South Pass 89 to TETCO for specified prices. In
1989, TETCO sued us in an attempt to terminate this high priced gas contract.
In November of 1990, we settled with TETCO and received $69.6 million to
"settle all causes of action, claims and controversies between them
pertaining to the Litigation." Furthermore, we agreed to a new contract
price for gas sold to TETCO in exchange for its agreement to drop its legal
challenges to the gas contract. TETCO also paid us an additional $5.4
million (over and above the $69.6 million) for past production which we
credited to the net profits account. In May of 1991, we allocated $5.8
million of the $69.6 million as production to the net profits account.
Phillips claims the whole $69.6 million should have been credited to the net
profits account. After a three week trial in 1997, the Louisiana trial court
ruled that we should have credited $41.2 million to the net profits account
as production and thus owed an additional $9.3 million plus interest to
Phillips. As part of its ruling, the trial court supported our claim that
Phillips could only look to actual production for its net profits interest
and that the remaining $28.4 million of the TETCO payment was for settlement
of Remington's counterclaims against TETCO. Phillips appealed this ruling
and on January 5, 2000, the Court of Appeal, Fourth Circuit, State of
Louisiana, overturned the trial court and held that the full $69.6 million
should be allocated to the net profits account based on Phillips' contention
that all proceeds of all judgments and claims must be included in the net
profits account regardless of whether they related to production or to the
lease. We have requested a rehearing on this matter and are awaiting the
decision of the Appellate Court.
Overriding Royalty - Phillips claims that in months when no net profits are
achieved, its net profits interest should revert to an overriding royalty. We
claim that once net profits are achieved, Phillips' net profits interest does
not revert to an overriding royalty position until cumulative net profits are
depleted. The trial court ruled in Phillips favor and awarded Phillips $1.6
million plus interest. We appealed this issue, but the appellate court
upheld the trial court's ruling. We believe that both the trial court and the
appellate court are wrong on this issue and continue to appeal these rulings.
Pipeline Tariff - The farmout agreement allows transportation costs to be
charged to the net profits account. Initially, Marathon constructed and
operated the oil pipeline from the South Pass complex to Venice, Louisiana,
and charged us a tariff of $2.75 per barrel for transportation. This tariff
was charged to the net profits account with no complaint from Phillips from
inception of production in 1982 until 1989. In 1984, CKB Petroleum, Inc.
purchased an interest in the pipeline and entered into a 20-year
transportation agreement with us for $2.75 per barrel to transport all of our
oil. At the time, Cloyce Box owned approximately 9% of Remington and
controlled over 50% of the stock of CKB Petroleum. Accordingly, for the
purposes of certain financial statement disclosures, Remington and CKB
Petroleum, Inc. were considered "related parties." All liabilities
associated with the pipeline interest were assumed by CKB Petroleum, Inc. and
Cloyce Box, individually. Before CKB Petroleum purchased its interest,
Phillips was given the right to purchase the interest under a preferential
right clause of the pipeline operating agreement, but declined to do so.
Phillips claimed that we should charge not what we paid to CKB Petroleum,
Inc. for transportation but only a lesser amount which Phillips claimed was
our "actual cost" of transportation. The trial court dismissed this claim.
The appellate court reversed the trial court and awarded Phillips $7.3
million plus interest. In reaching its decision, the appellate court
contended that we owned the pipeline, which is clearly incorrect. The
pipeline interest was purchased by us in December of 1998. We have requested
a rehearing on this matter and are awaiting a ruling on this request from the
court.
The total judgment awarded by the trial court in 1998 including interest was
$18 million. We recorded an $18 million charge to income in the third
quarter of 1998 and continue to accrue interest on this liability each
quarter. The current total liability is $19.1 million. The appellate court
ruling of January 2000, if it stands, would change this liability to
approximately $55 million. If unsuccessful on our rehearing request, we
intend to appeal to the Louisiana Supreme Court. Because we believe that it
is probable that the decision of the appellate court will not stand, we have
not recorded any additional contingent liability on our books. Statement of
Financial Accounting Standards No. 5 entitled "Accounting for Contingencies"
requires that when a loss contingency exists, it be accrued if it is
reasonably estimable and it is probable that an unfavorable outcome will
occur. In reaching our conclusion we rely on our legal counsel who have
informed us that in their opinion, the appellate court incorrectly applied
the law and made erroneous findings of fact in reversing the trial court's
judgment. They have further advised us that in their opinion it is as likely
as not that the Court of Appeal's errors will be corrected on rehearing or on
appeal to the Louisiana Supreme Court. Currently, we have $9 million in
restricted cash set aside for this litigation. If the complete appellate
opinion is upheld and the company owes Phillips an additional $46 million
over the amount of restricted capital, our financial position and liquidity
could be seriously affected. It could constitute an event of default under
our bank loan agreement, which might result in acceleration of our long-term
debt. When the litigation is concluded and the amount, if any, of our
liability is finally determined, we intend to use a combination of property
sales and/or additional debt financing or, as a last resort, protection from
creditors under applicable law to fulfill the amount of any judgment. This
process could take up to two years to conclude.
In August of 1998, we terminated the TETCO gas contract and received $49.8
million. We did not credit any of this termination payment to the net
profits account, as it was not from production. Phillips has claimed that
this full $49.8 million payment should be credited to the net profits
agreement. Litigation on this issue was initiated in Collin County, Texas,
and subsequently stayed pending the resolution of all the appeals in
Phillips' Louisiana suit. If the trial court opinion stating that Phillips
can only look to production for its net profits interest is upheld, we
anticipate this case would be dismissed. If the Louisiana appellate court
opinion is upheld we will have to litigate whether the entire amount of the
buyout must be credited to the net profits interest. Total liability for
this claim would be $16.4 million plus statutory interest until the date of
settlement. The trial and appeals regarding this issue could take an
additional two years to resolve once the Louisiana litigation is concluded.
Results of Operations
The following table reflects oil and gas revenues, production, and prices
during the first quarter of 2000 compared to the first quarter of 1999.
Three Months Ended
March 31,
--------------------------
2000 1999 % Change
-------- -------- --------
Oil production volume (MBbls) 292 299 (2)%
Oil sales revenue $ 7,473 $ 2,732 174%
Price per barrel $ 25.59 $ 9.14 180%
Increase (decrease) in oil sales revenue due to:
Change in prices $ 4,918
Change in production volume (177)
--------
Total increase (decrease) in oil sales revenue $ 4,741
========
Gas production volume (MMcf) 3,154 1,748 80%
Gas sales revenue $ 8,398 $ 3,657 130%
Price per Mcf $ 2.66 $ 2.09 27%
Increase (decrease) in gas sales revenue due to:
Change in prices $ 996
Change in production volume 3,745
--------
Total increase (decrease) in gas sales revenue $ 4,741
========
Oil revenues increased $4.7 million or 174% because of the $16.45 increase in
the average price per barrel. Oil production during the first quarter of 2000
decreased by 2% from the first quarter of 1999.
Gas revenues increased $4.7 million or 130% because of the 80% increase in
production and the 27% increase in the average price per Mcf. Offshore Gulf
of Mexico gas production increased by 868 MMcf, or 57%. The increased
production primarily came from new discoveries on South Pass block 87, High
Island block 87, and Galveston block 333. In addition, gas production from
the onshore gulf coast increased 541 MMcf, or 259%. The increase primarily
came from the discoveries we made during 1999 in South Texas. Average gas
prices per Mcf increased by $0.57, or 27%, which added an additional $996,000
to total gas revenue.
Although lease operating expenses did not increase significantly,
transportation expenses increased by $105,000, or 276%, because of
transportation charges associated with the increased gas production in the
Gulf of Mexico. Net profits expense increased $360,000, or 154%, because of
the increase in oil and gas prices during the first quarter of 2000 compared
to 1999. Exploration expenses decreased because we drilled a non-commercial
well in the Gulf of Mexico in 1999. Depreciation, depletion, and amortization
decreased by $337,000, or 7%, because of an increase in proved developed
reserves as of the end of 1999 and a significant decrease in the overall
finding costs during the last three years. General and administrative
expenses as well as legal fees did not change significantly.
In May 2000, we reached an agreement with the Minerals Management Service
concerning the royalties due on the settlement of a 1990-gas purchase
contract. As a result of the agreement we recorded an expense of $3.2 million
in the first quarter of 2000.
In February 1999, we purchased approximately 85% of the then outstanding 8
1/4% Convertible Subordinated Notes. Because of that purchase, we accelerated
the amortization of the deferred offering costs at that time. The reduction
in interest and financing expense due to the accelerated amortization in 1999
but not 2000 combined with a lower average debt outstanding during the first
quarter of 2000 to reduce the overall interest and financing expenses by
$640,000, or 39%.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risk sensitive instrument at March 31, 2000, is a revolving line
of credit from a bank. At March 31, 2000, the unpaid principal balance under
the line was $31.8 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 2. 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
None
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### Certificate of Amendment of Certificate of Incorporation of
Box Energy Corporation.
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** Pension Plan of Box Energy Corporation, effective April 16,
1992.
10.5# First Amendment to the Pension Plan of Box Energy Corporation
dated December 16, 1993.
10.6## Second Amendment to the Pension Plan of Box Energy
Corporation dated December 31, 1994.
10.7*** Amended and Restated Promissory Note between Box Energy
Corporation and Box Brothers Holding Company.
10.8*** Amended and Restated Pledge Agreement between Box Energy
Corporation and Box Brothers Holding Company.
10.9*** Agreement by and between Box Energy Corporation and James A.
Watt.
10.10### Box Energy Corporation Severance Plan.
10.11+ Box Energy Corporation 1997 Stock Option Plan (as amended
June 17, 1999).
10.12### Box Energy Corporation Non-Employee Director Stock Purchase
Plan
10.13~ Form of Employment Agreement effective September 30, 1999, by
and between Remington Oil and Gas Corporation and two executive officers.
10.14~ Form of Employment Agreement effective September 30, 1999, by
and between Remington Oil and Gas Corporation and an executive officer.
10.15~~ Employment Agreement effective January 31, 2000, by and
between Remington Oil and Gas Corporation and James A. Watt.
11.1 Statement regarding Computation of income per share.
27.1 Financial Data Schedule.
(b) No Forms 8-K were filed during the quarter ended March 31, 2000.
- ------------------
* 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-Q (file number
1-11516) for the fiscal quarter ended June 30, 1999, filed with the
Commission and effective on or about August 13, 1999.
*** 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.
~ Incorporated by reference to the Company's Form 10-Q (file number
1-11516) for the fiscal quarter ended September 30, 1999, filed with the
Commission and effective on or about November 12, 1999.
~~ Incorporated by reference to the Company's Form 10-K (file number
1-11516) for the fiscal year ended December 31, 1999, filed with the
Commission and effective on or about March 30, 2000.
<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.
REMINGTON OIL AND GAS CORPORATION
Date: May 12, 2000 By: (James A. Watt)
----------------- -------------------------------------
James A. Watt
President and Chief Executive Officer
Date: May 12, 2000 By: (J. Burke Asher)
----------------- -------------------------------------
J. Burke Asher
Vice President/Finance
<PAGE>
Remington Oil and Gas Corporation
Computation of Earnings per Share
Exhibit 11.1
(In thousands, except per share amounts)
For the Three Months Ended
March 31,
--------------------------
2000 1999
--------------------------
Net income (loss) available for basic income
per share $ 3,784 $ (6,676)
Interest expense on the Notes (net of tax) (1) - -
----------- -----------
Net income (loss) available for diluted income
per share $ 3,784 $ (6,676)
=========== ===========
Basic income (loss) per share $ 0.18 $ (0.31)
=========== ===========
Diluted income (loss) per share $ 0.18 $ (0.31)
Weighted average common Stock 21,304 21,247
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 21,304 21,247
=========== ===========
(1) Non dilutive.
Potential increase to net income for diluted
income per share
Interest expense on Notes (net of tax) $ 80 $ 341
Potential issues of common stock for diluted
income per share
Weighted average stock options outstanding 5 1,226
Weighted average warrant outstanding 200 300
Weighted average shares issued assuming
conversion of Notes 541 2,342
<PAGE>
<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 QUARTER ENDED MARCH 31, 2000
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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,667
<SECURITIES> 0
<RECEIVABLES> 8,475
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,262
<PP&E> 290,192
<DEPRECIATION> 187,895
<TOTAL-ASSETS> 132,527
<CURRENT-LIABILITIES> 34,602
<BONDS> 5,950
0
0
<COMMON> 215
<OTHER-SE> 59,785
<TOTAL-LIABILITY-AND-EQUITY> 132,527
<SALES> 15,871
<TOTAL-REVENUES> 16,442
<CGS> 7,083
<TOTAL-COSTS> 11,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,016
<INCOME-PRETAX> 3,779
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,784
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
