UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
MARK ONE
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19931
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 84-1176750
incorporation or organization) (I.R.S. Employer
Identification Number)
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 850-7373
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Shares of Common Stock outstanding at May 13, 1997 992,514
Page 1 of 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except Shares)
March 31, December 31,
1997 1996
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,017 $ 628
Accrued oil and gas revenue 3,661 4,808
Due from affiliates 923 897
Prepaid and other assets 632 493
Current assets of affiliates 4,907 3,976
--------- ---------
Total current assets 13,140 10,802
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties (full cost method)
Proved oil and gas properties 280,165 278,581
Unproved mineral interests - domestic 1,549 1,240
--------- ---------
Total 281,714 279,821
Less - accumulated depreciation, depletion,
amortization and impairment (214,603) (212,536)
------- -------
Net property, plant and equipment 67,111 67,285
-------- --------
OTHER ASSETS
Deferred tax asset 350 350
Noncurrent assets of affiliates 28 31
----------- -----------
Total other assets 378 381
---------- ----------
TOTAL ASSETS $ 80,629 $ 78,468
======= ========
<FN>
(Continued on the following page)
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except Shares)
March 31, December 31,
1997 1996
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued liabilities $ 1,501 $ 2,273
Current portion of contract settlement obligation 969
Current portion of long-term debt 5,000 3,750
Current liabilities of affiliates 5,441 4,826
--------- ---------
Total current liabilities 12,911 10,849
------- --------
NONCURRENT LIABILITIES
Contract settlement obligation 948
Long-term debt 15,000 16,250
Long-term obligations of affiliates 6,585 7,243
Deferred liability 110 117
---------- ----------
Total noncurrent liabilities 21,695 24,558
-------- --------
Total liabilities 34,606 35,407
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 2,000,000 shares
authorized; 992,514 shares issued at 1997 and 1996 111 111
Additional paid-in capital 79,987 79,990
Accumulated deficit (30,201) (33,166)
Treasury stock - 86,426 shares at 1997 and 1996 (3,874) (3,874)
--------- ---------
Stockholders' Equity - Net 46,023 43,061
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 80,629 $ 78,468
======== ========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per Share data)
For the Three Months Ended
March 31,
1997 1996
REVENUES:
<S> <C> <C>
Oil revenue $ 3,914 $ 4,073
Gas revenue 4,774 4,131
Pipeline and other 400 346
Contract settlement 7 10
Interest income 40 17
--------- ---------
9,135 8,577
------- -------
EXPENSES:
Production operating 2,515 2,674
General and administrative 901 824
Interest 596 740
Depreciation, depletion and amortization 2,067 2,557
------- -------
6,079 6,795
------- -------
INCOME BEFORE INCOME TAXES 3,056 1,782
------- -------
PROVISION FOR INCOME TAXES:
Current 91 32
--------- ---------
NET INCOME $ 2,965 $ 1,750
======= =======
NET INCOME PER SHARE $ 3.18 $ 1.85
======== ========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 932 945
======== =======
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months Ended
March 31,
1997 1996
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,965 $ 1,750
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 2,067 2,557
Noncash interest expense 21 21
Undistributed earnings of affiliates (1,407) (1,926)
Recoupment of take-or-pay liability (7) (58)
---------- ---------
Cash provided by operations before
working capital changes 3,639 2,344
Changes in assets and liabilities provided (used) cash net of noncash
activity:
Accrued oil and gas sales 1,147 (225)
Due from affiliates (409) 31
Prepaid and other assets (139) 41
Accounts payable and accrued liabilities (772) (1,385)
-------- -------
Net cash provided by operating activities 3,466 806
------- --------
INVESTING ACTIVITIES:
Additions to oil and gas properties (162) (287)
Exploration and development costs incurred (1,197) (1,593)
Proceeds from oil and gas property sales 174
Distributions received from affiliates 286 286
Other (4)
----------
Net cash used in investing activities (1,077) (1,420)
------- ------
FINANCING ACTIVITIES:
Repurchase and retirement of common stock (1,316)
Proceeds from long-term debt 1,000
Payments on contract settlement obligation (118)
----------- ---------
Net cash used in financing activities (434)
----------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,389 (1,048)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 628 1,139
-------- -------
END OF PERIOD $ 3,017 $ 91
======= =========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
-5-
<PAGE>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Hallwood Consolidated Resources Corporation ("HCRC" or the "Company") is a
Delaware corporation engaged in the development, production, sale and
transportation of oil and gas, and in the acquisition, exploration, development
and operation of oil and gas properties. The Company's properties are primarily
located in the Rocky Mountain, MidContinent, Texas and Gulf Coast regions of the
United States.
The interim financial data in the accompanying financial statements are
unaudited; however, in the opinion of management, the interim data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. These financial
statements should be read in conjunction with the financial statements and
accompanying notes included in the Company's December 31, 1996 Annual Report on
Form 10-K.
NOTE 2 - ACCOUNTING POLICIES
Consolidation
The Company accounts for its interest in affiliated oil and gas partnerships and
limited liability companies using the proportionate consolidation method of
accounting. The accompanying financial statements include the activities of the
Company and its pro rata share of the activities of Hallwood Energy Partners, L.
P. ("HEP").
Treasury Stock
At March 31, 1977 and December 31, 1996 the Company owns approximately 19% of
the outstanding units of HEP which owns approximately 46% of the Company's
common stock; consequently, the Company has an interest in 86,426 of its own
shares. These shares are treated as treasury stock in the accompanying financial
statements.
Computation of Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding during the
reporting period. The stock options granted during 1995 are considered to be
common share equivalents since January 1, 1996 because the market price of the
common stock has exceeded the exercise price of the options since that date. The
number of common share equivalents was computed using the treasury stock method
which assumes that the increase in the number of common shares is reduced by the
number of common shares which could have been repurchased by the Company with
the proceeds from the exercise of the options (which were assumed to have been
made at the average market price of the common stock during the reporting
period).
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share (EPS),
and supersedes APB Opinion No. 15 and its related interpretations. It replaces
the presentation of primary EPS with a presentation of basic EPS, which excludes
dilution, and requires dual presentation of basic and diluted EPS for all
entities with complex capital structures. Diluted EPS is computed similarly to
fully diluted EPS pursuant to Opinion No. 15. SFAS 128 is effective for periods
ending after December 15, 1997, including interim periods, and will require
restatement of all prior period EPS data presented; earlier application is not
permitted.
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<PAGE>
A comparison of EPS shown in the accompany financial statements with the pro
forma amounts that would have been determined in accordance with SFAS 128 is as
follows:
For the Quarter Ending March 31,
1997 1996
Primary (Basic):
As reported $3.18 $1.85
Pro forma 3.27 1.85
Fully Diluted (Diluted):
As reported 3.18 1.85
Pro forma 3.13 1.83
Reclassifications
Certain reclassifications have been made to the prior period amounts to conform
to the classifications used in the current period.
NOTE 3 - DEBT
On March 31, 1995 the Company and its banks amended their Credit Agreement to
extend the maturity date to May 31, 1997. The borrowing base is currently
$23,000,000; however, the Company's borrowings are presently limited to the
bank's commitment level of $22,000,000. As of March 31, 1997, the Company has
borrowed $20,000,000 against the credit line. HCRC's borrowing base is further
reduced by an outstanding contract settlement obligation of $969,000; therefore,
its unused borrowing base totaled $2,031,000 at May 13, 1997.
Borrowings against the credit line bear interest, at the option of the Company,
at either (i) the banks' Certificate of Deposit rate plus 1.875%, (ii) the
Euro-Dollar rate plus 1.75% or (iii) the higher of the prime rate of Morgan
Guaranty Trust or the sum of one-half of 1% plus the Federal funds rate, plus
.75% (7.7% at March 31, 1997). Interest is payable at least quarterly, and
quarterly principal payments of $1,250,000 commence May 31, 1997. HCRC intends
to extend the maturity date of its credit line prior to the commencement of the
amortization period. The credit facility is secured by a first lien on
approximately 80% in value of the Company's oil and gas properties.
HCRC has entered into contracts to hedge its interest rate payments on
$10,000,000 of its debt for each of 1997 and 1998 and $5,000,000 for each of
1999 and 2000. HCRC does not use the hedges for trading purposes, but rather for
the purpose of providing a measure of predictability for a portion of HCRC's
interest payments under its debt agreement, which has a floating interest rate.
In general, it is HCRC's goal to hedge 50% of the principal amount of its debt
for the next two years and 25% for each year of the remaining term of the debt.
HCRC has entered into four hedges, of which one is an interest rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the others are interest rate swaps with fixed rates ranging from 5.75% to 6.57%.
The amounts received or paid upon settlement of these transactions are
recognized as interest expense at the time the interest payments are due.
NOTE 4 - STATEMENTS OF CASH FLOWS
Cash paid for interest during the three months ended March 31, 1997 and 1996 was
$402,000 and $231,000, respectively.
-7-
<PAGE>
NOTE 5 - LEGAL PROCEEDING
On April 23, 1992, a lawsuit was filed in the Chancery Court for New Castle
County, Delaware, styled Tappe v. Hallwood Consolidated Resources Corporation,
Hallwood Consolidated Partners, L. P., Hallwood Oil and Gas, Inc., Hallwood
Energy Partners, L.P., and Hallwood Petroleum, Inc. (C.A. No. 12536). The
lawsuit seeks to rescind the conversion of Hallwood Consolidated Partners, L.P.
("HCP") into the Company ("Conversion") and to recover damages in unspecified
amounts. The plaintiff also seeks class certification to represent similarly
situated HCP unitholders. In general, the suit alleges that the defendants
breached fiduciary duties to HCP unitholders by, among other things, proposing
allocation of common stock in the Conversion on a basis that the plaintiff
alleges is unfair, failing to require that the allocation be approved by an
independent third party, causing the costs of proposing the Conversion to be
borne indirectly by the partners of HCP whether or not the Conversion was
completed and failing to disclose certain matters in the Consent
Statement/Prospectus soliciting consents to the Conversion. The defendants
believe that they fully considered and disclosed all material information in
connection with the Conversion, and they believe that the suit is without merit.
HCRC plans to vigorously defend this case, but because of its early stages,
cannot predict the outcome of this matter or any possible effect an adverse
outcome might have.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
Cash Flow
The Company generated $3,466,000 of cash flow from operating activities during
the first three months of 1997. The other primary cash inflow was $286,000 in
distributions received from affiliates. Cash was primarily used for additions to
property and exploration and development costs of $1,359,000.
This resulted in an increase in the Company's cash of $2,389,000 for the three
months ended March 31, 1997 from $628,000 at December 31, 1996 to $3,017,000 at
March 31, 1997.
Development Projects and Acquisitions
Through March 31, 1997, HCRC incurred approximately $1,359,000 for exploration,
development and acquisition costs, toward the 1997 capital budget of
$12,500,000. The expenditures were comprised of approximately $1,197,000 for
exploration and development expenditures and approximately $162,000 for property
acquisitions. HCRC intends to be very active in capital projects during the
second and third quarters of 1997 with projects in more than 25 areas, including
drilling 11 wells in the existing Spraberry Texas area, drilling/recompleting 15
wells in the existing West Texas Kermit area, and participating in or operating
ten seismic prospects. HCRC is reviewing possibilities in new locations in
Louisiana, Montana, North Dakota, Oklahoma, Wyoming and Texas. HCRC is currently
bidding with a major oil company on an offshore exploration block in Peru.
A description of significant exploration and development projects to date in
1997 follows.
In 1996, HCRC acquired 106 square miles of three dimensional (3-D) seismic data
on the Cowden Ranch in Crane County, Texas. Two exploratory wells were drilled
in 1996, both of which were dry. In early 1997, a third exploratory well was
drilled at a total cost to HCRC of $175,000. This well was dry in its target
location and considered noncommercial in an identified shallow formation.
HCRC also became active in Glasscock County, Texas in 1996 with the acquisition
and processing of 66 square miles of 3-D seismic data and the drilling of one
successful exploratory well prior to the end of the year. In 1997, HCRC has
incurred approximately $190,000 for the drilling of a second successful 10,000
foot delineation well. This well is currently producing at a rate of 230
equivalent barrels of oil per day, and HCRC's working interest in this well is
30%. HCRC currently plans to drill at least one development well in this area in
1997 and has identified two additional exploration locations.
-8-
<PAGE>
In the San Juan Basin of New Mexico, HCRC is currently recompleting two wells at
an estimated cost of $68,000. HCRC plans to recomplete at least one more New
Mexico well and up to seven of their San Juan Basin, Colorado wells in 1997.
The completion of projects begun in the fourth quarter of 1996 has cost HCRC
approximately $500,000 in the first quarter of 1997. These additional costs are
comprised primarily of $230,000 for two exploratory wells in Louisiana and
miscellaneous costs in the West Texas Kermit, Merkel and Cowden Ranch areas.
The Merkel Project Area initially comprised 10 square miles of 3-D seismic data
in Jones, Taylor and Nolan Counties, Texas. In 1996, HCRC participated in the
drilling of eight wells, seven of which were successful. These wells are all
outside operated and HCRC owns an average 12.5% working interest in the area.
HCRC plans to drill three additional wells in 1997. Based on the success of this
area in 1996, HCRC acquired 74 additional miles of 3-D seismic data adjacent to
the nonoperated area and plans to drill a minimum of five wells in 1997, the
first of which was dry. HCRC will own a 30% working interest in the first well
and will be the operator in the new area.
Financing
On March 31, 1995 the Company and its banks amended their Credit Agreement to
extend the maturity date to May 31, 1997. The borrowing base is currently
$23,000,000; however, the Company's borrowings are presently limited to the
bank's commitment level of $22,000,000. As of March 31, 1997, the Company has
borrowed $20,000,000 against the credit line. HCRC's borrowing base is further
reduced by an outstanding contract settlement obligation of $969,000; therefore,
its unused borrowing base totaled $2,031,000 at May 13, 1997.
Borrowings against the credit line bear interest, at the option of the Company,
at either (i) the banks' Certificate of Deposit rate plus 1.875%, (ii) the
Euro-Dollar rate plus 1.75% or (iii) the higher of the prime rate of Morgan
Guaranty Trust or the sum of one-half of 1% plus the Federal funds rate, plus
.75% (7.7% at March 31, 1997). Interest is payable at least quarterly, and
quarterly principal payments of $1,250,000 commence May 31, 1997. HCRC intends
to extend the maturity date of its credit line prior to the commencement of the
amortization period. The credit facility is secured by a first lien on
approximately 80% in value of the Company's oil and gas properties.
HCRC has entered into contracts to hedge its interest rate payments on
$10,000,000 of its debt for each of 1997 and 1998 and $5,000,000 for each of
1999 and 2000. HCRC does not use the hedges for trading purposes, but rather for
the purpose of providing a measure of predictability for a portion of HCRC's
interest payments under its debt agreement which has a floating interest rate.
In general, it is HCRC's goal to hedge 50% of the principal amount of its debt
for the next two years and 25% for each year of the remaining term of the debt.
HCRC has entered into four hedges, of which one is an interest rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the others are interest rate swaps with fixed rates ranging from 5.75% to 6.57%.
The amounts received or paid upon settlement of these transactions are
recognized as interest expense at the time the interest payments are due.
Cautionary Statement Regarding Forward-Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-Q relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although any
forward-looking statements contained in this Form 10-Q or otherwise expressed by
or on behalf of the Company are, to the knowledge and in the judgment of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of
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<PAGE>
reserve estimates, the Company's ability to replace and expand oil and gas
reserves, and such other risks and uncertainties described from time to time in
the Company's periodic reports and filings with the Securities and Exchange
Commission. Accordingly, stockholders and potential investors are cautioned that
certain events or circumstances could cause actual results to differ materially
from those projected, estimated or predicted.
Inflation and Changing Prices
Prices
Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of the Company, including the extent of domestic and foreign
production, imports of foreign oil, market demand, domestic and worldwide
economic and political conditions, and government regulations and tax laws.
Prices for both oil and gas fluctuated significantly throughout 1996 and through
the first quarter of 1997. The following table sets forth the weighted average
price received each quarter by the Company and the effects of the hedging
transactions described below:
<TABLE>
<CAPTION>
Oil Oil Gas Gas
(excluding the (including the (excluding the (including the
effects of effects of effects of effects of
hedging hedging hedging hedging
transactions) transactions) transactions) transactions)
(per bbl) (per bbl) (per mcf) (per mcf)
<S> <C> <C> <C> <C>
First quarter 1996 $17.92 $17.86 $2.00 $1.94
Second quarter 1996 21.00 20.56 1.80 1.80
Third quarter 1996 21.39 20.43 1.99 1.94
Fourth quarter 1996 24.00 22.00 2.66 2.27
First quarter 1997 23.56 20.49 2.64 2.41
</TABLE>
The Company has entered into numerous financial contracts to hedge the price of
its oil and natural gas. The purpose of the hedges is to provide protection
against price drops and to provide a measure of stability in the volatile
environment of oil and natural gas spot pricing. The revenue associated with
these contracts is recognized as oil or gas revenue at the time the hedged
volumes are sold.
The following table provides a summary of the Company's outstanding financial
contracts:
Oil
Percent of Direct Contract
Period Production Hedged Floor Price
(per bbl)
Last nine months of 1997 44% $17.88
1998 16% 15.07
1999 5% 15.88
Between 16% and 100% of the oil volumes hedged in each year are subject to a
participating hedge whereby HCRC will receive the contract price if the posted
futures price is lower than the contract price, and will receive the contract
price plus between 25% and 75% of the difference between the contract price and
the posted futures price if the posted futures price is greater than the
contract price. Between 35% and 100% of the volumes hedged in each year are
subject to a collar agreement whereby HCRC will receive the contract price if
the spot price is lower than the contract price, the cap price if the spot price
is higher than the cap price, and the spot price if that price is between the
contract price and the cap price. The cap prices range from $17.00 to $19.35 per
barrel.
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<PAGE>
Gas
Percent of Direct Contract
Period Production Hedged Floor Price
(per mcf)
Last nine months of 1997 43% $1.89
1998 40% 1.91
1999 24% 1.67
2000 12% 1.86
Between 0% and 37% of the gas volumes hedged in each year are subject to a
collar agreement whereby HCRC will receive the contract price if the spot price
is lower than the contract price, the cap price if the spot price is higher than
the cap price, and the spot price if that price is between the contract price
and the cap price. The cap prices range from $2.78 to $2.93 per mcf.
During the second quarter through April 23, 1997, the weighted average oil price
(for barrels not hedged) was approximately $18.50 per barrel and the weighted
average price of natural gas (for mcf not hedged) was approximately $1.70 per
mcf.
Inflation
Inflation is not anticipated to have a material impact on the Company in 1997.
Results of Operations
The following tables are presented to contrast HCRC's revenue, expense and
earnings for discussion purposes. Significant fluctuations are discussed in the
accompanying narrative.
The "direct owned" column represents HCRC's direct royalty and working interests
in oil and gas properties. The "HEP" column represents HCRC's share of the
results of operations of HEP; HCRC owned approximately 19% of the outstanding
limited partner units of HEP during 1996 and 1997.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
(In thousands except price)
For the Quarter Ended March 31, 1997 For the Quarter Ended March 31, 1996
------------------------------------ ------------------------------------
Direct Direct
Owned HEP Total Owned HEP Total
<S> <C> <C> <C> <C> <C> <C>
Oil production (bbl) 153 38 191 179 49 228
Gas production (mcf) 1,470 509 1,979 1,566 568 2,134
Average oil price (per bbl) $20.46 $20.63 $20.49 $17.84 $17.96 $17.86
Average gas price (per mcf) $ 2.40 $ 2.44 $ 2.41 $ 1.85 $ 2.18 $ 1.94
Oil revenue $ 3,130 $ 784 $ 3,914 $ 3,193 $ 880 $ 4,073
Gas revenue 3,531 1,243 4,774 2,894 1,237 4,131
Pipeline and other 260 140 400 211 135 346
Contract settlement 7 7 10 10
Interest income 18 22 40 4 13 17
-------- -------- -------- --------- -------- --------
Total revenue 6,946 2,189 9,135 6,312 2,265 8,577
------ ------ ------ ------ ------ ------
Production operating expense 1,977 538 2,515 2,080 594 2,674
General and administrative expense 679 222 901 613 211 824
Interest expense 446 150 596 529 211 740
Depreciation, depletion and amortization 1,579 488 2,067 1,928 629 2,557
------ ------- ------
Total expense 4,681 1,398 6,079 5,150 1,645 6,795
------ ------ ------ ------ ------ ------
Income before Income Taxes 2,265 791 3,056 1,162 620 1,782
------ ------- ------ ------ ------- ------
Provision for Income Taxes:
Current 91 91 32 32
-------- -------- -------- --------
Net income $ 2,174 $ 791 $ 2,965 $ 1,130 $ 620 $ 1,750
====== ======= ====== ====== ======= ======
</TABLE>
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<PAGE>
First Quarter of 1997 Compared to First Quarter of 1996
Oil Revenue
Oil revenue decreased $159,000, during the first quarter of 1997 as compared
with the first quarter of 1996. The decrease in revenue is comprised of a
decrease in oil production from 228,000 barrels in 1996 to 191,000 barrels in
1997, partially offset by an increase in the average oil price from $17.86 per
barrel in 1996 to $20.49 per barrel in 1997. The decrease in production is
primarily due to normal production declines. Because the Company's hedged oil
prices were lower than average posted prices in the first quarter of 1997, the
effect of hedging transactions, as described above, was to decrease the
Company's average oil price from $23.56 per barrel to $20.49 per barrel,
resulting in a $586,000 decrease in revenue.
Gas Revenue
Gas revenue increased $643,000 during the first quarter of 1997 as compared with
the first quarter of 1996. The increase is comprised of an increase in price
from $1.94 per mcf in 1996 to $2.41 per mcf in 1997, partially offset by a
decrease in gas production from 2,134,000 mcf in 1996 to 1,979,000 mcf in 1997.
The decrease in production is primarily due to normal production declines. The
effect of the Company's hedging activity during the first quarter of 1997 was to
decrease the Company's average gas price from $2.64 per mcf to $2.41 per mcf,
resulting in a $455,000 decrease in revenue.
Pipeline and Other
Pipeline and other revenue consists of revenue derived from salt water disposal,
incentive and tax credit payments from certain coal bed methane wells and other
miscellaneous items. Pipeline and other revenue increased $54,000 during the
first quarter of 1997 as compared with the first quarter of 1996. The increase
is due to numerous miscellaneous items, none of which are individually
significant.
Production Operating Expense
Production operating expense decreased $159,000 during the first quarter of 1997
as compared with the first quarter of 1996, primarily as a result of decreased
production taxes and operating expenses due to the decreased oil and gas
production as discussed previously.
General and Administrative Expense
General and administrative expense includes costs incurred for direct
administrative services such as legal, audit and reserve reports as well as
allocated internal overhead incurred by Hallwood Petroleum, Inc. ("HPI"), an
affiliate of HCRC, which manages and operates certain oil and gas properties on
behalf of the Company. These costs increased $77,000 during the first quarter of
1997 as compared with the first quarter of 1996, because certain bank fees were
incurred during the first quarter in 1997 and during the second quarter in 1996.
Interest Expense
Interest expense decreased $144,000 during the first quarter of 1997 as compared
with the first quarter of 1996. The decrease is primarily the result of the pro
rata interest expense of an affiliate's debt during 1996.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense decreased $490,000 during the
first quarter of 1997 as compared with the first quarter of 1996, due to a lower
depletion rate caused by the decrease in production as previously discussed.
-13-
<PAGE>
Provision for Income Taxes
Income taxes for the first quarter of 1997 are less than would be expected using
the federal statutory rate due to the change in the valuation allowance
resulting from the utilization of net operating loss carryforwards.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 8 - Note 14 of Form 10-K for the year
ended December 31, 1996, and Item 1 - Note 5 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
None.
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
Date: May 13, 1997 By: /s/Robert S. Pfeiffer
----------------------------- ----------------------
Robert S. Pfeiffer, Vice President
(Chief Financial Officer)
-16-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended March 31, 1997 for Hallwood Consolidated Resources
Corporation and is qualified in its entirety by reference to such From 10-Q.
</LEGEND>
<CIK> 0000883953
<NAME> Hallwood Consolidated Resources Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 3,017
<SECURITIES> 0
<RECEIVABLES> 4,584
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,140
<PP&E> 281,714
<DEPRECIATION> 214,603
<TOTAL-ASSETS> 80,629
<CURRENT-LIABILITIES> 12,911
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 45,912
<TOTAL-LIABILITY-AND-EQUITY> 80,629
<SALES> 8,688
<TOTAL-REVENUES> 9,135
<CGS> 0
<TOTAL-COSTS> 5,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 596
<INCOME-PRETAX> 3,056
<INCOME-TAX> 91
<INCOME-CONTINUING> 2,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,965
<EPS-PRIMARY> 3.18
<EPS-DILUTED> 3.18
</TABLE>
