==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
--------------
Commission file number 1-12634
______________
BELCO OIL & GAS CORP.
(Exact name of registrant as specified in its charter)
Nevada 13-3869719
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
767 Fifth Avenue 10153
New York, New York (Zip code)
(Address of principal executive
offices)
(212) 644-2200
(Registrant's telephone number, including area code)
______________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-- --
As of June 30, 1996, there were 31,571,300 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C>
PART I
FINANCIAL INFORMATION
<S>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 1996 and 1995. . . . 2
Condensed Consolidated Changes in Stockholders' Equity for
the six months ended June 30, 1996 . . . . . . . . . . . .3
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995. . . . . . . . . . . .4
Notes to Condensed Consolidated Financial Statements . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 9
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security-Holders. . . . . 18
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on 8-K. . . . . . . . . . . . . . . . . 19
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<C> <C>
ASSETS
-----
<S>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ 72,315 $ 1,556
Accounts receivable, oil and gas . . . . 25,186 16,979
Advances to oil and gas operators . . . . -- 45
Other current assets . . . . . . . . . . -- 401
---------- --------
Total current assets . . . . . . . . . 97,501 18,981
---------- --------
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost
based on full cost accounting
Proved oil and gas properties . . . . . 180,998 152,081
Unproved oil and gas properties . . . . 50,788 19,927
Less--Accumulated depreciation,
depletion and amortization . . . . . (65,091) (45,771)
---------- --------
Net property and equipment . . . . . . 166,695 126,237
---------- --------
OTHER ASSETS . . . . . . . . . . . . . . . 438 332
---------- --------
Total assets . . . . . . . . . . . . . $ 264,634 $145,550
========== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . $ 13,056 $ 8,440
Revenues and royalties payable. . . . . . 1,919 --
Income taxes payable. . . . . . . . . . . 620 --
Distribution payable . . . . . . . . . . -- 10,095
---------- ----------
Total current liabilities . . . . . . . . . 15,595 18,535
---------- ----------
LONG-TERM DEBT . . . . . . . . . . . . . . -- 22,000
DEFERRED INCOME TAXES . . . . . . . . . . . 35,644 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
10,000,000 shares authorized;
none issued or outstanding . . . . . . -- --
Common stock ($.01 par value,
120,000,000 shares authorized;
31,571,300 shares issued and
outstanding at June 30, 1996) . . . . . 315 --
Additional paid-in capital . . . . . . . . 186,334 --
Retained earnings . . . . . . . . . . . . . 28,846
Combined equity of predecessor entities . . -- 105,849
Unearned compensation . . . . . . . . . . . (1,355) --
Less Notes receivable for equity
interest . . . . . . . . . . . . . . . . (745) (834)
--------- ---------
Total stockholders' equity . . . . . . . . 213,395 105,015
--------- ---------
Total liabilities and stockholders' equity. $ 264,634 $ 145,550
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
- 1 -
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
<C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
<S>
REVENUES:
Oil and gas sales . . . . . . $29,819 $17,724 $56,646 $31,058
Commodity Price Risk
Management. . . . . . . . . 855 1,709 2,633 4,062
Interest and other. . . . . . 881 23 886 37
------- ------- ------- -------
Total revenues 31,555 19,456 60,165 35,157
------- ------- ------- -------
COSTS AND EXPENSES:
Oil and gas operating
expenses . . . . . . . . . . 2,127 1,480 3,879 2,658
Depreciation, depletion and
amortization . . . . . . . . 9,830 6,766 19,320 12,153
General and administrative. . 880 664 1,756 1,169
------- ------- ------- -------
Total costs and expenses. . . . 12,837 8,910 24,955 15,980
------- ------- ------- -------
INCOME BEFORE INCOME TAXES. . . 18,718 10,546 35,210 19,177
PROVISION FOR INCOME TAXES. . . 6,364 0 (a) 36,264 0
------- ------- ------- -------
NET INCOME (LOSS) . . . . . . . $12,354 $ 10,546 (a)($ 1,054) $ 19,177
======= ======= ======= =======
PRO FORMA NET INCOME
Income before income taxes. . $18,718 $ 10,546 $35,210 $ 19,117
Pro forma provision for
income taxes. . . . . . . . 6,364 3,480 11,790 6,328
------- -------- ------- --------
Pro forma net income . . . . . $12,354 $ 7,066 $23,420 $ 12,849
======= ========= ======= ========
PRO FORMA NET INCOME PER
COMMON SHARE . . . . . . . . $ 0.39 $ 0.28 $ 0.82 $ 0.51
======= ========= ======= ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING . . . . . 31,500 25,000 28,447 25,000
======= ========= ======= ========
</TABLE>
(a) Includes a one-time non-cash deferred tax charge of $29.9 million
recognized as a result of the Combination consummated on March 29, 1996
in connection with the Company's Initial Public Offering and discussed
in the Belco Oil & Gas Corp. Prospectus dated March 25, 1996.
Historical loss per share, including the deferred tax charge, was $0.04
for the six months ended June 30, 1996. The pro forma amounts present
the Company as if a taxable corporation for all periods and is based on
the average number of shares outstanding during the period assuming the
Combination.
The accompanying notes are an integral part of these condensed financial
statements.
- 2 -
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
Notes
Common Stock Additional Combined Receivable
---------------- Paid-in Unearned Retained Predecessor for Equity
Shares Amount Capital Compensation Earnings Equity Interest Total
-------------------------------------------------------------------------------------------
<S>
BALANCE, December 31, 1995 . -- $ -- $ -- $ -- $ -- $ 105,849 $ (834) $105,015
-------------------------------------------------------------------------------------------
Exchange combination . . . . 25,000 250 71,929 -- -- (72,179) -- --
Public stock offering, net
of costs of $10.4 million. 6,500 65 113,050 -- -- -- -- 113,115
Restricted stock issued. . . 71 -- 1,355 (1,355) -- -- -- --
Repayment of employee notes
receivable . . . . . . . . -- -- -- -- -- -- 89 89
Distributions to predecessor
owners . . . . . . . . . . -- -- -- -- -- (3,770) -- (3,770)
Net Income (loss) (a). . . . -- -- -- -- 28,846 (29,900) -- (1,054)
------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 . . . 31,571 $ 315 $186,334 $(1,355) $28,846 $ -- $ (745) $213,395
------------------------------------------------------------------------------------------
</TABLE>
(a) Including one-time deferred tax charge of $29.9 million upon becoming a
taxable corporation on March 29, 1996.
The accompanying notes are an integral part of these condensed financial
statements.
- 3 -
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<C> <C>
Six Months Ended
June 30,
1996 1995
----------------
<S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . .$ (1,054) $ 19,177
Adjustments to reconcile net income
(loss) to net operating cash inflows--
Depreciation, depletion and amortization. . . . 19,320 12,153
Deferred income taxes . . . . . . . . . . . . . 35,644 --
Changes in operating assets and liabilities--
Accounts receivable . . . . . . . . . . . . . (8,207) (2,983)
Revenues and royalties payable. . . . . . . . 1,919 --
Income taxes payable. . . . . . . . . . . . . 620 --
Other current assets . . . . . . . . . . . . 401 66
------- --------
Net operating cash inflows . . . . . . . . . . 48,643 28,413
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures. . . . . (59,778) (33,959)
Changes in accounts payable and accrued
liabilities for oil and gas expenditures. . . . 4,616 6,754
Change in advances to oil and gas operators . . . 45 (11)
Changes in other assets . . . . . . . . . . . . . (106) (53)
------- --------
Net investing cash outflows . . . . . . . . . . . . (55,223) (27,269)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings. . . . . . . . . . . . . . . 13,300 6,600
Long-term debt repayments . . . . . . . . . . . . (35,300) (2,100)
Net proceeds from public offering . . . . . . . . 113,115 --
Equity contributions. . . . . . . . . . . . . . . -- --
Equity distributions. . . . . . . . . . . . . . . (13,865) (6,727)
Employee loans, net . . . . . . . . . . . . . . . 89 (416)
-------- -------
Net financing cash inflows (outflows) . . . . . 77,339 (2,643)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . 70,759 (1,499)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . 1,556 6,951
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . 72,315 5,452
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
- 4 -
<PAGE>
BELCO OIL & GAS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Accounting Policies:
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments which
are, in the opinion of management, necessary to present a fair statement
of the results for the interim periods, on a basis consistent with the
annual audited financial statements. All such adjustments are of a
normal recurring nature. The results of operations for the interim
period are not necessarily indicative of the results to be expected for
an entire year. Certain information, accounting policies, and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Company's Form S-1 Registration Statement dated
March 25, 1996 which includes financial statements and notes thereto.
Note 2 - Organization and Principles of Combination:
The Company was organized as a Nevada corporation in January of 1996 in
connection with the combination of assets (the "Combination") consisting
of ownership interests (the "Combined Assets") in certain entities and
direct interests in oil and gas properties and certain hedge
transactions owned by members of the Robert A. Belfer family and by
employees of the predecessors and entities related thereto.
The Company and the owners of the Combined Assets
entered into an Exchange and Subscription Agreement and Plan of
Reorganization dated as of January 1, 1996 (the "Exchange Agreement")
that provided for the issuance by the Company of an aggregate of
25,000,000 shares of common stock to such owners in exchange for the
Combined Assets on March 29, 1996, the date the Offering closed. The
owners of the Combined Assets received shares of common stock
proportionate to the value of the Combined Assets underlying their
ownership interests in the predecessors and the direct interests. The
Combination was accounted for as a reorganization of entities under
common control because of the common control of the stockholders of the
Nevada corporation and by virtue of their direct ownership of the
entities and interests exchanged.
Accordingly, the net assets acquired in the Combination have been
recorded at the historical cost basis of the affiliated predecessor
owners.
On March 29, 1996, the Company completed its initial public offering
(the "Offering") issuing 6.5 million shares at $19 per share. Net
proceeds totaled $113.1 million after Offering costs of $10.4 million.
- 5 -
<PAGE>
Note 3 - Pro Forma Net Income Per Share:
Pro forma net income per share is based on the weighted average number
of shares of common stock outstanding. The computation assumes that the
Company was incorporated during the periods presented and presents the
shares issued in connection with the Combination as outstanding for all
periods. The effects of common stock equivalent shares (stock options)
and restricted stock were not material and not dilutive for the three
and six month periods ended on June 30, 1996.
Note 4 - Income Taxes:
Prior to March 29, 1996, the earnings of the Company were not subject to
corporate income taxes as the Company, prior to the Combination, was a
combination of non-taxpaying entities, including Subchapter S, limited
liability corporations, partnership and joint venture entities and
individual interests. Accordingly, taxable earnings were directly
taxable to the individual owners through the date of the Combination.
As a result of the Combination consummated on March 29, 1996, the
Company became a taxpaying entity and recorded, in the first quarter of
1996, a $29.9 million one-time, non-cash charge to earnings to establish
a deferred tax liability (discussed further below). The historical
provision for income taxes for the six months ended June 30, 1996
includes the one-time charge. The pro forma provision for income taxes
reflected in the Condensed Consolidated Statements of Operations for the
three and six month periods ended June 30, 1996 and 1995 have been
presented to reflect the Company's income taxes under the assumption
that the Company was a taxpaying entity since its inception.
Under the liability method specified by Statement of Financial
Accounting Standards No. 109, deferred taxes are determined based on the
estimated future tax effect of differences between the financial
statement and tax basis of assets and liabilities given the provisions
of enacted tax laws. At March 31, 1996, the estimated tax basis of the
Company's net assets is approximately $85 million below the recorded
financial statement amounts. The difference relates primarily to
deductions of oil and gas property costs for tax purposes in excess of
the deductions for financial reporting purposes. The related tax basis
amounts at March 31, 1996, have been estimated. Such amounts will be
adjusted once the respective March 29, 1996 income tax returns are
finalized.
Although the effective date of the Exchange Agreement is January 1,
1996, each owner of the Combined Assets will be required under existing
federal income tax rules and regulations to include in its taxable
income, for all periods ending on the date of or prior to the completion
of the Combination (March 29, 1996), its allocable portion of the
taxable income attributable to the Combined Assets and will be entitled
to all tax benefits related to the Combined Assets through the
completion of the Combination on March 29, 1996.
- 6 -
<PAGE>
The differences between the statutory federal income taxes and the
Company's pro forma effective taxes is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
<C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S>
Statutory federal income taxes . .$ 6,551 $ 3,691 $12,323 $ 6,712
State income tax, net of federal
benefit. . . . . . . . . . . . . 20 28 40 50
Section 29 tax credits . . . . . . (175) (225) (400) (378)
Other. . . . . . . . . . . . . . . (32) (14) (173) (56)
-------- -------- -------- ---------
Pro forma provision for income
taxes. . . . . . . . . . . . . .$ 6,364 $ 3,480 $ 11,790 $ 6,328
</TABLE>
Note 5 - Commodity Price Risk Management Activities:
The Company periodically enters into commodity hedging transactions such
as swaps and options in order to manage its exposure to oil and gas
price volatility. Gains and losses related to qualifying hedges of the
Company's oil and gas production are deferred and recognized as a
component of oil and gas sales as the associated production occurs.
Reference is made to the December 31, 1995 financial statements of Belco
Oil & Gas Corp. and affiliated entities included in the Form S-1
effective March 25, 1996 for a more thorough discussion of the Company's
commodity hedging activities.
The Company uses the mark-to-market method of accounting for instruments
that do not qualify for hedge accounting. Under mark-to-market
accounting, those contracts which do not qualify for hedge accounting
are reflected at market value at the end of the period with resulting
unrealized gains and losses recorded as assets and liabilities in the
consolidated balance sheet. Under such method, changes in the market
value of outstanding financial instruments are recognized as gain or
loss in the period of change. As of the end of the second quarter of
1996, the results of marking these positions to market would approximate
break even.
For the six months ended June 30, 1996 and 1995, the Company had net
gains of $2.6 and $4.1 million, respectively, related to its price risk
management activities.
- 7 -
<PAGE>
Note 6 - Stock Incentive Plan:
On March 25, 1996, the Company adopted its planned Stock Incentive Plan
for which 2,250,000 shares of common stock have been reserved for
issuance pursuant to such plan. During 1996, 363,500 stock options were
granted to employees with an exercise price equal to the fair market
value on the date of grant. The Company accounts for employee
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, stock options granted at fair market
value on the date of grant will have no effect on the Company's results
of operations. In addition, during the quarter ended June 30, 1996,
12,000 Stock Options were granted, subject to Stockholder approval, to
non-employee directors with an exercise price equal to the fair market
value on the date of grant.
On March 25, 1996, the Company also issued 72,300 shares of restricted
stock to employees, without payment to the Company, under the Stock
Incentive Plan. The restrictions on disposition lapse 20% each year and
non-vested shares must be forfeited in the event employment ceases. The
value of the restricted stock on the date of grant, totaling $1.4
million based upon the offering price, has been recorded as an equity
issuance and deferred compensation (presented as a reduction of equity).
The deferred compensation will be charged to earnings over the vesting
period. During the quarter ending June 30, 1996 1,000 shares of
restricted stock issued to a former employee were canceled.
- 8 -
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in April 1992, the Company has grown rapidly through
farm-ins, acreage acquisitions and participation agreements. The Company's
participation in exploration and development activities in the Moxa Arch Trend
of Wyoming and in the Austin Chalk Trend in the Giddings Field of Texas are
principally responsible for the substantial expansion of production, revenues
and reserves since the Company's inception.
The Company was organized as a Nevada corporation in January 1996 in
connection with the combination (the "Combination") of ownership interests
(the "Combined Assets") in certain entities (the "Predecessors") and direct
interests in oil and gas properties and certain hedge transactions (the
"Direct Interests") owned by members of the Robert A. Belfer family and by
employees of the Predecessors and entities related thereto. The Company and
the owners of the Combined Assets entered into an Exchange and Subscription
Agreement and Plan of Reorganization, dated as of January 1, 1996 (the
"Exchange Agreement"), that provided for the issuance by the Company of an
aggregate of 25 million shares of Common Stock to such owners in exchange for
the Combined Assets on March 29, 1996, the date the Offering closed. The
owners of the Combined Assets received shares of Common Stock proportionate to
the value of the Combined Assets underlying their ownership interests in the
Predecessors and the Direct Interests.
Pursuant to the Exchange Agreement, the owners of the Combined Assets
received all revenues attributable to production and are responsible for all
incurred expenses related to the Combined Assets for all periods prior to
January 1, 1996. Effective with the Combination (which was contemporaneous
with the closing of the Offering), the Company is entitled to receive all
revenues and is responsible for all expenses related to the Combined Assets on
and after January 1, 1996.
From inception through 1995, the Predecessors were not required to pay
federal income taxes due to their status as either a partnership, individual
owner, Subchapter S corporation, limited liability
- 9 -
<PAGE>
corporation or joint venture, which are "pass-through" entities that are not
subject to federal income taxation; instead, taxes relating to the Combined
Assets for such periods were required to be paid by the owners of the
Predecessors and the Direct Interests.
Although the effective date of the Exchange Agreement is January 1, 1996,
each owner of the Combined Assets will be required to include in its taxable
income, for all periods ending on the date of or prior to the completion of
the Combination, its allocable portion of the taxable income attributable to
the Combined Assets and will be entitled to all tax benefits attributable to
the Combined Assets through completion of the Combination.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate. These prices are dependent upon numerous factors beyond the
Company's control, such as economic, political and regulatory developments and
competition from other sources of energy. The energy markets have
historically been very volatile, and there can be no assurance that oil and
gas prices will not be subject to wide fluctuations in the future. A
substantial or extended decline in oil and gas prices could have a material
adverse effect on the Company's financial position, results of operations and
access to capital, as well as the quantities of oil and gas reserves that the
Company may economically produce. The Company markets its oil with other
working interest owners on spot price contracts and typically receives a
premium compared to the price posted for such crude oil. Natural gas produced
is sold under contracts that primarily reflect spot market conditions for
their particular area. Approximately 91% of the Company's production volumes
relate to the sale of natural gas.
From time to time, the Company has utilized commodity swaps and options
and other commodity price risk management transactions for a portion of its
oil and gas production to achieve a more predictable cash flow and to reduce
its exposure to price fluctuations. The Company accounts for these
transactions as hedging activities or using mark-to-market accounting for
those contracts which do not qualify for hedge accounting. The Company has
various gas and oil price risk management contracts in place with respect to a
substantial portion of its estimated production for 1996 and with respect to
lesser portions of its estimated production for 1997 and 1998. The Company
expects from time to time to either add or reduce the amount of price risk
management contracts that it has in place.
- 10 -
<PAGE>
The following table sets forth certain operations data of the Company for
the periods presented:
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, Variances June 30, Variances
1996 1995 AMOUNT % 1996 1995 AMOUNT %
---------------------------------------------------------------------
<S>
Oil and Gas Sales (Unhedged) (in thousands). . .$ 29,819 $ 17,724 $ 12,095 68% $ 56,646 $ 31,058 $ 25,588 82%
Commodity Price Hedging. . . . . . . . . . . . . 855 1,709 (854) -50% 2,633 4,062 (1,429) -35%
Weighted Average Sales Prices (Unhedged):
Oil (per Bbl) . . . . . . . . . . . . . . . .$ 21.71 $ 18.31 $ 3.40 19% $ 19.93 $ 17.92 $ 2.02 11%
Gas (per Mcf) . . . . . . . . . . . . . . . . 1.90 1.47 0.43 29% 1.81 1.40 0.43 31%
Net Production Data:
Oil (Mbbl). . . . . . . . . . . . . . . . . . 192 255 (63) -25% 414 481 (67) -14%
Gas (Mmcf). . . . . . . . . . . . . . . . . . 13,521 9,041 4,480 50% 26,787 17,468 9,319 53%
Gas equivalent (Mmcfe). . . . . . . . . . . . 14,671 10,572 4,099 39% 29,271 20,352 8,918 44%
Data per Mcfe:
Oil and gas sales revenues (Unhedged) . . . .$ 2.03 1.68 $ 0.35 21% $ 1.94 $ 1.53 $ 0.41 27%
Commodity Price Hedging . . . . . . . . . . . 0.06 0.16 (0.10) -64% 0.09 0.20 (0.11) -55%
Oil and gas operating expenses. . . . . . . . (0.14) (0.14) -- -- (0.13) (0.13) -- --
General and administrative. . . . . . . . . . (0.06) (0.06) -- -- (0.06) (0.06) -- --
Depreciation, depletion and amortization. . . (0.67) (0.64) (0.03) 5% (0.66) (0.60) (0.06) -11%
Interest income (Net) . . . . . . . . . . . . 0.06 -- 0.06 -- 0.02 -- 0.02 --
--------- --------- --------- ---- -------- --------- -------- ----
Pre-tax operating profit. . . . . . . . . . .$ 1.28 $ 1.00 $ 0.28 28% 1.20% $ 0.94 $ 0.26 28%
========= ========= ========= ==== ======== ========= ======== ====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to June 30, 1995
Revenues
During the second quarter of 1996, oil and gas sales revenues (unhedged)
increased $12.1 million, or 68%, to $29.8 million over the prior year
comparable period. The revenue increase is the result of newly drilled
Giddings Field well additions in the Navasota River and Independence areas of
the Company's Texas operations and continued higher average prices realized
for both oil and natural gas. Production volume during the second quarter of
1996 on a Mcfe basis increased to 14,671 MMcfe representing an increase of 39%
over the prior year comparable period. Natural gas production represented
approximately 91% of total Company production on a Mcfe basis. Daily
production for the quarter also increased 39% to 161,000 Mcfe compared to
116,000 Mcfe in the second quarter of 1995.
- 11 -
<PAGE>
Marketing activities associated with sales of natural gas and crude oil
also include natural gas and crude oil price swap, option and other commodity
price risk management transactions of natural gas and crude oil and condensate
prices. These transactions resulted in a net gain of $0.9 million during the
second quarter of 1996. During the prior year comparable quarter a $1.7
million net gain was realized. The average Mcfe price impact realized for
these transactions amounted to gains of $0.06 and $0.16 per Mcfe for 1996 and
1995, respectively.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
increased 44% from $1.48 million for the second quarter of 1995 to $2.13
million for the comparable period in 1996 due mainly to increased production.
On a Mcfe basis, operating costs were almost flat at $0.14 for the second
quarter of 1996 when compared to the second quarter of 1995.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A"), for the quarter ended June 30, 1996 increased 45% over
the prior year comparable period, from $6.8 million to $9.8 million, due
primarily to increased production. The Company has used a DD&A rate of $0.67
per Mcfe for the second quarter of 1996 to reflect preliminary results of
drilling deeper wells at a higher average cost per well as compared to $0.64
per Mcfe used in the second quarter of 1995, a 5% increase.
General and Administrative Expenses. General and administrative expense
("G&A") increased 33% in the second quarter of 1996 to $880,000 when compared
to the $664,000 incurred in the second quarter of 1995. The higher G&A
expense for 1996 primarily relates to increases in the number of employees due
to continued expansion of the Company's overall activities and additional
costs incurred in connection with becoming a publicly traded entity.
Income Before Income Taxes
The Company's income before income taxes for 1996 increased by
approximately $8.2 million, or 78% to $18.7 million from $10.5 million in the
prior year period. Increases in revenues continue to be generated primarily
by increases in production from new well additions in the Giddings Field and
higher prices.
- 12 -
<PAGE>
Income Taxes
Income tax expense for the second quarter of 1996 was $6.4 million
utilizing an estimated effective income tax rate of 34.0%. In connection with
the Combination and Exchange Agreement, the Company became a taxable
corporation and, as a result, was required to record a one-time, non-cash
charge in the amount of $29.9 million during the first quarter of 1996 to
establish a deferred tax liability related to prior years on its balance sheet
due to the change in the tax status of the Company.
Six Months Ended June 30, 1996 Compared to June 30, 1995
Revenues
For the first six months of 1996, oil and gas sales revenues (unhedged)
increased 82% to $56.6 million when compared to the $31.1 million realized in
the first half of 1995. The substantial increase is principally identified
with the addition of new Giddings Field wells in both the Navasota and
Independence areas of the Company's operations and higher average prices
realized for both oil and natural gas. Production volume in the first half of
1996 on an Mcfe basis increased to 29,271 MMcfe, an increase of 44% over the
prior year first half. Daily production improved to 161,000 Mcfe for the
first six months of 1996 compared to 112,000 Mcfe for the comparable period in
1995.
Commodity Price Hedging activities associated with sales of crude oil and
natural gas added $2.6 and $4.1 million to net operating revenues for the
first six months of 1996 and 1995, respectively. The average Mcfe price
realized from such activities amounted to $0.09 and $0.20 per Mcfe for 1996
and 1995, respectively.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
including taxes incurred in the first six months of 1996 amounted to $3.88
million, an increase of 46% over the $2.66 million incurred in the prior year
six month period. Operating costs on a Mcfe basis were flat at $0.13 per Mcfe
for both 1996 and 1995. A substantial portion of the Company's gas production
from wells drilled prior to September 1996 in the downdip Giddings Field
qualifies for exemption from Texas state production taxes. This exemption
will continue for production through August 31, 2001.
- 13 -
<PAGE>
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A") costs related to oil and gas properties totaled $19.3
million for the first half of 1996, a 59% increase over the $12.2 million
incurred in the 1995 comparable period. The Company has used a DD&A rate of
$0.66 per Mcfe for the first half of 1996 compared to a rate of $0.60 per Mcfe
used in the first half of 1995 to reflect the higher average cost of drilling
deeper wells in the last half of 1995 and early part of 1996.
General and Administrative Expenses. General and administrative expense
("G&A") was $1.76 million for the first half of 1996, a 50.2% increase over
the prior year first half primarily reflecting the addition of new employees
hired to assist with the Company's expanding activities. On a Mcfe basis G&A
costs were flat at $0.06 for the first six months of 1996 and 1995.
Income Before Income Taxes
The Company's income before income taxes for the first half of 1996 was
$35.2 million, an 84% increase over the $19.2 realized in the prior year
comparable period. The increase is directly related to increased production
from new well additions in the Giddings Field and higher prices realized for
both crude oil and natural gas.
Income Taxes
Income tax expense for the first half of 1996 amounted to $36.3 million.
The provision for taxes includes a one-time, non-cash charge in the amount of
$29.9 million that was required as a result of the Combination and the
Exchange Agreement which changed the tax status of the Company.
LIQUIDITY AND CAPITAL RESOURCES
On March 29, 1996, the Company successfully completed an initial public
offering of 6.5 million shares of common stock. The Offering provided the
Company with approximately $113 million net of Offering expenses. Revolving
credit agreement indebtedness in the amount of $35.3 million was repaid with
proceeds from the Offering. The remaining proceeds from the Offering,
together with cash flows from operations, will be used to fund planned capital
expenditures, commitments, other working capital requirements and for general
corporate purposes.
- 14 -
<PAGE>
Net operating cash flow (pre-tax), a measure of performance for exploration
and production companies, is generally derived by adjusting net income to
eliminate the effects of the non-cash depreciation, depletion and amortization
expense and the provision for deferred income taxes. Net operating cash flow
(pre-tax) before changes in working capital was approximately $54.5 million
for the first half of 1996 and $31.3 million for the prior year comparable
period, an increase of 74%. The cash flow increase is the result of higher
prices realized for production and increases in production from new well
additions, reflecting rapidly expanding operations. The Company had working
capital amounting to $81.9 million as of June 30, 1996, a substantial increase
over the $8.9 million in working capital available as of June 30, 1995.
For 1996, the Company has budgeted approximately $130 million for capital
expenditures which amount may be increased or decreased depending on oil and
gas prices, drilling results and other investment opportunities. The Company
is allocating approximately 70% of its budget to development and exploration
projects and approximately 30% to leasehold and seismic acquisition
activities.
In December of 1994, the Company entered into a three-year $25 million
Credit Agreement with The Chase Manhattan Bank, N.A. (the "Credit Facility").
Principal outstanding is due and payable upon maturity in December 1997 with
interest due quarterly. In order to finance future capital requirements
during the first quarter of 1996, the Company increased the Credit Facility
and the Borrowing Base thereunder to $40 million. The Borrowing Base
represents the maximum available amount that may be borrowed under the Credit
Facility at any given time. Since all indebtedness under the Credit Facility
was repaid with proceeds from the Offering, the Company elected to reduce the
current Borrowing Base under the Credit Facility to $15 million on May 1,
1996. The reduction in the Borrowing Base will permit the Company to pay a
lower commitment fee, which is currently calculated at an annual rate of 0.25
of 1% of the unused portion of the available Borrowing Base. The Company may
seek to adjust the terms and availability of the Credit Facility in the future
in accordance with its anticipated capital requirements.
The third party investors in the Moxa Programs have the contractual right
on an annual basis through 2004 to require the Company to purchase their
interests in such programs. No investor under the Moxa Programs exercised
such right through the second quarter of 1996. Based upon December 31, 1995
SEC basis reserve values, the maximum purchase price if all investors
exercised the put would be
- 15 -
<PAGE>
less than $40 million. The Company believes its financial resources will be
adequate to purchase these interests should they be tendered.
Certain of the Company's commodity price risk management arrangements
require the Company to deliver cash collateral or other assurances of
performance to the counterparties in the event that the Company's payment
obligations with respect to its commodity price risk management transactions
exceed certain levels. Certain of these transactions may be covered by
guarantees or letters of credit issued under the Credit Facility.
The Company intends to fund its planned capital expenditures, commitments
and working capital requirements through cash flows from operations, from the
proceeds of the Offering and to the extent necessary, borrowings under the
Credit Facility. If there are changes in oil and gas prices, however, that
correspondingly affect cash flows and the Borrowing Base under the Credit
Facility, the Company has the discretion and ability to adjust its capital
budget. The Company believes it will have sufficient capital resources and
liquidity to fund its capital expenditures and meet its financial obligations
as they come due.
COMMODITY PRICE RISK MANAGEMENT TRANSACTIONS
With the primary objective of achieving more predictable revenues and cash
flows and reducing the exposure to fluctuations in natural gas and oil prices,
the Company has entered into price risk management transactions of various
kinds with respect to both gas and oil. While the use of certain of these
price risk management arrangements limits the downside risk of adverse price
movements, it may also limit future revenues from favorable price movements.
The Company engages in transactions such as selling covered calls or straddles
which are marked to market at the end of the relevant accounting period.
Since the futures market has been volatile of late, these fluctuations may
cause significant impact on the results of such accounting period. The
Company has entered into price risk management transactions with respect to a
substantial portion of its estimated production for 1996 and with respect to
lesser portions of its estimated production for 1997 and 1998. The Company
continues to evaluate whether to enter into additional price risk management
transactions for 1996 and future years. In addition, the Company may
determine from time to time to unwind its then existing price risk management
positions.
- 16 -
<PAGE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. The Company believes its current operations
are in material compliance with current environmental laws and regulations.
There are no environmental claims pending or, to the Company's knowledge,
threatened against the Company. There can be no assurance, however, that
current regulatory requirements will not change, currently unforeseen
environmental incidents will not occur or past noncompliance with
environmental laws will not be discovered on the Company's properties.
- 17 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS NONE
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
The Company's 1996 Nonemployee Directors Stock Option Plan (the "Plan")
provides that, as of the date of the annual meeting of stockholders in each
year that the Plan is in effect, each Nonemployee Director on such date shall
be granted an Option for 3,000 shares of the Company's Common Stock with an
exercise price equal to the mean of the high and low sales price of such
Common Stock on the New York Stock Exchange on the date of grant. Since the
initial public offering of the Company closed on March 29, 1996, the Company
will hold its first annual stockholders meeting in 1997. In order to further
the purposes of the Plan, the Company has granted to each Nonemployee Director
an Option for 3,000 shares of Common Stock on April 24, 1996, the date of the
initial meeting of the Board of Directors, subject to (a) stockholder approval
of such grant at the 1997 annual stockholder meeting and (b) such other
requirements as may be necessary to exempt the Options and the exercise
thereof from the requirements of Section 16(b) of the Securities Exchange act
of 1934, as amended.
- 18 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part of this report:
Exhibit No.
11.1 Computation of Earnings per Share
27 Financial Data Schedules
(b) Reports on Form 8-K:
None.
- 19 -
<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.
BELCO OIL & GAS CORP.,
a Nevada corporation
(REGISTRANT)
<TABLE>
<S> <C>
Date 8/12/96 /s/ LAURENCE D. BELFER
___________________ __________________________________
Laurence D. Belfer,
Executive Vice President and Chief
Operating Officer
Date 8/12/96 /s/ DOMINICK J. GOLIO
____________________ __________________________________
Dominick J. Golio,
Vice President - Finance and Chief
Financial Officer
</TABLE>
- 20 -
Belco Oil & Gas Corp.
Computation of Earnings Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
<C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S>
Primary Calculation:
Shares issued in connection with the
combination and assumed outstanding
for all periods . . . . . . . . . . . .25,000 25,000 25,000 25,000
Weighted average shares and equivalent
shares outstanding:
Issued in connection with the public
offering. . . . . . . . . . . . . . . . 6,500 -- 3,447 --
Restricted stock, treasury stock method. 14 -- 8 --
Stock options, treasury stock method. 92 -- 47 --
------ ------ ------ ------
Weighted average common and common
equivalent shares outstanding. . . . .31,606 25,000 28,502 25,000
Net Income (Loss). . . . . . . . . . . $12,354 $ 10,576 $(1,054) $19,177
Primary Earnings (Loss) Per Share. . . $ .39 $ .42 $ (.04) $ .77
Pro forma Net Income . . . . . . . . . $12,354 $ 7,066 $23,420 $12,849
Pro forma Net Income Per Share -
Primary. . . . . . . . . . . . . . . $ .39 $ .28 $ .82 $ .51
</TABLE>
The difference between primary and fully diluted earnings per share is not
significant.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 72,315
<SECURITIES> 0
<RECEIVABLES> 25,186
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 97,501
<PP&E> 231,786
<DEPRECIATION> (65,091)
<TOTAL-ASSETS> 264,634
<CURRENT-LIABILITIES> 15,595
<BONDS> 0
<COMMON> 315
0
0
<OTHER-SE> 213,080
<TOTAL-LIABILITY-AND-EQUITY> 264,634
<SALES> 56,646
<TOTAL-REVENUES> 60,165
<CGS> 23,199
<TOTAL-COSTS> 23,199
<OTHER-EXPENSES> 1,756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,210
<INCOME-TAX> 36,264
<INCOME-CONTINUING> (1,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,054)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
