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, 1997
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, 1997, there were 31,581 shares of the
Registrant's Common Stock, par value $.01 per share,
outstanding.
<PAGE>
TABLE OF CONTENTS
Page
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
at June 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
for the three and six months ended June 30,
1997 and 1996 2
Condensed Consolidated Changes in Stockholders'
Equity for the six months ended June 30, 1997 3
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and
1996 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security-Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on 8-K 14
Signature 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,878 $43,473
Accounts receivable, oil and gas 22,571 28,934
Assets from commodity price risk
management activities 2,876 2,249
Advances to oil and gas operators 674 69
Other current assets 2,196 456
------- -------
Total current assets 30,195 75,181
------- -------
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost
based on full cost accounting --
Proved oil and gas properties 294,936 237,150
Unproved oil and gas properties 79,677 77,570
Less--Accumulated depreciation,
depletion and amortization (108,188) (86,490)
--------- --------
Net property and equipment 266,425 228,230
--------- --------
OTHER ASSETS 31,462 507
--------- --------
Total assets $328,082 $303,918
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt $ 10,000 $ --
Accounts payable and accrued
liabilities 4,931 16,886
Liabilities from commodity price
risk management activities 5,578 7,220
Income taxes payable 13 2,408
-------- --------
Total current liabilities 20,522 26,514
-------- --------
LONG-TERM DEBT - -
DEFERRED INCOME TAXES 48,871 39,967
LIABILITIES FROM COMMODITY PRICE
RISK MANAGEMENT ACTIVITIES 3,717 4,234
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;
31,581 shares issued and
outstanding at June 30, 1997) 316 316
Additional paid-in capital 186,798 186,703
Retained earnings 69,860 48,244
Unearned compensation (1,227) (1,285)
Notes receivable for equity
interest (775) (775)
-------- --------
Total stockholders' equity 254,972 233,203
-------- --------
Total liabilities and
stockholders' equity $328,082 $303,918
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<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,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $28,173 $29,819 $62,578 $56,646
Commodity price risk
management 23 855 (3,098) 2,633
Interest and other 893 881 1,268 886
------- ------- ------- -------
Total revenues 29,089 31,555 60,748 60,165
------- ------- ------- -------
COSTS AND EXPENSES:
Oil and gas operating
expenses 2,310 2,127 4,504 3,879
Depreciation, depletion
and amortization 11,262 9,830 21,698 19,320
General and administrative 867 880 1,670 1,756
------ ----- ------ ------
Total costs and expenses 14,439 12,837 27,872 24,955
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 14,650 18,718 32,876 35,210
PROVISION FOR INCOME TAXES 5,018 6,364 11,260(a) 36,264
------ ------ ------ ------
NET INCOME (LOSS) $ 9,632 $12,354 $21,616(a)$(1,054)
======= ======= ====== ======
PRO FORMA NET INCOME
Income before income taxes $14,650 $18,718 $32,876 $35,210
Pro forma provision for
income taxes 5,018 6,364 11,260 11,790
------- ------- ------- -------
Pro forma net income $ 9,632 $12,354 $21,616 $23,420
======= ======= ====== =======
PRO FORMA NET INCOME PER
COMMON SHARE $ 0.31 $ 0.39 $ 0.69 $ 0.82
======= ======= ====== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 31,500 31,500 31,500 28,447
======= ======= ====== =======
</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.
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 had occurred on January 1, 1996.
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Addi- Notes
Common Stock tional Unearned Receivable
------------ Paid-In Compen- Retained Equity
Shares Amount Capital sation Earnings Interest Total
------ ------ ------- -------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 31,577 $ 316 $186,703 ($1,285) $48,244 ($775) $233,203
Restricted
stock issued 4 - 95 58 - - 153
Net Income - - - - 21,616 - 21,616
BALANCE,
June 30, 1997 31,581 $ 316 $186,798 ($1,227) $69,860 ($775) $254,972
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<catpion>
Six Months Ended
June 30,
----------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $21,616 $(1,054)
Adjustments to reconcile net income
(loss) to net operating cash inflows--
Depreciation, depletion and
amortization 21,698 19,320
Deferred tax provision (a) 8,904 35,644
Amortization of restricted stock
compensation 152 -
Commodity price risk management
activities (2,786) -
Changes in operating assets and
liabilities --
Accounts receivable, oil and gas 6,363 (8,207)
Other current assets 53 401
Accounts payable and accrued
liabilities (2,785) 2,539
------ ------
Net operating cash inflows 53,215 48,643
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures(71,693) (59,778)
Investment in Hugoton Energy Corp. (30,870) --
Changes in accounts payable and accrued
liabilities for oil and gas
expenditures (1,564) 4,616
Proceeds from sale of oil and gas
properties 11,800 --
Change in advances to oil and gas
operators (605) 45
Changes in other assets (1,878) (106)
------ ------
Net investing cash outflows (94,810) (55,223)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering - 113,115
Long-term borrowings - 13,300
Long-term debt repayments - (35,300)
Equity distributions - (13,865)
Other - 89
------ ------
Net financing cash inflows - 77,339
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (41,595) 70,759
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 43,473 1,556
------ ------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,878 $72,315
======= =======
________________________________
</TABLE>
(a) 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 group of non-taxpaying entities.
See Note 4.
The accompanying notes are an integral part of these condensed financial
statements.
<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 10K for the calendar year 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.
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 for the three and six month periods ended on June 30, 1997
and 1996, respectively.
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. 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, 1997 and 1996 have been presented to
reflect the Company's income taxes under the assumption that the Company was a
taxpaying entity since its inception.
The differences between the statutory federal income taxes and the Company's
pro forma effective taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory federal income taxes $ 5,128 $ 6,551 $11,507 $12,324
State income tax, net of federal benefit 26 20 59 40
Section 29 tax credits (211) (175) (445) (400)
Other 75 (32) 139 (174)
------- ------- ------- -------
Pro forma provision for income taxes $ 5,018 $ 6,364 $11,260 $11,790
======= ======= ======= =======
</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 revenues as the
associated production occurs. Reference is made to the December 31, 1996
financial statements of Belco Oil & Gas Corp. included in the Form 10K for the
calendar year 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.
For the six months ended June 30, 1997, the Company had net losses of $3.1
million compared to a $2.6 million net gain reported in the first six months
of 1996 related to its price risk management activities.
Note 6 - Investment in Hugoton Energy Corporation:
In June 1997 the Company purchased 2,940,000 shares of common stock of Hugoton
Energy Corporation (Hugoton) at $10.50 per share or a total investment of
$30.9 million. The Company's offer to purchase the remaining shares of Hugoton
was subsequently withdrawn. This investment is presently carried at cost on
the Company's Balance Sheet.
<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, with
substantially all of its growth coming "through the drill bit".
The Company's participation in exploration and development activities in
the Moxa Arch Area 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 25,000,000 shares of Common Stock to such owners in exchange for
the Combined Assets on March 29, 1996, the date the Company closed its initial
public offering (the "Offering"). 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, 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 the date of the Exchange, March 29, 1996, 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 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 was required to include in its taxable
income, for all periods ending on the date of or prior to the completion of
the Combination, such owner's allocable portion of the taxable income
attributable to the Combined Assets and was 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 natural gas
prices will not be subject to wide fluctuations in the future. A substantial
or extended decline in oil and natural 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 natural gas and oil reserves
that the Company may economically produce. Natural gas produced is sold
under contracts that primarily reflect spot market conditions for their
particular area. 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 oil. Approximately 90% of the Company's production
volumes relate to the sale of natural gas.
The Company utilizes commodity swaps and options and other commodity price
risk management transactions for a portion of its oil and natural 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 uses mark-to-market accounting for those contracts that do not
qualify for hedge accounting. As of June 30, 1997, the Company has various
natural gas and oil price risk management contracts in place with respect to
portions of its estimated production for the remainder of 1997 and with
respect to lesser portions of its estimated production for 1998 and 1999. The
Company expects from time to time to either add or reduce the amount of price
risk management contracts that it has in place in keeping with its hedging
strategy.
The following table sets forth certain operations data of the Company for
the periods presented:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Variances Ended June 30, Variances
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 AMOUNT % 1997 1996 AMOUNT %
---- ---- ------ -- ---- ---- ------ --
Oil and Gas Sales
(Unhedged) (in
thousands) $28,173 $29,819 $(1,646) -6% $62,578 $56,646 $5,932 10%
Commodity Price Risk
Management 23 855 (832) -97% (3,098) 2,633 (5,731)-218%
Weighted Average
Sales Prices
(Unhedged):
Oil (per Bbl) $ 19.25 $ 21.71 $ (2.46)-11% $ 20.49 $ 19.93 $ 0.56 3%
Gas (per Mcf) 1.79 1.90 (0.11) -6% 2.12 1.81 0.31 17%
Net Production Data:
Oil (Mbbl) 271 192 79 41% 453 414 39 9%
Gas (Mmcf) 12,814 13,521 (707) -5% 25,100 26,787 (1,687) -6%
Gas equivalent
(Mmcfe) 14,438 14,671 (233) -2% 27,818 29,271 (1,452) -5%
Data per Mcfe:
Oil and gas sales
revenues
(Unhedged) $ 1.95 $ 2.03 $(0.08) -4% $ 2.25 $ 1.94 $ 0.31 16%
Commodity Price
Risk Management
Activities-- -- 0.06 (0.06)-100% (0.11) 0.09 (0.20)-224%
Oil and gas opera-
ting expenses (0.16) (0.14) (0.02) -14% (0.16) (0.13) (0.03) -22%
General and admin-
istrative (0.06) (0.06) -- --% (0.06) (0.06) -- --%
Depreciation,
depletion and
amortization (0.78) (0.67) (0.11) -16% (0.78) (0.66) (0.12)-18%
Interest income 0.06 0.06 -- --% 0.04 0.02 0.02 100%
Pre-tax operating
profit $ 1.01 $ 1.28 $(0.27) -21% $1.18 $1.20 $(0.02) -2%
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to June 30, 1996
Revenues
During the second quarter of 1997, oil and gas sales revenues (unhedged)
decreased $1.6 million, or 6%, to $28.2 million over the prior year comparable
period. The revenue decrease is the result of a slight decline in daily
equivalent Mcf production and lower average price realizations for both oil
and natural gas. Production volume during the second quarter of 1997 on an
Mcfe basis declined by 1.6% to 159 MMcfe per day over the prior year
comparable period but increased 8% when compared to the first quarter 1997
production. Natural gas production represented approximately 90% of total
Company production on an Mcfe basis.
As a result of the lower oil and gas price realizations during the second
quarter of 1997, commodity price risk management activities resulted in a net
pre-tax gain of $23,000 in the second quarter of 1997, consisting of $1.452
million in realized losses which were completely offset by a $1.475 million
unrealized mark-to-market gain. The second quarter of 1996 included $0.9
million in hedge related gains. The net impact of such activities on an Mcfe
basis was neutral ($0.10 cash loss and non-cash gain of $0.10) and a gain of
$0.06 (all cash) per Mcfe for the second quarter of 1997 and 1996,
respectively.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
increased 9% from $2.1 million for the second quarter of 1996 to $2.31 million
for the comparable period in 1997 due mainly to the increased number of wells
on line and higher costs associated with a growing population of wells.
Operating costs were $0.16 per Mcfe for the second quarter of 1997 when
compared to $0.14 per Mcfe in the second quarter of 1996.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A"), for the quarter ended June 30, 1997 increased 15% over
the prior year comparable period, from $9.8 million to $11.3 million,
primarily due to the drilling of deeper higher cost wells.
General and Administrative Expenses. General and administrative expense
("G&A") declined 2% in the second quarter of 1997 to $866,000 when compared to
the $880,000 incurred in the second quarter of 1996. The rate per Mcfe for G&A
costs is unchanged at $0.06.
Income Before Income Taxes
The Company's income before income taxes for the second quarter of 1997
decreased by approximately $4.1 million, or 22%, to $14.65 million from $18.72
million in the prior year period. The decrease over the prior year comparable
period is principally due to lower weighted average prices realized for both
oil and natural gas and higher DD&A expense per Mcfe.
Income Taxes
Income tax expense for the second quarter of 1997 and 1996 were $5.0 and
$6.4 million utilizing estimated effective income tax rates of 34.25% and
34.0%, respectively.
Six Months Ended June 30, 1997 Compared to June 30, 1996
Revenues
For the first six months of 1997, oil and gas sales revenues (unhedged)
increased $5.9 million, or 10%, to $62.6 million over the prior year
comparable period. The revenue increase is the result of higher average price
realizations for both oil and natural gas. Production volume during the first
six months of 1997 on an Mcfe basis declined by 5% to 27,818 Mmcfe when
compared to the prior year comparable period but increased 4% when compared to
the last half of calendar year 1996 production. Natural gas production
represented approximately 90% of total Company production on an Mcfe
basis.
As a result of the substantial oil and gas price increases which occurred
in the first quarter of 1997 (which had a positive overall impact on oil and
gas sales revenues), commodity price risk management activities during the
first half of 1997 resulted in a net pre-tax loss of $3.1 million, consisting
of $7.9 million in realized losses which were partially offset by a $4.8
million unrealized mark-to-market gain. The impact of such activities on an
Mcfe basis amounted to a net loss of $0.11 ($0.28 cash loss and non-cash gain
of $0.17) and a gain of $0.09 (all cash) per Mcfe for the first half of 1997
and 1996, respectively.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
increased 16% from $3.9 million in the first half of 1996 to $4.5 million for
the comparable period in 1997 due mainly to the increased number of wells on
line and higher costs associated with new oil wells and a growing population
of older wells. Operating costs were $0.16 per Mcfe for the first six months
of 1997 when compared to $0.13 per Mcfe in the first six months of 1996.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A"), for the first half of 1997 increased 12% over the prior
year comparable period, from $19.3 million to $21.7 million, primarily due to
the drilling of deeper higher cost wells.
General and Administrative Expenses. General and administrative expense
("G&A") declined 5% in the first half of 1997 to $1,669,000 when compared to
the $1,756,000 incurred in the first half of 1996. The rate per Mcfe for
G&A costs is unchanged at $0.06.
Income Before Income Taxes
The Company's income before income taxes for the first half of 1997
decreased by approximately $2.3 million, or 7%, to $32.9 million from $35.2
million in the prior year period. The decrease over the prior year comparable
period is due to commodity price risk management activities and lower
production offset in part by higher weighted average prices realized for both
oil and natural gas.
Income Taxes
Income tax expenses for the first half of 1997 were $11.3 million utilizing
an estimated effective income tax rate of 34.25%. 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 half 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. At year end 1996, this estimated amount was
increased to $30.1 million following the completion of related income tax
returns.
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.
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, provision for deferred income taxes and the non-cash effects of
commodity price risk management activities. Net operating cash flow (pre-tax)
before changes in working capital was approximately $49.6 and 53.9 million for
the first six months of 1997 and 1996, respectively. The Company had working
capital amounting to $9.7 million as of June 30, 1997, a decrease from the
$48.7 million available as of December 31, 1996.
For 1997, the Company has budgeted approximately $150 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 currently allocating approximately 77% of its budget to development and
exploration projects and approximately 23% to leasehold and seismic
acquisition activities, compared to the 45% for development and exploration
and 55% for leasehold and seismic in 1996. During the eighteen month period
ending June 30, 1997, the Company has expended approximately $72 million on
new leases for potential development over the next several years.
In June, 1997 the Company purchased 2,940,000 shares of common stock of
Hugoton Energy Corporation at $10.50 per share or a total investment of $30.9
million as of June 30, 1997.
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 its
Credit Facility to $30 million and the Borrowing Base under the Credit
Facility to $15 million on May 1, 1996. The reduction in the Borrowing Base
permits 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 is currently renegotiating its Credit
Agreement with the Chase Manhattan Bank and is expected to have a new facility
in place prior to the expiration of the current Agreement. As of June 30,
1997, a total of $10 million in advances were made to the Company and
outstanding under the Credit Facility.
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.
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 or other potential financings. If there are changes in oil and
natural 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 oil and natural gas prices,
the Company has entered into price risk management transactions of various
kinds with respect to both oil and natural gas. 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 historically has been highly volatile, these
fluctuations may cause significant impact on the results of any given
accounting period. The Company has entered into price risk management
transactions with respect to a substantial portion of its estimated production
for the remainder of 1997 and with respect to lesser portions of its estimated
production for 1998 and 1999. The Company continues to evaluate whether to
enter into additional price risk management transactions for 1997 and future
years. In addition, the Company may determine from time to time to unwind its
then existing price risk management positions as part of its price risk
management strategy.
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.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings per
Share" effective for interim and annual periods after December 15, 1997. This
statement replaces primary earnings per share ("EPS") with a newly defined
basic EPS and modifies the computation of diluted EPS. The Company's basic and
diluted EPS computed using the requirements of SFAS 128 are the same as the
Company's currently disclosed pro forma net income per common share.
Information Regarding Forward Looking Statements
The information contained in this Form 10-Q includes certain
forward-looking statements. When used in this document, such words as
"expect", "believes", "potential", and similar expressions are intended to
identify forward-looking statements. Although Belco believes that its
expectations are based on reasonable assumptions, it is important to note that
actual results could differ materially from those projected by such
forward-looking statements. Important factors that could cause actual results
to differ materially from those in the forward-looking statements include, but
are not limited to, the timing and extent of changes in commodity prices for
oil and gas, the need to develop and replace reserves, environmental risk, the
substantial capital expenditures required to fund its operations, drilling and
operating risks, risks related to exploration and development, uncertainties
about the estimates of reserves, competition, government regulation and the
ability of the Company to implement its business strategy.
<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 NONE
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as
part of this report:
Exhibit No. Page
11.1 Computation of Earnings per Share 16
(b) Reports on Form 8-K:
None
<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>
<CAPTION>
<S> <C> <C>
Date 8/8/97 /s/ LAURENCE D. BELFER
------------ ----------------------
Laurence D. Belfer,
President and Chief Operating Officer
Date 8/8/97 /s/ DOMINICK J. GOLIO
------------- ---------------------
Dominick J. Golio,
Vice President - Finance and
Chief Financial Officer<PAGE>
EX-11.1
</TABLE>
<PAGE>
Belco Oil & Gas Corp.
Computation of Earnings Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
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 6,500 6,500 3,447
Restricted stock, treasury
stock method 13 14 15 8
Stock options, treasury
stock method 13 92 35 47
------ ------ ------ ------
Weighted average common and
common equivalent shares
outstanding 31,526 31,606 31,550 28,502
====== ====== ====== ======
Net Income (Loss) $ 9,632 $12,354 $21,616 $(1,054)
======= ======= ======= ========
Primary Earnings (Loss)
Per Share $ 0.31 $ 0.39 $ 0.69 $ (0.04)
======= ======= ======= ========
Pro forma Net Income $ 9,632 $12,354 $21,616 $23,420
======= ======= ======= ========
Pro forma Net Income
Per Share - Primary $ 0.31 $ 0.39 $ 0.69 $ 0.82
======= ======= ======= ========
The difference between primary and fully diluted earnings per share is not
significant.
</TABLE>
