- ------------------------------------------------------------------------------
<PAGE>
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 MARCH 31, 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 March 31, 1997, there were 31,582,300 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 March 31, 1997
and December 31, 1996 1
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 2
Condensed Consolidated Changes in Stockholders' Equity for
the three months ended March 31, 1997 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 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 8
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
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 31,863 $ 43,473
Accounts receivable, oil and gas 23,687 28,934
Assets from commodity price risk management
activities 4,054 2,249
Advances to oil and gas operators 437 69
Other current assets 4 456
-------- --------
Total current assets 60,045 75,181
-------- --------
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost based on full
cost accounting
Proved oil and gas properties 260,521 237,150
Unproved oil and gas properties 87,475 77,570
Less Accumulated depreciation, depletion
and amortization (96,926) (86,490)
-------- --------
Net property and equipment 251,070 228,230
-------- --------
OTHER ASSETS 870 507
-------- --------
Total assets $311,985 $303,918
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 10,029 $ 16,886
Liabilities from commodity price risk
management activities 11,078 7,220
Income taxes payable 158 2,408
-------- --------
Total current liabilities 21,265 26,514
-------- --------
LONG-TERM DEBT 0 0
DEFERRED INCOME TAXES 45,457 39,967
LIABILITIES FROM COMMODITY PRICE RISK MANAGEMENT
ACTIVITIES 0 4,234
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000
shares authorized; none issued or outstanding 0 0
Common stock ($.01 par value, 120,000,000
shares authorized; 31,582,300 shares issued
and outstanding at March 31, 1997) 316 316
Additional paid-in capital 186,825 186,703
Retained earnings 60,228 48,244
Unearned compensation (1,331) (1,285)
Notes receivable for equity interest (775) (775)
-------- --------
Total stockholders' equity 245,263 233,203
-------- --------
Total liabilities and stockholders'
equity $311,985 $303,918
======== ========
</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
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales $ 34,405 $ 26,827
Commodity price risk management (3,121) 1,778
Interest and other 375 5
-------- --------
Total revenues 31,659 28,610
-------- --------
COSTS AND EXPENSES:
Oil and gas operating expenses 2,194 1,752
Depreciation, depletion and amortization 10,436 9,490
General and administrative 803 876
-------- --------
Total costs and expenses 13,433 12,118
-------- --------
INCOME BEFORE INCOME TAXES 18,226 16,492
PROVISION FOR INCOME TAXES 6,242 (a) 29,900
-------- --------
NET INCOME (LOSS) $ 11,984 (a)($13,408)
======== ========
PRO FORMA NET INCOME
Income before income taxes $ 18,226 $ 16,492
Pro forma provision for income taxes 6,242 5,426
-------- --------
Pro forma net income $ 11,984 $ 11,066
======== ========
PRO FORMA NET INCOME PER COMMON SHARE $ 0.38 $ 0.44
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 31,500 25,424
======== ========
</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.
-2-
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Notes
Common Stock Additional Receivable
----------------- Paid-In Unearned Retained for Equity
Shares Amount Capital Compensation 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 5 0 122 (46) 0 0 76
Net Income 0 0 0 0 11,984 0 11,984
-------------------------------------------------------------------------------
BALANCE, March 31, 1997 31,582 $ 316 $ 186,825 ($1,331) $ 60,228 ($775) $245,263
-------------------------------------------------------------------------------
</TABLE>
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>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,984 ($13,408)
Adjustments to reconcile net income (loss) to net
operating cash inflows
Depreciation, depletion and amortization 10,436 9,490
Deferred tax provision (a) 5,490 29,900
Amortization of restricted stock compensation 76 0
Commodity price risk management activities (2,181) 0
Changes in operating assets and liabilities --
Accounts receivable, oil and gas 5,247 (694)
Other current assets 452 401
Accounts payable and accrued liabilities (3,621) 0
-------- --------
Net operating cash inflows 27,883 25,689
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures (33,276) (24,257)
Changes in accounts payable and accrued
liabilities for oil and gas expenditures (5,337) 3,773
Change in advances to oil and gas operators (368) 45
Changes in other assets (363) (111)
-------- --------
Net investing cash outflows (39,493) (20,550)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering 0 113,115
Long-term borrowings 0 13,300
Long-term debt repayments 0 (35,300)
Equity distributions 0 (13,865)
Other 0 89
-------- --------
Net financing cash inflows 0 77,339
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,610) 82,478
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,473 1,556
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $31,863 $84,034
======== ========
</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.
-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 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 month periods ended on March 31, 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
-5-
<PAGE>
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 three
months ended March 31, 1996 includes the one-time charge. The pro forma
provision for income taxes reflected in the Condensed Consolidated Statements
of Operations for the three month periods ended March 31, 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.
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, were estimated. At year end 1996, this
estimated amount was increased to $30.1 million following the completion of
related income tax returns.
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.
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
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C> <C>
Statutory federal income taxes $6,379 $5,772
State income tax, net of federal benefit 33 20
Section 29 tax credits (234) (225)
Other 64 (141)
------ ------
Pro forma provision for income taxes $6,242 $5,426
====== ======
</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, 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.
-6-
<PAGE>
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 three months ended March 31, 1997, the Company had net losses of
$3.1 million compared to a $1.8 million net gain reported in the first three
months of 1996 related to its price risk management activities.
-7-
<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
-8-
<PAGE>
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 92% 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 March 31, 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
Ended March 31, Variances
------------------- ---------
1997 1996 AMOUNT %
---- ---- ------ --
<S> <C> <C> <C> <C>
Oil and Gas Sales (Unhedged)
(in thousands) $34,405 $26,827 $7,578 28%
Commodity Price Risk Management (3,121) 1,778 (4,334)-276%
Weighted Average Sales Prices
(Unhedged):
Oil (per Bbl) $22.33 $18.26 4.07 22%
Gas (per Mcf) 2.47 1.74 0.73 42%
Net Production Data:
Oil (MBbl) 182 222 (40) -18%
Gas (MMcf) 12,286 13,266 (980) -7%
Gas equivalent (MMcfe) 13,380 14,600 (1,220) -8%
Data per Mcfe:
Oil and gas sales revenues
(Unhedged) $2.57 $1.84 $0.73 40%
Commodity Price Risk Management
Activities (0.23) 0.12 (0.35)-292%
Oil and gas operating expenses (0.16) (0.12) (0.04) 37%
General and administrative (0.06) (0.06) 0 0%
Depreciation, depletion and
amortization (0.78) (0.65) (0.13) 20%
Interest income 0.03 0 0.03 0%
----- ----- ----- ---
Pre-tax operating profit $1.37 $1.13 $0.24 21%
===== ===== ===== ===
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to March 31, 1996
Revenues
During the first quarter of 1997, oil and gas sales revenues (unhedged)
increased $7.6 million, or 28%, to $34.4 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
-9-
<PAGE>
quarter of 1997 on an Mcfe basis declined by 8% to 13,380 MMcfe over the prior
year comparable period but increased 3% when compared to the fourth quarter
1996 production. Natural gas production represented approximately 92% 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 resulted in a
pre-tax loss of $3.1 million in the first quarter of 1997, consisting of $6.4
million in realized hedging losses which were partially offset by a $3.3
million recovery of prior period required provisions for unrealized
mark-to-market losses. The first quarter of 1996 included $1.8 million in
hedge related gains. The impact of such activities on an Mcfe basis amounted
to a loss of $0.23 ($0.43 cash loss and non-cash gain of $0.20) and a gain of
$0.12 (all cash) per Mcfe for the first quarter of 1997 and 1996,
respectively.
Costs and Expenses
Production and Operating Expenses. Production and operating expenses
increased 25% from $1.75 million for the first quarter of 1996 to $2.19
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
older wells. Operating costs were $0.16 per Mcfe for the first quarter of
1997 when compared to $0.12 Mcfe in the first quarter of 1996.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A"), for the quarter ended March 31, 1997 increased 10% over
the prior year comparable period, from $9.5 million to $10.4 million,
primarily due to the drilling of deeper higher cost wells.
General and Administrative Expenses. General and administrative expense
("G&A") declined 8% in the first quarter of 1997 to $803,000 when compared to
the $876,000 incurred in the first 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 first quarter of 1997
increased by approximately $1.7 million, or 11%, to $18.2 million from $16.5
million in the prior year period. The increase over the prior year comparable
period is due to higher weighted average prices realized for both oil and
natural gas.
Income Taxes
Income tax expenses for the first quarter of 1997 were $6.2 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 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. 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
-10-
<PAGE>
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 $26.0
million for the first three months each of 1997 and 1996. The Company had
working capital amounting to $38.8 million as of March 31, 1997, a decrease
from the $89.5 million available immediately following the Company's initial
public offering on March 29, 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.
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 may seek to adjust the terms and
availability of the Credit Facility in the future in accordance with its
anticipated capital requirements. As of March 31, 1997, there were no
borrowings 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
hedging strategy.
-11-
<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.
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.
-12-
<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
-13-
<PAGE>
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.
-14-
<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> <C>
Date 5/2/97 /s/ LAURENCE D. BELFER
------ -------------------------------------
Laurence D. Belfer,
President and Chief Operating Officer
Date 5/2/97 /s/ DOMINICK J. GOLIO
------ --------------------------------------
Dominick J. Golio,
Vice President - Finance and Chief Financial Officer
</TABLE>
-15-
- ------------------------------------------------------------------------------
<PAGE>
Belco Oil & Gas Corp.
Computation of Earnings Per Share
(In thousands, except per share data)
EX-11.1
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Primary Calculation:
- -------------------
Shares issued in connection with the combination and
assumed outstanding for all periods 25,000 25,000
Weighted average shares and equivalent shares
outstanding:
Issued in connection with the public offering 6,500 428
Restricted stock, treasury stock method 18 1
Stock options, treasury stock method 60 3
------ ------
Weighted average common and common equivalent shares
outstanding 31,578 25,432
Net Income (Loss) $11,984 ($13,408)
Primary Earnings (Loss)
Per Share $ .38 ($ .53)
Pro forma Net Income $11,984 $11,066
Pro forma Net Income
Per Share - Primary $ .38 $ .44
</TABLE>
The difference between primary and fully diluted earnings per share is not
significant.
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 31,863
<SECURITIES> 0
<RECEIVABLES> 23,687
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,045
<PP&E> 347,996
<DEPRECIATION> (96,926)
<TOTAL-ASSETS> 311,985
<CURRENT-LIABILITIES> 21,265
<BONDS> 0
0
0
<COMMON> 316
<OTHER-SE> 244,947
<TOTAL-LIABILITY-AND-EQUITY> 311,985
<SALES> 34,405
<TOTAL-REVENUES> 31,659
<CGS> 12,630
<TOTAL-COSTS> 12,630
<OTHER-EXPENSES> 803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,226
<INCOME-TAX> 6,242
<INCOME-CONTINUING> 11,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,984
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
