<PAGE> 1
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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, 1998
---------
Commission file number 001-14256
---------
BELCO OIL & GAS CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction
of incorporation or organization)
767 Fifth Avenue
New York, New York
(Address of principal executive offices)
13-3869719
(I.R.S. employer
identification no.)
10153
(Zip code)
(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, 1998, there were 31,583,600 shares of the
Registrant's Common Stock, par value $.01 per share, outstanding.
===========================================================================
<PAGE> 2
FINANCIAL STATEMENTS
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 7,043 $12,260
Accounts receivable, oil and gas 35,187 43,867
Assets from commodity price risk management
activities 7,547 936
Advances to oil and gas operators 400 346
Marketable Equity Securities 19,240 28,884
Other current assets 644 710
------- -------
Total current assets 70,061 87,003
------- -------
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost based on full
cost accounting--
Proved oil and gas properties 851,664 793,475
Unproved oil and gas properties 89,483 86,172
Less--Accumulated depreciation, depletion
and amortization (377,211) (282,750)
------- -------
Net property and equipment 563,936 596,897
------- -------
Buildings and other equipment, net 5,936 6,877
------- -------
OTHER ASSETS 12,283 6,332
------- -------
Total assets $ 652,216 $697,109
========= ========
LIABILITIES AND EQUITY
----------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 18,250 33,651
Liabilities from commodity price risk
management activities 7,867 9,555
Accrued interest 6,270 7,040
------- -------
Total current liabilities 32,387 50,246
------- -------
LONG-TERM DEBT 293,000 352,090
DEFERRED INCOME TAXES 83,405 110,047
LIABILITIES FROM COMMODITY PRICE RISK MANAGEMENT
ACTIVITIES 10,596 78
STOCKHOLDERS' EQUITY
6-1/2% Convertible Preferred stock, $.01
par value; 10,000,000 shares authorized;
4,370,000 issued or outstanding 44 0
Common stock ($.01 par value, 120,000,000
shares authorized; 31,583,600 and
31,584,400 shares issued and outstanding
at March 31, 1998 and December 31, 1997,
respectively) 316 316
Additional paid-in capital 302,300 196,864
Retained earnings (deficit) (68,057) (8,664)
Unearned compensation (1,000) (1,093)
Notes receivable for equity interest (775) (775)
Unrealized loss on marketable equity
securities 0 (2,000)
------- -------
Total stockholders' equity 232,828 184,648
------- -------
Total liabilities and stockholders'
equity $652,216 $697,109
======== ========
</TABLE>
<PAGE> 3
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Oil and gas sales $34,833 $34,405
Commodity price risk management (1,767) (3,121)
Interest and other 285 375
------- -------
Total revenues 33,351 31,659
------- -------
COSTS AND EXPENSES:
Oil and gas operating expenses 9,480 2,194
Depreciation, depletion and amortization 14,461 10,436
General and administrative 1,125 803
Interest expenses 4,120 0
Impairment of oil and gas properties 80,000 0
Impairment of equity securities 10,100 0
------- -------
Total costs and expenses 119,286 13,433
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (85,935) 18,226
PROVISION (BENEFIT) FOR INCOME TAXES (26,542) 6,242
------- -------
NET INCOME (LOSS) (59,393) 11,984
PREFERRED STOCK DIVIDENDS (592) 0
------- -------
EARNINGS (LOSS) ON COMMON STOCK ($59,985) $11,984
========= =======
EARNINGS (LOSS) PER SHARE OF COMMON STOCK,
BASIC $(1.90) $0.38
FULLY DILUTED $(1.90) $0.38
======= =====
AVERAGE NUMBER OF COMMON SHARES USED IN COMPUTATION
BASIC 31,583 31,500
FULLY DILUTED 31,583 31,578
======= ======
</TABLE>
<PAGE> 4
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Notes Loss on
Additional Retained Receivable Marketable
Preferred Common Paid-In Unearned Earnings for Equity Equity
Shares Amount Shares Amount Capital Compensation (Deficit) Interest Securities Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1997 -- -- 31,584 $ 316 $196,864 $(1,093) $(8,664) $(775) $(2,000) $184,648
Issuance of Preferred
Stock 4,370 $ 44 -- -- 105,451 -- -- -- -- 105,495
Restricted stock
issued/earned -- -- (1) -- (15) 93 -- -- -- 78
Loss recognized on
marketable equity
securities -- -- -- -- -- -- -- -- 2,000 2,000
Net Loss -- -- -- -- -- -- (59,393) -- -- (59,393)
BALANCE, March 31,
1998 4,370 $ 44 31,583 $ 316 $302,300 $(1,000) $(68,057) $(775) $ -- $232,828
</TABLE>
<PAGE> 5
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(59,393) $ 11,984
Adjustments to reconcile net income (loss)
to net operating cash inflows--
Depreciation, depletion and amortization 14,461 10,436
Impairment of oil and gas properties 80,000 0
Deferred tax provision (26,642) 5,490
Impairment of marketable equity securities 10,100 0
Amortization of restricted stock compensation 78 76
Commodity price risk management activities (2,812) (2,181)
Changes in operating assets and
liabilities --
Accounts receivable, oil and gas 8,680 5,247
Other current assets (63) 452
Accounts payable and accrued liabilities (3,850) (3,621)
-------- --------
Net operating cash inflows 20,559 27,883
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures (25,083) (33,276)
Proceeds from sale of oil and gas properties 1,881 0
Changes in accounts payable and accrued
liabilities for oil and gas expenditures (12,321) (5,486)
Purchases of oil and gas properties (38,298) 0
Change in advances to oil and gas operators (54) (368)
Proceeds from sale of marketable equity
securities 3,410 0
Purchase of marketable equity securities (1,845) 0
Changes in other assets 129 (363)
-------- --------
Net investing cash outflows (72,181) (39,493)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock offering, net 105,495 0
Long-term debt repayments (59,090) 0
-------- --------
Net financing cash inflows 46,405 0
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,217) (11,610)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,260 43,473
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,043 $ 31,863
======== =========
</TABLE>
<PAGE> 6
BELCO OIL & GAS CORP.
NOTES TO CONDENSED 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 1997 which includes financial
statements and notes thereto.
Note 2. Commodity Price Risk Management Activities: The Company
periodically enters into commodity price risk management 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, 1997
financial statements of Belco Oil & Gas Corp. included in the Form 10-K for
the calendar year 1997, for a more thorough discussion of the Company's
commodity price risk management 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 unrealized gain or loss in the
period of change.
For the three months ended March 31, 1998, the Company had net losses of
$1.8 million ($3.1 million in cash settlements and $1.3 million in
marked-to-market net gains). This compares to a $3.1 million net loss
consisting of $6.4 million in cash settlements and $3.3 million in
marked-to-market net gains, reported in the first three months of 1997
related to its price risk management activities.
Note 3. Impairment of Oil and Gas Properties: The capitalization costs of
proved oil and gas properties are subject to a "ceiling test", which limits
such costs to the estimated present value net of related tax effects,
discounted at a 10 percent interest rate, of future net cash flows from
proved reserves, based on current economic and operating conditions (PV10).
If capitalized costs exceed this limit, the excess is charged to
depreciation, depletion and amortization. Application of these rules
during periods of relatively low oil and gas prices, even if of short-term
duration, may result in write-downs.
<PAGE> 7
The Company recorded, in the first quarter of 1998, a non-cash impairment
of oil and gas properties of approximately $80 million ($52 million after-tax)
due to the significant decline in oil prices at March 31, 1998.
Note 4. 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 for a total investment of $30.9
million. In March, 1998 Hugoton was merged into Chesapeake Energy Corp.
(CHK) and the Company received 3,822,000 common shares of CHK. The
remaining investment is presently carried at market value on the Company's
Balance Sheet. The investment in the Hugoton stock (now Chesapeake) is
classified as an "available for sale" security under SFAS No. 115.
Accordingly, at December 31, 1997, the excess of the cost of the investment
over its fair market value, was shown as a reduction of equity. During the
first quarter of 1998, the Company sold shares of the Chesapeake stock
realizing a loss of $1.2 million. Because of the continuing significant
decline in the value of the Chesapeake stock following the end of the first
quarter of 1998 and management's intent to liquidate this investment, the
remaining Chesapeake shares held at March 31, 1998 have been written-down
to current market value through a charge to earnings. The loss recorded at
March 31, 1998 of $10.1 million consisted of $1.2 million in realized
losses and $8.9 in unrealized losses.
Note 5. Issuance of Preferred Stock: On March 10, 1998 the Company
completed the closing and sale of 4,370,000 shares at $25 per share ($109.3
million) of 6-1/2% Convertible Preferred Stock in an underwritten public
offering. Each share of Convertible Preferred Stock can be converted into
Belco Common Stock at an initial conversion rate of 1.1292 shares of Common
Stock for each share of Convertible Preferred Stock, equivalent to a
conversion price of $22.14 per share of Common Stock. The net proceeds of
the offering in the amount of $105.5 million were used to reduce bank
indebtedness.
<PAGE> 8
Note 6. Capital Stock:
Net Income (Loss) Per Common Share
A reconciliation of the components of basic and diluted net income (loss)
per common share for the three months ended March 31, 1998 and 1997 is
presented in the table below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Basic net income (loss) per share:
Net income (loss) $(59,393) $11,984
Less: Preferred Stock dividends (592) 0
--------- -------
Earnings (loss) available to common shareholders $(59,985) $11,984
Weighted average shares of common stock
outstanding(1) 31,582 31,500
--------- -------
Basic net income (loss) per share $ (1.90) $ 0.38
========= =======
Diluted net income (loss) per share:
Weighted average shares of common stock
outstanding (1) 31,583 31,500
Effect of dilutive securities:
Restricted stock (2) (3) 0 18
Preferred stock, warrants and stock options (2)(3) 0 60
--------- -------
Average shares of common stock outstanding
including dilutive securities 31,583 31,578
--------- -------
Diluted net income (loss) per share $ (1.90) $ 0.38
========= =======
</TABLE>
---------------
(1) Includes shares issued and outstanding plus vested restricted stock.
(2) Calculated using the treasury stock method, including unearned
compensation of restricted stock as proceeds.
(3) Amounts are not included in the computation of diluted net income
(loss) per share in 1998 because to do so would have been antidilutive.
Note 7. Comprehensive Income: In the first quarter of 1998 the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" which requires
disclosure of comprehensive income and its components in the financial
statements. For the Company, comprehensive income includes net income and
reserve for unrealized losses on marketable equity securities held. The
components of comprehensive income for the quarter ended March 31, 1998 and
1997 are as follows (in thousands):
<PAGE> 9
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $(59,393) $11,984
Less: Reclassification adjustment for losses
included in net income 2,000 0
--------- -------
Total Comprehensive Income $(57,393) $11,984
========= =======
</TABLE>
Note 8. Subsequent Event: On April 30, 1998 the Company announced that
it had entered into an agreement under which it may invest up to $141
million in Big Bear Exploration Ltd., a Canadian oil and gas company.
<PAGE> 10
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 to date coming "through the drill bit" and
most recently through acquisitions including Coda Energy and EnerVest
properties.
The Company's participation in exploration and development activities
in the Moxa Arch Area of Wyoming and in the Austin Chalk Trend in Texas
(Giddings Field) and Louisiana 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.
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.
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
<PAGE> 11
those contracts that do not qualify for hedge accounting. As of March 31,
1998, the Company has various natural gas and oil price risk management
contracts in place with respect to estimated production for the remainder
of 1998 and with respect to lesser portions of its estimated production for
1999 and 2000. 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
--------------- -------------
1998 1997 AMOUNT %
---- ---- ------ ---
<S> <C> <C> <C> <C>
Oil and Gas Sales (Unhedged)
(in thousands) $34,833 $34,405 $ 428 1%
Commodity Price Risk Management
(in thousands) (1,767) (3,121) 1,354 43%
Weighted Average Sales Prices
(Unhedged):
Oil (per Bbl) $ 14.44 $ 22.33 $(7.89) (35%)
Gas (per Mcf) 2.01 2.47 (0.46) (19%)
Net Production Data:
Oil (MBbl) 1,074 182 892 490%
Gas (MMcf) 9,622 12,286 (2,664) (22%)
Gas equivalent (MMcfe) 16,068 13,380 2,688 20%
Data per Mcfe:
Oil and gas sales revenues
(Unhedged) $ 2.17 $ 2.57 $(0.40) (16%)
Commodity Price Risk
Management Activities--
- Cash (0.20) (0.48) 0.28 58%
- Non-Cash 0.09 0.25 (0.16) (64%)
Oil and gas operating expenses (0.59) (0.16) (0.43) (269%)
General and administrative (0.07) (0.06) (0.01) (17%)
Depreciation, depletion and
amortization (0.90) (0.78) (0.12) (15%)
------- ------ ------- -----
Pre-tax operating profit (1) $ 0.50 $ 1.34 $ (0.84) (63%)
======= ====== ======= =====
</TABLE>
___________________________
(1) Excluding ceiling test provision and interest expenses.
<PAGE> 12
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to March 31, 1997
Revenues
During the first quarter of 1998, oil and gas sales revenues increased
a modest amount from $34.4 million to $34.8 million over the prior year
comparable period despite a substantial decline in commodity prices in the
1998 quarter. Average price realizations, excluding price risk management
activities, for both oil and natural gas in the first quarter of 1998
compared to last year's first quarter were lower by 35% and 19%,
respectively. Oil production volume during the first quarter of 1998
increased by 490% while natural gas production declined by 22% compared to
the prior year comparable period. Natural gas production represented
approximately 60% of total Company production on an Mcfe basis down from
the 88% reported in the first quarter of 1997.
As a result of a significant downward price movement in natural gas
prices during the first quarter of 1998, commodity price risk management
activities resulted in net losses of $1.8 million despite substantial gains
in the oil portfolio.
Costs and Expenses
Production and operating expenses increased to $9.5 million for the
first quarter of 1998 when compared to the $2.2 million for the comparable
period in 1997. The substantial increase is identified with the growth in
oil production through secondary recovery techniques reflecting the higher
costs normally associated with such production when compared to natural
gas. Operating costs were $0.59 per Mcfe for the first quarter of 1998
when compared to $0.16 per Mcfe in the first quarter of 1997.
Depreciation, depletion and amortization ("DD&A"), for the quarter
ended March 31, 1998 was $14.5 million when compared to the $10.5 million
recorded in the prior year comparable period. The current DD&A rate per
Mcfe is $0.90, up $0.12 over the comparable prior year quarter. Since
December 31, 1997, oil and gas prices have declined with oil prices
reaching ten-year lows in March, 1998. This decline followed the Company's
acquisition of substantial oil reserves in late 1997 at a cost of less than
$5.84 per Bbl and most recently in February, 1998 at a cost of
approximately $3.50 per barrel. At March 31, 1998, after application of
the substantially lower commodity prices to estimated recoverable reserves,
the Company recorded an $80 million ($52 million after tax) ceiling test
provision as required by full-cost accounting rules.
General and administrative expense ("G&A") increased 17% in the first
quarter of 1998 to $1.1 million when compared to the $0.8 million incurred
in the first quarter of 1997, due to personnel additions. The rate per
Mcfe for G&A costs increased from $0.06 to $0.07.
The Company's investment in Hugoton Energy in the form of 2,940,000
shares of common stock were converted into 3,822,000 shares of Chesapeake
Energy Corporation common stock following a merger of the two companies on
March 10, 1998. As a result of the substantial decline in the market value
of these equity securities, the Company was required by current accounting
rules to record a non-cash charge in order to reflect the current market
value of such securities.
<PAGE> 13
Income (Loss) Before Income Taxes
The Company's reported loss before income tax benefits for the first
quarter of 1998 was $85.9 million. This compares to a pre-tax profit of
$18.2 million reported in the first quarter of 1997. The loss is
exclusively the result of the accounting rule driven non-cash $80 million
ceiling test provision.
Income Taxes
Income tax benefits were recorded for the 1998 first quarter in the
amount of $26.5 million as a result of the reported pre-tax loss. The
first quarter 1997 provision for taxes was $6.2 million.
LIQUIDITY AND CAPITAL RESOURCES
General
On March 29, 1996, the Company successfully completed an initial
public offering of 6,500,000 shares of Common Stock. The initial public
offering provided the Company with approximately $113 million net of
offering expenses. Proceeds from the offering were used to repay
approximately $35 million of indebtedness under the Company's previous
credit facility, fund capital expenditures and for other general corporate
purposes. The remaining proceeds from the offering, together with cash
flows from operations, were used to fund planned capital expenditures,
including lease acquisitions, commitments, other working capital
requirements and general corporate purposes.
In September 1997, the Company entered into a new five-year $150
million Credit Agreement dated September 23, 1997 (the "Credit Facility")
with The Chase Manhattan Bank, N.A., as administrative agent (the "Agent")
and other lending institutions (the "Banks"). The Credit Facility provides
for an aggregate principal amount of revolving loans of up to the lesser of
$150 million or the Borrowing Base (as defined) as in effect from time to
time, which includes a subfacility from the Agent for letters of credit of
up to $25 million. The Borrowing Base at March 31, 1998 was set at $150
million with $28 million advanced to the Company at that date. The
borrowing base will be redetermined by the Agent and the Banks
semi-annually based upon their usual and customary oil and gas lending
criteria as such exist from time to time. In addition, the Company may
request two additional redeterminations and the Banks may request one
additional redetermination per year.
Indebtedness of the Company under the Credit Facility is secured by a
pledge of the capital stock of each of the Company's material subsidiaries.
Indebtedness under the Credit Facility bears interest at a floating
rate based (at the Company's option) upon (i) the ABR with respect to ABR
Loans or (ii) the Eurodollar Rate for one, two, three or six months (or
nine or twelve months if available to the Banks) Eurodollar Loans, plus the
Applicable Margin. The ABR is the greater of (i) the Prime Rate, (ii) the
Base CD Rate plus 1% or (iii) the Federal Funds Effective Rate plus 0.50%.
The Applicable Margin for Eurodollar Loans varies from 0.50% to 0.875%
depending on the Borrowing Base usage. Borrowing Base usage is determined
by a ratio of (i) outstanding Loans and letters of credit to (ii) the then
<PAGE> 14
effective Borrowing Base. Interest on ABR Loans will be payable quarterly
in arrears and interest on Eurodollar Loans is payable on the last day of
the interest period therefor and, if longer than three months, at three
month intervals.
The Company is required to pay to the Banks a commitment fee based on
the committed undrawn amount of the lesser of the aggregate commitments or
the then effective Borrowing Base during a quarterly period equal to a
percent that varies from 0.20% to 0.30% depending on the Borrowing Base
usage.
In September 1997, the Company issued $150 million of 8(% Senior
Subordinated Notes due 2007 (the "8(% Notes"). Interest on the 8(% Notes
accrues at the rate of 8(% per annum and is payable semi-annually in
arrears on March 15 and September 15 of each year, commencing on March 15,
1998. The 8(% Notes mature on September 15, 2007 unless previously
redeemed. Except under limited circumstances, the 8(% Notes are not
redeemable at the Company's option prior to September 15, 2002.
Thereafter, the 8(% Notes will be subject to redemption at the option of
the Company, in whole or in part, at specified redemption prices, plus
accrued and unpaid interest, if any, thereon to the applicable redemption
date. In addition, upon a change of control (as defined in the indenture
pursuant to which the 8(% Notes were issued) the Company is required to
offer and redeem the 8(% Notes for cash at 101% of the principal amount,
plus accrued and unpaid interest, if any, thereon to the applicable date of
repurchase.
The 8(% Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt (as
defined in the 8(% Indenture) of the Company, which includes borrowings
under the Credit Facility described above. The 8(% Notes rank pari passu
in right of payment with any existing or future senior subordinated debt of
the Company and rank senior in right of payment to all other subordinated
indebtedness of the Company.
In November 1997, the Company completed the acquisition of Coda Energy
Corp. The Company paid an aggregate of $324 million including
approximately $192 million in cash ($150 million plus a $42 million
adjustments for proceeds from the disposition of Taurus Energy Corp.
("Taurus"), a subsidiary of Coda (which occurred on the day prior to
closing of the 1997 Acquisition), assumption of $110 million of long-term
debt outstanding of Coda and issued three year warrants to purchase
1,666,667 shares of Common Stock of the Company at $27.50 per share to the
holders of the outstanding common stock, preferred stock and options to
purchase common stock of Coda. Concurrently with the closing of the
acquisition of Coda, the Company contributed $23 million to Coda that Coda
utilized, together with the funds from the disposition of Taurus, to repay
all of the debt outstanding under Coda's revolving credit facility
(approximately $65 million in principal amount), plus accrued interest
thereon, and such credit facility was thereafter terminated. At Closing,
the Company funded the cash portion of the consideration and the cash
contribution to Coda through cash on hand and borrowings of $84 million
under its Credit Facility.
<PAGE> 15
As of March 31, 1998, the Company also had $110,000,000 principal
amount outstanding under the Coda Notes. Interest on these Notes accrue at
the rate of 10(% per annum and is payable semi-annually in arrears on April
1 and October 1 of each year. Except under limited circumstances, the Coda
Notes are not redeemable at the Company's option prior to April 1, 2001.
Thereafter the Coda Notes will be subject to redemption at specified
prices, plus accrued and unpaid interest, if any, thereon to the applicable
redemption date. On February 25, 1998, the Company merged Coda into Belco
and Belco assumed the obligations under the Coda Notes.
The 10(% Notes are general unsecured obligations of the Company and
are subordinated in right of payment to all existing and future Senior Debt
(as defined) including any bank debt.
In December 1997, the Company entered into two interest rate swap
agreements converting two fixed rate obligations to floating rate
obligations. The first agreement covers $100 million of 8.875% long-term
debt (comparable to the interest rate on the 8(% Notes) and obligates the
Company to pay an initial rate of 8.175% through September 15, 1998.
Thereafter, the rate is redetermined at each six month period through
September 15, 2007. The floating rates are capped at 8.875% through
September 15, 2001 and at 10% from March 15, 2002 through September 15,
2007. The second agreement covers $110 million of 10(% long-term debt
(comparable to the interest rate on the Coda Notes) and obligates the
Company to pay an initial rate of 9.8881% through April 1, 1998.
Thereafter, the rate is redetermined at each six month period through 2003.
Floating rates on this agreement are capped at 10(% through October 1, 1999
and 11.625% from April 1, 2000 through April 1, 2003. The two agreements
will reduce the Company's interest expense by approximately $1 million
through October 1, 1998.
On March 10, 1998 the Company completed the sale of 4.37 million
shares of its Preferred Stock. The Preferred Stock has a liquidation
preference of $25 per share and is convertible at the option of the holder
into shares of the Company's Common Stock at an initial conversion rate of
1.1292 shares of Common Stock for each share of Preferred Stock, equivalent
to a conversion price of $22.14 per share of Common Stock. The Company
received net proceeds from the sale of the Preferred Stock of $105.5
million, which was used to pay down bank indebtedness.
On April 30, 1998 the Company announced that it had entered into an
agreement under which it may invest up to $141 million in Big Bear
Exploration Ltd., a Canadian oil and gas company.
Cash Flow
Net operating cash flow (pre-tax), a measure of performance for
exploration and production companies, is generally derived by adjusting net
income (loss) to eliminate the effects of the non-cash depreciation,
depletion and amortization expense, impairment of oil and gas properties
provision for deferred income taxes and non-cash effects of commodity price
risk management activities. Net operating cash flow before changes in
working capital was approximately $15.8 million and $25.8 million for the
first quarter of 1998 and 1997, respectively. As of March 31, 1998 and
December 31, 1997 the Company had working capital amounting to $37.7
million and $36.8 million, respectively.
<PAGE> 16
Capital Expenditures
Capital expenditures in the first quarter of 1998 were approximately
$61 million including the acquisition of EnerVest properties on February
27, 1998.
The Company intends to fund its future capital expenditures,
commitments and working capital requirements through cash flows from
operations, 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
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.
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 commodity 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 1998 through 1999 and lesser portions of its estimated
production thereafter. The Company continues to evaluate whether to enter
into additional price risk management transactions for 1998 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.
Other
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.
<PAGE> 17
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 the Company 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> 18
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
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
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
Exhibit No.
-----------
27* Financial Data Schedule
------------
* Filed herewith
(b) Reports on Form 8-K:
-------------------
Current report on Form 8-K/A dated November 26, 1997 as amended January 28,
1998
Item 2. Acquisition or Disposition of Assets - On November 26, 1997, Belco
Oil & Gas Corp. completed a merger of Belco Acquisition Sub, Inc. with and
into Coda Energy, Inc. pursuant to an Agreement and Plan of Merger.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired
-----------------------------------------
Schedule A
----------
Consolidated Statements of Operations for each of the two years in the
period ended December 31, 1995 and the 319 days ended December 31, 1996.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Cash Flows for each of the two years in the
period ended December 31, 1995 and the 319 days ended December 31, 1996.
<PAGE> 19
Consolidated Statements of Stockholders' Equity for each of the two years
in the period ended December 31, 1995 and the 319 days ended December 31,
1996.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP concerning the above referenced Consolidated
Financial Statements and Notes.
Unaudited Consolidated Statements of Operations for the 47 days ended
February 16, 1996.
Unaudited Consolidated Statements of Stockholders' Equity for the 47 days
ended February 16, 1996.
Unaudited Consolidated Statements of Cash Flows for the 47 days ended
February 16, 1996.
Pro Forma Consolidated Statement of Operations for the year ended December
31, 1996.
Schedule B
----------
Consolidated Statements of Operations for the 47 days ended February 16,
1996, 227 days ended September 30, 1996, Pro Forma nine months ended
September 30, 1996, three months ended September 30, 1996 and 1997, and
nine months ended September 30, 1997.
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997.
Consolidated Statements of Cash Flows for the 47 days ended February 16,
1996 and 227 days ended September 30, 1996 and nine months ended September
30, 1997.
Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Statements
------------------------------
Schedule C
----------
Unaudited Pro Forma Consolidated Condensed Statements of Operations for the
year ended December 31, 1996 and for the nine months period ended September
30, 1997.
Unaudited Pro Forma Consolidated Condensed Balance Sheet as of September
30, 1997.
Unaudited Pro Forma Supplemental Oil and Gas Disclosures as of December 31,
1996.
<PAGE> 20
(c) Exhibits
--------
Exhibit 2.1 - Agreement and Plan of Merger, dated as of October 31, 1997,
by and among Belco Oil & Gas Corp., Belco Acquisition Sub, Inc. and Coda
Energy, Inc.
Exhibit 23.1 - Consent of Ernst & Young LLP
Exhibit 99.1 - Press Release, dated November 3, 1997, "Belco Oil & Gas
Corp. Agrees to Acquire Coda Energy, Inc. for $324 Million Plus Warrants."
Current report on Form 8-K dated February 24, 1998
Item 5. Other Events - Belco Oil & Gas Corp. reported earnings for the
fourth quarter and year ended December 31, 1997.
Item 7. Financial Statements and Exhibits
Exhibit 99.1 - Belco Oil & Gas Corp. press release dated February 24, 1998
covering financial results for the quarter and year ended December 31, 1997
and 1996.
Current report on Form 8-K dated March 4, 1998
Item 5. Other Events - Belco Oil & Gas Corp. entered into an Underwriting
Agreement with certain underwriters.
Item 7. Financial Statements and Exhibits
Exhibit 1.1 - Underwriting Agreement dated as of March 4, 1998.
Exhibit 4.1 - Certificate of Designations of 6(% Convertible Preferred
Stock.
<PAGE> 21
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: 5/14/98 LAURENCE D. BELFER
--------------------------------------
Laurence D. Belfer
President and Chief Operating Officer
Date: 5/14/98 DOMINICK J. GOLIO
--------------------------------------
Dominick J. Golio
Vice President - Finance and Chief
Financial Officer
</TABLE>
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