<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 JUNE 30, 2000
--------------
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)
13-3869719
(I.R.S. employer
identification no.)
767 Fifth Avenue, 46th Floor
New York, New York
(Address of principal executive offices)
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 June 30, 2000, there were 31,416,700 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
================================================================================
<PAGE>
FINANCIAL STATEMENTS
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, 2000 December 31,
(Unaudited) 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including
restricted cash of $800,000 at
December 31, 1999)........................ $ 3,131 $ 2,105
Accounts receivable......................... 31,704 24,870
Income taxes receivable..................... -- 6,661
Assets from commodity price risk management
activities................................ 5,140 2,879
Commodity Price Risk Management related
funds on deposit.......................... 6,350 --
Other current assets........................ 6,623 3,496
------ ------
Total current assets................... 52,948 40,011
------ ------
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost based on
full cost accounting--
Proved oil and gas properties............. 1,117,514 1,008,261
Unproved oil and gas properties........... 76,269 71,075
Less--Accumulated depreciation, depletion
and amortization........................ (646,885) (619,446)
--------- ---------
Net oil and gas properties.............. 546,898 459,890
------- -------
Building and other equipment.............. 9,405 9,107
Less--Accumulated depreciation............ (3,361) (2,634)
------- -------
Net building and other equipment...... 6,044 6,473
----- -----
OTHER ASSETS.................................. 4,728 4,599
----- -----
Total assets.......................... $610,618 $510,973
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable............................ $ 20,258 $ 17,970
Liabilities from commodity price risk
management activities..................... 54,593 17,822
Accrued interest............................ 7,044 7,098
Other accrued liabilities................... 11,111 5,510
------ ------
Total current liabilities.............. 93,006 48,400
------ ------
LONG-TERM DEBT................................ 380,899 306,744
DEFERRED INCOME TAXES......................... 22,497 33,638
LIABILITIES FROM COMMODITY PRICE RISK
MANAGEMENT ACTIVITIES....................... 24,156 8,219
STOCKHOLDERS' EQUITY:
6-1/2% Convertible Preferred stock, $.01 par
value; 10,000,000 shares authorized;
3,794,600 and 3,985,300 shares issued and
outstanding at June 30, 2000 and December
31, 1999, respectively.................... 38 40
Common stock ($.01 par value, 120,000,000
shares authorized; 31,807,100 and
31,797,300 shares issued at June 30, 2000
and December 31, 1999, respectively)...... 318 318
Additional paid-in capital.................. 295,049 297,225
Retained earnings (deficit)................. (200,985) (177,111)
Treasury Stock, 390,400 and 704,900 shares
at June 30, 2000 and December 31, 1999,
respectively.............................. (2,391) (4,317)
Unearned compensation....................... (1,216) (1,430)
Notes receivable for equity interest........ (753) (753)
----- -----
Total stockholders' equity............. 90,060 113,972
------ -------
Total liabilities and stockholders'
equity............................... $610,618 $510,973
======== ========
</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,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales, net of hedging
activities..........................$54,950 $34,445 $101,746 $65,986
Non-Hedge Commodity Price Risk
Management Activities
- cash settlements (a)............(10,012) 448 (16,899) 926
- non-cash mark-to-market.........(27,413) (15,521) (49,591) (23,015)
Interest and other.................... 250 200 500 400
------- ------- ------- -------
Net revenues...................... 17,775 19,572 35,756 44,297
------- ------- ------- -------
COSTS AND EXPENSES:
Oil and gas operating expenses....... 8,272 7,951 15,201 15,479
Production taxes..................... 3,916 1,929 7,522 4,102
Depreciation, depletion and
amortization....................... 14,389 13,680 28,166 27,012
General and administrative........... 1,607 1,216 3,145 2,474
Interest expenses.................... 7,475 4,975 13,602 10,350
------- ------- ------- -------
Total costs and expenses.......... 35,659 29,751 67,636 59,417
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES.......(17,884) (10,179) (31,880) (15,120)
PROVISION (BENEFIT) FOR INCOME TAXES.... (6,259) (3,562) (11,158) (5,292)
------- ------- ------- -------
NET INCOME (LOSS).......................(11,625) (6,617) (20,722) (9,828)
PREFERRED STOCK DIVIDENDS............... (1,541) (1,726) (3,152) (3,479)
------- ------- ------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCK................................$(13,166) $(8,343) $(23,874)$(13,307)
========= ======== ======== =========
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK, Basic and diluted............. $(0.42) $(0.26) $(0.77) $(0.42)
======= ======= ======= =======
AVERAGE NUMBER OF COMMON SHARES USED IN
COMPUTATION, Basic and diluted........ 31,300 31,600 31,200 31,600
====== ====== ====== ======
</TABLE>
--------------------
(a) Includes cash premiums received.
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
BELCO OIL & GAS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ---------------- Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 3,985 $ 40 31,797 $ 318 $297,225
Coversion of Preferred Stock
to Common Stock (170) (2) -- -- (1,926)
Exercise of Stock Options -- -- -- -- 3
Repurchase of Preferred Stock (20) -- -- -- (302)
Restricted Stock Issued -- -- 10 -- 49
Restricted Stock Forfeited -- -- -- -- --
Restricted Stock Amortized -- -- -- -- --
Net Income (Loss) -- -- -- -- --
Preferred Dividend Paid -- -- -- -- --
Treasury Stock Acquisitions -- -- -- -- --
Payment Received -- -- -- -- --
----- ------ ------ ------ --------
BALANCE, June 30, 2000 3,795 $ 38 31,807 $ 318 $295,049
===== ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Notes
Retained Receivable
Unearned Earnings for Equity
Compensation (Deficit) Interest
------------ --------- ----------
<S> <C> <C> <C>
BALANCE, December 31, 1999 $(1,430) $(177,111) $ (753)
Conversion of Preferred Stock to
Common Stock -- -- --
Exercise of Stock Options -- -- --
Repurchase of Preferred Stock -- -- --
Restricted Stock Issued (49) -- --
Restricted Stock Forfeited -- -- --
Restricted Stock Amortized 263 -- --
Net Income (Loss) -- (20,722) --
Preferred Dividend Paid -- (3,152) --
Treasury Stock Acquisitions -- -- --
Payment Received -- -- --
-------- --------- --------
BALANCE, June 30, 2000 $(1,216) $(200,985) $ (753)
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Treasury
Common Stock Compre-
------------------ hensive
Shares Amount Total Income
------ ------ ----- ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1999 (705) $(4,317) $113,972 $ --
Conversion of Preferred Stock to
Common Stock 315 1,926 -- --
Exercise of Stock Options -- -- 3 --
Repurchase of Preferred Stock -- -- (302) --
Restricted Stock Issued -- -- -- --
Restricted Stock Forfeited -- -- -- --
Restricted Stock Amortized -- -- 263 --
Net Income (Loss) -- -- (20,722) (20,722)
Preferred Dividend Paid -- -- (3,152) --
Treasury Stock Acquisitions -- -- -- --
Payment Received -- -- -- --
----- -------- ------- --------
BALANCE, June 30, 2000 (390) $(2,391) $90,060
===== ======== =======
Comprehensive Income $(20,722)
=========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...............................................($20,722) ($9,828)
Adjustments to reconcile net income (loss) to net
operating cash inflows--
Depreciation, depletion and amortization............. 28,166 27,012
Deferred tax benefit................................. (11,158) (5,292)
Commodity price risk management activities........... 15,081 5,583
Other................................................ 312 57
Changes in operating assets and liabilities -
Commodity price risk management...................... 34,510 15,666
Accounts receivable.................................. (233) 2,765
Commodity price risk management funds on deposit..... (6,350) --
Other current assets................................. (2,934) 82
Accounts payable and accrued liabilities............. 7,833 (4,008)
------ ------
Net operating cash inflows......................... 44,505 32,037
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures............... (46,765) (21,352)
Purchases of oil and gas properties.................... (68,699) (484)
Proceeds from sale of oil and gas properties........... 1,017 2
Other property additions............................... (298) (230)
Changes in other assets................................ 69 (87)
-------- --------
Net investing cash outflows........................(114,676) (22,151)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of bonds.................................... (2,850) --
Repurchases of preferred stock......................... (302) (998)
Long-term borrowings................................... 188,200 7,000
Long-term debt repayments..............................(110,700) (10,500)
Preferred dividend paid................................ (3,152) (3,479)
Other.................................................. 1 --
------ -------
Net financing cash inflows......................... 71,197 (7,977)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 1,026 1,909
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 2,105 2,435
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $3,131 $4,344
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
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 10-K for the calendar year 1999 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.
<PAGE>
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, 1999 financial statements of Belco
Oil & Gas Corp., included in the Form 10-K for the calendar year 1999, 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.
Through June 30, 2000 the Company has reported unrealized CPRM non-cash
gains or losses as a component of revenue which, in Management's opinion, can
materially distort the physical flow of actual revenues received, due to the
volatile nature of commodity prices. In the future, the Company will report
unrealized CPRM non-cash gains or losses under costs and expenses. The impact of
this change, had it been implemented as of June 30, 2000, would have resulted in
restated revenues and expenses as set forth below ($'s in 000's except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, As Reported June 30, As Reclassified
-------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $17,775 $19,572 $45,188 $35,093
======== ======= ======= =======
Total costs and expenses $35,659 $29,751 $63,072 $45,272
======== ======= ======= =======
Net income (loss) applicable to
common stock ($13,166) ($8,343) ($13,166) ($8,343)
======== ======= ======= =======
Net income (loss) per share of
common stock ($0.42) ($0.26) ($0.42) ($0.26)
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, As Reported June 30, As Reclassified
-------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $35,756 $44,297 $85,347 $67,372
======== ======= ======= =======
Total costs and expenses $67,636 $59,417 $117,227 $82,432
======== ======= ======= =======
Net income (loss) applicable to
common stock ($23,874) ($13,307) ($23,874) ($13,307)
======== ======= ======= =======
Net income (loss) per share of
common stock ($0.77) ($0.42) ($0.77) ($0.42)
======== ======= ======= =======
</TABLE>
<PAGE>
For the three months ended June 30, 2000, the Company recorded as required
by existing accounting rules non-hedge commodity price risk management losses of
$37.4 million consisting of $10.0 million in cash settlements and $27.4 million
in unrealized non-cash mark-to-market losses. This compares to a $15.1 million
net loss consisting of $0.4 million in cash settlements received by the Company
and $15.5 million in unrealized non-cash mark-to- market losses reported for the
1999 comparable period. For the first six months of 2000, the Company recorded
non-hedge commodity price risk management losses of $66.5 million consisting of
$16.9 million in cash settlements and $49.6 million in unrealized non-cash
mark-to-market losses due to substantial increases in commodity prices through
June 30, 2000. For the first six months of 1999, the Company recorded non-hedge
commodity price risk management losses of $22.1 million consisting of $0.9
million in cash settlements received and $23.0 million in unrealized non-cash
mark-to-market losses. Letters of credit in the amount of $25 million in favor
of counterparties were outstanding at June 30, 2000 and related to unrealized
non-cash mark-to-market losses at that date.
Note 3 - Capital Stock:
In May 2000, the Company converted 170,000 shares of its 6-1/2% Convertible
Preferred Stock and issued 314,500 shares of Common 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 and six months ended June 30, 2000 and 1999 is
presented in the table below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic net income (loss) per share:
Net loss ($11,625) ($6,617) ($20,722) ($9,828)
Less: Preferred Stock dividends (1,541) (1,726) (3,152) (3,479)
-------- ------- -------- --------
Loss attributable to common
shareholders ($13,166) ($8,343) ($23,874) ($13,307)
======== ======= ========= =========
Weighted average shares of common
stock outstanding 31,300 31,600 31,200 31,600
------ ------ ------- -------
Basic net income (loss) per share ($0.42) ($0.26) ($0.77) ($0.42)
======= ======= ======= =======
Diluted net income (loss) per share:
Weighted average shares of common
stock outstanding 31,300 31,600 31,200 31,600
Effect of dilutive securities:
Preferred stock, warrants and
stock options (1) -- -- -- --
------ ------ ------ ------
Average shares of common stock
outstanding including
dilutive securities 31,300 31,600 31,200 31,600
====== ====== ====== ======
Diluted net loss per share ($0.42) ($0.26) ($0.77) ($0.42)
====== ======= ======= =======
</TABLE>
-------------
(1) Amounts are not included in the computation of diluted net loss per
share because to do so would have been antidilutive.
<PAGE>
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Belco Oil & Gas Corp. and its subsidiaries (the "Company") is an
independent energy company engaged in the exploration for and the acquisition,
exploitation, development and production of natural gas and oil in the United
States within its four core areas, including the Rocky Mountains, the Permian
Basin, the Mid-Continent region and the Gulf Coast. Since its inception in April
1992, the Company has grown its reserve base largely through a balanced program
of exploration and development drilling and through acquisitions. The Company
concentrates its activities primarily in the four core areas in which it has
accumulated detailed geologic knowledge and has developed significant management
and technical expertise. Additionally, the Company structures its participation
in natural gas and oil exploration and development activities to minimize
initial costs and risks, while permitting substantial follow-on investment.
The Company's operations are currently focused in the Rocky Mountains,
primarily in the Green River (which includes the Moxa Arch Trend), Wind River
and Big Horn Basins of Wyoming, the Permian Basin in west Texas, the
Mid-Continent region in Oklahoma and north Texas, and the Gulf Coast, primarily
in Texas. These areas accounted for approximately 99% of the Company's proved
reserves at December 31, 1999. The Company's reserve base was 641 Bcfe at
December 31, 1999 with a reserve life index of 10.6 years, based on 1999
production. During the first six months of 2000, the Company acquired
approximately 85 Bcfe of proved reserves for $68.7 million.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate. Commodity prices are subject to numerous factors beyond the
Company's control, such as economic, political and regulatory developments and
competition from other sources of energy. 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 small premium to the price posted for such
oil. Currently, approximately 63% of the Company's production volumes relate to
the sale of natural gas (based on six Mcf of gas being considered equivalent to
one barrel of oil).
The Company utilizes commodity swaps and options and other commodity price
risk management ("CPRM") transactions related to 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
in compliance with current generally accepted accounting principles as hedging
activities or uses mark-to-market accounting for those contracts that do not
qualify for hedge
<PAGE>
accounting. As of June 30, 2000, the Company has various natural gas and oil
price risk management contracts in place with respect to substantial portions of
its estimated remaining production for calendar year 2000 and with respect to
lesser portions of its estimated production for 2001 and 2002. The Company
expects to reduce the current amount of price risk management contracts that it
has in place over the next 12 to 24 months in an effort to limit its future
exposure to the mark- to-market accounting rules requiring the immediate
recognition of non-cash unrealized gains and losses that cause large
unpredictable swings in reported results of operations and related earnings per
share.
<PAGE>
The following table sets forth certain operations data of the Company for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Oil and Gas Sales, Net of Hedging
Activities ($'s in 000's) $54,950 $34,445 $101,746 $65,986
Weighted Average Sales Prices:
Oil (per Bbl)
- Unhedged $27.57 $16.01 $27.71 $13.68
- Hedge settlements (0.52) 3.27 (0.76) 4.91
------- ------ ------- ------
Net realized $27.05 $19.28 $26.95 $18.59
Gas (per Mcf)
- Unhedged $3.13 $1.79 $2.64 $ 1.68
- Hedge settlements (0.63) (0.03) (0.39) 0.03
----- ----- ----- ------
Net realized $2.50 $1.76 $2.25 $ 1.71
Net Production Data:
Oil (MBbl) 1,047 881 2,014 1,767
Gas (MMcf) 10,645 9,914 21,051 19,408
Gas equivalent (MMcfe) 16,927 15,200 33,136 30,013
Daily production (Mmcfe) 186 167 182 166
Operations Data per Mcfe:
Oil and gas sales revenues
(Unhedged) $3.67 $2.09 $3.36 $1.89
Hedged and non-hedge cash
settlements (1.02) $0.20 $(0.80) $0.34
Oil and gas operating expenses (0.49) (0.52) (0.46) (0.51)
Production taxes (0.23) (0.13) (0.23) (0.14)
General and administrative (0.09) (0.08) (0.09) (0.08)
Depreciation, depletion and
amortization (0.85) (0.90) (0.85) (0.90)
------ ----- ------ ------
Pre-tax operating profit (1) $0.99 $0.66 $0.93 $0.60
===== ===== ===== =====
Operating Cash flow (1) $1.84 $1.56 $1.78 $1.50
===== ===== ===== =====
</TABLE>
-----------------------------
(1) Excludes non-cash mark-to-market commodity price risk management activities,
interest income and interest expense.
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to June 30, 1999
Revenues
During the second quarter of 2000, oil and gas sales revenues ne of hedging
activities increased 60% from $34.4 million to $55.0 million when compared to
the prior year comparable period due principally to substantially higher
commodity prices realized in the second quarter of 2000. Average hedged price
realizations, excluding non-hedge Commodity Price Risk Management activities
("CPRM"), for both oil and natural gas in the second quarter of 2000 compared to
last year's second quarter were higher by 40% and 42%, respectively. Oil
production volume during the second quarter of 2000 increased by 19% and natural
gas production increased by 7% compared to the prior year comparable period.
Natural gas production represented approximately 63% of total Company production
on an Mcfe basis, compared to the 65% produced in the second quarter of 1999.
As a result of escalating commodity prices during the second quarter of
2000, CPRM activities, including hedged and non-hedged transactions, reduced
reported revenues by $44.7 million, including $17.3 million in cash settlements
paid out by the Company ($7.3 million in hedge and $10.0 million in non-hedge)
and $27.4 million in non-cash mark-to-market losses recorded as required by
current accounting rules. In the prior year second quarter when commodity prices
were substantially lower, the Company received $3.1 million in cash settlements
($2.7 million in hedge and $0.4 million in non-hedge) and reported a non-cash
mark-to-market loss of $15.5 million.
Costs and Expenses
Production and operating expenses ("lifting costs") increased to $8.3
million for the second quarter of 2000 when compared to the $8.0 million for the
comparable period in 1999. The increase is primarily due to newly acquired
producing properties. Lifting costs on an equivalent unit basis were $0.49 per
Mcfe in the second quarter of 2000, compared to $0.52 per Mcfe in the second
quarter of 1999. Production taxes increased to $3.9 million from $1.9 million or
to $0.23 from $0.13 per Mcfe due to higher commodity prices.
Depreciation, depletion and amortization ("DD&A"), for the quarter ended
June 30, 2000 was $14.4 million, a $0.7 million increase when compared to the
$13.7 million recorded in the prior year comparable period. This increase is
related to higher production. The DD&A rate per Mcfe is $0.85, a 6% decline when
compared to the prior year second quarter.
General and administrative expense ("G&A") increased 33% in the second
quarter of 2000 to $1.6 million primarily due to lesser amounts of personnel
costs capitalized to the full-cost pool when compared to the $1.2 million
incurred in the second quarter of 1999. The second quarter rate per Mcfe for G&A
costs increased from $0.08 in 1999 to $0.09 in 2000.
Income (Loss) Before Income Taxes
The Company's reported loss before income tax benefits for the second
quarter of 2000 was $17.9 million. This compares to a pre-tax loss of $10.2
million reported in the second quarter of 1999. The increased loss primarily
reflects the impact of the cash and non-cash CPRM activities.
Income Taxes
Income tax benefits were recorded for the 2000 second quarter in the amount
of $6.3 million as a result of the reported pre-tax loss. The second quarter
1999 income tax benefit recorded was $3.6 million.
<PAGE>
Six Months Ended June 30, 2000 Compared to June 30, 1999
Revenues
For the first six months of 2000, oil and gas sales revenues net of hedging
activities increased $35.8 million, or 54% to $101.7 million when compared to
the prior year comparable period primarily the result of both higher production
and higher commodity prices. Natural gas production increased 8% over the prior
year first half. Average Mcfe price realizations net of hedging activities
increased by 40% in the first half of 2000 compared to last year's first six
months. Natural gas production represented approximately 64% of total Company
production on an Mcfe basis compared to the 65% reported for the first six
months of 1999. Oil production increased by 14% over the prior year comparable
period due to new property additions during the first half of the year.
CPRM activities, including hedged and non-hedged transactions, during the
first half of 2000 resulted in reported revenue reductions of $76.2 million
compared to reductions of $12.9 million reported in the prior year comparable
period. The first half 2000 reductions consisted of $26.6 million in actual cash
settlements paid and $49.6 million in non-cash mark-to-market unrealized future
losses related to CPRM activities. In the prior year comparable period, $10.1
million in cash settlements were received while the non-cash mark-to-market
unrealized loss component was $23.0 million.
Costs and Expenses
Production and operating expenses ("lifting costs") during the first half
of 2000 declined 2% to $15.2 million compared to $15.5 million reported in the
prior year comparable period. The decline is related to the addition of new high
production volume properties with lifting costs well below the Company's average
per Mcfe. On an equivalent unit basis, lifting costs were $0.46 per Mcfe for the
first six months of 2000 compared to $0.51 per Mcfe in the first six months of
1999. Production taxes were $0.23 and $0.14 per Mcfe for the first six months of
2000 and 1999, respectively with the increase related to higher commodity
prices.
DD&A for the six months ended June 30, 2000 increased $1.2 million to $28.2
million when compared to the $27.0 million recorded in the prior year comparable
period due to higher production volumes. The first half DD&A rate per Mcfe is
$0.85, a 6% decline when compared to the prior year comparable period when $0.90
per Mcfe was recorded.
G&A costs increased by 27% in the first six months of 2000 to $3.1 million
when compared to the $2.5 million incurred in the first six months of 1999. The
rate per Mcfe for such costs increased from $0.08 to $0.09.
Interest expense is incurred on $147 million of 8-7/8% Senior Subordinated
Notes due 2007 issued in September 1997, $109 million of 10-1/2% Senior
Subordinated Notes due 2006, and bank debt incurred to fund various Company
activities. Interest expense for the six months ended June 30, 2000 increased by
$3.3 million, a 31% increase over the prior year comparable period due to higher
interest rates charged and additional borrowings outstanding under the Company's
Revolving Credit Agreement.
<PAGE>
Income (Loss) Before Income Taxes
The Company's reported loss before income tax benefits for the first six
months of 2000 was $31.9 million. This compares to a pre-tax loss of $15.1
million reported for the first six months of 1999. The 2000 and 1999 first half
reported losses are the result of recognizing the required non-cash
mark-to-market unrealized CPRM losses as required by current accounting rules.
Excluding the effect of the non-cash mark-to-market unrealized CPRM losses
income before income taxes was $17.7 million and $7.9 million for the first half
of 2000 and 1999, respectively.
Income Taxes
Income tax benefits were recorded for the first six months of 2000 in the
amount of $11.2 million as a result of the reported pre-tax loss. The benefit
for income taxes for the comparable six month period of 1999 was $5.3 million.
LIQUIDITY AND CAPITAL RESOURCES
General
In September 1997, the Company entered into a 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"). In June 2000, the Credit Facility was amended and
restated (the "Amended Credit Facility") and now provides for an aggregate
principal amount of revolving loans of up to the lesser of $250 million or the
Borrowing Base (as defined) in effect from time to time, includes a sub-facility
for letters of credit and expires in January 2004. The Borrowing Base at June
30, 2000 was $200 million with $119.5 million advanced to the Company at that
date. The Borrowing Base is 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 Amended Credit
Facility is secured by a pledge of the capital stock of each of the Company's
material subsidiaries.
Indebtedness under the Amended 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 (as defined) for one, two, three or six months (or
nine or twelve months if available to the Banks) Eurodollar Loans (as defined),
plus the Applicable Margin. The ABR is the greater of (i) the Prime Rate (as
defined), (ii) the Base CD Rate (as defined) plus 1% or (iii) the Federal Funds
Effective Rate (as defined) plus 0.50%. The Applicable Margin for Eurodollar
Loans varies from 1.125% to 1.625% depending on the Borrowing Base usage.
Borrowing Base usage is determined by a ratio of (i) outstanding Loans (as
defined) and letters of credit to (ii) the then effective Borrowing Base.
Interest on ABR Loans is payable quarterly in arrears and interest on Eurodollar
Loans is payable on the last day of the interest period therefore 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 0.25% to 0.50% depending on the Borrowing Base usage.
The Company entered into interest rate swap agreements convertin two
long-term debt fixed rate obligations to floating rate obligations as follows:
<PAGE>
<TABLE>
<CAPTION>
Agreement Transaction Fixed Floating Floating Rate
Amount Date Rate Rate Expiration Date
------ --------- ----------- ----- ----------------------
<S> <C> <C> <C> <C>
$100 million 12/97 8.875% 8.875% September 15, 2000 (a)
$85 million 12/97 10.500% 11.25% October 1, 2000 (a)
$50 million 1/98 8.875% 8.875% September 15, 2000 (a)
-----------------------
(a) Floating rate is redetermined at each six month period following the
expiration through September 15, 2007 currently capped.
The agreements obligate the Company to actually pay the indicate floating
rate rather than the original fixed rate. The floating rates are capped at
8-7/8% through September 15, 2001 and at 10% from March 15, 2002 through
September 15, 2007 on the 8-7/8% Notes and capped at 10-1/2% through October 1,
1999 and 11.625% from April 1, 2000 through April 1, 2003 on the 10-1/2% Notes.
The Company's Board of Directors authorized the purchase from time to time,
in the open market or in privately negotiated transactions, shares of its Common
and 6-1/2% Convertible Preferred Stock, in an aggregate amount not to exceed $10
million. The current $10 million authorization is in addition to the $10 million
that was exhausted in December 1999. Through June 30, 2000, the Company
purchased 20,700 shares of its Preferred Stock for a total cost of $0.3 million
pursuant to the existing authorization.
In May 2000, the Company converted 170,000 shares of its 6-1/2% Convertible
Preferred Stock and issued 314,500 shares of Belco Oil & Gas Corp. Common Stock.
The liquidation preference of the Preferred Stock converted and retired is $4.25
million.
In April 2000, the Company closed a $24.4 million acquisition of oil and
gas properties adding approximately 51 Bcfe of proved reserves to the Company's
reserve base. The transaction was financed through additional borrowings under
the Credit Facility.
In February 2000, the Company closed a $40.5 million acquisition of oil and
gas properties expected to add approximately 2,400 BOE per day to the existing
production base. The transaction was financed through additional borrowings
under the Credit Facility.
In January 2000, the Company purchased $3 million face value of its 8-7/8%
Senior Subordinated Notes due 2007 at a discount in the open market resulting in
a modest gain.
Cash Flow
Operating cash flow, a measure of performance for exploration and
production companies, is generally derived by adjusting net income to eliminate
the effects of the non-cash components included in the net income calculation
such as depreciation, depletion and amortization expense, provision for deferred
income taxes, ceiling test provisions, and the non-cash effects of investing and
CPRM activities. Operating cash flow before Balance Sheet items was
approximately $23.9 million in the second quarter of 2000, a 26% increase over
the prior year second quarter of $19.0 million. The Company had working capital
deficit of $40.1 million as of June 30, 2000 compared to the $14.2 million
deficit as of March 31, 2000. The deficit is created by the recording of
non-cash mark-to-market losses related to derivatives activities and recorded
under current obligations in the balance sheet as required by current accounting
rules. Excluding the mark-to-market items, working capital
<PAGE>
would have been positive $9.4 million at June 30, 2000 before recognizing the
unused $55.5 million available under the Company's Revolving Credit Facility.
Capital Expenditures
Year 2000 capital expenditures are currently estimated at $130.0 million,
including approximately $68.7 million in property acquisitions made through June
30, 2000.
The Company intends to fund its future capital expenditures, commitments
and working capital requirements through cash flows from operations, borrowings
under the Amended 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 Amended Credit Facility, the Company has
the discretion and ability to adjust its capital budget. The Company believes
that it will have sufficient capital resources and liquidity to fund its capital
expenditures and meet all of 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 CPRM transactions exceed certain levels.
With the primary objective of achieving more predictable revenues and cash
flows, the Company has entered into CPRM 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 reported financial 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 2000 and lesser portions of its estimated production thereafter. The Company
continues to evaluate whether to enter into additional price risk management
transactions for 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.
The Company expects to incur additional hedge and non-hedge related cash
settlement costs throughout the second half of calendar year 2000 assuming
commodity prices remain at current levels. This cash settlement amount is
currently estimated at approximately $42 million utilizing the June 30, 2000
forward price curve applied to volumes of oil and gas expected to be produced
during the six month period ending December 31, 2000. This estimated amount can
increase or decrease if commodity prices rise or decline from the current levels
used in developing this estimate. As cash settlements are made on volumes
produced, no additional losses are expected to be recorded, unless actual prices
increase above estimated future prices used in the June 30, 2000 mark-to-market
calculation. Subsequent to June 30, 2000, both oil and natural gas futures
prices have declined slightly and if such conditions persist, the Company may be
required to record mark-to-market unrealized gains representing a reversal of
previously reported mark-to-market unrealized losses.
<PAGE>
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.
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposures relate primarily to commodity prices,
interest rates and marketable equity securities. The Company enters into various
transactions involving commodity price risk management activities involving a
variety of derivatives instruments. In addition, the Company entered into
interest rate swap agreements to reduce current interest burdens related to its
fixed long- term debt. The derivatives instruments are generally put in place to
limit the risk of adverse oil and natural gas price movements, however, such
instruments can limit future gains resulting from upward favorable oil and
natural gas price movements. Recognition of both realized and unrealized gains
or losses are reported currently in the Company's financial statements as
required by existing generally accepted accounting principles. The cash flow
impact of all derivative related transactions is reflected as cash flows from
operating activities.
As of June 30, 2000, the Company had substantial derivative financial
instruments outstanding and related to its market risk management program. See
Item 1, Note 2 and Item 2, "Management's Discussion And Analysis of Financial
Condition And Results of Operations" for additional information related to the
Company's market risk management activities during the first six months of 2000.
There has not been a material change in the Company's exposure to commodity
price and interest rate risk since the date of the 1999 Form 10-K filing.
<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
Shareholders present or represented by proxy at the Annual Meeting on May
16, 2000 elected the following directors: Graham T. Allison, Daniel C. Arnold,
Laurence D. Belfer, Robert A. Belfer, Alan D. Berlin, Grant W. Henderson and
Jack Saltz. Of the 26,950,545 shares represented at the meeting, 26,027,180
(96.6%) were voted for Dr. Allison, 26,027,180 (96.6%) were voted for Mr.
Arnold, 26,024,680 (96.6%) were voted for Mr. L. Belfer, 25,302,268 (93.9%) were
voted for Mr. R. Belfer, 26,027,180 (96.6%) were voted for Mr. Berlin,
26,025,080 (96.6%) were voted for Mr. Henderson and 26,027,280 (96.6%) were
voted for Mr. Saltz.
Two proposals by the Board of Directors were approved by shareholders at
the Annual Meeting, with the following vote tabulation:
Approval of the Amendment to the Company's 1996 Stock Incentive Plan
--------------------------------------------------------------------
Shares For Shares Withheld/Against Shares Excepted/Abstained
---------- ----------------------- -------------------------
25,808,143 / 95.8% 1,126,632 / 4.2% 15,770 / 0.1%
Approval of Auditors
--------------------
Shares For Shares Withheld/Against Shares Excepted/Abstained
---------- ----------------------- -------------------------
26,859,758 / 99.7% 46,800 / 0.2% 43,987 / 0.2%
ITEM 5 - OTHER INFORMATION - NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No.
-----------
10.1* Amended and Restated Credit Agreement dated as of June 30, 2000 by
and among Belco Oil & Gas Corp. (the "Borrower"), and The Chase Manhattan Bank,
as administrative agent, and certain financial institutions named therein as
lenders the "Lenders").
10.2* First Amendment to Belco Oil & Gas Corp. 1996 Stock Incentive Plan.
27* Financial Data Schedule
-------------------
* Filed herewith
Certain of the exhibits to this filing contain schedules which have been
omitted in accordance with applicable regulations. The Registrant undertakes to
furnish supplementally a copy of any omitted schedule to the Securities and
Exchange Commission upon request.
(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>
<TABLE>
<S> <C>
Date: 8/14/00 /s/ LAURENCE D. BELFER
----------------------------------------
Laurence D. Belfer, Vice-Chairman
Date: 8/14/00 /s/ DOMINICK J. GOLIO
----------------------------------------
Dominick J. Golio, Senior Vice President
-Finance and Chief Financial Officer
</TABLE>
