<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 1-12530
ESENJAY EXPLORATION, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 73-1421000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 NORTH WATER STREET, SUITE 1100
CORPUS CHRISTI, TEXAS 78471
(Address of principal executive offices including zip code)
(512) 883-7464
(Issurer's telephone number including area code)
FRONTIER NATURAL GAS CORPORATION, 500 DALLAS STREET,
SUITE 2920, HOUSTON, TEXAS 77002
(Former name, former address and formal fiscal year,
if changed since last year)
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 [ ]
1,655,984 shares as the registrant's common stock were outstanding as
of May 19, 1998.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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<PAGE>
ESENJAY EXLORATION, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. Financial Statements - General Information .................. 3
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 ...................................... 4
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997.................. 5
Condensed Consolidated Statements of Cash Flow for the
three months ended March 31, 1998 and 1997.................. 6
Notes to Condensed Consolidated Financial statements......... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
PART II. OTHER INFORMATION.......................................... 17
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL
The Condensed Consolidated Financial Statements herein have been
prepared by the Company without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). As applicable under
such regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The Company
believes the presentation and disclosures herein are adequate to make the
information not misleading, and the financial statements reflect all
elimination entries and normal adjustments which are necessary for a fair
presentation of the results of operations for the three months ended March
31, 1998 and 1997.
Operating results for interim periods are not necessarily indicative of
the results for full years. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements for the year ended December 31, 1997 and
the related notes thereto included in Form 10-KSB and 10KSB/A as filed with
the SEC.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ESENJAY EXLORATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 188,495 $ 690,576
Accounts receivable, net of allowance for
doubtful accounts of $7,915 at March 31, 1998
and 15,488 at December 31, 1997 176,507 221,864
Prepaid expenses and other 141,074 249,328
Current portion notes receivable from EPC 466,664 --
Receivables from affiliates 97,765 105,171
------------ ------------
Total current assets 1,070,505 1,266,939
Property and equipment:
Gas and oil properties, at cost-
successful efforts method of accounting 3,635,538 3,235,848
Other property and equipment 1,151,592 1,169,127
------------ ------------
4,787,130 4,404,975
Less accumulated depletion, depreciation
and amortization (1,295,435) (1,260,605)
------------ ------------
3,491,695 3,144,370
Other assets 513,856 164,699
Notes receivable from EPC 1,283,336 --
------------ ------------
Total assets $ 6,359,392 $ 4,576,008
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1998 1997
--------- ------------
Current liabilities:
Accounts payable $ 824,440 $ 911,396
Revenue distribution payable 74,325 68,131
Current portion of long-term debt 988,360 401,085
Accured and other liabilities 331,964 299,704
------------ ------------
Total current liabilities 2,219,089 1,680,316
Long-term debt 1,846,165 22,680
Non-recourse debt 864,000 864,000
Accured interest on non-recourse debt 227,114 194,274
Other long-term liabilities -- 9,918
------------ ------------
Total liabilities 5,156,368 2,771,188
Commitments and contingencies
Stockholders' equity:
Cumulative convertible preferred stock $.01 par
value; 5,000,000 shares authorized; 85,961
shares issued and outstanding at
March 31, 1998 and December 31, 1997
($859,610 aggregate liquidation preference
at March 31, 1998 and December 31, 1997) 860 860
Common Stock:
Class A common stock, $.01 par value;
40,000,000 shares authorized;
1,655,984 outstanding at March 31, 1998 and
outstanding December 31, 1997 (1) 16,560 16,560
Unamortized value of warrants issued (20,371) (27,163)
Additional paid-in capital 14,751,425 14,751,425
Accumulated deficit (13,545,450) (12,936,862)
------------ ------------
Total stockholders' equity... 1,203,024 1,804,820
------------ ------------
Total liabilities and stockholders' equity $ 6,359,392 $ 4,576,008
------------ ------------
------------ ------------
</TABLE>
(1) After giving effect to the 1:6 reverse stock split effected on
May 14, 1998. (See Note 6.)
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ESENJAY EXLORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Gas and oil revenues $ 48,503 $ 327,435
Realized gain (loss) on commodity transactions (47,875) (121,937)
Unrealized loss on commodity transactions (51,011) --
Gain on sale of assets 2,875 132,035
Operating fees 6,992 14,234
Other revenues 23,930 53,880
---------- -----------
Total revenues (16,586) 405,647
---------- -----------
Costs and expenses:
Lease operating expense 69,773 96,698
Production taxes (1,090) 8,784
Transportation and gathering costs 639 90,394
Depletion, depreciation and amortization 53,568 132,774
Exploration costs 3,560 852,626
Interest expense 19,223 4,133
General and administrative expense 459,014 572,260
Delay rentals (12,685) --
---------- -----------
Total costs and expenses 592,002 1,757,669
---------- -----------
Loss before provision for income taxes (608,588) (1,352,022)
Benefit (provision) for income taxes -- --
---------- -----------
Net loss (608,588) (1,352,022)
Cumulative preferred stock dividend 25,788 25,788
---------- -----------
Net loss applicable to common stockholders $ (634,376) $(1,377,810)
---------- -----------
---------- -----------
Net loss per common share (1) $ (0.38) $ (0.84)
---------- -----------
---------- -----------
Weighted average number of common shares
outstanding (in thousands) (1) 1,655,984 1,644,318
</TABLE>
(1) After giving effect to the 1:6 reverse stock split effected on May 14,
1998. (See Note 6.)
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ESENJAY EXLORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended March 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (608,588) $(1,352,022)
Adjustments to reconcile net loss to net
cash (used) in operating activities:
Depletion, depreciation and amortization 53,568 132,774
Gain on sale of assets (2,875) (132,035)
Amortization of financing costs and warrants 21,564 30,343
Unrealized loss on commodity transactions 51,011 --
Exploration costs 3,560 852,626
Changes in operating assets and liabilities
Trade and affiliate receivables 52,763 (23,282)
Prepaid expenses and other 108,254 170,295
Other assets (359,188) (1,028)
Accounts payable (86,956) (11,760)
Revenue distribution payable 6,194 (173,684)
Accrued and other 4,171 (158,993)
----------- -----------
Net cash (used) in operating activities (756,522) (348,280)
----------- -----------
Cash flows used in investing activities:
Capital expenditures - gas and oil properties (403,250) (1,330,312)
Capital expenditures - other property and equipment (13,328) (73,646)
Notes receivable from EPC (1,750,000)
Proceeds from sale of assets 15,000 540,568
----------- -----------
Net cash provided by (used) in investing
activities (2,151,578) (863,390)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt 3,000,000 225,534
Repayments of long-term debt (593,981) (74,443)
Preferred stock dividends -- (25,788)
----------- -----------
Net cash provided by (used) in financing
activities 2,406,019 125,303
----------- -----------
Net increase (decrease) in cash and cash equivalents (502,081) (1,086,867)
Cash and cash equivalents at beginning of period 690,576 4,956,686
----------- -----------
Cash and cash equivalents at end of period $ 188,495 $ 3,869,789
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 98,325 $ 34,157
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ESENJAY EXLORATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited condensed consolidated financial statements of
Esenjay Exploration, Inc. and its subsidiaries and its predecessor Frontier
Natural Gas Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. Interim results are not necessarily indicative of results for a
full year.
A summary of the Company's significant accounting policies is
presented on pages 30 and 31 of its 1997 Form 10KSB/A filed with the SEC.
Users of financial information are encouraged to refer to the footnotes
contained therein when reviewing interim financial results. There have been
no material changes in the accounting policies followed by the Company during
1998.
The accompanying interim financial statements contain all the material
adjustments, which are in the opinion of management, consistent with the
adjustments necessary to present the fairly stated consolidated financial
position, results of operations, cash flows and stockholder's equity of
Esenjay Exploration, Inc. for the interim period. Certain prior period
amounts have been reclassified to conform with the current period
presentation.
7
<PAGE>
2. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Note payable pursuant to a credit agreement
with a bank of $218,888 at March 31, 1998 and
$293,888 at December 31, 1997, interest at
LIBOR rate (reserve adjusted), plus one and
seven-eights percent (1.875%) (7.25% at March
31, 1998 and December 31, 1997), payable in
monthly installments, due in various monthly
amounts through December 1998, collateralized
by producing oil and gas properties; net of
discount of $14,224 at March 31, 1998 and
$18,966 at December 31, 1997 $ 204,664 $ 274,922
Non-recourse loan, payable out of an 8% ORRI on
the Starboard Prospect, interest accrued at 15% 864,000 864,000
Notes payable to bank, interest at 7.49% to
12.5%, payable in Monthly installments, due in
various amounts through 2001, collateralized by
other property and equipment 29,861 48,843
Note payable, interest at 12%, payable monthly,
principal due December 31, 1997 100,000 100,000
Note payable pursuant to a credit agreement
with an energy Lending institution, $2,500,000
at March 31, 1998, interest at prime rate plus
4% payable monthly, principal due in eleven
monthly installments commencing August 31, 1998 2,500,000 --
----------- -----------
3,698,525 1,287,765
Less current portion 988,360 401,085
----------- -----------
$ 2,710,165 $ 886,680
----------- -----------
----------- -----------
</TABLE>
On January 3, 1996, the Company entered into a $15,000,000 credit agreement
with a bank. The agreement provided for the immediate funding of $4,000,000
which was used to terminate the Gas Sales Agreement and repay the deferred
gas revenues incurred under the Gas Sales Agreement, payoff the note payable
to a bank due August 1, 1996, pay the bank fees related to the financing with
the remainder being used to pay current liabilities. The remaining funds
will be available for specified future drilling and acquisition activities of
the Company subject to the approval of the bank. The Company repaid a
substantial portion of this borrowing with proceeds from the sale of its N.E.
Cederdale properties in September of 1996. Due to this early repayment of
borrowings, the Company reduced debt issuance costs by $293,000 and discount
on notes payable by $207,000 and recorded these amounts as interest expense.
The loan is secured by a mortgage on all of the Company's significant
producing properties. As part of the credit agreement, the Company is
subject to certain covenants and restriction, among which are the limitations
on additional borrowing, and sales of significant properties, working
capital, cash, and net worth maintenance requirements and minimum debt to net
worth ratio. As additional consideration for the loan, the Company assigned
the bank an overriding royalty interest in the mortgaged properties. The
required covenants during 1998 are as follows:
<TABLE>
Covenant, as defined
-----------------------------
<S> <C>
Tangible Net Worth $5,000,000
Current Ratio 1.1 : 1.0
Debt to Capitalization 0.6 : 1.0
Cash Flow Ratio 3.0 : 1.0
Cash on Hand $ 200,000
Working Capital $ 400,000
</TABLE>
8
<PAGE>
The Company has not been able and does not believe it will be able to
comply with certain of the covenants. The Company has obtained a waiver of
the covenants through June 30, 1998. Management believes that the Company
will require an additional waiver or waivers during 1998.
In addition, the Company entered into an interest rate swap guaranteeing
a fixed interest rate of 8.28% on the loan, and the Company will have paid
fees of one-eighth of 1% (.0125%) on the unused portion of the commitment
amount. On April 24, 1998, the Company settled this swap agreement resulting
in a realized loss of $28,500.
On March 12, 1996, the Company completed a financial package with a
group funded by a public utility to evaluate and develop a project in
Terrebonne Parish, Louisiana. This group will participate in 48% of all
costs of evaluation and development of the project area and provided a
non-recourse loan to fund 48% of the Company's share of certain leasehold and
seismic evaluation costs of the project. The loan is secured by a mortgage
on the Company's interest in the project. As of March 31, 1998, the Company
has received advances aggregating $864,000 on the non-recourse loan. The
non-recourse loan will be paid solely by the assignment of an 8% overriding
royalty interest in the future revenues of the financed project. The loan is
now fully funded.
In conjunction with the Acquisition Agreement, Aspect committed to lend
the Company up to $1,800,000, and in January and February advanced $500,000
on said credit facility. The facility was repaid by the Company on February
23, 1998, when the Company entered into a $7,800,000 credit agreement with
Duke Energy Financial Services, Inc. The new credit facility provides up to
$4,800,000 prior to closing of the transactions set forth in the Acquisition
Agreement, $1,800,000 of which can be used directly by the Company and
$3,000,000 to be utilized solely to loan to EPC to pay exploratory costs
incurred on the assets acquired from EPC after the effective date of the
acquisitions and prior to closing thereof. An additional $3,000,000 became
available to the Company after closing of the Acquisitions to pay additional
exploratory costs and to fund the costs of redemption of the Company's
convertible preferred stock. The credit facility bears interest at a
national prime rate plus 4%. In addition, the lender will be paid cash
payments equal to an overriding royalty of 0.6% of the Company's interest in
wells drilled by the Company while the credit facility is outstanding. The
lender also has a right to gather, process, transport and market, at
competitive market rates, natural gas produced from a majority of the
projects the Company intends to acquire pursuant to the Acquisitions. The
facility is secured by mortgages on most of the Company's undeveloped
exploration projects. The assets acquired pursuant to the Acquisition
Agreement are also subject to such mortgages. The facility is repayable in
eleven monthly payments equal to 1/30 of the principal plus interest, plus a
final monthly payment of all remaining principal plus interest commencing
August 31, 1998, or sooner in the event the Company sells interests in the
collateral or closes any underwritten public offering of securities.
3. DISPOSITION OF OIL AND GAS PROPERTIES
In the first quarter of 1997 the Company divested its interest in a well
located in Oklahoma and promoted its interest in a prospect located in South
Louisiana for a total of $381,321 and realized a gain of $166,143. This gain
was partially offset by a realized loss of $34,108 which was associated with
the relocation of the Company headquarters to Houston, Texas. There was no
such activity in the first quarter of 1998.
4. NOTES RECEIVABLE FROM EPC
The Duke Energy Financial Services, Inc. credit agreement provides for
up to $4,800,000 prior to the closing of the transactions provided for in the
Acquisition Agreement, of which $3,000,000 was used to make loans to EPC to
pay exploratory costs incurred on the assets to be acquired by the Company
which costs were incurred after the effective date of the Acquisition
Agreement and prior to closing. This credit facility bears interest at a
national prime rate plus 4%. The facility is repayable in eleven monthly
payments equal to 1/30 of the principal plus interest, plus a final monthly
payment of all remaining principal plus interest commencing August 31, 1998.
As of March 31, 1998, the funds expended in connection with these exploratory
costs were $1,750,000, of which $466,664 represents the current portion and
$1,283,336 represents the long-term portion.
5. COMMITMENTS AND CONTINGENCIES
The Company previously entered into employment agreements with two
officers which covered periods through December 31, 1999. In 1997 the
Company entered into incentive agreements and contract settlement agreements
with the two officers. Pursuant to the incentive agreements and contact
settlement agreements, in the event the transactions
9
<PAGE>
provided for in the Acquisition Agreement closed, or in the event there is
another transaction which results in a change of control of the Company, it
will pay incentive payments totaling $246,000, as well as contract settlement
payments totaling $246,000 to said officers. Each of the incentive payments
and the contract payments may be paid in the form of promissory notes due not
later than September 30, 1998. Upon closing of the transactions provided for
in the Acquisition Agreement the employment agreements were settled by
execution of said promissory notes.
The Company is a party to various lawsuits arising in the normal course
of business. Management believes the ultimate outcome of these matters will
not have a material effect on the Company's consolidated financial position,
results of operations and net cash flows.
Pursuant to the credit agreement with the bank, the Company entered into
a natural gas swap agreement on 62,500 MMBTU of natural gas per month at
$1.566 per MMBTU for Mid-Continent gas for the period from April 1, 1996
through January 31, 1999. The swap was amended to 31,250 MMBTU on September
25, 1996, due to the sale of the N.E. Cedardale field. The Company recorded
a loss of $212,000 in connection with this reduction in quantities covered by
the swap agreement. Currently the Company's monthly natural gas production
is substantially less than the natural gas swap that is in place. The total
unrealized loss on the amended swap agreement was $179,947 at March 31, 1998.
6. SUBSEQUENT EVENT
On May 14, 1998 a Special Meeting of Stockholders of the Company was held
pursuant to a solicitation of proxy mailed on or about April 24, 1998 to all
the stockholders of record as of the close of business on April 1, 1998. The
stockholders approved and ratified the following:
(i) the approval of the Acquisition Agreement and Plan of Exchange dated
January 19, 1998 between the Company and EPC and Aspect;
(ii) the approval of a recapitalization of the Company using a reverse split
vehicle equivalent to 1/6 of the presently outstanding Common Stock;
(iii) the approval of the reincorporation of the Company in the state of
Delaware and to change the Company's name to Esenjay Exploration,
Inc.; and
(iv) the election of seven directors.
As a result of the above stockholders actions, the Acquisitions were
closed, the preferred stock has been called for redemption, and the
recapitalization, reincorporation and name change were effected.
Accordingly, all numbers of common shares and per share calculations have
been restated to reflect the 1:6 reverse stock split.
The Acquisition Agreement calls for the Company to issue up to 5,165,260
shares of Common Stock after giving effect to the reverse split to EPC in
exchange for undeveloped oil and gas prospects and to issue up to 4,941,440
shares of Common Stock after giving effect to the reverse split to Aspect for
the Aspect assets. The combined assets of Aspect and EPC have a historical
full cost basis of $19.9 million and a fair market value of $54,200,000. In
addition, after the effective date and prior to the date of closing, EPC
incurred approximately $3,800,000 in exploration and development costs
associated with the prospects and Aspect incurred approximated $3,955,000 in
such costs, all of which incurred costs are for the account of the Company.
The pro forma condensed consolidated statement of operations data for
the year ended December 31, 1997 and for the three months ended March 31,
1998 combine the Company's historical information as adjusted to give effect
to the Acquisitions as if they had occurred on January 1, 1997. The pro
forma condensed balance sheet data as of March 31, 1998 is presented as if
the Acquisitions had been consummated on that date.
10
<PAGE>
STATEMENT OF OPERATIONS DATA
<TABLE>
Three months
ended Year ended
March 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Revenues $ (16,586) $ 908,609
Production & exploration costs 1,316,298 8,585,067
Interest expense 180,852 687,422
General & administrative expenses 819,014 3,553,812
Net loss $ (2,386,318) $ (12,582,956)
------------ -------------
------------ -------------
Net loss per common share $ (.20) $ (1.07)
------------ -------------
------------ -------------
Weighted average common shares
outstanding 11,812,684 11,803,011
</TABLE>
<TABLE>
BALANCE SHEET DATA March 31,
1998
------------
<S> <C>
Cash and cash equivalents $ 338,495
Working capital (deficit) (3,118,446)
Net properties and equipment 60,691,695
Total assets 62,523,730
Long-term debt, including current portion 6,601,129
Preferred stock --
Paid-in capital 66,876,830
Stockholders' equity 53,429,136
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis reviews Esenjay Exploration,
Inc.'s and/or its predecessor Frontier Natural Gas Corporation's operations
for the three month periods ended March 31, 1998 and 1997 and should be read
in conjunction with the consolidated financial statements and notes related
thereto. Certain statements contained herein that set forth management's
intentions, plans, beliefs, expectations or predictions of the future are
forward-looking statements. It is important to note that actual results
could differ materially from those projected in such forward-looking
statements. The risks and uncertainties include but are not limited to
potential unfavorable or uncertain results of 3-D seismic surveys not yet
completed, drilling costs and operational uncertainties, risks associated
with quantities of total reserves and rates of production from existing gas
and oil reserves and pricing assumptions of said reserves, potential delays
in the timing of planned operations, competition and other risks associated
with permitting seismic surveys and with leasing gas and oil properties,
potential cost overruns, regulatory uncertainties and the availability of
capital to fund planned expenditures as well as general industry and market
conditions.
OVERVIEW
In mid-1996, the Company refocused its activities from acquiring gas
reserves principally in the Mid-Continent region of the United States to
concentrate on exploration and related development drilling projects in
Southern Louisiana and along the Gulf Coast region of Alabama, Mississippi
and Texas. The Company's most significant project (prior to the acquisitions
described below) had been its Starboard Project in Terrebonne Parish,
Louisiana, which is 3-D seismic based and which was a primary focus in 1996
and 1997, and which project has now reached
11
<PAGE>
the drilling phase. During 1996 and 1997, the Company's drilling
activities, which were based significantly on 2-D seismic data were largely
unsuccessful. This fact, along with an unexpected drop in production from the
Company's Mobile Bay area wells reduced the Company's cash and capital
resources at the time the drilling phase of the Starboard Project was
approaching.
To address the Company's capital needs, the Board of Directors, at its
meeting on August 12, 1997, directed management to look for potential assets to
acquire in exchange for the Company's Common Stock, to identify and review
potential business consolidation opportunities, identify potential partners to
help fund the Company's proposed drilling activities on the Starboard Project
and in other locations, and to consider any other avenues to strengthen the
Company's capital resources and diversify its exploration opportunities. The
Board also directed management to reduce overhead wherever prudently possible
and the Company retained an investment advisor to aid in achieving these
objectives.
The Company explored a series of such transactions and the Board, after
receipt of the advice of management and its investment adviser, and receipt
of due diligence reports and other materials, unanimously agreed that a
transaction with Aspect Resources LLC ("Aspect") and Esenjay Petroleum
Corporation ("EPC") was the best option for the Company's shareholders. This
process led to the Company entering an Acquisition Agreement and Plan of
Exchange dated as of January 19, 1998 as amended (the "Acquisition
Agreement") among the Company, EPC, and Aspect. This Acquisition Agreement
and certain provisions of it required approval of the shareholders of the
Company. At a special meeting of shareholders held on May 14, 1998 the
shareholders approved the Acquisition Agreement and they approved a
recapitalization of the Company pursuant to which each outstanding share of
common stock would convert into one-sixth (1/6) of a share of new common
stock (the "Reverse Split"), and the shareholders approved a plan and
agreement of merger pursuant to which the Company would reincorporate in the
state of Delaware and would change its name to Esenjay Exploration, Inc. (the
"Reincorporation"), and the shareholders elected seven directors.
On May 14, 1998 after the Special Meeting of shareholders, the Company
closed the transactions provided for in the Acquisition Agreement,
implemented the Reverse Split, and completed the Reincorporation. In
addition, as required by the Acquisition Agreement, the Company called for
redemption all of its issued and outstanding cumulative convertible preferred
stock. The result of the foregoing is that the Company conveyed a
substantial majority of its Common Stock to acquire an array of significant
technology enhanced natural gas oriented exploration projects, many of which
are ready to drill including eight of which were drilled subsequent to the
effective date of the acquisitions of November 1, 1997. The Company believes
the Acquisitions will facilitate expanded access to capital markets due to
the value and diversity of its exploration project portfolio. The Company
also believes the members of EPC's management that joined the Company after
consummation of the acquisitions significantly enhanced the Company's
management team.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
REVENUE. Total revenues decreased 104.09% from $405,647 for the quarter
ended March 31, 1997 to a loss of $16,586 for the quarter ended March 31, 1998.
Total gas and oil revenues decreased 85.19% from $327,435 to $48,503.
The decrease in gas and oil revenues was primarily attributable to ceased
production for the Mobile Bay wells which came on stream in December of 1995.
Gas and oil revenues associated with Mobile Bay declined from $131,087 for
the quarter ended March 31, 1997, compared to no revenues for the quarter
ended March 31, 1998. A contributing factor to the decline in gas and oil
revenues was the sale of other interests and gas price fluctuations. The
Company recorded gas and oil revenues associated with these other interests
of $46,696 for the first quarter ended March 31, 1997.
Gain on sale of assets decreased by $129,160 from $132,035 reported in
the first quarter 1997 to $2,875 reported in the first quarter of 1998.
Operating fees to the Company decreased from $14,234 in the first quarter of
1997 to $6,992 in the first quarter of 1998 due to a lower number of operated
wells. The Company realized losses from various commodity transactions
totaling $47,875 in the first quarter of 1998, compared to $121,937 in the
first quarter of 1997. These swap agreement losses were attributable to
various transactions in which the Company hedged its future gas delivery
obligations as a requirement for its bank loan facility. The determination
of hedging gains or losses is directly affected by the spot gas prices being
higher or lower than the hedge contracts in place for the same period. In
addition to the realized losses from commodity transactions, the Company
accrued $51,011 for
12
<PAGE>
unrealized losses for the quarter ended March 31, 1998 due to actual
production being less then guaranties hedged. There were no accrued losses
for the quarter ended March 31, 1997. In addition to the foregoing, the
Company had other revenues of $23,930 in the first quarter of 1998 as
compared to $53,880 in the first quarter of 1997.
COSTS AND EXPENSES. Total costs and expenses of the Company decreased
66.32% from 1,757,669 in the first quarter of 1997 to $592,002 in the first
quarter of 1998. The decrease in costs and expenses was primarily
attributable to a combination of decreases in exploration costs, general and
administrative expenses, transportation and gathering costs, depletion,
depreciation and amortization expense, lease operating expense and production
taxes. Offsetting the aforementioned decreases, interest expense increased.
EXPLORATION COSTS decreased 99.58% from $852,626 for the first quarter
of 1997 to $3,560 for the first quarter 1998. The exploration costs for the
first quarter 1998 reflect charges attributable to expensed investments, and
costs incurred for dry hole costs associated with exploratory drilling in
1997.
GENERAL AND ADMINISTRATIVE EXPENSE ("G&A") decreased by 19.79% from
$572,260 for the first quarter 1997 to $459,014 for the first quarter 1998.
This was attributable to overhead reduction measures initiated during 1997.
TRANSPORTATION AND GATHERING COSTS decreased 99.29% from $90,394 for the
first quarter 1997 to $639 for the first quarter 1998. The decrease in
transportation and gathering costs was almost entirely attributable to the
ceased production of the Mobile Bay Wells.
DEPLETION, DEPRECIATION, AND AMORTIZATION EXPENSE ("DD&A") decreased by
59.65% from $132,774 for the first quarter of 1997 to $53,568 for the first
quarter of 1998. The decrease in DD&A was primarily attributable to the July
1, 1997 sale of certain Company properties located in Texas, Oklahoma and
Arkansas, and the ceased production from the Mobile Bay Wells.
LEASE OPERATING EXPENSE decreased 27.84% from $96,698 for the first
quarter 1997 to $69,773 for the first quarter 1998. The reduction in lease
operating expense was attributable to the sale of certain Company properties
effective July of 1997, and a decline in rework activity. Of the $69,773 for
the first quarter of 1998, $34,739 was attributable to rework costs.
PRODUCTION TAXES declined 112.41% from $8,784 for the first quarter of
1997 to ($1,090) for the first quarter of 1998, due to reduced production as
a result of the sale of certain Company interest effective July 1, 1997, and
due to a production tax credit refund in the amount of $3,682 from the State
of Oklahoma for a production enhancement project completed in 1994.
INTEREST EXPENSE increased 365.11% from $4,133 for the first quarter of
1997 to $19,223 for the first quarter of 1998. The increase in interest
expense was primarily attributed to the credit facility dated February 23, 1998
between the Company and Duke Energy Financial Services, Inc. The Company
capitalized a large portion of its interest in its ongoing Starboard Prospect,
which capitalized amounts totaled $79,102 for the first quarter of 1998 and
$56,866 for the first quarter of 1997.
NET INCOME (LOSS). The net loss decreased from $1,352,022 to $608,588 for
the first quarter ended March 31, 1997 and March 31, 1998, respectively. This
decrease was due to the factors discussed above.
The net loss per common share decreased from a net loss of $0.84 per share
in the first quarter of 1997 to a net loss of $0.38 per share in the first
quarter of 1998. This is reflective of the decrease in net loss of $743,434
from the first quarter of 1997 as compared to the first quarter of 1998, and
the result of the reverse stock split. As a result of the common stock
offering that was finalized on August 14, 1996, additional stock issued to an
investment advisor during 1997 and the reverse stock split, approximately
1,655,984 weighted average common equivalent shares at March 31, 1998 as
compared to approximately 1,644,317 at March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically addressed its long-term liquidity needs
through the issuance of debt and equity securities when market conditions
permit, and through the use of bank credit facilities and cash, bank and other
credit facilities and cash provided by operating activities. Its major
obligations at March 31, 1998 consist
13
<PAGE>
principally of (i) servicing loans from Bank of America and other loans, (ii)
a non-recourse loan relating to the development of the Company's Starboard
Prospect, (iii) payment of preferred stock dividends, (iv) funding of the
Company's exploration activities, (v) funding of the day-to-day general and
administrative costs, and (vi) servicing the loan from the Duke Facility.
The Company also had unrealized losses on commodity transactions which were
$179,947 for the period ended March 31, 1998.
Since the closing of the acquisitions, the Company has what it considers
an exceptional inventory of technology enhanced, gas oriented exploration
projects, many of which are ready to drill. Until such time as the Company
develops substantial revenues from producing properties, it will require
external sources of exploration capital. It believes it has a drillable
project inventory such that it could effectively deploy over $25,000,000 of
exploratory costs in 1998 on the net interests acquired by it pursuant to the
acquisitions. In that, the Company will operate most of the projects
acquired, it could defer a portion of the capital costs to 1999 in the event
adequate resources were not available, however, the Company believes that
sources for funding this budget will be available to it in 1998 under
reasonable terms.
Many of the factors which may affect the Company's future operating
performance and long-term liquidity are beyond the Company's control,
including, but not limited to, oil and natural gas prices, governmental
actions and taxes, the availability and attractiveness of financing and its
operational results. The Company continues to examine alternative sources of
long-term capital, including bank borrowings, the issuance of debt
instruments, the sale of common stock or other equity securities of the
Company, the issuance of net profits interests, sales of promoted interests
in its exploration projects, and various forms of joint venture financing.
Availability of these sources of capital and, therefore, the Company's
ability to execute its operating strategy will depend upon a number of
factors, some of which are beyond the control of the Company. In addition,
the prices the Company receives for its future oil and natural gas production
on the level of the Company's production will significantly impact future
operating cash flows.
Upon the closing of the transactions set forth in the Acquisition
Agreement, the Company acquired assets in the form of interest in exploration
projects which it booked at what it believes to be their fair market value of
approximately $54,200,000 as of the effective date of the Acquisitions.
Additional results of the Acquisitions included (i) an increase in the
Company's current liabilities by the assumption of approximately $4.55
million in net post-effective date costs related to the interests to
exploration projects acquired in the Acquisitions, plus $1 million of
additional current liabilities assumed from EPC pursuant to the Acquisition
Agreement, and (ii) it increased its overhead by the hiring of additional
technical staff and additional management; and (iii) it adopted a business
plan that calls for the Company to spend over $25 million net to its interest
in exploratory costs over the next twelve months. As a result of the
foregoing, it must not only generate additional revenues, but it must
substantially increase its capital resources or it will have to sell
interests in the assets acquired pursuant to the Acquisition Agreement in
amounts it may not otherwise have done in order to fund its exploration
budget. Certain amounts of these obligations incurred by the Company may be
offset by revenue from wells generated since the effective date of the
Acquisitions and other revenue anticipated from wells scheduled to be drilled
in the second and third quarters of 1998. The Company, however, cannot
assure that such revenues will be forthcoming nor can it, with a significant
degree of certainty, project the revenues anticipated from such sources over
the next twelve months.
As indicated, the Company expects to fund its exploration budget through
a combination of sources including bank and/or mezzanine debt and potential
equity sources. It is believed that the post-effective date wells drilled on
the assets acquired from Aspect and EPC will expand its borrowing capacity
significantly throughout the balance of 1998. The Company believes, however,
that the best mix of capital to fund its 1998 and 1999 exploration plans
includes a combination of traditional debt and equity capital. In the event
such sources are unavailable on either a timely basis or what the Company
believes to be a reasonable cost, it believes could slow down its exploratory
activities on projects in which it operates and it could increase its
otherwise available cash resources by limited sales of interest in its
project inventory, which sales of interest would be in amounts greater than
it would otherwise prefer to implement.
WORKING CAPITal. At March 31, 1998, the Company had a cash balance of
$188,495 and a working capital deficit of $1,148,584 as compared to a cash
balance of $690,576 and a working capital deficit of $413,377 at December 31,
1997. The decrease in cash and working capital was primarily attributable to
the operating loss incurred during the first quarter.
14
<PAGE>
In addition to the changes in cash, the decrease in working capital was
primarily attributable to several factors. Current asset decreases of
$45,357 in accounts receivable (due to reduced exploration activity) and
$108,254 in prepaid and other expenses (primarily due to the application of
prepaid funds associated with the Company's Starboard Project) were offset by
$466,664 current portion of notes receivable from affiliates. These notes
represented the current portion of loans from the Company to EPC which were
used to fund post-effective date costs on properties acquired from EPC
pursuant to the Acquisition Agreement. Primary changes in current
liabilities were an $86,956 reduction in accounts payable (due to reduced
exploration activity) and a $587,275 increase in the current portion of
long-term debt which relates to the current portion of debt to Duke Energy
Financial Services, Inc. (the "Duke Facility").
CASH FLOWS. Cash flows used in operations totaled $756,522 for the
quarter ended March 31, 1998. Of particular significance is a cost of
$344,896 in other assets, which primarily relates to capitalized costs of the
Company's acquisitions pursuant to the Acquisition Agreement and certain
financing transactions. Cash flows used in investing activities totaled
$2,151,578. Included in the cash flows used in investing activities are
$403,250 of capital expenditures on gas and oil properties, including $3,560
in exploration costs that are included in the operating loss for the period
but are excluded from operating cash flows, and $1,750,000 which represents
the note receivable from EPC.
Cash flows from financing activities reflects cash provided by financing
of $2,406,019 for the first quarter of 1998. Cash flows from financing
activities consisted of proceeds from debt issuance of $3,000,000 from the
Duke Facility offset primarily by repayments of long-term debt of $593,981.
EXISTING CREDIT FACILITIES. The Duke Facility provides that the Company
can borrow up to an aggregate of $7,800,000. $3,000,000 has been utilized to
loan to EPC (on a secured basis) to pay exploration costs associated with
EPC's working interests conveyed to the Company upon closing of the
Acquisitions, which costs were incurred after the effective date of the
Acquisitions, but prior to the closing. A total of $2,500,000 was
outstanding on the Duke Facility at March 31, 1998, and $5,350,000 was
outstanding as of to the date hereof. The additional advances include
$1,100,000 to fund costs of redemption of the Company's convertible preferred
stock. An additional $2,450,000 is available to fund exploration and other
costs.
Major provisions of the Duke Facility include interest at the rate of a
national prime rate plus 4% per annum, cash payments equal to an overriding
royalty of 0.6% of the Company's interest in wells drilled by the Company
while the Duke Facility is outstanding, and the right of the lender to
gather, process and transport and market, at competitive market rates,
natural gas produced from a majority of the projects the Company intends to
acquire pursuant to the Acquisitions. The Duke Facility is secured by
mortgages on most of the Company's undeveloped exploration projects. The
Duke Facility is repayable in twelve monthly payments (the first eleven in
amounts equal to 1/30th of the principal balance on July31, 1998 plus
interest and the final payment for the remaining principal plus interest)
commencing August 31, 1998, or sooner, in the event the borrower sells
interests in the collateral or closes any underwritten public offering of
securities.
Bank Credit Agreement is a $15 million credit facility with Bank of
America NT&SA as lender. As of the date hereof, the Company has $168,888
outstanding under the Bank Credit Agreement. It currently has additional
availability under the Facility to borrow up to $2.5 million to finance
certain approved development activities on its Starboard Project. It does
not currently intend to draw up on this Facility, but rather has begun
discussions with the bank to restructure the Facility to more appropriately
serve the Company's current and anticipated needs throughout the balance of
this year. The bank has indicated an intention and desire to do so, but no
agreement has yet been reached and there is no assurance that such an
agreement will be forthcoming. The Company presently in noncompliance with
certain terms of the Bank Credit Agreement, but has secured a waiver of
various covenants through June 30, 1998. The Company remains in
noncompliance with the terms of the Bank Credit Facility due to failing to
meet minimum working capital and minimum cash flow covenants. It anticipates
that the Bank will waive said noncompliance but there is no current assurance
that it will do so. The Bank Credit Agreement is secured by a first mortgage
on all of the Company's proved and all of the proved producing properties the
Company owned as of March 31, 1998.
Pursuant to the Bank Credit Agreement the Company entered into a natural
gas swap agreement on 62,500 MMBTU of natural gas per month at $1.566 per MMBTU
for Mid-Continent gas for the period from April 1, 1996
15
<PAGE>
through January 31, 1999. The swap was amended to 31,260 MMBTU on September 25,
1996, due to the sale of the N.E. Cedardale field. The Company recorded
a loss of $212,000 in connection with this reduction in quantities covered
by the swap agreement. Currently, the Company's monthly natural gas
production is substantially less than the natural gas swap that is in place.
The total unrealized loss on the amended swap agreement was $179,947 at
March 31, 1998.
THE STARBOARD PROJECT FINANCING is an $864,000 facility pursuant to which
the lender has advanced the Company said amount to fund the acquisition of
leasehold interests and the design permitting an implementation conducting,
processing and interpretation of a 3-D seismic survey over the Starboard
Project area. Financing was provided by a subsidiary of a major eastern
utility. The borrowings are secured by a first mortgage on the property
comprising the capital of Starboard Project. Borrowings under the Starboard
Project Financing are repayable solely from revenues attributable to an
overriding royalty interest granted to the lender equal to 8% of the Company's
original interest in the Starboard Project, which is payable until such time as
the lender has received an amount equal to the loan borrowings, plus costs and
a 15% internal rate of return. After such funds have been repaid, the
overriding royalty interest is reduced to a proportionately reduced 2%. If the
Company has drawn its entire borrowing capacity under this Financing,
additional proceeds are not available.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share"
and SFAS No. 129, "Disclosure Information about Capital Structure," which have
been reflected in the Company's yearend 1997 financial statements. In 1997,
FASB also issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
each of which require expanded disclosures effective for 1998. The Company
does not expect the application of these statements to have a material effect
on its financial position, liquidity or results of operations.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Esenjay Petroleum Corporation ("EPC") was a defendant in a lawsuit
regarding injuries to an oilfield worker that resulted in a judgment against
EPC of approximately $17,700,000. The judgment was settled by EPC's
insurers, who agreed to make cash payments to the plaintiff, and by EPC who
agreed to implement a mutually agreeable work safety plan. The settlement was
entered into and approved by the court entering an agreed judgment on
December 3, 1997. On approximately April 16, 1998, the plaintiff filed an
action against both EPC and the Company alleging, in part, that EPC has
failed and refused to implement an appropriate safety plan and entered
negotiations with the Company to convey material assets to the Company which,
if consummated, would negate plaintiffs benefits to be obtained by EPC's
safety plan, thereby fraudulently inducing plaintiff to settle the judgment
against EPC. The Company believes the claims are not supported by the facts
and are without merit. The Company and EPC intend to vigorously defend the
claims.
ITEM 2. CHANGES IN SECURITIES.
On May 14, 1998, a Special Meeting of Shareholders of the Company was
held pursuant to a solicitation of proxy mailed on or about April 24, 1998 to
all of the shareholders of record as of close of business on April 1, 1998.
The shareholders approved and ratified (i) the Acquisition Agreement, and
(ii) the Reverse Split and (iii) the Reincorporation, and (iv) the
shareholders elected seven directors. As a result of the Reincorporation the
Company reincorporated in the state of Delaware and changed its name to
Esenjay Exploration, Inc. As a result of the Reverse Split, all of the
Company's common stock, warrants to purchase common stock and options to
issue common stock were effected with the result being that each share of
common stock, or warrant or option to purchase such share of common stock
converted into 1/6 of a share of common stock or rights to purchase 1/6 of a
share of common stock. This effected various outstanding warrants and
options of the Company including the Company's Class A currently outstanding
warrants to purchase common stock and its currently outstanding Class B
warrants to purchase common stock, both of which are registered securities
and publicly traded. In addition to the Reincorporation and the Reverse
Split, the Company issued new shares of its common stock plus various other
consideration in return for interests in exploration projects from Aspect and
EPC, which have a historical full cost basis on the books of the selling
entities of $19,900,000 and a fair market value of $54,200,000. Securities
were issued in reliance upon exemptions set forth in Section 4(2) of the
Securities Act of 1933. All of the securities were sold effective May 14,
1998. Of the securities sold 5,165,260 shares of common stock were issued to
EPC and 4,941,440 shares of common stock were issued to Aspect and/or its
assigns. Of the 4,941,440 shares issued to Aspect and/or it assigns,
4,203,106 shares were issued to Aspect, 23,334 shares were issued to R.
Michael Looney, 16,667 shares were issued to Steven L. Creger, 23,334 shares
were issued to James A. Rodgers, and 675,000 shares were issued to Joint
Energy Development's II Limited Partnership, an affiliate of Enron Corp.
In conjunction with, and as a requirement of, the Acquisition Agreement,
the Company called for redemption all 85,961 shares of its previously issued
and outstanding shares of Convertible Preferred Stock. The redemption price
was $10.26 per share and included all accrued and unpaid dividends on the
stock through the redemption date of June 15, 1998. Record owners as of May
20, 1998 have the right to convert their Convertible Preferred Stock into
Common Stock at any time until the close of business on June 12, 1998, or
their shares will be redeemed on June 15, 1998. The Company also declared a
$2.40 per share dividend on said Convertible Preferred Stock, which dividends
acquitted all dividends previously in arrears on said stock, and which
totaled $206,304. The dividends were paid on May 13, 1998 to the
shareholders of record on May 11, 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company declared a dividend of $2.40 per share on the Company's
preferred convertible stock payable for all dividends previously accrued and
unpaid through the quarter ended March 31, 1998, and the seven previous
quarters for which dividends had not been paid. The dividends of $206,304
were paid on May 13, 1998 to the shareholders of record as of May 11, 1998.
On May 14, 1998 the Company called for redemption of all 85,961 shares of
its previously issued and outstanding shares of Convertible Preferred Stock.
The redemption price of $10.26 per share, includes all accrued and unpaid
dividends on the Preferred Stock through the redemption date of June 15, 1998.
Record owners as of
17
<PAGE>
May 20, 1998, have the right to convert their Convertible Preferred Stock
into Common Stock at any time until the close of business on June 12, 1998,
or their shares will be redeemed on June 15, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 14, 1998, a special meeting of shareholders of Frontier Natural
Gas Corporation was held. At that meeting the shareholders voted as follows:
a) To approve the Acquisition Agreement
For 5,670,420 Against 133,487 Abstain 57,102
b) To approve the Reverse Stock Split
For 8,989,738 Against 205,075 Abstain 312,224
c) To approve the Reincorporation
For 5,315,168 Against 213,250 Abstain 340,848
d) The following directors were elected (by the vote indicated) at such
meeting:
<TABLE>
Name of Nominee Number of Shares Number of shares
Voted For Voted Against
<S> <C> <C>
Alex M. Cranberg 9,342,453 164,572
Michael E. Johnson 9,339,743 167,292
Jack P. Randall 9,339,243 167,792
David W. Berry 9,341,163 165,872
Alex B. Campbell 9,339,243 167,792
Charles J. Smith 9,339,743 167,292
William D. Dodge, III 9,339,243 167,792
</TABLE>
ITEM 5. OTHER INFORMATION.
As a result of the completion of the acquisitions as set forth in the
Acquisition Agreement, the Company has been able to expand its business
strategy. The strategy being implemented is to expand its reserves,
production and cash flow through the implementation of an exploration program
that focuses on (i) obtaining dominant positions in core areas of
exploration; (ii) enhancing the value of its exploration projects and
reducing exploration risks through the use of 3-D seismic and CAEX
technologies; (iii) maintaining an experienced technical staff with the
expertise necessary to take advantage of the Company's proprietary 3-D
seismic and CAEX seismic data; (iv) reducing exploration risks by focusing on
the identification of moderate depth gas reservoirs, which the Company
believes are conducive to direct hydrocarbon detection technologies; and (v)
retaining control over critical exploration decisions. The value scope and
advanced stage of technological evaluation of the focused core areas
represented in the properties acquired pursuant to the Acquisition Agreement
have allowed the Company to seek to implement this strategy.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(11) Computation of Earnings Per Common Share
(27.1) Financial Data Schedule
(27.2) Financial Data Schedule
(b) Reports on Form 8-K
None.
18
<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 of the
undersigned thereunto duly authorized.
ESENJAY EXPLORATION, INC.
Date: March 31, 1998 By:
--------------------------------------------
David W. Berry, Chairman of the Board of
Directors (Principal Executive Officer for
the quarterly reporting period) and Director
Date: March 31, 1998 By:
--------------------------------------------
David B. Christofferson, Senior Vice
President General Counsel, Principal
Financial Officer
19
<PAGE>
EXHIBIT 11 TO FORM 10QSB
ESENJAY EXPLORATION, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
Three months ended March 31,
----------------------------
1998 1997
---------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Weighted average common shares
outstanding 1,655,984 1,644,317
---------- -----------
Basic (loss) per share (.38) (0.84)
---------- -----------
---------- -----------
EARNINGS FOR BASIC AND DILUTED
COMPUTATION
Net (loss) (608,588) (1,352,022)
Preferred share dividends (25,788) (25,788)
---------- -----------
Net income to common shareholders
(Basic (loss) per share computation) $(634,376) $(1,377,810)
---------- -----------
---------- -----------
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 188,495
<SECURITIES> 0
<RECEIVABLES> 184,422
<ALLOWANCES> (7,915)
<INVENTORY> 0
<CURRENT-ASSETS> 1,070,505
<PP&E> 4,787,130
<DEPRECIATION> (1,295,435)
<TOTAL-ASSETS> 6,359,392
<CURRENT-LIABILITIES> 2,219,089
<BONDS> 1,846,165
0
860
<COMMON> 16,560
<OTHER-SE> 1,185,604
<TOTAL-LIABILITY-AND-EQUITY> 6,359,392
<SALES> 48,503
<TOTAL-REVENUES> (16,586)
<CGS> 0
<TOTAL-COSTS> 572,779
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,223
<INCOME-PRETAX> (608,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> (608,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (608,588)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MARCH 31, 1998, DECEMBER 31, 1997, SEPTEMBER 30, 1997, JUNE 30, 1997,
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 650,576 1,232,719 2,041,606 3,869,789
<SECURITIES> 0 0 0 0
<RECEIVABLES> 237,352 490,485 404,366 330,667
<ALLOWANCES> (15,488) (10,533) (10,533) 10,533
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 1,266,939 2,110,283 2,754,601 4,505,732
<PP&E> 4,404,975 4,442,035 7,045,565 6,617,701
<DEPRECIATION> (1,260,605) (1,280,555) (3,007,464) (2,923,690)
<TOTAL-ASSETS> 4,576,008 5,414,664 7,007,125 8,420,323
<CURRENT-LIABILITIES> 1,680,316 1,925,276 1,651,898 1,720,652
<BONDS> 22,680 75,416 149,284 228,417
0 0 0 0
860 860 860 860
<COMMON> 16,560 16,443 16,443 16,443
<OTHER-SE> 1,787,400 2,469,715 4,011,577 5,350,503
<TOTAL-LIABILITY-AND-EQUITY> 4,576,008 5,414,664 7,007,125 8,420,323
<SALES> 664,126 544,693 457,609 327,435
<TOTAL-REVENUES> 908,609 938,694 588,100 405,647
<CGS> 0 0 0 0
<TOTAL-COSTS> 5,801,470 5,120,304 3,259,961 1,757,669
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 60,942 9,205 9,205 4,133
<INCOME-PRETAX> (4,953,803) (4,194,815) (2,671,861) (1,352,022)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (4,953,803) (4,194,815) (2,671,861) (1,352,022)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (4,953,803) (4,194,815) (2,671,861) (1,352,022)
<EPS-PRIMARY> (3.01) (2.55) (1.63) (0.84)
<EPS-DILUTED> (3.01) (2.55) (1.63) (0.84)
</TABLE>
