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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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
incorporation or organization) (I.R.S. Employer Identification Number)
500 NORTH WATER STREET, SUITE 1100
CORPUS CHRISTI, TEXAS 78471
(Address of principal executive offices including zip code)
(361) 883-7464
(Issuer'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 [ ]
18,914,099 shares as the registrant's common stock were outstanding as
of November 10, 2000.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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ESENJAY EXPLORATION, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements - General Information......................................................3
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999.......................................................................4
Condensed Consolidated Statements of Operations for the three months and nine months
ended September 30, 2000 and 1999 (unaudited)..............................................5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited)...............................................6
Notes to Condensed Consolidated Financial Statements (unaudited)...............................7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................11
PART II. OTHER INFORMATION..............................................................................23
</TABLE>
2
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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 that are necessary for a fair
presentation of the results of operations for the three and nine months ended
September 30, 2000 and 1999.
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, 1999 and
the related notes thereto included in Form 10-KSB and 10KSB/A as filed with
the SEC.
3
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ESENJAY EXPLORATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------------- ----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 386,940 $ 2,598,047
Accounts receivable, net of allowance for doubtful
accounts of $445,872 at September 30, 2000 and
$519,137 at December 31, 1999................................... 13,870,912 7,078,109
Prepaid expenses and other......................................... 1,282,882 3,940,133
Receivables from affiliates........................................ 118,806 363,027
------------------- -----------------
Total current assets...................................... 15,659,540 13,979,316
Property and equipment, successful efforts method of accounting......... 80,176,102 80,120,781
Less accumulated depletion, depreciation
And amortization................................................... (34,546,687) (25,937,472)
------------------- -----------------
45,629,415 54,183,309
Other assets .......................................................... 1,247,967 770,210
------------------- -----------------
Total assets.............................................. $ 62,536,922 $ 68,932,835
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 12,786,006 $ 8,838,629
Accounts payable to affiliate, net................................. 269,836 2,083,913
Revenue distribution payable....................................... 2,837,617 2,491,798
Current portion of long-term debt.................................. 5,384,178 11,013,162
Accrued and other liabilities...................................... 1,299,216 6,095,188
------------------- -----------------
Total current liabilities................................. 22,576,853 30,522,690
Long-term debt ......................................................... 12,457,604 4,750,000
Non-recourse debt ...................................................... 864,000 864,000
Accrued interest on non-recourse debt .................................. 562,034 463,395
------------------- -----------------
Total liabilities ........................................ 36,460,491 36,600,085
Stockholders' equity:
Convertible preferred stock $.01 par value; 5,000,000 shares authorized;
0 and 356,999 shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively................................. --- 3,570
Common stock:
Class A common stock, $.01 par value; 40,000,000 shares authorized;
and 18,889,441 and 18,837,699 outstanding at September 30, 2000 and
December 31, 1999, respectively................................. 188,894 188,377
Additional paid-in capital ........................................ 84,383,631 84,877,904
Accumulated deficit................................................ (58,496,094) (52,737,101)
------------------- -----------------
Total stockholders' equity................................ 26,076,431 32,332,750
------------------- -----------------
Total liabilities and stockholders' equity................ $ 62,536,922 $ 68,932,835
=================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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ESENJAY EXPLORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
2000 1999 2000 1999
--------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Gas and oil revenues............................ $ 7,983,234 $ 2,577,335 $ 18,903,840 $ 4,334,441
Realized gain (loss) on commodity transactions.. (1,680,669) 33,557 (2,985,847) 231,580
Gain (loss) on sale of assets................... 1,311,681 1,924,273 9,468,399 2,034,905
Operating fees.................................. 116,108 69,803 341,586 223,154
Other revenues.................................. 29,733 10,474 81,662 34,911
--------------- ----------------- --------------- --------------
Total revenues.............................. 7,760,087 4,615,442 25,809,640 6,858,991
--------------- ----------------- --------------- --------------
Costs and expenses:
Lease operating expense......................... 198,745 109,622 672,618 482,210
Production taxes................................ 561,678 158,241 1,360,712 273,475
Transportation and gathering costs.............. 14,546 --- 18,093 ---
Depletion, depreciation and amortization........ 2,772,310 1,065,641 7,185,419 2,241,468
Amortization of unproved properties............. 1,294,400 1,692,600 4,176,000 6,050,600
Impairment of assets............................ 941,639 358,106 983,628 358,106
Exploration costs - geological and geophysical.. 2,839,217 280,896 4,550,324 1,565,374
Exploration costs - dry hole.................... 3,300,617 332,820 6,225,277 398,098
Interest expense................................ 292,759 212,538 853,394 520,977
General and administrative expense.............. 1,678,855 1,266,805 5,176,476 4,348,901
Other tax expense............................... 96,683 --- 207,689 ---
Delay rental expense............................ 66,537 178,547 159,003 249,556
--------------- ----------------- --------------- --------------
Total costs and expenses.................... 14,057,986 5,655,816 31,568,633 16,488,765
--------------- ----------------- --------------- --------------
Loss before provision for income taxes............... (6,297,899) (1,040,374) (5,758,993) (9,629,774)
Benefit (provision) for income taxes................. --- --- --- ---
--------------- ----------------- --------------- --------------
Net loss applicable to common stockholders........... $ (6,297,899) $ (1,040,374) $ (5,758,993) $ (9,629,774)
=============== ================= =============== ==============
Net loss per common and common
equivalent share - basic........................... $ (0.33) $ (0.06) $ (0.31) $ (0.61)
=============== ================= =============== ==============
Net loss per common and common
equivalent share - diluted......................... $ (0.33) $ (0.06) $ (0.31) $ (0.61)
=============== ================= =============== ==============
Weighted average number of common shares
outstanding - basic ( in thousands)................ 18,883 16,062 18,864 15,881
=============== ================= =============== ==============
Weighted average number of common shares
outstanding - diluted ( in thousands).............. 18,883 16,062 18,864 15,881
=============== ================= =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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ESENJAY EXPLORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $ (5,758,993) $ (9,629,774)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depletion, depreciation and amortization ..................... 7,185,419 2,241,468
Amortization of unproven property............................. 4,176,000 6,050,600
Impairment of assets.......................................... 983,628 358,106
Gain on sale of assets........................................ (9,468,399) (2,034,905)
Amortization of financing costs and warrants.................. 147,413 73,886
Exploration costs............................................. 6,225,277 398,098
Changes in operating assets and liabilities:
Trade and affiliate receivables........................... (6,548,582) (2,074,369)
Prepaid expenses and other................................ (2,657,251) (814,205)
Other assets.............................................. (477,757) (659,025)
Accounts payable.......................................... 3,947,377 632,028
Accounts payable to affiliates............................ (1,814,077) (937,560)
Revenue distribution payable.............................. 345,819 247,791
Accrued and other......................................... (4,795,972) 844,282
------------------- ------------------
Net cash used in operating activities......................... (8,510,098) (5,303,579)
------------------- ------------------
Cash flows from investing activities:
Capital expenditures - gas and oil properties................. (7,945,947) (10,116,390)
Capital expenditures - other property and equipment........... (140,193) (172,429)
Proceeds from sale of assets.................................. 12,703,837 8,435,500
------------------- ------------------
Net cash provided by (used in) investing activities....... 4,617,697 (1,853,319)
------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 189,899 159,387
Redemption of preferred stock................................. (687,225) ---
Proceeds from issuance of debt................................ 21,841,782 8,920,000
Repayments of long-term debt.................................. (19,663,162) (1,508,074)
------------------- ------------------
Net cash provided by financing activities................. 1,681,294 7,571,313
------------------- ------------------
Net increase (decrease) in cash and cash equivalents...... (2,211,107) 414,415
Cash and cash equivalents at beginning of period................... 2,598,047 646,200
------------------- ------------------
Cash and cash equivalents at end of period......................... $ 386,940 $ 1,060,615
=================== ==================
Supplemental disclosure of cash flow information:
Cash paid for interest........................................ $ 919,152 $ 1,326,919
=================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ESENJAY EXPLORATION, 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 (the "Company")
have been prepared in accordance with accounting principles generally
accepted in the United States of America 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.
The Company uses the successful efforts method of accounting for gas
and oil exploration and development costs. All costs of acquired wells,
productive exploratory wells, and development wells are capitalized and
depleted by the unit of production method based upon estimated proved
developed reserves. Exploratory dry hole costs, geological and geophysical
costs, and lease rentals on non-producing leases are expensed as incurred.
Gas and oil leasehold acquisition costs are capitalized. Costs of unproved
properties are transferred to proved properties when reserves are proved.
Valuation allowances are provided if the net capitalized costs of gas and oil
properties at the field level exceed their realizable values based on
expected future cash flows. Unproved properties are periodically assessed for
impairment and, if necessary, a loss is recognized. The Company recognized
impairments for both the three and nine month periods ended September 30,
2000 of $941,639 and $983,628, respectively. The Company recognized
impairments for both the three and nine month periods ended September 30,
1999 of $358,106.
In addition, the $54,200,000 fair market value assigned to unproven
gas and oil exploration projects contributed by Esenjay Petroleum Corporation
("EPC") and Aspect Resources LLC ("Aspect") pursuant to certain acquisitions
of undeveloped exploration projects (the "Acquisitions") which closed on May
14, 1998 is, until such time as the book value of each such project is either
drilled and transferred to producing properties or is otherwise evaluated as
impaired, are being amortized on a straight-line basis over a period not to
exceed forty-eight months. For the three and nine month periods ended
September 30, 2000, such amortization was $1,294,400 and $4,176,000,
respectively. For the three and nine month periods ended September 30, 1999,
such amortization was $1,692,600 and $6,050,600, respectively. The remaining
balance in this amortization group of unproven properties was $6,334,800 at
September 30, 2000.
A summary of all of the Company's significant accounting policies is
presented on pages 39 and 40 of its 1999 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
2000.
The accompanying interim financial statements contain all 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 and cash flows of Esenjay Exploration, Inc.
for the interim period. Certain prior period amounts have been reclassified
to conform to the current period presentation.
2. RECENT EVENT:
On October 12, 2000 the Company finalized and closed an agreement
with 420 Energy Investments, Inc. ("420") pursuant to which $864,000 in
non-recourse debt and $562,034 in interest on non-recourse debt was
satisfied. Consideration paid to 420 was $300,000 in cash, plus an agreement
to pay to 420 cash payments on the date drilling may commence on any future
wells it may drill in one exploration project area located in Terrebonne
Parish, Louisiana. The Company has no obligation to drill any such future
wells. Any such future payments would
7
<PAGE>
range from $20,000 per well to $100,000 per well, but would never exceed a
total of $300,000. In addition, 420 retained its prior right to an overriding
royalty equal to 2% of the Company's interest in any well drilled in the
project area in Terrebonne Parish. One well is currently drilling in the
project area. As a result of the transaction, the Company will recognize a
gain in the fourth quarter of 2000. Settlement of the obligation also
facilitated the commencement of the current drilling on the project.
3. LONG-TERM DEBT: (SEE NOTE 2)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------- -----------------
<S> <C> <C>
Non-recourse loan, payable out of an 8% ORRI on the Starboard Prospect,
interest accrued at 15%..................................................... $ 864,000 $ 864,000
Note payable, interest at 12%, payable monthly................................. --- 100,000
Loan with Bank of America NT&SA ("B of A"), repaid in 2000................... --- 8,523,162
Loan with Duke Energy Field Services, Inc. repaid in 2000...................... --- 7,140,000
Loan with Deutsche Bank AG closed on January 25, 2000 as further
Described below.............................................................. 17,841,782 ---
---------------- -----------------
18,705,782 16,627,162
Less current portion........................................................... 5,384,178 11,013,162
---------------- -----------------
$ 13,321,604 $ 5,614,000
================ =================
</TABLE>
On October 12, 2000 the non-recourse loan was satisfied. (See Note 2)
On January 25, 2000, the Company closed a credit facility with
Deutsche Bank AG, New York branch. This facility provides for Deutsche Bank
to lend up to $29,000,000 to be available in two tranches. Tranche A is in
the amount of $20,000,000, with $15,000,000 established as the current
available borrowing base, and Tranche B is fully drawn in the amount of
$9,000,000. Under the terms and conditions of this facility, the facilities
existing at December 31, 1999 with Duke Energy Financial Services, Inc. and
Bank of America, NT&SA, were paid in full utilizing approximately $15,800,000
of the available proceeds from Deutsche Bank. Tranche A is currently
scheduled to mature on January 25, 2001, at which time any remaining unpaid
principal will convert to a fully amortizing term loan payable in twenty
equal quarterly installments beginning April 1, 2001. The Company intends to
ask the bank to extend the Tranche A maturity from January 25, 2001 to
January 25, 2002. There is no current agreement with the bank to do so. The
Tranche B loan is payable interest only through April 30, 2001 at which date
the amount available begins to decrease by 25% per quarter beginning April
30, 2001 with a final maturity in January of 2002. In addition, the Company
must remain in compliance with certain covenants required by Deutsche Bank,
including a redetermination of the borrowing base every six months. The
company also is required to assign an overriding royalty interest to Deutsche
Bank for those wells logged prior to the later of the maturity date of
Tranche B or the Tranche A termination date or the date the Tranche B Loan is
repaid. The Company may repurchase this overriding royalty interest prior to
April 30, 2002, if all Tranche B loans are repaid in full.
As part of the credit agreement, the Company is subject to certain
covenants and restrictions, among which are the limitations on additional
borrowing, and sales of significant properties, working capital, cash, and
net worth maintenance requirements and a minimum debt to net worth ratio. The
covenants regarding the financial condition of Company are as follows:
<TABLE>
<S> <C>
Tangible Net Worth................ $20,000,000 plus 50% of net income from
inception of the credit agreement to the
date of calculation treated as a single
period.
Current Ratio..................... 1.1 to 1.0 (computed by including unused
portion of loan commitments in current
assets and excluding current portion of
long-term debt from current liabilities).
Debt to Capitalization............ 0.6 to 1.0
Interest Coverage Ratio .......... 3.0 to 1.0
</TABLE>
8
<PAGE>
At September 30, 2000 the Company was in compliance with all such
covenants.
The Company has entered into an interest rate swap guaranteeing a
fixed Libor rate of 7.075%. The rate the Company pays Deutsche Bank is Libor
plus 2%. In addition, the Company will pay fees of one-half of one percent
(0.5%) on the unused portion of the commitment amount.
4. RELATED PARTY TRANSACTIONS
The Company's outstanding accounts receivable from employees and
affiliates of the Company at September 30, 2000 and December 31,1999 was
$118,806 and $363,027, respectively. The September 30, 2000 balance includes
a net $101,199 receivable from EPC primarily related to joint interest
billings. In addition, at September 30, 2000 the Company had a net account
payable to Aspect in the amount of $269,836.
5. COMMITMENTS AND CONTINGENCIES
The Company markets its natural gas through monthly spot sales.
Because sales made under spot sales contracts result in fluctuating revenues
to the Company depending upon the market price of gas, the Company may enter
into various hedging agreements to minimize the fluctuations and the effect
of price declines or swings.
In February of 2000, in conjunction with its financing with Deutsche
Bank, the Company restructured all existing natural gas hedges with an
affiliate of Deutsche Bank. Pursuant to these hedges, the Company had 9,381
MMBtu/day of net production hedged in the first quarter of 2000, and 9,031
MMBtu/day hedged for the second quarter of 2000. It also hedged 8,646
MMBtu/day for the third quarter of 2000, 8,278 MMBtu/day for the fourth
quarter of 2000, 7,161 MMBtu/day for the first quarter of 2001, 6,880
MMBtu/day for the second quarter of 2001, 6,600 MMBtu/day for the third
quarter of 2001, and 6,319 MMBtu/day for the fourth quarter of 2001. All of
the above hedges are at $2.45 per MMBtu. Concurrent with the restructuring of
the hedges, the Company was relieved of any liability or rights pursuant to
all previously existing natural gas hedges.
In the third quarter of 2000 the Company hedged an additional 5,000
MMBtu/day of natural gas. The hedge prices were at $4.70 per MMBtu for the
months of September through December 2000, and at $4.01 per MMBtu for the
months of January through December 2001.
The Company also had an existing "collar" hedge arrangement on 280
barrels of oil per day in the first quarter of 2000, and 256 and 237 barrels
of oil per day in the second and third quarters of 2000, respectively, which
was transferred to the Deutsche Bank affiliate at the existing $18.00 floor
price and $20.40 cap price in February 2000. These positions were
supplemented with oil hedges at $21.03 per barrel on volumes of 238 barrels
of oil per day in the fourth quarter of 2000 and 175, 168, 161, and 154
barrels of oil per day in the first through fourth quarters of 2001,
respectively.
Third quarter 2000 hedges approximated 57% of the Company's natural
gas and 52% of its oil production for such quarter. Future percentages will
vary.
6. ACQUISITION
On May 12, 1999, the Company announced that on May 11, 1999 it had
signed a Plan and Agreement of Merger with 3DX Technologies Inc. ("3DX")
which provided for the merger of 3DX into the Company (the "Acquisition").
The shareholders of both companies approved the transaction at duly called
shareholders meetings on September 23, 1999 and the merger was consummated
the same day. The purchase price of the Acquisition was approximately $7.4
million, of which $6.7 million was in the Company's common stock and $0.7
million was in the Company's preferred stock.
The terms of the merger provided for 3DX shareholders to receive, at
their election, either (i) the issuance of one share of Esenjay common stock
for 3.25 shares of 3DX common stock; or (ii) the issuance of a new Esenjay
convertible preferred stock at a ratio of one share of Esenjay convertible
preferred stock for each 2.75 shares of 3DX common stock. Approximately 91%
of the 3DX common shares converted into Esenjay common stock and
9
<PAGE>
approximately 9% were converted into Esenjay convertible preferred stock. As
a result, Esenjay issued approximately 2,906,778 new shares of common stock
and approximately 356,999 shares of convertible preferred stock. The
convertible preferred stock may be redeemed at Esenjay's sole option until
September 23, 2000 at $1.925 per share. If not redeemed by that time, the
preferred will automatically convert into one share of Esenjay common stock
on October 1, 2000 if the average closing price of Esenjay common stock is
greater than or equal to $1.875 during the month of September 2000. If the
Esenjay common stock averages less than $1.875 in September of 2000, the
preferred holder has the right, during the month of October of 2000, to "put"
the shares to Esenjay. If put, Esenjay will then have the right to retire the
convertible preferred stock for $1.65 in cash or for common stock with the
number of shares of common stock adjusted based upon a formula set out in the
merger agreement. Under any scenario the convertible preferred stock is
scheduled to be converted or redeemed not later than November 1, 2000.
3DX Technologies Inc. was a Houston-based exploration and production
company whose strategic business focus was the utilization of 3-D seismic
imaging and other advanced technologies in the search for natural gas and oil
principally in the onshore gulf coast of the United States. As a result of
the merger, the Company employed four members of the reservoir engineering
and geophysical staff of 3DX, plus one support person, increased its gas and
oil reserves, its monthly gas and oil revenues, and expanded its ownership of
3D seismic data and projects.
The Acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
assets and liabilities acquired based on fair value at the date of
acquisition. The Acquisition included, at fair value, current assets of $2.5
million, property and equipment of $5.8 million, other assets of $0.1 million
and liabilities of $0.9 million. The operating results of the Acquisition has
been included in the Company's condensed consolidated financial statements
from the date of acquisition. On a pro forma basis, assuming the Acquisition
had occurred on January 1, 1999, revenues for the three and nine months ended
September 30, 1999 would have been $5,045,186 and $8,468,917, respectively.
The net loss for the three and nine months ended September 30, 1999 would
have been $1,376,831 and $13,597,281; and on a per share basis, basic and
diluted loss per share would have been $0.07 and $0.73 for the three and nine
months ended September 30, 1999, respectively.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferred of the Effective Date of FASB Statement No. 133" ("SFAS
137"). SFAS 137, which is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as "derivatives") and for
hedging activities. SFAS 137 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company is currently evaluating the
impact of the application of SFAS 137, which when adopted on January 1, 2001,
could have a material effect on its consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company is required to adopt SAB 101, as amended,
in the fourth quarter of fiscal 2000. The Company does not expect the
adoption of SAB 101 to have a material affect on its financial position or
results of operations.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis reviews Esenjay Exploration,
Inc.'s results of operations for the three and nine month periods ended
September 30, 2000 and 1999 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, 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, potential dry
holes and regulatory uncertainties and the availability of capital to fund
planned expenditures as well as general industry and market conditions.
OVERVIEW
OVERVIEW OF HISTORICAL DEVELOPMENTS - INCEPTION THROUGH DECEMBER 31,
1999. 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. During 1996 and 1997, the Company's drilling activities, which
were based primarily 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, greatly reduced the Company's cash and capital resources.
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, 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 advisor, and receipt of due diligence reports
and other materials, unanimously agreed that a transaction with Aspect and
EPC was the best option for the Company's shareholders. This process led to
the Company entering into 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, 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"), 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 election of seven directors.
On May 14, 1998 after a Special Meeting of Shareholders, the Company
closed the transactions provided for in the Acquisition Agreement,
implemented the Reverse Split, and completed the Reincorporation. All
references in the accompanying financial statements to the number of common
shares have been restated to reflect the foregoing. In addition, as required
by the Acquisition Agreement, the Company called for the redemption of all of
its issued and outstanding cumulative convertible preferred stock and did
redeem said 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.
The Company believed the Acquisitions would facilitate expanded access to
capital markets due to the value and diversity of its exploration project
portfolio. The Company also believes the transactions significantly enhanced
the Company's management team.
In connection with the Acquisitions, an affiliate of Enron Corp.
exercised an option to exchange $3.8 million of debt Aspect owed to such
Enron affiliate for 675,000 shares of the Company's Common Stock that would
otherwise have been issued to Aspect in the Acquisitions, at an effective
conversion rate of $5.63 per share.
11
<PAGE>
On July 21, 1998 the Company closed an underwritten offering of
4,000,000 shares of its common stock at a price of $4.00 per share. The net
proceeds to the Company were approximately $14,880,000. After the offering
the Company had 15,762,723 shares outstanding.
On Exploration Projects acquired in 1998 pursuant to the
Acquisitions, the Company participated in the drilling of twenty-four wells
through December 31, 1998 with working interests ranging from 8% to 79%. Of
those twenty-four wells, thirteen wells were completed and eleven were dry
holes. Several of the successful wells went into production late in the third
quarter of 1998, and in the fourth quarter of 1998.
As a result of the above-described acquisitions, restructuring, and
the underwritten offering, the Company believed it was, and believes it
continues to be, positioned for a period of significant exploration activity
on its technology enhanced projects. Many of the projects have reached the
drilling stage. In many instances the requisite process of geological and/or
engineering analysis, followed by acreage acquisition of leasehold rights and
seismic permitting, and 3-D seismic field data acquisition, then processing
of the data and finally its interpretation, required several years and the
investment of significant capital. Management believes the acquisition of
projects at this advanced stage has not only reduced the drilling risk, but
should allow the Company to consistently drill on a broad array of
exploration prospects, as was demonstrated in 1999, and in subsequent years.
In 1999, the Company participated in 29 new wells that reached total
depth and were logged during the year. Of the total wells drilled and logged
in 1999, 22 were productive and seven were dry holes. Only two of the 1999
wells were producing as of July 1, 1999 and, as a result, the Company's net
daily oil and gas production increased substantially in the third and fourth
quarters of 1999. Based upon estimated sustainable flow rates, the 1999 wells
helped to increase the Company's net daily production to approximately 532
barrels of oil per day and 14,605 thousand cubic feet (mcf) of natural gas
per day or 17,797 Mcf equivalent (mcfe) per day as of December 1999.
The Company's net cost in the 29 wells drilled in 1999 was
approximately $8,652,439 for drilling and completion, not including certain
prior expenditures incurred at the project level for land and seismic. It
should be noted that the Company defines a "project" as a distinct 3-D
seismic data area that often comprises several distinct exploratory
"prospects". Independently evaluated net proved reserves attributable to the
29 wells drilled in 1999 totaled 18,466,712 Mcfe, including 1999 production.
By year end 1999, the Company had grown from nominal third quarter
1998 gas and oil revenues of approximately $35,000 per month and large
operating cash flow deficits to a company that averaged $1,815,637 per month
in net oil and gas revenues (and associated hedging revenues from commodity
transactions) in the fourth quarter of 1999. Revenues increased significantly
as the wells drilled in 1999 continued to come on line, which allowed the
Company to achieve positive operating cash flow (before capital expenditures,
and before the costs of acquisition of new 3-D seismic data, and changes in
working capital) in the third quarter of 1999, and increasing operating cash
flow in the fourth quarter. As a result of this trend, approximately 56% of
the Company's 1999 gas and oil revenue was attributable to the fourth quarter
of the year.
On September 23, 1999, the Company acquired, via merger, 3DX
Technologies, Inc. ("3DX"). In connection with this transaction, Esenjay
issued approximately 2,906,800 new shares of common stock, as well as
approximately 357,000 shares of convertible preferred stock scheduled to be
converted or redeemed (at the Company's option) not later than November 1,
2000. The Company redeemed the convertible preferred stock in September 2000
at a price of $1.925 per share for a total redemption price of approximately
$687,200.
OVERVIEW OF 2000 ACTIVITIES. The Company believes that it entered
2000 in a position to continue to expand its exploration activities on its
technology-enhanced projects. By utilizing increased capital available to it
from cash flow, financings and industry partner transactions, the Company is
pursuing an aggressive exploration program in all of its major trends of
activity. The Company's net production averaged 462 barrels of oil per day
and 15,197 Mcf of natural gas per day in the first nine months of 2000. This
net production is after a reduction of 6 barrels of oil per day and 1,981 Mcf
of natural gas per day attributable to the sale of interests in the
Raymondville Project as described in the following paragraph. In the third
quarter of 2000, net production averaged 464 barrels of oil per day and
14,978 Mcf of natural gas per day. The Company currently anticipates its net
daily production to increase to a range from 600 to 700 barrels of oil and a
range from 22,000 to 25,700 Mcf of natural gas by year end 2000 as wells
currently drilled come on line in the fourth quarter.
12
<PAGE>
The Company also successfully improved its working capital and cash
resources in 2000. On February 7, 2000, it announced the closure of a $29
million credit facility with Deutsche Bank AG, New York Branch. Initial
availability pursuant to the facility was $21 million, with a borrowing base
adjustment scheduled for the second quarter of 2000. A portion of the
available proceeds was utilized to retire approximately $15.8 million of
previously existing debt with Bank of America and Duke Energy Financial
Services, Inc., of which approximately $11 million was classified as the
current portion of long-term debt. The amount outstanding under the new
facility was all classified as long term debt upon inception. $5,384,178 is
classified as current portion as of September 30, 2000. The total available
pursuant to the credit facility increased to $24.0 million in the third
quarter 2000. In addition, the Company sold approximately 84.39% of its
interest in its Raymondville Project in Willacy County, Texas to Cody Texas,
L.P. for cash proceeds of $11,668,132 ($11,254,896 net of transaction fees).
The sale closed on March 20, 2000 but was effective as of January 1, 2000.
Pursuant to this sale the Company sold 3,462,967 Mcfe of its reserves
classified as proved as of December 31, 1999. Its borrowing base availability
with Deutsche Bank was not reduced. The combination of these two financing
transactions made available $18.8 million in net additional cash resources
(after repayment of existing debt) and created significant improvements in
working capital for the Company. As a result of its current cash flow and the
impact of these two transactions, the Company positioned itself to fund a
substantial portion of its 2000 drilling activities, the results of which are
intended to help continue the upward trends in cash flow and reserves. As
newly drilled wells come on line in the fourth quarter of 2000, it expects
significant increases in its net daily production as a result of its 2000
drilling activities. The Company will look to a variety of sources to further
supplement its capital expenditures budget, including its credit facilities
and sales of additional promoted project interests to industry partners, as
it seeks to maximize its interests and manage its risks while aggressively
pursuing its exploration projects.
In the nine months ended September 30, 2000, the Company incurred
approximately $14,015,000 in 2000 drilling and completion expenditures and
$7,616,000 in 2000 for land and seismic costs. In the nine months ended
September 30, 2000, the Company participated in the drilling of 43 new wells.
Of the 43 new wells, 15 were producing, six were being completed or awaiting
pipeline connections, 18 were dry holes and four were drilling as of
September 30. The increase in dry holes in 2000 reflects the Company's shift
in drilling emphasis to higher risk/reward prospects.
On October 12, 2000 the Company finalized and closed an agreement
with 420 Energy Investments, Inc. ("420") pursuant to which $864,000 in
non-recourse debt and $562,034 in interest on non-recourse debt was
satisfied. Consideration paid to 420 was $300,000 in cash, plus an agreement
to pay to 420 cash payments on the date drilling may commence on any future
wells it may drill on one exploration project area located in Terrebonne
Parish, Louisiana. The Company has no obligation to drill any such future
wells. Any such future payments would range from $20,000 per well to $100,000
per well, but would never exceed a total of $300,000. In addition, 420
retained its prior right to an overriding royalty equal to 2% of the
Company's interest in any well drilled in the project area in Terrebonne
Parish. One well is currently drilling in the project area. As a result of
the transaction, the Company will recognize a gain in the fourth quarter of
2000. Settlement of the obligation also facilitated the commencement of the
current drilling on the project.
Certain projects of the Company were subject to an agreement with
Seagull Energy E&P, Inc. ("Seagull"), a subsidiary of Ocean Energy, Inc.,
which agreement provided an option in favor of Seagull to acquire 50% of the
Company's unproven interests in the Mikeska and Hall Ranch projects for $6.5
million, plus, at Seagull's option, 50% of the Company's unproven interests
in the Orangedale, Verdad, Hordes Creek and Riverdale projects for an
additional $2.0 million. The option was not exercised and it expired in the
third quarter of 2000.
On October 2, 2000 the Company announced it had retained Deutsche
Bank Securities, Inc. to advise it concerning various strategic alternatives
intended to better maximize shareholder value. It also retained the firm of
Randall & Dewey, Inc. to initiate and manage a transaction to seek to better
realize this value through various alternatives such as selling the Company
for cash, merger, stock trade or acquisition. It intends to evaluate such
possibilities as well as potential acquisitions by the Company with an
objective of better maximizing shareholder value. It may or may not
consummate any such transaction and does not intend to do so unless its board
believed a substantial enhancement of shareholder value would be achieved.
The Company has budgeted $18,000,000 in drilling and completion
expenditures on its interests in over 45
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<PAGE>
wells and an additional $8,000,000 in land and new seismic costs in 2000. The
budgeted drilling and completion expenditures, which are primarily for
exploratory wells, compares to total drilling and completion expenditures of
approximately $8,652,439 in 1999, when the Company had less capital
available. Through this exploration program, the Company believes it will
continue its trends of growth in net production, net revenues, operating cash
flow and net gas and oil reserves. In particular, it believes that its
exploratory drilling in the third quarter and the fourth quarter of 2000
through the date hereof has resulted in the addition of significant new gas
and oil reserves. It anticipates its net daily production will grow to 25,000
to 30,000 mcfe before the end of the fourth quarter and continue to grow in
early 2001 as a result of its exploration success.
SUCCESSFUL EFFORTS ACCOUNTING AND RELATED MATTERS. The Company
utilizes the successful efforts method of accounting. Under this method it
expenses its exploratory dry hole costs and the field acquisition costs of
3-D seismic data as incurred. The undeveloped properties, which were acquired
pursuant to the Acquisitions, were comprised primarily of interests in
unproven 3-D seismic based projects, and were recorded in May of 1998 at an
independently estimated fair market value of $54.2 million as determined by
Cornerstone Ventures, L.P., a Houston, Texas based investment banking firm.
Pursuant to the successful efforts method of accounting, the Company is
amortizing such initial costs of unproved properties on a straight-line basis
over a period not to exceed forty-eight months, as well as recognizing
property specific impairments. As of September 30, 2000 the unamortized
balance was $6,334,800. Hence significant non-cash charges have depressed
reported earnings of the Company and will likely continue to do so in 2000;
however, the non-cash charges will not affect cash flows provided by
operating activities nor the ultimate realized value of the Company's natural
gas and oil properties.
As a result of the tax rules applicable to the Acquisitions, the
Company will likely not be able to fully use its existing net operating loss
carry forward in the future.
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRODUCTION:
Gas (Mcf)........................ 1,540,700 851,700 4,369,300 2,078,400
Oil and condensate (Bbls)........ 46,300 33,400 130,900 50,200
Total equivalent (Mcfe).......... 1,818,500 1,052,100 5,154,700 2,379,600
AVERAGE SALES PRICE:(2)
Gas (per Mcf).................... $ 4.35 $ 2.45 $ 3.48 $ 1.81
Oil and condensate (per Bbl)..... $ 27.84 $ 14.66 $ 27.35 $ 11.22
AVERAGE EXPENSES (PER MCFE):
Lease operating (1).............. $ 0.11 $ 0.10 $ 0.13 $ 0.20
Depletion of oil and gas properties: $ 1.52 $ 1.01 $ 1.39 $ 0.94
</TABLE>
(1) Includes all direct expenses of operating the Company's properties, as well
as production and ad valorem taxes.
(2) Including the effects of hedging activities, the average gas and oil sales
price was $3.71/mcf and $25.49/bbl for the three months ended September 30,
2000, and $2.34/mcf and $14.66/bbl for the three months ended September 30,
1999, respectively, and $3.11/mcf and $24.94/bbl for the nine months ended
September 30, 2000 and $1.98/mcf and $11.22/bbl for the nine months ended
September 30, 1999, respectively.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE. Total revenues increased 68% from $4,615,422 in the third
quarter ended September 30, 1999 to $7,760,087 in the third quarter ended
September 30, 2000. This is primarily attributed to the factors set forth
below.
GAS AND OIL REVENUES. Total gas and oil revenues increased from
$2,577,335 for the third quarter of 1999 to $7,983,234 for the third quarter
of 2000,an increase of 210%. The increase is attributable to a combination of
the
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<PAGE>
increase in commodity sales prices in the third quarter of 2000, as
contrasted with 1999, and in an increase in the Company's net gas and oil
production in 2000. The average gas sales price increased from $2.45 per Mcf
in the third quarter of 1999 to $4.35 in the third quarter of 2000, and the
average sales price per barrel of oil and condensate increased from $14.66 in
the third quarter of 1999 to $27.84 in the third quarter of 2000. Net gas
production increased from approximately 851,700 Mcf for the third quarter of
1999 to approximately 1,540,700 Mcf in the third quarter of 2000. Net oil and
condensate production increased from approximately 33,400 barrels in the
third quarter of 1999 to approximately 46,300 barrels in the third quarter of
2000.
REALIZED GAIN (LOSS) ON COMMODITY TRANSACTIONS. In the third quarter
of 1999, the Company realized a gain of $33,557 on commodity transactions, as
contrasted with a loss of $1,680,669 in the third quarter of 2000. This entry
results from actual commodity prices being greater or less than the Company's
hedged price on natural gas or oil. This change is attributable to the
increase in gas and oil prices such that the hedges currently in place on the
Company's production portfolio were at lower prices for the third quarter of
2000 as contrasted with commodity prices in the third quarter of 1999 at
which time a slight gain was realized. Although the Company has hedges in
place at higher prices in the third quarter of 2000 than in the third quarter
of 1999, commodity prices increased more resulting in the loss for the
period. The Company currently has hedges in place in volumes that decrease
quarterly and end at December 31, 2001. (See Liquidity and Capital Resources).
GAIN ON SALE OF ASSETS. The gain on sale of assets in the third
quarter of 2000 was $1,311,681, 32% below the gain on sale of assets reported
in 1999. These gains are attributable to sales of interests to industry
partners in certain of the Company's projects. The balance of the gain also
includes any gain on sales of working interests to industry partners in wells
anticipated to be drilled in the year 2000.
OPERATING FEES. The 66% increase in revenue from operations from
$69,803 in the third quarter of 1999 to $116,108 in the third quarter of 2000
is basically attributable to increased volume of activity.
OTHER REVENUES. Other revenues in the third quarter of the year 2000
were comprised of interest income, which increased from $10,474 in the third
quarter of 1999 to $29,733 in the third quarter of 2000.
COSTS AND EXPENSES. Total costs and expenses of the Company
increased 149% from $5,655,816 for the third quarter ended September 30, 1999
to $14,057,986 for the third quarter ended September 30, 2000. This is
primarily due to changes discussed in the categories below. This total is
significantly affected by the Company's successful efforts method of
accounting and related factors. (See Overview - Successful Efforts Accounting
and Related Matters)
LEASE OPERATING EXPENSES. Lease operating expense increased 81% from
$109,622 for the third quarter of 1999 to $198,745 for the third quarter of
2000. This is due to the increased number of producing wells owned by the
Company.
PRODUCTION TAXES. Production taxes increased 255% from $158,241 for
the third quarter of 1999 to $561,678 for the third quarter of 2000. The
increase in production taxes is primarily attributable to revenues from wells
placed on production in late 1999 and early 2000 and increases in product
prices.
DEPRECIATION, DEPLETION AND AMORTIZATION ("DD&A"). Depreciation,
depletion and amortization ("DD&A") increased 160% from $1,065,641 for the
third quarter of 1999 to $2,772,310 for the third quarter of 2000. The
increase in DD&A was attributable to increased production values.
AMORTIZATION OF UNPROVED PROPERTIES. Amortization of unproved
properties decreased from $1,692,600 for the third quarter of 1999 to
$1,294,400 for the third quarter of 2000. The decline resulted from
reductions in the book value of the amortizable assets due to the transfer of
costs to proven properties and the sale of interests in certain projects. The
Company is amortizing the undeveloped and unevaluated value of the properties
acquired pursuant to the 1998 Acquisitions over a period not to exceed
forty-eight months. (See "Overview Successful Efforts Accounting and Related
Matters").
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<PAGE>
IMPAIRMENT OF ASSETS. The Company recognized impairments of $941,639
for the three months ended September 30, 2000 as compared to $358,106 for the
three months ended September 30, 1999. This impairment is a non-cash charge
based upon the expected recoverability of the book value of individual
projects.
EXPLORATION COSTS - GEOLOGICAL AND GEOPHYSICAL. Exploration costs
-geological and geophysical increased 911% from $280,896 for the third
quarter of 1999 to $2,839,217 for the third quarter of 2000. These
exploration costs reflect costs of topographical, geological and geophysical
studies and include the expenses of geologists, geophysical crews and other
costs of acquiring and analyzing 3-D seismic data. The Company's technology
enhanced exploration program on the Exploration Projects has required the
acquisition and interpretations of substantial quantities of such data. The
Company considers 3-D seismic data a valuable asset; however, its successful
efforts accounting method requires such costs to be expensed for accounting
purposes. Included in the 2000 charge was $3,354,112 in costs related to the
acquisition of new exploratory seismic data during the period.
EXPLORATION COSTS - DRY HOLE. Exploration costs - dry hole increased
892% from $332,820 for the third quarter of 1999 to $3,300,617 in the third
quarter of 2000. The increase is attributable to the increased drilling
activity.
INTEREST EXPENSE. Interest expense increased 38% from $212,538 for
the third quarter of 1999 to $292,759 for the same period 2000 due to
increased loans outstanding. The Company capitalized interest costs of
$324,142 in the third quarter of 1999 and $164,398 in the third quarter of
2000 that were associated with its ongoing projects.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 33% from $1,266,805 for the third quarter of 1999 to
$1,678,855 for the third quarter of 2000. This increase was primarily
attributable to payment of $180,870 in cash bonus payments during the quarter
pursuant to a Company-wide bonus program based upon 1999 drilling results.
There was no plan the prior year.
NET LOSS PER COMMON SHARE. Net loss per common share increased from
a net loss of $0.06 per share for the third quarter of 1999 to a net loss of
$0.33 per share for the third quarter of 2000. Due to the factors enumerated
above, there was a increase in net loss applicable to common stockholders of
$5,257,525 from the third quarter of 1999 to the third quarter of 2000.
Approximately 18,883,000 weighted average common equivalent shares were
outstanding at September 30, 2000, as compared with approximately 16,062,000
at September 30, 1999, which further influenced the change in net loss per
share in 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE. Total revenues increased 276% from $6,858,991 in the nine
months ended September 30, 1999 to $25,809,640 in the nine months ended
September 30, 2000, due to the factors listed below.
GAS AND OIL REVENUES. Total gas and oil revenues increased from
$4,334,441 in the nine months ended September 30, 1999 to $18,903,840 in the
nine months ended September 30, 2000. This increase is primarily attributable
to wells placed on production in late 1999 and throughout 2000, which
resulted in an increase in the Company's net production. It was further
impacted by general increases in commodity prices, which became more
pronounced in September 2000.
REALIZED GAIN (LOSS) ON COMMODITY TRANSACTIONS. The Company realized
a loss from various commodity transactions of $2,985,847 for the nine months
ended September 30, 2000. This contrasted with a net gain of $231,580 in the
first nine months of 1999. These gains and losses result from actual
commodity prices for the period being greater or less than the Company's
hedge prices on natural gas or oil. Although the Company has hedges in place
at higher prices in the first nine months of 2000 than in the first nine
months of 1999, commodity prices increased by a greater amount, resulting in
the loss for the period.
GAIN ON SALE OF ASSETS. There was an increase in gain on sale of
assets from $2,034,905 for the nine months ended September 30, 1999 to
$9,468,399 for the nine months ended September 30, 2000. The increase was due
to the closing of various project interest sales to third parties. The
majority of the 2000 gain was attributable to recognition of a $1,797,707
gain on the sale of interests in the Papalote Project to an industry partner
and the $6,822,240 gain on the sale of the Company's Raymondville Project.
16
<PAGE>
OPERATING FEES. The increase in revenue from operating fees from
$223,154 in the first nine months of 1999 to $341,586 in the first nine
months of 2000 is attributable to the increased volume of the Company's
activity.
OTHER REVENUES. The increase in other revenues from $34,911 in the
first nine months of 1999 to $81,662 in the first nine months of 2000 was
attributable to an increase in interest income.
COSTS AND EXPENSES. Total costs and expenses of the Company
increased 91% from $16,488,765 for the nine months ended September 30, 1999
to $31,568,633 for the nine months ended September 30, 2000. This total is
significantly affected by the Company's successful efforts method of
accounting and related factors. (See Overview - Successful Efforts Accounting
and Related Matters.) The primary factors are set forth below.
AMORTIZATION OF UNPROVED PROPERTIES. Amortization of unproved
properties was $4,176,000 for the nine months ended September 30, 2000
compared to $6,050,600 in the first nine months of 1999. The 31% decrease in
2000 was attributable to reductions in the basis of properties being
amortized due to certain property costs being moved to the proven property
category or certain properties having been sold and the basis therefor
removed from the amortization pool. The Company will amortize the undeveloped
and unevaluated value of the properties acquired pursuant to the 1998
Acquisition over a period not to exceed forty-eight months. (See "Overview
Successful Efforts Accounting and Related Matters").
IMPAIRMENT OF ASSETS. The Company recognized impairments of $983,628
for the nine months ended September 30, 2000 as compared to $358,106 for the
nine months ended September 30, 1999. The impairment is a non-cash charge
based upon the expected recoverability of the book value of individual
projects.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 19% from $4,348,901 for the nine months ended September
30, 1999 to $5,176,476 for the nine months ended September 30, 2000. This
increase was primarily due to $762,804 in cash bonus payments made pursuant
to a Company-wide bonus based upon 1999 drilling results.
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A"). Depletion,
depreciation and amortization ("DD&A") increased 221% from $2,241,468 for the
nine months ended September 30, 1999 to $7,185,419 for the nine months ended
September 30, 2000. The increase in DD&A was primarily attributed to
increased production volumes.
LEASE OPERATING EXPENSES. Lease operating expenses increased 39%
from $482,210 for the nine months ended September 30, 1999 to $672,618 for
the nine months ended September 30, 2000. The increase in lease operating
expenses relates primarily to operational cost for the increased number of
Company's producing wells.
INTEREST EXPENSE. Interest expense increased 64% from $520,977 for
the nine months ended September 30, 1999 to $853,394 for the nine months
ended September 30, 2000. The increase in interest expense was attributable
to increased borrowing pursuant to its credit facility. The Company
capitalized interest costs of $898,261 in the nine months ended September 30,
1999 and $311,087 in the nine months ended September 30, 2000 that were
associated with on-going projects.
PRODUCTION TAXES. Production taxes increased 398% from $273,475 for
the nine months ended September 30, 1999 to $1,360,712 for the nine months
ended September 30, 2000. This increase in production taxes was attributed to
revenues of wells placed in production late 1999 and early 2000. Increases in
both production volumes and product sales prices contributed to the increase.
EXPLORATION COSTS - GEOLOGICAL AND GEOPHYSICAL. Exploration costs
-geological and geophysical increased 191% from $1,565,374 for the nine
months ended September 30, 1999 to $4,550,324 for the nine months ended
September 30, 2000. The increase resulted from an increase in the acquisition
of new 3-D seismic field data in 2000. These exploration costs reflect costs
of topographical, geological and geophysical studies and include the expenses
of geologists, geophysical crews and other costs of acquiring and analyzing
3-D seismic data. The Company's technology enhanced exploration program on
the Exploration Projects has required the acquisition and interpretations of
substantial quantities of such data. The Company considers 3-D seismic data a
valuable asset; however, its successful efforts accounting method requires
such costs to be expensed for accounting purposes.
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<PAGE>
EXPLORATION COSTS - DRY HOLE. Exploration costs - dry hole increased
1,464% from $398,098 for the nine months ended September 30, 1999 to
$6,225,277 for the nine months ended September 30, 2000. The increase is
attributable to the increased drilling activity and the Company's exposure to
higher cost exploration wells.
NET INCOME (LOSS) PER COMMON SHARE. Net income per common share
decreased from a net loss of $0.61 per share for the nine months ended
September 30, 1999 to a net loss of $0.31 per share for the nine months ended
September 30, 2000. Due to factors mentioned above, there was an increase in
net income applicable to common stockholders of $3,870,781 from the nine
months ended September 30, 1999 as compared to the nine months ended
September 30, 2000. Approximately 18,864,000 weighted average common
equivalent shares were outstanding for the nine months ended September 30,
2000 as compared with approximately 15,881,000 at September 30, 1999, which
further influenced the change in net income per share in 2000.
KNOWN AND ANTICIPATED TRENDS, CONTINGENCIES AND DEVELOPMENTS IMPACTING FUTURE
OPERATING RESULTS.
The Company's future operating results will continue to be
substantially dependent upon the success of the Company's efforts to develop
the projects acquired in the Acquisitions and the acquisition of 3DX, as well
as its other projects developed by the Company.
Management continues to believe these projects represent the most
promising prospects in the Company's history. The wells drilled in 1998, 1999
and 2000 on projects acquired pursuant to the 1998 Acquisitions continue to
increase the Company's year 2000 revenues as compared with 1999. It expects
its net daily oil and gas production to increase substantially by the end of
the fourth quarter as a direct result of its drilling activities in the
second half of 2000. The capital expenditures being planned for 2001 will
continue to require substantial outlays of capital to explore, develop and
produce. Drilling results for 1998 resulted in substantial revenue increases.
Drilling results in 1999 resulted in rapidly expanding revenues in the third
and fourth quarters of 1999. Revenues expanded in the first nine months of
2000 as gas and oil prices increased. Oil and gas revenue growth should
accelerate in late 2000 and early 2001, provided that there is no large
downward movement in product prices. However, because the Company expects to
increase its 2001 drilling budget, capital from sources other than cash flow
from operations may be required to fund capital expenditures, including cash
on hand and anticipated available credit.
The trend of increasing revenues was slowed in early 2000 by (1) the
sale of the Raymondville Interests, effective January 1, 2000, which reduced
production by approximately 2,000 Mcfe per day, (2) production problems
incurred on one well early in the second quarter, which resulted in a
reduction of approximately 2,300 Mcf and 126 bbls of oil per day, and (3)
natural production declines. Anticipated growth in revenue will be dependent
upon production from drilled wells projected to come on line late in 2000,
the Company's continued drilling success on wells currently drilling and to
be drilled through 2001, and future oil and gas prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company 2000 business plan provided for net expenditures of
$18,000,000 in drilling and completion and $8,000,000 in land and geophysical
costs resulting in a $26,000,000 capital budget for 2000. In the nine month
period ended September 30, 2000, the Company incurred approximately
$14,015,000 in drilling and completion costs, which costs were partially
offset by $2,158,649 in cash fees paid to the Company from industry
partners for interests in the wells drilled. The Company also incurred
approximately $7,616,000 in land and geophysical costs in the nine month
period. The geophysical costs were partially offset by cash fees paid or due
to the Company by industry partners in conjunction with 3-D surveys,
including a $1,166,666 fee paid by one partner in the second quarter. These
budgeted amounts are based upon exploration opportunities and may be adjusted
based upon available capital, new opportunities and industry conditions. The
Company believes its capital spending will be consistent with the budget in
2000. The Company's sources of financing include borrowing capacity under its
credit facilities, the sale of promoted interests in the Exploration Projects
to industry partners and cash provided from operations. The Company's 2000
budget includes the sales of certain project interests to industry partners.
The Company entered 1999 having gone from nominal second quarter
1998 gas and oil production revenues of approximately $35,000 per month and
large operating cash flow deficits to a company which averaged $1,815,637 per
month in oil and gas revenues (including realized revenue from hedges on
production) in the fourth quarter of 1999.
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<PAGE>
These revenues averaged $1,754,884 per month in the first quarter of 2000;
however, $122,884 of this average was attributable to adjustments to prior
periods and the average gas and oil revenues attributable to actual first
quarter 2000 production was $1,632,000 per month. This was achieved despite
the sale of interests in the Raymondville Project, which sale was effective
January 1, 2000. Second quarter gas and oil revenues averaged $1,885,317 per
month. Third quarter gas and oil revenues increased to average $2,661,078 per
month. The Company believes its fourth quarter 2000 average daily production
from existing wells will show substantial growth as drilled wells come on
line during the quarter. Additional success in 2000 on wells currently
drilling, if obtained, would result in continued increases in production in
early 2001.
The Company ended 1999 with a deficit working capital of
approximately $16,543,374. Of this amount, approximately $11.0 million
represented the current portion of its long term debt. This working capital
deficit greatly improved when the Company, on January 25, 2000, closed a new
credit facility with Deutsche Bank AG, New York Branch. Pursuant to this
facility, all of the $15.8 million of the Company's long term debt at
December 31, 1999 was repaid. This repayment included $4.8 million of long
term debt classified as long term and the repayment of approximately $11.0
million of long term debt classified as current. Pursuant to the Deutsche
Bank credit facility, $21 million was initially available. This was increased
at mid year to $24 million. All amounts available were initially long term
debt. $5,384,178 is classified as current portion at September 30, 2000, but
is not due until 2001. The credit facility with Deutsche Bank is in two
tranches. $12 million was initially available under Tranche A, and $9 million
under Tranche B. Tranche A was increased to $15.0 million. Tranche A is a
revolving facility with no required principal payments until January 24,
2001, after which date it is scheduled to convert into a five year term loan.
The Company intends to ask the bank to extend the Tranche A maturity in order
to allow additional cash resources to be available to fund the 2001 capital
budget. Tranche B is payable interest only until the second quarter of 2001,
at which time the principal is amortized at a rate of 25% per quarter until
fully repaid. Both loans are at a varied interest rate utilizing either
Deutsche Bank's alternative interest rate or the London interbank rate plus
2% for both Tranche A and Tranche B. As of November 10, 2000, $8,841,782 was
drawn under Tranche A and $9 million under Tranche B. Undrawn funds will be
available for future activities of the Company. The facility is secured by a
mortgage on most of the proven properties currently owned by the Company. In
addition, the Company has a negative pledge and an agreement to mortgage any
of the Company's unproven projects or properties at the demand of the bank.
In addition to the foregoing, Deutsche Bank AG received a 1.5% overriding
royalty interest, proportionately reduced to the Company's net interest, on
the gas and oil properties classified as proven as of the date of closing.
The agreement also requires the Company to convey to the bank a 1.5%
overriding royalty interest, proportionately reduced to the Company's net
interest, on future proven wells on the date any such future wells are
logged, for as long as funds are outstanding pursuant to Tranche B. In the
event the Tranche B loans are repaid in full prior to April 30, 2002, the
Company may redeem the overriding royalty interests conveyed to Deutsche Bank
AG for an amount equal to (a) an amount which, when added to the interest
paid to Deutsche Bank AG, plus revenues received by Deutsche Bank AG from the
overriding royalties conveyed to Deutsche Bank AG, would provide to Deutsche
Bank AG an internal rate of return of approximately 15%, plus (b) 60% of the
then remaining present value of the overriding royalties to be redeemed after
subtracting the amount calculated in (a) above. In addition, Deutsche Bank
also received a five-year warrant to purchase 250,000 shares of the Company's
common stock at a price equal to $1.50 per share. Proceeds of the credit
facility were utilized to retire the Company's existing long-term debt and
additional proceeds can be utilized to supplement working capital and
exploration costs.
The Company expects further increases in the borrowing base of its
credit facility with Deutsche Bank when its proven gas and oil reserves are
updated at December 31, 2000. The Company believes that it is reasonable to
anticipate that Tranche A availability under the credit facility will expand
such that Tranche B obligations to the bank can be funded from Tranche A
credit increases. This would allow more of its cash flow to be expended on
its 2001 capital budget.
The Company's working capital was further enhanced when it closed a
sale of project interests to Cody Texas, L.P. for an amount net to the
Company totaling approximately $11,254,905 on March 20, 2000. In this sale,
the Company conveyed 84.39% of its net interest in its Raymondville Project
in Willacy County, Texas to Cody Texas, L.P. The Company's borrowing base
pursuant to Tranche A with Deutsche Bank was not reduced as a result of the
sale. The proceeds of the sale of interests to Cody Texas, L.P. were utilized
to increase working capital, to reduce outstanding amounts under the
revolving borrowing base available to the Company pursuant to Tranche A of
the Deutsche Bank facility, and to fund capital expenditures of the Company.
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<PAGE>
In the second quarter of 2000, the Company finalized bonuses to
employees for results achieved in 1999. The bonuses were primarily based upon
drilling results achieved and the drilling and completion costs incurred to
achieve the results. The Company achieved a significant return on drilling
and completion costs incurred in 1999. The bonuses were paid in two
installments. $581,934 was paid in the second quarter of 2000 and $180,870
was paid in the third quarter.
The Company believes that in 2000 it has achieved a much more
desirable liquidity position than it has experienced since the consummation
of the Acquisitions in May of 1998. Improvements in its working capital
position, which have resulted from the closing of the facility with Deutsche
Bank and the sale to Cody Texas, L.P., combined with the Company's increased
cash flow, place it in a good position to significantly fund its year 2000
capital expenditures budget from cash, currently available credit and
anticipated operating cash flow. It expects its net daily production to
increase substantially by year end as currently drilled wells come on line.
This would result in substantial revenue increases, which would provide
substantial funding for its 2001 capital budget. Such revenue increases could
be reduced or increased by any substantial change in product prices. Given
its current preliminary estimate of a 2001 capital expenditure budget of over
$30 million, the Company may still depend upon some sales or other
transactions with industry partners to fund the budget. Its ongoing business
plan is to always implement such transactions in order to properly manage the
spread of risk in its drilling activities as well as to be a source of
capital expenditure funds.
Pursuant to the Company's credit agreement with Deutsche Bank, it
has certain covenants regarding current interest coverage ratios and other
covenants regarding which it is expected to be in compliance at the end of
each quarter. Although the Company believes it will be in compliance with
these covenants in the years 2000 and 2001, there can be no assurance that it
will be in compliance. In the event it is not in compliance, the Company will
be required to seek waivers of said covenants or would be required to seek
alternative financing arrangements. The Company was in compliance at
September 30, 2000.
The Company historically has addressed its long-term liquidity needs
through the issuance of debt and equity securities, through bank credit and
other credit facilities, sales of project interests to industry partners and
with cash provided by operating activities. Its major obligations as of
September 2000, consisted principally of (i) servicing loans under the credit
facilities with Deutsche Bank and other loans, (ii) funding of the Company's
exploration activities, and (iii) funding of the day-to-day operating costs.
The Company had an ambitious capital expenditure plan for 2000,
which included approximately $18,000,000 in drilling and completion costs,
and an additional $4,600,000 and $3,600,000, respectively, in geological and
geophysical and land costs for the year. In the first nine months, the
Company incurred approximately $14,015,000 in drilling and completion costs
and approximately $7,616,000 in geological and geophysical costs and land
costs. The Company now expects budgeted capital costs in the fourth quarter
to be exceeded and anticipates an expanded capital budget in 2001. Cash on
hand, cash currently available pursuant to the Deutsche Bank credit facility
and cash flow from operations will contribute significantly to said budgets.
The Company anticipates that its availability pursuant to Tranche A of its
credit facility will expand such that it can pay Tranche B obligations due in
2001 from Tranche A available funds. This would require increases in
availability and resetting of the maturity date of its Tranche A facility,
which it believes are reasonable anticipations based upon increases in the
Company's gas and oil reserves. If Tranche A is modified as expected, the
Company anticipates increased oil and gas revenue will provide cash flow to
substantially fund 2001 anticipated capital costs.
Many of the factors that 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 the acquisition of a company with producing
properties for common stock or other equity securities, and also including
bank borrowings, the issuance of debt instruments, the sale of common stock
or other equity securities, the issuance of net profits interests, sales of
promoted interests in its Exploration Projects, and various forms of joint
venture financing. In addition, the prices the Company receives for its
future oil and natural gas production and the level of the Company's
production will have a significant impact on
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<PAGE>
future operating cash flows. It also seeks to be aware of any consolidation
opportunities with other companies that may help increase shareholder value.
On October 2, 2000 the Company announced it had retained Deutsche
Bank Securities, Inc. to advise it concerning various strategic alternatives
intended to better maximize shareholder value. It also retained the firm of
Randall & Dewey, Inc. to initiate and manage a transaction to seek to better
realize this value through various alternatives such as selling the Company
for cash, merger, stock trade or acquisition. It intends to evaluate such
possibilities as well as potential acquisitions by the Company with an
objective of better maximizing shareholder value. It may or may not
consummate any such transaction, and does not intend to do so unless its
board believed a substantial enhancement of shareholder value would be
achieved.
The Company markets its natural gas through monthly spot sales.
Because sales made under spot sales contracts result in fluctuating revenues
to the Company depending upon the market price of gas, the Company may enter
into various hedging agreements to minimize the fluctuations and the effect
of price declines or swings. The Company currently has natural gas hedges in
place covering 13,278 MMBtu of gas production in the fourth quarter of 2000
at a weighted average price of $3.297 per MMBtu. It has hedges in place
covering 12,161 MMBtu of gas production in the first quarter of 2001 at a
weighted average price of $3.091 per MMBtu. It has hedges in place covering
11,880 MMBtu of gas production in the second quarter of 2001 at a weighted
average price of $3.107 per MMBtu. It has hedges in place covering 11,600
MMBtu of gas production in the third quarter of 2001 at a weighted average
price of $3.122 per MMBtu. It has hedges in place covering 11,319 MMBtu of
gas production in the fourth quarter of 2001 at a weighted average price of
$3.139 per MMBtu.
The Company also has hedges on oil production at a price of $21.03
per barrel. Volumes at this price are 238 barrels of oil per day in the
fourth quarter of 2000 and volumes of 175, 168, 161 and 154 barrels of oil
per day for the first through fourth quarters of 2001, respectively.
The Company currently has no hedges in place for periods beyond
December 31, 2001.
WORKING CAPITAL. At September 30, 2000, the Company had a cash
balance of $386,940, total current assets of $15,659,540, and total current
liabilities of $22,576,853. This resulted in a working capital deficit of
$6,917,313. The Company expects its trend of increasing gas and oil revenues
and associated hedging revenues from commodity transactions will continue the
growth in revenues in excess of the ongoing costs of operations, which may
also enhance the Company's working capital position. Conversely, the Company
utilizes excess cash to reduce its revolving line of credit, which may result
in lower reported working capital than would be reported were it to utilize
more long-term debt, but does not affect available cash resources. Tranche B
of the Deutsche Bank facility begins amortizing at a rate of 25% of the
principal per quarter in the second quarter of 2001. Tranche A is scheduled
to amortize over four years beginning in the first quarter of 2001; however,
the intention of the Company is to request the extension of the commencement
of the Tranche A amortization period. The net working capital can be
negatively effected by the Company's continuing aggressive capital
expenditures program on its exploration projects to the extent said capital
expenditures exceed cash generated from operations and from the sale of
project interests and/or growth in its credit facilities.
SUMMARY. The Company believes it is positioned to continue to expand
its exploration activity on its technology-enhanced projects. Many of the
projects have reached the drilling stage. In many instances, the requisite
process of geological and/or engineering analysis, followed by acreage
acquisition of leasehold rights and seismic permitting and 3-D seismic field
data acquisition, then processing of the data and finally its interpretation
took several years of time and the investment of significant capital.
Management believes the acquisition of projects at this advanced stage has
not only reduced the drilling risk, but should allow the Company to
consistently drill on a broad array of exploration prospects throughout 2000
and beyond.
As evidence of this activity the Company participated in the
drilling of 43 wells on its exploration projects in the first nine months of
2000, not including wells commenced after September 30. The addition of wells
drilled in 1999 and 2000 to producing status increased the Company's net
daily production to an average of approximately 17,969 MCFE per day in the
nine months ended September 30. The net production averaged 17,762 MCFE per
day in the third quarter. The Company expects net daily production to be at
least 25,000 to 30,000 MCFE per day prior to year end 2000 as additional
drilled wells come on line. The Company expects that the associated revenues
will provide
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<PAGE>
positive growing operating cash flow throughout 2001 (prior to capital
expenditures and new 3-D seismic data acquisition costs, which costs the
successful efforts accounting method utilized by the Company mandates to be
expensed rather than capitalized). The Company's 1999 and 2000 drilling
results have further served to increase its confidence in its future drilling
on the technology enhanced Exploration Projects. Additional exploration
success would continue this positive trend.
The Company expects to fund significant portions of its 2001
drilling and completion budget from operating cash flow (i.e., cash flow
calculated prior to successful efforts reduction for dry hole capital
expenditures and new expensed 3-D seismic data acquisition costs). It expects
the 2001 capital budget to exceed its 2000 capital budget of about
$18,000,000. It also expects to continue to acquire new seismic data and
leasehold. The Company will utilize a variety of sources to fund its
continuing capital expenditures budget including operating cash flow,
currently available credit facilities and certain sales of promoted project
interests to industry partners, as it seeks to maximize its interests and
manage its risks while aggressively pursuing its exploration projects.
The Company intends to aggressively pursue its exploration plan in
2001 while continuing to enhance its project inventory through its ongoing
acquisition of 3-D seismic-enhanced opportunities. It will also focus on any
potential merger or acquisition, which it believes, can enhance shareholder
value through expansion of exploration opportunities or increased economies
of scale.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently has no action filed against it other than
ordinary routine litigation.
ITEM 2. CHANGES IN SECURITIES.
In the nine months ended September 30, 2000 and in the fourth
quarter through November 10, 2000, the Company has issued 51,742 and 3,431
shares, respectively, of its common stock pursuant to its employees' 401-K
plan. The shares represent the employer's pro rata match of employee
contributions. It also sold 84,000 shares of common stock comprised of 12,000
shares to each of seven of its directors. The shares were part of an overall
compensation package for its directors, which package included stock options
as further described in Item 10 located at Part III of the Company's report
on Form 10-KSB/A for the year ended December 31, 1999 dated April 28, 2000.
The price per share paid by Directors was $1.83 per share payable one third
upon subscription, one third on or before May 14, 2000 and one third on or
before May 15, 2001. The shares issued pursuant to the 401-K plan and to the
Directors have been registered in the fourth quarter of 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 28, 2000, the annual meeting of shareholders of Esenjay
Exploration, Inc. was held. At that meeting the shareholders voted as follows:
a) The following directors were elected (by the vote indicated) at
such meeting:
<TABLE>
<CAPTION>
Name of Nominee Number of Number of Number of
Shares Voted For Shares Voted Against Shares Abstained
<S> <C> <C> <C>
Alex M. Cranberg 16,804,540 0 166,194
Michael E. Johnson 16,923,173 0 47,561
Jack P. Randall 16,916,572 0 54,162
b) To approve and adopt the
Long-Term Incentive Plan For 10,783,136 Against 2,056,341 Abstain 15,010
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(11) Computation of Earnings Per Common Share
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed October 2, 2000 is incorporated herein by
reference.
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<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: November 14, 2000 By: /S/ MICHAEL E. JOHNSON
-------------------------------
MICHAEL E. JOHNSON, President,
Chief Executive Officer and Director
Date: November 14, 2000 By: /S/ DAVID B CHRISTOFFERSON
-------------------------------
DAVID B. CHRISTOFFERSON,
Senior Vice President, General Counsel,
Principal Financial Officer
Date: November 14 , 2000 By: /S/ ANGELA D. CONWAY
-------------------------------
ANGELA D. CONWAY,
Controller
24
