<PAGE> 1
U.S. 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 March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to _______
Commission File No. 0-21702
MIDDLE BAY OIL COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 63-1081013
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1221 LAMAR STREET, SUITE 1020
HOUSTON, TX 77010
(Address of principal executive offices)
(713) 759-6808
(Issuer's telephone number)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of Exchange Act 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 [ ]
Number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Common stock, $.02 par value
8,496,766 shares as of April 30, 1998
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE> 2
MIDDLE BAY OIL COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
March 31, 1998 and December 31, 1997 ............................................. 1
Consolidated Statements of Operations-
Three months ended March 31, 1998 and 1997 ....................................... 2
Consolidated Statements of Cash Flows-
Three months ended March 31, 1998 and 1997 ....................................... 3
Notes to Consolidated Financial Statements .......................................... 4
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operation ........................... 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K
February 13, 1998 - Kaiser-Frances Oil Company converted all
1,666,667 of Series A Preferred Stock of registrant into 3,333,334
shares of Common Stock.
</TABLE>
<PAGE> 3
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIDDLE BAY OIL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
MARCH 31 DECEMBER 31
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 5,947,033 $ 1,587,184
NOTES AND ACCOUNTS RECEIVABLE-TRADE 2,949,999 2,352,679
OTHER CURRENT ASSETS 471,317 57,726
ASSETS HELD FOR RESALE 206,466 206,464
------------- -------------
TOTAL CURRENT ASSETS 9,574,815 4,204,053
NON-CURRENT ASSETS
NOTES RECEIVABLE-STOCKHOLDER 167,902 166,165
PROPERTY (AT COST)
OIL AND GAS (SUCCESSFUL EFFORTS METHOD) 82,707,910 62,685,623
FURNITURE, FIXTURES AND OTHER 834,745 822,806
------------- -------------
83,542,655 63,508,429
ACCUMULATED DEPRECIATION AND DEPLETION (31,754,337) (30,636,202)
------------- -------------
51,788,318 32,872,227
OTHER ASSETS 206,713 10,127
------------- -------------
TOTAL ASSETS $ 61,737,748 $ 37,252,572
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITY OF LONG-TERM DEBT $ 2,602,888 $ 1,375,537
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,392,307 1,176,680
OIL AND GAS REVENUE PAYABLE 196,370 308,981
OTHER CURRENT LIABILITIES 908,055 29,737
------------- -------------
TOTAL CURRENT LIABILITIES 7,099,620 2,890,935
LONG-TERM DEBT 24,499,568 9,714,713
DEFERRED INCOME TAXES 4,052,056 4,780,528
MINORITY INTEREST 7,668,395 --
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $0.02 PAR, 5,000,000 AUTHORIZED
WITH 1,666,667 DESIGNATED SERIES A, NONE ISSUED
CUMULATIVE CONVERTIBLE SERIES A 8% PREFERRED STOCK,
$6.00 STATED VALUE, 1,666,667 DESIGNATED, NO SHARES OUTSTANDING
AT MARCH 31, 1998. 166,667 SHARES ISSUED AND OUTSTANDING AT
DECEMBER 31, 1997. $10,000,000 AGGREGATE LIQUIDATION PREFERENCE 10,000,000
CONVERTIBLE PREFERRED STOCK SERIES B, $7.50 STATED VALUE,
266,667 SHARES ISSUED AND OUTSTANDING AT MARCH 31, 1998 AND
DECEMBER 31, 1997. $2,000,000 AGGREGATE LIQUIDATION PREFERENCE 3,627,000 3,627,000
COMMON STOCK, $.02 PAR VALUE, 10,000,000 AUTHORIZED, 7,852,540 AND
1,880,917 SHARES ISSUED AND OUTSTANDING AT MARCH 31, 1998 AND
AND DECEMBER 31, 1997, RESPECTIVELY 157,059 90,392
PAID-IN-CAPITAL 32,962,632 23,029,299
UNEARNED STOCK COMPENSATION (33,750) (67,500)
ACCUMULATED DEFICIT (18,226,792) (16,744,755)
LESS COST OF TREASURY STOCK; 21,773 SHARES (68,040) (68,040)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 18,418,109 19,866,396
COMMITMENTS AND CONTINGENCIES
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 61,737,748 $ 37,252,572
============= =============
</TABLE>
See accompanying notes.
1
<PAGE> 4
MIDDLE BAY OIL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1998 1997
------------- -------------
<S> <C> <C>
REVENUE
OIL AND GAS PRODUCTION AND PLANT INCOME $ 2,632,248 $ 1,875,847
OTHER 124,642 25,531
------------- -------------
TOTAL REVENUE 2,756,890 1,901,378
------------- -------------
COSTS AND EXPENSES
WELL OPERATING $ 1,184,048 $ 642,847
GEOLOGICAL AND GEOPHYSICAL 745,713 -
DEPRECIATION, DEPLETION AND
AMORTIZATION 1,118,136 479,045
DRYHOLE COSTS 468,951 181,338
INTEREST 255,453 135,875
STOCK COMPENSATION 33,750 -
GENERAL AND ADMINISTRATIVE 1,093,403 421,854
------------- -------------
TOTAL EXPENSES 4,899,454 1,860,959
INCOME (LOSS) BEFORE INCOME TAXES (2,142,564) 40,419
INCOME TAX BENEFIT (728,472) -
------------- -------------
NET INCOME (LOSS) (1,414,092) 40,419
DIVIDENDS TO PREFERRED STOCKHOLDERS 67,945 62,889
------------- -------------
NET LOSS AVAILABLE TO STOCKHOLDERS $ (1,482,037) $ (22,470)
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 6,719,656 2,088,385
============= =============
Diluted 6,719,656 2,088,385
============= =============
NET LOSS PER COMMON SHARE
Basic $ (0.22) $ (0.01)
============= =============
Diluted $ (0.22) $ (0.01)
============= =============
</TABLE>
See accompanying notes.
5
<PAGE> 5
MIDDLE BAY OIL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS) $ (1,414,092) $ 40,419
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPLETION, DEPRECIATION AND AMORTIZATION 1,118,136 479,045
DRYHOLE COSTS 468,951 181,338
STOCK COMPENSATION EXPENSE 33,750 -
DEFERRED INCOME TAX BENEFIT (728,472) -
CHANGES IN CURRENT ASSETS AND LIABILITIES EXCLUDING
EFFECTS OF BUSINESS ACQUISITIONS:
ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS 630,631 20,050
ACCOUNTS PAYABLE, OIL AND GAS REVENUE PAYABLE,
AND OTHER CURRENT LIABILITIES 1,455,187 (25,644)
OTHER CHARGES (CREDITS) - 534
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,564,091 695,742
INVESTING ACTIVITIES
PROCEEDS FROM SALES OF PROPERTIES - 1,445,890
ADDITIONS TO OIL AND GAS PROPERTIES (1,669,971) (859,377)
ACQUISITION OF BISON ENERGY CORPORATION, NET OF
CASH ACQUIRED OF $994,367 - (7,139,914)
ACQUISITION OF ENEX RESOURCES CORPORATION, NET OF
CASH ACQUIRED OF $4,698,211 (11,268,268) -
FURNITURE, FIXTURES AND OTHER ASSETS (99,779) (13,335)
ADVANCES TO STOCKHOLDER (1,737) (1,657)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (13,039,755) (6,568,393)
FINANCING ACTIVITIES
PROCEEDS FROM COMMON STOCK ISSUED - 92,610
PROCEEDS FROM PREFERRED STOCK ISSUED - 6,000,000
PROCEEDS FROM DEBT ISSUED 26,969,604 -
PRINCIPAL PAYMENTS ON DEBT (10,957,396) (84,612)
PREFERRED STOCK DIVIDENDS (67,945) (62,889)
OTHER (108,750) -
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,835,513 5,945,109
NET INCREASE IN CASH 4,359,849 72,458
CASH- BEGINNING 1,587,184 556,026
------------- -------------
CASH- ENDING $ 5,947,033 $ 628,484
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID IN CASH $ 0 $ 135,875
============= =============
CONVERSION OF SERIES A PREFERRED STOCK $ 10,000,000 -
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 6
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Middle Bay Oil Company, Inc., was incorporated under the laws of
the State of Alabama on November 30, 1992. Effective March 27, 1998, the Company
acquired 79.2% of Enex Resources Corporation. In 1997, the Company acquired
Bison Energy Corporation and Shore Oil Company. The Company and its subsidiaries
are engaged in the acquisition, development and production of oil and gas in the
contiguous United States.
Basis of Presentation
In management's opinion, the accompanying consolidated financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the consolidated financial position of
the Company as of March 31, 1998 and December 31, 1997 and the consolidated
results of operations and consolidated cash flows for the three months ended
March 31, 1998 and 1997.
An independent accountant has not audited the accompanying
consolidated financial statements. Certain information and disclosures normally
included in annual audited financial statements prepared in accordance with
generally accepted accounting principles have been omitted, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the Company's financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1997.
Certain reclassifications have been made to conform with the
current presentation.
Significant Accounting Policies
The Company's accounting policies reflect industry standards and
conform to generally accepted accounting principles. The more significant of
such policies are described below.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Middle Bay Production Company (formerly
Bison Production Company), Enex Resources Corporation (Enex), a 79.20% owned
subsidiary and a partnership, of which Enex owns greater than a 50% interest.
The equity of minority interests in Enex and the partnership is shown in the
consolidated statements as "minority interest". Significant intercompany
accounts and transactions are eliminated in consolidation.
4
<PAGE> 7
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
Management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities to prepare the financial statements.
Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company
classifies all cash investments with original maturities of three months or less
as cash.
Oil and Gas Properties
The Company follows the "successful efforts" method of accounting
for its oil and gas properties, and accordingly, capitalizes all direct costs
incurred in connection with the acquisition, drilling, and development of
productive oil and gas properties. Costs associated with unsuccessful
exploration are charged to expense currently. Geological and geophysical costs
and costs of carrying and retaining unevaluated properties are charged to
expense. Depletion, depreciation and amortization of capitalized costs are
computed separately for each property based on the unit-of-production method
using only proved oil and gas reserves. In arriving at such rates, commercially
recoverable reserves have been estimated by independent petroleum engineering
firms. The Company reviews its undeveloped properties quarterly and charges them
to expense on a property by property basis when it is determined that they have
been condemned by dry holes, or will not be retained, sold or drilled upon.
Site Restoration, Dismantlement & Abandonment Costs
Site restoration, dismantlement and abandonment costs (P&A costs)
include costs associated with dismantling and disposing of the facilities and
equipment required to operate a well and restoring the well site to specified
conditions. The Company develops specific estimates of its P&A costs based on
consultations with its engineers and reevaluates such estimates quarterly.
Estimated future P&A costs are accrued on a unit-of-production method based on
proved reserves. As of March 31, 1998 and December 31, 1997, the P&A costs
accrued were immaterial.
5
<PAGE> 8
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS No. 121) was issued in March 1995 and was adopted by the Company in the
fourth quarter of 1997. This statement requires that long-lived assets be
reviewed on a quarterly basis for impairment when events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. This review consists of a comparison of the carrying value of the
asset with the asset's expected future undiscounted cash flows without interest
costs.
Estimates of expected future cash flows represent management's best
estimate based on reasonable and supportable assumptions and projections. If the
expected future cash flows are less than the carrying value of the asset, an
impairment exists and is measured as the excess of the carrying value over the
estimated fair value of the asset. Any impairment provisions recognized in
accordance with SFAS No. 121 are permanent and may not be restored in the
future.
Other Property and Equipment
Other property and equipment are stated at cost and depreciation is
computed over appropriate lives ranging from five to seven years. Additions and
betterments, which provide benefits to several periods, are capitalized.
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes required by the Statement of Financial Accounting Standards No.
109. Under the asset and liability method, deferred tax assets and liabilities
are determined by applying enacted statutory tax rates applicable to future
years to the difference between the financial statement and tax basis of assets
and liabilities.
Earnings Per Share
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." This statement establishes standards for computing and
presenting earnings per share, and requires, among other things, dual
presentations of basic and diluted earnings per share on the face of the
statement of operations. In accordance with SFAS No. 128, earnings per share and
weighted average shares outstanding have been restated to conform to this
statement for all periods presented. A weighted average of 390,501 common stock
equivalents are not considered in the 1998 calculation of diluted earnings per
share due to the net loss recorded during the period.
6
<PAGE> 9
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Market Risk
The future results of the Company will be affected by the market
prices of oil and natural gas. The availability of a ready market for natural
gas and oil in the future will depend on numerous factors beyond the control of
the Company, including weather, production of natural gas and crude oil,
imports, marketing of competitive fuels, proximity and capacity of oil and gas
pipelines and other transportation facilities, any oversupply or undersupply of
gas and oil, the regulatory environment, and other regional and political
events, none of which can be predicted with certainty.
7
<PAGE> 10
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(2) ACQUISITIONS
On February 28, 1997, the Company completed the acquisition of Bison Energy
Corporation ("BEC"). The transaction consisted of a merger (the "Bison Merger")
of BEC into Bison Energy Corporation-Alabama, a wholly-owned subsidiary of the
Company. On February 28, 1997, Bison Energy Corporation-Alabama merged into BEC
and its separate corporate existence ceased. BEC was merged into the Company on
January 1, 1998.
The cost of acquiring BEC was approximately $10 million, consisting of the
following (in thousands):
<TABLE>
<S> <C>
Estimated fair value of 605,556 shares
of common stock issued ................................................... $ 3,330
Cash on hand .............................................................. 6,654
Other legal and accounting expenses ....................................... 35
-------
$10,019
=======
</TABLE>
The fair value of the securities issued in connection with the merger
was calculated using the price of the Company's common stock at the time the
Bison Merger was announced to the public of $5.50 per share.
The cost of acquiring BEC was allocated using the purchase method of
accounting to the consolidated assets and liabilities of BEC based on estimates
of the fair values with the remaining purchase price allocated to proved oil and
gas properties.
The allocation of the purchase price is summarized as follows: (in
thousands)
<TABLE>
<S> <C>
Working capital ............................................. $ 714
Oil and gas properties....................................... 13,268
Yard Inventory and equipment ...... ......................... 465
Deferred income taxes........................................ (4,428)
-------
$10,019
=======
</TABLE>
The price paid for BEC and the allocation of the purchase price, both
detailed above, excludes the $1,445,890 allocated to non-oil and gas assets that
were purchased in the merger and sold on March 3, 1997 for $1,445,890.
8
<PAGE> 11
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(2) ACQUISITIONS (continued)
On June 30, 1997, the Company completed the acquisition of Shore Oil
Company ("Shore"). The transaction consisted of a merger (the "Shore Merger") of
Shore into Shore Acquisition Company Inc., a wholly-owned subsidiary of the
Company. On June 30, 1997, Shore Acquisition Company merged into Shore and its
separate corporate existence ceased. Shore was merged into the Company on
January 1, 1998.
The cost of acquiring Shore was approximately $19 million, consisting
of the following (in thousands):
<TABLE>
<S> <C>
Estimated fair value of 1,883,333 shares
of common stock issued ................................................... $12,976
Estimated fair value of 266,667 shares
of Series B Preferred Stock .............................................. 3,627
Cash consideration ........................................................ 2,533
Other legal and accounting expenses ....................................... 38
-------
$19,174
=======
</TABLE>
The fair value of the securities issued in connection with the merger
was calculated using the average price of the Company's common stock at the time
the Shore Merger was announced to the public and further adjusted for
tradability restrictions. An independent valuation firm determined the
tradability discount for the Company's common stock.
The cost of acquiring Shore was allocated using the purchase method of
accounting to the consolidated assets and liabilities of Shore based on
estimates of the fair values with the remaining purchase price allocated to
proved oil and gas properties.
The allocation of the purchase price is summarized as follows: (in
thousands)
<TABLE>
<S> <C>
Working capital .................................. $ 2,288
Oil and gas properties
Proved and unproved............................. 20,688
Fee minerals ..................................... 5,495
Debt assumed ..................................... (2,105)
Deferred income taxes ........................... (7,192)
-------
$19,174
=======
</TABLE>
9
<PAGE> 12
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
(2) ACQUISITIONS (concluded)
On March 27, 1998, the Company acquired 1,064,432 common shares,
approximately 79%, of Enex Resources Corporation ("Enex") for $15,966,480. The
Company purchased the common shares of Enex through a cash tender offer (the
"Enex Acquisition"). Enex is a general partner of Enex Consolidated Partners,
L.P., (the "Enex Partnership"), a New Jersey limited partnership whose principal
business is oil and gas exploration and production. Enex's general partner
interest is 4.1%. Enex also owns an approximate 55% limited partner interest.
The cost of acquiring the 79.20% of Enex was allocated using the purchase
method of accounting to the consolidated assets and liabilities of Enex based on
estimates of the fair values with the remaining purchase price allocated to
proved oil and gas properties.
The allocation of the purchase price is summarized as follows: (in
thousands)
<TABLE>
<S> <C>
Working capital ................................. $ 4,812
Oil and gas properties........................... 18,821
Minority Interest................................ (7,667)
-------
$15,966
=======
</TABLE>
The following pro forma data presents the results of the Company for
the three months ended March 31, 1997 and 1998, as if the acquisitions of BEC,
Shore and Enex had occurred on January 1, 1997. The pro forma results are
presented for comparative purposes only and are not necessarily indicative of
the results which would have been obtained had the acquisitions been consummated
as presented. The following data reflect pro forma adjustments for oil and gas
revenues, production costs, depreciation and depletion related to the properties
and businesses acquired, and the related income tax effects (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Pro Forma
Three months ended
March 31
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Total Revenues ............................................................ $ 5,561 $ 6,447
Net Income (Loss) Available to Stockholders ............................... $(2,145) $ 2
Net Income (Loss) per share Available to Stockholders...................... $( 0.32) $ --
</TABLE>
10
<PAGE> 13
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(3) RELATED PARTY TRANSACTIONS
The Company had a note receivable, including accrued interest, from Bay
City Energy Group, Inc. (BCEG), as of March 31, 1998 and December 31, 1997 in
the amount of $167,902 and $166,165, respectively. The principal balance of the
note accrues interest at 5% per annum and is due in full on January 1, 2001.
75,000 shares of Company common stock secure the note. During the three months
ended March 31, 1998 and 1997, BCEG did not make any payments and was not
advanced any funds. Interest of $28,898 was accrued on the note at March 31,
1998.
The Company rents office space in Wichita, Kansas from C.J. Lett III, a
shareholder, officer and director of the Company. The rent is $3,000 per month
for three years through February, 2000.
(4) LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
----------- -----------
<S> <C> <C>
Reducing revolving line of credit of up to
$100,000,000 due April 1, 2001, secured by
oil and gas properties $26,969,604 --
Convertible Loan of $50,000,000 due March 31, 1998,
secured by oil and gas properties, monthly
payments of interest only at Libor plus 1.75%,
convertible into a 72 month term
note on March 31, 1998 -- 10,956,298
Note, due 1/1/99, secured by office building,
repayable in monthly installments
of $1,511 including interest
at 7 3/4% 132,852 133,952
----------- ----------
Total $27,102,456 $11,090,250
Less current maturities 2,602,888 1,375,537
----------- -----------
Long-term debt excluding current
maturities $24,499,568 $9,714,713
=========== ==========
</TABLE>
11
<PAGE> 14
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(4) LONG-TERM DEBT (continued)
Effective March 27, 1998 the Company entered into a new reducing
revolving line of credit agreement (the "$100 million Revolver") with Compass
Bank, as agent and lender, and Bank of Oklahoma, as a participant lender,
(collectively, the "Banks"). The $100 million Revolver provides for an initial
borrowing base of $29 million. The initial borrowing base will be reduced to
$27.5 million within ten days after the effective date and further reduced by
$275,000 per month, beginning May 1, 1998 and ending October 1, 1998. The
borrowing base and the scheduled reduction amount shall be redetermined
semi-annually by unanimous consent of the lenders beginning October 1, 1998. The
principal is due at maturity, April 1, 2001. Monthly principal payments are made
as required in order that the outstanding principal balance does not exceed the
borrowing base. Interest is payable monthly and is calculated at the prime rate.
The Company may also elect to calculate interest under the Libor rate, as
defined in the agreement. The Libor rate increases by (a) 2.00% if the
outstanding loan balance and letters of credit are equal to or greater than 75%
of the borrowing base, (b) 1.75% if the outstanding loan balance and letters of
credit are less than 75% or greater than 50% of the borrowing base, (c) 1.50% if
the outstanding loan balance and letters of credit are equal to or less than 50%
of the borrowing base. Libor interest is payable at maturity of the Libor loan
which cannot be less than thirty days.
At March 31, 1998 the Company had borrowed approximately $26,969,604 and
had approximately $1,350,432 of outstanding letters of credit. As of March 31,
1998, the Company is paying Libor plus 2.00% on a thirty day Libor loan for
$25,469,604 and prime on $1,500,000.
The Company paid a facility fee equal to 3/8% of the initial borrowing
base and is required to pay 3/8% on any future increase in the borrowing base
within five days of written notice. The Company is required to pay a quarterly
commitment fee on the unused portion of the borrowing base of one-half percent
if the outstanding loan balance plus letters of credit are greater than 50% of
the borrowing base or three-eighths percent if the outstanding loan balance plus
letters of credit are less than or equal to 50% of the borrowing base. The
Company is required to pay a letter of credit fee on the date of issuance or
renewal of each letter of credit equal to the greater of $500 or one and
one-half percent of the face amount of the letter of credit.
The Company has granted to the Banks liens on substantially all of the
Company's oil and natural gas properties, whether currently owned or hereafter
acquired, and a negative pledge on all other oil and gas properties. The $100
million Revolver requires, among other things, a cash flow coverage ratio of
1.25 to 1.00 and a current ratio of 0.9 to 1.00, determined on a quarterly
basis.
12
<PAGE> 15
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(4) LONG-TERM DEBT (concluded)
The $100 million Revolver includes other covenants prohibiting cash
dividends, distributions, loans, advances to third parties in excess of
$100,000, or sales of assets greater than 10% of the aggregate net present value
of the oil and gas properties in the borrowing base. As of March 31, 1998 the
Company was not in violation of any covenants of the $100 million Revolver.
(5) SERIES A PREFERRED STOCK
On September 4, 1996, the Company signed a stock purchase agreement with
Kaiser Francis Oil Company ("Kaiser-Francis"). Kaiser-Francis agreed to purchase
1,666,667 shares of Series A Preferred Stock ("Series A") at $6.00 per share,
for a total investment of $10,000,000. The parties agreed to a five-year
purchase period, effective September 4, 1996, with minimum incremental
investments of $500,000 each. Each issuance of Series A was subject to approval
by Kaiser-Francis of the use of proceeds. The Series A was nonvoting and accrued
dividends at 8% per annum, payable quarterly in cash. The Series A was
convertible at any time after issuance into shares of common stock at the rate
of two shares of common stock for each share of Series A before January 1, 1998.
The conversion rate decreases for every full year (excluding partial years)
thereafter at 8% per annum. As of December 31, 1997, 1,666,667 shares of the
Series A had been issued. On January 31, 1998 Kaiser-Francis converted 100% of
the Series A into 3,333,334 common shares of the Company.
(6) SERIES B PREFERRED STOCK
In connection with the merger with Shore Oil Company, effective June 30,
1997, the Company issued 266,667 shares of Series B Preferred Stock ("Series
B"). The Series B is nonvoting and pays no dividends. The Series B has a
liquidation value of $7.50 per share and is junior to the Series A Preferred.
For a period of sixty-six months subsequent to June 30, 1997 any holder of the
Series B may convert all or any portion of Series B shares into Company Common
Stock ("Common") at a ratio of one share of Common for each Series B share, or
at any time on or after January 1, 1998, the holders may convert a portion of
their Series B shares based on a conversion method whereby a number of
convertible Series B shares are exchanged using the Alternative Conversion
Factor, which is calculated as the increase in value of approximately 40,000 net
mineral acres in South Louisiana owned by the Company at the end of the year
divided by $8 million.
13
<PAGE> 16
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(6) SERIES B PREFERRED STOCK (concluded)
The Alternative Conversion Factor is then multiplied by 1,066,000 to
arrive at the potential converted number of common shares received. Upon
expiration of the conversion period, unless the Company has given notice to
redeem the Series B, all of the shares of Series B shall be automatically
converted. In no event shall the aggregate total number of shares of Common into
which the Series B are converted be less than 266,667 shares or exceed 1,333,333
shares, unless further increased for any anti-dilution provisions.
(7) COMMON STOCK
On February 13, 1997, the Company awarded the President, Vice-President
Chief Financial Officer and Vice-President Engineering stock options to acquire
100,000, 62,500 and 62,500 shares of common stock, respectively, at an exercise
price of $5.50 per share. All of the options vested on the date of grant. The
exercise price was equal to the fair market value of common stock on the date of
grant. On the same date, the Company awarded to the President, Vice-President
Chief Financial Officer and Vice-President Engineering, 25,909, 11,591 and
11,591 shares of restricted stock of the Company, respectively. The restricted
stock awards are contingent on the performance of services to the Company in the
future with 50% of the restricted shares being earned over the six month period
July 1, 1997 to December 31, 1997 and 50% over the six month period January 1,
1998 to June 30, 1998.
On January 13, 1998, the Board of Directors granted options, with an exercise
price of $5.75 per share, to acquire 232,000 shares of Company common stock to
certain employees and directors. On May 30, 1997, the Board of Directors granted
options, with an exercise price of $7.75 per share, to acquire 85,000 shares of
Company common stock to certain key employees. On February 6, 1997, the Board of
Directors granted options, with an exercise price of $6.00 per share, to acquire
210,000 shares of Company common stock to key employees and non-employee
directors. On May 31, 1996, the Board of Directors granted options, with an
exercise price of $2.50 per share, to acquire 125,000 shares of Company common
to key employees and non-employee directors. All of the options were granted
under the 1995 Stock Option and Stock Appreciation Rights Plan and will expire
ten years from date of grant if not exercised.
14
<PAGE> 17
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(7) INCOME TAXES
The Company's income tax expense (benefit) for continuing operations consists
of the following:
<TABLE>
<CAPTION>
Three months Ended
March 31 March 31
1998 1997
--------- --------
<S> <C> <C>
Current $ - $ -
Deferred (728,472) -
--------- -----
Total $(728,472) $ -
========= =====
</TABLE>
The Company's net deferred tax liability at March 31, 1998 and December 31,
1997 are as follows:
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax liability
Oil and gas properties $ 5,597,170 $5,906,070
Deferred tax asset
NOL carryforward (1,502,896) (1,083,324)
AMT tax credit carryforward (36,482) (36,482)
Other (5,736) (5,736)
(1,545,114) (1,125,542)
Valuation allowance - -
----------- -----------
Net deferred tax liability $ 4,052,056 $ 4,780,528
=========== ===========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards of
approximately $3,186,247 expiring in the years 2009 through 2011.
15
<PAGE> 18
MIDDLE BAY OIL COMPANY, INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(7) COMMITMENTS AND CONTINGENCIES
The Company is obligated under the terms of certain operating leases for
office space that expire over the next three years. The Company is leasing 3,000
square foot of office space for its Midcontinent office in Wichita, Kansas for
$3,000 per month for three years. The Company is leasing 5,363 square foot of
office space for its headquarters in Houston, Texas. The twenty-four month lease
requires monthly lease payments of $5,791 through June 30, 1998 and $6,576
through June 30, 1999.
As of March 31, 1998 the Company had $1,350,432 of irrevocable standby
letters of credit due to expire on June 30, 1999.
Enex, as general partner of the Enex Partnership, is contingently liable
for all debts and actions of the Enex Partnership. However, in management's
opinion, the existing assets of the Enex Partnership are sufficient to satisfy
any such partnership indebtedness.
The Company is a defendant in various legal proceedings which are
considered routine litigation incidental to the Company's business, the
disposition of which management believes will not have a material effect on the
financial position or results of operations of the Company.
(8) SUBSEQUENT EVENTS
On April 16, 1998, the Company entered into and closed an Asset
Purchase Agreement (the "Agreement"), with Service Drilling Co., LLC ("Service
Drilling") and certain affiliates, whereby the Company acquired substantially
all of the assets of Service Drilling and its affiliate in exchange for the
Company's common stock and cash.
Service Drilling and its affiliates are privately owned domestic
oil and gas development and production companies with assets located primarily
in Oklahoma and the Texas Panhandle. Pursuant to the Agreement, the Company
issued 666,000 shares of its common stock (144 Restricted) and paid aggregate
cash consideration of $6,500,000, subject to post-closing adjustments, in
exchange for the assets. The transaction, which will be accounted for using the
purchase method of accounting, will be effective as of March 1, 1998. Asset
values were determined by estimating the discounted reserve value of the
acquired properties and through negotiation. The cash portion of the
consideration is being financed through the Company's $100 million Revolver with
Compass Bank and from cash on hand. The asset acquisition is expected to add an
estimated 284,000 barrels of oil and natural gas liquids and 12,041 MMcf of
natural gas to the Company's reserves. After the transaction, the Company has
estimated total proved reserves of approximately 4,083,000 barrels of oil and
ngls, and 49,186 MMcf of natural gas.
16
<PAGE> 19
Item 2. Management's Discussion and Analysis or Plan of Operations.
Liquidity and Capital Resources
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Cash flow from operating activities for the three months ended March 31,
1998 of $1,564,000 increased $868,000 over the comparable period. The increase
was due primarily to working capital changes offset by a decrease in cash flow
from higher G&G expenses, higher dry-hole expenses and higher G&A expenses. Cash
flow from oil and gas properties increased $216,000 over the comparable period.
Oil and gas prices decreased 36% and 18%, respectively, while oil and gas
production increased 116% and 72%, respectively. The change in working capital
increased cash flow by $2,091,000 over the comparable period. The change in
working capital was caused principally by timing differences in the payment of
expenses and receipt of revenues. The cash flow to debt coverage ratio of 203.62
is greater than the 1.25 required under the $100 million Revolver agreement.
There were no required principal payments under the $100 million Revolver in the
current period.
Additions to oil and gas properties were higher than the comparable period
due primarily to the increased drilling activity. The amount spent on
acquisitions is higher due to the Enex Resources Corporation Acquisition (the
"Enex Acquisition") which closed March 27, 1998. The Company acquired
approximately 79% of Enex Resources Corporation ("Enex") common stock for cash
in a tender offer that expired March 27, 1998. The increase in the amount of
cash used for debt payments was due to the replacing of the $50 million
Convertible Loan, with a principal balance of $10,956,000, with the $100 million
Revolver. No monthly principal payments have been required over the period April
1, 1997 to March 31, 1998 on the Company's $6 million, $15 million and $50
million Convertible Loans. The increase in the proceeds from debt issued was due
to the proceeds from the $100 million Revolver which were used to replace the
$50 million Convertible Loan and to finance the Enex Acquisition. No preferred
stock was issued in the current period versus the $6 million issued under the
Preferred Stock Agreement with Kaiser-Francis in the comparable period.
Kaiser-Francis converted all of the Series A Preferred Stock on January 31,
1998.
The Company's operating activities provided net cash of $1,564,000 for the
three-month period ended March 31, 1998. During this period, net cash from
operations and cash on hand was used principally for acquisitions and
exploratory and developmental drilling. Approximately $149,000 was spent to
acquire a well in the Spivey Field. Approximately $650,000 was spent on
exploratory drilling. The principal exploratory wells in the current period were
the S. Highbaugh Prospect well ($199,000), the Sherburne Prospect well
($219,000) and the Middle Bay Oil Co. #1 well ($130,000). Approximately $900,000
was spent on developmental drilling. The principal developmental well drilled in
the current period was the Kuehling #1 sidetrack ($529,000) which was
unsuccessful. Additional developmental drilling was done in the Convis, Custer
City, Lake Trammel, Spivey and Wellman Fields. The Company spent approximately
$15,966,000 on the Enex Acquisition which was financed entirely with debt
proceeds from the $100 million Revolver. Amounts spent on debt retirement
consisted principally of the replacement of the $50 million convertible loan.
17
<PAGE> 20
The Company had current assets of $9,575,000 and current liabilities of
$7,100,000, which resulted in working capital of $2,475,000 as of March 31,
1998. This was an increase of $1,162,000 from the working capital of $1,313,000
as of December 31, 1997. Working capital increased primarily due to working
capital acquired in the Enex Acquisition. The Company's working capital at March
31, 1998, before the Enex transaction, was $132,000. The Company's current ratio
of 2.07, calculated under the terms of the $100 million Revolver agreement,
which excludes stockholder receivables and debt due under the $100 million
Revolver, was in excess of the 0.90 to 1.00 required.
$100 Million Line of Credit
In conjunction with the Enex Acquisition on March 27, 1998 the Company
entered into a new debt agreement with the Banks. The new debt agreement is a
$100 million reducing, revolving line of credit (the "$100 million Revolver")
with current borrowings under a term note maturing April 1, 2001. The entire
principal balance of the Company's $50 million Convertible Loan at the Bank of
Oklahoma was replaced with the $100 million Revolver. The Bank of Oklahoma is a
participating lender with Compass Bank.
The $100 million Revolver provides for an initial borrowing base of $29
million. The initial borrowing base will be reduced to $27.5 million within ten
days after the effective date and further reduced by $275,000 per month,
beginning May 1, 1998 and ending October 1, 1998. The borrowing base and the
scheduled reduction amount shall be redetermined semi-annually by unanimous
consent of the lenders beginning October 1, 1998. The principal is due at
maturity, April 1, 2001. Monthly principal payments are made as required in
order that the outstanding principal balance does not exceed the borrowing base.
Interest is payable monthly and is calculated at the prime rate. The Company may
elect to calculate interest under the Libor rate, as defined in the agreement.
The Libor rate increases by (a) 2.00% if the outstanding loan balance and
letters of credit are equal to or greater than 75% of the borrowing base, (b)
1.75% if the outstanding loan balance and letters of credit are less than 75% or
greater than 50% of the borrowing base, (c) 1.50% if the outstanding loan
balance and letters of credit are equal to or less than 50% of the borrowing
base. Libor interest is payable at maturity of the Libor loan which cannot be
less than thirty days.
At March 31, 1998 the Company had borrowed approximately $26,969,604 and
had approximately $1,350,432 of outstanding letters of credit. As of March 31,
1998, the Company is paying Libor plus 2.00% on a thirty day Libor loan for
$25,469,604 and prime on $1,500,000.
The Company paid a facility fee equal to 3/8% of the initial borrowing
base and is required to pay 3/8% on any future increase in the borrowing base
within five days of written notice. The Company is required to pay a quarterly
commitment fee on the unused portion of the borrowing base of one-half percent
if the outstanding loan balance plus letters of credit are greater than 50% of
the borrowing base or three-eighths percent if the outstanding loan balance plus
letters of credit are less than or equal to 50% of the borrowing base. The
Company is required to pay a letter of credit fee on the date of issuance or
renewal of each letter of credit equal to the greater of $500 or one and
one-half percent of the face amount of the letter of credit.
18
<PAGE> 21
The Company has granted to the Banks liens on substantially all of the
Company's oil and natural gas properties, whether currently owned or hereafter
acquired, and a negative pledge on all other oil and gas properties. The $100
million Revolver requires, among other things, a cash flow coverage ratio of
1.25 to 1.00 and a current ratio of 0.9 to 1.00, determined on a quarterly
basis. The $100 million Revolver prohibits the payment of any cash dividend or
distribution or the purchase of any class of its capital stock.
Series B Preferred Stock
In connection with the Shore Merger, effective June 30, 1997, the
Company issued 266,667 shares of Series B Preferred Stock ("Series B"). The
Series B is nonvoting and pays no dividends. The Series B has a liquidation
value of $7.50 per share and is junior to the Series A Preferred. For a period
of sixty-six months subsequent to June 30, 1997 any holder of the Series B may
convert all or any portion of Series B shares into Company Common Stock
("Common") at a ratio of one share of Common for each Series B share, or at any
time on or after January 1, 1998, the holders may convert a portion of their
Series B shares based on a conversion method whereby a number of convertible
Series B shares are exchanged using the Alternative Conversion Factor, which is
calculated as the increase in value of approximately 40,000 net mineral acres in
South Louisiana owned by the Company at the end of the year divided by $8
million.
The Alternative Conversion Factor is then multiplied by 1,066,000 to
arrive at the potential converted number of common shares received. Upon
expiration of the conversion period, unless the Company has given notice to
redeem the Series B, all of the shares of Series B shall be automatically
converted. In no event shall the aggregate total number of shares of Common into
which the Series B are converted be less than 266,667 shares or exceed 1,333,333
shares, unless further increased for any anti-dilution provisions.
As of March 31, 1998, no additional shares of Series B have been issued.
Redeemable Common Stock
As of March 31, 1997, the Company had a contingent obligation to
repurchase 70,196 common shares issued in the Janex Acquisition, upon written
notice delivered to the Company, beginning five years after the closing date and
continuing for thirty days thereafter, at a price of $6.00 per share. This
obligation shall terminate if the Company's stock trades at a share price of
$8.00 or greater for twenty consecutive trading days during the thirty-six month
period ending November 1, 1998. At the close of trading on April 7, 1997, the
Company's common stock had traded at an ask price that was equal to, or
exceeded, $8.00 per share for twenty consecutive trading days. In accordance
with the Janex Acquisition agreement, the redeemable common stock balance of
$421,179 was reclassified to additional paid-in capital effective April 7, 1997.
19
<PAGE> 22
Stock Purchase Agreement
On September 4, 1996, the Company signed a stock purchase agreement with
Kaiser Francis Oil Company ("the Agreement"). The Agreement provides for the
purchase of 1,666,667 shares of Series A Preferred Stock ("Series A") at $6.00
per share, over a five-year period beginning September 4, 1996 with minimum
incremental investments of $500,000 each. Each issuance of Series A is subject
to approval by Kaiser-Francis of the use of proceeds. The Series A is nonvoting
and accrues dividends at 8% per annum, payable quarterly in cash. The Series A
is convertible at any time after issuance into shares of common stock at the
rate of two shares of common stock for each share of Preferred before January 1,
1998. At December 31, 1997, all of the Series A had been issued and on January
31, 1998, all of the Series A was converted.
The Enex Acquisition
On March 27, 1998, the Company acquired 1,064,432 shares of the common
stock of Enex, for $15 cash per share pursuant to the Company's tender offer
which began February 19, 1998. The Enex shares acquired by the Company represent
79.2% of the total outstanding Enex common stock. The Company applied the
purchase method of accounting to the Enex Acquisition. The purchase price of
$15,966,480 was financed with proceeds from the Company's $100 million Revolver.
Enex, a Delaware corporation, is an independent oil and gas production
and development company headquartered in Kingwood, Texas with operations
primarily in Texas. Enex engages primarily in managing and acquiring producing
oil and gas properties, and does not engage in significant drilling activities.
Enex operates over 100 wells in South Texas. Enex shares are traded on the
NASDAQ Stock Market National Market System under the symbol ENEX. Concurrent
with the closing of the Enex Acquisition, the Enex Board of Directors resigned
and were replaced by the persons who constitute the Company's Board of
Directors. Enex is presently being operated as a majority-owned subsidiary of
the Company.
In addition to managing and acquiring direct interests in producing oil
and gas properties, Enex serves as general partner of the Enex Partnership. The
Enex Partnership is a New Jersey limited partnership that was formed on June 30,
1997 from the combination of thirty-four Enex Oil and Gas Limited Partnerships.
The Enex Partnership, also headquartered in Kingwood, Texas, is engaged in the
oil and gas business through the ownership of various interests in oil and gas
properties. Approximately 73% of Enex's estimated future net revenues from
proved reserves at December 31, 1997 is attributable to its interests in the
Enex Partnership and approximately 27% is attributable to the properties owned
directly by the Company, after deducting the minority interest share of the Enex
Partnership. As general partner, Enex has a 4.1% interest in the net revenues
and gains generated by properties owned by the Enex Partnership. In addition to
the general partner interest, Enex owns a 55.5% limited partner interest in the
Enex Partnership.
The Enex Partnership makes periodic cash distributions to the limited
partners. The distributions for the years ended 1997 and 1996 were approximately
$4.5 million and $2.4 million, respectively. Considering its general and limited
partner interest, Enex's total interest in the Enex Partnership is approximately
57.32%. Based on the Company's 79.2% ownership of Enex, the Company has an
effective ownership of the Enex Partnership of 45.4%
20
<PAGE> 23
Because the Company's ownership of Enex is greater than 50%, the
Company's consolidated financial statements at March 31, 1998 include 100% of
the accounts of Enex and the Enex Partnership. Enex consolidates 100% of the
Enex Partnership on its books for financial reporting purposes because its
ownership in the Enex Partnership is greater than 50%. The minority interest on
the Company's books reflects the equity interest of the minority partners in
Enex (20.8%) and the minority partners in the Enex Partnership (44.5%).
Enex had no significant impact on the results of operations of the
Company for the current period.
Future Capital Requirements
The Company has made and will continue to make, substantial capital
expenditures for acquisition, development and exploration of oil and natural gas
reserves. In fact, because the Company's principal natural gas and oil reserves
are depleted by production, its success is dependent upon the results of its
acquisition, development and exploration activities.
The Company, excluding Enex and Service Drilling, expects to incur a
minimum of approximately $1,400,000 in capital expenditures over the next twelve
months. The Company expects that available cash, cash flows from operations and
cash proceeds from asset sales of certain non-core properties will be sufficient
to fund the planned capital expenditures through 1998 in addition to funding
interest and principal requirements on the $100 million Revolver. However, the
Company may require additional borrowings under the $100 million Revolver or
additional equity funding to raise additional capital to fund any acquisitions.
Because future cash flows and the availability of financing are subject
to a number of variables, such as the level of production and prices received
for gas and oil, there can be no assurance that the Company's capital resources
will be sufficient to maintain planned levels of capital expenditures.
At March 31, 1998, the principal outstanding under the $100 million
Revolver was approximately equal to the borrowing base. Under the terms of the
$100 million Revolver, the borrowing base declines $275,000 per month. Assuming
no changes in the outstanding letters of credit, the Company could be required
to make monthly principal payments of approximately $275,000 until the next
borrowing base redetermination on October 1, 1998.
Upon redetermination, the monthly principal payments may increase or
decrease. Funds spent on debt retirement reduce the amount of cash flow
available to spend on acquisition, development and exploration activities. The
Company paid $1.5 million on the note on April 10, 1998 in accordance with the
$100 million Revolver agreement.
In the future, the Company expects to close the Enex and Enex
Partnership headquarters at Kingwood and consolidate Enex and Enex Partnership's
operations at the Company's headquarters in Houston. It is expected that the
Company will realize certain cost savings in the consolidation of these
operations.
Subsequent to March 31, 1998, the Company has hired three full-time
employees due to the increased business as a result of the Enex Acquisition and
the Service Drilling Acquisition.
21
<PAGE> 24
Current Activities
As of April 30, 1998, two developmental wells and one exploratory well
were being drilled. The developmental wells are in the Frymire Waterflood in the
Lake Trammel Field in Nolan County, Texas. The exploratory well is the Shore Oil
Co. #1 in Terrebonne Parish, Louisiana. All three wells were spudded in April.
The exploratory well drilled on the Sherburne Prospect in Point Coupee
Parish, Louisiana reached total depth on April 20, 1998 and is in the process of
being completed.
Results of Operations
Three months ended March 31, 1998 and 1997
Total revenues for the three months ended March 31, 1998 of $2,757,000
were $856,000 higher than the comparable period. The increase in total revenues
was due principally to higher oil and gas revenues of $756,000.
The increase in oil and gas revenues consisted primarily of a $364,000
increase in oil revenues and a $349,000 increase in gas revenues. The increase
in oil and gas revenues was the result of higher oil and gas production.
Production of oil increased 116% and production of gas increased 72%, over the
comparable period. The oil production increase of 50,141 barrels and the gas
production increase of 219,034 Mcf, were due primarily to the Shore Merger and
the Riceville Acquisition. During the three month period ended March 31, 1998,
the Company sold 93,260 barrels of oil and 521,556 Mcf of gas, as compared to
43,119 barrels and 302,522 Mcf for the comparable period. The average price
received on the gas sold in 1998 of $2.28 per Mcf was 18% lower than the $2.77
per Mcf received in the comparable period. The average price received on the oil
sold in 1998 of $13.94 per barrel was 36% lower than the $21.71 per barrel
received in the comparable period.
Total expenses increased by $3,038,000 over the comparable period. Due
to the growth of the Company over the last twelve months, all categories of
expenses increased.
Lease operating expenses increased $541,000. The increase was due
principally to the additional expenses on the properties acquired in the Bison
and Shore Mergers.
Depletion and depreciation expense increased by $639,000. Depletion was
higher due to depletion on properties acquired in the Bison and Shore Mergers
and the Riceville Acquisition.
22
<PAGE> 25
General and administrative expenses ("G&A") increased by $671,000. The
increase in G&A consists primarily of a $236,000 increase in salaries, $132,000
in performance bonuses for the previous year and an increase of $247,000 in
engineering, accounting and legal expenses. The increase in salary expense was
due to increases in salaries of existing employees, salaries of new employees
and salaries associated with employees added in the Bison and Shore Mergers. For
the current period, the Company had seventeen full-time employees; eight
employees were added through the Bison and Shore mergers and the Company hired a
land manager and accountant and lost one employee. In addition, during the
comparable period before the Bison Merger, the Company had eight full-time
employees. The performance bonus was paid to certain key employees upon
recommendation by the Compensation Committee after an appraisal of the Company's
performance for the year ended 1997.
Dryhole expenses increased by $288,000. In the current period the
dryhole expense of $469,000 consisted principally of $199,000 for the dryhole on
the South Highbaugh Prospect. Additional dryhole expenses of $102,000 on two
dryholes on the Reflection Ridge Prospect and $130,000 on the Middle Bay Oil Co.
#1 were expensed in the current period. The Reflection Ridge wells and the
Middle Bay Oil Co. #1 were drilled and abandoned in the fourth quarter of 1997.
Dryhole expenses in the comparable period consisted principally of costs through
the Brigham Agreement.
Geological and geophysical expenses ("G&G expenses") increased by
$746,000. In the current period, the Company spent approximately $740,000 in G&G
expenses on the Hawkins Ranch Prospect in Matagorda County, Texas.
No G&G expenses were incurred in the comparable period.
Stock compensation expense increased by $33,700 due to the vesting of
the restricted stock granted to certain Company employees in February 1997. All
of the stock will be vested by June 30, 1998.
Interest expense increased by $120,000, due primarily to a higher loan
balance.
The Company reported an operating loss of $2,143,000 for the three
months ended March 31, 1998 versus operating income of $40,000 for the
comparable period.
The Company reported a deferred income tax benefit of $728,000 in the
current period. No deferred taxes were recorded in the comparable period.
The Company reported a net loss of $1,414,000 for the three months ended
March 31, 1998 versus net income of $40,000 for the comparable period. After
considering the preferred stock dividend requirement of $68,000 in the current
period and $63,000 in the comparable period, the Company reported a net loss
available to common stockholders in the current and comparable periods of
$1,482,000 and $22,000, respectively.
23
<PAGE> 26
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MIDDLE BAY OIL COMPANY, INC.
(Registrant)
Date: May 15, 1998 By: /s/ Frank C. Turner II
-----------------------------------------
Frank C. Turner II
Vice-President and
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS - BALANCE SHEETS AT MARCH 31, 1998 (UNAUDITED) AND THE
STATEMENTS OF OPERATIONS AT MARCH 31, 1998 (UNAUDITED) OF MIDDLE BAY OIL
COMPANY, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,947,033
<SECURITIES> 0
<RECEIVABLES> 2,949,999
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,574,815
<PP&E> 83,542,655
<DEPRECIATION> (31,754,337)
<TOTAL-ASSETS> 61,737,748
<CURRENT-LIABILITIES> 7,099,620
<BONDS> 24,499,568
0
3,627,000
<COMMON> 157,059
<OTHER-SE> 32,962,632
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