U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 0-25386
FX ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0504461
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
(Address of principal executive offices)
(801) 486-5555
(Issuer's telephone number)
FRONTIER OIL EXPLORATION COMPANY
(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 the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date: 12,457,547 shares of $.001 par value
common stock outstanding as of November 12, 1996.
Transitional Small Business Disclosure Format: Yes No X
FX ENERGY, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheet (unaudited) 3
Consolidated Statement of Operations (unaudited) 5
Consolidated Statement of Cash Flows (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. - Management's Discussion and Analysis
and Plan of Operations 9
PART II. Other Information 16
Signatures 17
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,178,719
Certificate of deposit - restricted 300,000
Accounts receivable:
Accrued oil sales 319,038
Due from joint interest owners 1,288,514
Interest receivable 45,764
Inventory 21,126
Investment in marketable debt securities 5,972,412
Other current assets 122,325
------------
Total current assets 15,247,898
------------
Property and equipment, at cost:
Oil and gas properties (successful efforts method):
Proved 6,832,526
Unproved 1,515,743
Other property and equipment 1,832,049
------------
10,180,318
Less accumulated depreciation, depletion and amortization (1,250,449)
------------
Net property and equipment 8,929,869
------------
Other assets:
Certificates of Deposit 381,500
Other 2,814
------------
Total other assets 384,314
------------
TOTAL ASSETS $ 24,562,081
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 607,798
Drilling advances 88,510
Accrued liabilities 239,641
Current portion of long-term debt 27,556
------------
Total current liabilities 963,505
------------
Long-term debt: 12,938
------------
Total liabilities 976,443
------------
Stockholders' Equity
Common stock, $.001 par value, 20,000,000 shares
authorized, 12,214,547 issued and outstanding 12,214
Additional paid-in capital 29,310,695
Accumulated deficit (5,737,271)
------------
Total stockholders' equity 23,585,638
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,562,081
============
The accompanying notes are an integral part
of the consolidated financial statements.
<TABLE>
<CAPTION>
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Oil sales $ 611,235 $ 477,464 $ 1,688,343 $ 1,497,732
Drilling revenue 2,996 65,278 10,721 100,540
Prospect sales 0 0 0 75,000
------------- ------------- ------------ -------------
Total revenues 614,231 542,742 1,699,064 1,673,272
------------- ------------- ------------ -------------
Operating costs and expenses:
Operating costs 249,375 207,562 797,871 728,822
Production taxes 39,227 52,281 114,200 210,220
Exploration costs 333,302 257,024 727,671 509,799
Drilling costs 15,050 68,309 41,086 130,617
Depreciation, depletion
and amortization 129,794 110,918 405,286 354,455
Leasehold abandonments 0 8,350 0 41,983
General and administrative 332,771 689,484 1,058,633 1,169,040
------------- ------------- ------------ -------------
Total operating costs
and expenses 1,099,519 1,393,928 3,144,747 3,144,936
------------- ------------- ------------ -------------
Operating loss (485,288) (851,186) (1,445,683) (1,471,664)
------------- ------------- ------------ -------------
Other income (expense):
Interest and other income 118,842 14,948 175,661 61,658
Interest expense (46,442) (90,208) (217,515) (325,163)
Minority interest: Non- cash
dividends on FX Producing
convertible preferred stock 0 0 0 (76,005)
------------- ------------- ------------ -------------
Total other income (expense) 72,400 (75,260) (41,854) (339,510)
------------- ------------- ------------ -------------
Net loss $ (412,888) $ (926,446) $(1,487,537) $ (1,811,174)
============= ============= ============ =============
Net loss per common share $ (0.04) $ (0.16) $ (0.16) $ (0.39)
============= ============= ============ =============
Weighted average number
of shares outstanding 10,886,783 5,905,624 9,201,492 4,659,551
============= ============= ============ =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,487,537) $ (1,811,174)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, depletion and amortization 405,286 354,455
Leasehold abandonments 0 41,983
Gain on sale of equipment 0 (15,991)
Minority interest: Non-cash dividends
on FX Producing convertible preferred stock 0 76,005
Common stock and options issued for services 147,750 435,000
Increase (decrease) from changes in:
Accounts receivable (1,221,388) (40,976)
Interest receivable (39,581) 0
Inventory (5,175) 4,253
Other current assets (90,231) (49,228)
Drilling advances 88,510 0
Accounts payable and accrued liabilities (297,931) 233,314
------------ ------------
Net cash used in operating activities (2,500,297) (772,359)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (792,688) (748,138)
Additions to other property and equipment (201,184) (7,249)
Additions to other assets (164,100) (74,928)
Proceeds from sale of interest in unproved
properties 325,000 0
Proceeds from sale of equipment 9,700 18,000
Purchase of bond investment (5,978,595) 0
Purchase of certificate of deposit (300,000) 0
------------ ------------
Net cash used in investing activities (7,101,867) (812,315)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,661,648) (680,238)
Proceeds from issuance of FX Producing
convertible preferred stock 0 111,000
Redemption of redeemable FX Producing
preferred stock 0 (464,666)
Proceeds from issuance of common stock
net of offering costs 19,475,103 3,818,384
Proceeds from exercise of warrants and options 223,707 0
------------ ------------
Net cash provided by financing activities 16,037,162 2,784,480
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,434,998 1,199,806
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 743,721 288,872
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $7,178,719 $ 1,488,678
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
FX ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The interim financial data are unaudited; however, in the opinion of the
management of FX Energy, Inc. ( formerly Frontier Oil Exploration Company) and
Subsidiaries ("FX Energy" or the "Company"), the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. The financial
statements should be read in conjunction with FX Energy's annual report on Form
10-KSB for the year ended December 31, 1995 and quarterly reports on Form 10-QSB
for the three months ended March 31, 1996 and the six months ended June 30,
1996.
NOTE 2: CASH-RESTRICTED
In accordance with an amendment to the Company's bank loan agreement in the
first quarter of 1996, the Company was required to purchase a certificate of
deposit in the amount of $300,000 in lieu of making normal principal reduction
payments of $25,000 per month for the period of March 1 to September 30, 1996.
The certificate of deposit was purchased in April 1996 and matured on November
1, 1996. The certificate of deposit was pledged through its maturity date of
November 1, 1996 as collateral to the bank note.
NOTE 3: INVESTMENT IN MARKETABLE DEBT SECURITIES
The Company has classified its investments in marketable debt securities as
held to maturity as it has the intent and ability to hold the investments to
maturity. All of the investments in marketable debt securities mature before
March 15, 1997. These investments are diversified among high credit quality
debt instruments in accordance with the Company's investment policy. The
estimated fair market value for each investment approximates its amortized cost.
NOTE 4: INCOME TAXES
The Company recognized no income tax benefit from the losses generated in
1996 and 1995.
NOTE 5: COMMON STOCK
During the nine months ended September 30, 1996, the Company sold 359,893
shares of common stock at $3.00 per share; 156,111 shares of common stock at
$4.50 per share and 3,450,000 shares of common stock at $5.75 per share
resulting in net proceeds to the Company of $19,450,103. During the same period
141,004 warrants and stock options were exercised resulting in the proceeds to
the Company of $223,707.
NOTE 5: COMMON STOCK (Continued)
During the nine months ended September 30, 1996, the following transactions
in the Company's common stock also occurred:
. the Company sold 12,500 shares of common stock for $25,000 in
January 1996;
. holders of preferred stock converted 137,500 shares into 137,500
shares of common stock;
. the Company issued 57,451 shares valued at $147,750 for services
rendered (primarily in the first quarter); and
. the Company issued 1,093 shares valued at $2,186 in exchange for an
interest in oil properties in January 1996.
In connection with the purchase of the Company's producing oil properties
and well servicing equipment in 1994, the Company agreed to issue to the former
owners up to 400,000 shares of Company common stock in semi-annual increments
of 50,000 shares each beginning October 1, 1994 on the attainment of certain
levels of oil production from the properties acquired. The required production
levels as of September 30, 1996 had not been reached. Accordingly, the number
of shares that may be issued in the future has been reduced to 150,000 shares.
NOTE 6: LONG-TERM DEBT
The Company's bank loan agreement was amended in March 1996. As part of
that amendment, principal reductions of $25,000 per month were suspended for the
period from March 1 through September 30, 1996. On May 13, 1996, the bank
further amended the loan agreement to extend the maturity date of the note to
October 1, 1997. In August the Company paid off this bank loan which had an
outstanding balance of $3,565,000. The Company will maintain its borrowing
agreement with the bank, which has a borrowing base of $3,580,000 as of
September 30, 1996.
NOTE 7: AGREEMENT WITH RWE-DEA
On May 3, 1996, the Company entered into an agreement with RWE-DEA
Aktiengesellschaft fur Mineraloel und Chemie, Hamburg, Germany ("RWE-DEA"),
which provides for joint operations on the Company's approximately 2.4 million
acre on-shore Baltic Platform concession area in northern Poland. This
agreement grants to RWE-DEA the right to earn 50% interest in the concession
area by paying the Company $250,000 in cash (which was recorded as a recovery of
capitalized costs), paying up to $1,100,000 for a seismic survey which has been
completed on the Gladysze and other structures within the concession area,
paying up to $1,000,000 for an exploratory well scheduled for the fourth
quarter of 1996 at a location to be designated by RWE-DEA, and by funding 50% of
the cost of a second exploratory well. Should the costs of the planned seismic
or drilling of the first exploratory well in 1996 exceed the amounts RWE-DEA is
obligated to pay, the Company and RWE-DEA each will pay 50% of the excess. The
Company is designated as the operator of all joint operations. The Company has
agreed to pay an unaffiliated party a fee of approximately $125,000 (contingent
upon RWE-DEA payments discussed above) for assisting the Company in its search
for an international joint venture partner. (See note 8)
NOTE 8: SUBSEQUENT EVENTS
In October 1996, 243,000 options and warrants were exercised resulting in
net proceeds of $490,500.
In order to obtain desired treatment under Polish tax laws for joint
activities with RWE-DEA on the Baltic platform area, the Company and RWE-DEA now
intend to effect their 50-50 ownership in the project through RWE-DEA's purchase
of 50% of the shares of FX Poland, the Company's Polish subsidiary. In order to
take advantage of the anticipated tax benefits, RWE-DEA has deferred
reimbursement to the Company of approximately $1,100,000 in exploration costs
incurred as of September 30, 1996, until RWE-DEA's purchase of its interest in
FX Poland is complete. This amount is included in amounts due from joint
interest owners at September 30, 1996. Upon the purchase by RWE-DEA of a 50%
ownership in FX Poland, the Company will de-consolidate FX Poland and begin
accounting for its investment in this subsidiary on the equity method. At that
time FX Poland will record the $1,100,000 as exploration expense. The Company
will record its 50% share of this expense as its equity in FX Poland's net loss.
Under the original agreement in effect at September 30, these costs were the
responsibility of RWE-DEA and accordingly not recorded as expense in the FX
Poland financial statements.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS AND
PLAN OF OPERATIONS
Forward-Looking Information may prove Inaccurate
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When
used in this document, the words "anticipate," believe," "estimate," expect,"
and "intended" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended.
FINANCIAL CONDITION
Working Capital
The Company had working capital of $14,284,393 at September 30, 1996.
The increase in 1996 is due primarily to proceeds from issuance of the Company's
common stock in August 1996. For the nine months ended September 30, 1996, net
cash of $2,500,297 was used for operating activities compared to $772,359 in the
same period of 1995. The increase in 1996 was due primarily to an increase in
accounts receivable from the Company's joint working interest owner in the
Poland concession and a decrease in the net loss, accounts payable and accrued
liabilities.
Investing Activities
During the first nine months of 1996, the Company expended $993,872 on
additions to oil and gas properties and other property and equipment as compared
to $755,389 in the same period of 1995. Of the total additions, the Company's
principal expenditures were $747,052 on its Montana oil properties and $201,184
on other property and equipment as compared to $573,376 on its Montana oil
properties and $7,249 on other property and equipment in the same period of
1995. The first phase of in-fill drilling, which began in early 1995 and was
substantially completed in January 1996, has performed to expectations on
production tests in the first nine months of 1996. Accordingly, the Company
began upgrading the injection system throughout approximately half of the
Company's 10,000 acres, as the first step in an expanded in-fill drilling
program that will run through the end of 1997. This expanded in-fill drilling
program is the source of increased expenditures on the Company's Montana
properties in 1996 as compared to 1995.
Expenditures relating to leasehold acquisition costs were $45,636 and
$174,764 in the first nine months of 1996 and 1995 respectively. Of the total
additions, expenditures in Poland were $14,000 in the first nine months of 1996
as compared to $170,500 in the same period of 1995. The decrease relates to the
change in the Company's operations in its Baltic platform concession as it moves
from concession acquisition to seismic acquisition and evaluation.
During the first nine months of 1996, the Company sold an interest in
unproved property in Nevada for $100,000 which was recorded as a recovery of
capitalized costs.
On May 3, 1996, the Company entered into an agreement with RWE-DEA
Aktiengesellschaft fur Mineraloel und Chemie, Hamburg, Germany ("RWE-DEA"),
which provides for joint operations on the Company's approximately 2.4 million
acre on-shore Baltic Platform concession area in northern Poland. This
agreement grants to RWE-DEA the right to earn 50% interest in the concession
area by paying the Company $250,000 in cash (which was recorded as a recovery of
capitalized costs), paying up to $1,100,000 for a seismic survey which has been
completed on the Gladysze and other structures within the concession area,
paying up to $1,000,000 for an exploratory well scheduled for the fourth
quarter of 1996 at a location to be designated by RWE-DEA, and paying 50% of
the cost of a second exploratory well. Should the costs of the planned seismic
or drilling of the first exploratory well in 1996 exceed the amounts RWE-DEA is
obligated to pay, the Company and RWE-DEA each will pay 50% of the excess. The
Company is designated as the operator of all joint operations. The Company has
agreed to pay an unaffiliated party a fee of approximately $125,000 (contingent
upon RWE-DEA payments discussed above) for assisting the Company in its search
for an international joint venture partner.
In order to obtain desired treatment under Polish tax laws for joint
activities with RWE-DEA on the Baltic platform area, the Company and RWE-DEA now
intend to effect their 50-50 ownership in the project through RWE-DEA's purchase
of 50% of the shares of FX Poland, the Company's Polish subsidiary. In order to
take advantage of the anticipated tax benefits, RWE-DEA has deferred
reimbursement to the Company of approximately $1,100,000 in exploration costs
incurred as of September 30, 1996, until RWE-DEA's purchase of its interest in
FX Poland is complete. This amount is included in amounts due from joint
interest owners at September 30, 1996. Upon the purchase by RWE-DEA of a 50%
interest ownership in FX Poland, the Company will de-consolidate FX Poland and
begin accounting for its investment in this subsidiary on the equity method. At
that time FX Poland will record the $1,100,000 as exploration expense. The
Company will record its 50% share of this expense as its equity in FX Poland's
net loss. Under the original agreement in effect at September 30, these costs
were the responsibility of RWE-DEA and accordingly not recorded in the FX Poland
financial statements.
In May 1996, the Company entered into a joint study agreement with the
Polish Oil and Gas Company (POGC) to reprocess and reinterpret geological and
geophysical data collected from a 6.25 million acre area in the Carpathian
region of southeastern Poland. The Company is currently evaluating data
available from the joint study area and upon completion of this review the
Company will determine the nature of future activities in this joint study area.
If warranted, the Company plans to submit with POGC an application with the
appropriate Polish authorities for exploration rights or concessions over
designated portions of the study area.
Effective October 1, 1996, the Company, through a Polish subsidiary,
entered into an agreement with Poland's Ministry of Environmental Protection,
Natural Resources and Forestry, to explore for gold and other associated
minerals in a 71,000-acre block in the Sudety region of southwestern Poland.
The agreement provides for a four-year exploration term with the possibility of
a three-year extension. The Company has an exclusive right to apply for an
exploration license covering any mineral deposits discovered in the exploration
phase. The Company and Homestake Mining Company (an international gold mining
company) have signed a reconnaissance and standstill agreement covering the
Sudety Exploration Area. Pursuant to such agreement, the parties will jointly
develop and plan for the geological, geochemical, and geophysical reconnaissance
of the Sudety Exploration Area to be carried out over the next year. Subject to
the results of the reconnaissance, the two companies may elect to negotiate a
subsequent agreement, in which case Homestake would likely take over operations
with the Company retaining a working interest or royalty. The Company has
agreed not to negotiate with any company other than Homestake regarding the
Sudety Exploration Area for 14 months.
The Company drilled an exploratory well in October 1996 on its Cobb Creek
property in Nevada using its drilling rig, after which the drilling rig was
moved to the Company's Montana operations. The Company did not identify any
hydrocarbons in the well and subsequently plugged and abandoned the well.
Additional exploration in the U.S. Rocky Mountain area will be pursued as
prospects are identified and industry drilling groups are formed.
Unproved oil and gas properties consists of property acquisition costs
totaling $1,515,743 attributable to various individual exploration prospects.
The Company's capitalized costs of unproved properties are concentrated in two
main prospects, namely, Lake Valley and Poland. In accordance with generally
accepted accounting principles, should the Company determine that prospects'
capitalized costs are not recoverable following unsuccessful exploration
drilling or otherwise, the Company would record an impairment charge which may
materially and adversely affect the Company's results of operations for the
period during which such impairment is recognized.
Financing Activities
During the first nine months of 1996, the Company sold 3,978,504 shares
(3,450,000 in August 1996) of common stock resulting in net proceeds to the
Company of $19,475,103. During the same period 141,004 warrants and stock
options were exercised resulting in proceeds to the Company of $223,707. In the
first nine months of 1995, the Company received $3,818,384 in net proceeds from
the sale of 2,000,000 shares of common stock and $111,000 from the issuance of
FX Producing convertible preferred stock. During the first nine months of 1995
the Company redeemed $464,666 of redeemable FX Producing preferred stock.
During the first nine months of 1996 and 1995, the Company repaid $3,661,648 and
$680,238, respectively, of long-term debt.
The Company's issuance of 3,450,000 shares of common stock through a
public offering in August 1996, resulted in net proceeds (after deducting
issuance costs of $2,091,441) of approximately $17,746,059. On August 7,
1996, the Company used proceeds from the public offering to pay off its bank
debt which had an outstanding principal balance of $3,565,000. The Company will
maintain its borrowing agreement with the bank, which has a borrowing base of
$3,580,000 as of September 30, 1996. The remainder of the net proceeds from the
offering, together with cash available under the Company's continuing bank
credit facility and potentially available from operations, will be used to fund
the Company's 1996 and 1997 capital expenditure budget of $15,300,000 and
general corporate purposes. The Company's planned capital expenditures through
December 31, 1997, are as follows: (i) approximately $7,000,000 for exploration
and potential development activities related to the Baltic Concession, (ii)
approximately $1,400,000 for the review and evaluation of available geological
and geophysical data and the potential initiation of exploratory activities in
the Carpathian joint study area, (iii) approximately $6,100,000 for in-fill
development drilling in the Cut Bank field in Montana and (iv) approximately
$800,000 for exploration activities in the western United States. The
allocation of the Company's capital among the categories of anticipated
expenditures is discretionary and will depend upon future events that cannot be
predicted. Such events include the actual results and costs of future
exploration and development drilling activities. Consistent with previous
practice, the Company may obtain partial funding for its exploration and
potential development activities through strategic arrangements with industry or
financial partners.
In October 1996, 243,000 options and warrants were exercised resulting in
proceeds of $490,500.
RESULTS OF OPERATIONS
Comparison of Third Quarter 1996 to Third Quarter 1995
Oil sales increased $133,771 in the third quarter of 1996 to $611,235 as
compared to $477,464 in the same quarter of 1995. The increase was due to an
average increase of approximately $4.14 per barrel in the price of oil sold
during the third quarter of 1996 as compared to the third quarter of 1995.
Production was essentially flat, at 33,546 barrels for the third quarter of
1996, compared to 33,908 for the same quarter in 1995.
Drilling revenues decreased $62,282 in the third quarter of 1996 to $2,996
as compared to $65,278 in the same quarter of 1995. In July 1995 the Company
completed an exploratory well with its drilling rig resulting in income from
partners in the well. The Company has not drilled any exploratory wells with
its drilling rig during the first nine months 1996. The rig is currently being
utilized in the Company's Montana in-fill drilling program. Drilling revenue
will vary with the timing of wells being drilled, cost of the well and the
Company's working interest.
Operating costs increased $41,813 to $249,375 in the third quarter of 1996
as compared to $207,562 in the same quarter of 1995. The increase was
primarily due to a continuation of concerted efforts to perform increased
maintenance on the Southwest Cut Bank Sand Unit in conjunction with the
Company's ongoing program to enhance the overall production of the field.
Production taxes decreased $13,054 to $39,227 in the third quarter of 1996
as compared to $52,281 in the same quarter of 1995. The decrease was primarily
due to an exemption, effective July 1, 1995, for certain stripper well
production affecting most of the Company's Montana production. Effective
January 1, 1996, another production tax of approximately 5.5% was eliminated on
most of the Company's Montana production. These production taxes are not
expected to be reinstated in the future.
Exploration costs increased $76,278 in the third quarter of 1996 to
$333,302 as compared to $257,024 in the same period of 1995. The increase is
primarily due to the continued exploration in Poland and the evaluation of a new
prospect in the western United States.
Drilling costs decreased $53,259 to $15,050 in the third quarter of 1996 as
compared to $68,309 in the same quarter of 1995. The costs incurred in the
third quarter of 1995 included cost associated with the drilling of an
exploratory well with the Company's drilling rig. There was no exploratory well
drilled in the third quarter of 1996.
Depreciation, depletion and amortization increased $18,876 to $129,794 in
the third quarter of 1996 as compared to $110,918 for the same period of 1995.
The increase was primarily due to increased capitalized oil and gas property
costs for the third quarter 1996 as compared to the same quarter of 1995 and a
reduction in total proved reserves used to calculate depreciation, depletion and
amortization for the quarter ended September 30, 1996 as compared to the same
period in 1995.
There were no leasehold abandonments in the third quarter of 1996 as
compared to $8,350 in the third quarter of 1995. Leasehold abandonments will
vary from quarter to quarter and year to year based upon management's periodic
assessment to determine whether the unproved properties have been impaired.
General and administrative expenses decreased $356,713 to $332,771 in the
third quarter of 1996 as compared to $689,484 in the same quarter of 1995. The
decrease was primarily due to an expense of $425,000 in the third quarter of
1995 related to the issuance of options to employees and 200,000 shares of
common stock to a shareholder as compensation for which there were no
comparable charges in the same quarter of 1996. The increase in general and
administrative expenses in the third quarter of 1996 as compared to the same
quarter of 1995 (excluding the $425,000 in 1995) is due to additional
administrative requirements of the Company in 1996 relating to the expanded
exploration and development activities and the additional reporting requirements
since the Company became subject to the periodic reporting requirements under
the Securities Exchange Act in 1995.
Interest and other income increased $103,894 to $118,842 for the quarter
ended September 30, 1996, as compared to $14,948 in the same quarter of 1995.
The increase is primarily due to an increase in the interest earned on
investments of $118,679 in the third quarter of 1996 as compared to $5,266 in
the same quarter of 1995. The increase in interest income is primarily due to
an increase in investments resulting from the proceeds of the Company's public
offering in August 1996.
Interest expense decreased $43,766 to $46,422 for the quarter ended
September 30, 1996 as compared to $90,208 for the quarter ended September 30,
1995. The decrease is primarily due to a reduction in the average outstanding
balance of the Company's long-term debt (the Company's bank loan was paid off in
August 1996) in the third quarter of 1996 as compared to the same quarter in
1995.
Comparison of the First Nine Months of 1996 with the First Nine Months of
1995
Oil sales increased $190,611 in the first nine months of 1996 to $1,688,343
as compared to $1,497,732 in the same period of 1995. The increase was due to
an average increase of approximately $2.61 per barrel in the price of oil sold
during the first nine months of 1996 as compared to the first nine months of
1995. The increase in price was partially offset by a decrease in production of
4,351 barrels to 97,664 for the first nine months of 1996 compared to 102,015
for the same period in 1995.
Drilling revenues decreased $89,819 in the first nine months of 1996 to
$10,721 as compared to $100,540 in the same period of 1995. In July 1995 the
Company completed an exploratory well with its drilling rig resulting in income
from partners in the well. The Company did not drill any exploratory wells with
its drilling rig during the first nine months of 1996. Drilling revenue will
vary with the timing of wells being drilled, cost of the well, and the Company's
working interest.
In the first nine months of 1995 the Company sold an interest in
undeveloped acreage and recognized revenue from prospect sales of $75,000
related to the sale. During the first nine months of 1996, the Company received
$250,000 from its partner ($225,000 after payment of related fees) in the Poland
concession and $100,000 from the sale of an interest in undeveloped acreage in
Nevada. However, net proceeds from both transactions in 1996 were treated as a
recovery of costs in the overall projects and accordingly no revenues were
recorded.
Operating costs increased $69,049 to $797,871 in the first nine months as
compared to $728,822 in the same period of 1995. The increase was primarily due
to a continuation of concerted efforts to perform increased maintenance on the
Southwest Cut Bank Sand Unit in conjunction with the Company's ongoing program
to enhance the overall production of the field.
Production taxes decreased $96,020 to $114,200 in the first nine months of
1996 as compared to $210,220 in the first nine months of 1995. The decrease was
primarily due to an exemption, effective July 1, 1995, for certain stripper well
production affecting most of the Company's Montana production. Effective
January 1, 1996, another production tax of approximately 5.5% was eliminated on
most of the Company's Montana production. These production taxes are not
expected to be reinstated in the future.
Exploration costs increased $217,872 in the first nine months of 1996 to
$727,671 as compared to $509,799 in the same period of 1995. The increase is
primarily due to the Company's ongoing exploration program in Poland and the
evaluation of a new prospect in the western United States.
Drilling costs decreased $89,531 to $41,086 in the first nine months of
1996 as compared to $130,617 in the first nine months of 1995. The costs
incurred in the first nine months of 1995 were related to the drilling of an
exploratory well with the Company's drilling rig during the third quarter of
1995. There was no exploratory well drilled in the first nine months of 1996.
Depreciation, depletion and amortization increased $50,831 to $405,286 in
the first nine months of 1996 as compared to $354,455 in the same period of
1995. The increase was primarily due to increased capitalized oil and gas
property costs as of September 30, 1996 as compared to September 30, 1995 and a
reduction in total proved reserves used to calculate depreciation, depletion and
amortization for the nine months ended September 30, 1996 as compared to the
same period of 1995.
There were no leasehold abandonments in the first nine months of 1996 as
compared to $41,983 in the first nine months of 1995. Leasehold abandonments
will vary from quarter to quarter and year to year based upon management's
periodic assessment to determine whether the unproved properties have been
impaired.
General and administrative expenses decreased $110,407 in the first nine
months of 1996 to $1,058,633 as compared to $1,169,040 the same period of 1995.
The decrease was primarily due to an expense of $425,000 in the third quarter of
1995 related to the issuance of options to employees and 200,000 shares of
common stock to a shareholder as compensation for which there were no comparable
changes in the same quarter of 1996. The increase in general and administrative
expenses in the first nine months of 1996 as compared to the same period of
1995 (excluding the $425,000 in 1995) is due to additional administrative
requirements of the Company in 1996 relating to the expanded exploration and
development activities and the additional reporting requirements since the
Company became subject to the periodic reporting requirements under the
Securities Exchange Act.
Interest and other income increased $114,003 to $175,661 in the nine
months ended 1996 as compared to $61,658 in the same period of 1995. The
increase is primarily due to an increase in interest earned of $123,300 on
investments in the first nine months of 1996 as compared to the same quarter of
1995. The increase in interest income is primarily due to an increase in
investments resulting from the proceeds of the Company's public offering in
August 1996.
Interest expense decreased $107,648 to $217,515 for the first nine months
of 1996 as compared to $325,163 for the same period of 1995. The decrease is
primarily due to a reduction in the average outstanding balance of the Company's
long term debt (the bank loan was paid off in August 1996) in the nine months
ended September 30, 1996 as compared to the same period of 1995.
During the nine months ended September 30, 1995 the Company paid non-cash
(stock) dividends of $76,005 on preferred stock of its oil-producing subsidiary,
FX Producing. All preferred shares of FX Producing had been converted into
common shares of the Company as of December 31, 1995 and accordingly there was
no dividend payment on the preferred stock in 1996 nor will there be in the
future.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------- --------- ---------------------------------------- ---------------
10.01 10 Agreement dated effective October 1, Incorporated by
1996, between Sudety Mining Company Sp. z Reference(1)
o.o. and the State Treasury of the
Republic of Poland, for the establishing
of the mining usufrusct for the purpose
of gold exploration
- ------------
(1) Incorporated by reference from the current report on Form 8-K dated October
1, 1996
(b) REPORTS ON FORM 8-K
During the quarter ended September 30, 1996, the Company filed the
following reports on Form 8-K
Date of Event Reported Item Reported
October 1, 1996 Item 5. Other Events
Item 7. Financial Statements and
Exhibits
October 9, 1996 Item 5. Other Events
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FX ENERGY, INC.
(Registrant)
Date: November 13, 1996 By /s/ David N. Pierce
Chief Executive Officer, President, Chief
Financial and Accounting Officer, and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF SEPTEMBER 30, 1996, AND STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,178,719
<SECURITIES> 6,272,412
<RECEIVABLES> 1,653,316
<ALLOWANCES> 0
<INVENTORY> 21,126
<CURRENT-ASSETS> 15,247,898
<PP&E> 10,180,318
<DEPRECIATION> 1,250,449
<TOTAL-ASSETS> 24,562,081
<CURRENT-LIABILITIES> 963,505
<BONDS> 0
0
0
<COMMON> 12,214
<OTHER-SE> 23,573,424
<TOTAL-LIABILITY-AND-EQUITY> 24,562,081
<SALES> 1,688,343
<TOTAL-REVENUES> 1,699,064
<CGS> 0
<TOTAL-COSTS> 3,144,747
<OTHER-EXPENSES> (175,661)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,515
<INCOME-PRETAX> (1,487,537)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,487,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,487,537)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
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