<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________.
Commission file number 0-22576
COHO ENERGY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2488635
------------------------------ ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
14785 Preston Road, Suite 860
Dallas, Texas 75240
- ----------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 774-8300
-------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 13, 1998
- ----------------------------- ------------------------------
Common Stock, $.01 par value 25,603,512
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Public Accountants...............1
Condensed Consolidated Balance Sheets -
December 31, 1997 and June 30, 1998....................2
Condensed Consolidated Statements of Operations -
three and six months ended June 30, 1997 and 1998......3
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1997 and 1998................4
Notes to Condensed Consolidated Financial
Statements.............................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...........................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................12
Item 2. Changes in Securities.................................12
Item 3. Defaults Upon Senior Securities.......................12
Item 4. Submission of Matters to a Vote of Security
Holders...............................................12
Item 5. Other Information.....................................12
Item 6. Exhibits and Reports on Form 8-K......................12
Signatures.....................................................13
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Coho Energy, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Coho Energy, Inc. and subsidiaries as of June 30, 1998 and the related condensed
consolidated statements of operations for the three month and six month periods
ended June 30, 1998 and the condensed statement of cash flows for the six month
period ended June 30, 1998, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Coho Energy, Inc. and subsidiaries.
A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Coho Energy, Inc. as of
December 31, 1997 included in the Company's 1997 annual report on Form 10-K, and
in our report dated March 20, 1998, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1997 is fairly stated, in all
material respects, in relation to the consolidated balance sheet included in the
Company's 1997 annual report on Form 10-K from which it has been derived.
Arthur Andersen LLP
Dallas, Texas
August 14, 1998
1
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COHO ENERGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1998
----------- ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ..................................... $ 3,817 $ 1,429
Accounts receivable, principally trade ........................ 10,724 16,794
Deferred income taxes ......................................... 1,818 --
Other current assets .......................................... 715 846
--------- ---------
17,074 19,069
PROPERTY AND EQUIPMENT, at cost net of accumulated depletion and
depreciation, based on full cost accounting method (note 2) ... 531,409 484,436
OTHER ASSETS ................................................... 6,645 6,257
--------- ---------
$ 555,128 $ 509,762
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, principally trade ........................... $ 4,888 $ 8,832
Accrued liabilities and other payables ........................ 14,169 11,042
Current portion of long term debt ............................. 38 36
--------- ---------
19,095 19,910
LONG TERM DEBT, excluding current portion 369,924 407,961
DEFERRED INCOME TAXES .......................................... 20,306 --
--------- ---------
409,325 427,871
--------- ---------
COMMITMENTS AND CONTINGENCIES (note 4) ......................... 3,700 3,700
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01 per share
Authorized 10,000,000 shares, none issued ....................
Common stock, par value $0.01 per share
Authorized 50,000,000 shares
Issued and outstanding 25,603,512 shares ..................... 256 256
Additional paid-in capital .................................... 137,812 137,812
Retained earnings (deficit) ................................... 4,035 (59,877)
--------- ---------
Total shareholders' equity ................................. 142,103 78,191
--------- ---------
$ 555,128 $ 509,762
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 5
COHO ENERGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ------------------------
1997 1998 1997 1998
-------- ------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Net crude oil and natural gas production ........ $ 29,521 $ 39,290 $ 13,985 $ 18,147
--------- --------- --------- ---------
OPERATING EXPENSES
Crude oil and natural gas production ............ 6,113 12,584 3,033 6,171
Taxes on oil and gas production ................. 1,070 1,884 530 882
General and administrative ...................... 3,623 3,315 1,847 1,175
Depletion and depreciation ...................... 8,960 15,019 4,424 7,225
Writedown of crude oil and natural gas properties -- 73,000 -- 41,000
--------- --------- --------- ---------
Total operating expenses ...... 19,766 105,802 9,834 56,453
--------- --------- --------- ---------
OPERATING INCOME (LOSS) .................................. 9,755 (66,512) 4,151 (38,306)
--------- --------- --------- ---------
OTHER INCOME AND EXPENSES
Interest and other income (expense) ............. 149 118 (44) 72
Interest expense ................................ (4,682) (15,964) (2,391) (8,155)
--------- --------- --------- ---------
(4,533) (15,846) (2,435) (8,083)
--------- --------- --------- ---------
EARNINGS (LOSS) FROM OPERATIONS BEFORE
INCOME TAXES .................................... 5,222 (82,358) 1,716 (46,389)
INCOME TAX PROVISION (BENEFIT) ........................... 2,037 (18,446) 635 (4,778)
--------- --------- --------- ---------
NET EARNINGS (LOSS) ...................................... $ 3,185 $ (63,912) $ 1,081 $ (41,611)
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER COMMON SHARE
(note 3) ........................................ $ 0.15 $ (2.50) $ 0.05 $ (1.63)
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
(note 3) ........................................ $ 0.15 $ (2.50) $ 0.05 $ (1.63)
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 6
COHO ENERGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------
1997 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) .......................................................... $ 3,185 $(63,912)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depletion and depreciation .......................................... 8,960 15,019
Writedown of crude oil and natural gas properties ................... -- 73,000
Deferred income taxes provision (benefit) ........................... 1,987 (18,488)
Amortization of debt issue costs and other .......................... 275 417
Changes in operating assets and liabilities:
Accounts receivable and other assets ................................ 4,019 (6,230)
Accounts payable and accrued liabilities ............................ (3,067) 187
Investment in marketable securities ................................. 1,962 --
-------- --------
Net cash provided by (used in) operating activities ................................... 17,321 (7)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment ....................................................... (33,294) (41,046)
Changes in accounts payable and accrued liabilities related to
exploration and development ......................................... 5,089 630
-------- --------
Net cash used in investing activities ................................................. (28,205) (40,416)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long term debt ................................................... 17,000 38,056
Repayment of long term debt .................................................. (7,621) (21)
Proceeds from exercised stock options ........................................ 577 --
-------- --------
Net cash provided by financing activities ............................................. 9,956 38,035
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................. (928) (2,388)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................................... 1,864 3,817
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................ $ 936 $ 1,429
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest ............................................................ $ 4,312 $ 16,016
Income taxes ........................................................ $ 639 $ 19
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 7
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
(TABULAR AMOUNTS ARE IN THOUSANDS OF DOLLARS EXCEPT WHERE NOTED)
(UNAUDITED)
1. BASIS OF PRESENTATION
GENERAL
The accompanying condensed consolidated financial statements of Coho
Energy, Inc. (the "Company") have been prepared without audit, in accordance
with the rules and regulations of the Securities and Exchange Commission and do
not include all disclosures normally required by generally accepted accounting
principles or those normally made in annual reports on Form 10-K. All material
adjustments, consisting only of normal recurring accruals with the exception of
the adjustment to writedown the carrying value of the crude oil and natural gas
properties discussed in Note 2 below, which, in the opinion of management, were
necessary for a fair presentation of the results for the interim periods, have
been made. The results of operations for the six month period ended June 30,
1998, are not necessarily indicative of the results to be expected for the full
year. The condensed consolidated financial statements should be read in
conjunction with the notes to the financial statements, which are included as
part of the Company's annual report on Form 10-K for the year ended December 31,
1997.
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31 June 30
1997 1998
---------- ----------
<S> <C> <C>
Crude oil and natural gas leases and rights including exploration,
development and equipment thereon, at cost.......................... $ 669,247 $ 710,293
Accumulated depletion and depreciation.................................. (137,838) (225,857)
----------- -----------
$ 531, 409 $ 484,436
=========== ===========
</TABLE>
Overhead expenditures directly associated with exploration and development
of crude oil and natural gas reserves have been capitalized in accordance with
the accounting policies of the Company. Such charges totalled $1,454,000 and
$2,768,000 for the six months ended June 30, 1997 and 1998, respectively.
During the six months ended June 30, 1997 and 1998, the Company did not
capitalize any interest or other financing charges on funds borrowed to finance
unproved properties or major development projects.
At December 31, 1997 and June 30, 1998, unproved crude oil and natural gas
properties totalling $82,872,000 and $84,266,000 (both including $70,000,000 for
the recently acquired Oklahoma properties), respectively, were excluded from
costs subject to depletion. These costs are anticipated to be included in costs
subject to depletion during the next three to five years.
At June 30, 1998, capitalized costs of crude oil and natural gas properties
exceeded the estimated present value of future net revenues for the Company's
proved reserves, net of related income tax considerations, resulting in a
writedown in the carrying value of crude oil and natural gas properties of $73
million. The writedown resulted from the decline in crude oil prices during
1998.
5
<PAGE> 8
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. EARNINGS PER SHARE
Basic earnings per share ("EPS") have been calculated based on the weighted
average number of shares outstanding for the six months ended June 30, 1997 and
1998 of 20,389,991 and 25,603,512, respectively, and for the three months ended
June 30, 1997 and 1998 of 20,406,479 and 25,603,512, respectively. Diluted EPS
have been calculated based on the weighted average number of shares outstanding
(including common shares plus, when their effect is dilutive, common stock
equivalents consisting of stock options and warrants) for the six months ended
June 30, 1997 and 1998 of 20,991,484 and 25,603,512, respectively, and for the
three months ended June 30, 1997 and 1998 of 21,078,544 and 25,603,512,
respectively. In 1998, conversion of stock options and warrants would have been
anti-dilutive and, therefore, was not considered in diluted EPS.
4. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various legal proceedings and claims which
arise in the normal course of business. Based on discussions with legal counsel,
the Company does not believe that the ultimate resolution of such actions will
have a significant effect on the Company's financial position.
Like other crude oil and natural gas producers, the Company's operations
are subject to extensive and rapidly changing federal and state environmental
regulations governing emissions into the atmosphere, waste water discharges,
solid and hazardous waste management activities and site restoration and
abandonment activities. The Company does not believe that any potential
liability, in excess of amounts already provided for, would have a significant
effect on the Company's financial position; however, an unfavorable outcome
could have a material adverse effect on the current year results.
The Company has entered into certain financial arrangements which act as a
hedge against price fluctuations in future crude oil and natural gas production.
Gains and losses on these transactions are recorded in operating revenues when
the future production sale occurs. The Company has 15,000 million British
thermal units ("Mmbtu") of natural gas production per day hedged over the period
from July 1998 through August 1998, at a minimum price of $2.00 per Mmbtu and a
maximum price of $2.54 per Mmbtu. At June 30, 1998, there were no unrealized
hedging gains or losses.
In connection with the acquisition of oil and gas properties in Oklahoma
from Amoco Production Company ("Amoco") on December 18, 1997, the Company
assumed the responsibility for costs and expenses associated with the
assessment, remediation, removal, transportation and disposal of the asbestos or
naturally occurring radioactive materials associated with such properties.
Additionally, the Company is responsible for all other environmental claims up
to approximately $10.3 million and all environmental claims not identified and
presented to Amoco by December 18, 1998. The Company is not currently aware of
any such claims and is performing an ongoing assessment of the properties to
identify all potential environmental claims.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and notes thereto included elsewhere
herein.
GENERAL
The Company seeks to acquire controlling interests in underdeveloped crude
oil and natural gas properties and attempts to maximize reserves and production
from such properties through relatively low-risk activities such as development
drilling, multiple completions, recompletions, workovers, enhancement of
production facilities and secondary recovery projects. During the six months
ended June 30, 1998, 77% of production revenues were attributable to the sale of
crude oil and the remaining 23% were derived from natural gas as compared to 74%
from crude oil sales and 26% from natural gas sales during the same period in
1997.
The Company increased its crude oil and natural gas production in the first
six months of 1998 as a result of ongoing development activities on its existing
properties in Mississippi and as a result of the December 1997 acquisition of
certain crude oil and natural gas properties located primarily in Oklahoma
("Oklahoma Properties"). Average net daily barrel of oil equivalent ("BOE")
production was 18,667 BOE (11,939 BOE excluding the Oklahoma Properties) for the
six months ended June 30, 1998, as compared to 10,348 BOE for the same period in
1997. For purposes of determining BOE herein, natural gas is converted to
barrels ("Bbl") on a 6 thousand cubic feet ("Mcf") to 1 Bbl basis.
Crude oil and natural gas prices are subject to significant seasonal,
political and other variables which are beyond the Company's control. In an
effort to reduce the effect on the Company of the volatility of the prices
received for crude oil and natural gas, the Company has entered, and expects to
continue to enter, into crude oil and natural gas hedging transactions. The
Company's hedging program is intended to stabilize cash flow and thus allow the
Company to plan its capital expenditure program with greater certainty. Because
all hedging transactions are tied directly to the Company's crude oil and
natural gas production, the Company does not believe that such transactions are
of a speculative nature.
LIQUIDITY AND CAPITAL RESOURCES
Capital Sources. For the six months ended June 30, 1998, cash flow used by
operating activities was $7,000 compared with cash flow provided by operating
activities of $17.3 million for the same period in 1997. Operating revenues, net
of lease operating expenses, production taxes and general and administrative
expenses, increased only $2.8 million (15%) during the first half of 1998 over
the first half of 1997, despite an 80% increase in equivalent production between
periods, primarily due to price decreases between such comparable periods of 33%
and 4% for crude oil and natural gas, respectively. Additionally, interest
expense increased $11.3 million between periods as a result of borrowings to
finance the Company's capital expenditure program and the December 1997
acquisition of the Oklahoma Properties. Changes in operating assets and
liabilities used $6.0 million of cash for operating activities for the six
months ended June 30, 1998, primarily due to the increase in trade receivables,
including approximately $3.0 million related to the final closing settlement on
the acquisition of the Oklahoma Properties. See "Results of Operations" for a
discussion of operating results.
As of June 30, 1998, the amount available to the Company ("Borrowing Base")
under its revolving credit facility (the "Restated Credit Agreement") for
general corporate purposes was $300 million. Outstanding advances under the
Restated Credit Agreement at June 30, 1998 were $259 million, all of which are
classified as long term. The Restated Credit Agreement is scheduled to terminate
January 2, 2003. Amounts outstanding up to $270 million under the Restated
Credit Agreement accrue interest at the option of the Company at (i) Libor plus
a maximum of 1.50% or (ii) the prime rate. Amounts outstanding in excess of $270
million accrue interest at the option of the Company at (i) Libor plus 2.50% or
(ii) the prime rate plus 1.0%.
7
<PAGE> 10
The Restated Credit Agreement contains certain financial and other
covenants including (i) the maintenance of minimum amounts of shareholders'
equity ($108 million plus 50% of the accumulated consolidated net income
beginning in 1998 for the cumulative period excluding adjustments for any
writedown of property, plant and equipment, plus 75% of the cash proceeds of any
sales of capital stock of the Company), (ii) maintenance of minimum ratios of
cash flow to interest expense (1.5 : 1) as well as current assets (including
unused Borrowing Base) to current liabilities (1 : 1), (iii) limitations on the
Company's ability to incur additional debt and (iv) restrictions on the payment
of dividends. In the second quarter, the minimum ratio of cash flow to interest
expense was amended whereby the coverage ratio from June 30, 1998 to March 31,
1999 was decreased from 2.5 to 1 to 1.5 to 1, increasing thereafter on a
quarterly basis to 2.5 to 1 on June 30, 2000.
The indenture issued in conjunction with the Company's 8 7/8% Senior
Subordinated Notes due 2007 (the "Indenture") also contains certain covenants,
including covenants that limit (i) indebtedness, (ii) restricted payments, (iii)
distributions from restricted subsidiaries, (iv) transactions with affiliates,
(v) sales of assets and subsidiary stock (including sale and leaseback
transactions), (vi) dividends and other payment restrictions affecting
restricted subsidiaries and (vii) mergers or consolidations.
Capital Expenditures. During the first six months of 1998, the Company
incurred capital expenditures of $41.0 million compared with $33.3 million for
the first six months of 1997. The capital expenditures incurred during the first
six months of 1998 were largely in connection with the continuing development
efforts, including recompletions, workovers and waterfloods, on existing wells
in the Company's Brookhaven, Laurel, Martinville and Summerland fields. In
addition, during the first six months of 1998, the Company drilled twenty wells
as follows: five producing oil wells in the Laurel field, four producing oil
wells in the Martinville field, two producing oil wells in the Summerland field,
three producing oil wells and one dry hole in the Brookhaven field and two
producing gas wells and three dry holes in the Monroe field. The Company also
had three drilling wells at June 30, 1998, two in the Laurel field and one in
the East Fitts field. General and administrative costs directly associated with
the Company's exploration and development activities were $2.8 million for the
first six months of 1998, compared with $1.5 million for the first six months of
1997, and are included in total capital expenditures. The increase in
capitalized general and administrative cost is primarily due to increased
capitalization of the Company's exploitation department resulting from an
increased staff combined with a greater percentage of time allocation of
existing staff to meet the requirements of the Company's increased exploration
and development activities.
The Company has no material capital commitments and is
consequently able to adjust the level of its expenditures as circumstances
warrant. Management believes that it will be able to provide adequate cash to
fund the anticipated lower level of capital expenditures and working capital
needs of the Company through 1998. The Company's borrowing base is based upon
the agent banks' consensus pricing strip, which uses escalating future prices.
This consensus pricing strip is not directly related to current New York
Mercantile Exchange ("NYMEX") pricing. So long as such consensus pricing strip
combined with the Company's proved reserves calculate a borrowing base in excess
of the current borrowings and future capital expenditures of the Company, then
the Company would not have any limitations to the available capital resources.
However, the sustained low crude oil price environment may have an adverse
affect on the consensus pricing strip. In such a case, the Company could face
limitations on its ability to provide debt financings adequate to fund future
capital expenditures, and if adverse enough, could cause some repayment of
excess borrowings over borrowing base to occur. Although the Company believes it
could resolve future limitations on available capital resources through a
variety of means, including, but not limited to, waivers, equity capital
infusion, or sales of assets, there can be no assurance it can do so.
8
<PAGE> 11
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
1997 1998 1997 1998
------ ------- ------ ------
(IN THOUSANDS, EXCEPT PER DAY,
PER BBL AND PER MCF DATA)
<S> <C> <C> <C> <C>
Selected Operating Data
Production
Crude Oil (Bbl/day) ........ 7,084 14,617 7,439 14,568
Natural Gas (Mcf/day) ...... 19,583 24,300 19,665 23,782
BOE (Bbl/day) .............. 10,348 18,667 10,717 18,532
Average Sales Prices
Crude Oil per Bbl .......... $ 17.03 $ 11.38 $ 15.85 $ 10.42
Natural Gas per Mcf ........ $ 2.17 $ 2.09 $ 1.82 $ 2.00
Other
Production costs per
BOE (1) .................. $ 3.83 $ 4.28 $ 3.65 $ 4.18
Depletion per BOE .......... $ 4.78 $ 4.45 $ 4.56 $ 4.28
Revenues
Production revenues
Crude Oil .............. $21,826 $30,095 $10,725 $13,813
Natural Gas ............ 7,695 9,195 3,260 4,334
------- ------- ------- -------
$29,521 $39,290 $13,985 $18,147
======= ======= ======= =======
</TABLE>
- --------------------------
(1) Includes lease operating expenses and production taxes.
Operating Revenues. During the first six months of 1998, production
revenues increased 33% to $39.3 million as compared to $29.5 million for the
same period in 1997. This increase was due to a 106% increase in crude oil
production and a 24% increase in natural gas production, partially offset by
decreases in the prices received for crude oil and natural gas (including
hedging gains and losses discussed below) of 33% and 4%, respectively. For the
three months ended June 30, 1998, production revenue increased 30% to $18.1
million as compared to $14.0 million for the same period in 1997. This increase
was principally due to a 96% increase in crude oil production, a 21% increase in
natural gas production and a 10% increase in the prices received for natural
gas. The increased revenue from production increases and the gas price increase
was substantially offset by a decrease in the prices received for crude oil of
34%.
The increase in daily natural gas production during the first six months of
1998 is primarily due to a 26% increase in production as a result of the
December 1997 acquisition of the Oklahoma Properties. The 106% increase in daily
crude oil production during the first six months of 1998 is primarily due to an
83% increase in production as a result of the acquisition of the Oklahoma
Properties and a 19% increase in production due to significant production
increases made in the Martinville and Brookhaven fields, with such production
increasing by 60% and 116%, respectively .
Average crude oil prices, including hedging gains and losses, decreased
during the first six months of 1998 compared to the same period in 1997 due to
declining oil prices which can be attributed to several factors, including:
9
<PAGE> 12
lack of cold weather, increased storage inventories and perceptions of the
effects of increased quotas or lack of adherence to quotas from the Organization
of Petroleum Exporting Countries ("OPEC"). The posted price for the Company's
crude oil averaged $12.36 per Bbl for the six months ended June 30, 1998, a 36%
decrease from the average posted price of $19.35 per Bbl experienced in the
first six months of 1997. The price per Bbl received by the Company is adjusted
for the quality and gravity of the crude oil and is generally lower than the
posted price.
The realized price for the Company's natural gas, including hedging gains
and losses, decreased 4% from $2.17 per Mcf in the first six months of 1997 to
$2.09 per Mcf in the first six months of 1998, due to a lack of cold weather and
market volatility. Natural gas prices increased 10% in the second quarter of
1998 as compared to the second quarter of 1997, which partially offset the lower
gas prices received in the first quarter of 1998 as compared to the first
quarter of 1997.
Production revenues for the six months ended June 30, 1998 included no
crude oil hedging gains or losses compared to crude oil hedging losses of
$396,000 ($0.31 per Bbl) for the same period in 1997. Production revenues in
1998 included natural gas hedging gains of $466,000 ($0.11 per Mcf) compared to
natural gas hedging gains of $86,000 ($0.02 per Mcf) for the same period in
1997. The Company also has 15,000 Mmbtu of natural gas production per day hedged
from July 1998 through August 1998 at a minimum price of $2.00 per Mmbtu and a
maximum price of $2.54 per Mmbtu. Any gain or loss on the Company's crude oil
hedging transactions is determined as the difference between the contract price
and the average closing price for West Texas Intermediate ("WTI") on the NYMEX
for the contract period. Any gain or loss on the Company's natural gas hedging
transactions is generally determined as the difference between the contract
price and the average settlement price for the last three days during the month
in which the hedge is in place. Consequently, hedging activities do not affect
the actual sales price received for the Company's crude oil and natural gas.
Interest and other income decreased to $118,000 in the first six months of
1998 from $149,000 for the same period in 1997 primarily due to $137,000 of
interest received in the first quarter of 1997 on a federal tax refund,
partially offset by 1998 earnings of $33,000 on the sale of investments and
$66,000 of interest income on temporary investments.
Expenses. Production expenses (including production taxes) were $14.5
million for the first six months of 1998 compared to $7.2 million for the first
six months of 1997 and $7.1 million for the second quarter of 1998 compared to
$3.6 million for the same period in 1997. On a BOE basis, production costs
increased 12% to $4.28 per BOE in 1998 compared to $3.83 per BOE in 1997 for the
six month periods and $4.18 per BOE in 1998 compared to $3.65 per BOE in 1997
for the three month periods. The increase in expenses for the comparable six
month periods is primarily due to increased production and an increase of
approximately $6.6 million relating to the recently acquired Oklahoma
Properties, partially offset by reduced operating costs per BOE on the Company's
Mississippi properties due to improved operating efficiencies.
General and administrative costs decreased 9% between the comparable six
month periods and decreased 36% between the comparable three month periods. The
decreases are primarily due to operator overhead charges to third parties
related to the Oklahoma Properties, which are reflected as a reduction in
general and administrative costs, and an increase in capitalization of salaries
and other general and administrative costs directly associated with the
Company's increased exploration and development activities, partially offset by
increased personnel costs due to staff additions to handle the increased capital
spending activities in Mississippi and increased costs associated with the
acquisition of the Oklahoma Properties. The decrease for the comparable three
month periods is significantly larger than the decrease for the comparable six
month periods because the operator overhead charges related to the Oklahoma
Properties for the first and second quarters of 1998 were all recorded in the
second quarter of 1998 when such billing information became available.
Interest expense increased 241% for the six month period ended June 30,
1998 compared to the same period in 1997, due to higher borrowing levels during
1998 as compared to 1997 and due to the sale of $150 million of the Company's
8 7/8% Senior Subordinated Notes due 2007 on October 3, 1997, which bear a
higher interest rate than
10
<PAGE> 13
borrowings under the Restated Credit Agreement. The borrowing levels increased
throughout 1997 and the second quarter of 1998 due to additional borrowings to
fund Coho's capital expenditure program and the December 1997 acquisition of the
Oklahoma Properties.
Depletion and depreciation expense increased 68% to $15.0 million for the
six months ended June 30, 1998 from $9.0 million for the comparable period in
1997, due to increased production, partially offset by a lower rate per BOE
which decreased to $4.45 in 1998 from $4.78 in 1997. Depletion and depreciation
expense increased 63% to $7.2 million for the three months ended June 30, 1998,
as compared to $4.4 million for the comparable period in 1997, due to increased
production volumes, partially offset by a lower rate per BOE which decreased to
$4.28 in 1998 from $4.56 in 1997.
In accordance with generally accepted accounting principles, at a point in
time coinciding with the quarterly and annual reporting periods, the Company
must test the carrying value of its crude oil and natural gas properties, net of
related deferred taxes, against a calculated amount based on estimated reserve
volumes valued at then current realized prices held flat for the life of the
properties discounted at 10% per annum plus the lower of cost or estimated fair
value of unproved properties (the "cost center ceiling"). At March 31, 1998 and
June 30, 1998, the carrying values exceeded the cost center ceilings, resulting
in non-cash writedowns of the crude oil and natural gas properties of $32
million and $41 million, respectively. These writedowns resulted from the
declines in crude oil prices in the first and second quarters of 1998.
Due to the factors discussed above, the Company's net losses for the three
and six months ended June 30, 1998 were $41.6 million and $63.9 million,
respectively, as compared to net incomes of $1.1 million and $3.2 million,
respectively, for the same periods in 1997. The 1998 losses include first and
second quarter writedowns of the crude oil and natural gas properties of $32
million and $41 million, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 12, 1998,
the shareholders approved an amendment to the 1993 Stock Option Plan that
increased the number of shares issuable thereunder by 500,000. With respect to
the proposal, out of a total of 25,603,512 shares of Common Stock outstanding
and entitled to vote, 21,515,563 shares voted "for", 1,007,993 shares voted
"against" and 67,347 shares abstained from voting. There were no broker
non-votes with respect to this proposal.
The shareholders ratified the selection, by the Board of Directors,
of the firm of Arthur Andersen LLP as independent auditors for the Company for
1998. With respect to the proposal, out of a total of 25,603,512 shares of
Common Stock outstanding and entitled to vote, 22,115,834 voted "for", 64,919
voted "against" and 40,930 shares abstained from voting. There were no broker
non-votes with respect to this proposal.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company has filed with the Securities and Exchange Commission a
Current Report on Form 8-K dated May 12, 1998, related to the purchase of
1,485,184 shares of Common Stock of the Company and the resignation and election
of certain members of the Company's board of directors.
12
<PAGE> 15
COHO ENERGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHO ENERGY, INC.
(Registrant)
Date: August 14, 1998
By: /s/ Jeffrey Clarke
---------------------------------------
Jeffrey Clarke
(Chairman, President, and Chief Executive Officer)
By: /s/ Eddie M. LeBlanc,III
---------------------------------------
Eddie M. LeBlanc, III
(Sr. Vice President and Chief Financial Officer)
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,429
<SECURITIES> 0
<RECEIVABLES> 16,794
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,069
<PP&E> 710,293
<DEPRECIATION> 225,857
<TOTAL-ASSETS> 509,762
<CURRENT-LIABILITIES> 19,910
<BONDS> 407,961
0
0
<COMMON> 256
<OTHER-SE> 77,935
<TOTAL-LIABILITY-AND-EQUITY> 509,762
<SALES> 39,290
<TOTAL-REVENUES> 39,290
<CGS> 14,468
<TOTAL-COSTS> 32,802
<OTHER-EXPENSES> 73,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,964
<INCOME-PRETAX> (82,358)
<INCOME-TAX> (18,446)
<INCOME-CONTINUING> (63,912)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,912)
<EPS-PRIMARY> (2.50)
<EPS-DILUTED> (2.50)
</TABLE>
