<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 March 31, 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 May 12, 1998
----------------------------- ------------------------------
Common Stock, $.01 par value 25,603,512
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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 March 31, 1998..............................................................2
Condensed Consolidated Statements of Operations -
three months ended March 31, 1997 and 1998....................................................... 3
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 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 balance sheet of Coho Energy,
Inc. and subsidiaries as of March 31, 1998 and the related condensed statements
of operations and the condensed statement of cash flows for the three month
period ended March 31, 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.
Arthur Andersen LLP
Dallas, Texas
May 13, 1998
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COHO ENERGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............................................. $ 3,817 $ 1,605
Accounts receivable, principally trade ................................. 10,724 12,133
Deferred income taxes .................................................. 1,818 1,295
Other current assets ................................................... 715 357
------------ ------------
17,074 15,390
PROPERTY AND EQUIPMENT, at cost net of accumulated depletion and
depreciation, based on full cost accounting method (note 2) ............ 531,409 514,254
OTHER ASSETS .............................................................. 6,645 6,491
------------ ------------
$ 555,128 $ 536,135
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, principally trade .................................... $ 4,888 $ 8,731
Accrued liabilities and other payables ................................. 14,169 16,828
Current portion of long term debt ...................................... 38 39
------------ ------------
19,095 25,598
LONG TERM DEBT, excluding current portion ................................. 369,924 380,941
DEFERRED INCOME TAXES ..................................................... 20,306 6,094
------------ ------------
409,325 412,633
------------ ------------
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 (18,266)
------------ ------------
Total shareholders' equity ......................................... 142,103 119,802
------------ ------------
$ 555,128 $ 536,135
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
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COHO ENERGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1997 1998
-------- --------
<S> <C> <C>
OPERATING REVENUES
Net crude oil and natural gas production .......................... $ 15,536 $ 21,143
-------- --------
OPERATING EXPENSES
Crude oil and natural gas production .............................. 3,080 6,413
Taxes on oil and gas production ................................... 540 1,002
General and administrative ........................................ 1,776 2,140
Depletion and depreciation ........................................ 4,536 7,794
Writedown of crude oil and natural gas properties ................. -- 32,000
-------- --------
Total operating expenses ...................................... 9,932 49,349
-------- --------
OPERATING INCOME (LOSS) .............................................. 5,604 (28,206)
-------- --------
OTHER INCOME AND EXPENSES
Interest and other income ......................................... 193 46
Interest expense .................................................. (2,291) (7,809)
-------- --------
(2,098) (7,763)
-------- --------
EARNINGS (LOSS) FROM OPERATIONS BEFORE INCOME TAXES .................. 3,506 (35,969)
INCOME TAXES PROVISION (BENEFIT) ..................................... 1,402 (13,668)
-------- --------
NET EARNINGS (LOSS) .................................................. $ 2,104 $(22,301)
======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE (note 3) ...................... $ .10 $ (.87)
======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE (note 3) .................... $ .10 $ (.87)
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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COHO ENERGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) .............................................................. $ 2,104 $(22,301)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depletion and depreciation ..................................................... 4,536 7,794
Writedown of crude oil and natural gas properties .............................. -- 32,000
Deferred income taxes provision (benefit)....................................... 1,378 (13,689)
Amortization of debt issue costs and other ..................................... 137 208
Changes in operating assets and liabilities:
Accounts receivable and other assets ........................................... 3,769 (1,105)
Accounts payable and accrued liabilities ....................................... (3,729) 4,740
Investment in marketable securities ............................................ (21) --
-------- --------
Net cash provided by operating activities ........................................... 8,174 7,647
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment ........................................................... (11,721) (22,639)
Changes in accounts payable and accrued liabilities related to
exploration and development .................................................... 3,277 1,762
-------- --------
Net cash used in investing activities ............................................... (8,444) (20,877)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long term debt ....................................................... 3,500 11,029
Repayment of long term debt ...................................................... (4,077) (11)
Proceeds from exercised stock options ............................................ 168 --
-------- --------
Net cash provided by (used in) financing activities ................................. (409) 11,018
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................................... (679) (2,212)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................... 1,864 3,817
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 1,185 $ 1,605
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest ....................................................................... $ 2,213 $ 4,395
Income taxes ................................................................... $ 639 $ --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 three month period ended March 31,
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 March 31
1997 1998
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<S> <C> <C>
Crude oil and natural gas leases and rights including exploration,
development and equipment thereon, at cost .................................. $ 669,247 $ 691,886
Accumulated depletion and depreciation .......................................... (137,838) (177,632)
--------- ---------
$ 531,409 $ 514,254
========= =========
</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 $830,000 and
$1,245,000 for the three months ended March 31, 1997 and 1998, respectively.
During the three months ended March 31, 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 March 31, 1998, unproved crude oil and natural gas
properties totalling $82,872,000 and $82,830,000 (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 March 31, 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
$32.0 million ($19.8 million net of deferred income taxes). Crude oil price
increases subsequent to March 31, 1998 were considered in the determination of
the writedown.
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 three months ended March 31, 1997
and 1998, of 20,373,319 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 three months ended March 31,
1997 and 1998, of 20,917,219 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 April 1998 through August 1998, at a minimum price of $2.00 per Mmbtu and a
maximum price of $2.54 per Mmbtu.
In connection with the acquisition of the 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 due diligence 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 three months
ended March 31, 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
71% from crude oil sales and 29% from natural gas sales during the same period
in 1997.
The Company increased its crude oil and natural gas production in the first
three 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 ("Amoco Properties"). Average net daily barrel of oil equivalent
("BOE") production was 18,805 BOE (12,105 BOE excluding the Amoco Properties)
for the three months ended March 31, 1998 as compared to 9,974 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 three months ended March 31, 1998, cash flow
generated from operating activities was $7.6 million compared with $8.2 million
for the same period in 1997. Operating revenues, net of lease operating
expenses, production taxes and general and administrative expenses, increased
$1.4 million during the first quarter of 1998 over the first quarter of 1997,
despite an 89% increase in equivalent production between periods, primarily due
to price decreases between such comparable periods of 33% and 14% for crude oil
and natural gas, respectively. Additionally, interest expense increased $5.5
million between periods as a result of borrowings to finance the December 1997
acquisition of the Amoco Properties. Changes in operating assets and liabilities
provided $3.6 million of cash for operating activities for the three months
ended March 31, 1998, primarily due to the increase in accrued interest on the
Company's 8 7/8 Senior Subordinated Notes due 2007 ("Senior Notes"), which is
paid semi-annually in April and October. See "Results of Operations" for a
discussion of operating results.
As of March 31, 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 March 31, 1998 were $232 million, all of which are
classified as long term. The Restated Credit Agreement terminates January 2,
2003. Amounts outstanding 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.
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
7
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flow to interest expense (2.5 : 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.
The indenture issued in conjunction with the Senior Notes (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 three months of 1998, the Company
incurred capital expenditures of $22.6 million compared with $11.7 million for
the first three months of 1997. The capital expenditures incurred during the
first three 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 three months of 1998, the Company drilled
nine wells as follows: three producing oil wells in the Laurel field, two
producing oil wells in the Martinville field, two producing oil wells in the
Summerland field and two producing oil wells in the Brookhaven field. The
Company also had five drilling wells at March 31, 1998, two in each of the
Martinville and Brookhaven fields and one in the Laurel field. General and
administrative costs directly associated with the Company's exploration and
development activities were $1,245,000 for the first three months of 1998,
compared with $830,000 for the first three 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.
Although management believes that borrowings under the Restated Credit
Agreement and cash flow from operations will be adequate to fund the anticipated
capital expenditures and working capital needs of the Company through 1998,
capital expenditure activity during the second quarter of 1998 has been reduced
from the budgeted level due to lower than anticipated crude oil prices. 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. The Company 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. Additionally, the Company has no material capital commitments and is
consequently able to adjust the level of its expenditures as circumstances
warrant.
8
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RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------------------
1997 1998
--------------- ---------------
(IN THOUSANDS, EXCEPT PER
DAY, PER BBL AND PER MCF DATA)
<S> <C> <C>
Selected Operating Data
Production
Crude Oil (Bbl/day) .............................................................. 6,724 14,667
Natural Gas (Mcf/day) ............................................................ 19,499 24,824
BOE (Bbl/day) .................................................................... 9,974 18,805
Average Sales Prices
Crude Oil per Bbl ................................................................ $ 18.35 $ 12.33
Natural Gas per Mcf .............................................................. $ 2.53 $ 2.17
Other
Production costs per BOE (1) ..................................................... $ 4.03 $ 4.38
Depletion per BOE ................................................................ $ 5.05 $ 4.60
Revenues
Production revenues
Crude Oil .................................................................... $ 11,101 $ 16,282
Natural Gas .................................................................. 4,435 4,861
--------------- ---------------
$ 15,536 $ 21,143
=============== ===============
</TABLE>
- -----------------------------------
(1) Includes lease operating expenses and production taxes.
Operating Revenues. During the first three months of 1998, production
revenues increased 36% to $21.1 million as compared to $15.5 million for the
same period in 1997. This increase was due to a 118% increase in crude oil
production and a 27% 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 14%, respectively.
The increase in daily natural gas production during the first three months
of 1998 is primarily due to a 27% increase in production as a result of the
December 1997 acquisition of the Amoco Properties. The 118% increase in daily
crude oil production during the first three months of 1998 is due to an 87%
increase in production as a result of the acquisition of the Amoco Properties
and a 31% increase in production due to significant production increases made in
the Martinville and Brookhaven fields, with such production increasing by 90%
and 196%, respectively .
Average crude oil prices, including hedging gains and losses, decreased
during the first three months of 1998 compared to the same period in 1997 due to
declining oil prices which can be attributed to several factors, including: 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 $13.18 per Bbl for the three months ended March 31, 1998, a 37%
decrease from the average
9
<PAGE> 12
posted price of $20.98 per Bbl experienced in the first three months of 1997.
The price per barrel 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 14% from $2.53 per Mcf in the first three months of 1997
to $2.17 per Mcf in the first three months of 1998, due to a lack of cold
weather and market volatility.
Production revenues for the three months ended March 31, 1998 included no
crude oil hedging gains or losses compared to hedging losses of $396,000 ($0.65
per Bbl) for the same period in 1997. Production revenues in 1998 included
natural gas hedging gains of $466,000 ($0.21 per Mcf) compared to natural gas
hedging gains of $87,000 ($0.05 per Mcf) for the same period in 1997. The
Company also has 15,000 Mmbtu of natural gas production per day hedged from
April 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 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 $46,000 in the first three months of
1998 from $193,000 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.
Expenses. Production expenses (including production taxes) were $7.4
million for the first three months of 1998 compared to $3.6 million for the
first three months of 1997. On a BOE basis, production costs increased 9% to
$4.38 per BOE in 1998 compared to $4.03 per BOE in 1997. The increase in
expenses for the comparable three month periods is primarily due to increased
production and an increase of approximately $3.5 million relating to the
recently acquired Amoco Properties, partially offset by reduced operating costs
per BOE on the Company's Mississippi properties due to improved operating
efficiencies.
General and administrative costs increased 20% in the first three months of
1998 as compared to the first three months of 1997. The increase is primarily
due to 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 Amoco Properties, partially offset by an increase in
capitalization of salaries and other general and administrative costs directly
associated with the Company's increased exploration and development activities.
Interest expense increased 241% for the three month period ended March 31,
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 Senior Notes on
October 3, 1997 which bear a higher interest rate than the Company's Restated
Credit Agreement. The borrowing levels increased throughout 1997 and the first
quarter of 1998 due to additional borrowings to fund Coho's capital expenditure
program and the December 1997 acquisition of the Amoco Properties.
Depletion and depreciation expense increased 72% to $7.8 million for the
three months ended March 31, 1998 from $4.5 million for the comparable period in
1997. This increase is primarily the result of increased production volume
partially offset by a decreased rate per BOE, which decreased to $4.60 in 1998
versus $5.05 for the comparable period 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, the
carrying value exceeded the cost center ceiling,
10
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resulting in a non-cash writedown of the crude oil and natural gas
properties of $32.0 million ($19.8 million net of deferred income taxes). This
writedown resulted from the decline of crude oil prices in the first quarter of
1998.
Due to the factors discussed above, the Company's net loss for the three
months ended March 31, 1998 was $22.3 million as compared to net income of $2.1
million for the same period in 1997. The 1998 loss includes the writedown of the
crude oil and natural gas properties of $19.8 million, net of deferred income
taxes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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
None
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
On March 3, 1998, the Company filed an Amendment to Current Report on
Form 8-K/A providing audited financial statements regarding the
December 1997 acquisition of the Amoco Properties.
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: May 13, 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)
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,605
<SECURITIES> 0
<RECEIVABLES> 12,133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,390
<PP&E> 691,886
<DEPRECIATION> (177,632)
<TOTAL-ASSETS> 536,135
<CURRENT-LIABILITIES> 25,598
<BONDS> 0
0
0
<COMMON> 256
<OTHER-SE> 119,546
<TOTAL-LIABILITY-AND-EQUITY> 536,135
<SALES> 21,143
<TOTAL-REVENUES> 21,143
<CGS> 7,415
<TOTAL-COSTS> 17,349
<OTHER-EXPENSES> 32,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,809
<INCOME-PRETAX> (35,969)
<INCOME-TAX> (13,668)
<INCOME-CONTINUING> (22,301)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,301)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
