<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
----------------------
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 0-22258
AVIVA PETROLEUM INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1432205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
8235 DOUGLAS AVENUE, 75225
SUITE 400, DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
(214) 691-3464
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock, no par value, outstanding at June 30, 1997,
was 31,482,716 of which 10,329,615 shares of Common Stock were represented by
Depositary Shares. Each Depositary Share represents five shares of Common Stock
held by a Depositary.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ----------------------------
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(in thousands, except number of shares)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,155 $ 2,041
Accounts receivable 2,245 3,750
Inventories 680 721
Prepaid expenses and other 216 282
-------- --------
Total current assets 4,296 6,794
-------- --------
Property and equipment, at cost (note 2):
Oil and gas properties and equipment (full cost method) 60,239 58,324
Other 610 613
-------- --------
60,849 58,937
Less accumulated depreciation, depletion
and amortization (40,600) (23,991)
-------- --------
20,249 34,946
Other assets 1,299 1,204
-------- --------
$ 25,844 $ 42,944
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt (note 3) $ 5,756 $ 2,780
Accounts payable 4,127 6,271
Accrued liabilities 271 357
-------- --------
Total current liabilities 10,154 9,408
-------- --------
Long term debt, excluding current portion (note 3) 2,084 5,210
Gas balancing obligations and other 1,412 1,404
Deferred foreign income taxes - 692
Stockholders' equity:
Common stock, no par value, authorized 348,500,000 shares;
issued 31,482,716 shares 1,574 1,574
Additional paid-in capital 33,376 33,376
Accumulated deficit* (22,756) (8,720)
-------- --------
Total stockholders' equity 12,194 26,230
Commitments and contingencies (note 6)
-------- --------
$ 25,844 $ 42,944
======== ========
</TABLE>
* Accumulated deficit of $70,057 was eliminated at December 31, 1992 in
connection with a quasi-reorganization.
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
-------- -------- -------- --------
Oil and gas sales $ 2,339 $3,876 $ 5,553 $7,409
-------- -------- -------- --------
Expense:
Production 1,096 1,284 2,198 2,514
Depreciation, depletion and amortization 1,490 1,796 3,285 3,579
Write-down of oil and gas properties (note 2) 11,413 - 13,399 -
General and administrative 402 487 752 1,016
Severance (note 5) - - - 172
-------- -------- -------- --------
Total expense 14,401 3,567 19,634 7,281
-------- -------- -------- --------
Other income (expense):
Interest and other income (expense), net 67 66 91 139
Interest expense (162) (201) (328) (406)
Debt refinancing expense (note 3) - - - (100)
-------- -------- -------- --------
Total other income (expense) (95) (135) (237) (367)
-------- -------- -------- --------
Earnings (loss) before income taxes (12,157) 174 (14,318) (239)
Income taxes (benefits) (547) 177 (282) 216
-------- -------- -------- --------
Net loss $(11,610) $ (3) $(14,036) $ (455)
======== ======== ======== ========
Weighted average common shares outstanding 31,483 31,483 31,483 31,483
======== ======== ======== ========
Net loss per common share $ (.37) $ (.00) $ (.45) $ (.01)
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------- --------
<S> <C> <C>
Net loss $(14,036) $ (455)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,285 3,579
Write-down of oil and gas properties 13,399 -
Deferred foreign income tax benefits (692) (157)
Changes in working capital and other (729) (36)
-------- --------
Net cash provided by operating activities 1,227 2,931
-------- --------
Cash flows from investing activities:
Property and equipment expenditures (1,959) (3,138)
Proceeds from sale of assets 19 27
-------- --------
Net cash used in investing activities (1,940) (3,111)
-------- --------
Cash flows from financing activities -
principal payments on long term debt (150) (1,665)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents (23) (30)
-------- --------
Net decrease in cash and cash equivalents (886) (1,875)
Cash and cash equivalents at beginning of the period 2,041 4,200
-------- --------
Cash and cash equivalents at end of the period $ 1,155 $ 2,325
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------
Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
---------- ------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 31,482,716 $1,574 $33,376 $ (8,720) $ 26,230
Net loss - - - (14,036) (14,036)
---------- ------ ---------- -------- --------
Balances at June 30, 1997 31,482,716 $1,574 $33,376 $(22,756) $ 12,194
========== ====== ========== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The condensed consolidated financial statements of Aviva Petroleum Inc. and
subsidiaries (the "Company") included herein have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
contained herein are adequate to make the information presented not
misleading. These condensed financial statements should be read in
conjunction with the Company's prior audited yearly financial statements and
the notes thereto, included in the Company's latest annual report on Form
10-K.
In the opinion of the Company, all adjustments, consisting of normal recurring
accruals, necessary to present fairly the information in the accompanying
financial statements have been included. The results of operations for such
interim periods are not necessarily indicative of the results for the full
year.
2. PROPERTY AND EQUIPMENT
Internal general and administrative costs directly associated with oil and gas
property acquisition, exploration and development activities have been
capitalized in accordance with the accounting policies of the Company. Such
costs totaled $70,000 for the six months ended June 30, 1997 and $54,000 for
the six months ended June 30, 1996.
Unevaluated oil and gas properties totaling $655,000 and $1,066,000 at June
30, 1997 and December 31, 1996, respectively, have been excluded from costs
subject to depletion. The Company capitalized interest costs of $45,000 and
$123,000 for the six-month periods ended June 30, 1997 and 1996, respectively,
on these properties.
During 1997 the Company wrote down the carrying amount of its oil and gas
properties as a result of ceiling limitations on capitalized costs as follows
(in thousands):
<TABLE>
<CAPTION>
United
States Colombia Total
------ -------- -------
<S> <C> <C> <C>
March 31 $1,986 $ - $ 1,986
June 30 - 11,413 11,413
------ -------- -------
$1,986 $11,413 $13,399
====== ======== =======
</TABLE>
The U.S. write-down at March 31, 1997 was primarily due to lower oil and gas
prices, whereas the Colombian write-down at June 30, 1997 was mainly due to a
downward revision (523,000 barrels) of the Company's Colombian proved oil
reserves and lower prices.
3. LONG TERM DEBT
On August 6, 1993, the Company entered into a credit agreement with ING (U.S.)
Capital Corporation ("ING Capital"), secured by a mortgage on substantially
all U.S. oil and gas assets, a pledge of Colombian assets and the stock of
three subsidiaries, pursuant to which ING Capital
6
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
agreed to loan to the Company up to $25 million, subject to an annually
redetermined borrowing base which is predicated on the Company's U.S. and
Colombian reserves. As of June 30, 1997, the borrowing base permitted and the
outstanding loan balance was, $7,840,000. The outstanding loan balance bears
interest at the ING Capital prime rate (8.5% at June 30, 1997) plus 1% or, at
the option of the Company, a fixed rate, based on the London Interbank Offered
Rate, for a portion or portions of the outstanding debt from time to time.
Commitment fees of .5% on the unused credit were payable quarterly until
December 31, 1995, at which time the credit facility converted from a
revolving credit facility to a term loan. The terms of the loan, among other
things, prohibit the Company from merging with another company or paying
dividends, limit additional indebtedness, general and administrative expense,
sales of assets and investments and require the maintenance of certain minimum
financial ratios. The agreement also requires the Company to maintain a
minimum consolidated tangible net worth of $22,000,000.
As of June 30, 1997, the Company was not in compliance with the above-
referenced tangible net worth covenant. ING Capital, however, has waived
compliance with this requirement pending the completion of the Company's
restructuring plan (see note 7).
In December 1996, the Company entered into an agreement with ING Capital
pursuant to which the outstanding loan balance was paid down to $7,990,000
from $10,790,000 concurrent with the sale of the U.S. onshore properties and
the repayment schedule was amended to require monthly payments of $25,000 for
the first seven months of 1997 and $521,000 for the last five months of 1997
and the first ten months of 1998. See Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources).
In March 1996, the Company paid a fee of $100,000 to ING Capital in
consideration for certain modifications to the Company's credit agreement.
4. STOCKHOLDERS' EQUITY
At the Annual Meeting of Shareholders held on June 10, 1997, the Company's
shareholders approved the amendment of the Aviva Petroleum Inc. 1995 Stock
Option Plan (the "Plan"). The amendment increased the 200,000 shares reserved
for options to be awarded to non-employee directors to 400,000 shares. In
addition, the amendment provides for the grant, on July 1, 1997 and on each
subsequent July 1, to each non-employee director who has served in such
capacity for at least the entire preceding calendar year of an option to
purchase 5,000 shares of the Company's common stock (the "Annual Option
Awards"), exercisable as to 2,500 shares on the first anniversary of the date
of grant and as to the remaining shares on the second anniversary thereof.
Except for the vesting provisions relating to the Annual Option Awards, the
provisions of the Plan relating to vesting of such options, the determination
of the exercise prices thereof and other terms of such options remain
unchanged.
5. SEVERANCE EXPENSE
The Board of Directors had charged a committee of the Board with the task of
reviewing the Company's general and administrative expenses and making
recommendations as to the reduction of such expenses. On March 18, 1996, the
Board, acting on one of such committee's recommendations, determined to
terminate the employment of the Executive Vice President and Chief Operating
Officer of the Company (the "Officer") effective on June 1, 1996. In
7
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
connection with the severance arrangements between the Company and the
Officer, the Company incurred costs of $172,000 as of June 30, 1996.
On July 25, 1996, the above mentioned committee was dissolved and its function
was assumed by the entire Board of Directors.
6. COMMITMENTS AND CONTINGENCIES
The Company, along with its co-owner (referred to collectively as the "Co-
owners"), is engaged in an ongoing development and exploration program on
concessions in Colombia.
The contract obligations of the Santana concession have been met. The Co-
owners have, however, completed one development well in 1997 and anticipate
drilling one additional development well and recompleting certain existing
wells on the Santana concession. As of June 30, 1997, future development
costs are estimated at approximately $1.2 million, net to the Company's
interest, for these expenditures.
The Co-owners have completed a 3-D seismic survey over the Mary and Miraflor
fields in the Santana concession and such data has recently been interpreted.
Preliminary results confirm the presence of several prospects and leads
previously identified from 2-D seismic data. Additionally, a 2-D seismic
program was completed on the Yuruyaco concession in January 1997 and such data
is currently being interpreted. As of June 30, 1997, the aggregate remaining
future expenditures for these and certain other miscellaneous projects were
approximately $.6 million, net to the Company's interest.
The Co-owners have completed their seismic obligations for the first two years
of the La Fragua concession and were obligated to acquire additional seismic
data for the third year. The Co-owners determined, however, that it was not
technically justified to explore this concession further and, accordingly,
requested and received from Ecopetrol a change of commitment that would allow
the Co-owners to substitute certain exploratory expenditures within the
Santana concession for the remaining seismic commitment on the La Fragua
concession. The indigenous people of the new commitment area, however, have
objected to the proposed exploratory work and the Co-owners were not able to
comply with the new commitment. The Co-owners have requested and Ecopetrol
has agreed to allow the Co-owners to surrender the concession without further
expenditure. All unevaluated costs relating to the La Fragua concession have
been transferred into the Colombian amortization base.
The Company's aggregate remaining estimated exploratory and development
expenditures for 1997 and 1998 were $1.8 million at June 30, 1997. The
Company's ability to fund these expenditures is dependent upon the success of
the Restructuring Plan described in note 7 and the continued deferral of
current payments under the Company's debt repayment schedule with ING Capital.
Moreover, any substantial increases in the amounts of the above referenced
expenditures could adversely affect the Company's ability to fund these
activities.
Failure to fund certain of these capital expenditures could, under either the
concession agreements or joint operating agreements with the Company's Co-
owner, or both, result in the forfeiture of all or part of the Company's
interest in these Colombian concessions.
8
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The Company plans to fund these exploration and development activities using
cash provided from operations and proceeds from the issuance of additional
long-term debt which is part of the Company's Restructuring Plan as described
in note 7. Risks that could adversely affect the Company's plans include,
among others, failure to accomplish the Restructuring Plan, delays in
obtaining the required environmental approvals and permits, increases in
required expenditures as a result of inflation or cost overruns, interruptions
of production, failure to produce the reserves as projected, or a further
decline in the sales prices of oil and gas. Depending on the results of the
exploration and development activities, substantial expenditures which have
not been included in the Company's plan may be required. The outcome of these
matters cannot be projected with certainty. See note 7.
Under the terms of the contracts with Ecopetrol, 25% of all revenues from oil
sold to Ecopetrol is paid in Colombian pesos which may only be utilized in
Colombia. To date, the Company has experienced no difficulty in repatriating
the remaining 75% of such payments, which are payable in U.S. dollars.
Activities of the Company with respect to the exploration, development and
production of oil and natural gas are subject to stringent federal, state and
local environmental laws and regulations including but not limited to the Oil
Pollution Act of 1990 ("OPA 90"), the Outer Continental Shelf Lands Act, the
Federal Water Pollution Control Act, the Resource Conservation and Recovery
Act, and the Comprehensive Environmental Response, Compensation, and Liability
Act. Such laws and regulations have increased the cost of planning, designing,
drilling, operating and abandoning wells. In most instances, the statutory and
regulatory requirements relate to air and water pollution control procedures
and the handling and disposal of drilling and production wastes. Although the
Company believes that compliance with environmental laws and regulations will
not have a material adverse effect on the Company's operations or earnings,
risks of substantial costs and liabilities are inherent in oil and gas
operations and there can be no assurance that significant costs and
liabilities, including civil or criminal penalties for violations of
environmental laws and regulations, will not be incurred. Moreover, it is
possible that other developments, such as stricter environmental laws and
regulations or claims for damages to property or persons resulting from the
Company's operations, could result in substantial costs and liabilities. For
additional discussions on the applicability of environmental laws and
regulations on the Company's operations, see the Company's prior audited
yearly financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
On March 25, 1997, the United States Department of the Interior Minerals
Management Service ("MMS") promulgated a proposed rule implementing the
recently amended OPA 90 financial responsibility requirements. For offshore
facilities that have a worst case oil spill potential of more than 1,000
barrels, the OPA 90 amendments provide that the amounts of financial
responsibility that must be demonstrated by most facilities range from $10
million to $35 million, with higher amounts, up to $150 million, in certain
limited instances where the MMS believes such a level is justified by the
risks posed by the quantity or quality of oil that is handled by the facility.
The proposed rule implements the financial responsibility criteria set forth
in amended OPA 90 based on a "worst case" oil spill discharge volume
calculated for the facility. The Company cannot predict whether these
financial responsibility requirements under the OPA 90 amendments or proposed
rule will result in the imposition of substantial additional annual costs to
the Company in the future or otherwise materially adversely effect the
Company, but the impact is not expected to be any more burdensome to the
Company than it will be to other similarly situated companies involved in oil
and gas exploration and production in the Gulf of Mexico.
9
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The Company has recently received a response from the Louisiana Department of
Environmental Quality ("LDEQ") regarding the Company's request to extend the
date by which it must comply with the state-wide prohibition against
discharges of produced waters to coastal waters offshore Louisiana. A state-
wide prohibition against such discharges went into effect on July 1, 1997.
The LDEQ's response instructed the Company to install a LDEQ-approved diffuser
system designed to eliminate the potential for violation of water quality
standards resulting from the discharge of produced water. Additionally, the
LDEQ instructed the Company to adhere to an approved produced water discharge
termination schedule which includes the submission of quarterly reports and
scheduling the commencement of produced water injection by December 1, 1997.
Accordingly, the Company will be required to cease discharges of produced
water from its Breton Sound leases into coastal waters by December 1, 1997,
unless a further extension is granted by the LDEQ. In the event that a
further extension is not granted by the LDEQ, then effective December 1, 1997,
the Company will be required to either reinject the produced water into
suitable underground formations or curtail or even cease production from the
field until such time as the produced water can be appropriately disposed of
in an economic manner. Management does not expect that compliance with the
LDEQ's directive will have a material adverse effect on the Company or its
operations.
The Company is involved in certain litigation involving its oil and gas
activities, but unrelated to environmental contamination issues. Management
of the Company believes that these litigation matters will not have any
material adverse effect on the Company's financial condition or results of
operations.
7.SUBSEQUENT EVENT
On July 8, 1997, the Company engaged Merrick Capital Corporation ("Merrick")
to act as its financial advisor in order to identify and accomplish certain
strategic corporate objectives (the "Restructuring Plan"). Such objectives
include the acquisition of $5 million of oil and gas properties for ten
million new shares of the Company's common stock, the procurement of $12
million to $15 million of mezzanine financing to fund the drilling of certain
of the Company's current prospects, and the negotiation of a $25 million oil
and gas reserve based credit facility. Mr. Jeffrey S. Rawson, President of
Merrick, has an interest in the above-referenced oil and gas properties and,
if the Restructuring Plan is consummated, will beneficially own 50% of the
common shares issued in exchange for such properties. Additionally, Mr.
Rawson will have voting power over the remaining 50% of the common shares so
issued.
Effective with the contemporaneous closing of the aforementioned transactions,
which are contingent on the approval of the Company's shareholders, the number
of directors of the Company will remain fixed at its current level of five and
will be comprised of Mr. Rawson, who will also become Chairman and Chief
Executive Officer of the Company, two additional directors to be nominated and
approved by him, and two directors to be determined by the current Board of
Directors.
ING Capital has agreed to waive compliance with the Company's minimum
consolidated tangible net worth requirement of $22 million and to defer the
predominant portion of each monthly payment through November 1997 under the
Company's debt repayment schedule while the Company is pursuing the
Restructuring Plan. See Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources).
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS.
- --------------
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
------- ------ --------- --------
<S> <C> <C> <C> <C>
(Thousands)
Revenue - 1996 $ 533 $ 607 $2,736 $ 3,876
Volume variance (121) (439) (529) (1,089)
Price variance (36) (21) (418) (475)
Other - 27 - 27
----- ----- ------ -------
Revenue - 1997 $ 376 $ 174 $1,789 $ 2,339
===== ===== ====== =======
</TABLE>
Colombian oil volumes were 108,000 barrels in the second quarter of 1997, a
decrease of 26,000 barrels as compared to the second quarter of 1996. Such
decrease is the result of a 31,000 barrel decrease due to the Company's net
revenue interest declining from 18% to 12.6% in June 1996 when cumulative
production from the Santana concession reached the 7 million barrel threshold
specified in the risk-sharing contract, and a 32,000 barrel decrease resulting
from normal production declines, partially offset by a 37,000 barrel increase
primarily due to the completion of two development wells in the latter part of
1996.
U.S. oil volumes were 21,000 barrels in 1997, down approximately 6,000 barrels
from 1996. This decrease resulted primarily from the sale of the Company's
U.S. onshore properties on December 23, 1996. U.S. gas volumes before gas
balancing adjustments were 65,000 thousand cubic feet (MCF) in 1997, down
218,000 MCF from 1996. Of such decrease, approximately 211,000 MCF was due to
the U.S. onshore property sale.
Colombian oil prices averaged $16.56 per barrel during the second quarter of
1997. The average price for the same period of 1996 was $20.43 per barrel. The
Company's average U.S. oil price decreased to $18.24 per barrel in 1997, down
from $19.97 per barrel in 1996. In 1997 prices have been lower than in the
second quarter of 1996 due to a general decrease in world oil prices. U.S. gas
prices averaged $1.97 per MCF in 1997 compared to $2.12 per MCF in 1996.
In addition to the above-mentioned variances, U.S. gas revenue increased
approximately $27,000 as a result of gas balancing adjustments.
Operating costs decreased approximately 15%, or $188,000, primarily due to the
sale of the U.S. onshore properties while depreciation, depletion and
amortization decreased by 17%, or $306,000 primarily as a result of lower levels
of production.
The Company recorded an $11,413,000 write-down of the carrying amount of its
Colombian oil properties as a result of a ceiling test limitation on capitalized
costs at June 30, 1997. The write-down was mainly due to a downward revision
(523,000 barrels) of the Company's Colombian proved oil reserves and lower
prices. No similar charge was recorded in 1996.
11
<PAGE>
General and administrative ("G&A") expenses declined $85,000 during the second
quarter of 1997 as a result of a cost reduction program implemented by the
Company during the first quarter of 1996. The program has targeted all
categories of G&A. The largest decreases, however, have resulted from
reductions in the number of employees, officers and directors of the Company.
Interest expense decreased $39,000 in the second quarter of 1997, primarily as a
result of lower average outstanding balances of long term debt.
Income taxes were $724,000 lower in 1997 principally as a result of Colombian
deferred tax benefits resulting from the write-down of the carrying amount of
the Company's Colombian oil properties. See note 2 of Notes to Condensed
Consolidated Financial Statements.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
------ ------- --------- --------
<S> <C> <C> <C> <C>
(Thousands)
Revenue - 1996 $ 990 $1,290 $5,129 $ 7,409
Volume variance (183) (913) (704) (1,800)
Price variance 28 33 (127) (66)
Other - 10 - 10
----- ------ ------ -------
Revenue - 1997 $ 835 $ 420 $4,298 $ 5,553
===== ====== ====== =======
</TABLE>
Colombian oil volumes were 231,000 barrels in the first half of 1997, a decrease
of 37,000 barrels as compared to the first half of 1996. Such decrease is the
result of a 68,000 barrel decrease due to the Company's net revenue interest
declining from 18% to 12.6% in June 1996 when cumulative production from the
Santana concession reached the 7 million barrel threshold specified in the risk-
sharing contract, and a 43,000 barrel decrease resulting from normal production
declines, partially offset by a 74,000 barrel increase primarily due to the
completion of two development wells in the latter part of 1996.
U.S. oil volumes were 42,000 barrels in 1997, down approximately 9,000 barrels
from 1996. Such decrease was mainly due to the U.S. onshore property sale.
U.S. gas volumes before gas balancing adjustments were 139,000 MCF in 1997, down
454,000 MCF from 1996. Of such decrease, approximately 473,000 MCF was due to
the U.S. onshore property sale, partially offset by new production from a
development well completed at Main Pass 41 during October 1996.
Colombian oil prices averaged $18.58 per barrel during the first half of 1997.
The average price for the same period during 1996 was $19.13 per barrel. The
Company's average U.S. oil price increased to $19.97 per barrel in 1997, up from
$19.31 per barrel in 1996. U.S. gas prices averaged $2.23 per MCF in 1997
compared to $2.01 per MCF in 1996.
In addition to the above-mentioned variances, U.S. gas revenue increased
approximately $10,000 as a result of gas balancing adjustments.
Operating costs decreased approximately 13%, or $316,000 primarily due to the
sale of the U.S. onshore properties, while DD&A decreased by 8%, or $294,000,
primarily due to lower levels of production.
12
<PAGE>
The Company recorded write-downs to the carrying amounts of its U.S. and
Colombian oil and gas properties of $1,986,000 and $11,413,000 at March 31, 1997
and June 30, 1997, respectively. The U.S. write-down at March 31 was primarily
due to lower oil and gas prices, whereas the Colombian write-down at June 30 was
mainly due to a downward revision (523,000 barrels) of the Company's Colombian
proved oil reserves and lower prices.
G&A expenses declined $264,000 as a result of a cost reduction program
implemented by the Company during the first quarter of 1996. This program has
targeted all categories of G&A. The largest decreases, however, have resulted
from reductions in the number of employees, officers and directors of the
Company.
The Company incurred $172,000 of severance expense in the first six months of
1996 relating to the termination of the Executive Vice President and Chief
Operating Officer of the Company. For more information regarding such
termination see Note 5 of Notes to Condensed Consolidated Financial Statements.
The Company has not incurred any such severance expense in 1997.
Interest expense was $78,000 lower, primarily as a result of lower average
balances outstanding in 1997.
Debt refinancing expense of $100,000 in 1996 represents a fee paid to ING
Capital in consideration for certain modifications to the Company's credit
agreement. See Note 3 of Notes to Condensed Consolidated Financial Statements.
Income taxes were $498,000 lower in 1997 primarily due to Colombian deferred tax
benefits resulting from the write-down of the carrying amount of the Company's
Colombian oil and gas properties. See Note 2 of Notes to Condensed Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since December 31, 1996, costs incurred in oil and gas property acquisition,
exploration and development activities by the Company totaled approximately $2.0
million, almost all of which was incurred in Colombia. These activities were
funded by cash provided by operating activities.
As described in Note 6 of Notes to Condensed Consolidated Financial Statements,
the Company has aggregate remaining estimated exploratory and development
expenditures for 1997 and 1998 of $1.8 million at June 30, 1997. Delays in
obtaining the required environmental approvals and permits on a timely basis and
construction delays could both, through the impact of inflation, increase the
required expenditures. Cost overruns resulting from factors other than
inflation could also increase the required expenditures. Historically, the
inflation rate of the Colombian peso has been in the range of 20-30% per year.
Devaluation of the peso against the U.S. dollar has historically been slightly
less than the inflation rate in Colombia. The Company has historically funded
capital expenditures in Colombia by converting U.S. dollars to pesos at such
time as the expenditures have been made. As a result of the interaction between
peso inflation and devaluation of the peso against the U.S. dollar, inflation,
from the Company's perspective, has not been a significant factor. During 1994,
the first half of 1995, and 1996, however, devaluation of the peso was
substantially lower than the rate of inflation of the peso, resulting in an
effective inflation rate in excess of that of the U.S. dollar. There can be no
assurance that this condition will not occur again or that, in such event, there
will not be substantial increases in future capital expenditures as a result.
Due to Colombian exchange controls and restrictions and the lack of an effective
market, it is not feasible to hedge against the risk of net peso inflation
against the U.S. dollar and the Company has not done so.
The Company is a party to a credit agreement with ING (U.S.) Capital Corporation
("ING Capital") pursuant to which the borrower thereunder may borrow up to $25
million, subject to a borrowing base the determination of which is predicated on
the Company's U.S. and Colombian reserves and which is redetermined annually.
As of June 30, 1997, the borrowing base permitted and the outstanding loan
balance was $7,840,000. Borrowings under the credit agreement bear interest at
the ING Capital prime rate (8.5% at June 30, 1997) plus 1% per annum or, at the
Company's option,
13
<PAGE>
a fixed rate based on the London Interbank Offered Rate for a portion or
portions of the outstanding indebtedness. The borrower under the credit
agreement is Neo Energy, Inc., a wholly owned subsidiary of the Company and the
owner of the Company's interests in the Colombian concessions. The indebtedness
under the credit agreement is guaranteed by the Company and certain other
subsidiaries, including the wholly owned subsidiary that is the owner of
substantially all of the Company's domestic oil and gas properties. The loan,
among other things, prohibits the payment of dividends by the Company and
requires the maintenance of certain financial ratios. In December 1996, the
Company entered into an agreement with ING Capital pursuant to which the
outstanding loan balance was paid down to $7,990,000 from $10,790,000 and the
repayment schedule was amended to require monthly payments of $25,000 for the
first seven months of 1997 and $521,000 for the last five months of 1997 and the
first ten months of 1998. In addition, the Company is required by the terms of
the credit agreement to maintain a minimum consolidated tangible net worth of
$22,000,000.
As a result of the write-down of the capitalized costs of the Company's oil and
gas properties and equipment reflected in the accompanying Condensed
Consolidated Financial Statements, the Company is not in compliance with its
minimum consolidated tangible net worth covenant. Moreover, the Company's
estimates of its cash flow through December 31, 1997 indicate that it would be
unable to meet its principal repayments scheduled for the five months ending
December 31, 1997 (aggregating $2,600,000).
On July 8, 1997, the Company engaged Merrick Capital Corporation to act as its
financial advisor in order to effect the Restructuring Plan described in Note 7
to the Condensed Consolidated Financial Statements. Pending effectuation of
the Restructuring Plan, ING Capital has waived compliance by the Company with
its minimum consolidated tangible net worth covenant and has reduced the
principal payments required for the four months ending November 30, 1997 to
$25,000 per month and rescheduled repayment of the remaining principal as
follows: $575,000 per month for the ten months ending September 30, 1998 and
$1,965,000 on October 31, 1998. At such time as the Company fails to pursue the
Restructuring Plan actively, any prior breach of the minimum consolidated
tangible net worth covenant will be reinstated and monthly payments of principal
of $575,000 will be required thereafter until maturity of the credit on October
31, 1998. ING Capital has reserved to itself the right to consent to the actual
terms of the Restructuring Plan.
If the Restructuring Plan is not effected, management of the Company will
endeavor to obtain additional capital by means of equity issues or sales of
assets. Only additional equity issues will, however, assist the Company in
meeting the existing minimum consolidated tangible net worth covenant if then
reinstated. There is no assurance that ING Capital would, under such
circumstances, waive prior defaults under the Company's minimum consolidated
tangible net worth covenant even if management were able to secure additional
capital through the issuance of equity. The Company is not currently exploring
alternative sources of equity capital (and is not permitted to do so by the
terms of its engagement of Merrick Capital Corporation).
Other risks that could adversely affect the Company's plans include, among
others, delays in obtaining the required environmental approvals and permits,
increases in required expenditures as a result of inflation or cost overruns,
interruptions of production, failure to produce the reserves as projected, or a
further decline in the sales prices of oil and gas. Depending on the results of
the exploration and development activities, substantial expenditures which have
not been included in the Company's plan may be required. The outcome of these
matters cannot be projected with certainty. For information regarding the risks
relating to the Company's business, see Note 6 of Notes to Condensed
Consolidated Financial Statements and the Company's Annual Report on Form 10-K.
With the exception of historical information, the matters discussed in this
quarterly report contain forward-looking statements that involve risks and
uncertainties. Although the Company believes
14
<PAGE>
that its expectations are based on reasonable assumptions, it can give no
assurance that such expectations will be realized. Important factors that could
cause actual results to differ materially from those in the forward-looking
statements herein include the timing and extent of changes in commodity prices
for oil and gas, the extent of the Company's success in discovering, developing
and producing reserves, political conditions in Colombia, conditions of the
capital markets and equity markets during the periods covered by the forward-
looking statements and its ability to effect the Restructuring Plan, as well as
other factors.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- --------------------------------------------------------------
The Annual Meeting of Shareholders of Aviva Petroleum Inc. was held on June 10,
1997, pursuant to notice, at which the following persons were elected directors
of the Company to serve until the next annual meeting of the shareholders or
until their successors are elected and qualify:
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C> <C>
Ronald Suttill 15,348,137 82,381 21,823
John J. Lee 15,083,985 346,848 21,508
Elliott Roosevelt, Jr. 15,086,673 344,160 21,508
James E. Tracey 15,417,608 13,225 21,508
</TABLE>
In addition the following proposals were approved by the shareholders:
The amendment to the Aviva Petroleum Inc. 1995 Stock Option Plan to increase
the amount of shares reserved for options to be awarded to non-employee
directors to 400,000 shares and to provide for the grant of annual option
awards each July 1 to non-employee directors who have served in such capacity
for at least the entire preceding calendar year was passed with 15,297,586
votes in favor, 152,076 votes against, and 2,679 votes abstaining.
The re-appointment of KPMG Peat Marwick LLP as independent auditors of the
Company was passed with 15,197,097 votes in favor, 246,041 votes against and
9,203 votes abstaining.
The shareholders failed to approve a proposal to amend the Articles of
Incorporation of the Company to authorize a new class of preferred stock with
6,773,854 votes in favor, 3,827,419 votes against, 2,409 votes abstaining and
4,756,159 broker non-votes. The approval of this proposal required the
affirmative vote of at least a majority of the outstanding shares of the
Company's common stock.
The text of the above proposals is incorporated by reference to Aviva's
definitive Proxy Statement for the Annual Meeting of Shareholders dated June 10,
1997, filed with the Securities and Exchange Commission pursuant to Registration
14A.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) Exhibits
- -----------
10.1 Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (filed as Appendix
A to the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders dated June 10, 1997, and incorporated herein by reference).
10.2 Amendment to the ING Capital Credit Agreement dated August 12, 1997.
27.1 Financial Data Schedule.
b) Reports on Form 8-K
- ----------------------
The Company filed the following Current Reports on Form 8-K during and
subsequent to the end of the second quarter:
Date of 8-K Description of 8-K
- ----------- ------------------
July 10, 1997 Submitted a copy of the Company's Press Release dated July
10, 1997, reporting on the Company's Colombian activities.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIVA PETROLEUM INC.
Date: August 12, 1997 /s/ Ronald Suttill
-------------------------------------
Ronald Suttill
President and Chief Executive Officer
/s/ James L. Busby
-------------------------------------
James L. Busby
Treasurer and Secretary
(Chief Accounting Officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------- ----------------------
*10.1 Aviva Petroleum Inc. 1995 Stock Option Plan, as amended (filed as
Appendix A to the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders dated June 10, 1997, and incorporated herein by
reference).
**10.2 Amendment to the ING Capital Credit Agreement dated August 12, 1997.
**27.1 Financial Data Schedule.
- ------
* Previously Filed
** Filed Herewith
19
<PAGE>
EXHIBIT 10.2
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (herein called this "Amendment")
is made as of the 12th day of August, 1997 by and between Neo Energy, Inc., a
Texas corporation ("Borrower"), Aviva Petroleum Inc., a Texas corporation
("Aviva Petroleum"), Aviva America, Inc., a Delaware corporation ("Aviva
America"), and ING (U.S.) Capital Corporation (formerly named Internationale
Nederlanden (U.S.) Capital Corporation), a Delaware corporation ("Lender").
RECITALS:
1. Borrower, Aviva Petroleum, Aviva America and Lender are parties to that
certain Credit Agreement dated as of August 6, 1993, as amended by (a) that
certain First Amendment to Credit Agreement and Promissory Note dated March 31,
1994; (b) a letter amendment concerning Permitted Investments dated December 31,
1994; (c) a letter amendment concerning Consolidated Tangible Net Worth dated
March 7, 1995; (d) that certain Fourth Amendment to Credit Agreement and
Promissory Note dated June 9, 1995; (e) that certain Fifth Amendment to Credit
Agreement and Promissory Note dated March 29, 1996; and (f) that certain Sixth
Amendment to Credit Agreement and Promissory Note dated November 22, 1996. (As
so amended, such Credit Agreement is herein called the "Original Agreement".)
2. Borrower and Aviva America have asked Lender to consent to a revised
principal amortization schedule and waive the tangible net worth covenant set
forth in Section 5.12 of the Original Agreement, and Lender has agreed to do so,
provided that the Original Agreement is amended as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. -- Definitions and References
--------------------------
(S) 1.1 Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used in this Amendment shall have the meanings assigned to
them in this (S) 1.2.
"Amendment" means this Seventh Amendment to Credit Agreement.
---------
"Credit Agreement" means the Original Agreement as heretofore amended
----------------
and as amended hereby.
1
<PAGE>
ARTICLE II. -- Amendments to the Original Agreement
------------------------------------
(S) 2.1. Regular Payments. Section 2.8 of the Original Agreement is
----------------
hereby amended in its entirety to read as follows:
Section 2.8 Regular Payments. Beginning August 29, 1997 and
----------------
continuing on the last Business Day of each calendar month thereafter,
Borrower will, in addition to paying any interest then due on the Loan,
repay the principal balance of the Loan in accordance with the following
schedule:
Payment Dates Monthly Principal Payment
------------- -------------------------
<TABLE>
<CAPTION>
<S> <C>
August, 1997 $ 25,000
September, 1997 $ 25,000
October, 1997 $ 25,000
November, 1997 $ 25,000
December, 1997 $ 575,000
January, 1998 $ 575,000
February, 1998 $ 575,000
March, 1998 $ 575,000
April, 1998 $ 575,000
May, 1998 $ 575,000
June, 1998 $ 575,000
July, 1998 $ 575,000
August, 1998 $ 575,000
September, 1998 $ 575,000
October, 1998 $1,965,000
</TABLE>
ARTICLE III. -- Agreements and Consents
-----------------------
(S) 3.1. Reorganization and Regular Payments. Borrower and Aviva
-----------------------------------
Petroleum hereby represent and warrant that Aviva Petroleum is negotiating with
Merrick Capital Corporation ("Merrick") regarding Aviva Petroleum's proposed
-------
reorganization and recapitalization (the "Reorganization"), which will include
--------------
(a) the contribution by a third party of oil and gas reserves (in which Mr.
Rawson may have an interest) having a fair market value of not less than $5
million in exchange for 10,000,000 common shares of Aviva Petroleum, (b) the
election of Jeffery S. Rawson, currently president of Merrick, as president and
chief executive officer of Aviva Petroleum, (c) the issuance of $12-15 million
of mezzanine financing with Trust Company of the West or other mezzanine lender
and (d) the establishment of an oil and gas reserve based credit facility of
approximately $25 million. Borrower and Aviva Petroleum hereby agree that in the
event, at the sole discretion of Lender, Borrower and Aviva Petroleum fail to
continue to actively pursue the Reorganization (a "Termination"): (i) Borrower
-----------
and Aviva Petroleum shall within thirty days after such Termination notify
Lender of such Termination, and (ii) after such thirty-day period, each
principal repayment due thereafter pursuant to Section 2.8 of the Agreement
shall be $575,000, and such Section 2.8 of the Agreement shall be automatically
amended accordingly, without further action by Lender or any Obligor.
2
<PAGE>
(S) 3.2. Waiver of Breach of Tangible Net Worth Covenant. Lender hereby
-----------------------------------------------
waives any breach by Aviva Petroleum of the tangible net worth covenant set
forth in Section 5.2(m) of the Agreement, and any related Default or Event of
Default under Section 7.1(b) of the Agreement, for the period commencing June
30, 1997 through and until a Termination, at which time all such breaches of
such Section 5.2(m), and all such related Defaults or Events of Default, shall
be automatically reinstated.
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of Obligors. In order to induce
------------------------------------------
Lender to enter into this Amendment, each Obligor represents and warrants to
Lender that:
(a) Except as previously disclosed to Lender, the representations and
warranties contained in Section 4.1 of the Original Agreement are true and
correct at and as of the time of the effectiveness hereof.
(b) Each Obligor is duly authorized to execute and deliver this
Amendment and Borrower is and will continue to be duly authorized to borrow
and to perform its obligations under the Credit Agreement. Each Obligor
has duly taken all corporate action necessary to authorize the execution
and delivery of this Amendment and to authorize the performance of the
obligations of Borrower hereunder.
(c) The execution and delivery by each Obligor of this Amendment, the
performance by each Obligor of its obligations hereunder and the
consummation of the transactions contemplated hereby do not and will not
conflict with any provision of law, statute, rule or regulation or of the
articles or certificate, as appropriate, of incorporation and bylaws of
each Obligor, or of any material agreement, judgment, license, order or
permit applicable to or binding upon each Obligor, or result in the
creation of any lien, charge or encumbrance upon any assets or properties
of any Obligor. Except for those which have been duly obtained, no
consent, approval, authorization or order of any court or governmental
authority or third party is required in connection with the execution and
delivery by each Obligor of this Amendment or to consummate the
transactions contemplated hereby.
(d) When duly executed and delivered, each of this Amendment and the
Credit Agreement will be a legal and binding instrument and agreement of
each Obligor, enforceable in accordance with its terms, except as limited
by bankruptcy, insolvency and similar laws applying to creditors' rights
generally and by principles of equity applying to creditors' rights
generally.
(e) The audited annual Consolidated financial statements of Aviva
Petroleum dated as of December 31, 1996 fairly present its Consolidated
financial position at such date and its Consolidated results of operations
and Consolidated cash flows for the period ending on such date.
3
<PAGE>
ARTICLE V. -- Miscellaneous
-------------
(S) 5.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when Lender shall have received, at
Lender's office a counterpart of this Amendment executed and delivered by
Borrower and Lender.
(S) 5.2. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. The Loan Documents,
as they may be amended or affected by this Amendment, are hereby ratified and
confirmed in all respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to refer to this Amendment also, and any reference in
any Loan Document to any other document or instrument amended, renewed, extended
or otherwise affected by this Amendment shall also refer to such document as
amended hereby. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lender under the Credit Agreement or any other Loan
Document nor constitute a waiver of any provision of the Credit Agreement or any
other Loan Document. Without limitation of the foregoing, this Amendment does
not constitute, and shall not be construed as, any consent to the
Reorganization.
(S) 5.3. Ratification of Security Documents. Each of the Obligors hereby
----------------------------------
consents to the provisions of this Amendment and the transactions contemplated
herein, and hereby ratifies and confirms each Loan Document executed and
delivered by it to and for the benefit of Lender, and each hereby agrees that
its respective obligations and covenants thereunder are unimpaired hereby and
shall remain in full force and effect.
(S) 5.4. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of each Obligor herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loan, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any Obligor hereunder or
under the Credit Agreement to Lender shall be deemed to constitute
representations and warranties by, or agreements and covenants of, such Obligor
under this Amendment and under the Credit Agreement.
(S) 5.5. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
(S) 5.6. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of New York and any applicable laws of
the United States of America in all respects, including construction, validity
and performance.
(S) 5.7. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
4
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
AVIVA PETROLEUM INC.
NEO ENERGY, INC.
AVIVA AMERICA, INC.
By:/s/ James L. Busby
--------------------------------------
James L. Busby, Treasurer
ING (U.S) CAPITAL CORPORATION
By:/s/ Christopher R. Wagner
-------------------------------------
Christopher R. Wagner, Vice President
5
<PAGE>
CONSENT AND AGREEMENT
---------------------
Aviva Operating Company, a Nevada corporation, hereby consents to (i) the
provisions of that certain Seventh Amendment to Credit Agreement (the
"Amendment") made as of the 12th day of August, 1997 by and between Neo Energy,
Inc., a Texas corporation, Aviva Petroleum Inc., a Texas corporation, Aviva
America, Inc., a Delaware corporation, and ING (U.S.) Capital Corporation
(formerly named Internationale Nederlanden (U.S.) Capital Corporation), a
Delaware corporation ("Lender") and (ii) the transactions contemplated in the
Amendment, and hereby ratifies and confirms the Guaranty (the "Guaranty") dated
as of August 6, 1993 made by it for the benefit of Internationale Nederlanden
Bank N.V., New York Branch (which has since assigned all its rights, interests,
and obligations under the Guaranty to Lender), and agrees that its obligations
and covenants under the Guaranty are unimpaired by the Amendment and shall
remain in full force and effect.
AVIVA OPERATING COMPANY
By:/s/ James L. Busby
-----------------------------------
James L. Busby, Treasurer
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF AVIVA PETROLEUM INC. AND SUBSIDIARIES AS
OF JUNE 30, 1997 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,155
<SECURITIES> 0
<RECEIVABLES> 2,245
<ALLOWANCES> 0
<INVENTORY> 680
<CURRENT-ASSETS> 4,296
<PP&E> 60,849
<DEPRECIATION> 40,600
<TOTAL-ASSETS> 25,844
<CURRENT-LIABILITIES> 10,154
<BONDS> 2,084
0
0
<COMMON> 1,574
<OTHER-SE> 10,620
<TOTAL-LIABILITY-AND-EQUITY> 25,844
<SALES> 5,553
<TOTAL-REVENUES> 5,553
<CGS> 5,483
<TOTAL-COSTS> 5,483
<OTHER-EXPENSES> 13,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328
<INCOME-PRETAX> (14,318)
<INCOME-TAX> (282)
<INCOME-CONTINUING> (14,036)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,036)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> 0
</TABLE>
