<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 SEPTEMBER 30, 2000
-------------------
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 September 30,
2000, was 46,900,132 of which 25,486,690 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>
September 30, December 31,
ASSETS 2000 1999
------------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 760 $ 846
Restricted cash -- 4
Accounts receivable 1,031 1,650
Inventories 170 724
Prepaid expenses and other 69 236
-------- --------
Total current assets 2,030 3,460
-------- --------
Property and equipment, at cost (note 3):
Oil and gas properties and equipment (full cost method) 25,869 68,462
Other 595 584
-------- --------
26,464 69,046
Less accumulated depreciation, depletion
and amortization (25,904) (65,081)
-------- --------
560 3,965
Other assets 1,607 1,561
-------- --------
$ 4,197 $ 8,986
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities not subject to compromise
Current liabilities:
Current portion of long term debt (note 4) $ -- $ 14,495
Accounts payable 1,192 3,081
Accrued liabilities 174 1,024
-------- --------
Total current liabilities 1,366 18,600
-------- --------
Gas balancing obligations and other 373 1,869
Liabilities subject to compromise (notes 4 and 8) 4,514 --
Stockholders' deficit:
Common stock, no par value, authorized 348,500,000 shares;
issued 46,900,132 shares 2,345 2,345
Additional paid-in capital 34,855 34,855
Accumulated deficit* (39,256) (48,683)
-------- --------
Total stockholders' deficit (2,056) (11,483)
Commitments and contingencies (notes 6 and 8)
-------- --------
$ 4,197 $ 8,986
======== ========
</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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales $ 741 $ 1,955 $ 5,054 $ 4,714
Service fees (note 2) 166 -- 221 --
-------- -------- -------- --------
Total revenue 907 1,955 5,275 4,714
-------- -------- -------- --------
Expense:
Production 430 918 1,984 2,697
Depreciation, depletion and amortization 55 242 453 862
General and administrative 290 247 874 926
Reorganization fees (note 8) 35 -- 35 --
Provision for (recovery of) losses on accounts
receivable (111) (13) (221) (105)
Severance -- -- -- 62
-------- -------- -------- --------
Total expense 699 1,394 3,125 4,442
-------- -------- -------- --------
Other income (expense):
Gain on transfer of partnership interests (note 2) -- -- 3,452 --
Interest and other income (expense), net (note 5) 11 122 113 299
Interest expense (66) (326) (749) (900)
-------- -------- -------- --------
Total other income (expense) (55) (204) 2,816 (601)
-------- -------- -------- --------
Earnings (loss) before income taxes and
extraordinary item 153 357 4,966 (329)
Income taxes 19 54 212 181
-------- -------- -------- --------
Earnings (loss) before extraordinary
item 134 303 4,754 (510)
Extraordinary item - gain (loss) on extinguishment
of debt (note 2) (7) -- 4,673 --
-------- -------- -------- --------
Net earnings (loss) $ 127 $ 303 $ 9,427 $ (510)
======== ======== ======== ========
Weighted average common shares outstanding -
basic and diluted 46,900 46,900 46,900 46,784
======== ======== ======== ========
Basic and diluted earnings (loss) per common share:
Before extraordinary item $ .00 $ .01 $ .10 $ (.01)
Extraordinary item .00 -- .10 --
-------- -------- -------- --------
Net earnings (loss) $ .00 $ .01 $ .20 $ (.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>
Nine Months Ended
September 30,
2000 1999
-------- -------
<S> <C> <C>
Net earnings (loss) $ 9,427 $ (510)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
before reorganization items:
Depreciation, depletion and amortization 453 862
Gain on transfer of partnership interests (3,452) -
Gain on debt extinguishment (4,673) -
Changes in working capital and other, net of effects
of transfer of partnership interest (119) (1,713)
------- -------
Net cash provided by (used in) operating activities
before reorganization items 1,636 (1,361)
Net cash used by reorganization items - reorganization fees (35) -
------- -------
Net cash provided by (used in) operating activities 1,601 (1,361)
------- -------
Cash flows from investing activities:
Cash balances surrendered in transfer of
partnership interests (1,393) -
Property and equipment expenditures (307) (140)
Other - 38
------- -------
Net cash used in investing activities (1,700) (102)
------- -------
Cash flows from financing activities -
Principal payments on long term debt - (300)
------- -------
Effect of exchange rate changes on cash and
cash equivalents 13 176
------- -------
Net decrease in cash and cash equivalents (86) (1,587)
Cash and cash equivalents at beginning of the period 846 1,712
------- -------
Cash and cash equivalents at end of the period $ 760 $ 125
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Deficit
(in thousands, except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------
Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Deficit
------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1999 46,900,132 $ 2,345 $ 34,855 $ (48,683) $ (11,483)
Net earnings - - - 9,427 9,427
------------- ------------ ------------ ------------- ---------------
Balances at September 30, 2000 46,900,132 $ 2,345 $ 34,855 $ (39,256) $ (2,056)
============= ============ ============ ============= ===============
</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" or "Aviva") 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 consolidated
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.
The Company's condensed consolidated financial statements have been
presented on a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As discussed in note 8 below, a significant subsidiary of the
Company has filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code. While the condensed consolidated balance sheet
reflects the segregation of liabilities subject to compromise under the
bankruptcy, the condensed consolidated financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should this subsidiary, and the Company, be unable to continue as a
going concern.
2. Debt Restructuring and Transfer of Partnership Interests
On June 8, 2000, the Company entered into agreements with the Company's
senior secured lender, Crosby Capital, LLC ("Crosby"), in order to
restructure the Company's senior debt which, including unpaid interest,
aggregated $16,103,064 as of May 31, 2000. Crosby acquired the debt from
ING Capital and OPIC on May 1, 2000 (see note 4). Pursuant to the
agreements, Crosby canceled $13,353,064 of such debt and transferred to the
Company warrants for 1,500,000 shares of the Company's common stock in
exchange for the general partner rights and an initial 77.5% partnership
interest in Argosy Energy International ("Argosy"), a Utah limited
partnership, which holds the Company's Colombian properties. Following the
transaction, Aviva Overseas Inc. ("Aviva Overseas"), a wholly owned
subsidiary of the Company, owns a 22.1196% limited partnership interest in
Argosy. An additional 7.5% limited partnership interest will be transferred
from Crosby to Aviva Overseas when Crosby has received in distributions
from Argosy an amount equal to $3,500,000 plus interest at the prime rate
plus 1% on the outstanding balance thereof. As of September 30, 2000,
Crosby had received approximately $1.7 million in distributions from
Argosy.
In order to assist Crosby in maximizing the value of its interest in
Argosy, Crosby entered into a Service Agreement with Aviva Overseas
pursuant to which Aviva Overseas will provide certain services in
administering the Colombian assets in exchange for a monthly fee. The fee
is $71,000
6
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
per month for the period June 1, 2000 through March 31, 2001, $46,000 per
month for the period April 1, 2001 through March 31, 2002, and $21,000 per
month thereafter as long as the contract is in effect. The Service
Agreement provides for a term of 22 months and will continue thereafter
from month to month unless terminated by 30-day written notice by either
party.
Crosby retains its interest as senior secured lender in respect of the
Company's remaining debt of $2,750,000, which continues to be guaranteed by
the Company and its subsidiaries, including Aviva America, Inc., a wholly
owned subsidiary, which owns working interests in oil and gas properties at
Main Pass Block 41 and Breton Sound Block 31 fields, offshore Louisiana.
Such remaining debt accrues interest at 10% per annum, compounded annually,
and is due and payable on December 31, 2001. The remaining debt, however,
may be converted by the Company, under certain circumstances, into a 15%
net profits interest payable to Crosby in any new production at Breton
Sound Block 31 field.
The Company recognized a gain of $3,452,000 on the transfer of the
partnership interests to Crosby, representing the excess of the fair value
over the book value of the interests transferred. The Company recognized an
extraordinary gain of $4,673,000 on the extinguishment of the debt.
In connection with the above-referenced transaction, 1,000,000 shares of
the Company's common stock which were held by Crosby prior to the
transaction, were transferred to members of management and the Board of
Directors of the Company, effective June 8, 2000. As of such date, the
aggregate market value of the common stock transferred to members of
management and the Board of Directors was approximately $25,000 based on
the last sale price on the OTC Bulletin Board of a depositary share
representing five shares of the Company's common stock. Additionally,
200,000 shares of the Company's common stock which were held by Crosby
prior to the transaction were transferred to a consultant of the Company
effective as of the same date.
3. 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 $46,000 for the nine months ended September 30, 2000 and
$31,000 for the nine months ended September 30, 1999.
Unevaluated oil and gas properties totaling $271,000 and $553,000 at
September 30, 2000 and December 31, 1999, respectively, have been excluded
from costs subject to depletion. The Company capitalized interest costs of
$37,000 and $36,000 for the nine-month periods ended September 30, 2000 and
1999, respectively, on these properties.
4. Long Term Debt
On October 28, 1998, concurrently with the consummation of the merger with
Garnet Resources Corporation ("Garnet Merger"), Neo Energy, Inc., an
indirect subsidiary of the Company, and the Company entered into a Restated
Credit Agreement with ING (U.S.) Capital Corporation ("ING Capital"). ING
Capital, Chase Bank of Texas, N.A. ("Chase") and the U.S. Overseas Private
Investment Corporation ("OPIC") also entered into a Joint Finance and
Intercreditor Agreement (the "Intercreditor Agreement") with the Company.
ING Capital agreed to loan Neo Energy, Inc. an additional $800,000,
bringing the total outstanding balance due ING Capital to $9,000,000.
7
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
The outstanding balance due to Chase was paid down to $6,000,000 from the
$6,350,000 balance owed by Garnet prior to the merger.
The Chase loan was unconditionally guaranteed by OPIC. On September 1,
1999, the Chase loan was assigned and transferred to OPIC pursuant to this
guarantee.
The ING Capital loan and the OPIC loan (the "Bank Credit Facilities") were
guaranteed by the Company and its material domestic subsidiaries. Both
loans were also secured by the Company's consolidated interest in the
Santana contract and related assets in Colombia, a first mortgage on the
United States oil and gas properties of the Company and its subsidiaries, a
lien on accounts receivable of the Company and its subsidiaries, and a
pledge of the capital stock of the Company's subsidiaries.
Borrowings under the ING Capital loan were subject to interest at the prime
rate (as defined in the Restated Credit Agreement) plus 3% per annum.
Borrowings under the OPIC loan were subject to interest at 10.27% per
annum.
Borrowings under the Bank Credit Facilities were payable as follows:
$5,700,000 in April 1999, and thereafter $281,250 per month until final
maturity on December 31, 2001. The terms of the Bank Credit Facilities,
among other things, prohibited the Company from merging with another
company or paying dividends, limited additional indebtedness, general and
administrative expense, sales of assets and investments and required the
maintenance of certain minimum financial ratios.
The Company was also required to maintain an escrow account pursuant to the
Bank Credit Facilities. As of March 31, 1999 and thereafter, the escrow
account was to contain the total of the following for the next succeeding
three-month period: (i) the amount of the minimum monthly principal
payments (as defined in the loan documents), plus (ii) the interest
payments due on the combined loans, plus (iii) the amount of all fees due
under the loan documents and under the Intercreditor Agreement.
On May 1, 2000, ING Capital and OPIC sold their entire interests in the
Bank Credit Facilities to Crosby Capital LLC. As more fully described in
note 2, this debt was restructured on June 8, 2000. The remaining balance
of $2,750,000 is due on December 31, 2001, and accrues interest at 10% per
annum, compounded annually. The remaining debt, however, may be converted
by the Company, under certain circumstances, into a 15% net profits
interest payable to Crosby in any new production at Breton Sound Block 31
field. The remaining debt has been included in liabilities subject to
compromise because the conversion of such debt is anticipated as part of
the bankruptcy.
8
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
5. Interest and Other Income (Expense)
A summary of interest and other income (expense) follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---------------- ----------------
<S> <C> <C>
Interest income $ 78 $ 70
Foreign currency exchange gain 4 234
Other, net 31 (5)
---------------- ----------------
$ 113 $ 299
================ ================
</TABLE>
6. Commitments and Contingencies
The Company is engaged in ongoing operations on the Santana contract in
Colombia. All contract obligations have been met; however, the Company
plans to recomplete certain existing wells and engage in various other
projects. The Company's share of the estimated future costs of these
activities is approximately $150,000 at September 30, 2000.
The Company expects to fund these activities using existing cash and cash
provided from operations. Risks that could adversely affect funding of such
activities include, among others, cost overruns, failure to produce the
reserves as projected or a decline in the sales price of oil. Depending on
the results of future exploration and development activities, substantial
expenditures which have not been included in the Company's cash flow
projections may be required.
On August 3, 1998, leftist Colombian guerrillas inflicted significant
damage on the Company's oil processing and storage facilities at the Mary
field, and to a lesser extent, at the Linda facilities. Since that time the
Company has been subject to lesser attacks on its pipelines and equipment
resulting in only minor interruptions of oil sales. The Colombian army
guards the Company's operations; however, there can be no assurance that
the Company's operations will not be the target of additional guerrilla
attacks in the future. The damages resulting from the above referenced
attacks were covered by insurance. There can be no assurance that such
coverage will remain available or affordable.
On October 16, 2000, the Company issued a press release stating that the
Trans-Andean pipeline, through which the Company's oil production is
transported, had been rendered inoperable by attacks from leftist
guerrillas operating in the southern provinces of Colombia. As a result,
the Company's oil sales were suspended and its producing wells were being
systematically shut-in as onsite storage capacity was filled. On October
23, 2000, production and sales resumed following the completion of repairs
to the pipeline. The guerrilla attacks are part of wide-spread political
unrest and fighting affecting the southern regions of Colombia following
the approval of "Plan Colombia", a $7.5 billion plan to eradicate coca
cultivation and stimulate a legitimate economy. As a result of the
political unrest in this area, the Company cannot predict that the
Trans-Andean pipeline will continue to be operational or if the Company's
oil sales will again be interrupted.
9
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
Under the terms of the contracts with Ecopetrol, a minimum of 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 foreign,
federal, state and local environmental laws and regulations, including but
not limited to the Oil Pollution Act of 1990, 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 future 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 and
other risks that may affect the Company's operations, see the Company's
latest annual report on Form 10-K.
The Company is involved in certain litigation involving its oil and gas
activities. 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.
10
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
7. Segment Information
The following is a summary of segment information of the Company as of and
for the nine-month periods ended September 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
United
States Colombia Total
------------- ------------- -------------
<S> <C> <C> <C>
2000
----
Revenue:
Oil and gas sales $ 1,177 $ 3,877 $ 5,054
Service fees 221 - 221
------------ ------------ ------------
1,398 3,877 5,275
------------ ------------ ------------
Expense:
Production 853 1,131 1,984
Depreciation, depletion and amortization 94 359 453
General and administrative 825 49 874
Reorganization fees 35 - 35
Recovery of losses on accounts receivable (221) - (221)
------------ ------------ ------------
1,586 1,539 3,125
------------ ------------ ------------
Gain on transfer of partnership interests - 3,452 3,452
Interest and other income (expense), net (1) 114 113
Interest expense (185) (564) (749)
------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item (374) 5,340 4,966
Income taxes - 212 212
------------ ------------ ------------
Earnings (loss) before extraordinary
item (374) 5,128 4,754
Extraordinary item - gain on
extinguishment of debt - 4,673 4,673
------------ ------------ ------------
Net earnings (loss) $ (374) $ 9,801 $ 9,427
============ ============ ============
Total assets $ 2,409 $ 1,788 $ 4,197
============ ============ ============
</TABLE>
11
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
<TABLE>
<CAPTION>
United
States Colombia Total
------------ ------------ ------------
1999
----
<S> <C> <C> <C>
Oil and gas sales $ 773 $ 3,941 $ 4,714
------------ ------------ ------------
Expense:
Production 910 1,787 2,697
Depreciation, depletion and amortization 113 749 862
General and administrative 864 62 926
Recovery of losses on accounts receivable (105) - (105)
Severance - 62 62
------------ ------------ ------------
1,782 2,660 4,442
------------ ------------ ------------
Interest and other income (expense), net 133 166 299
Interest expense (240) (660) (900)
------------ ------------ ------------
Earnings (loss) before income taxes (1,116) 787 (329)
Income taxes - 181 181
------------ ------------ ------------
Net earnings (loss) $ (1,116) $ 606 $ (510)
============ ============ ============
Total assets $ 1,675 $ 6,774 $ 8,449
============ ============ ============
</TABLE>
8. Subsidiary's Filing of Petition for Reorganization under Chapter 11
On July 21, 2000, Aviva America, Inc. ("AAI"), a wholly-owned subsidiary of
the Company, filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code. AAI is a Delaware corporation which holds the
Company's interests in oil and gas properties located offshore Louisiana.
The filing, in the Northern District of Texas, was initiated in order to
achieve a comprehensive restructuring of AAI's debts. Under Chapter 11,
certain claims against AAI in existence prior to the filing of the petition
are stayed while AAI continues business operations as Debtor-in-possession.
These claims are reflected in the September 30, 2000 balance sheet as
"liabilities subject to compromise." Additional claims (liabilities subject
to compromise) may arise subsequent to the filing date resulting from
rejection of executory contracts, including leases, and from the
determination by the court (or agreed to by parties in interest) of allowed
claims for contingencies and other disputed amounts. Claims secured against
AAI's assets ("secured claims") also are stayed, although the holder of
such claims (Crosby Capital LLC) had the right to move the court for relief
from the stay. Secured claims against AAI are secured by blanket liens on
AAI's assets.
A summary of liabilities subject to compromise at September 30, 2000,
follows (in thousands):
Long term debt (see note 4) $ 2,750
Gas imbalance payable 721
Accounts payable 533
Abandonment fund payable 414
Accrued liabilities 96
-------------
$ 4,514
=============
12
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
On November 7, 2000, a portion of the above referenced liabilities subject
to compromise aggregating $1,388,000 was extinguished in exchange for a
cash payment of $225,000 and the assignment of non-cash assets with a net
book value aggregating $331,000. The resulting gain of $832,000 will be
recorded in the quarter ending December 31, 2000.
The expenses related to the bankruptcy proceeding have been segregated on
the condensed consolidated statement of operations under reorganization
fees.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations.
-------------
Results of Operations
---------------------
Three Months Ended September 30, 2000 compared to Three Months Ended September
------------------------------------------------------------------------------
30, 1999
--------
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(Thousands)
Revenue - 1999 $ 326 $ 20 $ 1,609 $ 1,955
Volume variance (97) (15) (1,369) (1,481)
Price variance 128 22 117 267
------------- ------------- ------------- -------------
Revenue - 2000 $ 357 $ 27 $ 357 $ 741
============= ============= ============= =============
</TABLE>
Colombian oil volumes were 13,000 barrels in the third quarter of 2000, a
decrease of 74,000 barrels as compared to the third quarter of 1999. Such
decrease is due to a 45,000 barrel decrease resulting from the transfer of
partnership interests to Crosby and a 29,000 barrel decrease resulting from
normal production declines.
U.S. oil volumes were 12,000 barrels in 2000, down approximately 5,000 barrels
from 1999. Such decrease is primarily due to downtime resulting from adverse
weather and equipment failures. U.S. gas volumes before gas balancing
adjustments were 6,000 thousand cubic feet (MCF) in 2000, slightly higher than
1999.
Colombian oil prices averaged $27.63 per barrel during the third quarter of
2000. The average price for the same period of 1999 was $18.53 per barrel. The
Company's average U.S. oil price increased to $30.26 per barrel in 2000, up from
$19.42 per barrel in 1999. In 2000 prices have been higher than in the third
quarter of 1999 due to an increase in world oil prices. U.S. gas prices averaged
$4.43 per MCF in 2000 compared to $3.55 per MCF in 1999.
Service fees of $166,000 for administering the Colombian assets were received
pursuant to a Service Agreement with Crosby (see note 2 of the condensed
consolidated financial statements included elsewhere herein). This amount is net
of Aviva Overseas' 22.1196% share of the fee.
Operating costs decreased approximately 53%, or $488,000, primarily as a result
of the transfer of partnership interests to Crosby.
13
<PAGE>
Depreciation, depletion and amortization ("DD&A") decreased by 77%, or $187,000,
primarily due to the transfer of partnership interests to Crosby.
General and administrative ("G&A") expense increased $43,000 mainly as a result
of higher employee related costs and legal fees, partially offset by lower fees
paid to consultants.
Reorganization fees of $35,000 were recorded in the third quarter of 2000. These
fees were related to the Aviva America, Inc. bankruptcy (see note 8 to the
condensed consolidated financial statements included elsewhere herein).
Interest and other income decreased $111,000 primarily due to a foreign currency
exchange gain of $116,000 in 1999. During the third quarter of 2000, the Company
had a foreign currency exchange loss of $6,000.
Interest expense decreased $260,000, primarily as a result of the extinguishment
of part of the Company's long term debt (see note 2 to the condensed
consolidated financial statements included elsewhere herein).
Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999
----
<TABLE>
<CAPTION>
United States Colombia
Oil Gas Oil Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(Thousands)
Revenue - 1999 $ 661 $ 112 $ 3,941 $ 4,714
Volume variance (72) (81) (1,961) (2,114)
Price variance 517 43 1,897 2,457
Other - (3) - (3)
------------- ------------- ------------- -------------
Revenue - 2000 $ 1,106 $ 71 $ 3,877 $ 5,054
============= ============= ============= =============
</TABLE>
Colombian oil volumes were 143,000 barrels in the first nine months of 2000, a
decrease of 142,000 barrels as compared to the first nine months of 1999. Such
decrease is due to a 63,000 barrel decrease resulting from the transfer of
partnership interests to Crosby and a 79,000 barrel decrease resulting from
production declines.
U.S. oil volumes were 39,000 barrels in 2000, a decrease of 5,000 from 1999.
Such decrease is primarily due to downtime resulting from adverse weather and
equipment failures. U.S. gas volumes before gas balancing adjustments were
19,000 MCF in 2000, down 26,000 MCF from 1999. Such decrease is due to a
significant decline in production from the Main Pass 41 field which may be
approaching the end of its economic life.
Colombian oil prices averaged $27.06 per barrel during the first nine months of
2000. The average price for the same period of 1999 was $13.82 per barrel. The
Company's average U.S. oil price increased to $28.38 per barrel in 2000, up from
$15.09 per barrel in 1999. U.S. gas prices averaged $3.49 per MCF in 2000
compared to $2.00 per MCF in 1999.
14
<PAGE>
Service fees of $221,000 for administering the Colombian assets were received
pursuant to a Service Agreement with Crosby (see note 2 of the condensed
consolidated financial statements included elsewhere herein). This amount is net
of Aviva Overseas' 22.1196% share of the fee.
Operating costs decreased approximately 26%, or $713,000, primarily as a result
of the transfer of partnership interests to Crosby and due to lower Colombian
pipeline transportation costs resulting from lower volumes of oil produced.
DD&A decreased by 47%, or $409,000, primarily as a result of the transfer of
partnership interests to Crosby.
G&A expense decreased $52,000 mainly as a result of lower public ownership costs
and lower fees paid to consultants, partially offset by higher employee related
costs.
Reorganization fees of $35,000 were recorded in the third quarter of 2000. These
fees were related to the Aviva America, Inc. bankruptcy (see note 8 to the
condensed consolidated financial statements included elsewhere herein).
In connection with the restructuring of the Company's long term debt, the
Company realized a $3,452,000 gain on the transfer of partnership interests in
Argosy Energy International and a $4,673,000 extraordinary gain on the
extinguishment of a portion of the debt. For a more detailed explanation of the
transaction, see note 2 of the condensed consolidated financial statements
included elsewhere herein.
The Company incurred severance expense of $62,000 during the first nine months
of 1999 related to cost cutting measures in Colombia following the merger with
Garnet Resources Corporation. No such expenses were incurred during 2000.
Interest and other income decreased $186,000 primarily due to a foreign currency
exchange gain of $234,000 in 1999. During the first nine months of 2000, the
foreign currency exchange gain was only $4,000.
Interest expense decreased $151,000 in the first nine months of 2000, primarily
as a result of the extinguishment of part of the Company's long term debt (see
note 2 to the condensed consolidated financial statements included elsewhere
herein).
Income taxes were $31,000 higher in 2000 principally as a result of higher
Colombian earnings.
New Accounting Pronouncements
-----------------------------
The Company is assessing the reporting and disclosure requirements of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities and will require the Company to recognize all
derivatives on its balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivatives will either be offset against the change in fair value of the hedged
item through earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings. The Company will adopt SFAS No. 133, as
amended, in the first quarter of fiscal 2001. The adoption will not have a
material effect on the Company's results of operations or financial position.
15
<PAGE>
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents totaled $760,000 and $846,000 at September 30, 2000,
and December 31, 1999, respectively. The decrease in cash and cash equivalents
resulted primarily from the surrender of $1,393,000 of cash balances in the
transfer of partnership interests in Argosy to Crosby, as described in note 2 of
the condensed consolidated financial statements, and property additions of
$307,000. Such decreases were partially offset by net cash provided by operating
activities.
Net cash provided by operating activities was $1,601,000 for the nine months
ended September 30, 2000, compared to $(1,361,000) net cash used in operating
activities for the same period in 1999. This improvement resulted primarily from
significantly higher oil prices during the 2000 period.
Although the Company surrendered significant partnership interests in Argosy in
connection with the aforementioned transaction with Crosby, the Company was able
to restructure its long term debt. As a result of the transaction, the Company's
long term debt and accrued interest, which aggregated $16,103,064 at May 31,
2000, was reduced to $2,750,000. This remaining balance, due December 31, 2001,
is convertible by the Company, under certain circumstances, into a 15% net
profits interest payable to Crosby in any new production at Breton Sound Block
31 field.
The Company's financial condition has improved as a result of the transaction
with Crosby, however, the Company's liabilities continue to exceed the carrying
amount of its consolidated assets. This is also the case for Aviva America, Inc.
("AAI"), a wholly owned subsidiary which holds the Company's interests in oil
and gas properties located offshore Louisiana. Accordingly, on July 21, 2000,
AAI filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. The filing, in the Northern District of Texas, was initiated in
order to achieve a comprehensive restructuring of AAI's debts. Management
believes that a successful reorganization of AAI's debts will improve the
liquidity of AAI and the Company through the reduction or dismissal of certain
of AAI's debts. Management, however, cannot predict with any degree of certainty
the amount of recorded liabilities that may be reduced or dismissed in
connection with this proceeding or the overall impact that it may have on the
Company.
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 that its expectations are based on
reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ materially
from those in the forward-looking statements herein include, among other things,
general economic conditions, volatility of oil and gas prices, the impact of
possible geopolitical occurrences world-wide and in Colombia, imprecision of
reserve estimates, changes in laws and regulations, unforeseen engineering and
mechanical or technological difficulties in drilling, working-over and operating
wells during the periods covered by the forward-looking statements, as well as
other factors described in the Company's annual report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
The Company is exposed to market risk from changes in interest rates on debt and
changes in commodity prices.
The Company produces and sells crude oil and natural gas. These commodities are
sold based on market prices established with the buyers. The Company does not
use financial instruments to hedge commodity prices.
16
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
a) Exhibits
------------
*2.1 Loan, Settlement and Acquisition Agreement dated effective May
31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum
Inc., Aviva America, Inc., Aviva Operating Company, Aviva
Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation,
Argosy Energy, Inc., and Argosy Energy International (filed as
exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File
No. 0-22258, and incorporated herein by reference).
**27.1 Financial Data Schedule.
__________________________________________
* Previously filed
** Filed herewith
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 third quarter.
Date of 8-K/A Description of 8-K/A
------------- --------------------
June 8, 2000 The registrant filed an amendment on August 18, 2000
to the registrant's report on Form 8-K dated June 8,
2000, to include the pro forma financial information
required by Item 7 of Form 8-K.
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: November 10, 2000 /s/ Ronald Suttill
---------------------------------------------
Ronald Suttill
President and Chief Executive Officer
/s/ James L. Busby
---------------------------------------------
James L. Busby
Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
*2.1 Loan, Settlement and Acquisition Agreement dated effective May
31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum
Inc., Aviva America, Inc., Aviva Operating Company, Aviva
Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation,
Argosy Energy, Inc., and Argosy Energy International (filed as
exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File
No. 0-22258, and incorporated herein by reference).
**27.1 Financial Data Schedule.
_________________________________________
* Previously filed
** Filed herewith
19
