<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, 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 June 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>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 525 $ 846
Restricted cash -- 4
Accounts receivable 872 1,650
Inventories 159 724
Prepaid expenses and other 77 236
------------ ------------
Total current assets 1,633 3,460
------------ ------------
Property and equipment, at cost (note 3):
Oil and gas properties and equipment (full cost method) 25,843 68,462
Other 582 584
------------ ------------
26,425 69,046
Less accumulated depreciation, depletion and amortization (25,848) (65,081)
------------ ------------
577 3,965
Other assets 1,575 1,561
------------ ------------
$ 3,785 $ 8,986
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long term debt (note 4) $ -- $ 14,495
Accounts payable 1,505 3,081
Accrued liabilities 150 1,024
------------ ------------
Total current liabilities 1,655 18,600
------------ ------------
Long term debt, excluding current portion (note 4) 2,750 --
Gas balancing obligations and other 1,563 1,869
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/*/ (39,383) (48,683)
------------ ------------
Total stockholders' deficit (2,183) (11,483)
Commitments and contingencies (notes 6 and 8)
------------ ------------
$ 3,785 $ 8,986
============ ============
/*/ Accumulated deficit of $70,057 was eliminated at December 31, 1992 in connection with a
quasi-reorganization.
</TABLE>
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>
2000 1999 2000 1999
------- ------- ------- -------
Revenue:
Oil and gas sales $ 1,772 $ 1,575 $ 4,313 $ 2,759
Services fee (note 2) 55 -- 55 --
------- ------- ------- -------
Total revenue 1,827 1,575 4,368 2,759
------- ------- ------- -------
Expense:
Production 744 879 1,554 1,779
Depreciation, depletion and amortization 162 284 397 620
General and administrative 283 320 584 679
Provision for (recovery of) losses on accounts receivable (58) 13 (110) (92)
Severance -- 62 -- 62
------- ------- ------- -------
Total expense 1,131 1,558 2,425 3,048
------- ------- ------- -------
Other income (expense):
Gain on transfer of partnership interests (note 2) 3,452 -- 3,452 --
Interest and other income (expense), net (note 5) 102 248 102 177
Interest expense (289) (283) (684) (574)
------- ------- ------- -------
Total other income (expense) 3,265 (35) 2,870 (397)
------- ------- ------- -------
Earnings (loss) before income taxes and
extraordinary item 3,961 (18) 4,813 (686)
Income taxes 74 64 193 127
------- ------- ------- -------
Earnings (loss) before extraordinary item 3,887 (82) 4,620 (813)
Extraordinary item - gain on extinguishment
of debt (note 2) 4,680 - 4,680 -
------- ------- ------- -------
Net earnings (loss) $ 8,567 $ (82) $ 9,300 $ (813)
======= ======= ======= =======
Weighted average common shares outstanding -
basic and diluted 46,900 46,748 46,900 46,724
======= ======= ======= =======
Basic and diluted earnings (loss) per common share:
Before extraordinary item $ .08 $ (.00) $ .10 $ (.02)
Extraordinary item .10 - .10 -
------- ------- ------- -------
Net earnings (loss) $ .18 $ (.00) $ .20 $ (.02)
======= ======= ======= =======
</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,
2000 1999
-------- --------
<S> <C> <C>
Net earnings (loss) $ 9,300 $ (813)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 397 620
Gain on transfer of partnership interests (3,452) --
Gain on debt extinguishment (4,680) --
Changes in working capital and other, net of effects
of transfer of partnership interest (252) (1,000)
-------- --------
Net cash provided by (used in) operating activities 1,313 (1,193)
-------- --------
Cash flows from investing activities:
Cash balances surrendered in transfer of partnership interests (1,386) --
Property and equipment expenditures (269) (111)
Other -- 32
-------- --------
Net cash used in investing activities (1,655) (79)
-------- --------
Cash flows from financing activities -
Principal payments on long term debt -- (300)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 21 113
-------- --------
Net decrease in cash and cash equivalents (321) (1,459)
Cash and cash equivalents at beginning of the period 846 1,712
-------- --------
Cash and cash equivalents at end of the period $ 525 $ 253
======== ========
</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 - - - 9,300 9,300
---------- ------ ---------- -------- --------
Balances at June 30, 2000 46,900,132 $2,345 $34,855 $(39,383) $ (2,183)
========== ====== ========== ======== ========
</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. 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.
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 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
6
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
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 $4,680,000 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 $29,000 for the six months ended June 30, 2000 and $18,000
for the six months ended June 30, 1999.
Unevaluated oil and gas properties totaling $268,000 and $553,000 at June
30, 2000 and December 31, 1999, respectively, have been excluded from costs
subject to depletion. The Company capitalized interest costs of $30,000 and
$24,000 for the six-month periods ended June 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. 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.
7
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
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.
5. Interest and Other Income (Expense)
A summary of interest and other income (expense) follows (in thousands):
Six Months Ended
June 30,
2000 1999
----- -----
Interest income $ 54 $ 48
Foreign currency exchange gain (loss) 10 118
Other, net 38 11
----- -----
$ 102 $ 177
===== =====
8
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
6. Commitments and Contingencies
The Company is engaged in ongoing operations on the Santana contract in
Colombia. The 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 $100,000 at June 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.
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.
9
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
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. Segment Information
The following is a summary of segment information of the Company as of and
for the six-month periods ended June 30, 2000 and 1999 (in thousands):
United
States Colombia Total
------- --------- -------
2000
----
Revenue:
Oil and gas sales $ 793 $3,520 $4,313
Services fee 55 -- 55
------ ------ ------
848 3,520 4,368
------ ------ ------
Expense:
Production 542 1,012 1,554
Depreciation, depletion and amortization 63 334 397
General and administrative 549 35 584
Recovery of losses on accounts receivable (110) -- (110)
------ ------ ------
1,044 1,381 2,425
------ ------ ------
Gain on transfer of partnership interests -- 3,452 3,452
Interest and other income (expense), net (13) 115 102
Interest expense (190) (494) (684)
------ ------ ------
Earnings (loss) before income taxes and
extraordinary item (399) 5,212 4,813
Income taxes -- 193 193
------ ------ ------
Earnings (loss) before extraordinary
item (399) 5,019 4,620
Extraordinary item - gain on
extinguishment of debt -- 4,680 4,680
------ ------ ------
Net earnings (loss) $ (399) $9,699 $9,300
====== ====== ======
Total assets $2,188 $1,597 $3,785
====== ====== ======
10
<PAGE>
AVIVA PETROLEUM INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) (continued)
United
States Colombia Total
------- --------- ---------
1999
----
Oil and gas sales $ 427 $2,332 $2,759
------ ------ ------
Expense:
Production 603 1,176 1,779
Depreciation, depletion and amortization 73 547 620
General and administrative 638 41 679
Recovery of losses on accounts receivable (92) -- (92)
Severance -- 62 62
------ ------ ------
1,222 1,826 3,048
------ ------ ------
Interest and other income (expense), net 117 60 177
Interest expense (158) (416) (574)
------ ------ ------
Earnings (loss) before income taxes (836) 150 (686)
Income taxes -- 127 127
------ ------ ------
Net earnings (loss) $ (836) $ 23 $ (813)
====== ====== ======
Total assets $1,497 $7,066 $8,563
====== ====== ======
8. Subsequent Event
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. The Company cannot
predict with any degree of certainty the amount, if any, of recorded
liabilities that may be reduced or dismissed in connection with this
proceeding.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations.
--------------
Results of Operations
---------------------
Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999
-----------------------------------------------------------------------------
United States Colombia
Oil Gas Oil Total
----- ----- ---------- -------
(Thousands)
Revenue - 1999 $167 $ 23 $1,385 $1,575
Volume variance 38 (11) (597) (570)
Price variance 166 15 588 769
Other -- (2) -- (2)
---- ---- ------ ------
Revenue - 2000 $371 $ 25 $1,376 $1,772
==== ==== ====== ======
Colombian oil volumes were 54,000 barrels in the second quarter of 2000, a
decrease of 41,000 barrels as compared to the second quarter of 1999. Such
decrease is due to an 18,000 barrel decrease resulting from the transfer of
partnership interests to Crosby and a 23,000 barrel decrease resulting from
normal production declines.
U.S. oil volumes were 13,000 barrels in 2000, up approximately 2,000 barrels
from 1999. U.S. gas volumes before gas balancing adjustments were 6,000
thousand cubic feet (MCF) in 2000, slightly lower than 1999.
Colombian oil prices averaged $25.42 per barrel during the second quarter of
2000. The average price for the same period of 1999 was $14.56 per barrel. The
Company's average U.S. oil price increased to $27.49 per barrel in 2000, up from
$15.19 per barrel in 1999. In 2000 prices have been higher than in the second
quarter of 1999 due to a dramatic increase in world oil prices. U.S. gas prices
averaged $3.56 per MCF in 2000 compared to $2.41 per MCF in 1999.
A services fee of $55,000 for administering the Colombian assets was received
for the first month of the Service Agreement (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 15%, or $135,000, primarily due to lower
Colombian pipeline transportation costs resulting from lower volumes of oil
produced.
Depreciation, depletion and amortization ("DD&A") decreased by 43%, or $122,000,
primarily due to a decrease in the volume of Colombian oil produced.
General and administrative ("G&A") expense decreased $37,000 mainly as a result
of lower public ownership costs relating to the London Stock Exchange and lower
fees paid to consultants.
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 $4,680,000 extraordinary gain on the
extinguishment of a portion of the debt. For a more detailed
12
<PAGE>
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 second quarter of
1999 relating 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 $146,000 primarily due to a foreign currency
exchange gain of $107,000 in 1999. During the second quarter of 2000, the
foreign currency exchange gain was only $8,000.
Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999
-------------------------------------------------------------------------
United States Colombia
Oil Gas Oil Total
----- ----- ---------- -------
(Thousands)
Revenue - 1999 $ 335 $ 92 $2,332 $ 2,759
Volume variance 2 (66) (799) (863)
Price variance 412 21 1,987 2,420
Other -- (3) -- (3)
----- ----- ------ -------
Revenue - 2000 $ 749 $ 44 $3,520 $ 4,313
===== ===== ====== =======
Colombian oil volumes were 130,000 barrels in the first half of 2000, a decrease
of 68,000 barrels as compared to the first half of 1999. Such decrease is due
to an 18,000 barrel decrease resulting from the transfer of partnership
interests to Crosby and a 50,000 barrel decrease resulting from production
declines.
U.S. oil volumes were 27,000 barrels in 2000, approximately the same as 1999.
U.S. gas volumes before gas balancing adjustments were 13,000 MCF in 2000, down
29,000 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 $27.00 per barrel during the first half of 2000.
The average price for the same period of 1999 was $11.76 per barrel. The
Company's average U.S. oil price increased to $27.56 per barrel in 2000, up from
$12.40 per barrel in 1999. U.S. gas prices averaged $3.07 per MCF in 2000
compared to $1.86 per MCF in 1999.
A services fee of $55,000 for administering the Colombian assets was received
for the first month of the Service Agreement (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 13%, or $225,000, primarily due to lower
Colombian pipeline transportation costs resulting from lower volumes of oil
produced.
DD&A decreased by 36%, or $223,000, primarily due to a decrease in the volume of
Colombian oil produced.
13
<PAGE>
G&A expense decreased $95,000 mainly as a result of lower public ownership costs
relating to the London Stock Exchange, lower fees paid to consultants and a
decrease in legal and accounting expenses.
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 $4,680,000 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 half 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 $75,000 primarily due to a foreign currency
exchange gain of $118,000 in 1999. During the first half of 2000, the foreign
currency exchange gain was only $10,000.
Interest expense increased $110,000 in the first half of 2000, primarily as a
result of higher interest rates on long term debt.
Income taxes were $66,000 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 expects to adopt SFAS No.
133, as amended, in the first quarter of fiscal 2001 and does not anticipate
that the adoption will have a material effect on the Company's results of
operations or financial position.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents totaled $525,000 and $846,000 at June 30, 2000, and
December 31, 1999, respectively. The decrease in cash and cash equivalents
resulted primarily from the surrender of $1,386,000 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
$269,000. Such decreases were partially offset by net cash provided by
operating activities.
Net cash provided by operating activities was $1,313,000 for the six months
ended June 30, 2000, compared to $(1,193,000) 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
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<PAGE>
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, if any, 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.
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).
**10.1 Service Agreement between Argosy Energy International and Aviva
Overseas, Inc. dated as of June 1, 2000.
**10.2 Letter Agreement dated June 8, 2000 between Crosby Capital, LLC and
Aviva America, Inc.
15
<PAGE>
**10.3 Guaranty dated May 31, 2000 made by Aviva Overseas, Inc. in favor of
Crosby Capital, LLC.
**10.4 Assignment and Assumption Agreement dated June 1, 2000, between
Crosby Capital, LLC and Neo Energy, Inc.
**10.5 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Acquisition LLC and Argosy Energy, Inc.
**10.6 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Capital, LLC and Garnet Resources Corp.
**10.7 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Capital, LLC and Aviva Overseas, Inc.
**10.8 Assignment and Assumption Agreement dated June 1, 2000 between Argosy
Energy, Incorporated and Crosby Acquisition, LLC.
**10.9 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Capital, LLC and Aviva Overseas, Inc.
**10.10 Pledge Agreement dated May 31, 2000 executed by Aviva Overseas, Inc.
(Debtor) in favor of Crosby Capital, LLC (Secured Party).
**10.11 Third Amendment to Second Amended and Restated Limited Partnership
Agreement of Argosy Energy International dated May 31, 2000.
**10.12 Fourth Amendment to Second Amended and Restated Limited Partnership
Agreement of Argosy Energy International dated June 1, 2000.
**10.13 Assignment of Stock Warrant Rights dated May 31, 2000 executed by
Crosby Capital, LLC in favor of Aviva Petroleum Inc.
**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 second quarter:
Date of 8-K Description of 8-K
----------- ------------------
June 8, 2000 The registrant filed a report concerning the restructuring
of its long term debt and the transfer of partnership
interests in Argosy Energy International to the senior
secured lender.
16
<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 11, 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)
17
<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).
**10.1 Service Agreement between Argosy Energy International and Aviva
Overseas, Inc. dated as of June 1, 2000.
**10.2 Letter Agreement dated June 8, 2000 between Crosby Capital, LLC and
Aviva America, Inc.
**10.3 Guaranty dated May 31, 2000 made by Aviva Overseas, Inc. in favor of
Crosby Capital, LLC.
**10.4 Assignment and Assumption Agreement dated June 1, 2000, between
Crosby Capital, LLC and Neo Energy, Inc.
**10.5 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Acquisition LLC and Argosy Energy, Inc.
**10.6 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Capital, LLC and Garnet Resources Corp.
**10.7 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Capital, LLC and Aviva Overseas, Inc.
**10.8 Assignment and Assumption Agreement dated June 1, 2000 between Argosy
Energy, Incorporated and Crosby Acquisition, LLC.
**10.9 Assignment and Assumption Agreement dated June 1, 2000 between Crosby
Capital, LLC and Aviva Overseas, Inc.
**10.10 Pledge Agreement dated May 31, 2000 executed by Aviva Overseas, Inc.
(Debtor) in favor of Crosby Capital, LLC (Secured Party).
**10.11 Third Amendment to Second Amended and Restated Limited Partnership
Agreement of Argosy Energy International dated May 31, 2000.
**10.12 Fourth Amendment to Second Amended and Restated Limited Partnership
Agreement of Argosy Energy International dated June 1, 2000.
**10.13 Assignment of Stock Warrant Rights dated May 31, 2000 executed by
Crosby Capital, LLC in favor of Aviva Petroleum Inc.
**27.1 Financial Data Schedule.
-----------------------------------------
* Previously filed
** Filed herewith
18
