<PAGE> 1
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 March 31, 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 1-12480
LOUIS DREYFUS NATURAL GAS CORP.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1098614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14000 QUAIL SPRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (405) 749-1300
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
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 .
----- -----
40,580,432 shares of common stock, $.01 par value, issued and outstanding at
May 10, 2000.
<PAGE>
<PAGE> 2
LOUIS DREYFUS NATURAL GAS CORP.
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1 -- CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets:
March 31, 2000 and December 31, 1999 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations:
Three months ended March 31, 2000 and 1999 . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows:
Three months ended March 31, 2000 and 1999 . . . . . . . . . . . . . 6
Condensed Notes to Consolidated Financial Statements . . . . . . . . . 7
Item 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . 10
Item 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 19
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
<PAGE> 3
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
A S S E T S
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . $ 5,246 $ 9,660
Receivables:
Oil and gas sales . . . . . . . . . . . . . . . . 49,021 43,782
Joint interest and other, net . . . . . . . . . . 10,847 8,923
Fixed-price contracts and other derivatives. . . . 2,476 7,204
Prepaids and other . . . . . . . . . . . . . . . . 4,282 4,928
----------- -----------
Total current assets. . . . . . . . . . . . . . . 71,872 74,497
----------- -----------
PROPERTY AND EQUIPMENT, at cost, based on
successful efforts accounting . . . . . . . . . . 1,687,728 1,636,854
Less accumulated depreciation, depletion
and amortization . . . . . . . . . . . . . . . . (533,988) (513,715)
----------- -----------
1,153,740 1,123,139
----------- -----------
OTHER ASSETS
Fixed-price contracts and other derivatives. . . . 17,698 24,493
Other, net . . . . . . . . . . . . . . . . . . . . 4,786 4,958
----------- -----------
22,484 29,451
----------- -----------
$ 1,248,096 $ 1,227,087
=========== ===========
</TABLE>
<PAGE> 4
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED BALANCE SHEETS (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . $ 37,957 $ 41,216
Accrued liabilities. . . . . . . . . . . . . . . . 17,876 12,413
Revenues payable . . . . . . . . . . . . . . . . . 15,381 14,413
Fixed-price contracts and other derivatives. . . . 25,686 4,673
----------- -----------
Total current liabilities . . . . . . . . . . . . 96,900 72,715
----------- -----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . 561,520 555,222
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenue . . . . . . . . . . . . . . . . . 12,986 13,524
Fixed-price contracts and other derivatives. . . . 25,624 12,008
Deferred income taxes. . . . . . . . . . . . . . . 42,015 52,341
Other. . . . . . . . . . . . . . . . . . . . . . . 22,274 22,495
----------- -----------
102,899 100,368
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01; 10 million
shares authorized; no shares outstanding. . . . . -- --
Common stock, par value $.01; 100 million
shares authorized; issued and outstanding,
40,519,504 and 40,230,880 shares respectively . . 405 402
Additional paid-in capital . . . . . . . . . . . . 425,493 420,859
Retained earnings. . . . . . . . . . . . . . . . . 37,004 28,149
Accumulated other comprehensive income . . . . . . 24,484 49,981
Treasury stock, at cost, 32,139 common shares. . . (609) (609)
----------- -----------
486,777 498,782
----------- -----------
$ 1,248,096 $ 1,227,087
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES
Oil and gas sales . . . . . . . . . . . . . . . . . . . $ 87,363 $ 58,155
Change in derivative fair value . . . . . . . . . . . . (8,163) (2,975)
Other income. . . . . . . . . . . . . . . . . . . . . . 1,254 1,943
-------- --------
80,454 57,123
-------- --------
EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . . . 17,154 15,593
General and administrative. . . . . . . . . . . . . . . 6,092 5,815
Exploration costs . . . . . . . . . . . . . . . . . . . 3,243 3,939
Depreciation, depletion and amortization. . . . . . . . 30,258 28,130
Interest. . . . . . . . . . . . . . . . . . . . . . . . 9,426 10,014
-------- --------
66,173 63,491
-------- --------
Income (loss) before income taxes . . . . . . . . . . . 14,281 (6,368)
Income tax provision (benefit). . . . . . . . . . . . . 5,426 (2,547)
-------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . $ 8,855 $ (3,821)
======== ========
Net income (loss) per share - basic and diluted . . . . $ .22 $ (.10)
======== ========
Weighted average number of common shares:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . 40,235 40,110
======== ========
Diluted . . . . . . . . . . . . . . . . . . . . . . . . 40,804 40,110
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,855 $ (3,821)
Items not affecting cash flows:
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . 30,258 28,130
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300 (2,607)
Exploration costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,243 3,939
Change in derivative fair value. . . . . . . . . . . . . . . . . . . . . . 8,163 2,975
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (734) 7
Net change in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,163) 12,778
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646 1,486
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,259) (10,286)
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,463 2,664
Revenues payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 968 (2,307)
-------- --------
51,740 32,958
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration and development expenditures. . . . . . . . . . . . . . . . . . (50,873) (31,659)
Acquisition of oil and gas properties . . . . . . . . . . . . . . . . . . . (12,308) (21,983)
Additions to other property and equipment . . . . . . . . . . . . . . . . . (834) (441)
Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . 1,061 22
Change in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (8)
-------- --------
(62,930) (54,069)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings . . . . . . . . . . . . . . . . . . . . . . . 76,500 113,869
Repayments of bank borrowings . . . . . . . . . . . . . . . . . . . . . . . (70,200) (92,269)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . 4,637 --
Change in deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . (538) (481)
Change in deferred gains from price-risk management activities. . . . . . . (3,226) (1,077)
Change in other long-term liabilities . . . . . . . . . . . . . . . . . . . (397) (630)
-------- --------
6,776 19,412
-------- --------
Change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . (4,414) (1,699)
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . 9,660 2,539
-------- --------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . $ 5,246 $ 840
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid, net of capitalized interest. . . . . . . . . . . . . . . . . $ 3,817 $ 4,721
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 125
-------- --------
$ 3,817 $ 4,846
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2000
NOTE 1 -- ACCOUNTING PRINCIPLES AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q as prescribed by the
Securities and Exchange Commission. All material adjustments, consisting of
only normal and recurring adjustments, which, in the opinion of Management,
were necessary for a fair presentation of the results for the interim periods
have been reflected. The results of operations for the three-month period
ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year. Reference is made to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999 for an expanded discussion
of the Company's financial disclosures and accounting policies.
NOTE 2 -- HEDGING
The Company reduces its exposure to unfavorable changes in oil and natural
gas prices by utilizing fixed-price physical delivery contracts, energy swaps,
collars, futures contracts, basis swaps and options (collectively "Fixed-Price
Contracts"). The company also enters into interest rate swap contracts to
reduce its exposure to adverse interest rate fluctuations. In October 1998,
the Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
which establishes new accounting and reporting guidelines for derivative
instruments and hedging activities. Substantially all of the Company's
Fixed-Price Contracts and interest rate swaps are designated as cash flow
hedges. Change in derivative fair value for the quarter ended March 31, 2000
reflected a net loss of $8.2 million, which was comprised of a $6.9 million
loss attributable to the change in fair value for certain cash flow hedges
which did not meet the effectiveness guidelines of SFAS 133 for the quarter, a
$2.3 million loss attributable to the reversal of contract fair value gains
and losses recognized in earnings prior to actual settlement, and a gain of
$1.0 million relating to hedge ineffectiveness. Change in derivative fair
value for the quarter ended March 31, 1999 reflected a net loss of $3.0
million, which was comprised of a $6.2 million increase in derivative fair
value through January 13, 1999 for derivatives which did not meet the
documentation requirements of SFAS 133, a $5.4 million loss attributable to
the reversal of contract fair value gains and losses recognized in earnings
prior to actual settlement, a $4.1 million loss attributable to the change in
fair value for certain cash flow hedges which did not meet the effectiveness
guidelines of SFAS 133 for the quarter, and a gain of $.3 million relating to
hedge ineffectiveness. Despite failing the effectiveness guidelines of SFAS
133 from time to time, the Company's Fixed-Price Contracts continue to be
highly effective in achieving the risk management objectives for which they
were intended.
NOTE 3 -- CONTINGENCIES
Litigation. The Company is one of numerous defendants in several lawsuits
<PAGE> 8
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2000
originally filed in 1995, subsequently consolidated with related litigation,
and now pending in the 93rd Judicial District Court in Hildago County, Texas.
The lawsuit alleges that the plaintiffs, a group of local landowners and
businesses, have suffered damages including, but not limited to, property
damage and lost profits of approximately $60 million as the result of
hydrocarbon contamination of the groundwater within the city of McAllen,
Texas. The lawsuit alleges that gas wells and related pipeline facilities
operated by the Company, and other facilities operated by other defendants,
caused the contamination. In August 1999, the plaintiffs' experts produced
reports that suggested the Company might be considered a significant
contributor to the contamination. The Company's investigation into this
matter has not found any leaks or discharges from its facilities. In
addition, the Company's investigation has revealed the alleged contamination
to be unrelated to the Company's production of natural gas from its
facilities. Trial is anticipated to commence in the second half of 2000. The
Company will vigorously defend its interests in this case. Results of
litigation are inherently unpredictable; however, the Company does not
presently expect the ultimate outcome of the case to have a material adverse
impact on its financial position or results of operations.
The Company was a defendant in various other legal proceedings as of March
31, 2000, which are routine and incidental to its business. The largest of
such legal claims was for an alleged underpayment of royalty of $2.8 million,
plus damages. While the ultimate results of these proceedings and
determinations cannot be predicted with certainty, the Company will vigorously
defend its interests and does not presently believe that the outcome of these
matters will have a material adverse effect on the Company.
NOTE 4 -- COMPREHENSIVE LOSS
Components of comprehensive loss for the three-month periods ended March 31,
2000 and 1999, are as follows:
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
Net income (loss). . . . . . . . . . . . . . . . . . . $ 8,855 $ (3,821)
Other comprehensive loss, net of tax:
Reclassification adjustments - contract settlements . 2,212 (4,283)
Change in fixed-price contract and other derivative
fair value . . . . . . . . . . . . . . . . . . . . . (27,709) (14,480)
-------- --------
Comprehensive loss . . . . . . . . . . . . . . . . . . $(16,642) $(22,584)
======== ========
<PAGE> 9
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2000
NOTE 5 -- SUBSEQUENT EVENTS
On April 24, 2000, the Company entered into an agreement to acquire the oil
and gas assets of Costilla Energy, Inc. ("Costilla") for $100 million,
effective April 1, 2000. The properties are primarily located in South Texas,
including Lavaca County where the Company has experienced considerable
drilling success, and in the Permian Basin of West Texas and Southeast New
Mexico, complementing the Company's already sizeable holdings in these areas.
Costilla filed for reorganization in accordance with Chapter 11 of the United
States Bankruptcy Code on September 3, 1999. The acquisition is subject to
approval by the bankruptcy court. If approved by the court, closing is
expected to occur in June 2000. The Costilla Acquisition is anticipated to be
financed initially through availability under the Company's existing revolving
bank credit facility.
The Company completed a trade of property interests with Forest Oil
Corporation on May 1, 2000. This agreement resulted in the Company receiving
ownership interests in certain producing Wilcox properties in the Loma Vieja
Field in Zapata County, Texas, certain onshore and offshore unproved acreage
positions and $10 million in cash, in exchange for its non-operated working
interest in High Island 116 located offshore in the Gulf of Mexico.
<PAGE>
<PAGE> 10
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
General. The Company's business strategy is to generate strong and
consistent growth in reserves, production, operating cash flows and earnings
through a program of exploration and development drilling and strategic
acquisitions of oil and gas properties. A substantial portion of the
Company's growth has been the result of proved reserve acquisitions
geographically concentrated in its core areas: the Permian Region of West
Texas, Southeast New Mexico and the San Juan Basin; the Mid-Continent Region
of Oklahoma, Kansas, the Panhandle of Texas, East Texas, Southwest Arkansas
and North Louisiana; and the Gulf Coast Region, which includes South Texas and
Offshore Gulf of Mexico, (collectively "Core Areas"). The Company's capital
expenditure plans for 2000 include the investment of approximately $210
million in these Core Areas. See "-- Commitments and Capital Expenditures."
The Company has a portfolio of fixed-price contracts comprised of long-term
physical delivery contracts, energy swaps, collars, futures contracts and
basis swaps (collectively "Fixed-Price Contracts"). As of March 31, 2000, the
Company's Fixed-Price Contracts hedged 174 Bcfe of future production
representing 12% of its estimated December 31, 1999 proved reserves, at
escalating fixed prices. See "Quantitative and Qualitative Disclosures About
Market Risk."
Forward-Looking Statements. All statements in this document concerning the
Company other than purely historical information (collectively
"Forward-Looking Statements") reflect the current expectations of management
and are based on the Company's historical operating trends, its proved reserve
and Fixed-Price Contract positions and other information currently available
to management. Such Forward-Looking Statements include, among others,
statements regarding the Company's future drilling plans and objectives,
related exploration and development budgets, number and location of planned
wells, and statements regarding the quality of the Company's properties and
potential reserve and production levels. These statements may be proceeded,
or followed by, or otherwise include the words "believes", "expects",
"anticipates", "intends", "plans", "estimates", "projects", or similar
expressions or statements that certain events "will" or "may" occur. These
statements assume, among other things, that no significant changes will occur
in the operating environment for the Company's oil and gas properties and that
there will be no material acquisitions or divestitures except as disclosed
herein. The Company cautions that the Forward-Looking Statements are subject
to all the risks and uncertainties incident to the acquisition, exploration,
development and marketing of oil and gas reserves. These risks include, but
are not limited to, commodity price, counterparty, environmental, drilling,
reserve, operations and production risks. Certain of these risks are
described herein and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. Moreover, the Company may make material acquisitions
or divestitures, modify its Fixed-Price Contract positions by entering into
new contracts or terminating existing contracts, or entering into financing
transactions. None of these can be predicted with certainty and are not taken
<PAGE> 11
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
into consideration in the Forward-Looking Statements made herein. Statements
concerning Fixed-Price Contract, interest rate swap and other financial
instrument fair values and their estimated contribution to future results of
operations are based upon market information as of a specific date. This
market information is often a function of significant judgment and estimation.
Further, market prices for oil and gas and market interest rates are subject
to significant volatility. For all of these reasons, actual results may vary
materially from the Forward-Looking Statements and there is no assurance that
the assumptions used are necessarily the most likely. The Company expressly
disclaims any obligation or undertaking to release publicly any updates
regarding any changes in the Company's expectations with regard to the subject
matter of any Forward-Looking Statements or any changes in events, conditions
or circumstances on which any Forward-Looking Statements are based.
Certain Definitions. As used herein, the abbreviations listed below are
defined as follows:
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet of natural gas equivalent, determined using the
ratio of one Bbl of oil or condensate to six Mcf of natural gas.
BBtu. Billion Btus.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees
Fahrenheit.
EBITDAX EBITDAX is defined herein as income (loss) before interest, income
taxes, depreciation, depletion and amortization, impairment,
exploration costs and change in derivative fair value. The Company
believes that EBITDAX is a financial measure commonly used in the oil
and gas industry as an indicator of a company's ability to service
and incur debt. However, EBITDAX should not be considered in
isolation or as a substitute for net income, cash flows provided by
operating activities or other data prepared in accordance with
generally accepted accounting principles, or as a measure of a
company's profitability or liquidity. EBITDAX measures as presented
may not be comparable to other similarly titled measures of other
companies.
MBbls. Thousand barrels.
Mcf. Thousand cubic feet.
Mcfe. Thousand cubic feet of natural gas equivalent, determined using the
ratio of one Bbl of oil or condensate to six Mcf of natural gas.
MMBbls. Million barrels.
MMBtu. Million Btus.
MMcf. Volume of one million cubic feet.
MMcfe. Million cubic feet of natural gas equivalent, determined using the
ratio of one Bbl of oil or condensate to six Mcf of natural gas.
TBtu. One Trillion Btus.
<PAGE> 12
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Selected Operating Data. The following table provides certain operating
data relating to the Company's operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
OIL AND GAS SALES: (M$)
Wellhead oil sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,943 $ 8,228
Effect of Fixed-Price Contract settlements (1). . . . . . . . . . . . . . (2,664) --
-------- --------
Total oil sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,279 $ 8,228
======== ========
Wellhead natural gas sales. . . . . . . . . . . . . . . . . . . . . . . . $ 69,519 $ 42,516
Effect of Fixed-Price Contract settlements (1). . . . . . . . . . . . . . 1,565 7,411
-------- --------
Total natural gas sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,084 $ 49,927
======== ========
PRODUCTION:
Oil production (MBbls). . . . . . . . . . . . . . . . . . . . . . . . . . 699 742
Natural gas production (MMcf) . . . . . . . . . . . . . . . . . . . . . . 27,588 25,468
Net equivalent production (MMcfe) . . . . . . . . . . . . . . . . . . . . 31,782 29,922
Percent of oil production hedged by Fixed-Price Contracts (%) . . . . . . 72% --
Percent of gas production hedged by Fixed-Price Contracts (%) . . . . . . 29% 35%
AVERAGE SALES PRICE:
Oil price (per Bbl):
Wellhead price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27.10 $ 11.09
Effect of Fixed-Price Contract settlements (1). . . . . . . . . . . . . (3.81) --
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23.29 $ 11.09
======== ========
Natural gas price (per Mcf):
Wellhead price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.52 $ 1.67
Effect of Fixed-Price Contract settlements (1). . . . . . . . . . . . . .06 .29
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.58 $ 1.96
======== ========
Average sales price (per Mcfe). . . . . . . . . . . . . . . . . . . . . $ 2.75 $ 1.94
OPERATING AND OVERHEAD COSTS: (per Mcfe)
Lease operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . $ .40 $ .43
Production taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 .09
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . .19 .19
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .73 $ .71
======== ========
CASH OPERATING MARGIN (per Mcfe) (2). . . . . . . . . . . . . . . . . . . $ 2.02 $ 1.23
DEPRECIATION, DEPLETION AND AMORTIZATION - OIL AND GAS (per Mcfe) . . . . $ .92 $ .89
<FN>
(1) - Represents the realized hedging results from the Company's Fixed-Price Contracts. See
"Quantitative and Qualitative Disclosures About Market Risk - Fixed-Price Contracts."
These amounts do not include any change in derivative fair value included in results of
operations for the respective period.
(2) - Cash operating margin is defined as oil and gas sales less lease operating expenses,
production taxes and general and administrative costs.
</TABLE>
<PAGE> 13
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2000 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1999
Net Income (Loss) and Cash Flows from Operating Activities. For the quarter
ended March 31, 2000, the Company realized net income of $8.9 million, or $.22
per share, on total revenue of $80.5 million. This compares to a net loss of
$3.8 million, or $.10 per share, on total revenue of $57.1 million for the
first quarter of 1999. Earnings results for the first quarter of 2000 were
negatively impacted by an $8.2 million non-cash loss related to SFAS 133
derivative accounting, $5.1 million of which will reverse over the next two
quarters as contract settlements occur. Net income excluding this non-cash
impact of SFAS 133 derivative accounting was $13.9 million, or $.34 per share,
for the first quarter of 2000. Cash flows from operating activities (before
working capital changes) for the first quarter of 2000 grew 92% to a record
$55.1 million compared to $28.6 million for the first quarter of 1999.
EBITDAX for the quarter ended March 31, 2000 improved 69% to $65.4 million,
also a record for the Company. This compares to EBITDAX of $38.7 million for
the prior year quarter. The increase in earnings, operating cash flows and
EBITDAX for the current year quarter was principally the result of higher oil
and gas prices and production. Cash flows provided by operating activities
after consideration of the net change in working capital increased to $51.7
million from the $33.0 million reported for the first quarter of 1999,
primarily due to higher oil and gas prices and production, offset in part by
an increase in accounts receivable for the first quarter of 2000 in relation
to the prior year quarter.
Production. The Company's total production for the first quarter of 2000
grew 6% to 31.8 Bcfe, compared to 29.9 Bcfe produced during the first quarter
of 1999. Gas production increased to 27.6 Bcf compared to 25.5 Bcf for the
first quarter of 1999, an increase of 8%. Oil production for the first
quarter of 2000 decreased 6% to 699 MBbls compared to 742 MBbls for the
prior-year first quarter.
Oil and Gas Prices. On a natural gas equivalent basis, the Company received
an average price of $2.75 per Mcfe for the quarter ended March 31, 2000, an
increase of 42% from the $1.94 received for the first quarter of 1999. The
Company's gas production yielded an average price of $2.58 per Mcf, an
increase of 32% compared to $1.96 per Mcf for the prior-year first quarter.
The Company's average gas price for the first quarter of 2000 was enhanced
$.06 per Mcf as a result of the Company's hedging activities. The average gas
price for the first quarter of 1999 was enhanced $.29 as a result of the
Fixed-Price Contracts in effect for that period. The average oil price for
the first quarter of 2000 was $23.29 per Bbl compared to $11.09 per Bbl for
the prior-year first quarter, an increase of 110%. The 2000 first quarter
average oil price was reduced $3.81 per Bbl as a result of the Company's
hedging activities. No fixed-price oil contracts were in effect during the
1999 first quarter.
The combination of higher gas prices and higher gas production increased gas
<PAGE> 14
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
sales to $71.1 million for the first quarter of 2000 compared to $49.9 million
for the first quarter of 1999. The net effect of lower oil production and
higher oil prices increased oil sales to $16.3 million compared to $8.2
million reported for the prior-year quarter. The impact of the Company's
Fixed-Price Contract settlements for each period was to decrease oil and gas
sales by $1.1 million for the quarter ended March 31, 2000 and to increase oil
and gas sales by $7.4 million for the quarter ended March 31, 1999. See
"Quantitative and Qualitative Disclosures About Market Risk - Fixed-Price
Contracts."
Change in Derivative Fair Value. Change in derivative fair value for the
first quarter of 2000 was a net loss of $8.2 million, which included a $6.9
million loss attributable to the change in fair value for certain cash flow
hedges which did not meet the effectiveness guidelines of SFAS 133 for the
quarter, a $2.3 million loss attributable to the reversal of contract fair
value gains and losses recognized in earnings prior to actual settlement, and
a gain of $1.0 million relating to hedge ineffectiveness. Change in
derivative fair value for the first quarter of 1999 was a net loss of $3.0
million, which was comprised of a $6.2 million gain in derivative fair value
through January 13, 1999 for derivatives which did not meet the documentation
requirements of SFAS 133, a $5.4 million loss attributable to the reversal of
contract fair value gains and losses recognized in earnings prior to actual
settlement, a $4.1 million loss attributable to the change in fair value for
certain cash flow hedges which did not meet the effectiveness guidelines of
SFAS 133 for the quarter, and a gain of $.3 million relating to hedge
ineffectiveness. Despite failing the effectiveness guidelines of SFAS 133
from time to time, the Company's Fixed-Price Contracts continue to be highly
effective in achieving the risk management objectives for which they were
intended.
Other Income. Other income for the first quarter of 2000 was $1.3 million,
compared to $1.9 million reported for the first quarter of 1999.
Operating Costs. Operating costs for the first quarter of 2000 were
comprised of $12.7 million of lease operating expenses and $4.5 million of
production taxes. This compares to $13.0 million of lease operating expenses
and $2.6 million of production taxes for the first quarter of 1999. The
decrease in lease operating expenses is principally attributable to improved
operating efficiencies in the field and to a reduction in costs for services
and materials. The increase in production taxes is primarily the result of
higher oil and gas prices in the first quarter of 2000. Lease operating
expenses on a natural gas equivalent unit of production basis improved to $.40
per Mcfe compared to $.43 per Mcfe for the three months ended March 31, 1999.
General and Administrative Expense. General and administrative expense
("G&A") for the first quarter of 2000 was $6.1 million, an increase of 5% from
the prior-year first quarter amount of $5.8 million. On a natural gas
equivalent unit of production basis, G&A remained constant at $.19 per Mcfe
<PAGE> 15
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
for the first quarter of 2000 and 1999.
Exploration Costs. Exploration costs, comprised of geological and
geophysical costs, exploratory dry holes and leasehold impairment costs, were
$3.2 million for the quarter ended March 31, 2000, compared to $3.9 million
for the first quarter of 1999. The 2000 amount consists of $2.2 million of
leasehold costs, $.9 million of geological and geophysical costs, and $.1
million of dry hole costs. The 1999 amount consists of $2.7 million of
leasehold costs, $.7 million of geological and geophysical costs, and $.5
million of dry hole costs.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A") for the first quarter of 2000 was $30.3 million compared
to $28.1 million for the prior-year first quarter. This increase in DD&A is
primarily attributable to an increase in the oil and gas DD&A rate to $.92 per
Mcfe for the first quarter of 2000 compared to $.89 per Mcfe for the first
quarter of 1999. This increase was primarily the result of an increase in
production from certain higher cost properties.
Interest Expense. Interest expense for the first quarter of 2000 was $9.4
million compared to $10.0 million for the first quarter of 1999. The net
impact of interest rate swaps in effect for the first quarters of 2000 and
1999 was to decrease interest expense by $.4 million and $.1 million,
respectively. See "Capital Resources and Liquidity -- Credit Facility."
Income Taxes. For the first quarter of 2000, the Company recorded a tax
provision of $5.4 million on pretax income of $14.3 million, an effective rate
of 38%. This compares to a tax benefit of $2.5 million provided on a pretax
loss of $6.4 million, an effective rate of 40%, for the first quarter of 1999.
The effective rate for the first quarter of 1999 was higher than the statutory
rate primarily due to the effect of permanent differences created by
differences in the tax bases of acquired assets.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flows. The Company's business of acquiring, exploring and developing
oil and gas properties is capital intensive. The Company's ability to grow
its reserve base is contingent, in part, upon its ability to generate cash
flows from operating activities and to access outside sources of capital to
fund its investing activities. For the quarters ended March 31, 2000 and
1999, the Company expended $63.2 million and $53.6 million, respectively, in
oil and gas property acquisition, exploration and development activities,
representing substantially all of the cash flows invested by the Company
during the three-month periods. See "Commitments and Capital Expenditures."
Cash flows from operating activities before changes in working capital for the
quarters ended March 31, 2000 and 1999 were $55.1 million and $28.6 million,
representing 87% and 53%, respectively, of the oil and gas property
investments made for each quarter. Substantially all of the cash flows from
operating activities are generated from oil and gas sales which are highly
<PAGE> 16
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
dependent upon oil and gas prices. Significant decreases in the market prices
of oil or gas could result in reduction of cash flows from operating
activities, which in turn could impact the amount of capital investment.
Cash flows from financing activities for the first quarter of 2000 reflected
a source of cash of $6.8 million, compared to a $19.4 million source of cash
for the first quarter of 1999. Historically, the Company has relied upon
availability under various revolving bank credit facilities and proceeds from
the issuance of senior and subordinated notes to fund its investing
activities.
Credit Facility. The Company has a revolving credit facility (the "Credit
Facility") with a syndicate of banks which provides up to $450 million in
borrowings (the "Commitment"). Letters of credit are limited to $75 million
of such availability. The Credit Facility allows the Company to draw on the
full $450 million credit line without restrictions tied to periodic
revaluations of its oil and gas reserves provided the Company continues to
maintain an investment grade credit rating from either Standard & Poor's
Ratings Service or Moody's Investors Service. A borrowing base can be
required only upon the vote by a majority in interest of the lenders after the
loss of an investment grade credit rating. No principal payments are required
under the Credit Facility prior to maturity on October 14, 2002. The Company
has relied upon the Credit Facility to provide funds for acquisitions,
drilling activities and to provide letters of credit to meet the Company's
margin requirements under Fixed-Price Contracts. As of March 31, 2000, the
Company had $255.6 million of principal and $9.3 million of letters of credit
outstanding under the Credit Facility.
The Company has the option of borrowing at a LIBOR-based interest rate or
the Base Rate (approximating the prime rate). The LIBOR interest rate margin
and the facility fee payable under the Credit Facility are subject to a
sliding scale based on the Company's senior debt credit rating. At March 31,
2000, the applicable interest rate was LIBOR plus 30 basis points. The Credit
Facility also requires the payment annually of a facility fee equal to 15
basis points of the Commitment. The average interest rate for borrowings
under the Credit Facility was 6.6% as of March 31, 2000. Including the effect
of interest rate swaps hedging a portion of the interest rate exposure
attributable to this facility, the effective interest rate was 6.0%. See the
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 for an expanded
discussion of the Company's interest rate swaps. The Credit Facility contains
various affirmative and restrictive covenants which, among other things, limit
total indebtedness to $700 million ($625 million of senior indebtedness) and
require the Company to meet certain financial tests. Borrowings under the
Credit Facility are unsecured.
Other Lines of Credit. The Company has certain other unsecured lines of
credit available to it which aggregated $30.1 million as of March 31, 2000.
<PAGE> 17
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Such short-term lines of credit are primarily used to meet margin requirements
under Fixed-Price Contracts and for working capital purposes. As of March 31,
2000, the Company had $6.3 million of indebtedness and $.1 million of letters
of credit outstanding under these credit lines. Repayment of indebtedness
thereunder is expected to be made through Credit Facility availability.
6 7/8% Senior Notes due 2007. In December 1997, the Company issued $200
million principal amount, $198.8 million net of discount, of 6 7/8% Senior
Notes due 2007. Interest is payable semi-annually on June 1 and December 1.
The associated indenture agreement contains restrictive covenants which place
limitations on the amount of liens and the Company's ability to enter into
sale and leaseback transactions.
9 1/4% Subordinated Notes due 2004. In June 1994, the Company issued $100
million principal amount, $98.5 million net of discount, of 9 1/4% Senior
Subordinated Notes due 2004 (the "Subordinated Notes"). Interest is payable
semi-annually on June 15 and December 15. The associated indenture agreement
contains certain restrictive covenants which limit, among other things, the
prepayment of the Subordinated Notes, the incurrence of additional
indebtedness, the payment of dividends and the disposition of assets.
The Company believes that the borrowing capacity available under the Credit
Facility, combined with the Company's internal cash flows, will be adequate to
finance the capital expenditure program planned for the balance of 2000,
including the expected acquisition of oil and gas properties from Costilla
Energy, Inc. ("Costilla Acquisition") discussed below, and to meet the
Company's margin requirements under its Fixed-Price Contracts. See
"Commitments and Capital Expenditures" and "Quantitative and Qualitative
Disclosures About Market Risk." At March 31, 2000, the Company had a working
capital deficit of $25.0 million and a current ratio of .7 to 1. The working
capital deficit is primarily the result of recording short-term derivative
assets and liabilities pursuant to SFAS 133 for settlements occurring over the
next twelve months, without the benefit of recording the offsetting working
capital impact of the underlying cash flow transactions for the corresponding
periods. Total long-term debt outstanding at March 31, 2000 was $561.5
million. The Company's long-term debt as a percentage of its total
capitalization was 54%.
COMMITMENTS AND CAPITAL EXPENDITURES
The Company's business strategy is to generate strong and consistent growth
in reserves, production, operating cash flows and earnings through a balanced
program of exploration and development drilling and strategic acquisitions of
oil and gas properties. For the quarter ended March 31, 2000, the Company
expended $43.7 million on development activities and $7.2 million on
exploration activities. This expenditure level resulted in the drilling of 70
development wells and 1 exploratory well. Of these wells, 66 development
wells and 1 exploratory well were successfully completed as producers, for a
<PAGE> 18
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
completion success rate of 94% and 100%, respectively (an overall success rate
of 94%). In addition, the Company invested $12.3 million in proved oil and
gas property acquisitions during the first quarter of 2000. For the balance
of the year, the Company has budgeted an additional $147 million to be
invested in connection with its drilling and proved reserve acquisition
programs focused principally in its Core Areas.
On April 24, 2000, the Company entered into an agreement to acquire the oil
and gas assets of Costilla Energy, Inc. ("Costilla") for $100 million,
effective April 1, 2000. The properties are primarily located in South Texas,
including Lavaca County where the Company has experienced considerable
drilling success, and in the Permian Basin of West Texas and Southeast New
Mexico, complementing the Company's already sizeable holdings in these areas.
Costilla filed for reorganization in accordance with Chapter 11 of the United
States Bankruptcy Code on September 3, 1999. The acquisition is subject to
approval by the bankruptcy court. If approved by the court, closing is
expected to occur in June 2000, after which time the Company anticipates
announcing an increase in its total capital budget. At this date, the amount
of such increase has not been determined. Actual levels of drilling and
acquisition expenditures may vary due to many factors, including drilling
results, new drilling opportunities, oil and natural gas prices and
acquisition opportunities. The Costilla Acquisition is anticipated to be
financed initially through availability under the Company's existing revolving
bank credit facility.
The Company continues to actively search for additional attractive oil and
gas property acquisitions, but is not able to predict the timing or amount of
additional capital expenditure which may ultimately be employed in
acquisitions during 2000.
OUTLOOK FOR FISCAL 2000
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Outlook for Fiscal Year 2000" included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999 for an expanded discussion of estimates. Subject to the uncertainties
identified in "Forward-Looking Statements" and the anticipated closing of the
Costilla Acquisition as previously described herein, no material modifications
to previously disclosed estimates are deemed necessary.
<PAGE>
<PAGE> 19
LOUIS DREYFUS NATURAL GAS CORP.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
The Company's results of operations and operating cash flows are impacted by
changes in market prices for oil and gas and changes in market interest rates.
To mitigate a portion of its exposure to adverse market changes, the Company
has entered into Fixed-Price Contracts and interest rate swaps. All of the
Company's Fixed-Price Contracts and interest rate swaps have been entered into
as hedges of oil and gas price risk or interest rate risk and not for trading
purposes. Information regarding the Company's market exposures, Fixed-Price
Contracts, interest rate swaps and certain other financial instruments is
provided below. All information is presented in U.S. Dollars.
FIXED-PRICE CONTRACTS
Description of Contracts. The Company's Fixed-Price Contracts are comprised
of long-term physical delivery contracts, energy swaps, collars, futures
contracts and basis swaps. These contracts allow the Company to predict with
greater certainty the effective oil and gas prices to be received for its
hedged production and benefit the Company when market prices are less than the
fixed prices provided in its Fixed-Price Contracts. However, the Company will
not benefit from market prices that are higher than the fixed prices in such
contracts for its hedged production. For the years ended December 31, 1999,
1998 and 1997, Fixed-Price Contracts hedged 55%, 50% and 60%, respectively, of
the Company's gas production and 19%, 16% and 33%, respectively, of its oil
production. For the quarter ended March 31, 2000, Fixed-Price Contracts
hedged 29% of the Company's natural gas production and 72% of the Company's
oil production. As of March 31, 2000, Fixed-Price Contracts are in place to
hedge 174 Bcfe of the Company's estimated future gas and oil production.
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 for a more detailed discussion of the Company's
Fixed-Price Contracts.
The following table summarizes the estimated volumes, fixed prices,
fixed-price sales, fixed-price purchases and future net revenues (as defined
below) attributable to the Company's Fixed-Price Contracts as of March 31,
2000. The Company expects the prices to be realized for its hedged production
to vary from the prices shown in the following table due to basis, which is
the differential between the floating price paid under each energy swap
contract, or the cost of gas to supply physical delivery contracts, and the
price received at the wellhead for the Company's production. Basis
differentials are caused by differences in location, quality, contract terms,
timing and other variables. Future net revenues for any period are determined
as the differential between the fixed prices provided by Fixed-Price Contracts
and forward market prices as of March 31, 2000, as adjusted for basis. Future
net revenues change with changes in market prices and basis.
<PAGE>
<PAGE> 20
LOUIS DREYFUS NATURAL GAS CORP.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
<TABLE>
<CAPTION>
FIXED-PRICE CONTRACTS
Nine
Months
Ending
December Years Ending December 31, Balance
31, -------------------------------------- through
2000 2001 2002 2003 2004 2017 Total
-------- -------- -------- -------- -------- -------- ---------
(dollars in thousands, except price data)
<S> <C> <C> <C> <C> <C> <C> <C>
NATURAL GAS SWAPS:
Contract volumes (BBtu). . 15,967 7,840 6,697 5,650 5,650 12,133 53,937
Weighted-average fixed
price per MMBtu (1). . . $ 2.46 $ 2.46 $ 2.65 $ 2.92 $ 3.12 $ 3.36 $ 2.80
Future fixed-price sales . $ 39,284 $ 19,281 $ 17,766 $ 16,492 $ 17,608 $ 40,822 $ 151,253
Future net revenues
(losses) (2) . . . . . . $ (8,363) $ (2,867) $ (474) $ 1,044 $ 1,925 $ 6,203 $ (2,532)
NATURAL GAS PHYSICAL
DELIVERY CONTRACTS:
Contract volumes (BBtu). . 12,598 17,211 17,086 14,216 6,030 41,321 108,462
Weighted-average fixed
price per MMBtu (1). . . $ 2.29 $ 2.36 $ 2.43 $ 2.50 $ 2.45 $ 2.93 $ 2.60
Future fixed-price sales . $ 28,853 $ 40,628 $ 41,568 $ 35,477 $ 14,788 $121,209 $ 282,523
Future net revenues
(losses) (2) . . . . . . $ (8,027) $(6,495) $ (3,500) $ (2,232) $ (1,659)$ (2,063) $ (23,976)
NATURAL GAS COLLARS:
Contract volumes (BBtu):
Floor. . . . . . . . . . 8,235 -- -- -- -- -- 8,235
Ceiling. . . . . . . . . 16,470 -- -- -- -- -- 16,470
Weighted-average fixed
price per MMBtu (1):
Floor. . . . . . . . . . $ 2.48 $ -- $ -- $ -- $ -- $ -- $ 2.48
Ceiling. . . . . . . . . $ 2.80 $ -- $ -- $ -- $ -- $ -- $ 2.80
Future fixed-price sales
(at ceiling). . . . . . . $ 46,116 $ -- $ -- $ -- $ -- $ -- $ 46,116
Future net revenues
(losses) (2) . . . . . . $ (3,824) $ -- $ -- $ -- $ -- $ -- $ (3,824)
TOTAL NATURAL GAS
CONTRACTS (3):
Contract volumes (BBtu). . 45,035 25,051 23,783 19,866 11,680 53,454 178,869
Weighted-average fixed
price per MMBtu (1). . . $ 2.54 $ 2.39 $ 2.49 $ 2.62 $ 2.77 $ 3.03 $ 2.68
Future fixed-price sales . $114,253 $ 59,909 $ 59,334 $ 51,969 $ 32,396 $162,031 $ 479,892
Future net revenues
(losses) (2) . . . . . . $(20,214) $ (9,362) $ (3,974) $ (1,188) $ 266 $ 4,140 $ (30,332)
CRUDE OIL SWAPS:
Contract volumes (MBbls) . 500 -- -- -- -- -- 500
Weighted-average fixed
price per Bbl (1) . . . . $ 23.40 $ -- $ -- $ -- $ -- $ -- $ 23.40
Future fixed-price sales . $ 11,700 $ -- $ -- $ -- $ -- $ -- $ 11,700
Future net revenues
(losses) (2) . . . . . . $ (1,522) $ -- $ -- $ -- $ -- $ -- $ (1,522)
<FN>
(1) - The Company expects the prices to be realized for its hedged production will vary from
the prices shown due to basis.
(2) - Future net revenues as presented above are undiscounted and have not been adjusted for
contract performance risk or counterparty credit risk.
(3) - Does not include basis swaps with notional volumes by year, as follows: 2000 - 15.7 Tbtu;
2001 - 9.4 TBtu; and 2002 - 5.5 TBtu.
</TABLE>
<PAGE> 21
LOUIS DREYFUS NATURAL GAS CORP.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
The estimates of future net revenues from the Company's Fixed-Price
Contracts are computed based on the difference between the prices provided by
the Fixed-Price Contracts and forward market prices as of the specified date.
The market for natural gas beyond a five year horizon is illiquid and
published market quotations are not available. The Company has relied upon
near-term market quotations, longer-term over-the-counter market quotations
and other market information to determine its future net revenue estimates.
Forward market prices for natural gas are dependent upon supply and demand
factors in such forward market and are subject to significant volatility. The
future net revenue estimates shown above are subject to change as forward
market prices change.
The estimated fair value of the Company's Fixed-Price Contracts as of March
31, 2000 and 1999 are provided below. The associated carrying value of its
contracts is equal to the estimated fair value for each period presented.
<TABLE>
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Derivative assets:
Fixed-price natural gas swaps - sales contacts . . . $ 9,825 $ 21,490
Fixed-price natural gas delivery contracts . . . . . 4,257 84,631
Interest rate swaps - fixed. . . . . . . . . . . . . 6,092 2,366
Derivative liabilities:
Fixed-price natural gas swaps:
Sales contracts. . . . . . . . . . . . . . . . . . (14,513) (2,935)
Purchase contracts . . . . . . . . . . . . . . . . -- (583)
Fixed-price oil swaps - sales contracts. . . . . . . (1,500) --
Fixed-price natural gas collars. . . . . . . . . . . (3,824) (2,688)
Fixed-price natural gas delivery contracts . . . . . (28,636) (6,947)
Natural gas basis swaps. . . . . . . . . . . . . . . (2,837) (4,330)
Interest rate swaps - fixed. . . . . . . . . . . . . -- (257)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . $(31,136) $ 90,747
======== ========
</TABLE>
The fair value of Fixed-Price Contracts as of March 31, 2000 was estimated
based on market prices of natural gas and crude oil for the periods covered by
the contracts. The net differential between the prices in each contract and
market prices for future periods, as adjusted for estimated basis, has been
applied to the volumes stipulated in each contract to arrive at an estimated
future value. This estimated future value was discounted on a
contract-by-contract basis at rates commensurate with the Company's estimation
of contract performance risk and counterparty credit risk. The terms and
conditions of the Company's fixed-price physical delivery contracts and
<PAGE> 22
LOUIS DREYFUS NATURAL GAS CORP.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
certain financial swaps are uniquely tailored to the Company's circumstances.
In addition, the determination of market prices for natural gas beyond a five
year horizon is subject to significant judgment and estimation. As a result,
the Fixed-Price Contract fair value does not necessarily represent the value a
third party would pay to assume the Company's positions.
INTEREST RATE SENSITIVITY
The Company has entered into interest rate swaps to hedge the interest rate
exposure associated with borrowings under the Credit Facility. As of March
31, 2000, the Company had fixed the interest rate on average notional amounts
of $125 million for the balance of 2000, and $125 million and $94 million for
the years ending December 31, 2001 and 2002, respectively. Under the interest
rate swaps, the Company receives the LIBOR three-month rate (6.3% at March 31,
2000) and pays an average rate of 5.0% for the balance of 2000, and all of
2001 and 2002. The notional amounts are less than the maximum amount
anticipated to be outstanding under the Credit Facility in such years.
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 for an expanded discussion of the Company's interest
rate swaps.
<PAGE>
<PAGE> 23
LOUIS DREYFUS NATURAL GAS CORP.
PART II. OTHER INFORMATION
ITEM 1 -- NONE
ITEM 2 -- NONE
ITEM 3 -- NONE
ITEM 4 -- NONE
ITEM 5 -- NONE
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
<PAGE> 24
LOUIS DREYFUS NATURAL GAS CORP.
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.
LOUIS DREYFUS NATURAL GAS CORP.
---------------------------------------
(Registrant)
Date: May 12, 2000 /s/ Jeffrey A. Bonney
---------------------------------------
Jeffrey A. Bonney
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet at March 31, 2000 and the unaudited consolidated
statement of earnings for the three months ended March 31, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
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0
0
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