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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 MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23166
HUGOTON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-1036256
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
301 N. MAIN, SUITE 1900, WICHITA, KANSAS 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (316) 262-1522
NONE
(Former name or former address, 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 [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
CLASS OUTSTANDING AS OF APRIL 30, 1996
Common stock, no par value 19,697,036
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION (UNAUDITED) PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Income for the three months
ended March 31, 1996 and 1995 3
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION 11
Signature 12
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Hugoton Energy Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
REVENUES:
Oil and gas $ 15,573,875 $ 5,682,982
Gas plant 510,112 461,586
Gain on certain gas swap contracts 9,754 --
-----------------------------
TOTAL REVENUES 16,093,741 6,144,568
-----------------------------
EXPENSES:
Production
Lease operations 4,324,703 1,367,470
Production and severance tax 861,378 307,470
Gathering, transportation and other 163,096 105,937
Gas plant 338,998 231,468
Exploration 134,281 180,024
General and administrative 1,767,883 732,105
Depreciation, depletion and amortization 6,239,039 2,124,116
-----------------------------
TOTAL EXPENSES 13,829,378 5,048,590
-----------------------------
OPERATING INCOME 2,264,363 1,095,978
OTHER INCOME (EXPENSES):
Interest (1,527,965) (1,127,853)
Other 22,922 79,743
-----------------------------
TOTAL OTHER INCOME (EXPENSES) (1,505,043) (1,048,110)
-----------------------------
INCOME BEFORE INCOME TAXES 759,320 47,868
Provision for income taxes (288,542) --
-----------------------------
NET INCOME $ 470,778 $ 47,868
=============================
NET INCOME PER COMMON SHARE $ .02 $ .00
=============================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,697,036 10,606,300
=============================
</TABLE>
See accompanying notes.
3
<PAGE> 4
Hugoton Energy Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 4,782,070 $ 3,913,958
Accounts receivable 9,910,142 8,858,755
Other 1,290,878 1,096,593
---------------------------------
TOTAL CURRENT ASSETS 15,983,090 13,869,306
---------------------------------
PROPERTIES AND EQUIPMENT, AT COST (SUCCESSFUL EFFORTS METHOD)
Proved properties 238,389,067 232,173,312
Unproved properties 11,454,632 7,313,784
Gas plant and gathering system 3,025,432 2,976,216
Other 5,760,406 5,611,679
---------------------------------
258,629,537 248,074,991
Less accumulated depreciation, depletion and amortization (36,641,720) (30,728,018)
---------------------------------
221,987,817 217,346,973
---------------------------------
OTHER ASSETS, NET 2,901,264 3,438,656
---------------------------------
TOTAL ASSETS $ 240,872,171 $ 234,654,935
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,590,397 $ 4,439,487
Accrued property taxes payable 978,458 528,458
Accrued liabilities 895,860 831,359
Accrued swap contract liability 430,151 1,646,269
Accrued interest payable 334,802 341,177
---------------------------------
TOTAL CURRENT LIABILITIES 6,229,668 7,786,750
---------------------------------
LONG-TERM DEBT 95,000,000 88,000,000
DEFERRED INCOME TAXES 11,083,304 10,794,762
OTHER DEFERRED LIABILITIES 765,000 750,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized,
none issued and outstanding -- --
Common Stock, no par value, 100,000,000 shares authorized,
19,697,036 shares issued and outstanding (19,697,036 in 1995) 196,970 196,970
Paid-in capital 134,541,050 134,541,050
Retained deficit (6,943,821) (7,414,597)
---------------------------------
TOTAL SHAREHOLDERS' EQUITY 127,794,199 127,323,423
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 240,872,171 $ 234,654,935
=================================
</TABLE>
See accompanying notes.
4
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HUGOTON ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 470,778 $ 47,868
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation, depletion, and amortization 6,239,039 2,124,116
Loss on sale of marketable securities -- 43,699
Deferred income taxes 288,542 --
Other non-cash charges 55,794 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Income tax receivable -- 82,159
Accounts receivable (1,051,387) 91,959
Other current assets (194,285) (116,627)
Other 184,267 --
Accounts payable (849,090) (1,742,533)
Accrued liabilities 508,126 (539,353)
Accrued swap contract liability (1,216,118) --
Deferred liabilities 15,000 75,000
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,450,666 66,288
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties and equipment (12,430,179) (2,099,630)
Proceeds from sales of marketable securities -- 5,982,544
Proceeds from sale of proved properties and other assets 1,847,625 --
Net change in note receivable -- (13,570)
-----------------------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (10,582,554) 3,869,344
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 7,000,000 --
-----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,000,000 --
-----------------------------
Net increase in cash 868,112 3,935,632
Cash at beginning of period 3,913,958 1,666,032
-----------------------------
Cash at end of period $ 4,782,070 $ 5,601,664
=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,601,887 $ 1,522,686
</TABLE>
See accompanying notes.
5
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HUGOTON ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements at March 31, 1996 and for the
three month period then ended are unaudited and reflect all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995. The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results which may be expected for any other
interim period or for the entire fiscal year ending December 31, 1996.
NOTE 2. EARNINGS PER COMMON SHARE
The Company's earnings per common share has been computed based on the
weighted average number of shares outstanding during the period.
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma results of operations give effect
to the Consolidated Oil & Gas, Inc. (COG) and Mobil acquisitions as if the
transactions had occurred on January 1, 1995 under the purchase method of
accounting. The unaudited pro forma results of operations data is presented
for illustrative purposes and is not necessarily indicative of the actual
results that would have occurred had the acquisitions been consummated as of
January 1, 1995 or of future results of operations. The data reflects
adjustments for (a) the mark to market of open hedging contracts held by COG at
the time of acquisition, (b) the estimated change in general and administrative
expenses giving effect to integration of the administrative functions of the
combined companies, (c) the estimated increase in depreciation, depletion and
amortization relating to the acquisitions, (d) the estimated increase in
interest expense resulting from the increased borrowings relating to the
acquisitions and (e) the estimated provision for income taxes for the change in
income taxes resulting from the inclusion of the historical results of
operations of the acquisitions and the adjustments in (a) through (d) above.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
--------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Unaudited pro forma information:
Revenues . . . . . . . . . . . . . . . . . . . . . $ 16,401
Net income . . . . . . . . . . . . . . . . . . . . $ 909
Net income per share . . . . . . . . . . . . . . . $ .05
</TABLE>
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
OVERVIEW
Hugoton Energy Corporation, a Kansas corporation, (together with its
subsidiaries, "the Company") is an independent oil and natural gas company
engaged in the exploration for and the development, production and acquisition
of oil and natural gas. The Company's properties are primarily located in the
four states of Kansas, Oklahoma, Texas and North Dakota. The Company is one of
the most active independent operators in the Hugoton Field and has recently
expanded its operations to other significant basins in the mid-continent region
of the United States.
Since the Company's formation in 1987, it has operated aggressive
drilling and acquisition programs. As a result, the Company's reserves have
increased from 13 BCFE on December 31, 1990 to over 276 BCFE on December 31,
1995. During the same period, the Company's average daily production has
increased from 2.3 MMCFE to 86.8 MMCFE.
During the last five years, the Company has drilled a total of 196
wells and has achieved a 70% success rate. Of these wells, 60% have been field
extension and exploratory wells, while 40% have been infill and development
wells. The Company has budgeted over $20 million to drill 65 wells during
1996.
The Company has invested over $235 million during the last five years
in the acquisition of proved and unproved properties. These properties have
added 13.3 million barrels of oil and condensate and 195.3 billion cubic feet
of natural gas to the Company's proved reserves.
CURRENT DEVELOPMENTS
First Quarter 1996 Acquisition and Sales of Properties
On January 1, 1996, the Company purchased a group of producing oil and
gas properties and undeveloped acreage for $9.7 million from a privately-held
company that operates the properties. The producing properties and acreage are
located in Southeast Texas and establish a presence for the Company in the
Austin Chalk trend. The acquisition included eight producing wells and 35,000
gross acres, of which the Company's working interest is 25% and 50%
respectively.
On February 15, 1996, the Company sold its interest in approximately
450 non-strategic producing oil properties located in Northeast Oklahoma for
$1.5 million.
On April 29, 1996, the Company sold its interest in a group of
non-strategic producing gas properties and gas gathering and salt water
disposal system located in Southern Colorado and Northern New Mexico to a major
oil company. The sales price of the transaction was $4.5 million.
7
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RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
Net production (1):
Natural gas (MMCF) 4,842 2,895
Oil (MBBLS) 451 118
Natural gas equivalents (MMCFE) 7,548 3,603
Average net daily production (1):
Natural gas (MCF) 53,208 32,164
Oil (BBLS) 4,960 1,307
Natural gas equivalents (MCFE) 82,968 40,006
Average sales price per unit (2):
Natural Gas ($/MCF) $ 1.63 $ 1.22
Oil ($/BBL) 17.04 16.54
Natural gas equivalents ($/MCFE) 2.06 1.52
</TABLE>
- ---------
(1) Net production and average net daily production excludes NGLs and
natural gas purchased by AmGas (100% owned subsidiary of the Company)
from and sold to unrelated third parties.
(2) Average prices received from sales of natural gas include revenues
attributable to NGLs as the Company has not historically accounted
separately for production or revenues attributable to NGLs.
Three Months Ended March 31, 1996 Compared to Three Months Ended March
31, 1995
Net Income and Cash Flow from Operating Activities. For the three
months ended March 31, 1996, the Company reported net income of $0.5 million,
or $.02 per share, on total revenue of $16.1 million. This compares to net
income of $0.05 million, or $.00 per share, on total revenues of $6.1 million
for the three months ended March 31, 1995. Cash flows from operating
activities for the three months ended March 31, 1996 increased to $4.5 million
from $0.1 million for the same period in 1995. The increase in the net income
and cash flows for 1996 is largely attributable to the impact of the addition
of the properties acquired in the COG acquisition completed in September of
1995, higher prices per MCFE received by the Company ($2.06 in 1996 vs. $1.52
in 1995), and the continued success of the Company's drilling program.
Additionally, the Company's net income and cash flows as well as price per MCFE
for the first quarter of 1996 were significantly impacted by the Company's oil
and natural gas swap contracts; net income was reduced by $1.1 million for the
three months ended March 31, 1996.
Oil and Gas Revenues. Revenues from oil and gas operations totaled
$15.6 million for the three months ended March 31, 1996 as compared to $5.7
million for the same period during 1995, representing a 174% increase. The
increase from 1995 to 1996 is attributed to the significant increase in oil and
natural gas prices during the first quarter of 1996 versus 1995 as well as the
inclusion of the COG and Mobil acquisition properties respectively and the
continued success of the Company's drilling program. As discussed above, the
impact on the first quarter 1996 revenues from the Company's oil and natural
gas swap contracts was a reduction of $1.1 million.
Production Expense. Production expense for the three months ended
March 31, 1996, increased to $5.3 million compared to $1.8 million during the
same period of 1995. This reflects the addition of a substantial number of
wells (through the COG and Mobil acquisitions and the Company's drilling
program), and the increase in the oil component of the Company's production.
8
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General and Administrative Expense. General and administrative
expense increased to $1.8 million in the three month period ended March 31,
1996, compared to $0.7 million for the same period in 1995. This increase
reflects the continued expansion of the Company's operations and the associated
costs of additional personnel; however; these expenses declined when expressed
as a percentage of revenues reflecting the Company's efforts to acquire
properties that can be incorporated into its existing property base with
minimal incremental general and administrative expense.
Depreciation, Depletion and Amortization Expense. Depreciation,
depletion and amortization ("DD&A") for the three months ended March 31, 1996
was $6.2 million compared to $2.1 million for the same period of 1995. The
increase in the Company's DD&A expense is mainly due to higher production
levels in 1996 compared to 1995 and the result of increased DD&A rates
resulting from the application of the fair market value basis allocated to
proved oil and gas properties acquired from COG, which bear a higher unit of
production DD&A rate than the Company's other producing properties.
Income Taxes. For the three months ended March 31, 1996, the Company
recorded a tax provision of $0.3 million compared to no provision or benefit
for the same period of 1995. The provision recorded in 1996 represents the
Company's net income for the three months ended at the effective tax rate of
38%. No tax benefit or provision was recorded in 1995 due to permanent
differences offsetting the Company's taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased by $3.7 million from
year-end 1995 to $9.8 million at March 31, 1996. Cash and accounts receivable
increased by $0.9 million and $1.1 million, respectively. The Company's
current ratio of current assets to current liabilities was 1.8 at December 31,
1995 and 2.6 at March 31, 1996.
Capital Expenditures. The Company's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties, payment of
interest on outstanding indebtedness and working capital obligations. The
Company's 1996 capital expenditure budget is $30 million, of which over $20
million is committed to drilling. Funding for the Company's exploration and
development activities and its working capital obligations is provided
primarily by internally-generated cash flow. The Company budgets its capital
expenditures based on projected cash flows and routinely adjusts the level of
its capital expenditures in response to anticipated changes in cash flows.
During the first quarter of 1996, the Company's borrowings increased
by $7 million as a result of the Company's acquisition of certain producing
properties and undeveloped acreage for $9.7 million.
Capital Resources. The Company's capital resources consist of cash
flow from operating activities and funds available under its bank Credit
Facility. On September 7, 1995, the Company arranged a new bank Credit
Facility which is an unsecured $250 million revolving credit agreement that is
due September 7, 1999. The new facility is provided by seven banks, led by
Bank One, Texas as agent and Texas Commerce Bank National Association as
co-agent. The Borrowing Base, as defined, is currently set at $135 million,
and is subject to semi-annual redetermination. Outstanding borrowings were $95
million at March 31, 1996.
The Credit Facility provides the option of borrowing at floating
interest rates based on Bank One's base rate or at a Eurodollar option based on
the London Interbank Offered Rates ("LIBOR") plus 3/4 of 1% to 1.25%,
depending on the outstanding loan balance. Interest is paid quarterly or at
the end of each interest period. The current weighted average interest rate is
6.36% The Company also incurs a commitment fee of 1/4 of 1% on the unused
portion of the Borrowing Base. In addition, the Credit Facility also contains
customary restrictive covenants, including restrictions on the payment of
dividends in excess of 50% of the Company's annual net income, and requires the
Company to maintain certain financial ratios.
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The Company has historically funded its operations and capital
spending programs with cash flow from operations and borrowings under bank
credit facilities. The Company believes that cash flow from operations and the
borrowing availability under the Credit Facility will be sufficient to meet its
anticipated capital requirements for 1996. However, because future cash flows
and the availability of financing are subject to a number of variables, such as
the level of production and the prices received for natural gas and oil, there
can be no assurance that the Company's capital resources will be sufficient to
maintain currently planned levels of capital expenditures.
In general, because the Company's principal natural gas and oil
reserves are depleted by production, its success is dependent upon the results
of its development, acquisition and exploration activities.
10
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PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4, 5 & 6 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
11
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SIGNATURE
Pursuant to the requirements Section 13 or 15 (d) of the Securities Exchange
Act 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 12th day of May 1996.
HUGOTON ENERGY CORPORATION
(Registrant)
Date: May 13, 1996 /s/ W. Mark Womble
------------- ---------------------------------------------------------
W. Mark Womble, Executive Vice President, Chief Financial
Officer and Director
(Chief Financial Officer and Duly Authorized Officer)
12
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EXHIBIT INDEX
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,782
<SECURITIES> 0
<RECEIVABLES> 9,910
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,983
<PP&E> 258,630
<DEPRECIATION> 36,642
<TOTAL-ASSETS> 240,872
<CURRENT-LIABILITIES> 6,230
<BONDS> 0
<COMMON> 197
0
0
<OTHER-SE> 127,597
<TOTAL-LIABILITY-AND-EQUITY> 240,872
<SALES> 16,084
<TOTAL-REVENUES> 16,094
<CGS> 5,688
<TOTAL-COSTS> 5,688
<OTHER-EXPENSES> 8,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,528
<INCOME-PRETAX> 759
<INCOME-TAX> 288
<INCOME-CONTINUING> 471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
