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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23166
[LOGO] 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, 1997
Common stock, no par value 19,767,036
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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 Operations for the three
months ended March 31, 1997 and 1996 3
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 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>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HUGOTON ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Oil and Gas $ 23,584 $ 15,574
Gas Plant 399 510
Gain on sales of properties 17 --
Gain on certain gas swap contracts -- 10
---------- ----------
TOTAL REVENUES 24,000 16,094
---------- ----------
EXPENSES:
Production
Lease operations 4,654 4,325
Production and severance tax 1,128 861
Gathering, transportation and other 222 163
Gas plant 304 339
Exploration 1,038 134
General and administrative 2,691 1,768
Depreciation, depletion and amortization 6,253 6,239
---------- ----------
TOTAL EXPENSES 16,290 13,829
---------- ----------
OPERATING INCOME 7,710 2,265
OTHER INCOME (EXPENSE):
Interest (1,474) (1,528)
Other 64 23
---------- ----------
TOTAL OTHER INCOME (EXPENSE) (1,410) (1,505)
---------- ----------
INCOME BEFORE INCOME TAXES 6,300 760
Provision for income taxes (2,583) (289)
---------- ----------
NET INCOME $ 3,717 $ 471
========== ==========
NET INCOME PER COMMON SHARE $ .19 $ .02
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,737 19,697
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
HUGOTON ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 2,466 $ 3,732
Accounts receivable, less allowance for doubtful accounts
of $146 ($146 in 1996) 12,533 12,985
Other 1,158 568
------------ ------------
TOTAL CURRENT ASSETS 16,157 17,285
------------ ------------
PROPERTIES AND EQUIPMENT, AT COST (SUCCESSFUL EFFORTS METHOD):
Proved properties 262,886 253,419
Unproved properties 24,878 24,696
Gas plant 1,478 1,478
Other 6,483 6,303
------------ ------------
295,725 285,896
Less accumulated depreciation, depletion and amortization (59,264) (53,118)
------------ ------------
236,461 232,778
------------ ------------
OTHER ASSETS, NET 1,779 1,866
------------ ------------
TOTAL ASSETS $ 254,397 $ 251,929
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,958 $ 6,534
Other accrued liabilities 995 1,104
Accrued property taxes payable 875 505
Accrued interest payable 664 597
------------ ------------
TOTAL CURRENT LIABILITIES 9,492 8,740
------------ ------------
LONG-TERM DEBT 90,000 95,000
DEFERRED INCOME TAXES 18,725 16,142
OTHER DEFERRED LIABILITIES 505 520
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,
19,753,911 shares issued and outstanding (19,702,036 in 1996) 198 197
Paid-in capital 134,971 134,541
Retained earnings (deficit) 506 (3,211)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 135,675 131,527
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 254,397 $ 251,929
============ ============
</TABLE>
See accompanying notes
4
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HUGOTON ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,717 $ 471
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation, depletion and amortization 6,253 6,239
Leasehold abandonments 153 --
Gain on sale of proved properties and other assets (22) --
Deferred income taxes 2,583 288
Other non-cash charges 74 56
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable 452 (1,051)
Other current assets (590) (194)
Other 22 184
Accounts payable 424 (849)
Accrued liabilities 328 508
Accrued swap contract liability -- (1,216)
Deferred liabilities (15) 15
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,379 4,451
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties and equipment (10,183) (12,430)
Proceeds from sale of proved properties and other assets 107 1,847
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (10,076) (10,583)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt -- 7,000
Repayment of long term debt (5,000) --
Proceeds from exercised stock options 431 --
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,569) 7,000
-------- --------
Net (decrease) increase in cash (1,266) 868
Cash at beginning of period 3,732 3,914
-------- --------
Cash at end of period $ 2,466 $ 4,782
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,470 $ 1,602
</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, 1997 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, 1996. The results of
operations for the three months ended March 31, 1997 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, 1997.
NOTE 2. EARNINGS PER COMMON SHARE AND RECENTLY ISSUED ACCOUNTING STANDARDS
The Company's earnings per common share has been computed based on the
weighted average number of shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued
Statement of financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"), which specifies the computation, presentation, and disclosure
requirements for earnings per share with the objective to simplify the
computation of earnings per share. FAS 128 is effective for financial
statements for periods ending after December 15, 1997 and earlier application
is not permitted. After the effective date, all prior periods earnings per
share data shall be restated to conform with the provision of FAS 128. The
adoption of FAS 128 is not expected to have a material impact on the Company's
earnings per share data.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Hugoton Energy Corporation (the "Company") is a rapidly growing
independent oil and natural gas company engaged in the exploration for and the
development, exploitation, production and acquisition of oil and natural gas
reserves and properties. The Company has historically been one of the most
active independent operators in the Hugoton Field and has expanded its
operations throughout the Mid-Continent area in Kansas, Oklahoma and Texas, and
into the Permian Basin in West Texas and New Mexico, the Austin Chalk Trend of
Texas and Louisiana and the Williston Basin in Montana and North Dakota. The
Company intends to expand its reserve base by continuing its drilling and
acquisition activities primarily in its four core areas. The Company focuses on
exploring and developing properties that it believes possess significant upside
potential, which can be realized through the application of 3-D seismic
technology and traditional geologic studies, as well as advanced drilling and
completion techniques.
The Company has accumulated an acreage position of approximately
567,000 net acres, including 165,000 net acres that were added during 1996.
These acreage holdings are located in the Company's four core areas and have
exploration and development opportunities with multiple pay horizons. The
Company believes that it has sufficient drilling prospects in its acreage
inventory to allow it to continue its drilling program through 1999, and it
intends to continue to add acreage to its holdings. The Company's 1997 capital
budget is $75 million, an increase of 63% over 1996 capital expenditures, and
includes $50 million for the drilling of approximately 200 wells, $10 million
for 3-D seismic and land costs and $15 million for small strategic
acquisitions. In its 1997 drilling budget, the Company has assembled prospects
with a wide range of risk profiles, with approximately 60% of the budget to be
spent for relatively lower risk development drilling, and approximately 40% for
exploratory drilling. The drilling budget will be expended 30% in the Hugoton
Producing Area and other fields in the Mid-Continent areas, 30% in the Permian
Basin, 20% in the Austin Chalk Trend, and 20% in the Williston Basin.
CURRENT DEVELOPMENTS
The Company drilled 26 wells during the first quarter of 1997 and
completed 25 of them for a success rate of 96%. The Company currently has eight
drilling rigs running in the Mid-Continent area, the Permian Basin and the
Austin Chalk and plans to drill its initial exploratory well in the Williston
Basin during the second quarter. The Company's $50 million drilling budget for
1997 allows for drilling up to 200 wells during 1997.
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RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
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<S> <C> <C>
Net production (1):
Natural gas (MMCF) 4,849 4,842
Oil (MBBLS) 457 451
Natural gas equivalents (MMCFE) 7,591 7,548
Average net daily production (1):
Natural gas (MCF) 53,879 53,208
Oil (BBLS) 5,076 4,960
Natural gas equivalents (MCFE) 84,335 82,968
Average sales price per unit (2):
Natural Gas ($/MCF) $ 2.78 $ 1.63
Oil ($/BBL) 22.09 17.04
Natural gas equivalents ($/MCFE) 3.11 2.06
</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, 1997 Compared to Three Months Ended
March 31, 1996
Net Income or Loss and Cash Flow from Operating Activities. The
Company reported net income of $3.7 million, or $.19 per share, on total
revenues of $24.0 million for the three months ended March 31, 1997. This
compares to net income of $0.5 million, or $.02 per share, on total revenues of
$16.1 million for the three months ended March 31, 1996. Cash flows from
operating activities for the three months ended March 31, 1997 increased to
$13.4 million from $4.5 million for the same period in 1996. The increase in
net income and cash flows for 1997 is largely attributable to higher average
sales prices per MCFE ($3.11 in 1997 versus $2.06 in 1996). Additionally, the
Company's first quarter 1997 realized prices were positively impacted by
$0.68/BBL and $0.29/MCF due to hedging transactions established during the
fourth quarter of 1996. The net effect of the hedging transactions was an
increase of $1.0 million in net income for the first quarter of 1997.
Oil and Gas Revenues. Revenues from oil and gas operations increased
by 51% to $23.6 million for the three months ended March 31, 1997 compared to
$15.6 million for the same period during 1996. The increase is attributed to
the higher oil and natural gas prices received by the Company during 1997 and
the positive impact of hedging transactions in place during 1997, as previously
mentioned above.
Production Expense. Production expense for the three months ended
March 31, 1997, increased to $6.0 million compared to $5.3 million during the
same period of 1996.
Exploration Expense. Exploration expense for the three months ended
March 31, 1997, increased to $1.0 million compared to $0.1 million during the
same period of 1996. The increase is primarily comprised of $0.6 million in
seismic costs and $0.3 million in delay rental and abandoned undeveloped
acreage costs.
General and Administrative Expense. General and administrative expense
increased to $2.7 million in the three month period ended March 31, 1997,
compared to $1.8 million for the same period in 1996. During the first quarter
of 1997, the Company withdrew a proposed secondary offering of its common stock
due to market conditions, and as a result
8
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charged approximately $0.4 million of offering related costs to expense.
Additionally, the Company incurred severance costs of $0.2 million and other
payroll related increases of $0.3 million during the first three months of
1997.
Depreciation, Depletion and Amortization Expense. Depreciation,
depletion and amortization ("DD&A") for the three months ended March 31, 1997
was $6.3 million compared to $6.2 million for the same period of 1996.
Income Taxes. For the three months ended March 31, 1997, the Company
recorded a tax provision of $2.6 million compared to a tax provision of $0.3
million for the same period of 1996. The provision recorded in 1997 represents
the Company's net income for the three months ended at an effective tax rate of
41%. The effective tax rate used by the Company in 1997 differs from the 1996
rate due to the inclusion of certain non-deductible amortization present in
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position decreased by $1.9 million from
year-end 1996 to $6.7 million at March 31, 1997. Cash and accounts receivable
decreased by $1.3 million and $0.5 million, respectively. The Company's current
ratio of current assets to current liabilities was 1.7 to 1.0 at March 31, 1997
and 2.0 to 1.0 at December 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 1997 capital expenditure budget has been set at $75 million of which
approximately $50 million is committed to drilling, $10 million for 3-D seismic
and land costs and $15 million for small strategic acquisitions. Through March
31, 1997, the Company has expended $10.2 million of its capital budget. 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 three months of 1997, the Company's borrowings were
reduced by payments of $5 million.
Capital Resources. The Company's capital resources consist of cash
flow from operating activities and funds available under its bank credit
facility (the "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 a
group of seven commercial banks led by Bank One, Texas, N.A. as agent (the
"Agent Bank"). The Borrowing Base, as defined in the loan agreement, is
currently set at $135 million, and is subject to semi-annual redetermination.
Outstanding borrowings were $90 million at March 31, 1997.
The Credit Facility provides the option of borrowing at floating
interest rates based on the Agent Bank's base rate or at a Eurodollar option
based on the London Interbank Offered Rates ("LIBOR") plus _ 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
6.50%. The Company also incurs a commitment fee of 1/4 of 1% on the unused
portion of the Borrowing Base. The Credit Facility contains customary
restrictive covenants, including restrictions on the payment of dividends and
requires the Company to maintain certain financial ratios.
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 1997. 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.
Hedging Transactions. With the objective of achieving more predictable
revenues and cash flows and reducing the exposure to fluctuations in oil and
natural gas prices, the Company periodically enters into hedging transactions
of various kinds with respect to both oil and natural gas. While the use of
these hedging arrangements limits the downside risk of adverse price movements,
it may also limit future revenues from favorable price movements.
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At March 31, 1997, the Company had no active hedging transactions.
Subsequent to March 31, 1997, the Company has entered into a swap agreement
fixing the price of 10,000 MMBTU of natural gas per day for the months of May
through October 1997 at a net price to the Company of $2.03 per MMBTU.
The Company continues to evaluate whether to enter into additional
hedging transactions for 1997 and future years. In addition, the Company may
determine from time to time to terminate its then existing hedging positions.
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, amended. Although the Company
believes the assumptions underlying the forward looking statements contained
herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
contained in the report will prove to be accurate.
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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 9th day of May, 1997.
HUGOTON ENERGY CORPORATION
(Registrant)
Date: May 9, 1997 /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
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914144
<NAME> HUGOTON ENERGY CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,466
<SECURITIES> 0
<RECEIVABLES> 12,533
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,157
<PP&E> 295,725
<DEPRECIATION> 59,264
<TOTAL-ASSETS> 254,397
<CURRENT-LIABILITIES> 9,492
<BONDS> 0
<COMMON> 198
0
0
<OTHER-SE> 135,477
<TOTAL-LIABILITY-AND-EQUITY> 254,397
<SALES> 23,983
<TOTAL-REVENUES> 24,000
<CGS> 6,308
<TOTAL-COSTS> 6,308
<OTHER-EXPENSES> 9,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,474
<INCOME-PRETAX> 6,300
<INCOME-TAX> (2,583)
<INCOME-CONTINUING> 3,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,717
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
