<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number O-8043
SOUTHERN MINERAL CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
STATE OF NEVADA 36-2068676
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17001 NORTHCHASE DR., SUITE 690, HOUSTON, TX 77060-2138
(Address of principal executive offices) (Zip Code)
Issuer telephone number, including area code 713/872-7621
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report.)
Check whether the Issuer: (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 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 _____
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practical date: As of May 10, 1995, there were
6,268,340 shares of the issuer's common stock outstanding.
Traditional Small Business Disclosure Format (check one):
Yes [X] No _____
<PAGE> 2
PART 1
SOUTHERN MINERAL CORPORATION
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
------- -------
(000'S OMITTED)
<S> <C> <C>
REVENUES
OIL AND GAS $ 442 $ 427
INTEREST 21 12
GAINS ON SALES OF PROPERTIES 1 18
OTHER 8 4
------ -------
472 461
------ -------
EXPENSES
PRODUCTION 93 151
EXPLORATION 165 1,133
DEPRECIATION AND DEPLETION 101 185
VALUATION REDUCTION 0 1,334
GENERAL AND ADMINISTRATIVE 214 278
------ -------
573 3,081
------ -------
NET LOSS BEFORE INCOME TAXES (101) (2,620)
PROVISION (BENEFIT) FOR INCOME TAXES 0 (545)
------ -------
NET LOSS $ (101) $(2,075)
====== =======
NET LOSS PER SHARE $(0.02) $ (0.52)
====== =======
</TABLE>
<PAGE> 3
SOUTHERN MINERAL CORPORATION
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(OOO'S OMITTED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 51 $ 55
MARKETABLE SECURITIES 1,499 1,569
RECEIVABLES 204 277
REFUNDABLE INCOME TAXES 13 10
OTHER 47 62
-------- --------
TOTAL CURRENT ASSETS 1,814 1,973
-------- --------
PROPERTY AND EQUIPMENT, AT COST
USING THE SUCCESSFUL EFFORTS METHOD
FOR OIL AND GAS ACTIVITIES
MINERAL RIGHTS 102 102
OIL & GAS PRODUCING PROPERTIES 3,551 3,544
UNPROVEN PROPERTIES 26 22
ACQUISITION COSTS FOR PRODUCING PROPERTIES 78 0
OFFICE EQUIPMENT & FURNITURE 158 160
ACCUMULATED DEPRECIATION AND DEPLETION (2,571) (2,481)
-------- --------
TOTAL PROPERTY AND EQUIPMENT (1,344) 1,347
-------- --------
OTHER ASSETS
OIL AND GAS PRODUCING PROPERTIES HELD FOR SALE 42 50
-------- --------
TOTAL ASSETS $ 3,200 $ 3,370
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 185 $ 290
DIVIDENDS PAYABLE 0 0
-------- --------
TOTAL CURRENT LIABILITIES 185 290
-------- --------
DEFERRED INCOME TAXES 0 0
-------- --------
STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.Ol PER SHARE
AUTHORIZED 10,000,000 SHARES AT
MARCH 31,1995 AND DECEMBER 31,1994,
ISSUED 4,161,600 SHARES AT MARCH 31,1995
AND DECEMBER 31, 1994 42 42
ADDITIONAL PAID-IN CAPITAL 853 843
RETAINED EARNINGS 2,167 2,268
-------- --------
3,062 3,153
LESS COST OF 87,179 AND 137,179 SHARES OF
COMMON STOCK IN TREASURY AT MARCH 31,1995
AND DECEMBER 31,1994, RESPECTIVELY (47) (73)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 3,015 3,080
-------- --------
$3,200 $3,370
======== ========
</TABLE>
<PAGE> 4
SOUTHERN MINERAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
1995 1994
--------- ----------
(OOO'S OMITTED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(101) $(2,075)
ADJUSTMENTS TO NET LOSS 271 2,298
----- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 170 223
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM SALES OF PROPERTIES 0 96
(INCREASE) DECREASE IN MARKETABLE
SECURITIES 70 438
CAPITAL EXPENDITURES (279) (442)
OTHER (2) (26)
----- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (211) 66
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF COMMON STOCK 37 0
DIVIDENDS PAID 0 (202)
----- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 37 (202)
NET INCREASE (DECREASE) IN CASH (4) 87
CASH AT BEGINNING OF PERIOD 55 66
----- ------
CASH AT END OF PERIOD $ 51 $ 153
===== ======
</TABLE>
A CASH PAYMENT OF $3,000 WAS MADE FOR STATE INCOME TAXES FOR THE THREE MONTHS
ENDED MARCH 31,1995. THE REGISTRANT RECEIVED $80,000 AS A FEDERAL INCOME TAX
REFUND FOR THE THREE MONTHS ENDED MARCH 30,1994.
FOR THE THREE MONTHS ENDED MARCH 31, 1994, "ADJUSTMENTS TO NET LOSS" AND
"CAPITAL EXPENDITURES" HAVE BEEN RESTATED FROM $2,669,000 AND ($813,000),
RESPECTIVELY, TO $2,298,000 AND ($442,000), RESPECTIVELY. THE RESTATEMENT
REFLECTS A RECLASSIFICATION OF $371,000 FROM CAPITAL EXPENDITURES TO
ADJUSTMENTS TO NET LOSS.
<PAGE> 5
SOUTHERN MINERAL CORPORATION
NOTE TO CONDENSED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The condensed financial statements included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Registrant believes that
the disclosures are adequate to make the information presented not misleading.
These condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Registrant's latest
Annual Report to shareholders and the Annual Report to the Securities and
Exchange Commission on Form 10-K for the year ended December 31, 1994. In the
opinion of the Registrant, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position as of
March 31, 1995 and December 31, 1994, the results of operation for the three
months ended March 31, 1995 and 1994 and statements of cash flows for the three
months then ended have been included.
<PAGE> 6
SOUTHERN MINERAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
The Registrant recorded a loss of $101,000, or $.02 per share, for the three
months ended March 31, 1995 compared to a loss of $2,075,000, or $.52 per
share, in the comparable 1994 period. The decrease in the loss from the 1994
period to the 1995 period is due mostly to a $2,508,000 decline in expenses.
For the three months ended March 31, 1994, the Registrant incurred a combined
charge of $2,467,000 for writedowns of the Registrant's investment in certain
oil and gas producing properties and for exploration expenses. The Registrant
incurred $165,000 as exploration expense and no oil and gas producing property
writedowns in the comparable 1995 period.
The $2,467,000 1994 first quarter combined charge is composed of a $1,334,000
writedown for a valuation reduction for assets held for disposal and $1,133,000
for exploration expenses. The valuation reduction was made to two oil and gas
producing properties which the Registrant identified for sale and was computed
as a result of the Registrant's estimation of such properties' then net
realizable value. During the 1994 fourth quarter, the Registrant recorded an
additional $150,000 valuation reduction for one of these properties. While one
property was sold for a small gain during the 1994 third quarter, the other
property was sold for a small loss subsequent to March 31, 1995. The
Registrant does not currently anticipate that other oil and gas producing
properties in which it has a material investment will become candidates for
sale or disposal.
Approximately $905,000 of the 1994 first quarter exploration expenses is the
Registrant's cost in the exploratory well and the leasehold of the Pheasant
Prospect, located in Lawrence County, Mississippi. Most of the balance of the
1994 first quarter exploration expenses were the Registrant's investment in
certain Sendero Program activities. The Sendero Program was a multiple
prospect program located in an area approximately 70 miles southwest of
Midland, Texas and was one of the Registrant's principal exploration activities
during the years ended December 31, 1992, 1993 and 1994. Due principally to
the 1994 first quarter and additional fourth quarter writeoffs of these
activities, the balance of unproven properties fell to $22,000 as of December
31, 1994. Planned exploration activities in the 1995 first half are centered
on the Bandera and Equipo Prospects located in Maverick County, Texas where the
Registrant is participating in a 3-D seismic shoot. Of the estimated $181,000
for the Registrant's share of this planned exploration expense, about $162,000
was incurred and expensed in the 1995 first quarter. Since the Registrant has
significantly reduced its level of exploration activity commencing in the 1994
first half and has significantly reduced its investment in unproven properties,
it anticipates that exploration expenses in the remaining 1995 quarterly
periods will be at, or lower than, the levels experienced in comparable 1994
periods. However, because the Registrant utilizes the successful efforts
method of accounting, exploration expenses can typically vary materially from
period to period based upon the number of wells drilled, spending levels for
individual wells and other exploration activities, the Registrant's working
interest participation, success rates and other factors.
In addition to the above reductions in expenses in the 1995 first quarter
compared to the 1994 first quarter, depreciation and depletion expenses,
general and administrative expenses and production expenses declined $84,000,
$64,000 and $58,000, respectively. The decline in depreciation and depletion
expense is mostly attributable to the decline in the net amortizable cost of
oil and gas producing properties and the writedowns and/or disposal of certain
oil and gas producing properties. However, the Registrant computes the
depreciation and depletion expense of each producing oil and gas property
separately on the unit-of-production method. Because this method employs
estimates of remaining reserves, depreciation and depletion expense may vary
materially from period to period because of revisions to reserve estimates,
production rates, and other factors.
<PAGE> 7
The slight increase in oil and gas revenues is attributable mostly to improved
average oil prices. The average price per barrel of oil increased 31% from
$12.77 in the 1994 first quarter to $16.72 in the comparable 1995 period.
However, the effect of the average oil price increase was mostly offset by
declines in average gas prices and oil and gas sales volumes. While the
average price per thousand cubic feet of gas ("MCFG") decreased 13% from $1.92
in the 1994 first quarter to $1.66 in the comparable 1995 quarter, oil sales
volumes declined 5% from 20,778 barrels to 19,684 barrels and gas sales volumes
dropped 19% from 84,127 MCFG to 67,909 MCFG in those respective periods. The
Registrant's sales of crude oil and natural gas are made on spot sales or other
basis which is affected by changes in current market prices. Future crude oil
and natural gas prices may be affected by a variety of factors including, but
not limited to, supply and demand, world and/or regional market conditions,
political conditions and seasonal factors all of which the Registrant is unable
to control or accurately predict.
The decline in oil and gas sales volumes from the 1994 first quarter to the
1995 first quarter is mostly attributable to the Registrant's lack of success
in its exploration program during 1993 and 1994 to obtain new comparable
sources of production in order to offset natural production declines of
existing fields in which it has an interest. However, although the Registrant
will continue to explore for oil and gas reserves, it has commenced a new
direction whereby it is now emphasizing the acquisition of interests in
producing oil and gas reserves and deemphazising its exploration activities.
On April 6, 1995, the Registrant consummated the transactions contemplated by
an Exchange Agreement executed March 2, 1995 whereby the Registrant agreed to
issue 2,193,919 shares and grant options for the purchase of 325,000 shares of
the Registrant's common stock at an option price of $1.25 per share for a 15%
partnership interest in Diverse GP III, a general partnership engaged in the
acquisition, exploitation and production of oil and gas reserves. This
acquisition will be accounted for as a purchase. The Registrant anticipates
that this acquisition should approximately double the quantity of its proven
oil reserves and nearly quadruple the quantity of its proven gas reserves. As
a result, the Registrant expects that its 15% share of oil and gas sales
volumes from Diverse GP III will significantly improve oil and gas revenues
during the near term. Correspondingly, as a result of this transaction,
certain expenses such as production expenses and depreciation and depletion
expenses should also increase.
During the three months ended March 31, 1995, the two primary sources of the
Registrant's oil and gas revenues were its working interest in the State Line
Field, an oil field located in Union County, Arkansas, and its working
interests in three fields situated in the Bandera Prospect located in Maverick
County, Texas. The Registrant's average working interest of about 26% in the
State Line Field's six producing wells amounted to 50% of its oil and gas
revenues during the 1995 first quarter, while its average working interest of
about 22% in the seven producing wells of the Bandera Prospect totaled about
17% of oil and gas revenues for the same period. With the completion of the
Diverse GP III acquisition and the resulting increase in oil and gas revenues,
the Registrant anticipates that the aforementioned wells' proportion of oil and
gas revenues will decrease during the remainder of 1995 compared to 1994.
There was no income tax benefit in the 1995 first quarter as a result of the
Registrant's inability to recognize the tax benefits of its net operating loss
and future deductible temporary differences in the calculation of its tax
expense under Statement of Financial Accounting Standards No. 109. However,
these amounts will be available to reduce future tax liabilities in years in
which the Registrant has taxable earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's working capital declined slightly to $1,629,000 at March 31,
1995 from $1,683,000 at December 31, 1994. Cash flows from operating
activities decreased from $223,000 in the three month period ending March 31,
1994 to $170,000 in the comparable 1995 period. The net difference in cash
flow between the two periods, amounting to $53,000, is mostly due to decreases
in receivables and refundable income taxes resulting from payments received
from other parties. Marketable securities, cash and cash equivalents decreased
from $1,624,000 at December 31, 1994 to $1,550,000 at March 31, 1995.
<PAGE> 8
The Registrant is unaware of any possible exposure from actual or potential
claims or lawsuits involving environmental matters. As such, no liability is
accrued at March 31, 1995 and December 31, 1994.
The Registrant has no bank debt or lines of credit and has no commitment to
maintain cash compensating balances. The Registrant continues to invest its
funds in short-term U.S. Treasury Bills. The Registrant expects that it will
rely on various sources to fund its principal activity of acquiring oil and gas
producing reserves. Such funding sources may be one or a combination of, but
not be limited to, internally generated cash flow, the use of the Registrant's
own common stock, public and/or private equity markets, and lending
institutions such as banks and/or investment banking firms. For the near term,
the Registrant intends to acquire outside sources of funding when the
Registrant deems it appropriate for specific acquisitions. Currently, the
Registrant is unaware of any material funding requirements that would require
the use of outside sources. The Registrant intends to continue funding its
exploration activities by utilizing its cash flows from operating activities
and some amount of its marketable securities, cash and cash equivalents.
Although the Registrant anticipates that its reduced level of exploration
activity will require a significantly reduced level of cash flows, the total
amount of such commitments is unknown at this time due to factors such as, but
not limited to, future potential operations proposed under the terms of
operating or other agreements to which the Registrant is a participant, consent
or non-consent by participants (including the Registrant) to such proposed
operations, extent of such proposed operations, and timing of expenditures
related to the performance of such operations. As a result of the Registrant's
business activities, the balances of the Registrant's marketable securities,
cash and cash equivalents may fluctuate in future periods.
SUBSEQUENT EVENTS
As previously discussed in the Management Discussion and Analysis for the
Results of Operations for the Three Months Ended March 31, 1995 and 1994, on
April 6, 1995 the Registrant consummated the transactions contemplated by an
Exchange Agreement executed March 2, 1995 whereby the Registrant agreed to
issue 2,193,919 shares and grant options for the purchase of 325,000 shares of
the Registrant's common stock for a 15% partnership interest in Diverse GP III,
a general partnership engaged in the acquisition, exploitation and production
of oil and gas reserves. The stock options can be exercised at any time in a
five year period commencing from the date of closing at an option price of
$1.25 per share. As a result, the five Diverse GP III partners own
approximately 35% of the Registrant's issued and outstanding common stock.
This acquisition will be accounted for as a purchase. The average trade price
of a share of the Registrant's common stock as reported on the NASDAQ SmallCap
Market was about $1.00 in the period March 30, 1995 to April 13, 1995. The
Registrant anticipates that this acquisition should approximately double the
quantity of its proven oil reserves and nearly quadruple the quantity of its
proven gas reserves.
In connection with his efforts in initiating the Diverse GP III transaction, a
Director was granted an option effective April 6, 1995 to purchase 43,878
shares of the Registrant's common stock at an exercise price of $1.00 per share
to be exercisable for a period not to exceed five years.
In April 1995, the former President and CEO received $67,500 pursuant to the
terms of a severance agreement as a result of the April 6th consummation of the
transactions contemplated by the Exchange Agreement described above.
<PAGE> 9
PART II
OTHER INFORMATION
Items 1, 2, 3, 4, and 5 for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as follows:
(27) (1) Financial Data Schedule for the Three
Months Ended March 31, 1995 (filed herewith).
(b) The Registrant filed reports on Form 8-K during the most
recently completed fiscal quarter as follows:
(1) A report on Form 8-K dated January 5, 1995 announcing
the Registrant's intended purchase of interests in
approximately 400 oil and gas producing properties
from Diverse GP III, a Texas based private
partnership.
(2) A report on Form 8-K dated March 2, 1995 announcing
(a) the Registrant's execution of a definitive
agreement to purchase interests in over 400 oil and
gas producing properties from Diverse GP III, a Texas
based private partnership; (b) the Registrant's
removal from the NASDAQ National Market and placement
on the NASDAQ SmallCap Market by NASDAQ; and (c) the
Registrant's request to the Diverse GP III owners to
waive the definitive agreement requirement for
stockholder approval of the Registrant's acquisition
of such owners' interests.
SIGNATURE
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.
SOUTHERN MINERAL CORPORATION
Date: May 12, 1995 By /s/ John Misitigh
---------------------------------------
John Misitigh
Vice President, Secretary and Treasurer
(Chief accounting officer and duly
authorized signatory)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a)
Quarterly Report on Form 10-QSB for the Three Months Ended March 31, 1995
and is qualified in its entirety by reference to such (b) Financial Statements
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 51
<SECURITIES> 1,499
<RECEIVABLES> 204
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,814
<PP&E> 3,915
<DEPRECIATION> (2,571)
<TOTAL-ASSETS> 3,200
<CURRENT-LIABILITIES> 185
<BONDS> 0
<COMMON> 42
0
0
<OTHER-SE> 2,973
<TOTAL-LIABILITY-AND-EQUITY> 3,200
<SALES> 442
<TOTAL-REVENUES> 472
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 93
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (101)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
