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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, 1996
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 0-8043
SOUTHERN MINERAL CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
NEVADA 36-2068676
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 DALLAS, SUITE 2800 77002-4708
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (713) 658-9444
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 Issuer was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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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 6, 1996, there
were 6,552,519 shares of the issuer's common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SOUTHERN MINERAL CORPORATION
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1996.........................3
Consolidated Statement of Operations for the
three months ended March 31, 1996 and 1995........................4
Consolidated Statement 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
Financial Condition and Results of Operations...........................7
Liquidity and Capital Resources.........................................8
PART II. OTHER INFORMATION....................................................9
</TABLE>
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SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1996 1995
----------- ------------
(000's omitted)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 112 $ 562
Receivables & other 1,767 1,509
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TOTAL CURRENT ASSETS 1,879 2,071
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Property and Equipment, At Cost
USING THE SUCCESSFUL EFFORTS METHOD
FOR OIL AND GAS ACTIVITIES
Property, plant and equipment 21,155 20,890
Accumulated depreciation and depletion (3,395) (2,848)
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TOTAL PROPERTY AND EQUIPMENT 17,760 18,042
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OTHER ASSETS
Properties held for sale & other 1,367 1,554
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TOTAL OTHER ASSETS 1,367 1554
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TOTAL ASSETS $21,006 $21,667
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 641 $ 665
Notes payable bank 3,500 3,500
Current maturities of long term debt 605 1,795
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TOTAL CURRENT LIABILITIES 4,746 5,960
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Long term debt 9,395 9,920
Deferred income taxes 606 606
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TOTAL LIABILITIES 14,747 16,486
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STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
authorized 10,000,000 shares at March 31, 1996,
and December 31, 1995, issued 6,552,519 and
6,369,519 shares at March 31, 1996, and
December 31, 1995, respectively 66 64
Additional paid-in capital 3,290 3,038
Retained earnings 2,956 2,131
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6,312 5,233
Less cost of 91,183 shares of common stock in
treasury March 31, 1996, and December 31,
1995, respectively (53) (52)
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TOTAL STOCKHOLDERS' EQUITY 6,259 5,181
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,006 $21,667
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
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SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
1996 1995
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(000's omitted except
per share data)
<S> <C> <C>
Revenue
Oil and gas $ 2,325 $ 442
Gas marketing 281 0
Gain on sale and other 364 30
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Total 2,970 472
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Expenses
Production 540 93
Exploration 29 165
Gas purchase expense 183 0
Depreciation & depletion 569 101
Interest expense 327 0
General & administrative 385 214
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Total 2,033 573
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Income (loss) before income taxes 937 (101)
Provision for federal & state income taxes 112 0
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Net Income (loss) $ 825 $ (101)
========== ==========
Income (loss) per share $ 0.13 $ (0.02)
========== ==========
Weighted average shares outstanding 6,449,072 4,074,421
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</TABLE>
The accompanying notes are an integral part of this statement.
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SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-------------------------------
1996 1995
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(000's Omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 825 $ (101)
Adjustments to net income (loss), net of the effects
of disposition in 1996 (653) 271
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Net cash provided by operating activities 172 170
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of properties 72 0
Decrease in marketable securities 0 70
Capital expenditures (122) (281)
Net cash received on disposition of assets 1,143 0
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Net cash provided by (used in) investing activities 1,093 (211)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long term debt (1,715) 0
Proceeds from issuance of common stock 0 37
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Net cash (used in) provided by financing activities (1,715) 37
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Net decrease in cash (450) (4)
Cash at beginning of period 562 55
------ ------
Cash at end of period $ 112 $ 51
====== ======
Supplemental Disclosure of Cash Flow Information.
During 1996 the Company exchanged 175,000 shares of common stock with a value
of $241,000 for properties.
Cash paid for interest 328 0
Cash paid for taxes 112 3
</TABLE>
The accompanying notes are an integral part of this statement.
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SOUTHERN MINERAL CORPORATION
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, though the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's latest Annual Report to shareholders and the Annual Report to
the Securities and Exchange Commission on Form 10-KSB for the year ended
December 31, 1995. In the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position as of March 31, 1996 and December 31, 1995, the
results of operation for the three months ended March 31, 1996 and 1995 and
statements of cash flows for the three months then ended have been
included.
NOTE 2 - ACQUISITIONS
On April 6, 1995, the Company completed the acquisition of Diverse Production
Co. (subsequently renamed SMC Production Co.), a Texas corporation, whose
primary asset is its 15% general partner interest in Diverse GP III, a Texas
general partnership. The total cost of the acquisition was $2,345,144. The
Company issued 2,193,919 shares of common stock and 325,000 share options at an
exercise price of $1.25 per share for a term of five years.
On December 20, 1995, the Company completed the acquisition of certain oil and
gas assets of Stone & Webster Oil Company, Inc., and the outstanding capital
stock of Spruce Hills Production Company, Inc., San Salvador Development
Company, Inc., and Venture Resources, Inc., which are engaged in oil and gas
related businesses, including production, marketing and pipelines. The total
cost of the acquisition was approximately $16,400,000. The acquisition was
financed by bank borrowings of $15,215,000 and internally generated working
capital of $1,209,000.
The following summarizes pro forma (unaudited) information and assumes the
acquisitions had occurred on January 1, 1995.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
---------------------------------
(000's omitted, except per share data)
<S> <C>
Revenues $ 2,767
Net Income 421
Net lncome per share $ .07
</TABLE>
These pro forma results are not necessarily indicative of those that would have
occurred had the acquisitions taken place at the beginning of 1995. The above
amounts reflect adjustments for interest on notes payable issued as part of the
purchase price, depreciation on revalued property, plant and equipment and
general and administrative expenses.
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SOUTHERN MINERAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Period Ended March 31, 1996
As Compared to the Period Ended March 31, 1995
The Company recorded a profit of $825,000, or $.13 per share, for the three
months ended March 31, 1996, compared to a loss of $101,000, or $.02 per share,
in the comparable 1995 period. Revenues for the quarter ended March 31, 1996,
were $2,970,000, up 529% compared to revenues for same period in 1995 of
$472,000. Expenses for the quarter ended March 31, 1996, were $2,033,000, up
255% compared to expenses of $573,000 for the quarter ended March 31, 1995.
The quarter ended March 31, 1996, includes the results of operations from the
acquisition of certain oil and gas assets and companies of Stone & Webster,
Inc., which closed on December 20, 1995, and the acquisition of a 15% general
partnership interest in Diverse GP III, which closed on April 6, 1995.
The increase in revenues reflects higher production volumes of both natural gas
and crude oil and higher prices for natural gas. Natural gas production in the
first quarter of 1996 was 737.7 Mmcf, a 986% increase compared to first quarter
1995 production of 68 Mmcf. The Company's crude oil production in the quarter
ended March 31, 1996, increased 174% to 53,995 barrels compared to 19,684
barrels in 1995. The Company's average oil price in the quarter ended March
31, 1996, decreased 3% to $16.27 per barrel compared to $16.72 per barrel in
the same period in 1995. Natural gas prices in the quarter ended March 31,
1996, increased 6% to $1.76 per Mcf, as compared to $1.66 per Mcf in the same
period in 1995. Higher production volumes were primarily due to the
acquisition of an interest in Diverse GP III, and of certain oil and gas assets
and companies of Stone & Webster, Inc, mentioned above. In March, 1996, the
Company sold Venture Resources, Inc., and its subsidiaries ("Venture") for
approximately $1,100,000 net of associated expenses. Venture's assets
consisted of ten pipeline and gathering systems, which did not form a part of
the Company's long term business strategy. The proceeds of the sale were used
to reduce the Company's bank debt. Revenue and income increased in the
quarter ended March 31, 1996, by $318,000 as a result of the gain on the sale
of the Venture pipeline and gathering assets.
The increase in expenses in the quarter ended March 31, 1996, is primarily the
result of the inclusion of the above mentioned acquisitions. Production
expenses increased 481% to $540,000 in 1996 from $93,000 in 1995. Interest
expense for the quarter ended March 31, 1996 is $327,000, and results from the
bank debt incurred to finance the acquisition of the Stone & Webster, Inc.
assets. There is no interest expense in the comparable quarter in 1995.
Depreciation and depletion expense increased 463% to $569,000 in the quarter
ended March 31, 1996, from $101,000 in the comparable quarter in 1995. The
Company computes depreciation and depletion expenses on each producing property
on a unit-of- production method. Since this method employs estimates of
remaining reserves, depreciation and depletion expenses may vary from year to
year because of revisions to reserve estimates, production rates and other
factors. General and administrative costs are $385,000 in the quarter ended
March 31, 1996, up 80% from $214,000 in the comparable period in 1995. Taxes
of $112,000 in the quarter ended March 31, 1996, are a result of foreign income
taxes relating to income from Canadian operations acquired in December 1995;
there were no comparable taxes in same period in 1995. By contrast,
exploration expenses declined 82% to $29,000 in 1996 from $165,000 in 1995.
Since the Company uses the successful efforts method of accounting,
exploration expenses may generally vary greatly from year to year based upon
the level of exploration activity during the year. The
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decline in exploration expenses in the quarter ended March 31, 1996, is
primarily the result of decreased exploration activity due to a change in the
Company's focus away from higher risk exploration and towards the acquisition
of existing reserves, exploitation and controlled risk exploration.
LIQUIDITY AND CAPITAL RESOURCES
For the Period Ended March 31, 1996
On December 20, 1995, the Company entered into credit facilities with a bank
that consist of a secured reducing revolving line of credit of $12,500,000
("Revolver Note") and a note payable of $3,500,000 ("Term Note"),
(collectively, the "Credit Facility"). The proceeds of the Credit Facility
were used to finance the acquisition of certain oil and gas assets of Stone &
Webster, Inc. At March 31, 1996, the Revolver Note had a balance of
$10,000,000, and available commitments to borrow $1,855,000. As of March 31,
1996, the Revolver Note borrowing base was $11,855,000, and reduces $205,000
per month. The borrowing base is reviewed by the bank semi-annually until
maturity on June 1, 1998. The Term Note is due on July 1, 1996, and is
expected to be refinanced prior to maturity by the Company. The obligations
under the Credit Facility are secured by substantially all of the assets of the
Company and its subsidiaries. The Credit Facility contains certain covenants
relating to the Company's financial condition. The Term Note bears an interest
rate of the lending bank's prime rate plus two percent, floating. The Revolver
Note bears interest, at the Company's option, of either prime rate floating or
at the LIBOR rate plus two and one-half percent. Upon payment of the Term
Note, the LIBOR rate option on the Revolver Note is reduced to LIBOR plus two
and one-quarter percent. The Revolver Note commitment is reduced by $1,845,000
in the nine months ended December 31, 1996, $2,460,000 in 1997, and $7,550,000
in 1998. The Company reduced the amount outstanding under the bank Credit
Facility by $1,715,000 to $13,500,000 as of March 31, 1996, compared to
$15,215,000 as of December 31, 1996.
Working capital in the quarter ended March 31, 1996, increased $1,022,000 or
26% to a deficit $2,867,000 from a deficit $3,889,000 as of December 31, 1995.
The working capital deficit of $2,867,000 as of March 31, 1996, includes
$605,000 outstanding under the Revolver Note and $3,500,000 outstanding under
the Term Note.
Cash and cash equivalents and marketable securities declined to $112,000 at
March 31, 1996, from $562,000 at December 31, 1995. Unadvanced bank
commitments to borrow under the Revolver Note at March 31, 1996, increased to
$1,855,000 from $785,000 as of December 31, 1995.
The Company anticipates that it will rely on various sources to fund its
principal business activity of acquiring oil and gas producing reserves. Such
funding sources may include, but not be limited to, working capital, the
issuance of the Company's capital stock, public and private equity markets and
lending institutions such as banks and energy investment firms.
The Company did not pay dividends in the period ended March 31, 1996, nor in
fiscal 1995 or 1994. In addition, the Company's Credit Facility currently
restricts the declaration or payment of dividends. It is likely that for the
foreseeable future, funds available for dividends on common stock, if any, will
be retained by the Company to finance future growth.
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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:
27.1 Financial Data Schedule
(B) REPORT ON FORM 8-K:
Reports on Form 8-K and 8-K/A dated December 20,
1995, disclosing the acquisition of certain oil and
gas assets and companies from Stone & Webster, Inc.
and the financial statements of businesses acquired
including pro-forma financial information on the
acquisition.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN MINERAL CORPORATION
Date: May 7, 1996 By /s/
------------------------------------------
Steven H. Mikel
President and Chief Executive Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 112
<SECURITIES> 0
<RECEIVABLES> 1,444
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,879
<PP&E> 21,155
<DEPRECIATION> (3,395)
<TOTAL-ASSETS> 21,006
<CURRENT-LIABILITIES> 4,746
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 6,193
<TOTAL-LIABILITY-AND-EQUITY> 21,006
<SALES> 2,606
<TOTAL-REVENUES> 2,970
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> 937
<INCOME-TAX> 112
<INCOME-CONTINUING> 825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 825
<EPS-PRIMARY> .13
<EPS-DILUTED> .10
</TABLE>
