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 September 30, 1999
------------------------------------------------
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: 1-7940
---------------------------------------------------------
Goodrich Petroleum Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0466193
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer ID. No.)
incorporation or organization)
815 Walker Suite 1040, Houston, Texas 77002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 780-9494
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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. [ X ] Yes [ ] No
At November 12, 1999, there were 5,341,995 shares of Goodrich Petroleum
Corporation common stock outstanding.
1
<PAGE>
GOODRICH PETROLEUM CORPORATION
FORM 10-Q
September 30, 1999
INDEX
Page No.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
September 30, 1999 (Unaudited) and December 31, 1998................... 3-4
Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30, 1999 and 1998.......................... 5
Three Months Ended September 30, 1999 and 1998......................... 6
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 and 1998.......................... 7
Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 1999 and 1998.......................... 8
Notes to Consolidated Financial Statements................................ 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-19
Item 3. Quantitative and Qualitative Disclosure about Market Risk 19
PART II - OTHER INFORMATION 20
Item 2. Changes in Securities and Use of Proceeds.
2
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................... $ 6,046,142 95,630
Marketable equity securities...................... -0- 358,700
Accounts receivable
Trade and other, net of allowance............... 717,269 2,197,179
Accrued oil and gas revenue..................... 1,536,885 1,089,226
Prepaid insurance................................. 90,406 184,898
---------- -----------
Total current assets........................ 8,390,702 3,925,633
---------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties(successful efforts method). 65,258,225 53,320,832
Furniture, fixtures and equipment................. 202,034 195,279
---------- -----------
65,460,259 53,516,111
Less accumulated depletion, depreciation
and amortization................................ (18,110,871) (13,720,009)
---------- -----------
Net property and equipment.................. 47,349,388 39,796,102
---------- ----------
OTHER ASSETS........................................ 1,689,344 314,853
---------- -----------
$ 57,429,434 $ 44,036,588
========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long term debt................. $ 3,600,000 29,500,000
Accounts payable.................................. 2,638,508 7,763,507
Accrued liabilities............................... 1,452,633 1,813,693
----------- -----------
Total current liabilities................... 7,691,141 39,077,200
----------- -----------
LONG TERM DEBT...................................... 34,120,000 ---
PRODUCTION PAYMENT PAYABLE.......................... 2,228,061 ---
RESERVE FOR ABANDONMENT COSTS....................... 3,808,281 ---
---------- -----------
TOTAL LIABILITIES............................ 47,847,483 39,077,200
PREFERRED STOCKHOLDERS' EQUITY
IN A SUBSIDIARY COMPANY........................... 2,610,000 ---
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par
value $1.00 per share; issued and out-
standing 796,318 shares (liquidation
preference $10 per share, aggregating
to $7,963,180).................................. 796,318 796,318
Series B convertible preferred stock, par
value $1.00 per share; issued and out-
standing 750,000 shares (liquidation
preference $10 per share, aggregating
to $7,500,000).................................. 750,000 750,000
Common stock, par value $0.20 per share;
authorized 25,000,000 shares; issued
and outstanding 5,247,703 and 5,232,403 shares... 1,063,541 1,049,541
Additional paid-in capital...................... 18,087,827 15,226,027
Accumulated deficit............................. (13,725,735) (12,461,598)
Accumulated other comprehensive income.......... --- (400,900)
----------- -----------
Total stockholders' equity................... 6,971,951 4,959,388
----------- -----------
$ 57,429,433 $ 44,036,588
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES
Oil and gas sales.................................... $ 9,198,913 6,799,520
Other................................................ 204,074 600,403
---------- ----------
Total revenues.................................... 9,402,987 7,399,923
---------- ----------
EXPENSES
Lease operating expense and production taxes......... 2,007,520 1,931,620
Depletion, depreciation and amortization............. 3,549,541 2,959,008
Exploration.......................................... 1,295,032 5,324,911
Interest expense..................................... 1,678,186 1,345,204
General and administrative........................... 1,617,350 1,914,047
---------- ----------
Total costs and expenses.......................... 10,147,629 13,474,790
---------- ----------
LOSS ON SALE OF ASSETS................................. (519,495) ---
LOSS BEFORE INCOME TAXES............................... (1,264,137) (6,074,867)
Income taxes ........................................ --- ---
---------- ----------
NET LOSS ............................................ (1,264,137) (6,074,867)
Preferred stock dividends (1999 amounts in arrears).. 941,736 941,726
---------- ----------
LOSS APPLICABLE TO COMMON STOCK........................ $(2,205,873) (7,016,593)
========== ==========
BASIC LOSS PER AVERAGE COMMON SHARE ................... $ (.42) (1.34)
========== ==========
DILUTED LOSS PER AVERAGE COMMON SHARE ................. $ (.42) (1.34)
========== ==========
AVERAGE COMMON SHARES OUTSTANDING...................... 5,262,320 5,241,556
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
REVENUES
Oil and gas sales................................... $ 3,591,091 2,394,436
Other............................................... 40,671 303,307
--------- ----------
Total revenues................................ 3,631,762 2,697,743
--------- ----------
EXPENSES
Lease operating expense and production taxes........ 639,986 644,306
Depletion, depreciation and amortization............ 1,082,585 856,740
Exploration......................................... 472,958 2,153,486
Interest expense.................................... 596,014 541,522
General and administrative.......................... 492,090 617,274
--------- ----------
Total costs and expenses....................... 3,283,633 4,813,328
--------- ----------
INCOME (LOSS) BEFORE INCOME TAXES..................... 348,129 (2,115,585)
Income taxes ....................................... --- ---
--------- ----------
NET INCOME (LOSS)..................................... 348,129 (2,115,585)
Preferred stock dividends (1999 amounts in arrears). 313,912 313,912
--------- ----------
INCOME (LOSS) APPLICABLE TO COMMON STOCK.............. $ 34,217 (2,429,497)
========= ==========
INCOME (LOSS) PER AVERAGE COMMON SHARE................ $ .01 (.46)
========= ==========
DILUTED LOSS PER AVERAGE COMMON SHARE................. $ .01 (.46)
========= ==========
AVERAGE COMMON SHARES OUTSTANDING..................... 5,277,705 5,247,703
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................. $(1,264,137) (6,074,867)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depletion, depreciation and amortization......... 3,549,541 2,959,008
Amortization of leasehold costs.................. 841,321 760,769
Loss on sale of assets........................... 519,495 (4,206)
Capital expenditures charged to income........... 119,800 4,110,825
Employee and director stock grant................ 30,000 82,992
Payment of contingent liability.................. (68,636) (107,625)
Payment of other liabilities..................... --- (160,518)
---------- -----------
3,727,385 1,566,378
Net change in (exclusive of acquisition in 1999):
Accounts receivable.............................. 1,032,251 (564,082)
Prepaid insurance and other...................... 159,344 (3,800)
Accounts payable................................. (5,124,999) 1,900,588
Accrued liabilities.............................. (868,960) (687,042)
----------- -----------
Net cash provided by (used in)
operating activities....................... (1,074,980) 2,212,042
----------- -----------
INVESTING ACTIVITIES
Proceeds from sales of assets...................... 240,105 49,091
Acquisition of oil and gas properties.............. (3,719,021) (129,325)
Exploration and drilling capital expenditures paid. (1,861,980) (11,661,649)
----------- -----------
Net cash used in investing activities........... (5,340,896) (11,741,883)
----------- -----------
FINANCING ACTIVITIES
Proceeds from bank borrowings...................... --- 10,500,000
Principal payments of bank borrowings.............. (1,500,000) (500,000)
Proceeds from Private Placement borrowings......... 12,000,000 ---
Proceeds from preferred stock issue................ 3,000,000 ---
Payment of private placement financing costs....... (1,133,612) ---
Preferred stock dividends.......................... --- (941,726)
---------- -----------
Net cash provided by financing activities....... 12,366,388 9,058,274
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 5,950,512 (471,567)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 95,630 793,358
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 6,046,142 321,791
========== ===========
NON-CASH ACTIVITIES
Acquisition of oil and gas properties and
assumption of related liabilities................ 6,036,342 ---
Costs of private placement........................ 355,800 ---
Accrued capital expenditures and financing costs.. 576,536 ---
See notes to consolidated financial statements.
</TABLE>
7
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Series A* Series B*
Preferred Stock Preferred Stock Common Stock
--------------- --------------- ------------
Number of Par Number of Par Number of Par
Shares Value Shares Value Shares Value
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 796,318 $ 796,318 750,000 $ 750,000 5,232,403 $ 1,046,481
Net Loss --- --- --- --- --- ---
Unrealized appreciation of marketable
securities available for sale --- --- --- --- --- ---
Preferred stock dividends --- --- --- --- --- ---
Employee and director stock grants --- --- --- --- 15,302 3,060
------- ------- ------- ------- --------- ---------
Balance at September 30, 1998 796,318 $ 796,318 750,000 $ 750,000 5,247,703 $ 1,049,541
------- ------- ------- ------- --------- ---------
Balance at December 31, 1998 796,318 $ 796,318 750,000 $ 750,000 5,247,705 $ 1,049,541
Net Loss --- --- --- --- --- ---
Issuance of Common Stock purchase
warrants with Preferred Stock --- --- --- --- --- ---
Issuance of Common Stock
purchase warrants for services --- --- --- --- 40,000 8,000
Issuance of Common Stock purchase
warrants as transaction fee --- --- --- --- --- ---
Issuance of Common Stock
purchase warrants with debt --- --- --- --- --- ---
Directory Stock Grants --- --- --- --- 30,000 6,000
Realized loss on sale of marketable
Securities --- --- --- --- --- ---
------- ------- ------- ------- --------- ---------
Balance at September 30, 1999 796,318 $ 796,318 750,000 $ 750,000 5,317,705 $ 1,063,541
------- ------- ------- ------- --------- ---------
</TABLE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
(Unaudited)
Accumulated
Income-Unrealized
Additional Gain (Loss) on Total
Paid-In Accumulated Marketable Stockholders'
Capital Deficit Equity Securities Equity
------- ------- ----------------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 15,146,095 $ (3,490,618) $ 84,400 $ 14,332,676
Net Loss --- (6,074,867) --- (6,074,867)
Unrealized appreciation of marketable
securities available for sale --- --- (495,850) (495,850)
Preferred stock dividends --- (941,726) --- (941,726)
Employee and director stock grants 79,932 --- --- 82,992
---------- ---------- ---------- ----------
Balance at September 30, 1998 $ 15,226,027 $ (10,507,211) $ (411,450) $ 6,903,225
---------- ---------- ---------- ----------
Balance at December 31, 1998 $ 15,226,027 $ (12,461,598) $ (400,900) $ 4,959,388
Net Loss --- (1,264,137) --- (1,264,137)
Issuance of Common Stock purchase
warrants with Preferred Stock 210,000 --- --- 210,000
Issuance of Common Stock
purchase warrants for services 113,800 --- --- 121,800
Issuance of Common Stock purchase
warrants as transaction fee 234,000 --- --- 234,000
Issuance of Common Stock
purchase warrants with debt 2,280,000 --- --- 2,280,000
Directory Stock Grants 24,000 --- --- 30,000
Realized loss on sale of marketable
Securities --- --- 400,900 400,900
---------- ---------- ---------- ----------
Balance at September 30, 1999 $ 18,087,827 $ (13,725,735) $ $ 6,971,951
---------- ---------- ---------- ----------
</TABLE>
*Dividends are cumulative and arrearages amounted to $941,726, or
$.12 per share at September 30, 1999
See notes to consolidated financial statements.
8
<PAGE>
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
NOTE A - Basis of Presentation
- ------------------------------
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 rules and regulations of the
Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The financial statements and footnotes included in this Form 10-Q
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1998.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of September 30, 1999 and the results of its operations for the nine and three
months ended September 30, 1999 and 1998.
The results of operations for the nine and three month periods ended September
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
NOTE B - Private Placement
- --------------------------
On September 23, 1999, the Company and two of its subsidiaries, Goodrich
Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum
Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of
$15 million of convertible securities. As described below the private placement
transaction accomplished the objectives of managements plan as set for in the
Liquidity and Capital Resources section of the Company's 1998 Annual Report on
Form 10-K.
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000 that
will accrue interest monthly at 8% per annum in arrears until October 1, 2002.
Unless extended or converted, the principal and accrued interest will be
repayable in 24 months, beginning October 1, 2002. Principal and accrued
interest may be converted by the holder at any time into the common stock of the
Company at the rate of $4.00 per share. These convertible notes are secured by
various collateral, including a mortgage on Goodrich-Louisiana's oil and gas
properties. The purchasers of these notes received one warrant to purchase a
share of the common stock of the Company at $.9375 (the closing price on the
date the transaction was negotiated) for every $4.00 of notes issued. The
warrants may be exercised at any time before their expiration on September 30,
2006.
9
<PAGE>
Goodrich-Lafitte is a newly formed Louisiana limited liability company and is
the entity which owns a forty-nine percent interest in the Lafitte Field.
Goodrich-Lafitte also issued convertible notes in the amount of $6,000,000 that
will accrue interest at 8% per annum accruing monthly in arrears until October
1, 2002. Unless extended or converted, the principal and accrued interest will
be repayable in 24 months, beginning October 1, 2002. Principal and accrued
interest may be converted by the holder at any time into the common stock of the
Company at the rate of $4.00 per share. As an alternative conversion right, the
principal and accrued interest under these notes may be converted into common
equity interests in Goodrich-Lafitte, after October 1, 2002, if neither the
common stock of the Company has a closing price of at least $3.00 per share nor
the net asset value per share of the Company is at least $3.00. These
convertible notes are secured by various collateral, including a mortgage on
Goodrich-Lafitte's oil and gas properties. The purchasers of these notes
received one warrant to purchase a share of the common stock of the Company at
$.9375 (the closing price on the date the transaction was negotiated) for every
$4.00 of notes issued. The warrants may be exercised at any time before their
expiration on September 30, 2006.
Approximately $3.7 million of the proceeds from the Goodrich-Lafitte convertible
notes were used to purchase the aforementioned interest in the Lafitte Field.
The remaining proceeds will be used for development capital expenditures and for
general corporate and working capital purposes.
Additionally, Goodrich-Louisiana issued $3,000,000 of preferred interests
consisting of 300,000 preferred units with a par value and liquidation
preference of $10 per share. The fair value of the preferred units are recorded
as preferred stockholders' equity in a subsidiary company in the accompanying
financial statements. Distributions on the preferred units will accrue quarterly
in arrears at 8% per annum through September 30, 2002 at which time the rate
increases 2% per year not to exceed 20%. Goodrich-Louisiana has the right to
redeem the units at any time. The preference amount and accrued distributions
may be converted by the holder at any time into the common stock of the Company
at $2.00 per share. Each preferred unit holder was also issued one warrant to
purchase a share of common stock of the Company for every $10 of preference
value. The warrants are exercisable at $1.50 per share at any time before their
expiration on September 30, 2006.
Approximately $2,500,000 of the proceeds from issuance of the convertible notes
and preferred units was allocated to additional paid in capital as the fair
value of the warrants issued in connection with the securities based on the
relative fair value of the two securities. $2,300,000 of the proceeds allocable
to additional paid in capital will be amortized as additional interest cost over
the original term of the related notes. The remaining adjustment to additional
paid in capital related to the preferred units will be recorded as accretion in
the value of the preferred stockholders' equity in a subsidiary company.
Transaction costs related to the private placement amounted to approximately
$1,300,000. These transaction costs will be amortized over the life of the
convertible securities.
Under the terms of the Goodrich-Louisiana Operating Agreement, the holders of
preferred units have no voting rights unless the payment of distributions is six
months or more in arrears, in which event the holders of preferred units may
10
<PAGE>
participate in the election of Company managers. Goodrich-Louisiana is precluded
from issuing any new units having preference or priority over the preferred
units as to distributions, liquidation or redemption.
The Subscription Agreement pursuant to which the securities were purchased from
the Company provides that within 60 days of closing the Company will register
for resale under the Securities Act of 1933 all of the Company's common stock
issuable upon conversion or exercise of the securities issued in the private
placement.
This transaction would normally have required approval of the Company's
shareholders according to the Shareholder Approval Policy of the New York Stock
Exchange (the "Exchange"). Pursuant to an exception to this policy and based on
a determination by the Company's Audit Committee that the delay necessary in
securing shareholder approval prior to the transaction would seriously
jeopardize the financial viability of the Company, the Company's Audit Committee
approved the Company's omission to seek shareholder approval. The Exchange
accepted the Company's application for use of the exception.
NOTE C - Lafitte Field Acquisition
- ----------------------------------
On September 23, 1999 the Company acquired a 49% working interest in rights
previously acquired in the Lafitte Field located in Jefferson Parish, Louisiana.
The field encompasses over 8,000 acres and is located approximately thirty miles
south of New Orleans. The Company anticipates commencement of development
activities in the fourth quarter of 1999.
The purchase agreement included a production payment to be satisfied through the
delivery of production from the purchased property. In connection with the
transaction, the Company recorded a production payment liability of
approximately $2,200,000 representing the discounted present value of production
payments to be made over the estimated time to satisfy the payment.
Additionally, the Company recorded a $3,800,000 non-current liability for its
interest in the estimated plugging and abandonment costs assumed in connection
with the purchase.
NOTE D - Restructuring of Credit Agreement
- ------------------------------------------
On September 27, 1999 the Company modified its Credit Agreement with Compass
Bank. The restructured credit facility provides for a borrowing base facility
(Tranche A) of $19,300,000 with monthly commitment reductions of $300,000
beginning on October 1, 1999. Interest on the Tranche A facility is the Compass
Bank Index Rate and is payable monthly. The restructured credit facility also
establishes a Tranche B loan in the amount of $9,000,000. The Tranche B loan has
an interest rate of Compass Bank Index Rate plus 2% payable on a monthly basis.
The maturity date for amounts drawn under the Tranche A and Tranche B is
February 1, 2001 with no borrowing base redeterminations conducted prior to that
date. A commitment fee in the amount of one-half of one percent on the average
daily amount of the available commitment due annually.
11
<PAGE>
The credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principal and interest under the Tranche A and Tranche B.
Additionally, under the terms of the credit facility, the Company may not make
any distributions or pay dividends, including dividends on any class of its
preferred stock, until Tranche B is paid in full.
Substantially all the Company's assets are pledged to secure both the
convertible notes, and the credit facility is due annually.
NOTE E - Commitments and Contingencies
- --------------------------------------
The U.S. Environmental Protection Agency ("EPA") has identified the Company as a
potentially responsible party ("PRP") for the cost of clean-up of "hazardous
substances" at an oil field waste disposal site in Vermilion Parish, Louisiana.
The Company has estimated that the remaining cost of long-term clean-up of the
site will be approximately $3.5 million with the Company's percentage of
responsibility to be approximately 3.05%. As of September 30, 1999, the Company
has paid approximately $324,000 in costs related to this matter and has $92,000
accrued for the remaining liability. These costs have not been discounted to
their present value. The EPA and the PRPs will continue to evaluate the site and
revise estimates for the long-term clean-up of the site. There can be no
assurance that the cost of clean-up and the Company's percentage responsibility
will not be higher than currently estimated. In addition, under the federal
environmental laws, the liability costs for the clean-up of the site is joint
and several among all PRPs. Therefore, the ultimate cost of the clean-up to the
Company could be significantly higher than the amount presently estimated or
accrued for this liability.
NOTE F - Income Taxes
- ---------------------
No provision for income taxes has been recorded for the Company for the nine
months ended September 30, 1999 and 1998 due to its incurring a net loss for
each period. A valuation allowance has been provided for the amount of net
operating losses incurred.
NOTE G - Loss Per Share
- -----------------------
During 1999, the Company suspended dividend payments on its Series A and Series
B convertible preferred stock. Dividends on both classes of its preferred stock
is cumulative and arrearages amounted to $942,000 at September 30, 1999.
Accordingly, undeclared dividends held in arrears have been added to the
Company's net loss in computing loss per share amounts applicable to common
stockholders.
12
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Nine months ended September 30, 1999 versus nine months ended September 30, 1998
Total revenues for the nine months ended September 30, 1999 amounted to
$9,403,000 and were $2,003,000 higher than the $7,400,000 for the nine months
ended September 30, 1998 due to higher oil and gas revenues. Oil and gas sales
were $9,199,000 for the first nine months of 1999 compared to $6,800,000 for the
first nine months of 1998, or $2,399,000 higher due to higher oil and gas prices
and volumes.
The following table reflects the production volumes and pricing information for
the periods presented.
<TABLE>
<CAPTION>
Nine months Nine months
ended September 30, 1999 ended September 30, 1998
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gas (Mcf)........ 2,239,634 $ 2.25 1,874,625 $ 2.18
Oil (Bbls)....... 287,159 $ 14.47 205,209 $ 13.22
</TABLE>
Lease operating expense and production taxes were $2,008,000 for the nine months
ended September 30, 1999, versus $1,932,000 for the nine months ended September
30, 1998, or $76,000 higher due primarily to higher oil and gas revenues.
Depletion, depreciation and amortization was $3,550,000 for the nine months
ended September 30, 1999, versus $2,959,000 for the nine months ended September
30, 1998, or $591,000 higher due to higher depletion rates and higher volumes in
the nine months ended 1999 versus 1998.
Exploration expense for the nine months ended September 30, 1999 was $1,295,000
versus $5,325,000 for the same period of 1998, or $4,030,000 lower due primarily
to dry hole costs of $68,000 in the current period compared to $3,539,000 for
the same period of 1998. Additionally, leasehold amortization and seismic costs
amounted to $841,000 and $51,000 respectively, for the nine months ended
September 30, 1999 versus $760,000 and $642,000 for the same period in 1998.
Interest expense was $1,678,000 in the nine months ended September 30, 1999
compared to $1,345,000 in the nine months ended September 30, 1998, or $333,000
higher due to higher average debt outstanding for the nine months ended
September 30, 1999.
General and administrative expenses amounted to $1,617,000 in the nine months
ended September 30, 1999 versus $1,914,000 in the nine months ended September
30, 1998.
The Company incurred a loss on the sale of marketable equity securities of
$519,000 for the nine months ended September 30, 1999.
On March 23, 1999 the Company announced that it suspended payment of its regular
quarterly cash dividend on both classes of its preferred stock. This measure was
taken to conserve cash for corporate and operating purposes. The dividends are
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<PAGE>
cumulative and arrearages amounted to $942,000 at September 30, 1999. The
Company has no plans to reinstate the cash dividends in the foreseeable future.
Preferred stock dividends amounted to $942,000 for the nine months ended
September 30, 1998.
Three months ended September 30, 1999
versus three months ended September 30,1998
Total revenues for the three months ended September 30, 1999 amounted to
$3,632,000 and were $934,000 higher than the $2,698,000 for the three months
ended September 30, 1998 due primarily to oil and gas revenues. Oil and gas
sales were $1,197,000 higher for the quarter ended September 30, 1999 due to
higher oil and gas prices and higher oil volumes partially offset by decreased
gas production.
The following table reflects the production volumes and pricing information for
the periods presented.
<TABLE>
<CAPTION>
Three months Three months
ended September 30, 1999 ended September 30, 1998
Production Average Price Production Average Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gas (Mcf).......... 675,215 $ 2.96 768,365 $ 2.04
Oil (Bbls)......... 83,833 $ 19.00 69,057 $ 11.95
</TABLE>
Lease operating expense and production taxes were $640,000 for the three months
ended September 30, 1999, versus $644,000 for the three months ended September
30, 1998, or $4,000 lower. Depletion, depreciation and amortization was
$1,083,000 for the three months ended September 30, 1999, versus $857,000 for
the three months ended September 30, 1998, or $226,000 higher due to higher
overall depletion rates in the current period compared to the prior period.
The Company incurred $473,000 of exploration expense in the third quarter of
1999, compared to $2,154,000 in the third quarter of 1998, or $1,681,000 lower
primarily due to dry hole costs of $98,000 in the third quarter of 1999 versus
$1,496,000 in 1998. Additionally, leasehold amortization amounted to $278,000 in
the third quarter of 1999 compared to $465,000 for the same period in 1998.
Interest expense was $596,000 in the three months ended September 30, 1999
compared to $542,000 in the third quarter of 1998 due to higher average debt
outstanding for the quarter ended September 30, 1999.
General and administrative expenses amounted to $492,000 in the three months
ended September 30, 1999 versus $617,000 in the third quarter of 1998.
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<PAGE>
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities was $1,104,000 in the nine months ended
September 30, 1999 compared to net cash provided in operating activities of
$2,212,000 in the nine months ended September 30, 1998. The Company's
accompanying consolidated statements of cash flows identify major differences
between net income and net cash provided by operating activities for each of the
periods presented.
Net cash used in investing activities totaled $5,341,000 for the nine months
ended September 30, 1999 compared to $11,742,000 in 1998. The nine months ended
September 30, 1999 reflects cash paid in connection with the purchase of oil and
gas properties in the Lafitte Field of $3,719,000. The nine months ended
September 30, 1999 also reflects capital expenditures paid totaling $1,862,000
and proceeds from the sales of marketable equity securities of $240,000. The
nine months ended September 30, 1998 reflects $11,662,000 in exploration and
drilling capital expenditures paid and $129,000 of cash paid in connection with
the purchase of oil and gas properties offset by $49,000 in proceeds from the
sale of certain oil and gas properties.
Net cash provided by financing activities was $12,366,000 for the nine months
ended September 30, 1999 as compared to net cash provided by financing
activities of $9,058,000 in the prior year period. The 1999 amount includes
proceeds from the issuance of convertible notes, including a portion allocable
to paid in capital of $12,000,000, and proceeds from the issuance of preferred
stock of $3,000,000. The amount also includes debt financing costs of $1,134,000
and pay downs of $1,300,000 by the Company under its line of credit. The 1998
amount included the borrowing of $10,500,000 by the Company under its line of
credit and pay downs under its line of credit of $500,000. The 1999 period
reflects no preferred dividends, whereas the 1998 period contains dividends of
$942,000.
Private Placement
- -----------------
On September 23, 1999, the Company and two of its subsidiaries, Goodrich
Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum
Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of
$15 million of convertible securities. As described below the private placement
transaction accomplished the objectives of management's plan as set forth in the
Liquidity and Capital Resources section of the Company's 1998 Annual Report on
Form 10-K.
Goodrich-Louisiana issued convertible notes in the amount of $6,000,000 that
will accrue interest monthly at 8% in arrears until October 1, 2002. Unless
extended or converted, the principal and accrued interest will be repayable in
24 months, beginning October 1, 2002. Principal and accrued interest may be
converted by the holder at any time into the common stock of the Company at the
rate of $4.00 per share. These convertible notes are secured by various
collateral, including a mortgage on Goodrich-Louisiana's oil and gas properties.
The purchasers of these notes received one warrant to purchase a share of the
common stock of the Company at $.9375 (the closing price on the date the
transaction was negotiated) for every $4.00 of notes issued. The warrants may be
exercised at any time before their expiration on September 30, 2006.
15
<PAGE>
Goodrich-Lafitte is a newly formed Louisiana limited liability company and is
the entity which owns a 49% interest in the Lafitte Field. Goodrich-Lafitte also
issued convertible notes in the amount of $6,000,000 that will accrue interest
at 8% per annum accruing monthly in arrears until October 1, 2002. Unless
extended or converted, the principal and accrued interest will be repayable in
24 months, beginning October 1, 2002. Principal and accrued interest may be
converted by the holder at any time into the common stock of the Company at the
rate of $4.00 per share. As an alternative conversion right, the principal and
accrued interest under these notes may be converted into common equity interests
in Goodrich-Lafitte, after October 1, 2002, if neither the common stock of the
Company has a closing price of at least $3.00 per share nor the net asset value
per share of the Company is at least $3.00. These convertible notes are secured
by various collateral, including a mortgage on Goodrich-Lafitte's oil and gas
properties. The purchasers of these notes received one warrant to purchase a
share of the common stock of the Company at $.9375 (the closing price on the
date the transaction was negotiated) for every $4.00 of notes issued. The
warrants may be exercised at any time before their expiration on September 30,
2006.
Approximately $3.7 million of the proceeds from the Goodrich-Lafitte convertible
notes were used to purchase the aforementioned interest in the Lafitte Field.
The remaining proceeds will be used for development capital expenditures and for
general corporate and working capital purposes.
Additionally, Goodrich-Louisiana issued $3,000,000 of preferred interests
consisting of 300,000 preferred units with a par value and liquidation
preference of $10 per share. Distributions on the preferred units will accrue
quarterly in arrears at 8% per annum through September 30, 2002 at which time
the rate increases 2% per year not to exceed 20%. Goodrich-Louisiana has the
right to redeem the units at any time. The preference amount and accrued
distributions may be converted by the holder at any time into the common stock
of the Company at $2.00 per share. Each preferred unit holder was also issued
one warrant to purchase a share of common stock of the Company for every $10 of
preference value. The warrants are exercisable at $1.50 per share at any time
before their expiration on September 30, 2006.
Approximately $2,500,000 of the proceeds from issuance of the convertible notes
and preferred units was allocated to additional paid in capital based on the
relative fair value of the two securities. $2,300,000 of the proceeds allocable
to additional paid in capital will be amortized as additional interest cost over
the original term of the related notes. The remaining adjustment to additional
paid in capital related to the preferred units will be recorded as a return to
the preferred shareholders for purposes of computing income applicable to common
stock and earning per share. Transaction costs related to the private placement
amounted to approximately $1,300,000. These transaction costs will be amortized
over the life of the convertible securities.
Under the terms of the Goodrich-Louisiana Operating Agreement, the holders of
preferred units have no voting rights unless the payment of distributions is six
months or more in arrears, in which event the holders of preferred units may
participate in the election of Company managers. Goodrich-Louisiana is precluded
from issuing any new units having preference or priority over the preferred
units as to distributions, liquidation or redemption.
16
<PAGE>
The Subscription Agreement pursuant to which the securities were purchased from
the Company provides that within 60 days of closing the Company will register
for resale under the Securities Act of 1933 all of the Company's common stock
issuable upon conversion or exercise of the securities issued in the private
placement.
This transaction would normally have required approval of the Company's
shareholders according to the Shareholder Approval Policy of the New York Stock
Exchange (the "Exchange"). Pursuant to an exception to this policy and based on
a determination by the Company's Audit Committee that the delay necessary in
securing shareholder approval prior to the transaction would seriously
jeopardize the financial viability of the Company, the Company's Audit Committee
approved the Company's omission to seek shareholder approval. The Exchange
accepted the Company's application for use of the exception.
Lafitte Field Acquisition
- -------------------------
On September 23, 1999 the Company acquired a 49% working interest in rights
previously acquired in the Lafitte Field located in Jefferson Parish, Louisiana.
The field encompasses over 8,000 acres and is located approximately thirty miles
south of New Orleans. The Company anticipates commencement of development
activities in the fourth quarter of 1999.
The purchase agreement included a production payment to be satisfied through the
delivery of production from the purchased property. In connection with the
transaction, the Company recorded a production payment liability of
approximately $2,200,000 representing the discounted present value of production
payments to be made over the estimated time to satisfy the payment.
Additionally, the Company recorded a $3,800,000 non-current liability for its
interest in the estimated plugging and abandonment costs assumed in connection
with the purchase.
Restructuring of Credit Agreement
- ---------------------------------
On September 27, 1999 the Company modified its Credit Agreement with Compass
Bank. The restructured credit facility provides for a borrowing base facility
(Tranche A) of $19,300,000 with monthly commitment reductions of $300,000
beginning on October 1, 1999. Interest on the Tranche A facility is the Compass
Bank Index Rate and is payable monthly. The restructured credit facility also
establishes a Tranche B loan in the amount of $9,000,000. The Tranche B loan has
an interest rate of Compass Bank Index Rate plus 2% payable on a monthly basis.
The maturity date for amounts drawn under the Tranche A and Tranche B is
February 1, 2001 with no borrowing base redeterminations conducted prior to that
date. A commitment fee in the amount of one-half of one percent on the average
daily amount of the available commitment.
The credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principal and interest under the Tranche A and Tranche B.
Additionally, under the terms of the credit facility, the Company may not make
any distributions or pay dividends, including dividends on any class of its
preferred stock, until Tranche B is paid in full.
17
<PAGE>
Substantially all the Company's assets are pledged to secure both the
convertible notes and the credit facility is due annually.
The terms of the Company's Series A Preferred Stock provided that the Company
will not incur additional debt at the parent company level after such time as it
reports financial results which show the Company's stockholders' equity to be
less than the liquidation preference of the Series A Preferred Stock. As of
September 30, 1999, the Company's stockholders equity was approximately $6.9
million and the liquidation preference on the outstanding shares of the Series A
Preferred Stock was approximately $7.9 million. As a result, the Company is
unable to incur additional debt at the parent company level under its credit
facility or from other sources at the present time.
Year 2000
- ---------
The Company has assessed the ability of its various electronic operating
systems, and those of significant third parties, to appropriately consider
periods and dates after December 31, 1999. The Company's senior financial
management has taken responsibility for identifying, addressing and monitoring
its Year 2000 issues. These individuals report to the Audit Committee of the
Board of Directors on a periodic basis. For Company systems identified as not
being Year 2000 compliant, the Company has developed plans to correct these
systems.
As for third parties with which the Company has a material relationship, the
Company is in various stages of discussions and conclusions related to the
ability of those third parties to become compliant and the related timing
thereof.
The estimated costs associated with becoming Year 2000 compliant are not
expected to be material to the Company.
The Company completed a comprehensive analysis of the operational problems and
costs (including loss of revenues) that would be reasonably likely to result
from the failure by the Company and certain third parties to complete efforts
necessary to achieve Year 2000 compliance timely. A contingency plan has been
developed for dealing with the most reasonably likely worst case scenario, and
such scenario has not yet been clearly identified.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Company's Year 2000 efforts
are expected to significantly reduce the Company's level of uncertainty about
the Year 2000 problem. The Company believes that, with the implementation of new
18
<PAGE>
business systems and completion of the various above-mentioned tasks as
scheduled, the possibility of interruptions to normal operations should be
significantly reduced.
Stock Listing
- -------------
On July 28, 1999 the Company was notified by the New York Stock Exchange that
the Exchange had revised its minimum financial criteria for listed companies and
the time frame required for listed companies to become compliant. In addition,
the Company was informed that it was not in compliance with the revised
criteria. The Company submitted a revised twelve month business plan to the
Exchange in response to the notice on September 10, 1999. The business plan was
accepted by the New York Stock Exchange and will be monitored by the Exchange
for compliance on a quarterly basis. The short term nature of the business plan
may make it difficult to adhere to this business plan. If the Company fails to
do so, there can be no assurance that the New York Stock Exchange will not
delist the Company's common stock.
Quantitative and Qualitative Disclosures about
- ----------------------------------------------
Market Risk Debt and Debt Related Derivatives
---------------------------------------------
The Company is exposed to interest rate risk on its short-term and long-term
bank debt with variable interest rates ($28,000,000 at September 30, 1999).
Based on the overall interest rate exposure on variable rate debt at September
30, 1999 a hypothetical 2% change in interest rates would increase interest
expense by approximately $578,000.
Disclosure Regarding Forward-Looking Statements
- -----------------------------------------------
Certain statements in this quarterly report on Form 10-Q regarding future
expectations and plans for future activities may be regarded as "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. They are subject to various risks, such as financial market conditions,
operating hazards, drilling risks, and the inherent uncertainties in
interpreting engineering data relating to underground accumulations of oil and
gas, as well as other risks discussed in detail in the Company's Annual Report
on Form 10-K and other filings with the Securities and Exchange Commission.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct.
19
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
Information required by this item is hereby incorporated by reference to the
Company's Form 8-K filed October 15, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) 27 - Financial Data Schedule
20
<PAGE>
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.
GOODRICH PETROLEUM CORPORATION
------------------------------
(registrant)
November 15, 1999 /s/ Walter G. Goodrich
- ------------------------- -----------------------------------
Date Walter G. Goodrich, President and
Chief Executive Officer
November 15, 1999 /s/ Roland L. Frautschi
- ------------------------- -----------------------------------
Date Roland L. Frautschi, Senior Vice
President, Chief Financial Officer
and Treasurer
21
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