FORCENERGY GAS EXPLORATION, INC.
INDEX
Page Number
Part I. FINANCIAL INFORMATION:
Item I. Financial Statements
a) Balance Sheets - March 31, 1996 and
December 31, 1995 1
b) Statements of Operations - Three months ended
March 31, 1996 and 1995 2
c) Statements of Cash Flows - Three months ended
March 31, 1996 and 1995 3
d) Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FORCENERGY GAS EXPLORATION, INC.
BALANCE SHEETS
(unaudited)
(in thousands)
March 31, 1996 December 31, 1995
ASSETS:
Current Assets:
Cash $ 101 $ 2,996
Accounts receivable, net 18,634 16,338
Other current assets 8,528 5,986
Total current assets 27,263 25,320
Investment in surety bonds, at cost 6,205 6,164
Property, plant and equipment, at cost (full
cost method) net of accumulated depletion,
depreciation and amortization 316,227 298,832
Other assets 4,484 4,774
$354,179 $335,090
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $19,607 $17,811
Other accrued liabilities 18,641 15,000
Accrued acquisition obligation - 4,284
Total current liabilities 38,248 37,095
Long-term debt 144,533 130,729
Deferred income taxes 14,619 12,305
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000
shares authorized;none issued or outstanding - -
Common stock, $.01 par value, 50,000,000
shares authorized; 18,260,447 issued and
outstanding at March 31, 1996 and December 31,
1995, respectively 183 183
Capital in excess of par value 163,378 163,378
Accumulated deficit (6,782) (8,600)
Total stockholders' equity 156,779 154,961
$354,179 $335,090
The accompanying notes are an integral part of these financial
statements.
FORCENERGY GAS EXPLORATION, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended March 31,
1996 1995
Revenues:
Oil and gas sales $28,342 $16,925
Other 126 114
28,468 17,039
Expenses:
Lease operating 8,736 6,235
Depletion, depreciation and amortization 11,556 7,786
Production taxes 724 416
General and administrative 1,790 1,274
Amortization of debt issuance costs 238 241
23,044 15,952
Income from operations 5,424 1,087
Interest and other income 111 126
Interest expense, net of amounts capitalized (2,636) (2,828)
Income (loss) before income taxes 2,899 (1,615)
Income tax provision (benefit) 1,081 (601)
Net income (loss) $ 1,818 $(1,014)
Net income (loss) per share $ .10 $ (.11)
Weighted average number of common shares 18,260 9,040
The accompanying notes are an integral part of these financial
statements.
FORCENERGY GAS EXPLORATION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended March 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $ 1,818 $(1,014)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion, depreciation and amortization 11,794 8,027
Deferred taxes 1,081 (601)
Deferred interest 770 510
Other (41) (39)
Changes in working capital (2,061) 2,398
11,543 10,295
Net cash provided by operating activities: 13,361 9,281
Cash flows from investing activities:
Acquisitions of oil and gas properties - (29,981)
Capital expenditures (26,078) (4,421)
Payment of accrued capital cost (4,284) -
Purchase of surety bonds - (170)
Sales of oil and gas properties 1,072 -
Net cash used in investing activities (29,290) (34,572)
Cash flows from financing activities:
Net borrowings under senior credit facility 13,034 22,440
Net cash provided by financing activities 13,034 22,440
Net decrease in cash (2,895) (2,851)
Cash at beginning of period 2,996 3,188
Cash at end of period $ 101 $ 337
Supplemental disclosures about cash flow information:
Cash paid for interest investment activities: $ 3,540 $ 2,348
Investing activities:
At March 31, 1996 and December 31, 1995 the Company had accrued
additions to oil and gas properties in the amount of
$18,353,000 and $15,641,000, respectively resulting in a net
non-cash investment in oil and gas properties amounting to
$2,712,000 during the quarter ended March 31, 1996.
The accompanying notes are an integral part of these financial
statements.
FORCENERGY GAS EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The Balance Sheet of Forcenergy Gas Exploration, Inc. at March
31, 1996 and the Statements of Operations and Cash Flows for the
quarter ended March 31, 1996 indicated herein have been prepared by
the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting of normal recurring
accruals, necessary to present fairly the information in the
accompanying financial statements have been included. The results
of operations for such interim periods are not necessarily
indicative of the results for the full year. Additionally, revenue
from plant products have been reclassified into "Oil and gas sales"
from "Other" for the quarter ended March 31, 1995 to be consistent
with the current year presentation.
NOTE 2 -- EARNINGS PER SHARE
Earnings per share is calculated on the weighted average number
of shares outstanding during each period for common stock, and when
dilution exceeds 3%, common stock equivalents. The dilution effect
of common stock equivalents is less than 3% for the quarter ended
March 31, 1996 and they are anti-dilutive in the quarter ended
March 31, 1995.
NOTE 3 -- DEBT
Effective April 26, 1996 the Company renegotiated its senior
credit facility to provide for a total commitment of $195 million,
with a current borrowing base of $175 million, compared with a
previous total commitment and borrowing base of $120 million. The
bank group was also expanded from five to six members.
The senior credit facility and subordinated notes contain
certain covenants which include maintenance of a minimum tangible
net worth, certain financial ratios, restrictions on asset sales,
affiliated transactions and compensation and certain limitations on
dividends and additional debt or liens. The Company is in
compliance with these covenants, or has received waivers in the
event of non-compliance.
NOTE 4 -- REGISTRATION RIGHTS
Under the agreement and plan of merger with Ashlawn Energy, Inc.
("Ashlawn"), the Company granted certain registration rights to the
Ashlawn shareholders pursuant to which the Company would, upon
demand by the former Ashlawn shareholders, undertake to accomplish
a secondary offering for purposes of allowing the former Ashlawn
shareholders to sell at public auction, all or a portion of the
common stock of the Company issued pursuant to the merger. On May
3, 1996, the Company filed a registration statement on Form S-1
registering 1,500,000 of the 3,000,000 shares issued pursuant to
this merger and an additional 225,000 shares subject to the
underwriters over-allotment option.
FORCENERGY GAS EXPLORATION, INC.
ITEM 2. Management's Discussion & Analysis Of Financial
Condition And Results Of Operations
Production Data
The following table sets forth the Company's historical oil and
natural gas production data during the periods indicated:
Three Months
Ended March 31,
1996 1995
Production:
Liquids (Mbbls)* 853 499
Natural Gas (Mmcf) 6,092 5,772
Total (Mmcfe) 11,210 8,766
Average Sales Prices:
Liquids (per Bbl) $ 16.88 $16.36
Natural Gas (per Mcf) 2.29 1.52
Expenses (per Mcfe):
Lease Operating $ .78 $ .71
Production Taxes .06 .05
Depletion, Depreciation and Amortization 1.03 .89
General and Administrative, net .16 .15
*Includes crude oil, condensate and natural gas liquids.
Results of Operations
Comparison of the three month periods ended March 31, 1996 and
March 31, 1995
Operating and Net Income. Operating income increased
approximately 391% to $5.4 million in the first quarter of 1996
compared to $1.1 million in the same period last year. Net
income for the first quarter of 1996 was $1.8 million compared to
a loss of $1.0 million for the first quarter of 1995. The
improvement in both operating income and net income/loss was
attributable primarily to higher production and higher realized
oil and gas prices.
Production. The Company's net oil and gas production, on an
equivalent Mcf basis, increased to 11,210 Mmcfe in the 1996
quarter, a 28% increase over the 8,766 Mmcfe produced in the
comparable 1995 period. The higher production was attributable
to new production from properties acquired in 1995 and from
successful drilling and workover programs in late 1995 and the
1996 quarter. Net oil production rose to 853 Mbbls in the 1996
quarter, a 71% increase over the 499 Mbbls barrels produced in
the first quarter of 1995. Net gas production increased to 6,092
Mmcfe in the first quarter of 1996, a 6% increase over the 5,772
Mmcf produced in the prior year quarter.
FORCENERGY GAS EXPLORATION, INC.
Revenues. Revenue for the first quarter of 1996 rose to $28.5
million, a 68% increase over the $17.0 million reported for the
same period of 1995, primarily due to higher production volumes
and higher net realized oil and gas prices. Average net realized
liquid prices rose to $16.88 per barrel in the 1996 quarter, a 3%
increase over the $16.36 per barrel received for the first three
months of 1995. Average net realized gas prices increased by 51%
to $2.29 in the 1996 quarter, from $1.52 in the prior year
quarter.
Lease Operating Expenses. Lease operating expenses for the
1996 quarter increased to $8.7 million, an 40% increase over the
$6.2 million reported in the first quarter of 1995. The absolute
increase in costs relates primarily to the addition of new fields
acquired during 1995 and to non-recurring workover-type repair
and maintenance activities incurred in early 1996. On an
equivalent Mcfe produced basis, expenses increased to $.78 per
Mcfe in 1996 from $.71 in 1995, an increase that was attributable
primarily to the repair and maintenance activities.
Depreciation, Depletion and Amortization ("DD&A"). DD&A
increased to $11.6 million in the quarter ended March 31, 1996,
an 49% increase over the $7.8 million reported for the same
period last year. The increase was attributable to the higher
production and to an increase in the rate to $1.03 per Mcfe in
the first quarter of 1996 compared to a rate of $.89 in the first
quarter of 1995.
General and Administrative Costs. General and administrative
costs increased 39% to $1.8 million compared to the $1.3 million
reported in the first quarter of 1995, primarily because of the
overall growth of the Company in the latter half of 1995 and
because of increased costs associated with being a public
company. However, on an equivalent unit of production basis,
general and administrative expenses remained relatively constant
at $.16 per equivalent Mcf in the first quarter of 1996 compared
to $.15 in the first quarter of 1995.
Interest Expense. Interest expense, net of amounts
capitalized, declined 8% to $2.6 million in the 1996 quarter,
compared to $2.8 million in the first quarter of 1995. The
decrease in interest expense relates primarily to lower rates on
the Company's senior credit facility.
Income Tax Provision (Benefit). Income tax expense increased
to $1.1 million in the first quarter ended March 31, 1996 from a
benefit of $0.6 million in the 1995 quarter because of the
improvement in results of operations compared to the same period
last year.
FORCENERGY GAS EXPLORATION, INC.
Liquidity and Capital Resources
The Company has historically funded its operations,
acquisitions, capital expenditures and working capital
requirements with cash flow from operations, bank borrowings and
private and public placements of debt and equity securities.
The Company's primary sources of funds for the periods under
discussion were as follows:
Quarter ended March 31,
1996 1995
Net cash provided by operating activities $15,439 $ 9,281
Net borrowings under senior credit facility $13,034 $22,440
In the first three months of 1996, the Company generated
approximately $15.4 million in cash from operations and borrowed,
net of repayments, approximately $13.0 million under its senior
credit facility. The Company's cash flow from operations has
increased significantly during 1996 because of higher average oil
and gas prices and the additional production from acquired
properties and new production derived from development drilling.
The Company had negative working capital of $11.0 million at
March 31, 1996 and $11.8 million at December 31, 1995. The
negative working capital at March 31, 1996 and December 31, 1995
is due to the Company's continuing active drilling program and
related delays in receiving and processing of vendor invoices.
Total capital expenditures were $28.8 million during the
quarter. The Company's capital expenditure budget for 1996 is
approximately $75 million. The Company intends to continue its
exploration and development programs during 1996 and expects that
those expenditures will be funded by cash flow from operations
and periodic borrowings under its senior credit facility. The
Company will also continue to pursue property acquisitions of
various sizes, funding for which is expected to be provided by
cash flow from operations, funds available through the Company's
senior credit facility or other financing sources to be
negotiated, as needed. At March 31, 1996 the company had $7.7
million available under the senior credit facility, however,
effective April 26, 1996, the senior credit facility was amended
increasing the borrowing base to $175 million and the maximum
loan amount under the facility to $195 million. At April 30,
1996, the Company had availability of approximately $59.9 million
under the senior credit facility.
The Company utilizes forward sales contracts and commodity
swaps for portions of its current net oil and gas production to
achieve more predictable cash flows and to reduce its exposure to
fluctuations in oil and gas prices. The remaining portion of
current net production has not been hedged so as to provide the
Company the opportunity to benefit from increases in prices on
that portion of the production, should price increases
materialize. As of May 1, 1996, the Company had entered into
future sales and swap contracts as a hedge against possible price
declines that effectively fixed sales prices on approximately 74%
of the Company's estimated net oil production for the remainder
of the year (based on current production rates) and for
approximately 59% of the Company's estimated net natural gas
production for the remainder of 1996, at average prices of $18.00
per barrel and $2.03 per Mcf, respectively.
Management believes that cash flow from operations and
available borrowings under the senior credit facility will be
adequate to meet future liquidity needs, including satisfying the
Company's financial obligations and funding its capital program.
However, should revenues decrease as a result of lower oil or gas
prices or operating difficulties, re-evaluation of a portion of
the 1996 capital budget could be required.
Changes in Financial Condition
The change in financial condition of the Company between
December 31, 1995 and March 31, 1996 reflects an increase in long-
term debt principally resulting from active acquisition and
drilling programs in the latter half of 1995 and an active
drilling program in the first quarter of 1996.
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 -- Third Restatement of Credit
Agreement dated as of April 29, 1996 among
Forcenergy Gas Exploration, Inc.,
Internationale Nederlanden (U.S.) Capital
Corporation, as Agent and Lender, and certain
Financial Institutions named therein as
Lenders. (Filed as Exhibit 10.37 to the
Registration Statement on Form S-1 filed on
May 3, 1996 and is included herein by
reference (File No. 333-4600)).
11.1 -- Computation of Earnings per Share.
(b) No reports Form 8-K were filed during the quarter
ended March 31, 1996.
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, in the City of Miami, State of Florida, on the 14th
day of May, 1996.
FORCENERGY GAS EXPLORATION, INC.
By: /s/ STIG WENNERSTROM
Stig Wennerstrom
President/Chief Executive Officer
By: /s/ E. JOSEPH GRADY
E. Joseph Grady
Vice President - Chief Financial Officer
EXHIBIT 11.1
FORCENERGY GAS EXPLORATION, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
PRIMARY EARNINGS PER SHARE
Three Months
Ended March 31,
1996 1995
Net Income (Loss) $ 1,818 $(1,014)
Weighted Average Shares Outstanding 18,260 9,040
Primary Earnings Per Share $ 0.10 $ (0.11)
FULLY DILUTED EARNINGS PER SHARE
Three Months
Ended March 31,
1996 1995
Net Income (Loss) $ 1,818 $(1,014)
Effect of retirement of ESN notes on
interest expense 1,364 1,102
Tax effect related to interest expense (509) (413)
Net Income (Loss) as adjusted $ 2,673 $ (325)
Weighted Average Shares Outstanding 20,757 11,383
Fully Diluted Earnings Per Share $ 0.13 $ (0.03)
WEIGHTED AVERAGE SHARES OUTSTANDING (PRIMARY EPS)
March 31,
1996 1995
Weighted Average Shares of Common Stock 18,260 9,040
WEIGHTED AVERAGE SHARES OUTSTANDING (FULLY DILUTED EPS)
Ended March 31,
1996 1995
Weighted Average Shares of Common Stock 18,260 9,040
Dilutive Common Stock Equivalents, Less
than 3% Effect on Primary EPS 154 -
Conversion of Subordinated Notes 2,343 2,343
20,757 11,383
