Part I. FINANCIAL INFORMATION:
Item 2. Management's Discussion & Analysis Of Financial
Condition And Results Of Operations
Operating Data
The following table sets forth the Company's historical
operating data for the periods indicated:
(in thousands, except per unit data)
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
Production:
Liquids (Mbbls)* 924 560 1,778 1,059
Natural Gas (Mmcf) 6,681 5,400 12,772 11,172
Total (Mcfe) 12,225 8,760 23,440 17,526
Average realized sales prices:
Liquids (per Bbl) $16.65 $15.51 $16.75 $15.91
Natural Gas (Mcf) 2.06 1.58 2.17 1.55
Expenses (per Mcfe):
Lease Operating $ .66 $ .61 $ .72 $ .66
Depletion, Depreciation and
amortization 1.03 .89 1.03 .89
Production Taxes .08 .06 .07 .05
General Administrative, net .15 .18 .15 .16
*Includes crude oil, condensate and natural gas liquids.
Results of Operations
Comparison of the three month periods ended June 30, 1996 and
June 30, 1995
Operating and Net Income. Operating income increased by 175%
to $5.9 million in the second quarter of 1996 compared to $2.1
million for the same 1995 period. Net income for the 1996
quarter was $1.9 million compared to a loss of $700,000 reported
for the second quarter of 1995. The improvement in both operating
income and net income/loss was attributable primarily to higher
production levels and higher net realized oil and gas prices.
Production. The Company's net oil and gas production, on an
equivalent Mcf basis, increased to 12,225 Mmcfe in the 1996
quarter, a 40% increase over the 8,760 Mmcfe produced in the
comparable 1995 period. The increase in production was
attributable to new production from 1995 acquisitions of oil and
gas properties and from successful drilling and workover programs
beginning in late 1995 and continuing through 1996 . Net liquids
production rose to 924 Mbbls in the 1996 quarter, a 65% increase
over the 560 Mbbls produced in the same period last year. Net
gas production increased to 6,681 Mmcf in the second quarter of
1996, a 24% increase over the 5,400 Mmcf produced in the second
quarter of 1995.
Revenues. Revenues for the second quarter of 1996 were $29.3
million, a 69% increase over the $17.0 million reported for the
second quarter of 1995, primarily because of higher production
volumes and higher net realized oil and gas prices. Average net
realized liquid prices rose to $16.65 per barrel in the 1996
quarter, a 7% increase over the $15.51 per barrel received for
the second quarter of 1995. Average net realized gas prices
increased by 30% to $2.06 per Mcf in the 1996 quarter, from $1.58
per Mcf in the same period last year.
Average net realized oil prices for the quarter were $16.68
per barrel compared to an average of $19.60 per barrel which
would have been received before the effects of hedging resulting
in a $2.6 million reduction in oil revenues for the three months
ended June 30, 1996. Average net realized gas prices for the
three month period were $2.06 per Mcf compared to an average of
$2.31 per Mcf which would have been received before the effects
of hedging resulting in a $1.7 million reduction in gas revenues
for the quarter ended June 30, 1996. Effects of hedging
activities were not significant in the three months ended June
30, 1995.
Lease Operating Expenses. Lease operating expenses for the
second quarter of 1996 rose to $8.1 million from the $5.4
million reported for the comparable 1995 period. The increase in
costs relates primarily to the addition of new fields acquired
during 1995 and to workover-type repair and maintenance
activities taking place in 1996. On an equivalent unit of
production basis, expenses increased to $.66 per Mcfe in 1996
from $.61 per Mcfe in 1995, an increase that was attributable
primarily to the repair and maintenance activities.
Depletion, Depreciation and Amortization ("DD&A"). DD&A
increased to $12.6 million for the 1996 quarter compared to the
$7.8 million reported for the same period last year. The
increase was attributable to the higher production in 1996, and
to a higher DD&A rate, $1.03 per Mcfe in the second quarter of
1996 compared to a rate of $.89 per Mcfe in the comparable 1995
period.
General and Administrative Costs. General and administrative
costs were $1.8 million in the 1996 quarter compared with $1.5
million reported for the second quarter of 1995, an increase
predominantly due to the overall growth of the Company. On an
equivalent Mcfe produced basis, general and administrative
expenses declined to $.15 per Mcfe in the 1996 quarter from a
rate of $.18 per Mcfe in the comparable 1995 period.
Interest Expense. Interest expense, net of amounts
capitalized, declined to $3.0 million in the 1996 quarter
compared to $3.5 million in the second quarter of 1995, as
benefits derived from lower interest rates on the Company's
senior credit facility were only partially offset by higher debt
levels during 1996.
Income Tax Provision (Benefit). Income tax expense increased
to $1.1 million in the second quarter of 1996, from a benefit of
$400,000 in the second quarter of 1995, due to the improvement in
results of operations compared to the same period last year.
Comparison of the six month periods ended June 30, 1996 and June
30, 1995
Operating and Net Income. The operating income for the first
six months of 1996 improved by 233%, rising to $11.5 million
from $3.5 million reported for the same period in 1995. Net income
for the 1996 period was $3.7 million compared to a loss of $1.7
million for the first six months of 1995. The improvement in both
operating income and net income/loss was attributable primarily
to higher production volumes and higher net realized oil and gas
prices.
Production. The Company's net liquid production rose to 1,778
Mbbls for the six months ended June 30, 1996 from 1,059 Mbbls in
the comparable 1995 period, a 68% improvement. Net gas production
increased to 12,772 Mmcf in the 1996 period, a 14% increase over
the 11,172 Mmcf produced in the same period last year. On an
equivalent unit basis, oil and gas production increased to
23,440 Mmcfe in the 1996 period, a 34% improvement over the
17,526 Mmcfe produced in the first six months of 1995. The
increase in both oil and gas production is attributable to
new production from 1995 acquisitions of oil and gas properties
and from successful drilling and workover programs begun in late
1995 and continuing through 1996.
Revenues. Revenue for the 1996 period increased by $23.4
million, or 68%, to $57.8 million as compared to the $34.4
million reported in the same period last year, primarily because
of higher production volumes and higher net realized oil and
gas prices. Average net realized liquid prices rose to $16.75
per barrel in the 1996 period, a 5% increase over the $15.91 per
barrel received for the comparable 1995 period. Average net
realized gas prices rose to $2.17 per Mcf in the 1996 period, a
40% increase over the $1.55 per Mcf reported in the first six
months of 1995.
Average net realized oil prices for the six month period were
$17.01 per barrel compared to an average of $19.03 per barrel
which would have been received before the effects of hedging
resulting in a $3.4 million reduction in oil revenues for the six
months ended June 30, 1996. Average net realized gas prices for
the six months were $2.17 per Mcf compared to an average of $2.31
per Mcf, which would have been received before the effects of
hedging resulting in a $1.8 million reduction in gas revenues for
the six month period ended June 30, 1996. Effects of hedging
activities were not significant in the six months ended June 30,
1995.
Lease Operating Expenses. Lease operating expenses for the
first six months of 1996 were $16.8 million, compared to the
$11.6 million reported for the same period last year, an increase
primarily due to new fields acquired during 1995 and to workover-
type repair and maintenance activities in 1996. On an equivalent
unit of production basis, expenses increased to $.72 per Mcfe
in 1996 from $.66 in 1995, an increase attributable primarily
to the repair and maintenance activities.
Depletion, Depreciation and Amortization ("DD&A"). DD&A
increased to $24.2 million for the 1996 period from the $15.6
million reported for the comparable 1995 period. The increase
was attributable to higher production levels, and to an increase
in the DD&A rate per unit of production to $1.03 per Mcfe in the
first six months of 1996 compared to $.89 in the same period
last year.
General and Administrative Costs. General and administrative
costs increased to $3.6 million from the $2.8 million reported
for the comparable 1995 period, primarily due to the overall
growth of the Company during the latter half of 1995 and
through 1996. However, on an equivalent Mcfe produced basis,
general and administrative expenses have remained relatively
constant at $.15 per Mcfe in the 1996 period compared to $.16
for the first six months of 1995.
Interest Expense. Interest expense, net of amounts
capitalized, declined 9% to $5.9 million for the first six
months of 1996, compared to $6.5 million for the same period
last year. The decrease in interest expense relates primarily to
the benefit derived from lower interest rates on the Company's
senior credit facility in 1996, partially offset by higher 1996
debt levels.
Income Tax Provision (Benefit). Income tax expense increased
to $2.2 million, from a benefit of $1.0 million in the first six
months of 1995, due to the improvement in results of operations
compared to the same period last year.
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 indicated
herein were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
Net cash provided by
operating activities $13,454 $8,360 $26,815 $17,641
Borrowings under senior
credit facility 30,029 164 43,063 22,604
In the first six months of 1996, the Company generated
approximately $26.8 million in cash from operations and borrowed,
net of repayments, approximately $43.1 million under its senior
credit facility. The Company's cash flow from operations has
increased significantly during 1996 because of the additional
production from acquired properties and new production derived
from development drilling and workovers. The Company had negative
working capital of $15.1 million at June 30, 1996 and $11.8
million at December 31, 1995. Both the negative working capital
and increase in borrowings under the senior credit facility
are primarily attributable to an increase in drilling expenditures
under the Company's active 1996 drilling program and to acquisitions
of oil and gas properties.
Total cash capital expenditures were $59.2 million during the
first six months of 1996, which includes $15.6 million in cash
payments on capital costs accrued at December 31, 1995. In
addition, the Company has capital expenditures accrued at
June 30, 1996 amounting to $25.1 million. The Company's
capital expenditure budget for 1996 is approximately $88
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. Cash
expenditures for acquisitions totaled $16.8 million for the six
months ended June 30, 1996, $4.3 million of which was for amounts
accrued at December 31, 1995. The Company will 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 June 30, 1996
the Company had $32.7 million available 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 July 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 80% of the Company's estimated net oil production
for the remainder of the year and for approximately 50% of the
Company's estimated net natural gas production for the remainder
of 1996, based on current production levels, at $18.03 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 would be required.
Changes in Financial Condition
The change in financial condition of the Company between
December 31, 1995 and June 30, 1996 reflects an increase in long-
term debt resulting principally from an active 1996 drilling
program and the acquisition of oil and gas properties.
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 August,
1996.
FORCENERGY INC
By:/s/ STIG WENNERSTROM
Stig Wennerstrom
President/Chief Executive Officer
By:/s/ E. JOSEPH GRADY
E. Joseph Grady
Vice President - Chief Financial Officer
(principal financial and accounting officer)
