UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-26444
FORCENERGY INC
(Exact name of registrant as specified in its charter)
Delaware 65-0429338
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2730 S.W. 3rd Avenue, Suite 800
Miami, Florida
33129-2237
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code: (305) 856-8500
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 twelve 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. Yes X. No __.
As of October 31, 1997, 25,337,462 shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
<PAGE>
FORCENERGY INC
INDEX
Page
Part I. FINANCIAL INFORMATION: Number
------
Item 1. Financial Statements
a) Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996 1
b) Consolidated Statements of Earnings - Three Months and
Nine Months Ended September 30, 1997 and 1996 2
c) Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997 and 1996 3
d) Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FORCENERGY INC
--------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands)
-------------------------------
<CAPTION>
September 30, December 31,
1997 1996
-------------- --------------
<S> (Unaudited)
ASSETS:
- -------
Current Assets: <C> <C>
Cash $ 4,063 $ 9,669
Accounts receivable, net 29,126 29,416
Other current assets 27,890 10,673
--------- ---------
Total current assets 61,079 49,758
--------- ---------
Investment in surety bonds, at cost 4,094 3,926
--------- ---------
Property, plant and equipment, at cost
(full cost method) net of accumulated
depletion, depreciation and amortization 746,744 523,711
--------- ---------
Other assets 16,757 8,530
--------- ---------
$ 828,674 $ 585,925
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
Current Liabilities:
Accounts payable $ 20,010 $ 8,643
Other accrued liabilities 65,783 34,370
--------- ---------
Total current liabilities 85,793 43,013
--------- ---------
Long-term debt 440,618 272,932
--------- ---------
Deferred income taxes 31,689 21,044
--------- ---------
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; 22,729,025 and
22,577,838 issued and outstanding at
September 30, 1997 and December 31, 1996,
respectively 227 226
Capital in excess of par value 248,784 246,032
Retained earnings 21,563 2,678
--------- ---------
Total stockholders' equity 270,574 248,936
--------- ---------
$ 828,674 $ 585,925
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FORCENERGY INC
---------------
CONSOLIDATED STATEMENTS OF EARNINGS
--------------------------------------
(Unaudited)
(in thousands, expect per share data)
<CAPTION> ------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1997 1996 1997 1996
<S> -------- -------- -------- --------
Revenues: <C> <C> <C> <C>
Oil and gas sales $ 62,798 $ 36,896 $196,929 $ 94,373
Other 717 143 1,732 419
-------- -------- -------- --------
63,515 37,039 198,661 94,792
-------- -------- -------- --------
Expenses:
Lease operating 17,853 10,627 53,219 27,446
Depletion, depreciation and
amortization 27,497 16,328 80,853 40,490
Production taxes 1,079 845 3,310 2,498
General and administrative 3,986 1,818 11,127 5,393
-------- -------- -------- --------
50,415 29,618 148,509 75,827
-------- -------- -------- --------
Earnings from operations 13,100 7,421 50,152 18,965
Interest and other income 973 143 2,721 380
Interest expense, net of
amounts capitalized (8,210) (3,590) (22,970) (9,503)
-------- --------- --------- ---------
Earnings before income taxes 5,863 3,974 29,903 9,842
Income tax provision 2,098 1,483 11,018 3,671
-------- -------- -------- ---------
Net earnings $ 3,765 $ 2,491 $ 18,885 $ 6,171
======== ======== ======== =========
Net earnings per common and
common equivalent share $ .16 $ .13 $ .79 $ .34
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FORCENERGY INC
--------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<CAPTION> (in thousands)
--------------------------
Nine Months Ended
September 30,
--------------------------
1997 1996
<S>
Cash flows from operating activities: <C> <C>
Net earnings $ 18,885 $ 6,171
---------- ----------
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Equity in earnings of affiliate (1,371) --
Depletion, depreciation and amortization 82,174 41,241
Deferred taxes 11,019 3,573
Deferred interest -- 1,916
Other (168) (153)
Decrease (increase) in accounts receivable 6,089 (6,490)
Increase in other current assets (16,784) (3,000)
Increase (decrease) in accounts payable 6,387 (4,087)
Increase in other accrued liabilities 9,670 4,528
---------- ----------
97,016 37,528
---------- ----------
Net cash provided by operating activities: 115,901 43,699
---------- ----------
Cash flows from investing activities:
Acquisitions of oil and gas properties (111,693) (23,488)
Capital expenditures (173,365) (91,523)
Sales of oil and gas properties -- 1,072
Increase in other assets (222) (300)
Dividends received from affiliate 300 --
Proceeds from sale of surety bond -- 2,151
----------- -----------
Net cash used in investing activities (284,980) (112,088)
----------- -----------
Cash flows from financing activities:
Borrowings under senior credit facility 193,680 134,732
Repayments under senior credit facility (225,994) (68,796)
Issuance of long-term debt, net of expenses 193,414 --
Issuance of common stock, net 2,373 169
------------ -----------
Net cash provided by financing activities 163,473 66,105
------------ -----------
Net decrease in cash (5,606) (2,284)
Cash at beginning of period 9,669 2,996
Cash at end of period $ 4,063 $ 712
============ ===========
Supplemental disclosures of cash flows information:
Cash paid for interest $ 18,282 $ 9,770
Investing activities:
At September 30, 1997, and December 31, 1996, the Company had accrued
additions to oil and gas properties amounting to approximately
$34,414,000 and $17,155,000, respectively.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORCENERGY INC
---------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the accounts of Forcenergy Inc and its subsidiaries (the
"Company") after elimination of intercompany balances and transactions.
The unaudited interim consolidated financial statements of the
Company for the periods indicated herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with generally accepted
accounting principles for interim financial reporting. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, necessary to present fairly the
information in the accompanying consolidated financial statements have
been included. Interim period results are not necessarily indicative of
the results of operations or cash flows for a full year period.
NOTE 2 -- EARNINGS PER SHARE
Earnings per share ("EPS") is calculated based on the weighted
average number of shares outstanding during each period for common
stock, and when dilutive, common stock equivalents ("CSEs"). The
dilutive effect of CSEs was greater than 3% for the quarter and nine
months ended September 30, 1997 and for the quarter ended September 30,
1996. CSEs had a dilutive effect of less than 3% for the nine months
ended September 30, 1996. Weighted average common and common
equivalent shares were 24,054,024 and 19,282,393 for the three months
ended September 30, 1997 and 1996, respectively, and 23,991,428 and
18,265,169 for the nine months ended September 30, 1997 and 1996,
respectively.
In February 1997 the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standard No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 specifies new standards for
the computation, presentation and disclosure requirements for EPS.
SFAS 128 is intended to improve the EPS information provided in
financial statements by simplifying the existing computational
guidelines, by revising the disclosure requirements to provide more
consistent and meaningful information and by increasing the
comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computation include: (a) eliminating
the presentation of primary EPS and replacing it with basic EPS, with
the principal difference being that CSEs are not considered in
computing basic EPS; (b) eliminating the modified treasury stock method
and the three percent materiality provision; and (c) revising the
contingent share provisions and the supplemental EPS data requirements.
SFAS 128 also makes a number of changes to existing disclosure
requirements. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997. The Company will adopt
SFAS 128 effective December 31, 1997 and will restate EPS for all
periods presented. The following table represents pro forma EPS as
calculated under SFAS 128:
<TABLE>
<CAPTION> Three Months Ended
September 30,
--------------------------------------------------
(basic) (diluted)
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S>
Pro forma earnings per <C> <C> <C> <C>
share $.17 $.14 $.16 $.13
Pro forma weighted
average shares 22,715,070 18,281,611 24,063,149 19,293,665
<CAPTION>
Nine Months Ended
September 30,
------------------------------------------------
(basic) (diluted)
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Pro forma earnings per
share $.83 $.34 $.79 $.33
Pro forma weighted
average shares 22,654,376 18,265,169 24,026,486 18,774,466
</TABLE>
<PAGE>
FORCENERGY INC
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 3 -- LONG TERM DEBT
On March 31, 1997 the Company's Senior Credit Facility was amended
to reduce the borrowing rates under the facility, to extend the term of
the revolver and to revise various administrative provisions of the
facility. Specifically, the facility now provides for a base borrowing
rate on advances under the revolver at either the prime rate or LIBOR
plus 1.0%, at the election of the Company. The amendment also provides
for borrowings on a revolving basis through January 1, 1999, at which
time the amounts outstanding convert to a term loan with quarterly
payments of principal and accrued interest through June 30, 2002.
Future annual principal payments, as a percentage of the principal
balance outstanding at the time of conversion to the term loan, will be
36% in 1999, 30% in 2000, 23% in 2001 and 11% in 2002. On October 1,
1997, the borrowing base under the Senior Credit Facility was $100
million with $25.4 million available. The maximum commitment under the
Senior Credit Facility is $195 million.
NOTE 4 -- FINANCIAL INSTRUMENTS
The Company has entered into forward sales and swap arrangements
with respect to approximately 19% of its estimated natural gas
production through May 1998 at a weighted average price of $2.36 per
Mcf. The Company has also hedged an additional 26% of its estimated
natural gas production through March 1998 using a collar arrangement
with a floor of $2.25 per Mcf and a ceiling of $3.00 per Mcf.
Furthermore, the Company has hedged, through three-way options, 10% of
its estimated first quarter 1998 natural gas production, with a maximum
benefit of $.30 per Mcf if prices decline below an average floor of
$2.71 per Mcf, and with no exposure if prices remain below an average
ceiling of $3.93 per Mcf. The Company has also hedged approximately
17% of its estimated oil production through December 1998 using collar
arrangements with weighted average floors of $18.21 per Bbl and
weighted average ceilings of $23.08 per Bbl. The production
percentages reflected assume current production rates. As a result of
hedging activities, the Company recognized an increase in oil and gas
sales revenue of $102,000 for the three months ended September 30, 1997
and a decrease in oil and gas sales revenue of $6.7 million for the
nine months ended September 30, 1997.
NOTE 5 -- MERGERS
On October 22, 1997, the Company completed its mergers with Edisto
Resources Corporation ("Edisto") (ASE:EDT) and Convest Energy
Corporation ("Convest") (ASE:COV) pursuant to the Amended and Restated
Agreement and Plan of Merger dated July 15, 1997 ("Merger Agreement").
As a result of the mergers, the Company will issue a total of 2,829,913
shares of common stock at a value of $34.96 per share to the Edisto and
Convest Shareholders and will have paid $69.3 million in cash
consideration due to Edisto shareholders from cash balances received in
the mergers. Pursuant to the Merger Agreement, each share of Edisto
Common Stock was converted into the right to receive $4.886 in cash and
.14485 of a share of Forcenergy Common Stock, and (ii) each share of
Convest Common Stock was converted into the right to receive .254 of a
share of Forcenergy Common Stock. Through the mergers the Company
acquired an average 30% working interest in 43 Gulf of Mexico lease
blocks as well as interests in several onshore producing fields. The
merger was accounted for as a purchase.
<PAGE>
FORCENERGY INC
--------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
Results of Operations
Production Data
The following table sets forth the Company's historical oil and
natural gas production data during the periods indicated:
<CAPTION>
Three Months Ended Nine MonthsEnded
September 30, September 30
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------ -------
<S> <C> <C> <C> <C>
Production in thousands:
Liquids (MBbls) <F1> 1,959 1,061 5,924 2,839
Natural gas (MMcf) 14,183 9,511 40,781 22,283
Total (MBOE) 4,323 2,646 12,721 6,553
Average realized sales
prices <F2>:
Oil (per Bbl) $ 16.53 $ 16.62 $ 17.83 $ 16.87
Plant products (per Bbl) 12.85 14.44 14.13 13.64
Liquids (per Bbl)<F1> 16.26 16.49 17.62 16.65
Natural gas (per Mcf) 2.18 2.04 2.27 2.11
Expenses (per MBOE):
Lease operating $ 4.13 $ 4.02 $ 4.18 $ 4.19
Production taxes .25 .32 .26 .38
Depletion, depreciation and
amortization 6.36 6.18 6.36 6.18
General and administrative, net .92 .69 .87 .82
_____________
<FN>
<F1> Includes crude oil, condensate and natural gas liquids.
<F2> Net of effects of hedging
</FN>
</TABLE>
Comparison of the Three Month Periods ended September 30, 1997 and
September 30, 1996
Operating and Net Earnings. The Company's operating earnings
increased by 77% to $13.1 million for the three months ended September
30, 1997 compared to the $7.4 million reported for the same period of
1996. Net earnings for the 1997 quarter increased to $3.8 million, or
51%, compared to the $2.5 million reported for the same period last
year. The improvement in both operating and net earnings was
attributable primarily to higher production volumes and higher natural
gas prices during 1997.
<PAGE>
Production. Net liquids production increased to 1,959 thousand
barrels ("MBbls") for the third quarter of 1997, an 85% improvement
over the 1,061 MBbls produced in the comparable 1996 period. Net gas
production increased to 14,183 million cubic feet of natural gas
("Mmcf") in the 1997 quarter, 49% more than the 9,511 Mmcf produced in
the same period last year. On an equivalent unit basis, liquid and gas
production increased by 63% to 4,323 thousand barrels of oil
equivalent ("MBOE") for the three months ended September 30, 1997,
compared to the 2,646 MBOE produced during the same period of 1996.
The increase in equivalent production resulted from new oil production
in the Cook Inlet, Alaska area acquired in December 1996, from
producing properties in the Gulf of Mexico acquired late 1996 and early
1997, and from the Company's successful 1996 and 1997 drilling and
workover programs.
Revenues. Revenues for the 1997 quarter improved by 71% to $63.5
million, compared to the $37.0 million reported for the comparable
period in 1996, due to the higher production volumes and higher natural
gas prices. Average net realized gas prices were $2.18 per thousand
cubic feet of natural gas ("Mcf") in the three months ended September
30, 1997, a 7% improvement over the $2.04 per Mcf reported for the
comparable 1996 period. Average net realized liquids prices declined
by 1% to $16.26 per barrel ("Bbl") during the third quarter of 1997
compared to the $16.49 per Bbl received during the same period in 1996.
The Company periodically enters into hedging activities to
minimize its exposure to price fluctuations and to guarantee a certain
level of cash flow from production. Effects of hedging activities were
not significant in the third quarter of 1997. The effects of hedging
activities during the 1996 period resulted in a $3.7 million reduction
in oil revenue and a $1.4 million reduction in gas revenue and
effectively reduced average field prices by $3.86 per barrel and $.15
per Mcf.
Lease Operating Expenses. Lease operating expenses were
$17.9 million for the three months ended September 30, 1997 compared to
the $10.6 million reported for the same period in 1996. The increase
related primarily to lease operating expenses associated with oil and
gas properties acquired late 1996 and early 1997. On an equivalent
unit of production basis, expenses increased to an average of $4.13 per
barrel of oil equivalent ("BOE") for the 1997 quarter, from $4.02 per
BOE for the comparable 1996 period, an increase attributable primarily
to the higher production costs in the Cook Inlet, Alaska fields.
Excluding the Alaska properties, expenses per BOE decreased from $4.02
in the 1996 quarter to $3.35 in the 1997 quarter.
Depletion, Depreciation and Amortization ("DD&A"). DD&A expense
increased from $16.3 million in the third quarter of 1996 to
$27.5 million in the third quarter of 1997. The increase resulted from
higher production levels and, to a lesser extent, an increase in the
DD&A rate per unit of production to $6.36 per BOE compared to $6.18 per
BOE for the 1996 period.
General and Administrative Costs, Net. General and administrative
costs, net of capitalized internal costs and overhead reimbursements,
were $4.0 million, or $.92 per BOE, for the 1997 quarter compared with
$1.8 million, or $.69 per BOE, for the same period in 1996. This
increase was attributable to the overall growth of the Company,
including the expansion of its onshore and international operations
during the latter part of 1996 and the first nine months of 1997.
<PAGE>
Interest and Other Income. Interest and other income increased by
$830,000 to $973,000 for the third quarter of 1997. The increase
resulted primarily from the Company's equity in the earnings of Cook
Inlet Pipeline Company, a 30% owned affiliate acquired in January 1997
as part of the acquisition of producing oil properties in the Cook
Inlet area of Alaska.
Interest Expense. Interest expense, net of amounts capitalized,
increased to $8.2 million for the 1997 quarter compared to $3.6 million
for the same period of 1996. The increase in interest expense was due
primarily to higher debt levels. Interest rates were slightly higher
in 1997 as borrowings under the Company's credit facility were repaid
through the issuance of fixed-rate, long-term subordinated debt issues
in late 1996 and early 1997.
Income Tax Provision. Income tax expense increased by $.6 million
to $2.1 million for the 1997 quarter, a result of the improvement in
earnings during the 1997 period compared to the same period last year.
Earnings Per Share. Earnings per share increased by 23% to $.16
per common and common equivalent share for the three months ended
September 30, 1997 compared with the $.13 per share reported for the
same period in 1996, calculated on weighted average common and common
equivalent shares of approximately 24.1 million and 19.3 million for
the 1997 and 1996 periods, respectively.
<PAGE>
Comparison of the Nine Month Periods ended September 30, 1997 and
September 30, 1996
Operating and Net Earnings. The Company's operating earnings
improved by 164% to $50.2 million for the nine months ended September
30, 1997 compared to $19.0 million for the same period last year. Net
earnings for the 1997 period increased by 206% to $18.9 million
compared to earnings of $6.2 million for the 1996 period. The increases
in both operating earnings and net earnings were attributable primarily
to higher production levels and, to a lesser extent, higher average net
realized liquids and natural gas prices.
Production. Net liquids production increased by 109% to 5,924
Mbbls for the first nine months of 1997 compared to the 2,839 Mbbls
produced during the nine months ended September 30, 1996. Net gas
production increased to 40,781 Mmcf in the 1997 period, an 83%
improvement over the 22,283 Mmcf reported for the first nine months of
1996. The increase in both liquids and gas production were
attributable primarily to the Company's successful drilling activities
during the latter part of 1996 and 1997, from the acquisition of
producing properties in the Gulf of Mexico, and from the acquisition of
crude oil producing properties in the Cook Inlet area, Alaska.
Revenues. Revenues for the nine months ended September 30, 1997
increased by 110% to $198.7 million compared to the $94.8 million
reported for the same period in 1996, due primarily to higher
production volumes and, to a lesser degree, higher average net realized
liquids and natural gas prices. Average net realized liquids prices
increased by 6% to $17.62 compared to the $16.65 reported for the
comparable period in 1996. Net realized natural gas prices rose to
$2.27 for the 1997 period, an 8% increase over the $2.11 received for
the comparable period of 1996.
For the first nine months of 1997, average prices received for
field production were $18.33 per barrel and $2.36 per Mcf for liquids
and natural gas, respectively. Hedging activities during 1997 resulted
in a $2.8 million reduction in oil revenue and a $3.9 million reduction
in natural gas revenue, which reduced realized prices to $17.62 per
barrel for liquids and $2.27 per Mcf for natural gas. Average prices
received for field production in 1996 were $19.52 per barrel and $2.26
per Mcf for liquids and natural gas, respectively. Hedging activities
during the same period in 1996 resulted in a $7.0 million reduction in
oil revenue and a $3.2 million reduction in natural gas revenue,
thereby reducing realized liquids and natural gas prices to $16.65 per
barrel and $2.11 per Mcf, respectively.
Lease Operating Expenses. For the nine months ended September 30,
1997, lease operating expenses increased by 94% to $53.2 million
compared to the $27.4 million reported for the 1996 period. The
increase related primarily to properties acquired in the latter part of
1996 and 1997, and, to a lesser degree, higher workover and repair and
maintenance costs during the 1997 period. On an equivalent unit of
production basis, lease operating expenses for the 1997 period were
comparable to lease operating expenses for the nine months ended
September 30, 1996. Excluding the Alaska properties, expenses per BOE
decreased from $4.19 in the 1996 period to $3.55 in 1997.
Depletion, Depreciation and Amortization. Depletion, depreciation
and amortization increased to $80.9 million during the nine months
ended September 30, 1997 compared to the $40.5 million reported for the
same period in 1996. The increase was attributable to increased
production from acquisitions and drilling activities and, to a lesser
extent, an increase in the depletion rate per unit of production to
$6.36 per BOE, from $6.18 per BOE in 1996.
General and Administrative Expense. General and administrative
expense, net of overhead reimbursements and capitalized internal costs,
was $11.1 million, or $.87 per BOE, for the first nine months of 1997
compared with $5.4 million, or $.82 per BOE, for the comparable 1996
period. This increase was attributable to the overall growth of the
Company, including the expansion of its onshore and international
operations, during the latter part of 1996 and the first nine months of
1997.
Interest and Other Income. Interest and other income increased
to $2.7 million in the first nine months of 1997 compared to the
$380,000 reported for the same period last year. The increase resulted
primarily from the Company's equity in the earnings of Cook Inlet
Pipeline Company ($1.4 million) and interest income earned on higher
cash balances maintained subsequent to the Company's late 1996 and
early 1997 debt and equity offerings.
<PAGE>
Interest Expense. Interest expense, net of amounts capitalized,
increased to $23.0 million in the nine months ended September 30, 1997,
compared to the $9.5 million reported for the comparable period of
1996. The increase in interest expense was due primarily to an
increase in long-term debt and, to a lesser extent, higher interest
rates on the Company's new fixed-rate, long-term subordinated debt
issues.
Income Tax Provision. Income tax expense increased by $7.3
million to $11.0 million, resulting primarily from the improvement in
earnings for the first nine months of 1997 compared to the same period
in 1996.
Earnings Per Share. Earnings per share improved by 132% to $.79
per common and common equivalent share for the first nine months of
1997 compared to the $.34 per share reported for the same period last
year, calculated on weighted average common and common equivalent
shares of approximately 24.0 million and 18.3 million for 1997 and
1996, respectively.
<TABLE>
Liquidity and Capital Resources
The Company has historically funded its operations, acquisitions,
capital expenditures and working capital requirements through cash
flows from operations, bank borrowings and private and public
placements of debt and equity securities. The Company's primary
sources of funds for each of the periods indicated herein were as
follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net cash provided by
operating activities $ 28,292 $ 16,647 $ 115,901 $ 43,699
Borrowings under the
Senior Credit Facility 112,418 49,355 193,680 134,732
Repayments under the
Senior Credit Facility (46,900) (26,482) (225,994) (68,796)
Issuance of long-term debt,
net of expenses -- -- 193,414 --
</TABLE>
The Company had negative working capital of $24.7 million at
September 30, 1997 compared to working capital of $6.7 million at
December 31, 1996. The decrease in working capital was mainly
attributable to an increase in accounts payable and accrued liabilities
associated with the Company's third quarter 1997 drilling activities
and, to a lesser extent, accrued interest, which was partially offset
by an increase in other current assets resulting from prepayments for
drilling activities, seismic data, and lease operations.
<PAGE>
Forcenergy generated approximately $115.9 million in cash from
operations during the first nine months of 1997 compared to $43.7
million during the same period in 1996. Producing properties acquired,
the successful 1996/1997 drilling programs, and to a lesser extent,
higher net realized oil and gas prices contributed to the increase in
cash flow.
Total capital expenditures were $285.1 million for the nine months
ended September 30, 1997, including $111.7 million for acquisitions.
Capital expenditures were funded by the Company's existing Senior
Credit Facility, proceeds from the offering of 8 1/2% Senior Subordinated
Notes, and cash generated from operations.
Total long-term debt at September 30, 1997 was $440.6 million
compared to $272.9 million at December 31, 1996. During February 1997,
the Company completed a private placement of $200 million in 8 1/2%
Senior Subordinated Notes priced at $99.338 for a yield to maturity of
8.6%. The Company received approximately $194.0 million in net
proceeds and used the majority of the proceeds to repay all outstanding
indebtedness under the Company's Senior Credit Facility and to fund
producing property acquisitions in June and September 1997.
On October 1, 1997, the borrowing base under the Senior Credit
Facility was $100 million of which $25.4 million was available for
borrowing. The maximum commitment under the Senior Credit Facility is
$195 million.
The Company's capital expenditure budget for 1997, exclusive of
acquisitions, is estimated to be approximately $240.0 million, of which
approximately $190.5 million had been incurred as of September 30, 1997.
Forcenergy will continue to evaluate its capital spending plans
throughout the year. Actual levels of capital expenditures may vary
significantly due to a variety of factors, including drilling results,
oil and gas prices, industry conditions and outlook, future
acquisitions of properties and the availability of capital. Although
the Company does not budget for acquisitions, it will continue to
pursue selective acquisition opportunities with significant exploration
and development potential.
The Company utilizes, from time to time, forward sales contracts
and commodity swaps on portions of its current 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
production is not hedged so as to provide the Company the opportunity
to benefit from oil and natural gas price increases, should they occur.
The Company has entered into forward sales and swap arrangements with
respect to approximately 19% of its estimated natural gas production
through May 1998 at a weighted average price of $2.36 per Mcf. The
Company has also hedged an additional 26% of its estimated natural gas
production through March 1998 using a collar arrangement with a floor
of $2.25 per Mcf and a ceiling of $3.00 per Mcf. Furthermore, the
Company has hedged, through three-way options, 10% of its estimated
first quarter 1998 natural gas production, with a maximum benefit of
$.30 per Mcf if prices decline below an average floor of $2.71 per Mcf,
and with no exposure if prices remain below an average ceiling of $3.93
per Mcf. The Company has also hedged approximately 17% of its
estimated oil production through December 1998 using collar
arrangements with weighted average floors of $18.21 per Bbl and
weighted average ceilings of $23.08 per Bbl. The production
percentages reflected assume current production rates. As a result of
hedging activities, the Company recognized an increase in oil and gas
sales revenue of $102,000 for the three months ended September 30, 1997
and a decrease in oil and gas sales revenue of $6.7 million for the
nine months ended September 30, 1997.
On October 22, 1997, the Company completed its mergers with Edisto
Resources Corporation (ASE:EDT) and Convest Energy Corporation
(ASE:COV). As a result of the mergers, the Company will issue
2,829,913 shares of common stock at a value of $34.96 per share.
Management believes that cash flows from operations and borrowing
capacity under the Company's Senior Credit Facility will be adequate to
meet currently anticipated liquidity needs, including funding the
Company's financial obligations and capital expenditure program.
New Accounting Pronouncements
In February 1997, The Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standard No. 128,
Earnings per Share ("SFAS 128"). SFAS 128 specifies new standards for
the computation, presentation and disclosure requirements for earnings
per share ("EPS"). SFAS 128 is intended to improve the EPS information
provided in financial statements by simplifying the existing
computational guidelines, by revising the disclosure requirements to
provide more consistent and meaningful information and by increasing
the comparability of EPS data on an international basis. SFAS 128 is
effective for financial statements issued for periods
ending after December 15, 1997. The Company will adopt SFAS 128
effective December 31, 1997 and will restate EPS for all periods
presented. In September 1997, the FASB issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards of reporting and display of
comprehensive income and its components. In September 1997, the FASB
also issued Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for reporting operating
and geographic segments and the type and level of financial information
to be discussed about those segments. Both SFAS 130 and SFAS 131 are
effective for fiscal years beginning after December 15, 1997.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements other than statements of historical fact included in this
Form 10-Q, including without limitation, statements under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" regarding the planned capital expenditures, increases in
oil and gas production, 1997 drilling activities, the Company's
financial position, business strategy and other plans and objectives
for future operations, are forward-looking statements. 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 have been correct. There are numerous
uncertainties inherent in estimating quantities of proved oil and
natural gas reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the
control of the Company. Reserve engineering is a subjective process of
estimating underground accumulations of oil and natural gas that cannot
be measured in an exact way, and the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and
geological interpretation and judgment. As a result, estimates made
by different engineers often vary from one another. In addition,
results of drilling, testing and production subsequent to the date of
an estimate may justify revisions of such estimates and such revisions,
if significant, would change the schedule of any future production and
development drilling. Accordingly, reserve estimates are generally
different from the quantities of oil and natural gas that are
ultimately recovered. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by such factors.
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 -- Amended and Restated Agreement and Plan of Merger
dated as of July 15, 1997, by and among the
Company, EDI-Sub, Edisto and Convest (filed as
Exhibit 2.1 to the Registration Statement on Form S-
4, Amendment No. 1, filed on September 2, 1997, and
included herein by reference (File No. 333-31675))
11.1 -- Computation of Earnings per Share
27 -- Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
<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, in the City of
Miami, State of Florida, on the 12th day of November, 1997.
FORCENERGY INC
By: /s/ E. Joseph Grady
----------------------------------------
E. Joseph Grady
Vice President - Chief Financial Officer
<TABLE>
EXHIBIT 11.1
FORCENERGY INC
--------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(in thousands, except per share data)
PRIMARY EARNINGS PER SHARE
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Earnings $ 3,765 $ 2,491 $ 18,885 $ 6,171
Weighted Average Common
and Common Equivalent
Shares Outstanding 24,054 19,282 23,991 18,265
-------- -------- -------- --------
Primary Earnings Per Share $ .16 $ .13 $ .79 $ .34
======== ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
Net Earnings $ 3,765 $ 2,491 $ 18,885 $ 6,171
Effect of conversion of
7% Exchangeable Sub-
ordinated Notes on
interest expense -- 1,169 -- 3,700
Tax effect related to
interest expense -- (436) -- (1,380)
-------- -------- -------- --------
Net Earnings as adjusted $ 3,765 $ 3,224 $ 18,885 $ 8,491
Weighted Average Common and
Common Equivalent Shares
Outstanding 24,285 21,823 24,264 21,774
-------- -------- -------- --------
Fully Diluted Earnings
Per Share $ .16 $ .15 $ .78 $ .39
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (PRIMARY EPS)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
Weighted Average Shares
of Common Stock 22,715 18,281 22,654 18,265
Dilutive Common Stock
Equivalents, Greater
than 3% 1,339 1,001 1,337 --
------ ------ ------ ------
Effect on Primary EPS 24,054 19,282 23,991 18,265
====== ====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING (FULLY DILUTED EPS)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- --------
Weighted Average Common and
Common Equivalent Shares 22,729 <F1> 18,287 <F2> 22,724 <F1> 18,274 <F2>
Dilutive Common Stock
Equivalents 1,556 <F1> 1,202 <F2> 1,540 <F1> 1,160 <F2>
Other Potentially Dilutive Securities:
Conversion of 7% Exchangeable
Subordinated Notes -- 2,334 -- 2,340
------- ------- ------- -------
24,285 21,823 24,264 21,774
======= ======= ======= =======
<FN>
<F1> Calculation assumes that exercises of options and warrants to
purchase 144,915 shares of common stock occurred on January 1, 1997.
<F2> Calculation assumes that exercises of options to purchase 10,000
shares of common stock occurred on January 1, 1996.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM SEPTEMBER 30, 1997 BALANCE SHEET AND STATEMENT OF
OPERATIONS OF FORCENERGY INC FOR THE NINE MONTH PERIOD ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
/LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,063
<SECURITIES> 0
<RECEIVABLES> 29,126
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,079
<PP&E> 746,744
<DEPRECIATION> 0
<TOTAL-ASSETS> 828,674
<CURRENT-LIABILITIES> 85,793
<BONDS> 440,618
0
0
<COMMON> 227
<OTHER-SE> 270,347
<TOTAL-LIABILITY-AND-EQUITY> 828,674
<SALES> 196,929
<TOTAL-REVENUES> 198,661
<CGS> 0
<TOTAL-COSTS> 148,509
<OTHER-EXPENSES> (2,721)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,970
<INCOME-PRETAX> 29,903
<INCOME-TAX> 11,018
<INCOME-CONTINUING> 18,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,885
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
</TABLE>
