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 June 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 July 31, 1997, 22,713,450 shares of Common Stock, $.01 per
value, were outstanding.
<PAGE>
FORCENERGY INC
INDEX
Page
Part I. FINANCIAL INFORMATION: Number
------
Item 1. Financial Statements
a) Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 1
b) Consolidated Statements of Operations - Three
months and six months ended June 30, 1997 and 1996 2
c) Consolidated Statements of Cash Flows - Three
months and six months ended June 30, 1997 and 1996 3
d) Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-13
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
FORCENERGY INC
CONSOLIDATED BALANCE SHEETS
(in thousands)
----------------------
June 30, Dec. 31,
1997 1996
---------- ---------
(Unaudited)
ASSETS:
Current Assets:
Cash $ 3,091 $ 9,669
Accounts receivable, net 28,497 29,416
Other current assets 23,179 10,673
--------- ---------
Total current assets 54,767 49,758
--------- ---------
Investment in surety bonds, at cost 4,037 3,926
--------- ---------
Property, plant and equipment, at cost (full cost
method) net of accumulated depletion, depreciation
and amortization 681,517 523,711
--------- ---------
Other assets 18,221 8,530
--------- ---------
$ 758,542 $ 585,925
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 16,254 $ 8,643
Other accrued liabilities 71,570 34,370
--------- ---------
Total current liabilities 87,824 43,013
--------- ---------
Long-term debt 375,100 272,932
--------- ---------
Deferred income taxes 29,713 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; 22,680,021 and 22,577,838 issued
and outstanding at June 30, 1997 and December
31, 1996, respectively 227 226
Capital in excess of par value 247,880 246,032
Retained earnings 17,798 2,678
--------- ---------
Total stockholders' equity 265,905 248,936
--------- ---------
$ 758,542 $ 585,925
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORCENERGY INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, expect per share data)
------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 63,551 $ 29,135 $ 134,131 $ 57,477
Other 590 150 1,015 276
--------- --------- --------- ---------
64,141 29,285 135,146 57,753
--------- --------- --------- ---------
Expenses:
Lease operating 19,181 8,083 35,366 16,819
Depletion, depreciation and
amortization 27,899 12,606 53,356 24,162
Production taxes 1,172 929 2,231 1,653
General and administrative,
net 3,459 1,785 7,141 3,575
--------- --------- --------- ---------
51,711 23,403 98,094 46,209
--------- --------- --------- ---------
Income from operations 12,430 5,882 37,052 11,544
Interest and other income 1,426 126 1,748 237
Interest expense, net of
amounts capitalized (7,912) (3,039) (14,760) (5,913)
--------- --------- --------- ---------
Income before income taxes 5,944 2,969 24,040 5,868
Income tax provision 1,998 1,107 8,920 2,188
--------- --------- --------- ---------
Net income $ 3,946 $ 1,862 $ 15,120 $ 3,680
========= ========= ========= =========
Net income per weighted
average common and common
equivalent share $ .16 $ .10 $ .63 $ .20
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
FORCENERGY INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
----------------------
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 15,120 $ 3,680
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of subsidiary (900) --
Depletion, depreciation and amortization 54,218 24,656
Deferred taxes 8,920 2,188
Deferred interest -- 1,343
Other (111) (97)
Decrease (increase) in accounts receivable 6,718 (1,974)
Increase in other current assets (12,073) (2,843)
Increase (decrease) in accounts payable 2,631 (2,406)
Increase in other accrued liabilities 13,086 2,505
--------- ---------
72,489 23,372
--------- ---------
Net cash provided by operating activities: 87,609 27,052
--------- ---------
Cash flows from investing activities:
Acquisitions of oil and gas properties (92,698) (16,836)
Capital expenditures (97,265) (59,157)
Sales of oil and gas properties -- 1,072
Increase in other assets (1,698) (237)
Dividends received from subsidiary 300 --
Proceeds from sale of surety bond -- 2,151
--------- ---------
Net cash used in investing activities (191,361) (73,007)
--------- ---------
Cash flows from financing activities:
Borrowings under senior credit facility 81,262 85,377
Repayments under senior credit facility (179,094) (42,314)
Issuance of long-term debt, net of expenses 193,414 --
Issuance of common stock, net 1,592 69
--------- ---------
Net cash provided by financing activities 97,174 43,132
--------- ---------
Net decrease in cash (6,578) (2,823)
Cash at beginning of period 9,669 2,996
--------- ---------
Cash at end of period $ 3,091 $ 173
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 9,387 $ 5,756
Investing activities:
At June 30, 1997 and December 31, 1996 the Company had accrued additions
to oil and gas properties amounting to approximately $36,785,000 and
$17,155,000, respectively.
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. Certain
minor amounts previously reported in the financial statements of the
prior periods have been reclassified here to conform to the current
period presentation.
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 ("CSE's"). The
dilutive effect of CSE's was greater than 3% for the quarter and six
months ended June 30, 1997 and less than 3% for the quarter and six
months ended June 30, 1996. Weighted average common and common
equivalent shares were 23,996,728 and 18,260,689 for the three months
ended June 30, 1997 and 1996, respectively, and 23,962,997 and
18,260,568 for the six months ended June 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 CSE's 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:
FORCENERGY INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------------------------------
(basic) (diluted)
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Pro forma earnings per
share $.17 $.10 $.16 $.10
Pro forma weighted average
common and common
equivalent shares 22,668,113 18,260,689 23,996,728 18,635,416
<CAPTION>
Six Months Ended
June 30,
--------------------------------------------------
(basic) (diluted)
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Pro forma earnings per
share $.67 $.20 $.63 $.20
Pro forma weighted average
common and common
equivalent shares 22,624,036 18,260,568 23,962,997 18,497,382
</TABLE>
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 conversion to the term loan, will be 36% in
1999, 30% in 2000, 23% in 2001 and 11% in 2002. Additionally, the
borrowing base was reduced to $50 million under the Company's direction
to minimize commitment fees.
The Senior Credit Facility contains certain covenants which
include maintenance of a minimum tangible net worth, certain financial
ratios, restrictions on asset sales, affiliated transactions and
compensation and certain limitation 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 -- FINANCIAL INSTRUMENTS
The Company has entered into forward sales and swap arrangements
with respect to approximately 24% of its estimated net natural gas
production through the third quarter of 1997 at a weighted average
price of approximately $2.37 per Mcf. The Company has hedged through
swaps approximately 5% of its estimated net oil production through the
second quarter of 1997 at a weighted average price of $18.25 per Bbl.
The Company has also hedged an additional 19% of its estimated net oil
production through the end of the year using collar arrangements with a
floor of $18.00 per Bbl and ceilings of $23.90 and $26.30 per Bbl. The
production percentages reflected assume current production rates. The
Company recognized decreases in oil and gas sales revenue of $365,000
and $6.9 million in the quarter and six months ended June 30, 1997.
<PAGE>
FORCENERGY INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In June 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 June 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.
NOTE 6 - MERGERS AND REGISTRATION
On July 21, 1997, the Company filed a Registration Statement on
Form S-4 with respect to the contemplated issuance of common stock by
the Company pursuant to an Agreement and Plan of Merger dated June 19,
1997, as amended and restated (the "Merger Agreement"), among the
Company, Edisto Resources Corporation (ASE:EDT) ("Edisto"), and Convest
Energy Corporation (ASE:COV) ("Convest") pursuant to which Edisto
and Convest will be acquired by the Company. The mergers are valued at
approximately $172.1 million with approximately $68.0 million of the
consideration payable in cash and the balance payable in common stock
of the Company. Each share of common stock of Edisto will be converted
into the right to receive (i) $4.886 in cash and (ii) a fractional
interest in a share of the Company's common stock equal to $5.064
divided by the average weighted daily trading price of the Company's
common stock for the ten trading days ending two trading days prior to
the closing date. Each share of common stock of Convest will be
converted into the right to receive a fractional interest in a
share of the Company's common stock equal to $8.88 divided by the
average weighted daily trading price of the Company's common stock for
the ten trading days ending two trading days prior to the closing date.
The price of the Company's common stock used in such calculations will
not be less than $28.96 nor more than $34.96. Based on this range of
price, the number of the Company's common shares estimated to be
issued at closing range from 2,796,153 shares to 3,375,466 shares.
The majority shareholders of Convest and Edisto have agreed to vote
their respective shares in favor of the transaction thereby assuring
the necessary level of shareholder approval. The mergers will be
accounted for as purchases and are expected to close by October 1997.
<PAGE>
FORCENERGY INC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
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 Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Production in thousands:
Liquids (MBbls) (F1) 2,076 924 3,965 1,778
Natural gas (MMcf) 13,926 6,681 26,598 12,772
Total (MBOE) 4,397 2,038 8,398 3,907
Average realized sales
prices (F2):
Oil (per Bbl) $ 16.65 $ 16.68 $ 18.45 $ 17.01
Plant products (per Bbl) 11.76 15.98 15.17 13.10
Liquids (per Bbl)(F1) 16.42 16.65 18.30 16.75
Natural gas (per Mcf) 2.12 2.06 2.31 2.17
Expenses (per MBOE):
Lease operating $ 4.36 $ 3.97 $ 4.21 $ 4.31
Production taxes .27 .46 .27 .42
Depletion, depreciation and
amortization 6.36 6.18 6.36 6.18
General and administrative, net .79 .88 .85 .92
_____________
<FN>
<F1>
Includes crude oil, condensate and natural gas liquids.
<F2>
Net of effects of hedging
</FN>
</TABLE>
Comparison of the Three Month Period ended June 30, 1997 and June 30, 1996
Operating and Net Income. The Company's operating income
increased to $12.4 million for the second quarter of 1997 compared to
the $5.9 million reported for the second quarter of 1996, an 111%
improvement. Net income for the three months ended June 30, 1997
increased to $3.9 million, or 105%, compared to the $1.9 million
reported for the same period last year. The improvement in both
operating and net income was attributable primarily to higher
production volumes.
Production. Net liquids production increased to 2,076 thousand
barrels ("MBbls") for the second quarter of 1997 from 924 MBbls in the
comparable 1996 period, a 125% improvement. Net gas production
increased to 13,926 million cubic feet of natural gas ("Mmcf") in the
1997 quarter, an 108% increase over the 6,681 Mmcf produced in the same
period last year. On an equivalent unit basis, liquid and gas
production increased to 4,397 thousand barrels of oil equivalent
("MBOE") for the 1997 second quarter, 116% more than the 2,038 MBOE
produced during the comparable 1996 period. The increase in liquids
and gas production primarily related to the Company's successful 1996
and 1997 drilling and workover programs, the acquisition of producing
properties in the Gulf of Mexico during the latter part of 1996 and
early 1997, and the acquisition of producing crude oil properties in
the Cook Inlet, Alaska area.
<PAGE>
Revenues. Revenues for the second quarter of 1997 increased to
$64.1 million, an 119% improvement over the $29.3 million reported for
the same period last year, primarily due to the higher production
volumes during 1997. Average net realized liquids and gas prices for
the second quarter of 1997 were comparable to those received during the
same period last year. Average net realized liquids prices declined by
1% to $16.42 per barrel ("Bbl") during the 1997 quarter compared to the
$16.65 per Bbl received during the second quarter of 1996. Average net
realized gas prices were $2.12 per thousand cubic feet of natural gas
("Mcf") in the second quarter of 1997, a 3% increase over the $2.06 per
Mcf reported for the comparable 1996 period.
Average prices received for field production for the 1997 quarter
were $16.93 per Bbl and $2.10 per Mcf for oil and natural gas,
respectively. After taking into account the effects of 1997 hedging
activities entered into in order to guarantee a certain level of cash
flow from production, specifically a $600,000 reduction in oil revenue
and a $235,000 increase in gas revenue, net realized oil prices were
reduced to $16.65 per Bbl and net realized gas prices were increased to
$2.12 per Mcf. Average prices received for field production for the
second quarter of 1996 were $19.60 per Bbl and $2.31 per Mcf for oil
and natural gas, respectively. After taking into account the effects
of hedging activities during the 1996 quarter, specifically a $2.6
million reduction in oil revenue and a $1.7 million reduction in gas
revenue, net realized prices were reduced to $16.68 per Bbl and $2.06
per Mcf for oil and natural gas, respectively.
Lease Operating Expenses. Lease operating expenses were
$19.2 million for the second quarter of 1997 compared to the
$8.1 million reported for the same period last year. The increase
related primarily to lease operating expenses associated with oil and
gas properties acquired in 1996 and early 1997 and higher workover-type
repair and maintenance activities in 1997. On an equivalent unit of
production basis, expenses increased to $4.36 per barrel of oil
equivalent ("BOE") for the 1997 quarter from $3.97 per BOE for the
comparable 1996 period, due primarily to the expenses associated with
workover-type repair and maintenance activities that took place
during the second quarter of 1997, and generally higher costs
associated with operations in the Cook Inlet area, Alaska, which was
partially offset by increased production on existing properties
as a result of the Company's successful drilling activities.
Depletion, Depreciation and Amortization ("DD&A"). DD&A expense
increased to $27.9 million for the 1997 period from the $12.6 million
reported for the first quarter of 1997. The increase resulted from
higher production levels and an increase in the DD&A rate per unit of
production to $6.36 per BOE, compared to $6.18 per BOE as for the same
period last year.
General and Administrative Costs, Net. General and administrative
costs, which are net of capitalized internal costs and overhead
reimbursements, were $3.5 million for the second quarter of 1997
as compared with $1.8 million reported for the 1996 period, an increase
attributable to the overall growth of the Company during the latter
part of 1996 and the first half of 1997. On an equivalent unit basis,
general and administrative expenses decreased to $.79 per BOE for the
1997 period from a rate of $.88 per BOE for the same period last year,
primarily due to the higher production levels in 1997.
Interest and Other Income. Interest and other income increased to
$1.4 million for the second quarter of 1997 as compared to the $126,000
reported for the second quarter of 1996. The increase resulted
primarily from the Company's equity in the net income of Cook Inlet
Pipeline Company (a 30% owned subsidiary acquired in January 1997 as
part of the acquisition of producing oil properties in the Cook Inlet
area of Alaska) which amounted to $900,000.
Interest Expense. Interest expense, net of amounts capitalized,
increased to $7.9 million for the 1997 quarter as compared to $3.0
million for the second quarter of 1996. The increase in interest
expense was primarily due to the increase in long-term debt and,
to a lesser extent, higher interest rates on the fixed rate
long-term subordinated debt issues.
<PAGE>
Income Tax Provision. Income tax expense increased to
$2.0 million for the 1997 quarter, from $1.1 million for the same
period last year, due principally to the improvement in results of
operations compared to the 1996 period.
Earnings Per Share. Earnings per share increased by 60% to $.16
per common and common equivalent share for the three months ended June
30, 1997 compared with the $.10 per common and common equivalent share
reported for the comparable 1996 period calculated on weighted average
common and common equivalent shares of approximately 24.0 million and
18.3 million, respectively.
Comparison of the Six Month Periods ended June 30, 1997 and June 30, 1996
Operating Income. The Company's operating income increased to
$37.1 million for the six months ended June 30, 1997 compared to $11.5
million for the same period last year, a 221% improvement. Net income
for the first half of 1997 increased 311% to $15.1 million compared to
net income of $3.7 million for the six months ended June 30, 1996. The
increase in both operating income and net income was primarily
attributable to higher production levels and, to a lesser extent,
higher average net realized liquids and gas prices.
Production. Net liquid production increased by 123% to 3,965
Mbbls for the first six months of 1997 compared to the 1,778 Mbbls
produced during the same period last year. Net gas production
increased to 26,598 Mmcf in the 1997 period, an 108% improvement over
the 12,772 Mmcf reported for the first six months of 1996. The
increase in both liquids and gas production stems primarily from the
Company's successful drilling activities during the latter part of 1996
and 1997, the acquisition of producing properties in the Gulf of
Mexico, and the acquisition of crude oil producing properties in the
Cook Inlet area, Alaska.
Revenues. Revenues for the six months ended June 30, 1997
increased 134% to $135.1 million as compared to $57.8 million for the
same period in 1996, primarily due to higher production volumes and, to
a lesser degree, higher average net realized liquids and gas prices.
Average netrealized liquids prices increased by 9% to $18.30 compared
to the $16.75 reported for the same period in 1996. Net realized
natural gas prices rose to $2.31 for the 1997 period, a 7% increase over
the $2.17 received for the comparable period of 1996.
For the first six months of 1997, average prices received for
field production were $19.16 per barrel and $2.47 per Mcf for oil and
natural gas, respectively. Hedging activities during 1997,
specifically a $2.7 million reduction in oil revenue and a $4.2 million
reduction in natural gas revenue, reduced prices to $18.45 per barrel
for oil and $2.31 per Mcf for natural gas. Average prices received for
field production were $19.03 per barrel and $2.31 per Mcf for oil and
natural gas, respectively, for the six months ended June 30, 1996.
Hedging activities during the same period reduced oil and gas prices to
$17.01 per barrel and $2.17 per Mcf, respectively, as a result of a
$3.4 million reduction in oil revenue and a $1.8 million reduction in
natural gas revenue. The Company's hedging activities consist of
forward sales contracts and commodity swaps that guarantee a certain
level of cash flow from production.
Lease Operating Expenses. For the six months ended June 30, 1997,
lease operating expenses increased by 110% to $35.4 million as compared
to the $16.8 million reported for the comparable period in 1996. The
increase primarily related to properties acquired in the latter half of
1996 and, to a lesser degree, higher workover costs during the 1997
period. On an equivalent unit of production basis, lease operating
expenses decreased by 2% from $4.31 per BOE for the first six months of
1996 to $4.21 per BOE for the first six months of 1997. The decrease
was mainly attributable to increased production on existing properties
as a result of successful drilling activities and generally higher
operating costs associated with crude oil properties acquired in the
Cook Inlet area, Alaska which was partially offset by higher workover
costs during the 1997 period.
<PAGE>
Depletion, Depreciation and Amortization. During the six months
ended June 30, 1997, depletion, depreciation and amortization increased
to $53.4 million as compared to the $24.2 million reported for the
comparable 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 in the first six months of 1997 from $6.18 per BOE for
the comparable period of 1996.
General and Administrative Expense. General and administrative
expense, which is net of overhead reimbursements and capitalized
internal costs, was $7.1 million in the first six months of 1997
compared with the $3.6 million reported for the comparable period of
1996. This increase was attributable to the overall growth of the
Company during the latter part of 1996 and the first half of 1997. On
a barrel equivalent basis, general and administrative expenses
decreased by 8% to $.85 per BOE for the first six months of 1997, from
$.92 per BOE for the same period in 1996, as a result of higher
production levels in the 1997 period.
Interest and Other Income. Interest and other income increased
to $1.7 million in the 1997 period as compared to the $237,000 reported
for the comparable 1996 period. The increase resulted primarily from
the Company's equity in the net income of Cook Inlet Pipeline Company
(a 30% owned subsidiary acquired in January 1997 as part of the
acquisition of producing oil properties in the Cook Inlet area of
Alaska) amounting to $900,000.
Interest Expense. Interest expense, net of amounts capitalized,
increased to $14.8 million in the six months ended June 30, 1997,
compared to the $5.9 million reported for the comparable period of 1996.
The increase in interest expense was primarily due to the increase in
long-term debt and, to a lesser extent, higher interest rates.
Income Tax Provision. Income tax expense increased by $6.7
million to $8.9 million, primarily as a result of the improvement in
results of operations for the first six months of 1997 as compared to
the same period in 1996.
Earnings Per Share. Earnings per share improved by 215% to $.63
per common and common equivalent share for the first six months of 1997
as compared to the $.20 per common and common equivalent share reported
for the comparable 1996 period, calculated on weighted average common
and common equivalent shares of approximately 24.0 million and 18.3
million for 1997 and 1996, respectively.
Liquidity and Capital Resources
The Company has historically funded its operations, acquisitions,
capital expenditures and working capital requirements through cash flow
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net cash provided by operating
activities $ 28,595 $ 13,744 $ 87,609 $ 27,052
Borrowings under the Senior Credit
Facility -- 47,952 81,262 85,377
Issuance of long-term debt, net of
expenses -- -- 193,414 --
</TABLE>
<PAGE>
The Company had negative working capital of $33.1 million at June
30, 1997 as 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 second quarter 1997 drilling and workover activities
and, to a lesser extent, accrued interest, which was partially offset
by an increase in other current assets as a result of prepayments for
drilling activities and operations.
Forcenergy generated approximately $87.6 million in cash from
operations during the first six months of 1997 as compared to $27.1
million during the same period in 1996. This increase was due to the
acquisition of producing properties, the successful 1996/1997 drilling
programs, and to alesser extent, higher net realized oil and gas prices.
Total capital expenditures were $190.0 million for the six months
ended June 30, 1997, including $92.7 million for acquisitions. Funding
for these expenditures was provided through the Company's existing
Senior Credit Facility, the 8 1/2% Senior Subordinated Notes (discussed
below), and cash generated from operations.
Total long-term debt at June 30, 1997 was $375.1 million as
compared to $272.9 million at December 31, 1996. During February 1997,
the Company completed on 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 those proceeds to repay all outstanding
indebtedness under the Company's Senior Credit Facility and to pay for
a portion of producing property acquisitions that occurred during June
1997.
On March 31, 1997, at the discretion of the Company, the borrowing
base under the Senior Credit Facility was reduced to $50 million to
reduce the committment fees associated with undrawn amounts under the
Senior Credit Facility. At July 31, 1997, the Company had approximately
$31million available under the facility. The Senior Credit Facility
contains certain covenants which include maintenance of a minimum
tangible net worth, certain financial ratios, restrictions on asset
sales, affiliated transactions and compensation and certain limitation
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.
The Company's capital expenditure budget for 1997, exclusive of
acquisitions, is estimated to be approximately $195 million. 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 1997 budget
does not incorporate any acquisitions, the Company will continue to
selectively seek acquisition opportunities where it believes
significant exploration and development potential exists.
The Company utilizes, from time to time, forward sales contracts
and commodity swaps for 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 increases in prices on that portion of the production,
should price increases materialize. The Company has entered into
forward sales and swap arrangements with respect to approximately 24%
of its estimated net natural gas production through the third quarter
of 1997 at a weighted average price of approximately $2.37 per Mcf.
The Company has also hedged through swaps approximately 5% of its
estimated net oil production through the second quarter of 1997 at a
weighted average price of $18.25 per Bbl. In addition, the Company has
hedged another 19% of its current net oil production through the end of
the year using collar arrangements with a floor of $18.00 per Bbl and
ceilings of $23.90 and $26.30 per Bbl.
<PAGE>
Effective June 18, 1997, the Company was accepted for listing with
the New York Stock Exchange. The Company's common stock began trading
under the symbol FEN on that day.
Management believes that cash flows from operations and borrowing
capacity under the Company's Senior Credit Facility will be adequate to
meet currently anticpated 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 June 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 June 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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May
15, 1997. Certain matters voted on at the meeting and the votes cast
with respect to such matters are as follows:
(a) Election of Directors
Abstained/
Name For Against Withheld
---- --- ------- ----------
Stig Wennerstrom 17,824,920 19,475 4,823,354
Bruce L. Burnham 17,824,920 19,475 4,823,354
Eric Forss 17,824,920 19,475 4,823,354
Robert Issal 17,824,920 19,475 4,823,354
William F. Wallace 17,824,920 19,475 4,823,354
(b) Adoption of the 1997 Stock Price Performance Incentive Plan for
Employees of the Company
Abstained/
For Against Withheld
--- ------- ---------
17,531,107 98,340 5,038,302
(c) Consolidation of all of the Company's stock option plans into the
plan adopted in 1995 (the "1995 Plan"), to amend the 1995 Plan and
to increase the number of shares covered by the 1995 Plan
Abstained/
For Against Withheld
--- ------- ----------
14,851,408 2,813,549 5,002,792
(d) Ratification of the appointment of Coopers & Lybrand L.L.P. as
independent auditors of the Company for the year ending December
31, 1997
Abstained/
For Against Withheld
--- ------- ----------
17,836,466 1,090 4,830,193
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 -- Agreement and Plan of Merger dated as of June
19, 1997, as amended, by and among the Company, EDI-
Sub, Edisto and Convest (filed as Exhibit 2.1 to
the Registration Statement on Form S-4 filed on
July 21, 1997 and is included herein by reference
(File No. 333-31675))
2.2 -- Shareholder Agreement dated as of June 19,
1997 by and among the Company and TCW Entities
(incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form S-4 filed on July 21,
1997 and included herein by reference (File No.
333-31675))
2.3 -- Form of Shareholder Agreement by and among the
Company and certain officers and directors of
Edisto and Convest (incorporated by reference to
Exhibit 2.3 to the Registration Statement on Form
S-4 filed on July 21, 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 June
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 13th day of August, 1997.
FORCENERGY INC
By: /s/ E. Joseph Grady
E. Joseph Grady
Vice President - Chief Financial Officer
<PAGE>
EXHIBIT 11.1
FORCENERGY INC
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 3,946 $ 1,862 $ 15,120 $ 3,680
Weighted Average Common and
Common Equivalent Shares
Outstanding 23,997 18,261 23,963 18,261
-------- -------- -------- --------
Primary Earnings Per Share $ .16 $ .10 $ .63 $ .20
======== ======== ======== ========
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 3,946 $ 1,862 $ 15,120 $ 3,680
Effect of conversion of 7%
Exchangeable Subordinated
Notes on interest expense -- 1,167 -- 2,532
Tax effect related to interest
expense -- (435) -- (944)
-------- -------- -------- --------
Net Income as adjusted $ 3,946 $ 2,594 $ 15,120 $ 5,268
Weighted Average common and
Common Equivalent Shares
Outstanding 24,003 21,248 23,986 21,226
-------- -------- -------- --------
Fully Diluted Earnings Per Share $ .16 $ .12 $ .63 $ .25
======== ======== ======== ========
<CAPTION>
WEIGHTED AVERAGE SHARES OUTSTANDING (PRIMARY EPS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted Average Shares of
Common Stock 22,668 18,261 22,624 18,261
Dilutive Common Stock Equivalents,
Greater than 3% 1,329 -- 1,339 --
------- ------- ------- -------
Effect on Primary EPS 23,997 18,261 23,963 18,261
======= ======= ======= =======
<CAPTION>
WEIGHTED AVERAGE SHARES OUTSTANDING (FULLY DILUTED EPS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Weighted Average Common and
Common Equivalent Shares 22,674(F1) 18,261 22,674(F1) 18,261
Dilutive Common Stock Equivalents 1,329(F1) 644(F2) 1,312(F1) 622(F2)
Other Potentially Dilutive Securities:
Conversion of 7% Exchangeable
Subordinated Notes -- 2,343 -- 2,343
------- ------- ------- -------
24,003 21,248 23,986 21,226
======= ======= ======= =======
<FN>
<F1>
The fully diluted weighted average shares outstanding calculation
for the quarter and six months ended June 30, 1997 assumes that
exercises of options and warrants to purchase 95,911 shares of common
stock occurred on January 1, 1997.
<F2>
Less than 3% effect on primary earnings per share
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM JUNE 30, 1997 BALANCE SHEET AND STATEMENT OF
OPERATIONS OF FORCENERGY INC FOR THE SIX MONTH PERIOD ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,091
<SECURITIES> 0
<RECEIVABLES> 28,497
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,179
<PP&E> 681,517
<DEPRECIATION> 0
<TOTAL-ASSETS> 758,542
<CURRENT-LIABILITIES> 87,824
<BONDS> 375,100
0
0
<COMMON> 227
<OTHER-SE> 265,678
<TOTAL-LIABILITY-AND-EQUITY> 758,542
<SALES> 134,131
<TOTAL-REVENUES> 135,146
<CGS> 0
<TOTAL-COSTS> 98,094
<OTHER-EXPENSES> (1,748)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,760
<INCOME-PRETAX> 24,040
<INCOME-TAX> 8,920
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,120
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
