<PAGE> 1
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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, 1998
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
incorporation or organization) Identification No.)
2730 S.W. 3rd Avenue, Suite 800
Miami, Florida
33129-2356
(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, 1998, 24,701,014 shares of the registrant's Common
Stock, $.01 per value, were outstanding.
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<PAGE> 2
FORCENERGY INC
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
a) Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997............................................................... 1
b) Consolidated Statements of Operations - Three months and six months
ended June 30, 1998 and 1997................................................... 2
c) Consolidated Statements of Cash Flows - Six months ended
June 30, 1998 and 1997.......................................................... 3
d) Notes to Consolidated Financial Statements...................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................................... 15
</TABLE>
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"). THE WORDS "ANTICIPATE," "BELIEVE," "EXPECT,"
"PLAN," "INTEND," "ESTIMATE," "PROJECT," "WILL," "COULD," "MAY," "PREDICT" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS FORM 10-Q,
INCLUDING STATEMENTS UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" REGARDING PLANNED CAPITAL EXPENDITURES, THE
ABILITY TO FUND CAPITAL EXPENDITURES, ESTIMATES OF PROVED RESERVES, 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 THE FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT ACTUAL RESULTS MAY NOT DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS HEREIN FOR REASONS
INCLUDING, WITHOUT LIMITATION, THE EFFECT OF COMPETITION, THE LEVEL OF PETROLEUM
INDUSTRY EXPLORATION AND PRODUCTION EXPENDITURES, WORLD ECONOMIC CONDITIONS,
PRICES OF AND THE DEMAND FOR CRUDE OIL AND NATURAL GAS, DRILLING ACTIVITY,
WEATHER, THE LEGISLATIVE ENVIRONMENT IN THE UNITED STATES AND OTHER COUNTRIES,
OPEC POLICY, CONFLICT IN THE MIDDLE EAST AND OTHER MAJOR PETROLEUM PRODUCING
REGIONS AND THE CONDITION OF THE CAPITAL AND EQUITY MARKETS. IN ADDITION,
RESERVE ENGINEERING IS A SUBJECTIVE PROCESS OF ESTIMATING UNDERGROUND
ACCUMULATIONS OF OIL AND GAS, AND RESERVE ESTIMATES ARE GENERALLY DIFFERENT FROM
QUANTITIES OF OIL AND GAS THAT ARE ULTIMATELY RECOVERED. ALL 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> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORCENERGY INC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------
JUNE 30, DECEMBER 31,
1998 1997
--------- -----------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash ................................................................. $ 6,998 $ 16,048
Accounts receivable, net ............................................. 35,872 43,502
Other current assets ................................................. 27,534 30,231
--------- ---------
Total current assets ............................................. 70,404 89,781
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost (full cost
method) net of accumulated depletion, depreciation
and amortization ..................................................... 855,396 713,983
--------- ---------
OTHER ASSETS .............................................................. 18,217 15,618
--------- ---------
$ 944,017 $ 819,382
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 45,378 $ 32,666
Other accrued liabilities ............................................ 75,301 65,161
--------- ---------
Total current liabilities ........................................ 120,679 97,827
--------- ---------
LONG-TERM DEBT ............................................................ 616,406 506,564
--------- ---------
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; 24,686,594 and 25,504,617 issued
and outstanding at June 30, 1998 and December 31,
1997, respectively ............................................... 247 255
Capital in excess of par value ....................................... 346,034 346,876
Accumulated deficit .................................................. (139,349) (132,140)
--------- ---------
Total stockholders' equity ......................................... 206,932 214,991
--------- ---------
$ 944,017 $ 819,382
========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
1
<PAGE> 4
FORCENERGY INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales ............................. $ 70,593 $ 63,551 $ 142,378 $ 134,131
Other ......................................... 185 590 355 1,015
--------- --------- --------- ---------
70,778 64,141 142,733 135,146
--------- --------- --------- ---------
EXPENSES:
Lease operating ............................... 24,442 19,181 48,073 35,366
Depletion, depreciation and amortization ...... 38,089 27,899 73,601 53,356
Production taxes .............................. 1,137 1,172 2,172 2,231
General and administrative .................... 4,327 3,459 9,120 7,141
--------- --------- --------- ---------
67,995 51,711 132,966 98,094
--------- --------- --------- ---------
INCOME FROM OPERATIONS ........................... 2,783 12,430 9,767 37,052
Interest and other income ........................ 284 1,426 787 1,748
Interest expense, net of amounts capitalized ..... (11,658) (7,912) (21,917) (14,760)
--------- --------- --------- ---------
Income (loss) before income taxes ................ (8,591) 5,944 (11,363) 24,040
Income tax benefit (provision) ................... 2,980 (1,998) 4,153 (8,920)
--------- --------- --------- ---------
NET INCOME (LOSS) ................................ $ (5,611) $ 3,946 $ (7,210) $ 15,120
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE: basic ............... $ (.23) $ .17 $ (.29) $ .67
========= ========= ========= =========
diluted ............ $ (.23) $ .16 $ (.29) $ .63
========= ========= ========= =========
Weighted average shares outstanding: basic ....... 24,642 22,668 25,004 22,624
diluted ..... 24,642 23,977 25,004 23,935
</TABLE>
The accompanying notes are an integral part
of these financial statements.
2
<PAGE> 5
FORCENERGY INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................. $ (7,210) $ 15,120
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization ....... 74,574 54,218
Deferred taxes ................................. (4,153) 8,920
Equity in earnings of affiliate ................ (631) (900)
Other .......................................... -- (111)
Decrease in accounts receivable ................ 7,630 6,718
(Increase) decrease in other current assets .... 2,697 (12,073)
Increase in accounts payable ................... 12,712 2,631
Increase in other accrued liabilities .......... 2,470 13,086
--------- ---------
Net cash provided by operating activities ............... 88,089 87,609
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions ....................................... (42,818) (92,698)
Capital expenditures ............................... (165,634) (97,265)
Decrease (increase) in other assets ................ 462 (1,698)
Dividends received from affiliate .................. 750 300
--------- ---------
Net cash used in investing activities ................... (207,240) (191,361)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under senior credit facility ............ 225,400 81,262
Repayments under senior credit facility ............ (115,558) (179,094)
Issuance of long-term debt, net of expenses ........ -- 193,414
Issuance of common stock ........................... 375 1,592
Other .............................................. (116) --
--------- ---------
Net cash provided by financing activities ............... 110,101 97,174
--------- ---------
NET DECREASE IN CASH .................................... (9,050) (6,578)
CASH AT BEGINNING OF PERIOD ............................. 16,048 9,669
--------- ---------
CASH AT END OF PERIOD ................................... $ 6,998 $ 3,091
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................. $ 23,196 $ 9,387
========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE> 6
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. Capitalized terms not defined herein
have the meanings as defined in the notes to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - LONG TERM DEBT
During the second quarter, the Company renegotiated certain terms of its
Senior Credit Facility. The maximum loan commitment under the facility was
increased from $200 million to $320 million with the borrowing base also
increased to $320 million. The term of the facility was extended to a maturity
of March 31, 2002, at which time all advances outstanding and accrued interest
thereon become due and payable. The expanded facility provides for interest on
amounts outstanding under the revolver (at the Company's election) at either the
prime rate or LIBOR plus between .75% and 2.0%, depending on Forcenergy's ratio
of total long-term debt to total book capitalization ("Debt to Capitalization
Ratio") at the end of the previous calendar quarter. Effective April 30, 1999,
interest rates on the Company's LIBOR borrowings will be increased by an
additional margin ranging from .125% to .25% if the Company does not reduce its
Debt to Capitalization Ratio to 65% or less. The terms of the amendment provide
that the maximum loan amount will be reduced to $300 million and $275 million on
May 1, 1999, and September 1, 1999, respectively, absent redetermination related
to the Company's ability to continue to grow its reserve base prior to those
dates. On July 1, 1998, the Company's LIBOR-based borrowing rate was LIBOR plus
1.25%.
The Senior Credit Facility contains certain covenants which include
maintenance of minimum tangible net worth, certain financial ratios,
restrictions on asset sales, affiliated transactions and compensation and
certain limitations on dividends and additional debt or liens. The Company is in
compliance with these covenants, or has received waivers in the event of
non-compliance.
At June 30, 1998, the Company had approximately $73.2 million available
under the facility.
4
<PAGE> 7
NOTE 3 - EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic
and diluted EPS computations (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
1998 1997
---------------------------------- --------------------------------------
PER PER
LOSS SHARES SHARE INCOME SHARES SHARE
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income (loss) available
to common stockholders .. $(5,611) 24,642 $ (.23) $ 3,946 22,668 $ .17
EFFECT OF DILUTIVE SECURITIES:
Options and warrants ........ -- -- -- (1) -- 1,309 (.01)
------- ------- ------- ------- ------- -----------
DILUTED EPS:
Income available to
common stockholders
and assumed exercises ... $(5,611) 24,642 $ (.23) $ 3,946 23,977 $ .16
======= ======= ======= ======= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
1998 1997
---------------------------------- --------------------------------------
PER PER
LOSS SHARES SHARE INCOME SHARES SHARE
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income (loss) available
to common stockholders ..... $(7,210) 25,004 $ (.29) $15,120 22,624 $ .67
EFFECT OF DILUTIVE SECURITIES:
Options and warrants ........... -- -- -- (1) -- 1,311 (.04)
------- ------- ------- ------- ------- -----------
DILUTED EPS:
Income available to
common stockholders
and assumed exercises ...... $(7,210) 25,004 $ (.29) $15,120 23,935 $ .63
======= ======= ======= ======= ======= ===========
</TABLE>
- ----------
(1) The effect of 762,954 and 830,695 shares of potential common stock were
anti-dilutive for the quarter and six months ended June 30, 1998,
respectively, due to the loss in both periods.
5
<PAGE> 8
FORCENERGY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - STOCK HOLDER RIGHTS PLAN
On May 8, 1998, the Company amended its Stockholder Rights Plan
providing that rights under the plan will now become exercisable if a person or
group acquires 15% or more of Forcenergy's outstanding voting stock or announces
a tender or exchange offer that would result in ownership of 15% or more of
Forcenergy's stock. Formerly, the plan provided for a threshold percentage of
20% of the outstanding voting common stock. In addition, as a result of the
Company's acquisition of Forcenergy AB ("FAB") in March 1998, the plan has been
amended to delete references to FAB and its successors as being excluded from
the plan's effect. The Stockholder Rights Plan now applies to all stockholders
of Forcenergy.
NOTE 5 - 1995 STOCK INCENTIVE PLAN
On May 14, 1998, by shareholder vote, the number of shares authorized
under the 1995 Stock Incentive Plan was increased from 4,000,000 to 6,000,000
shares.
NOTE 6 - FINANCIAL INSTRUMENTS
Forcenergy 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 Forcenergy the opportunity to benefit from oil and natural gas price
increases, should they occur. The Company has entered into no-cost three-way
option arrangements with respect to approximately 29% of its estimated natural
gas production for the July through September 1998 period and for the April
through September 1999 period with average floors of $2.33 per Mcf and average
ceilings of $2.58 per Mcf. If prices fall below an average of $2.03 per Mcf in
any month, the floor for that month resets to the $2.03 average. In addition,
the Company has in place collar arrangements hedging 13% of natural gas
production from July 1998 through October 1998 with weighted average floors of
$2.40 per Mcf and weighted average ceilings of $2.78 per Mcf. Finally, the
Company has hedged approximately 8% of natural gas production for the January
through December 1999 period using a no-cost three-way option with a floor and
ceiling of $2.30 per Mcf and $3.08 per Mcf, respectively, however, the Company's
downside protection below $2.30 is limited up to a maximum of $.30 per Mcf under
this agreement.
Forcenergy has hedged approximately 17% of its estimated oil production
through December 1998 using no-cost collar arrangements with weighted average
floors of $18.50 per Bbl and weighted average ceilings of $22.74 per Bbl.
Secondly, the Company has hedged through a no-cost three-way option
approximately 4% of oil production from July 1998 through June 1999 with a floor
and ceiling of $17.20 and $19.10 per Bbl, respectively. If prices fall below
$15.00 per Bbl in any month, the floor for that month resets at $15.00 per Bbl.
Thirdly, the Company has in place no-cost three-way options hedging 17% of oil
production through June 30, 1999, with floors and ceilings of $16.00 and $19.00
per Bbl, respectively, however, the Company's downside protection below $16.00
is limited to a weighted average maximum of $1.93 per Bbl. Fourthly, the Company
has hedged approximately 8% of oil production through December 1999 using a
no-cost three-way option with a floor and ceiling of $16.00 and $19.25 per Bbl,
respectively, with a maximum of $3.00 per Bbl in downside protection. Finally,
Forcenergy has in place a no-cost three-way option hedging 13% of its estimated
oil production from January 1999 through December 2000 with a floor and ceiling
of $16.50 and $20.15 per Bbl, respectively, with a maximum of $3.50 per Bbl in
downside protection. All of these arrangements are settled on a monthly basis.
The percentages of production reflected assume current production rates. The
fair market value of all contracts in place at June 30, 1998 is estimated at
approximately $10.9 million to the Company's benefit.
6
<PAGE> 9
FORCENERGY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"). The statement
requires companies to report the fair market value of derivatives on the balance
sheet and record in income or other comprehensive income, as appropriate, any
changes in the fair value of the derivative. Statement No. 133 will become
effective with respect to the Company on January 1, 2000. The Company is
currently evaluating the impact of the statement.
7
<PAGE> 10
FORCENERGY INC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
PRODUCTION DATA
The following table sets forth the Company's historical liquids and
natural gas production data during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE SIX MONTHS ENDED
30, JUNE 30
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Production in thousands:
Liquids (MBbls) (1) ..... 2,239 2,076 4,375 3,965
Natural gas (Mmcf) ...... 19,972 13,926 38,286 25,598
Total (MBOE) ............ 5,568 4,397 10,756 8,398
Average realized sales prices (2):
Oil (per Bbl) ........... $ 11.90 $ 16.65 $ 13.01 $ 18.45
Plant products (per Bbl) 11.24 11.76 12.28 15.17
Liquids (per Bbl) (1) ... 11.86 16.42 12.97 18.30
Natural gas (per Mcf) ... 2.20 2.12 2.24 2.31
Expenses (per BOE):
Lease operating ......... $ 4.39 $ 4.36 $ 4.47 $ 4.21
Depletion, depreciation and
amortization ........ 6.84 6.36 6.84 6.36
General and administrative, net .78 .79 .85 .85
</TABLE>
- ----------
(1) Includes crude oil, condensate and natural gas liquids.
(2) Net of hedging results.
COMPARISON OF THE THREE MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30, 1997
OPERATING AND NET INCOME/LOSS. Operating income decreased to $2.8
million for the second quarter of 1998 compared to the $12.4 million reported
for the comparable 1997 quarter. The net loss for the three months ended June
30, 1998 was $5.6 million compared to net income of $3.9 million reported for
the same period last year. The decrease in both operating and net income was
attributable primarily to lower average net realized liquids prices, higher
total lease operating expenses associated with new properties, and higher
depletion, depreciation and amortization expense on higher production volumes,
all discussed below.
PRODUCTION. Net liquids production increased to 2,239 thousand barrels
("MBbls") for the second quarter of 1998 from 2,076 MBbls in the comparable 1997
period, an 8% improvement. Net gas production increased to 19,972 million cubic
feet of natural gas ("Mmcf") in the 1998 quarter, a 43% increase over the 13,926
Mmcf produced in the same period last year. On an equivalent unit basis, liquids
and gas production
8
<PAGE> 11
increased to 5,568 thousand barrels of oil equivalent ("MBOE") for the 1998
quarter, 27% more than the 4,397 MBOE produced during the 1997 period. The
increase in liquids and gas production resulted primarily from new production
from the Company's 1998 and 1997 drilling programs, from the West McArthur River
(Cook Inlet, Alaska) and the Convest/Edisto acquisitions in 1997 and from a
series of smaller acquisitions in 1998.
REVENUES. Revenues for the 1998 quarter increased to $70.8 million, a
10% improvement over the $64.1 million reported for the same period last year.
Higher production volumes were substantially offset by decreases in liquids
prices. Average net realized liquids prices decreased to $11.86 per barrel
("Bbl") for the 1998 quarter, a 28% decline compared to the $16.42 per Bbl
received during the second quarter of 1997. Average net realized natural gas
prices were $2.20 per thousand cubic feet of natural gas ("Mcf") in the second
quarter of 1998, a 4% increase from the $2.12 per Mcf reported for the 1997
period.
Average prices received at the field level for the 1998 quarter were
$11.24 per Bbl and $2.15 per Mcf for liquids and natural gas, respectively.
After taking into account hedging activities, specifically, a $1.4 million
increase in liquids revenue and a $1.1 million increase in natural gas revenue,
net realized prices increased to $11.86 per Bbl and $2.20 per Mcf, respectively.
Average prices received at the field level for the second quarter of 1997 were
$16.69 per Bbl and $2.10 per Mcf for liquids and natural gas, respectively.
After the effects of hedging activities, specifically a $0.6 million reduction
in liquids revenue and a $0.2 million increase in natural gas revenue, net
realized second quarter 1997 prices were reduced to $16.42 per Bbl for liquids
and increased to $2.12 per Mcf for natural gas.
LEASE OPERATING EXPENSES. Lease operating expenses were $24.4 million
for the second quarter of 1998 compared to the $19.2 million reported for the
same period last year. The increase related primarily to lease operating
expenses associated with new oil and gas properties acquired in late 1997 and
early 1998. On an equivalent unit of production basis, lease operating expenses
remained relatively flat at $4.39 and $4.36 per barrel of oil equivalent ("BOE")
for the 1998 and 1997 quarters, respectively.
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A"). DD&A expense
increased to $38.1 million for the 1998 period from the $27.9 million reported
for the second quarter of 1997. The increase resulted from higher production
levels and from an increase in the DD&A rate per unit of production to $6.84 per
BOE, compared to $6.36 per BOE for the same period last year.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs,
which are net of capitalized internal costs and overhead reimbursements, were
$4.3 million for the second quarter of 1998 compared with $3.5 million reported
for the 1997 period, an increase attributable primarily to the overall growth of
the Company including the expansion of the Alaska, U.S. onshore and
international operations during 1997. On a per BOE produced basis, general and
administrative expenses were flat at $0.78 and $0.79 per BOE for the three
months ended June 30, 1998 and 1997, respectively.
INTEREST EXPENSE. Interest expense, net of amounts capitalized,
increased to $11.7 million for the 1998 quarter compared to $7.9 million for the
second quarter of 1997. The increase in interest expense in 1998 as compared to
1997 was primarily due to the increase in long-term debt levels.
9
<PAGE> 12
COMPARISON OF THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30, 1997
OPERATING AND NET INCOME/LOSS. Operating income was $9.8 million for
the six months ended June 30, 1998 compared to the $37.1 million reported for
the 1997 period. The net loss for the six months ended June 30, 1998 was $7.2
million compared to net income of $15.1 million reported for the same period
last year. The decrease in both operating and net income was attributable
primarily to lower average net realized liquids and natural gas prices, higher
total lease operating expenses and higher depletion, depreciation and
amortization expense on higher production volumes, all discussed below.
PRODUCTION. Net liquids production improved by 10% to 4,375 MBbls for
the first half of 1998 from 3,965 MBbls in the comparable 1997 period. Net gas
production increased to 38,286 Mmcf in 1998, a 44% increase over the 26,598 Mmcf
produced in the 1997 period. On an equivalent unit basis, liquids and gas
production increased to 10,756 MBOE for the first six months of 1998, 28% more
than the 8,398 MBOE produced during the 1997 period. The increase in liquids and
gas production resulted primarily from new production from the Company's 1998
and 1997 drilling programs and from the West McArthur River (Cook Inlet, Alaska)
and the Convest/Edisto acquisitions in 1997, and a series of smaller
acquisitions in 1998.
REVENUES. Revenues for the 1998 period increased to $142.7 million, a
6% improvement over the $135.1 million reported for the same period last year.
Higher production volumes were substantially offset by decreases in liquids
prices. Average net realized liquids prices decreased to $12.97 per Bbl for the
1998 period, a 29% decline compared to the $18.30 per Bbl received for the first
half of 1997. Average net realized natural gas prices decreased to $2.24 per Mcf
in the first six months of 1998, a 3% decrease from the $2.31 per Mcf reported
for the 1997 period.
Average prices received at the field level for the 1998 period were
$12.30 per Bbl and $2.17 per Mcf for liquids and natural gas, respectively.
After taking into account hedging activities, specifically, a $2.3 million
increase in liquids revenue and a $2.7 million increase in natural gas revenue,
net realized prices increased to $12.97 per Bbl and $2.24 per Mcf, respectively.
Average prices received at the field level for the first six months of 1997 were
$18.98 per Bbl and $2.47 per Mcf for liquids and natural gas, respectively.
After the effects of hedging activities, specifically a $2.7 million reduction
in liquids revenue and a $4.2 million reduction in natural gas revenue, net
realized 1997 prices, were reduced to $18.30 per Bbl and $2.31 per Mcf for
liquids and natural gas, respectively.
LEASE OPERATING EXPENSES. Lease operating expenses were $48.1 million
for the six months ended June 30, 1998 compared to the $35.4 million reported
for the same period last year. The increase related primarily to lease operating
expenses associated with new oil and gas properties acquired in late 1997 and
early 1998. On an equivalent unit of production basis, expenses increased to
$4.47 per BOE for the 1998 six-month period from $4.21 per BOE in the same 1997
period, an increase attributable to new properties acquired; however, the trend
is downward compared to the latter half of 1997.
DEPLETION, DEPRECIATION AND AMORTIZATION. DD&A expense increased to
$73.6 million for the 1998 period from the $53.4 million reported for the first
half 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 $6.84 per
BOE, compared to $6.36 per BOE for the same period last year.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs,
which are net of capitalized internal costs and overhead reimbursements, were
$9.1 million for the six months ended June 30, 1998 compared with $7.1 million
reported for the 1997 period, an increase attributable primarily to the overall
growth of the Company including the expansion of the Alaska, U.S. onshore and
international operations
10
<PAGE> 13
during 1997. On a per BOE produced basis, general and administrative expenses
were comparable at $0.85 per BOE in both periods.
INTEREST EXPENSE. Interest expense, net of amounts capitalized,
increased to $21.9 million for the 1998 period compared to $14.8 million for the
first six months of 1997. The increase in interest expense in 1998 was primarily
due to the increase in long-term debt levels.
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
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net cash provided by operating
activities ........................ $ 53,423 $ 28,595 $ 88,089 $ 87,609
Borrowings under the Senior Credit
Facility ......................... 95,500 -- 225,400 81,262
Repayments under the Senior Credit
Facility ......................... (37,794) -- (115,558) (179,094)
Issuance of long-term debt, net of
expenses ......................... -- -- -- 193,414
</TABLE>
Working capital was a negative $50.3 million at June 30, 1998, compared
with a negative $8.0 million at December 31, 1997. This decrease in working
capital relates primarily to the expenditure of beginning cash balances and the
increase in accounts payable and accrued liabilities associated with an active
and aggressive drilling program during the first half of 1998. Working capital
will normally be a deficit during an active drilling program due to the
additional timing required to process the higher volume of invoices associated
with those activities.
Cash flow from operations, before changes in working capital, decreased
to $62.6 million for the six-month period ended June 30, 1998 from $77.2 million
for the comparable 1997 period. The decrease in cash flow primarily resulted
from the lower net realized liquids prices and higher interest expense.
During the second quarter, the Company renegotiated certain terms of
its Senior Credit Facility. The maximum loan commitment under the facility was
increased from $200 million to $320 million with the borrowing base also
increased to $320 million.
11
<PAGE> 14
The term of the facility was extended to a maturity of March 31, 2002, at which
time all advances outstanding and accrued interest thereon become due and
payable. The expanded facility provides for interest on amounts outstanding
under the revolver (at the Company's election) at either the prime rate or LIBOR
plus between .75% and 2.0%, depending on Forcenergy's ratio of total long-term
debt to total book capitalization ("Debt to Capitalization Ratio") at the end of
the previous calendar quarter. Effective April 30, 1999, interest rates on the
Company's LIBOR borrowings will be increased by an additional margin ranging
from .125% to .25% if the Company does not reduce its Debt to Capitalization
Ratio to 65% or less. The terms of the amendment provide that the maximum loan
amount will be reduced to $300 million and $275 million on May 1, 1999, and
September 1, 1999, respectively, absent redetermination related to the Company's
ability to continue to grow its reserve base prior to those dates. On July 1,
1998, the Company's LIBOR-based borrowing rate was LIBOR plus 1.25%.
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 limitations on dividends and additional debt or liens. The Company is in
compliance with these covenants, or has received waivers in the event of
non-compliance.
At June 30, 1998 the Company had approximately $73.2 million available
under the facility.
Revenues generated from operations are highly dependent upon the price
of, and demand for, oil and natural gas. Historically, the markets for oil and
natural gas have been volatile and are likely to continue to be volatile in the
future as prices are subject to wide fluctuations in response to factors that
are beyond the control of the Company. These uncontrollable factors include the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels and
political and economic conditions in the Middle East, Asia, Russia, Mexico and
Canada that can affect the supply and price of foreign oil and natural gas. It
is impossible to predict future oil and natural gas price movements with any
certainty. Declines in oil and natural gas prices may adversely affect the
Company's financial condition, liquidity and results of operations. Lower prices
also may reduce the amount of reserves that can be produced economically, as
well as limit the ability to continue to exploit and develop the existing
reserve base.
Forcenergy 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 Forcenergy the opportunity to benefit from oil and natural gas price
increases, should they occur. The Company has entered into no-cost three-way
option arrangements with respect to approximately 29% of its estimated natural
gas production for the July through September 1998 period and for the April
through September 1999 period with average floors of $2.33 per Mcf and a average
ceilings of $2.58 per Mcf. If prices fall below an average of $2.03 per Mcf in
any month, the floor for that month resets to the $2.03 average. In addition,
the Company has in place collar arrangements hedging 13% of natural gas
production from July 1998 through October 1998 with weighted average floors of
$2.40 per Mcf and weighted average ceilings of $2.78 per Mcf. Finally, the
Company has hedged approximately 8% of natural gas production for the January
through December 1999 period using a no-cost three-way option with a floor and
ceiling of $2.30 per Mcf and $3.08 per Mcf, respectively, however, the Company's
downside protection below $2.30 is limited to a maximum of $.30 per Mcf under
this agreement.
12
<PAGE> 15
Forcenergy has hedged approximately 17% of its estimated oil production
through December 1998 using no-cost collar arrangements with weighted average
floors of $18.50 per Bbl and weighted average ceilings of $22.74 per Bbl.
Secondly, the Company has hedged through a no-cost three-way option
approximately 4% of oil production from July 1998 through June 1999 with a floor
and ceiling of $17.20 and $19.10 per Bbl, respectively. If prices fall below
$15.00 per Bbl in any month, the floor for that month resets at $15.00 per Bbl.
Thirdly, the Company has in place no-cost three-way options hedging 17% of oil
production through June 30, 1999, with floors and ceilings of $16.00 and $19.00
per Bbl, respectively, however, the Company's downside protection below $16.00
is limited to a weighted average maximum of $1.93 per Bbl. Fourthly, the Company
has hedged approximately 8% of oil production through December 1999 using a
no-cost three-way option with a floor and ceiling of $16.00 and $19.25 per Bbl,
respectively, with a maximum of $3.00 per Bbl in downside protection. Finally,
Forcenergy has in place a no-cost three-way option hedging 13% of its estimated
oil production from January 1999 through December 2000 with a floor and ceiling
of $16.50 and $20.15 per Bbl, respectively, with a maximum of $3.50 per Bbl in
downside protection. All of these arrangements are settled on a monthly basis.
The percentages of production reflected assume current production rates. The
fair market value of all contracts in place at June 30, 1998 was estimated to be
approximately $10.9 million to the Company's benefit.
The Company anticipates that its capital expenditures for 1998,
exclusive of acquisitions, will be approximately $240 million of which $166
million has been expended through June 30, 1998. Funding for these expenditures
was provided through cash flow from operations and borrowings under the
Company's Senior Credit Facility. 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. A large majority of
the Company's capital expenditures for the remainder of the year is
discretionary and can be delayed, if necessary. The Company has also spent $42.8
million for the acquisition of properties in 1998. Although the 1998 budget does
not incorporate any future acquisitions, the Company will continue to
selectively seek acquisition opportunities where it believes significant
exploration and development potential exists.
Management believes that cash flow from operations and the borrowing
capacity available under the renegotiated, amended Senior Credit Facility should
be sufficient to meet its anticipated capital expenditures and other operating
requirements for the remainder of 1998. However, because future cash flows and
the availability of financing are subject to a number of variables, such as oil
and gas prices, production operations, drilling results and the number and size
of acquisitions made by the Company, there can be no assurance that the
Company's capital resources will be sufficient to maintain currently planned
levels of capital expenditures and to fund future acquisitions. Additional debt
and equity financings or an increase in the size of the Senior Credit Facility
may be required in connection with future capital expenditures. Additionally, a
large majority of planned capital expenditures for the remainder of the year are
discretionary and can be delayed if necessary. The availability of these capital
sources will depend on prevailing market conditions and interest rates and the
then-existing financial condition of the Company.
YEAR 2000 COMPLIANCE
The Company is currently assessing its exposure to the Year 2000 issue.
All aspects of the business are under review, including correspondence with
vendors, suppliers and customers regarding their Year 2000 compliance status.
Based upon the results of recent investigation, the Company's primary
information and communications systems are believed to be compliant with Year
2000 requirements. The Company's cost of compliance has been minimal and any
future costs are not anticipated to be material to financial condition or
results of operations.
The Company currently has limited information concerning the Year 2000
compliance status of its suppliers of goods and services, other than those
related to the Company's information systems. In the event that any of the
Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
13
<PAGE> 16
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"). The statement
requires companies to report the fair market value of derivatives on the balance
sheet and record in income or other comprehensive income, as appropriate, any
changes in the fair value of the derivative. Statement No. 133 will become
effective with respect to the Company on January 1, 2000. The Company is
currently evaluating the impact of the statement.
14
<PAGE> 17
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 14,
1998. Certain matters voted on at the meeting and the votes cast with respect to
such matters are as follows:
(a) Directors were elected as follows:
ABSTAINED/
NAME FOR AGAINST WITHHELD
---------------- ----------- --------- -----------
Stig Wennerstrom 21,032,218 55,380 3,397,943
Bruce L. Burnham 21,034,602 52,996 3,397,943
Eric Forss 21,033,127 54,471 3,397,943
Robert Issal 21,034,612 52,986 3,397,943
Anthony F. Lundy 21,034,726 52,872 3,397,943
(b) The 1995 Stock Incentive Plan was amended to increase the number
of shares authorized under the plan from 4,000,000 to 6,000,000
shares:
ABSTAINED/
FOR AGAINST WITHHELD
--------- ---------- ------------
7,370,412 6,936,741 10,178,388
(c) PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.)
were appointed as independent auditors of the Company for the year
ending December 31, 1998:
ABSTAINED/
FOR AGAINST WITHHELD
----------- ---------- ------------
21,067,957 10,081 3,407,503
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 -- First Amendment to Fifth Restatement of
Credit Agreement by and among Forcenergy Inc
and ING (U.S.) Capital Corporation and
certain financial institutions named therein
as lenders.
10.2 -- Amendment Number 2 to the Forcenergy Inc
1995 Stock Incentive Plan.
27 -- Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed by the Company for the quarter
ended June 30, 1998.
15
<PAGE> 18
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, 1998.
FORCENERGY INC
By: /s/ E. Joseph Grady
----------------------------------------
E. Joseph Grady
Vice President - Chief Financial Officer
16
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
FIFTH RESTATEMENT OF CREDIT AGREEMENT
THIS FIRST AMENDMENT TO FIFTH RESTATEMENT OF CREDIT
AGREEMENT (herein called this "AMENDMENT") made as of the 22nd day of June,
1998, by and among Forcenergy Inc, a Delaware corporation (formerly known as
Forcenergy Gas Exploration, Inc. and herein called "BORROWER"), ING (U.S.)
Capital Corporation, a Delaware corporation (formerly known as Internationale
Nederlanden (U.S.) Capital Corporation and herein called "AGENT"), as agent, and
the financial institutions which are signatories to this Amendment
(collectively, "LENDERS"),
RECITALS
1. Borrower, Agent and Lenders (other than General Electric Capital
Corporation) have entered into that certain Fifth Restatement of Credit
Agreement dated as of April 13, 1998 (the "ORIGINAL AGREEMENT"), for the purpose
and consideration therein expressed, whereby such Lenders became obligated to
make loans to Borrower as therein provided.
2. Borrower desires to develop its existing oil and gas properties and
to acquire additional oil and gas properties and has requested that Lenders
increase the available credit under the Original Agreement to facilitate such
development and acquisitions.
3. In connection with such increase Borrower and Lenders desire to
amend the Original Agreement as provided herein and to redetermine the Borrowing
Base and increase the Maximum Loan Amount on the terms and conditions provided
herein.
4. Borrower, Agent and the Lenders which are parties to the Original
Agreement desire to further amend the Original Agreement to make General
Electric Capital Corporation (herein called "GECC") a lender party to the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2 OTHER DEFINED TERMS. Unless the context otherwise requires,
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
<PAGE> 2
"AMENDMENT" shall mean this First Amendment to Fifth Restatement of
Credit Agreement.
"CREDIT AGREEMENT" shall mean the Original Agreement as amended hereby.
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1 DEFINED TERMS.
(a) The definition of "Applicable Margin" in Section 1.1 of the
Original Agreement is hereby amended in its entirety to read as follows:
"APPLICABLE MARGIN" means from the date hereof until June 30,
1998, the per annum interest rate set forth in the table below based
upon the Debt to Capitalization Ratio of Borrower as of December 31,
1997. The Applicable Margin shall be adjusted based upon the Debt to
Capitalization Ratio as of June 30, 1998 and as of the end of each
Fiscal Quarter thereafter, any such adjustment to be made effective on
the first Business Day following receipt by Agent of a certificate of
the chief financial officer of Borrower demonstrating a change in the
Debt to Capitalization Ratio for such Fiscal Quarter to an amount such
that another Applicable Margin should be applied pursuant to the table
set forth below; PROVIDED that the Applicable Margin shall never be a
negative number. Notwithstanding the foregoing, if at any time during a
Fiscal Quarter Borrower consummates an equity offering (i) the proceeds
of which are used to repay Consolidated Debt of Borrower and (ii) the
effect of which is to change the Debt to Capitalization Ratio such that
on a pro forma basis as of the end of the immediately preceding Fiscal
Quarter another Applicable Margin would apply based upon the table set
forth below, then on the first Business Day after receipt by Agent of a
certificate from the chief financial officer of Borrower demonstrating
such fact, the Applicable Margin shall be adjusted in accordance with
the table set forth below and shall remain in effect until readjusted
based upon a change in the Debt to Capitalization Ratio at the end of a
subsequent Fiscal Quarter.
In addition to the calculation of the Debt to Capitalization Ratio at
the end of each Fiscal Quarter as required above, Borrower shall
calculate the Debt to Capitalization Ratio as of April 30, 1999 and
shall deliver to Agent a certificate of the chief financial officer
certifying as to such calculation no later than May 15, 1999. If at
April 30, 1999 the Debt to Capitalization Ratio of Borrower is greater
than 65%, then the Applicable Margin shall be increased by the amount
of the Quarterly Step-Up Margin as set forth in the table below. The
Applicable Margin as so increased shall thereafter be further increased
by the amount of the Quarterly Step-Up Margin as of the end of each
subsequent Fiscal Quarter in which the Debt to Capitalization Ratio is
greater than 65%. If at the end of a Fiscal Quarter the
2
<PAGE> 3
Debt to Capitalization Ratio is 65% or less, the Applicable Margin will
not be increased by the Quarterly Step-Up Margin for the next
successive Fiscal Quarter.
------------------------------------------------------------------------
Debt to Capitalization Ratio Applicable Margin Quarterly Step-Up
Margin
------------------------------------------------------------------------
Greater than 80% 2.000% 0.250%
------------------------------------------------------------------------
Greater than 75% but 1.625% 0.250%
less than or equal to 80%
------------------------------------------------------------------------
Greater than 70% but 1.250% 0.125%
less than or equal to 75%
------------------------------------------------------------------------
Greater than 60% but 1.125% 0.125%
less than or equal to 70%
------------------------------------------------------------------------
Greater than 50% but 1.000% not applicable
less than or equal to 60%
------------------------------------------------------------------------
Less than or equal to 50% 0.750% not applicable
------------------------------------------------------------------------
(b) The definition of "Lenders" in Section 1.1 of the Original
Agreement is hereby amended in its entirety to read as follows:
"LENDERS" means each signatory hereto other than Borrower,
including ING, in its capacity as a lender hereunder rather than as
Agent, and each signatory to any amendment hereto (other than Borrower)
which expressly adds, substitutes or replaces any Lender hereunder, and
the successors of each as holder of a Note.
(c) The definition of "Maximum Loan Amount" in Section 1.1 of the
Original Agreement is hereby amended in its entirety to read as follows:
"MAXIMUM LOAN AMOUNT" has the following meaning:
(a) From June 22, 1998 until and including April 30,
1999, the Maximum Loan Amount means the amount of
$320,000,000.
(b) From May 1, 1999 until and including August 31,
1999, the Maximum Loan Amount means the amount of
$300,000,000.
(c) From and after September 1, 1999, the Maximum
Loan Amount means the amount of $275,000,000.
3
<PAGE> 4
Section 2.2 MANDATORY PREPAYMENTS. Section 2.9 of the Original
Agreement is hereby amended in its entirety to read as follows:
Section 2.9. MANDATORY PREPAYMENTS. If the aggregate unpaid
principal balance of the Loans, together with all outstanding LC
Obligations, ever exceed the Maximum Loan Amount, Borrower shall
immediately prepay the principal of the Loans in an amount at least
equal to such excess. If the aggregate unpaid principal balance of the
Loans, together with all outstanding LC Obligations, ever exceed the
Borrowing Base, Borrower shall, within forty-five (45) days after Agent
gives notice of such fact to Borrower, either (i) prepay the principal
of the Loans in an amount at least equal to such excess or (ii) grant a
first priority Lien in favor of Agent on its additional oil and gas
properties or other assets acceptable to Majority Lenders with a
collateral value satisfactory to Majority Lenders in their sole
discretion. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal
amount so prepaid. Any principal or interest prepaid pursuant to this
section shall be in addition to, and not in lieu of, all payments
otherwise required to be paid under the Loan Documents at the time of
such prepayment. In the event Borrower fails to make such prepayment or
provide additional Collateral acceptable to Majority Lenders within as
provided above, such failure shall constitute an Event of Default
hereunder without any further notice to Borrower or the availability of
any additional Grace Period.
Section 2.3 DELIVERY OF SECURITY DOCUMENTS. Section 5.1 of the Original
Agreement is hereby amended by adding the following paragraph (p) immediately
after paragraph (o) where it appears at the end of such Section:
(p) SECURITY DOCUMENTS. On or before August 31, 1998 Borrower
shall have delivered to Agent Security Documents securing the
Obligations and covering those oil and gas properties of Borrower
identified by Agent that are not currently Qualified Properties and
that, when taken together with the Qualified Properties, represent not
less than eighty percent (80%) of the reserve value of all proved
reserves of Borrower. Such Security Documents shall be in form and
substance satisfactory to Agent and its counsel, duly executed and
properly acknowledged, and shall create in favor of Agent for the
benefit of Lenders first deed of trust or mortgage liens in such
properties and first priority assignments of and security interests in
the oil and gas attributable to such properties and interests and the
proceeds thereof, free and clear of all Prohibited Liens. In addition,
Borrower shall provide title opinions in form, substance and authorship
satisfactory to Agent concerning those properties that constitute a
requisite percentage of the reserve value of all such properties as
shall be agreed to by Borrower and Agent. In the event Borrower fails
to comply with this Section 5.1(p) within the time period set forth
above, such failure shall constitute an Event of Default without any
notice or opportunity to cure such Event of Default.
4
<PAGE> 5
Section 2.4 DEBT TO CAPITALIZATION RATIO. Section 5.2 of the Original
Agreement is hereby amended by adding the following paragraph (o) immediately
after paragraph (n) where it appears at the end of such Section:
(o) DEBT TO CAPITALIZATION RATIO. Borrower's Debt to
Capitalization Ratio will never be greater than 85%.
Section 2.5 PERCENTAGE SHARES. The "Percentage Share" and the "Share of
Maximum Loan Amount" of each Lender on the signature pages of the Original
Agreement are hereby amended in their entirety to read as set forth on the
signature pages to this Amendment.
ARTICLE III.
REDETERMINATION OF BORROWING BASE
Section 3.1 BORROWING BASE REDETERMINATION. Contemporaneously with the
execution and delivery of this Amendment by the parties hereto, the Borrowing
Base is hereby increased to $320,000,000, such redetermination to remain in
effect until the next Determination Date.
ARTICLE IV.
CONDITIONS OF EFFECTIVENESS
Section 4.1 EFFECTIVE DATE. This Amendment shall become effective as of
the date first above written when, and only when:
(a) DELIVERY OF THIS AMENDMENT. Agent shall have received, at Agent's
office, a counterpart of this Amendment executed and delivered by Borrower, and
Majority Lenders shall have executed and delivered a counterpart of this
Amendment to Agent.
(b) UP-FRONT FEES.
(i) Lenders and Agent shall have received payment in full from
Borrower in immediately available funds of the up-front fees described
in the letter of even date herewith between Borrower and Agent.
(ii) Agent shall have received payment in full from Borrower
in immediately available funds of an arrangement fee separately agreed
to by Borrower pursuant to a fee letter agreement of even date
herewith.
(c) RENEWAL NOTES. Borrower shall have issued and delivered to each
Lender that is increasing it Percentage Share of the Maximum Loan Amount a
Renewal Promissory Note (or an original Promissory Note in the case of GECC)
with appropriate insertions, substantially in the form
5
<PAGE> 6
attached hereto as Exhibit A, payable to the order of each such Lender on or
before March 31, 2002 (such Notes herein collectively called the "RENEWAL
NOTES"), duly executed on behalf of Borrower, and dated the date hereof.
(d) OTHER DOCUMENTS. Agent shall have additionally received (i) a
certificate of the Secretary of Borrower dated the date of this Amendment
certifying that attached thereto is a true and complete copy of resolutions
adopted by the Board of Directors of Borrower authorizing the execution,
delivery and performance of this Amendment and each Renewal Note and certifying
the names and true signatures of the officers of Borrower authorized to sign
this Amendment and each Renewal Note and (ii) such supporting documents as Agent
may reasonably request.
(e) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Section 4.1 of the Original Agreement shall be true and correct in
all material respects.
ARTICLE V.
ADDITIONAL LENDER
Section 5.1. GECC AS ADDITIONAL LENDER. Borrower and each Lender under
the Original Agreement hereby acknowledge and agree that upon satisfaction of
the conditions set forth in Section 4.1 hereof GECC shall be deemed to be a
Lender under the Credit Agreement for all purposes and shall be entitled to all
of the rights and benefits of a Lender under the Loan Documents as if GECC had
been a signatory to the Original Agreement. GECC hereby acknowledges and agrees
that upon satisfaction of the conditions set forth in Section 4.1 hereof GECC
shall be deemed to be a Lender under the Credit Agreement for all purposes and
shall have all of the duties and obligations of a Lender under the Loan
Documents as if GECC had been a signatory to the Original Agreement. Any
reference to "Lender" in any Loan Document shall be deemed to be a reference to
GECC as well as to the other Lenders which are parties to the Original
Agreement.
Section 5.2. PERCENTAGE SHARE OF GECC. The "Percentage Share" and the
"Share of Maximum Loan Amount" of GECC under the Credit Agreement shall be as
specified opposite GECC's name on the signature pages to this Amendment.
Section 5.3. NOTICES. All notices and communications to GECC shall be
made in accordance with Section 9.5 of the Credit Agreement at the address of
GECC specified opposite its name on the signature pages to this Amendment.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
Section 6.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce Lenders to enter into this Amendment, Borrower represents and warrants to
Agent for the benefit of each Lender that:
6
<PAGE> 7
(a) The representations and warranties contained in Section
4.1 of the Original Agreement are true and correct in all material
respects at and as of the time of the effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and the Renewal Notes and is and will continue to be duly
authorized to borrow monies and to perform its obligations under the
Credit Agreement. Borrower has duly taken all corporate action
necessary to authorize the execution and delivery of this Amendment and
to issue the Renewal Notes.
(c) The execution and delivery by Borrower of this Amendment
and the performance by Borrower of its obligations hereunder and the
issuance of the Renewal Notes by Borrower do not and will not conflict
with any provision of law, statute, rule or regulation or of the
certificate of incorporation and bylaws of Borrower, or of any material
agreement, judgment, license, order or permit applicable to or binding
upon Borrower, or result in the creation of any lien, charge or
encumbrance upon any assets or properties of Borrower. Except for those
which have been obtained, no consent, approval, authorization or order
of any court or governmental authority or third party is required in
connection with the execution and delivery by Borrower of this
Amendment or the issuance of the Renewal Notes.
(d) When duly executed and delivered, each of this Amendment,
the Credit Agreement and the Renewal Notes will be a legal and binding
obligation of Borrower, enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and by
equitable principles of general application.
(e) The audited Consolidated financial statements of Borrower
dated as of December 31, 1997 and the unaudited financial statements of
Borrower dated as of March 31, 1998 fairly present the Consolidated
financial position at such dates and the Consolidated statement of
operations and the changes in Consolidated financial position for the
periods ending on such dates for Borrower. Copies of such financial
statements have heretofore been delivered to each Lender. Since March
31, 1998, no material adverse change has occurred in the financial
condition or businesses of Borrower except for changes in oil and gas
prices that affect the industry in which Borrower operates.
(f) Borrower will use the proceeds from Advances made under
the increased Borrowing Base (i) to acquire and develop oil and gas
properties, (ii) to purchase additional working interests in Australian
coalbed methane properties, (iii) to purchase overriding royalty
interests on Redoubt Shoal and (iv) to carry out its oil and gas
operations consistent with past practice.
7
<PAGE> 8
ARTICLE VII.
MISCELLANEOUS
Section 7.1 RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects and shall remain
in full force and effect. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original Agreement as hereby
amended. Any reference to the Notes in any other Loan Document shall be deemed
to be a reference to the Renewal Notes issued and delivered pursuant to this
Amendment been delivered to each Lender. The execution, delivery and
effectiveness of this Amendment and the Renewal Notes shall not, except as
expressly provided herein or therein, operate as a waiver of any right, power or
remedy of Lenders under the Credit Agreement or any other Loan Document nor
constitute a waiver of any provision of the Credit Agreement or any other Loan
Document.
Section 7.2 LOAN DOCUMENTS. This Amendment and each Renewal Note is a
Loan Document, and all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto and thereto.
Section 7.3 GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 7.4 COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
FORCENERGY INC (FORMERLY
KNOWN AS FORCENERGY GAS
EXPLORATION, INC.)
By: /s/ E. Joseph Grady
-------------------------------------
E. Joseph Grady, Vice President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE> 9
ING (U.S.) CAPITAL CORPORATION (FORMERLY
KNOWN AS INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION), AGENT AND LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By: /s/ W. King Grant
21.87500% $70,000,000 ---------------------------------------
W. King Grant, Senior Vice President
DEN NORSKE BANK ASA, LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By: /s/ Morten Bjornsen
14.06250% $45,000,000 ---------------------------------------
Name: Morten Bjornsen
Title: Senior Vice President
By: /s/ J. Morten Kreutz
---------------------------------------
Name: J. Morten Kreutz
Title: Vice President
MEESPIERSON CAPITAL CORP., LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By: /s/ Karel Louman
14.84375% $47,500,000 ---------------------------------------
Name: Karel Louman
Title: Managing Director
By: /s/ Darrell W. Holley
---------------------------------------
Name: Darrell W. Holley
Title: Senior Vice President
9
<PAGE> 10
BANK OF SCOTLAND, LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- ------------
By: /s/ Annie Chin Tat
15.62500% $50,000,000 ---------------------------------------
Name: Annie Chin Tat
Title: Senior Vice President
HIBERNIA NATIONAL BANK, LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By: /s/ Tammy Angelety
9.37500% $30,000,000 ---------------------------------------
Name: Tammy Angelety
Title: Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION,
LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By: /s/ John R. Way
10.15625% $32,500,000 ---------------------------------------
Name: John R. Way
Title: Assistant Vice President
CREDIT AGRICOLE INDOSUEZ, LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By:
6.25000% $20,000,000 ---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
10
<PAGE> 11
GENERAL ELECTRIC CAPITAL
CORPORATION, LENDER
SHARE OF
PERCENTAGE MAXIMUM
SHARE LOAN AMOUNT
- ---------- -----------
By: /s/ T. Rodney Sirmons
7.81250 % $25,000,000 ---------------------------------------
Name: T. Rodney Sirmons
Title: Manager - Operations
Address: 120 Long Ridge Road
Stamford, Connecticut 06927
Attention:
Telephone: (203) 357-6352
Telecopy: (203) 961-5818
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE> 12
CONSENT AND AGREEMENT OF GUARANTORS
Each of the undersigned hereby acknowledges and consents to the
provisions of this Amendment and the transactions contemplated herein, and
hereby ratifies and confirms the Second Restated Subsidiary Guarantee dated as
of April 13, 1998 made by each of the undersigned in favor of Agent for the
benefit of Lenders, and agrees that the guaranty of the payment and performance
of the Obligations is unimpaired hereby and shall remain in full force and
effect.
FORCENERGY ONSHORE INC.
By: /s/ E. Joseph Grady
---------------------------------------
E. Joseph Grady, Vice President
FORCENERGY INTERNATIONAL INC.
By: /s/ E. Joseph Grady
---------------------------------------
E. Joseph Grady, Vice President
FORCENERGY RESOURCES INC.
By: /s/ E. Joseph Grady
---------------------------------------
E. Joseph Grady, Vice President
FORCENERGY GOM INC.
By: /s/ E. Joseph Grady
---------------------------------------
E. Joseph Grady, Vice President
<PAGE> 13
EXHIBIT A
RENEWAL PROMISSORY NOTE
$_____________ New York, New York June , 1998
FOR VALUE RECEIVED, the undersigned, Forcenergy Inc, a Delaware
corporation (formerly known as Forcenergy Gas Exploration, Inc. and herein
called "BORROWER"), hereby promises to pay to the order of
____________________________, a ______________________________ and (herein
called "Lender"), the principal sum of __________________________________ and
No/100 Dollars ($_______________), or, if greater or less, the aggregate unpaid
principal amount of the Loan made under this Note by Lender to Borrower pursuant
to the terms of the Credit Agreement (as hereinafter defined), together with
interest on the unpaid principal balance thereof as hereinafter set forth, both
principal and interest payable as herein provided in lawful money of the United
States of America at the offices of the Agent under the Credit Agreement, 135
East 57th Street, New York, New York 10022-2101 or at such other place within
New York County, New York, as from time to time may be designated by the holder
of this Note.
This Note (a) is issued and delivered under that certain Fifth
Restatement of Credit Agreement dated April 13, 1998, as amended by a First
Amendment to Fifth Restatement of Credit Agreement of even date herewith (as so
amended, the "CREDIT AGREEMENT"), among Borrower, ING (U.S.) Capital Corporation
(formerly known as Internationale Nederlanden (U.S.) Capital Corporation), as
Agent, and the lenders (including Lender) referred to therein and is a "Note" as
defined therein, (b) is subject to the terms and provisions of the Credit
Agreement, which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby made to the Credit Agreement for a description of certain rights,
limitations of rights, obligations and duties of the parties hereto and for the
meanings assigned to terms used and not defined herein and to the Security
Documents for a description of the nature and extent of the security thereby
provided and the rights of the parties thereto.
This Note is given in renewal and extension of, and in substitution for
(but not in extinguishment or novation of), [DESCRIBE PREVIOUS NOTES].
For the purposes of this Note, the following terms have the meanings
assigned to them below:
EXHIBIT A - PAGE 1
<PAGE> 14
"Base Rate Payment Date" means (i) the last day of each Fiscal
Quarter, beginning June 30, 1998, and (ii) any day on which past due
interest or principal is owed hereunder and is unpaid. If the terms
hereof or of the Credit Agreement provide that payments of interest or
principal hereon shall be deferred from one Base Rate Payment Date to
another day, such other day shall also be a Base Rate Payment Date.
"Fixed Rate Payment Date" means, with respect to any Fixed
Rate Portion: (i) the day on which the related Interest Period ends
(and, if such Interest Period is three months or longer, the
three-month anniversary of the first day of such Interest Period) and
(ii) any day on which past due interest or past due principal is owed
hereunder with respect to such Fixed Rate Portion and is unpaid. If the
terms hereof or of the Credit Agreement provide that payments of
interest or principal with respect to such Fixed Rate Portion shall be
deferred from one Fixed Rate Payment Date to another day, such other
day shall also be a Fixed Rate Payment Date.
The principal amount of this Note, together with all unpaid accrued
interest hereon, shall be due and payable in full on March 31, 2002.
The Base Rate Portion of the Loan (exclusive of any past due principal
or interest) from time to time outstanding shall bear interest on each day
outstanding at the Base Rate in effect on such day. On each Base Rate Payment
Date Borrower shall pay to the holder hereof all unpaid interest which has
accrued on the Base Rate Portion to but not including such Base Rate Payment
Date. Each Fixed Rate Portion of the Loan (exclusive of any past due principal
or interest) shall bear interest on each day during the related Interest Period
at the related Fixed Rate in effect on such day. On each Fixed Rate Payment Date
relating to such Fixed Rate Portion Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Fixed Rate Portion to but not
including such Fixed Rate Payment Date. All past due principal of and past due
interest on the Loan shall bear interest on each day outstanding at the Late
Payment Rate in effect on such day, and such interest shall be due and payable
daily as it accrues. Notwithstanding the foregoing provisions of this paragraph:
(a) this Note shall never bear interest in excess of the Highest Lawful Rate,
and (b) if at any time the rate at which interest is payable on this Note is
limited by the Highest Lawful Rate (by the foregoing clause (a) or by reference
to the Highest Lawful Rate in the definitions of Base Rate, Fixed Rate, and Late
Payment Rate), this Note shall bear interest at the Highest Lawful Rate and
shall continue to bear interest at the Highest Lawful Rate until such time as
the total amount of interest accrued hereon equals (but does not exceed) the
total amount of interest which would have accrued hereon had there been no
Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of
this Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest which, under applicable law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.
EXHIBIT A - PAGE 2
<PAGE> 15
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
FORCENERGY INC, formerly
known as Forcenergy Gas
Exploration, Inc.
By:
---------------------------------
E. Joseph Grady, Vice President
EXHIBIT A - PAGE 3
<PAGE> 1
Exhibit 10.2
AMENDMENT NUMBER 2 TO THE
FORCENERGY INC
1995 STOCK INCENTIVE PLAN
WHEREAS, Forcenergy Inc (the "Company") has adopted the Forcenergy Inc
1995 Stock Incentive Plan (the "Plan"); and
WHEREAS, Paragraph XIII of the Plan permits the Board of Directors of
the Company to amend the Plan; and
WHEREAS, The Board of Directors of the Company now desires to amend
the Plan in certain respects;
NOW THEREFORE, the Plan is hereby amended as follows:
1. Paragraph V(a) is hereby amended by deleting the number "4,000,000"
and by inserting the number "6,000,000" in its stead.
2. Except to the extent hereinabove set forth, the Plan shall remain in
full force and effect.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Amendment to be executed by a duly authorized officer of the Company on
the 14th day of May, 1998
FORCENERGY INC
By: /s/ Thomas F. Getten
--------------------------------
Thomas F. Getten
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM JUNE 30, 1998 BALANCE SHEET AND STATEMENT OF OPERATIONS OF
FORCENERGY INC. FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,998
<SECURITIES> 0
<RECEIVABLES> 35,872
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,534
<PP&E> 855,396
<DEPRECIATION> 0
<TOTAL-ASSETS> 944,017
<CURRENT-LIABILITIES> 120,679
<BONDS> 616,406
0
0
<COMMON> 247
<OTHER-SE> 346,034
<TOTAL-LIABILITY-AND-EQUITY> 944,017
<SALES> 142,378
<TOTAL-REVENUES> 142,733
<CGS> 0
<TOTAL-COSTS> 132,966
<OTHER-EXPENSES> (787)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,917
<INCOME-PRETAX> (11363)
<INCOME-TAX> (4,153)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,210)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
