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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------------
Date of Report (Date of earliest event reported): March 2, 1998
FORCENERGY INC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-26444 65-0429338
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
Forcenergy Inc
2730 S.W. 3rd Avenue, Suite 800
Miami, Florida 33129-2237
(Address of principal executive offices) (Zip Code)
(305) 856-8500
(Registrant's telephone number, including area code)
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Item 5. Other Events
On March 2, 1998, Forcenergy Inc issued an earnings release which is
attached hereto as Exhibit 99.1 and incorporated herein by reference.
<PAGE>
SIGNATURE
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.
Forcenergy Inc
By: /s/ E. Joseph Grady
---------------------
E. Joseph Grady,
Vice President and Chief
Financial Officer
Date: March 6, 1998
Exhibit 99.1
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Forcenergy Inc
NEWS RELEASE
Press Release # 02-98
For Release: March 2, 1998 Contacts: J. Russell Porter
11:00 A.M. (EST) E. Joseph Grady
(305) 856-8500
FORCENERGY ANNOUNCES 1997 RESULTS
---------------------------------
PRODUCTION INCREASE OF 89%
Reserve Replacement Ratio of 235%
Cash Flow Increase of 101%
Revenue Increase of 104%
Financial Results
- -----------------
Forcenergy Inc (NYSE:FEN) reported record recurring net income of $28.0
million, or $1.15 per share-diluted for the year ended December 31, 1997,
exclusive of a non-cash impairment of oil and gas assets, compared with net
income of $11.3 million, or $.57 per share-diluted for the 1996 year. Net income
for the fourth quarter of 1997 was $9.1 million, or $.35 per share-diluted,
exclusive of the impairment provision, compared to earnings of $5.1 million, or
$.23 per share- diluted for the 1996 quarter. Recognized in the fourth quarter
of 1997 was a $162.8 million after-tax non-cash impairment of oil and gas assets
under the full cost accounting rules mandated by the Securities and Exchange
Commission. The net loss for 1997, inclusive of the impairment provision, was
$134.8 million, or $5.51 per share-diluted for the year, and $153.7 million, or
$5.90 per share-diluted for the fourth quarter. Weighted average shares
outstanding, on a diluted basis, increased to 24,436,370 for the year ended
December 31, 1997 compared to 19,672,361 shares outstanding for the year ended
December 31, 1996. Weighted average shares outstanding for the fourth quarter
1997 increased to 26,048,860
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compared with 22,280,477 average shares outstanding in the fourth quarter of
1996.
Revenues for the year 1997 were a record $284.1 million, an increase of
104% over the prior year. Revenues for the fourth quarter of 1997 were $85.5
million, an increase of 92% over the 1996 quarter. Discretionary cash flow for
1997 increased to $155.5 million, or $6.35 per share-diluted for the year, and
$46.6 million, or $1.79 per share-diluted for the fourth quarter, increases of
101% and 79% over the $77.3 million, or $3.95 per share, and $26.0 million, or
$1.17 per share, respectively, reported for the comparable 1996 periods.
Included in the fourth quarter 1997 results and results for the year was a
$162.8 million ($200 million pre-tax) non-cash impairment of oil and gas assets
under the "ceiling test" provisions of the full cost accounting rules for oil
and gas companies. Under these rules mandated by the Securities and Exchange
Commission, to the extent the carrying cost of the Company's oil and gas assets
associated with its proved reserve base exceeds the discounted present value of
its proved reserves, that difference must be recognized as an additional charge
to depletion/depreciation expense in that quarter. Because of the steep decline
in oil and gas prices at year-end 1997, the Company's capitalized cost exceeded
the discounted present value of its proven reserves resulting in the impairment.
The pre-tax impairment can be attributed to the following: (1) $90 million
attributable to the general reduction in present value caused by the year end
decline in commodity prices; (2) $70 million related to the Company's investment
in Alaska due to the decline in oil prices; (3) an approximate $30 million
impairment of the Company's various international investments, principally
related to unsuccessful exploration efforts in Gabon, Africa; and (4) the
writedown of approximately $10 million in recorded cost associated with the
recognition of deferred taxes on various corporate acquisitions consummated in
the last three years. Impairment of the investment in Alaska was caused
primarily by prices declining in the Cook Inlet area to a greater degree
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than in the Gulf of Mexico and lower 48 states, thereby artificially reducing
the economic life of the properties which then resulted in an approximate 11
million barrel negative revision to proven reserves.
Operating Results
Numerous operating improvements were realized during 1997. Production for
the full year increased to a record average of 22,500 barrels of oil and 158,200
MCF of natural gas per day. Fourth quarter production averaged 24,800 barrels
and 184,300 MCF per day. On an equivalent basis, these averages represent
increases of 89% and 76% over those for the comparable 1996 periods. The average
cost per barrel equivalent for the Company's onshore and Gulf of Mexico
production was reduced 11% in 1997, to an average rate of $3.63 per barrel,
through increased production and operating improvements. The addition of the
higher-cost, non-operated Cook Inlet production at the beginning of 1997
increased the company's overall 1997 operating expense to $4.33 per barrel
equivalent, a 6% increase over the 1996 average.
Reserve Replacement
The Company attained a 235% overall reserve replacement rate in 1997, 134%
through acquisitions and 101% from drilling and revisions. This was the seventh
year in a row that the Company has achieved more than 100% reserve replacement.
Total proved reserves, on a barrel equivalent basis, increased approximately
25%, despite the 11 million- barrel downward revision in the Cook Inlet, Alaska
reserves that resulted from the previously mentioned price-related artificial
reduction in the estimated economic life of the fields. Each of the Company's
operating divisions showed significant growth in reserve volume; the Gulf of
Mexico increased 31.5%, onshore 51.5% and in Alaska 33.4%, absent the negative
price-related revision. Despite the strong volume growth, the present value of
proven reserves for each division declined by 38%, 17% and 69%, respectively,
due to the decline in commodity prices.
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Finding and development cost from all sources for 1997 was $11.69 per
equivalent barrel. These costs were higher than normal due to: (1) a significant
investment in unproved lease and seismic costs related to exploratory prospects
to be drilled in the Gulf of Mexico, Alaska and Gabon in future years; (2) the
downward revisions in the Alaskan reserves; (3) the effect of the unsuccessful
international drilling costs in Gabon, and (4) the exponential increase in
drilling rig and other service costs experienced in the Gulf of Mexico.
Excluding the effects of the negative revision to the Alaskan reserves, the
finding and development cost for 1997, from all sources, was $9.26 per
equivalent barrel. Domestic finding and development cost from all sources for
1997, excluding the Alaskan price-related revisions, was $8.87 per equivalent
barrel.
Stig Wennerstrom, President and Chief Executive Officer, commented,
"Forcenergy had another successful year for reserve replacement, production and
cash flow growth. The company's finding and development costs for 1997, however,
did not measure up to our expectations. The 1997 finding and development costs
were under upward pressure all year because of the higher drilling and service
costs in the Gulf of Mexico and then were significantly and adversely impacted
by the required year end price-related reduction in Alaskan oil reserves. We
remain fully committed to the Cook Inlet area. We are proceeding on all current
exploration and development projects as well as undertaking significant new 3-D
seismic surveys and other actions which are continuing our exploitation of the
existing asset base as well as preparing the Company for future exploration. Our
belief that efforts focused in the Cook Inlet will result in substantial reserve
additions has not changed. In fact, as a result of our 3-D seismic studies,
further geologic work and formation of a viable development scheme, we
recognized approximately nine million barrels of net proven reserves at our
Redoubt Shoal prospect in 1997. Another goal in Alaska is to reduce operating
costs on a per unit basis, which we have already been successful in doing on our
operated properties.
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Mr. Wennerstrom continued, "In the Gulf of Mexico we are addressing
increased finding and development costs through a diligent review of all cost
components and a drilling program that will emphasize lower-costs. Overall
drilling costs should be reduced significantly by switching the majority of our
1998 projects to platform drilling rigs; available at approximately one-half the
day-rate cost of jack-up rigs. We will continue to exploit our large Gulf of
Mexico asset base through a balanced program of development, exploitation and
exploration projects.
"Internationally, we drilled two non-commercial wells offshore Gabon, West
Africa. However, we are encouraged by recent near-by discoveries and anxiously
await the geophysical evaluation of a large-scale proprietary 3-D seismic survey
that was acquired in late 1997 over a portion of our 50% owned Gryphon Marin
concession. In Australia, we made a small discovery during 1997 and will
participate in development opportunities and several exploratory prospects with
significant reserve potential. Our international strategy of exposing a small
portion of each year's capital budget to high-risk, high-reward projects will
not change."
Forcenergy is an independent oil and gas company engaged in the
exploration, acquisition, development, exploitation and production of oil and
natural gas.
Certain statements in this news release regarding future expectations and
plans for future activities may be regarded as "forward looking statements"
within the meaning of the Securities Litigation Reform Act. They are subject to
various risks, such as financial market conditions, operating hazards, drilling
risks, and the inherent uncertainties in interpreting engineering data relating
to underground accumulation of oil and natural gas, as well as other risks
discussed in detail in the Company's SEC filings, including the Annual Report
and Form 10-K for the year ended December 31,
Page 5 of 10
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1996. Actual results may vary materially.
SUMMARY FINANCIAL AND OPERATING INFORMATION
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<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
1997 1996 % Change 1997 1996% Change
---- ---- -------- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL SUMMARY
(in thousands, except per share data)
Revenues............................ $ 85,524 $ 44,589 92% $ 284,185 $ 139,381 104%
Net Income (Loss).................... (153,703) (1) 5,107 N/M (134,818) (1) 11,278
N/M
Net Income (Loss) per share-diluted.. ($5.90) .23 N/M (5.51) .57 N/M
Diluted weighted average
common shares................... 26,049 22,280 17% 24,436 19,672 24%
SUMMARY OPERATING DATA
(in thousands, except pricing data)
Production:
Liquids (Mbbls).................. 2,285 1,167 96% 8,210 4,006 105%
Natural Gas (MMcf)............... 16,951 10,455 62% 57,737 32,738 76%
Total MBOE....................... 5,110 2,910 76% 17,833 9,462 89%
Average realized sales prices:
Liquids (per Bbl)............ $ 16.62 $ 17.59 (6)% $ 17.34 $ 16.93 2%
Natural Gas (per Mcf)........ 2.76 2.27 22% 2.41 2.16 12%
</TABLE>
(1) Includes a $162.8 million (after-tax) impairment provision pursuant to the
ceiling-test requirements under full cost accounting guidelines.
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<TABLE>
<CAPTION>
RESERVE RECONCILIATION Oil Gas Equivalent Reserve
(MBBL) (MMCF) (MBOE) Replacement
------ ------ ------ -----------
<S> <C> <C> <C> <C>
January 1, 1997 54,659 256,913 97,478
Acquisitions 12,444 69,044 23,951 134%
Drilling (215) 110,281 18,165 102%
Revisions (381) 736 (258) (1)%
Production (8,210) (57,736) (17,833)
January 1, 1998 58,297 379,238 121,503 25%
</TABLE>
RESERVE REPLACEMENT -- BY REGION (MBOE)
<TABLE>
<CAPTION>
------------------------------------------------------
Gulf of Mexico Onshore Alaska Total
-------------- ------- ------ -----
<S> <C> <C> <C> <C>
Acquisition 8,180 14,425 1,346 23,951
Drilling 18,165 -- -- 18,165
Revisions 2,478 (693) (2,043) (1) (258)
----- ---- ------ ----
28,823 13,732 (697) 41,858
====== ====== ==== ======
</TABLE>
(1) Reflects the approximate 11 million-barrel negative revision offset by the
addition of approximately 9 million barrels related to the Redoubt Shoal
Prospect.
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FORCENERGY INC
STATEMENTS OF OPERATIONS
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<CAPTION>
For the Year Ended December 31,
1997 1996
(in thousands, except per share amounts)
<S> <C> <C>
Revenues:
Oil and gas sales................................. $ 281,690 $ 138,698
Other............................................. 2,495 683
----- ---
284,185 139,381
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Expenses:
Lease operating................................... 77,174 38,786
Depletion, depreciation and amortization.......... 113,347 58,464
Impairment ....................................... 200,000 --
Production taxes.................................. 4,791 3,454
General and administrative........................ 15,244 7,971
------ -----
410,556 108,675
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Income from operations............................... (126,371) 30,706
Interest and other income (loss)..................... 3,354 650
Interest expense, net of amounts capitalized......... (32,422) (13,367)
------- -------
Income (loss) before income taxes.................... (155,439) 17,989
Income tax (provision) benefit....................... 20,621 (6,711)
------ ------
Net income (loss).................................... $ (134,818) $ 11,278
======== ======
Net income (loss) per share:
Basic ............................................ $ (5.83) $ .60
===== ===
Diluted........................................... $ (5.51) $ .57
===== ===
Weighted average shares outstanding:
Basic............................................. 23,142 18,934
Diluted........................................... 24,436 19,672
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<TABLE>
<CAPTION>
FORCENERGY INC
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ (134,818) $ 11,278
--------- ------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in earnings of affiliate..................................... (1,510) --
Depletion, depreciation and amortization............................ 113,347 58,464
Impairment.......................................................... 200,000 --
Deferred income taxes............................................... (20,621) 6,612
Deferred interest................................................... -- 2,107
Other............................................................... 1,287 (210)
(Decrease) increase in accounts receivable.......................... 496 (14,091)
Increase in other current assets.................................... (18,597) (3,674)
(Decrease) increase in accounts payable............................. 18,900 (4,859)
Increase in other accrued liabilities............................... 6,212 8,547
----- -----
299,514 53,950
-------- ------
Net cash provided by operating activities................................ 164,696 65,228
------- ------
Cash flows from investing activities:
Acquisitions of oil and gas properties.............................. (119,503) (152,478)
Capital expenditures................................................ (274,304) (130,269)
Dividends received from affiliate................................... 900 --
Sale of surety bonds................................................ 4,426 2,151
Proceeds from sale of assets........................................ -- 1,072
Increase in other assets............................................ 457 (340)
--- -----
Net cash used in investing activities.................................... (388,024) (279,864)
--------- ---------
Cash flows from financing activities:
Borrowings under senior credit facility............................. 287,144 5,877
Repayments under senior credit facility............................. (253,512)
Issuance of long-term debt, net..................................... 193,414 169,114
Issuance of common stock, net....................................... 2,661 46,318
------ ------
Net cash provided by financing activities................................ 229,707 221,309
-------- -------
Net increase in cash..................................................... 6,379 6,673
------ -----
Cash at beginning of period.............................................. 9,669 2,996
------ -----
Cash at end of period................................................... $ 16,048 $ 9,669
======= =====
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FORCENERGY INC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
ASSETS:
Current Assets:
Cash................................................... $ 16,048 $ 9,669
Accounts receivable, net............................... 43,502 29,416
Other current assets................................... 30,231 10,673
------ ------
Total current assets............................... 89,781 49,758
------ ------
Investment in surety bonds, at cost......................... -- 3,926
-- -----
Property, plant and equipment, at cost, full cost
method, net of accumulated depletion, depreciation
and amortization....................................... 713,983 523,711
------- -------
Other assets................................................ 20,466 8,530
------ -----
$ 824,230 $ 585,925
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable....................................... $ 32,666 $ 8,643
Other accrued liabilities.............................. 70,009 34,370
------ ------
Total current liabilities.......................... 102,675 43,013
------- ------
Long-term debt.............................................. 506,564 272,932
------- -------
Deferred income taxes....................................... -- 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; 25,504,617 and 22,578,118 issued
and outstanding at December 31, 1997 and
1996, respectively................................. 256 226
Capital in excess of par value......................... 346,875 246,032
Retained earnings (deficit)............................ (132,140) 2,678
-------- -----
Total stockholders' equity......................... 214,991 248,936
------- -------
$ 824,230 $ 585,925
======= =======
</TABLE>
end
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