<PAGE> 1
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
AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 65-0429338
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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 [ ].
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes [X] No [ ].
As of May 5, 2000, there were 24,000,000 shares of the registrant's
Common Stock, $.01 par value outstanding.
<PAGE> 2
FORCENERGY INC
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
1) Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999............................................................. 1
2) Consolidated Statements of Operations - Three months
ended March 31, 2000 and 1999 ................................................ 2
3) Consolidated Statements of Cash Flows - Three months ended
March 31, 2000 and 1999 ...................................................... 3
4) Notes to Consolidated Financial Statements....................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ......................................... 16
Item 6. Exhibits and Reports on Form 8-K................................................... 16
</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 AND SECTION
21E OF 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
AVAILABILITY OF CAPITAL 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, PETITIONS FILED OR ACTIONS TAKEN IN
CONNECTION WITH ITS BANKRUPTCY PROCEEDINGS, 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 SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q, WHICH SPEAK ONLY AS OF
THE DATE OF THIS FORM 10-Q. FORCENERGY UNDERTAKES NO OBLIGATION TO RELEASE
PUBLICLY THE RESULT OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT
MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE FILING DATE OF THIS
FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORCENERGY INC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY
----------------------------------
MARCH 31, DECEMBER 31,
2000 1999
------------- ---------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash................................................................ $ 2,442 $ 96,506
Accounts receivable, net............................................ 37,333 41,332
Other current assets................................................ 32,990 18,862
------------- ---------------
Total current assets............................................ 72,765 156,700
------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, at cost (full cost
method) net of accumulated depletion, depreciation
and amortization.................................................... 527,278 512,000
------------- ---------------
OTHER ASSETS............................................................. 6,570 6,701
------------- ---------------
$ 606,613 $ 675,401
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable.................................................... $ 27,586 $ 58,917
Accrued liabilities................................................. 37,533 62,011
Current maturities of long-term debt ............................... 3,106 --
------------- ---------------
Total current liabilities ...................................... 68,225 120,928
------------- ---------------
LONG-TERM DEBT........................................................... 238,149 314,473
------------- --------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, $.01 par value;
10,000,000 shares authorized; 40,000 issued
and outstanding at March 31, 2000................................... 29,201 --
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000 shares
authorized; 24,000,000 outstanding ............................. 240 240
Capital in excess of par value...................................... 258,407 239,760
Retained earnings................................................... 12,391 --
------------- --------------
Total stockholders' equity ..................................... 271,038 240,000
------------- --------------
$ 606,613 $ 675,401
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
FORCENERGY INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
------------------ | -----------------
THREE MONTHS | THREE MONTHS
ENDED | ENDED
MARCH 31, | MARCH 31,
2000 | 1999
------------------ | -----------------
<S> <C> | <C>
REVENUES: |
Oil and gas sales.................................... $ 76,770 | $ 59,480
Other................................................ 196 | 258
-------------- | -------------
76,966 | 59,738
-------------- | -------------
|
EXPENSES: |
Lease operating...................................... 20,068 | 25,564
Depletion, depreciation and amortization............. 27,627 | 32,474
Production taxes..................................... 1,735 | 845
General and administrative........................... 3,150 | 4,212
-------------- | -------------
52,580 | 63,095
-------------- | -------------
|
INCOME (LOSS) FROM OPERATIONS............................. 24,386 | (3,357)
Interest and other income................................. 1,181 | 5,861
Interest expense, net of amounts capitalized.............. (5,320) | (12,755)
-------------- | -------------
INCOME (LOSS) BEFORE INCOME TAXES......................... 20,247 | (10,251)
Income tax provision...................................... (7,685) | --
-------------- | -------------
NET INCOME (LOSS) ........................................ 12,562 | (10,251)
PREFERRED STOCK DIVIDEND ................................. (171) | --
-------------- | -------------
NET INCOME (LOSS) AVAILABLE TO COMMON |
STOCKHOLDERS......................................... $ 12,391 | $ (10,251)
============== | =============
|
NET INCOME (LOSS) PER SHARE (BASIC AND DILUTED)........... $ .52 | $ (.41)
|
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC |
AND DILUTED) ........................................ 24,000 | 24,749
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
FORCENERGY INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
--------------- | ---------------
THREE MONTHS | THREE MONTHS
ENDED | ENDED
MARCH 31, | MARCH 31,
2000 | 1999
--------------- | ---------------
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income (loss)................................................... $ 12,562 | $ (10,251)
Adjustments to reconcile net income (loss) to net cash |
provided by operating activities: |
Depletion, depreciation and amortization............................ 27,627 | 32,807
Deferred taxes...................................................... 7,685 | --
Equity in net income of affiliate................................... (203) | (218)
(Increase) decrease in accounts receivable.......................... 3,999 | (4,612)
Increase in other current assets.................................... (14,128) | (2,609)
Decrease in accounts payable and accrued liabilities................ (51,655) | (5,928)
--------------- | ---------------
Net cash (used in) provided by operating activities...................... (14,113) | 9,189
--------------- | ---------------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Acquisitions........................................................ (258) | --
Capital expenditures................................................ (43,285) | (15,203)
Proceeds from sale of assets........................................ 638 | 918
Change in other assets.............................................. 1,062 | 591
--------------- | ---------------
Net cash used in investing activities.................................... (41,843) | (13,694)
--------------- | ---------------
CASH FLOWS FROM FINANCING ACTIVITIES: |
Borrowings under senior credit facility............................. 6,600 | 26,473
Repayments under senior credit facility............................. (83,500) | (8,700)
Issuance of common stock............................................ -- | 311
Proceeds from issuance of preferred stock........................... 38,800 | --
Preferred dividends ................................................ (8) | --
--------------- | ---------------
Net cash (used in) provided by financing activities...................... (38,108) | 18,084
--------------- | ---------------
Net increase (decrease) in cash.......................................... (94,064) | 13,579
Cash at beginning of period.............................................. 96,506 | 1,690
--------------- | ---------------
Cash at end of period.................................................... $ 2,442 | $ 15,269
=============== | ===============
</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
Forcenergy Inc, a Delaware corporation ("Forcenergy" or the "Company"),
and its subsidiaries is an independent oil and gas company engaged in the
exploration, acquisition, development, exploitation and production of oil and
natural gas properties. The Company's principal areas of operation are the Gulf
of Mexico and the Cook Inlet, Alaska.
Forcenergy and its wholly-owned subsidiary Forcenergy Resources Inc.
("Resources") emerged from bankruptcy on February 15, 2000 (See Note 2 for a
more detailed discussion of the reorganized entity). The original voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code was filed on
March 21, 1999 (the "Petition Date") in order to facilitate the restructuring of
the Company's long-term debt, revolving credit, trade and other obligations. The
filing was made in the U.S. District Court for the Eastern District of Louisiana
in New Orleans (the "Bankruptcy Court"). While under Chapter 11, certain claims
against the Company at the Petition Date were stayed while the Company continued
its operations as a debtor-in-possession and worked to restructure its debt. On
January 19, 2000, the Bankruptcy Court approved the Company's Plan of
Reorganization (the "Plan"), which became effective on February 15, 2000 (the
"Emergence Date").
The interim consolidated financial statements of the Company included
herein reflect accounting principles set forth in the American Institute of
Certified Public Accountants Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code", ("SOP 90-7"), which
provides guidance for financial reporting by entities that have filed voluntary
petitions for relief under, and have reorganized in accordance with, the
Bankruptcy Code. In accordance with guidance provided by SOP 90-7, the
consummation of the Plan (the "Reorganization") has been reflected as though
effective on December 31, 1999 (the "Effective Date"). Under provisions of SOP
90-7 and fresh-start reporting (See Note 2), the December 31, 1999 Consolidated
Balance Sheet is the opening balance sheet of the reorganized company (the
"Successor Company"). The December 31, 1999 Consolidated Balance Sheet includes
all adjustments necessary to reflect assets at fair market value as of the
Effective Date and the Plan's treatment of creditor claims and previous equity
interests.
The unaudited interim consolidated financial statements of the Company
included 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. The interim consolidated financial statements included herein for
the three months ended March 31, 1999 and those of the Company prior to the
Reorganization (the "Predecessor Company") may not be comparable in certain
respects to the consolidated financial statements of the Successor Company.
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, 1999. 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, 1999.
4
<PAGE> 7
NOTE 2 - REORGANIZATION AND FRESH-START REPORTING
In August 1999, the Company filed with the Bankruptcy Court a
disclosure statement that included the proposed Plan. The Plan set forth the
means for satisfying claims, including liabilities subject to compromise and
equity interests in the Company. The disclosure statement was approved by the
Bankruptcy Court on October 22, 1999, and the Plan was approved by the
Bankruptcy Court on January 19, 2000.
The Plan segregated pre-petition liabilities into various secured and
unsecured classifications for treatment according to priority of claim and
subject to elections available to certain classes of claims. Secured trade
claimants included in accounts payable and accrued liabilities received or will
receive either cash payments (of between 80-100% of their claim, depending on
priority), or a three and one-half year trade note payable. Holders of unsecured
claims received new common stock (the "New Common Stock") of Forcenergy Inc.
On February 15, 2000, the Company issued 23,040,000 shares of New
Common Stock in exchange for all of the outstanding 8.5% and 9.5% Senior
Subordinated Notes, (collectively, the "Senior Subordinated Notes"), totaling
$383.4 million including unpaid interest accrued through the Petition Date
thereon of $8.4 million and in satisfaction of various other unsecured trade
obligations amounting to approximately $30.0 million. The difference between the
fair market value of the New Common Stock issued and the recorded amount of the
unsecured claims, including deferred financing costs, resulted in a gain on
discharge of indebtedness of $160 million included as an extraordinary item in
the Statement of Operations for the year ended December 31, 1999. The unsecured
claimants were also entitled to participate in the rights offering discussed
below.
Also, on February 15, 2000, the Company and its existing bank lending
group entered into a new senior credit facility (the "New Senior Credit
Facility") that replaced the Company's prior senior credit facility (the "Prior
Facility") and satisfied all pre-petition claims thereunder. Pursuant to
provisions of the Plan and the New Senior Credit Facility, the Company paid
$66.9 million in cash to the bank group on the Effective Date, including a
repayment of $40 million in principal outstanding under the Prior Facility,
$24.3 million in accrued interest, and loan fees and administrative expenses
incurred by the bank group of $2.6 million. The $2.6 million of administrative
expenses and $20.9 million of the interest were accrued at December 31, 1999.
In accordance with provisions of the Plan, all outstanding shares of
the common stock of the Predecessor Company (the "Old Common Stock") were
cancelled effective as of the Emergence Date and the holders of Old Common Stock
as of the January 28, 2000 record date received, on a pro-rata basis (i.e.,
approximately one share of New Common Stock for each 25.849 shares of Old Common
Stock held): (i) 960,000 shares of New Common Stock; (ii) associated warrants
to purchase 240,000 shares of New Common Stock at $16.67 per share (expiring on
February 15, 2004); and (iii) warrants to purchase 240,000 shares of New Common
Stock at $20.83 per share (expiring on February 15, 2005). The cancellation of
Old Common Stock and issuance of these equity instruments is reflected in the
Successor Company's Consolidated Balance Sheet at December 31, 1999.
The Plan provided for the payment of administrative costs incurred
during the pendency of the bankruptcy proceedings (primarily legal and financial
advisory fees). The Company paid $5.0 million in administrative expenses during
1999 and accrued another $11.2 million at December 31, 1999.
The Plan also required the Company to raise $40 million in additional
equity capital through a rights offering to unsecured claimants to purchase
preferred stock units, each of which included one share of 14% Series A
Cumulative Preferred Stock (the "Preferred Stock") and a warrant (the
"Subscription Warrants") to purchase 45 shares of New Common Stock
(collectively, the "Rights Offering"), for $1,000 per unit. On March 20, 2000
the Rights Offering was closed with the issuance of 40,000 shares of Preferred
Stock and Subscription Warrants to purchase 1,800,000 shares of New Common
Stock. The proceeds from the Rights Offering aggregated $40.0 million, $38.8
5
<PAGE> 8
million net of offering costs of $1.2 million. The Company, allocated $29.0
million to Preferred Stock and $11.0 million to the Subscription Warrants (using
the Black-Scholes valuation model), which is included in Capital in Excess of
Par Value. The proceeds were used to pay down amounts outstanding under the New
Senior Credit Facility. Dividends are payable quarterly, commencing March 31,
2000, and are payable in additional shares of Preferred Stock for the first four
years thereafter. The Company paid $171,000 ($163,000 in additional Preferred
Stock and $8,000 in cash in lieu of fractional shares) in the first quarter of
2000 due for the eleven days ended March 31, 2000 (see Note 6). The Preferred
Stock is perpetual in nature, is non-convertible and is callable by the Company
at any time for 100% of liquidation preferences plus accrued but unpaid
dividends. Holders of each share of Preferred Stock are entitled to one vote in
matters requiring shareholder approval and vote as one class with the common
shareholders. The Preferred Stock is mandatorily redeemable by the Company, only
upon certain types of changes in control at 101% of liquidation preference plus
accrued and unpaid dividends. The Subscription Warrants entitle the holder to
purchase shares of New Common Stock at an initial exercise price of $10.00 per
share. The Subscription Warrants are detachable and expire on March 15, 2010, or
upon notice of expiration by the Company after March 20, 2004 if the market
price of the New Common Stock has exceeded the exercise price of the
Subscription Warrants by 300% for a period of 30 consecutive trading days. If
the Company fails to pay a dividend for any two consecutive quarters or any six
quarters in the aggregate, the holder of the Preferred Stock voting as a single
class shall be entitled to elect two members of the board of directors. The
terms of the Preferred Stock include other events of default, representations
and warranties and affirmative and negative covenants typical for instruments of
this type.
Pursuant to the guidance provided by SOP 90-7, as discussed earlier,
the Company adopted the provisions of fresh-start reporting and the
Reorganization effective as of December 31, 1999. Under fresh-start reporting,
the overall fair market value of the Company ("Reorganization Value") was
allocated to the Successor Company's net assets based on relative fair market
value.
The Reorganization Value of $678.3 million developed by the Company and
the Company's independent financial advisors represents the fair market value of
working capital and the Company's oil and gas reserves. That value, less the
value of long-term secured obligations assumed, resulted in a stated equity
value of $240 million. Working capital assets and liabilities of the Company
reflected in the consolidated financial statements were stated at fair market
value.
The Reorganization Value was less than the recorded amount of net
assets immediately prior to the Emergence Date by $56.0 million, the amount
reflected as a revaluation charge in the Consolidated Statement of Operations
for the year ended December 31, 1999.
NOTE 3 - LONG-TERM DEBT
NEW SENIOR CREDIT FACILITY
Pursuant to the Reorganization, the Company and substantially the same
bank lending group entered into the New Senior Credit Facility on February 15,
2000, replacing the Prior Facility (See Notes 1 and 2).
The New Senior Credit Facility consists of a $250 million Revolving
Credit Facility (the "Revolver") and a $70 million Term Loan (the "Term Loan").
6
<PAGE> 9
The amount that can be borrowed under the Revolver is subject to a
borrowing base limitation, which has been established initially at $250 million
through February 15, 2001. The Revolver provides for borrowings on a revolving
basis through August 15, 2003 at which time all outstanding amounts under the
Revolver become due and payable. Advances under the Revolver bear interest at
prime plus 1.5% or LIBOR plus 2% per annum at the election of the Company. The
weighted average interest rate under the Revolver was 8.2% at March 31, 2000.
The agreement provides for a commitment fee on the unused portion of the
Revolver at .50% due quarterly. The borrowing base is subject to semi-annual
re-determination after the first re-determination on February 15, 2001.
The terms of the Term Loan provide mandatory quarterly principal
repayments of $2.5 million each commencing on March 31, 2001, with a $50 million
lump sum repayment at maturity on August 15, 2003. Interest is payable monthly
at the prime rate plus 3% or LIBOR plus 3.5%. The interest rate in effect under
the Term Loan was 9.5% at March 31, 2000.
At May 8, 2000 the Company had drawn down $172.4 million under the
Revolver and an additional $5.4 million of availability was utilized for
outstanding letters of credit issued under the Revolver, leaving $72.2 million
available for general corporate purposes.
The New Senior Credit Facility is secured by substantially all of the
Company's oil and gas properties and contains events of default, representation
and warranties and covenants typical for facilities of this type.
NOTE 4 - EARNINGS PER SHARE
There are no reconciling items between basic and diluted earnings per
share in either period presented.
7
<PAGE> 10
NOTE 5 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company has historically entered into various financial instruments
with off-balance-sheet risk in the normal course of business to reduce its
exposure to changing commodity prices. The Company normally utilizes these
arrangements for portions of its current oil and gas production to achieve more
predictable cash flows and to reduce its exposure to fluctuations in oil and gas
prices for varying time periods. The remaining portion of current production is
not hedged so as to provide the Company the opportunity to benefit from
increases in prices on that portion of the production, should price increases
materialize.
The Company has entered into several financial hedging contracts
("SWAPS") with respect to its future oil and natural gas production. Under these
agreements, monthly settlements are based on the differences between the prices
specified in the instrument and/or the settlement price of certain oil and gas
futures contracts quoted on the New York Mercantile Exchange ("NYMEX"). In
instances where the applicable settlement price is less than the price specified
in the contract, the Company receives a settlement based on the difference and
in instances where the applicable settlement price is higher than the specified
prices, the Company pays an amount based on the difference. SWAP contracts in
place at March 31, 2000 on future oil production were as follows:
<TABLE>
<CAPTION>
SWAPS
-----------------------------------
VOLUME IN NYMEX CONTRACT
PEROID BBL'S PER DAY PRICE PER BBL
------ ------------- -------------
<S> <C> <C>
April 2000 - May 2000 1,000 21.40
April 2000 - June 2000 8,000 19.28
April 2000 - May 2000 7,000 28.58
April 2000 - June 2000 2,000 21.00
June 2000 6,000 27.02
July 2000 - December 2000 12,000 24.86
</TABLE>
8
<PAGE> 11
SWAP contracts in place at March 31, 2000 on future natural gas production were
as follows:
<TABLE>
<CAPTION>
SWAPS
-----------------------------------
VOLUME IN WEIGHTED AVERAGE
MCF NYNMEX CONTRACT
PERIOD PER DAY PRICE PER MCF
------ --------- ----------------
<S> <C> <C>
April 2000 - June 2000 110,000 $ 2.63
July 2000 - December 2000 100,000 2.76
</TABLE>
At March 31, 2000, the Company had $9.6 million in collateral on
deposit with the counterparties associated with the above contracts. This cash
collateral is included in other current assets. The Company may be required to
increase the amount of the collateral deposit to the extent that the market
price of oil and gas is higher than the contract price.
The instruments contain an element of credit risk and price risk. The
Company attempts to minimize the extent of credit risk by limiting the
counterparties to major banks or significant industry participants. All of these
arrangements are entered into on a no-cost basis and are settled monthly. The
Company accounts for the swap arrangements as hedging activities and,
accordingly, gains or losses are included in oil and gas revenues for the period
the production was hedged. The Company recorded a hedging loss of $7.5 million
and a hedging gain of $7.7 million in the three month periods ended March 31,
2000 and 1999, respectively, associated with contracts in place during those
periods. The Company's future exposure under the hedging instruments in place at
March 31, 2000 (i.e. estimated future loss assuming that NYMEX prices remain at
current levels) is estimated to be approximately $20.8 million.
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, 2001. The Company is
currently evaluating the impact of the statement.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest amounting to $27.3 million and $14.2 million
in the quarters ended March 31, 2000 and 1999, respectively. The increase in
interest paid over the previous years quarter relates to the implementation of
the Plan, as $24.3 million was paid to the bank group which was accrued in
periods prior to the Emergence Date.
The Company paid an in-kind dividend to the holders of Preferred Stock
amounting to $163,000 due for the eleven days ended March 31, 2000.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of
the Company's historical financial position and results of operations and should
be read in conjunction with the financial statements of the Company appearing
elsewhere in this report. For the period from March 21, 1999 to February 15,
2000 the Company operated as a debtor-in-possession. Effective December 31, 1999
the Company adopted fresh-start reporting; accordingly the results of operations
for the first quarter of 1999 express those of the predecessor company (see
Notes 1 and 2 to the interim consolidated financial statements included in this
Form 10-Q). Management has attempted to indicate the major affects on
comparability from adopting fresh-start reporting between the successor and
predecessor companies in the following discussion and analysis of financial
condition and results of operations for the first quarter of 2000.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER UNIT DATA)
------------------------------------
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 | 1999
--------------- | ------------------
SUCCESSOR | PREDECESSOR
--------------- | ------------------
<S> <C> | <C>
Production in thousands: |
Liquids (MBbls) (1).......................................... 1,950 | 2,039
Natural Gas (MMcf)........................................... 12,861 | 17,969
Total (MBOE)................................................. 4,094 | 5,034
|
Average realized sales prices (2) |
Liquids (per Bbl) (1)........................................ $ 21.65 | $ 11.15
Natural gas (per Mcf)........................................ 2.69 | 2.04
|
Expenses (per BOE): |
|
Lease operating.............................................. $ 4.90 | $ 5.08
Depletion, depreciation and |
amortization................................................ 6.75 | 6.45
General and administrative, net.............................. .77 | .84
</TABLE>
- -------
(1) Includes crude oil, condensate and natural gas liquids.
(2) Net of hedging results
COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
OPERATING INCOME/LOSS AND NET INCOME/LOSS. The Company had operating
income of $24.4 million for the three months ended March 31, 2000 compared to an
operating loss of $3.4 million for the same period during 1999. Net income for
the three months ended March 31, 2000 was $12.4 million compared to a net loss
of $10.3 million reported for the same period last year. Several factors
contributed to the increase in operating income. Higher realized liquids and
natural gas prices, lower lease operating expenses and lower 1999 depletion,
depreciation and amortization expense were the main contributors to the increase
in the operating margin. Net income increased due to the factors discussed above
and lower interest expense, partially offset by the income tax provision
recorded in 2000 and by the $5.5 million in other income received by the Company
in connection with the bankruptcy-related termination settlement of its hedging
contracts outstanding on March 21, 1999.
PRODUCTION. On an equivalent unit basis, liquids and gas production
was 4,094 thousand barrels of oil equivalent (MBOE) in the first quarter of 2000
compared with 5,034 MBOE reported for the 1999 quarter. Net liquids production
was 1,950 thousand barrels (MBbls) in the first quarter of 2000 and 2,039 MBbls
in the first quarter of 1999. Net gas production
10
<PAGE> 13
was 12,861 million cubic feet of natural gas (MMcf) in the 2000 quarter compared
with 17,969 MMcf reported for the 1999 quarter. Production of both liquids and
natural gas declined as the Company significantly reduced its capital
expenditure program during the reorganization, thereby limiting the Company's
ability to maintain production rates through workovers, recompletions and new
drilling. The reduction in capital spending continued until February 15, 2000,
at which time the Company emerged from bankruptcy (see Notes 1 and 2 to the
interim consolidated financial statements included in this Form 10-Q).
REVENUES. Revenues were $77.0 million for the 2000 first quarter
compared to the $59.7 million reported for the 1999 first quarter as the
benefits realized from higher oil and natural gas prices (including effects of
hedging) were only partially offset by the lower production volumes. Average net
realized liquids prices increased to $21.65 per barrel (Bbl) for the 2000 first
quarter, a 94% increase over the $11.15 per Bbl received during the same period
in 1999. Average net realized natural gas prices increased to $2.65 per thousand
cubic feet of natural gas (Mcf) for the three months ended March 31, 2000, a 32%
increase from the $2.04 per Mcf reported for the comparable 1999 period. Average
prices received at the field level for the 2000 first quarter were $26.10 per
Bbl and $2.59 per Mcf for liquids and natural gas, respectively. The net effect
of financial hedging instruments on first quarter 2000 revenue, and therefore,
realized prices, was an $8.7 million decrease in liquids revenue and a $1.2
million increase in natural gas revenue. Average prices received at the field
level for the comparable 1999 period were $10.43 per Bbl and $1.70 per Mcf for
liquids and natural gas, respectively. The effects of hedging activities during
the first quarter of 1999 were a $1.4 million increase in liquids revenue and a
$6.3 million increase in natural gas revenue.
LEASE OPERATING EXPENSES. Lease operating expenses decreased 21% to
$20.1 million for the three months ended March 31, 2000 compared to the $25.6
million reported for the same period in 1999. The decrease related primarily to
a reduction in workover costs and the development of operating efficiencies
during the reorganization proceedings. Total lease operating expenses declined
by $5.5 million and lease operating expenses on an equivalent unit of production
basis decreased from $5.08 to $4.90 per barrel of oil equivalent (BOE) despite
the lower production volumes.
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A"). DD&A expense
decreased 15% to $27.6 million for the 2000 first quarter, compared with $32.5
million reported for the same period in 1999. The decrease was due to previously
discussed declines in production offset by an increase in the DD&A rate from
$6.45 per BOE in 1999 to $6.75 per BOE in 2000.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative expenses,
net of capitalized internal costs and overhead reimbursements, decreased 25% to
$3.2 million for the three months ended March 31, 2000, compared to $4.2 million
for the 1999 first quarter. The decrease in general and administrative expenses
relates primarily to the company-wide staff reductions in the first quarter of
1999. On a per BOE produced basis, and despite the lower volumes produced,
general and administrative expenses decreased to $.77 per BOE from $.84 per BOE
reported in last year's quarter.
INTEREST AND OTHER INCOME. Interest and other income was $1.2 million
in the first quarter of 2000, compared with $5.9 million in the 1999 period. The
decrease related primarily to the Company's March 1999 $5.5 million settlement
on the cancellation of hedging contracts by the counterparties subsequent to the
Company's Chapter 11 bankruptcy filing (see Notes 1 and 2 to the interim
consolidated financial statements included in this Form 10-Q).
INTEREST EXPENSE. Interest expense was $5.3 million for the quarter
ended March 31, 2000, compared with $12.8 million for the 1999 first quarter, a
decrease primarily due to the reduction in long-term debt pursuant to the
confirmation and execution of the Company's bankruptcy Plan of Reorganization
(see Note 1, 2 and 3 to the interim consolidated financial statements included
in this Form 10-Q).
INCOME TAX BENEFIT. The Company recognized an income tax provision of
11
<PAGE> 14
$7.7 million in the first quarter of 2000 based on an effective combined federal
and state income tax rate of 38.0%. The Company did not record an income tax
provision in the first quarter of 1999 due to accumulated losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company makes substantial capital expenditures for the exploration
and development of oil and natural gas reserves in the ordinary course of
business. Historically, the Company has financed its capital expenditures, debt
service and working capital requirements with cash flow from operations, public
offerings of equity, private offerings of debt, asset sales and temporary
borrowings under its senior credit facility and other financings. Cash flow from
operations is sensitive to the prices the Company receives for its oil and
natural gas. Lower production associated with reductions in planned capital
spending or an extended decline in oil and gas prices could result in less than
anticipated cash flow from operations in the current fiscal year and in later
years which could have a material adverse affect on the Company. Such a decline
in prices or production could also adversely affect the amount that the Company
could borrow under its senior credit facility. The availability of capital to
the energy industry, in general, and from the public equity and debt markets, is
also influenced by prevailing market sentiment that might be totally unrelated
to the industry's current performance.
On March 21, 1999, the Company and its wholly owned subsidiary,
Forcenergy Resources Inc., filed a voluntary petition for relief under Chapter
11 of the U.S. Bankruptcy Code in order to facilitate the restructuring of the
Company's long-term debt, revolving credit, trade and other obligations. The
filing was made in the U.S. District Court for the Eastern District of Louisiana
in New Orleans. The Company continued to operate as a debtor-in-possession
subject to the Bankruptcy Court's supervision and orders until February 15,
2000, at which time the Plan of Reorganization became effective (See Notes 1 and
2 to the consolidated financial statements included elsewhere in this Form
10-Q).
In conjunction with the Reorganization, the Company replaced the Prior
Facility with the New Senior Credit Facility. The New Senior Credit Facility
consists of a $250 million Revolving Credit Facility and a $70 million Term
Loan. The amount that can be borrowed under the Revolver is further subject to a
borrowing base, which has been initially established at $250 million through
February 15, 2001. The Revolver provides for borrowings on a revolving basis
through August 15, 2003 at which time all outstanding amounts under the Revolver
become due and payable. Advances under the Revolver bear interest at prime plus
1.5% or LIBOR plus 2% per annum at the election of the company. The agreement
provides for a commitment fee on the unused portion of the Revolver at .50% due
quarterly. The borrowing base is subject to semi-annual re-determination after
the first re-determination on February 15, 2001. The terms of the Term Loan
provide for mandatory quarterly principal repayments of $2.5 million each
commencing on March 31, 2001, with a $50 million lump sum repayment at maturity
on August 15, 2003. Interest is payable monthly at prime plus 3% or LIBOR plus
3.5%.
On March 20, 2000 the Company received $40.0 million, $38.8 million net
of offering costs, in proceeds from a preferred stock and warrants issuance (See
Note 2 to the interim consolidated financial statements included elsewhere in
this Form 10-Q). The proceeds were used to pay down amounts drawn under the
Revolver. At May 8, 2000, $172.4 million was drawn under the Revolver with $72.2
million available for use for general corporate purposes.
12
<PAGE> 15
Historically, the Company has financed its capital expenditures, debt
service and working capital requirements with cash flow from operations, public
offerings of equity, private offerings of debt, borrowings under its senior
credit facility and other financings. The Company's primary sources of funds for
each of the periods presented were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 | 1999
--------------- | ---------------
SUCCESSOR | PREDECESSOR
--------------- | ---------------
<S> <C> | <C>
Net cash (used in) provided by operating activities $ (14,113) | $ 9,189
Borrowings under the Senior Credit Facility 6,600 | 26,473
Repayments under the Senior Credit Facility (83,500) | (8,700)
</TABLE>
Working capital at March 31, 2000 was $4.5 million compared to $35.8
million at December 31, 1999. The reduction in working capital relates to
several factors. Cash balances on hand decreased from $96.5 million at December
31, 1999, to $2.4 million at March 31, 2000. The decrease in cash relates
principally to the implementation of the Plan and the associated cash
distributions to the secured creditors. The decrease in cash-related working
capital was partially offset by an increase in other current assets of
approximately $14.1 million, primarily due to the posting of cash collateral
deposits with the counterparties under the Company's commodity price hedging
program and an increase in prepayments made for drilling activities.
Cash flow, before cash payments to secured creditors and others
associated with the implementation of the Plan amounting to $51.2 million,
would have been $37.5 million in the first quarter of 2000 compared to $9.2
million in the 1999 period. Cash flow from operations, including the effects of
the changes in current assets and liabilities, was $(14.1) million for the
three months ended March 31, 2000, compared with $9.2 million for the similar
period in 1999. The decrease in cash flow from operations relates primarily to
$51.2 million in cash payments made to secured creditors and others in
conjunction with the implementation of the Plan. This increase was primarily
due to increased revenues associated with higher oil and gas prices and lower
lease operating and general and administrative expenses.
Capital expenditures were $43.5 million for the three months ended
March 31, 2000, compared with $15.2 million for the comparable 1999 period.
Capital expenditures were lower in the 1999 period due to the Company's lack of
available capital preceding its March 21, 1999 Chapter 11 bankruptcy filing.
Capital expenditures in the first quarter of 2000 were funded by cash flow from
operations. The Company's capital expenditure program for the year 2000 is
planned at approximately $142 million, all of which is expected to be funded by
cash flow from operations.
Management believes that cash flow from operations and the borrowing
capacity available under the New Senior Credit Facility should be sufficient to
meet its anticipated capital expenditures and other operating requirements in
2000. 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 acquisitions. The availability of these capital sources will depend on
prevailing market conditions and interest rates and the then-existing financial
conditions of the Company.
13
<PAGE> 16
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company has historically entered into various financial instruments
with off-balance-sheet risk, in the normal course of business, to reduce its
exposure to changing commodity prices. The Company normally utilizes these
arrangements for portions of its current oil and gas production to achieve more
predictable cash flows and to reduce its exposure to fluctuations in oil and gas
prices for varying time periods. The remaining portion of current production is
not hedged so as to provide the Company the opportunity to benefit from
increases in prices on that portion of the production, should price increases
materialize.
The Company has entered into several financial hedging contracts
("SWAPS@) with respect to its future oil and natural gas production. Under these
agreements, monthly settlements are based on the differences between the prices
specified in the instrument and/or the settlement price of certain oil and gas
futures contracts quoted on the New York Mercantile Exchange ("NYMEX"). In
instances where the applicable settlement price is less than the price specified
in the contract, the Company receives a settlement based on the difference and
in instances where the applicable settlement price is higher than the specified
prices, the Company pays an amount based on the difference. SWAP contracts in
place at March 31, 2000 on future oil production were as follows:
<TABLE>
<CAPTION>
SWAPS
------------------------------------
VOLUME IN NYMEX CONTRACT
PERIOD BBL'S PER DAY PRICE PER BBL
------ ------------- -------------
<S> <C> <C>
April 2000 - May 2000 1,000 $ 21.40
April 2000 - June 2000 8,000 19.28
April 2000 - May 2000 7,000 28.58
April 2000 - June 2000 2,000 21.00
June 2000 6,000 27.02
July 2000 - December 2000 12,000 24.86
</TABLE>
SWAP contracts in place at March 31, 2000 on future natural gas production were
as follows:
<TABLE>
<CAPTION>
SWAPS
----------------------------------
VOLUME IN WEIGHTED AVERAGE
MCF NYMEX CONTRACT
PERIOD PER DAY PRICE PER MCF
------ ------- -------------
<S> <C> <C>
April 2000 - June 2000 110,000 $ 2.63
July 2000 - December 2000 100,000 2.76
</TABLE>
At March 31, 2000, the Company had $9.6 million in collateral on
deposit with its counterparties associated with the above contracts. This cash
collateral is included in other current assets. The instruments contain an
element of credit risk and price risk. The Company attempts to minimize the
extent of credit risk by limiting the counterparties to major banks or
significant industry participants. All of these arrangements are entered into on
a no-cost basis and are settled monthly. The Company accounts for the swap
arrangements as hedging activities and, accordingly, gains or losses are
included in oil and gas revenues for the period the production was hedged. The
Company recorded a hedging loss of $7.5 million and a hedging gain of $7.7
million in the three month periods ended March 31, 2000 and 1999, respectively,
associated with contracts in place during those periods. The Company's future
exposure under the hedging instruments in place at March 31, 2000 (i.e.
estimated future loss assuming that NYMEX prices remain at current levels) is
estimated to be approximately $20.8 million.
14
<PAGE> 17
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, 2001. The Company is
currently evaluating the impact of the statement.
15
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company adopted a new Certificate of Incorporation and Bylaws
effective February 15, 2000 in connection with the consummation of the Plan of
Reorganization that was confirmed by the Bankruptcy Court on January 19, 2000.
Material changes to the Certificate of Incorporation and Bylaws include:
o increasing the authorized shares of Common Stock from 50 million to
100 million;
o increasing the authorized number of shares of Preferred Stock from 5
million to 10 million;
o permitting stockholders holding at least a majority of the shares of
the Company entitled to vote to require the Company to call a
special meeting; and
o deleting provisions relating to approvals required for transactions
with significant stockholders.
Copies of the restated Certificate of Incorporation and Bylaws have
been filed with the Commission on Form 8-K on January 26, 2000 and February 16,
2000, and are incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 26, 2000, the Company filed a Current Report on Form 8-K
reporting that the Company's bankruptcy Plan of Reorganization was confirmed by
the Bankruptcy Court on January 19, 2000.
On February 16, 2000, the Company filed a Current Report on Form 8-K
reporting that on February 15, 2000, the Company's bankruptcy Plan of
Reorganization was consummated and became effective.
16
<PAGE> 19
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 hereunto, duly authorized, in the City of Miami, State of
Florida, on the 12th day of May, 2000.
FORCENERGY INC
By: /s/ E. JOSEPH GRADY
-----------------------------
E. Joseph Grady
Vice President - Chief
Financial Officer (Principal
Financial Officer and officer
duly authorized to sign on
behalf of the Registrant)
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,442
<SECURITIES> 0
<RECEIVABLES> 37,333
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,765
<PP&E> 527,278
<DEPRECIATION> 0
<TOTAL-ASSETS> 606,613
<CURRENT-LIABILITIES> 68,225
<BONDS> 238,149
29,201
0
<COMMON> 240
<OTHER-SE> 270,798
<TOTAL-LIABILITY-AND-EQUITY> 606,613
<SALES> 76,770
<TOTAL-REVENUES> 76,966
<CGS> 0
<TOTAL-COSTS> 52,580
<OTHER-EXPENSES> 1,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,320
<INCOME-PRETAX> 20,247
<INCOME-TAX> 7,685
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,391
<EPS-BASIC> .52
<EPS-DILUTED> .52
</TABLE>
