FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 1-8094
Seagull Energy Corporation
(Exact name of registrant as specified in its charter)
Texas 74-1764876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Fannin, Suite 1700, Houston, Texas 77002-6714
(Address of principal executive offices) (Zip code)
(713) 951-4700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
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 12 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 .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 5, 1994
Common Stock, $.10 par value 36,093,389
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
INDEX
PAGE
Part I. Financial Information NUMBER
Presentation of Financial Information............................. 3
Consolidated Statements of Earnings - Three Months
Ended June 30, 1994 and 1993 (Unaudited)........................ 4
Consolidated Statements of Earnings - Six Months
Ended June 30, 1994 and 1993 (Unaudited)........................ 5
Consolidated Balance Sheets - June 30, 1994
and December 31, 1993 (Unaudited)............................... 6
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1994 and 1993 (Unaudited)........................ 7
Notes to Consolidated Financial Statements (Unaudited)............ 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited).......................... 11
Part II. Other Information......................................... 20
Signatures.......................................................... 22
PART I. FINANCIAL INFORMATION
Item 1. PRESENTATION OF FINANCIAL INFORMATION
In the opinion of management, the following unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of Seagull Energy Corporation and Subsidiaries (the
"Company" or "Seagull") as of June 30, 1994, and the results of its
operations for the three and six months ended June 30, 1994 and 1993, and
cash flows for the six month periods then ended. All such adjustments made
are of a normal, recurring nature. The results of operations for the three
and six months ended June 30, 1994 are not necessarily indicative of the
results to be expected for the full year.
The financial information presented herein should be read in
conjunction with the consolidated financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1993.
ITEM 1. FINANCIAL STATEMENTS
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30,
1994 1993
Revenues:
Exploration and production.................. $ 69,700 $ 57,124
Pipeline and marketing...................... 10,776 10,924
Alaska transmission and distribution........ 19,083 18,925
99,559 86,973
Costs of Operations:
Alaska transmission and distribution cost
of gas sold............................... 9,598 10,478
Operations and maintenance.................. 29,744 27,616
Exploration charges......................... 6,035 4,813
Depreciation, depletion and amortization.... 36,936 28,865
82,313 71,772
Operating Profit.............................. 17,246 15,201
Other (Income) Expense:
General and administrative.................. 4,054 3,257
Interest expense............................ 12,002 7,820
Interest income and other................... (166) (180)
15,890 10,897
Earnings Before Income Taxes ................. 1,356 4,304
Income Tax Expense (Benefit).................. (1,225) 680
Net Earnings.................................. $ 2,581 $ 3,624
Earnings Per Share............................ $ 0.07 $ 0.10
Weighted Average Number of
Common Shares Outstanding................... 36,966,038 36,848,327
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Six Months Ended
June 30,
1994 1993
Revenues:
Exploration and production.................. $ 151,118 $ 109,704
Pipeline and marketing...................... 20,155 22,344
Alaska transmission and distribution........ 55,349 58,117
226,622 190,165
Costs of Operations:
Alaska transmission and distribution cost
of gas sold............................... 28,848 33,006
Operations and maintenance.................. 59,525 55,235
Exploration charges......................... 10,218 10,352
Depreciation, depletion and amortization.... 75,956 56,950
174,547 155,543
Operating Profit.............................. 52,075 34,622
Other (Income) Expense:
General and administrative.................. 7,045 6,755
Interest expense............................ 23,547 18,355
Interest income and other................... (273) (685)
30,319 24,425
Earnings Before Income Taxes.................. 21,756 10,197
Income Taxes.................................. 6,260 2,720
Net Earnings.................................. $ 15,496 $ 7,477
Earnings Per Share............................ $ 0.42 $ 0.22
Weighted Average Number of
Common Shares Outstanding................... 36,942,368 34,754,499
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1994 1993
ASSETS
Current Assets:
Cash and cash equivalents................. $ 5,806 $ 5,572
Accounts receivable, net.................. 95,104 98,734
Inventories............................... 5,171 4,382
Prepaid expenses and other................ 4,787 6,520
Total Current Assets.................... 110,868 115,208
Property, Plant and Equipment - at cost
(successful efforts method for gas and
oil properties)............................ 1,537,589 1,278,701
Accumulated Depreciation, Depletion
and Amortization........................... 422,091 345,512
1,115,498 933,189
Other Assets................................ 63,464 69,854
Total Assets................................ $1,289,830 $1,118,251
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................... $ 73,509 $ 84,904
Accrued expenses.......................... 28,694 30,134
Prepaid gas and oil sales................. 6,064 7,590
Current maturities of long-term debt...... 566 1,538
Total Current Liabilities............... 108,833 124,166
Long-Term Debt.............................. 613,581 459,787
Other Noncurrent Liabilities................ 62,220 66,785
Deferred Income Taxes....................... 52,278 28,134
Shareholders' Equity:
Common Stock, $.10 par value; authorized
100,000,000 shares; issued
36,405,341 shares (1994) and
36,378,659 shares (1993)................. 3,641 3,638
Additional paid-in capital................ 324,460 324,192
Retained earnings......................... 136,209 120,713
Foreign currency translation adjustment... (2,228) -
Less - note receivable from employee
stock ownership plan..................... (6,029) (6,029)
Less - 326,812 shares of Common Stock
held in Treasury, at cost.............. (3,135) (3,135)
Total Shareholders' Equity............. 452,918 439,379
Commitments and Contingencies...............
Total Liabilities and Shareholders' Equity.. $1,289,830 $1,118,251
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1994 1993
Operating Activities:
Net earnings................................ $ 15,496 $ 7,477
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation, depletion
and amortization...................... 77,380 58,443
Amortization of loan acquisition costs.. 2,075 2,277
Deferred income taxes................... 3,104 747
Dry hole expense........................ 4,784 7,931
Distributions in excess of earnings
from partnerships..................... 797 702
Other................................... 55 13
103,691 77,590
Changes in operating assets and
liabilities, net of acquisitions:
Decrease in accounts receivable........ 15,634 8,394
Increase in inventories, prepaid
expenses and other.................... (847) (5,508)
Decrease in accounts payable........... (18,367) (18,909)
Decrease in prepaid gas and oil sales.. (4,259) (16,124)
Increase (Decrease) in accrued
expenses and other.................... (3,064) 5,729
Net Cash Provided By
Operating Activities................ 92,788 51,172
Investing Activities:
Capital expenditures........................ (57,265) (50,221)
Acquisitions, net of cash acquired.......... (195,782) 1,196
Proceeds from sales of property, plant
and equipment............................ 459 99
Net Cash Used In Investing
Activities.......................... (252,588) (48,926)
Financing Activities:
Proceeds from revolving lines of credit
and other borrowings...................... 548,796 85,211
Principal payments on revolving lines of
credit and other borrowings............... (388,885) (245,857)
Fees paid to acquire bank financing......... (13) (717)
Proceeds from sales of common stock......... 215 164,496
Other....................................... (222) (258)
Net Cash Provided By
Financing Activities................ 159,891 2,875
Effect of exchange rate changes on cash..... 143 -
Increase In Cash And
Cash Equivalents.................... 234 5,121
Cash And Cash Equivalents At Beginning
Of Period................................... 5,572 3,882
Cash And Cash Equivalents At End Of Period.... $ 5,806 $ 9,003
<FN>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Supplemental Disclosures of Cash Flow Information.
(Dollars in Thousands)
Six Months Ended June 30,
Cash paid during the period for: 1994 1993
Interest, net of amount capitalized . . $23,341 $11,389
Income taxes . . . . . . . . . . . . . $ 719 $ 4,969
Foreign Currency Translation.
The functional currency for the Company's foreign operations is the
applicable local currency. Translation from applicable foreign currencies
to U. S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using primarily a weighted average exchange rate during
the period. Adjustments resulting from such translation are included as a
separate component of shareholders' equity. Deferred income taxes have not
been provided on translation adjustments because the unremitted earnings
from Seagull's foreign operations are considered to be permanently
invested.
Earnings Per Share.
The weighted average number of common shares outstanding used in the
computation of earnings per share for all periods gives effect to the
assumed exercise of dilutive stock options as of the beginning of each
respective period.
NOTE 2. ACQUISITION
On January 4, 1994, Seagull acquired all of the outstanding shares of
stock of Novalta Resources Inc. ("Novalta") for a purchase price of
approximately $202 million in cash (the "Seagull Canada Acquisition"). The
economic effective date of the Seagull Canada Acquisition was December 31,
1993. Effective as of the January 4, 1994 closing date, Novalta was
amalgamated with Seagull Energy Canada Ltd. ("Seagull Canada"), the
indirect subsidiary of Seagull that acquired Novalta.
The Seagull Canada Acquisition was financed primarily with a new $175
million reducing revolving credit facility (the "Canadian Credit
Agreement"), as well as borrowings under Seagull's amended and restated
$475 million revolving credit facility (the "Revolver"). For additional
information, see Notes 2 and 6 to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
Actual results of Seagull Canada's operations for the three and six
month periods ended June 30, 1994 are reflected in Seagull's accompanying
unaudited consolidated financial statements.
NOTE 3. DEBT
In May 1994, the Company amended the Revolver to, among other things
(i) increase the maximum commitment from $475 million to $725 million, (ii)
extend the maturity date to December 31, 2000, (iii) adjust certain
financial covenants relating to dividend limitations and permitted leverage
ratios and (iv) to adjust the pricing features of the credit facility.
The provisions of the Revolver limit the total amount of senior
indebtedness available to the Company (the "Borrowing Base"). In May 1994,
the Borrowing Base was redetermined and the total amount of senior
indebtedness available to the Company was increased from $610 million to
$625 million. The available commitment under the Revolver, up to the
maximum of $725 million, is subject to the Borrowing Base and is determined
after consideration of outstanding borrowings under Seagull's other
senior debt facilities.
In May 1994, the Company also amended the Canadian Credit Agreement
for items similar to amendments (ii), (iii) and (iv) to the Revolver noted
above.
NOTE 4. ENSTAR ALASKA STOCK PROPOSAL
On June 1, 1994, shareholders approved a plan (the "ENSTAR Alaska
Stock Proposal") to create and issue a new class of common stock of the
Company intended to reflect separately the performance of the Company's
Alaska transmission and distribution segment ("ENSTAR Alaska") (the "ENSTAR
Alaska Stock"). Subject to prevailing market and other conditions, the
Company is authorized to proceed at any time with an underwritten public
offering (the "ENSTAR Alaska Stock Offering") for cash of shares of ENSTAR
Alaska Stock. The Company will not, however, proceed with the ENSTAR
Alaska Stock Offering until such conditions improve from where they are at
present. As part of the ENSTAR Alaska Stock Proposal, and following the
issuance of the ENSTAR Alaska Stock, Seagull's currently outstanding common
stock (the "Seagull Common Stock") would reflect separately the performance
of the Company's exploration and production and pipeline and marketing
segments. In addition, certain terms of the Seagull Common Stock would be
amended to allow for the creation and issuance of the ENSTAR Alaska Stock.
Net proceeds from the ENSTAR Alaska Stock Offering would be used to
repay amounts borrowed under the Revolver, none of which is attributable to
ENSTAR Alaska.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company is a party to ongoing litigation in the normal course of
business. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other
proceedings against the Company cannot be predicted with certainty,
management believes that the effect on its financial condition and results
of operations, if any, will not be material.
Item 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Unaudited)
The following discussion is intended to assist in an understanding of
the Company's financial position and results of operations for each of the
periods indicated. The Company's accompanying unaudited financial
statements and the notes thereto contain detailed information that should
be referred to in conjunction with the following discussion.
RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended
June 30, Percent
1994 1993 Change
Revenues:
Exploration and production . . . . . $ 69,700 $ 57,124 +22
Pipeline and marketing . . . . . . . 10,776 10,924 - 1
Alaska transmission and
distribution . . . . . . . . . . . 19,083 18,925 + 1
$ 99,559 $ 86,973 +14
Operating Profit:
Exploration and production . . . . . $ 11,456 $ 10,276 +11
Pipeline and marketing . . . . . . . 3,656 3,565 + 3
Alaska transmission and
distribution . . . . . . . . . . . 2,134 1,360 +57
$ 17,246 $ 15,201 +13
Net Earnings . . . . . . . . . . . . . $ 2,581 $ 3,624 -29
Earnings Per Share . . . . . . . . . . $ 0.07 $ 0.10 -30
Net Cash Provided by Operating
Activities Before Changes in
Operating Assets and
Liabilities . . . . . . . . . . . . $ 42,506 $ 38,457 +11
Net Cash Provided by
Operating Activities . . . . . . . . $ 50,571 $ 28,534 +77
Weighted Average Number of Common
Shares Outstanding (in thousands) . . 36,966 36,848 -
CONSOLIDATED HIGHLIGHTS
(Dollars in Thousands Except Per Share Amounts)
Six Months Ended
June 30, Percent
1994 1993 Change
Revenues:
Exploration and production . . . . . $151,118 $ 109,704 + 38
Pipeline and marketing . . . . . . . 20,155 22,344 - 10
Alaska transmission and
distribution . . . . . . . . . . . 55,349 58,117 - 5
$226,622 $ 190,165 + 19
Operating Profit:
Exploration and production . . . . . $ 33,631 $ 16,695 +101
Pipeline and marketing . . . . . . . 6,863 7,468 - 8
Alaska transmission and
distribution . . . . . . . . . . . 11,581 10,459 + 11
$ 52,075 $ 34,622 + 50
Net Earnings . . . . . . . . . . . . . $ 15,496 $ 7,477 +107
Earnings Per Share . . . . . . . . . . $ 0.42 $ 0.22 + 91
Net Cash Provided by
Operating Activities Before
Changes in Operating Assets
and Liabilities . . . . . . . . . . $103,691 $ 77,590 + 34
Net Cash Provided by
Operating Activities . . . . . . . . $ 92,788 $ 51,172 + 81
Weighted Average Number of
Common Shares Outstanding
(in thousands) . . . . . . . . . . . 36,942 34,754 + 6
Revenues and operating profit are discussed in the respective segment
sections.
The increase in net earnings for the six months ended June 30, 1994
versus the prior year period was due to an increase in operating profit,
which was partially offset by increases in interest expense and income
taxes. The decline in net earnings for the 1994 second quarter was due to
an increase in interest expense which more than offset an increase in
operating profit for the period. In addition, the 1994 quarter included an
income tax benefit. (See "Other (Income) Expense" and "Income Taxes"
sections below).
Net cash provided by operating activities before and after changes in
operating assets and liabilities increased in the three and six month
periods of 1994 versus the 1993 periods primarily due to 34% and 37%
increases, respectively, in natural gas production. The increases in
natural gas production were primarily due to production contributed from
properties acquired in connection with the Company's acquisition of Novalta
Resources Inc. ("Novalta") (the "Seagull Canada Acquisition") on January 4,
1994, and to production flowing for the first time beginning in late 1993
and early 1994 from certain of the Company's discoveries and three newly
installed Company operated production facilities offshore Texas and
Louisiana.
EXPLORATION AND PRODUCTION
(Dollars in Thousands Except Per Unit Amounts)
Three Months Ended
June 30, Percent
1994 1993 Change
Revenues:
Natural Gas . . . . . . . . . . . . $62,952 $50,247 +25
Oil and Condensate . . . . . . . . 6,333 6,902 - 8
Natural Gas Liquids . . . . . . . . 695 862 -19
Other . . . . . . . . . . . . . . . (280) (887) +68
69,700 57,124 +22
Lifting Costs . . . . . . . . . . . . 15,400 13,774 +12
General Operating Expense . . . . . . 3,050 2,727 +12
Exploration Charges . . . . . . . . . 6,035 4,813 +25
Depreciation, Depletion
and Amortization . . . . . . . . . 33,759 25,534 +32
Operating Profit . . . . . . . . . . $11,456 $10,276 +11
OPERATING DATA (1):
Net Daily Production (2):
Natural Gas (MMcf) . . . . . . . . 363.6 270.8 +34
Oil and Condensate (Bbl) . . . . . 4,470 4,333 + 3
Natural Gas Liquids (Bbl) . . . . . 813 757 + 7
Combined (MMcfe) (3) . . . . . . . 395.3 301.4 +31
Average Sales Prices:
Natural Gas ($ per Mcf) . . . . . . 1.90 2.04 - 7
Oil and Condensate ($ per Bbl) . . 15.57 17.50 -11
Natural Gas Liquids ($ per Bbl) . . 9.40 12.50 -25
Combined ($ per Mcfe) (3) . . . . . 1.94 2.08 - 7
Lifting Costs ($ per Mcfe) (3):
Lease Operating . . . . . . . . . . 0.24 0.27 -11
Workovers . . . . . . . . . . . . . 0.01 0.04 -75
Production Taxes . . . . . . . . . 0.07 0.09 -22
Transportation . . . . . . . . . . 0.08 0.07 +14
Ad Valorem Taxes . . . . . . . . . 0.03 0.03 -
Total . . . . . . . . . . . . . . . 0.43 0.50 -14
DD&A Rate ($ per Mcfe) (3) . . . . . 0.94 0.93 + 1
<FN>
(1) Domestic and Canadian operations combined.
(2) Natural gas stated in million cubic feet ("MMcf") or thousand cubic
feet ("Mcf"); oil and condensate and natural gas liquids stated in
barrels ("Bbl").
(3) MMcfe and Mcfe represent the equivalent of one million and one
thousand cubic feet of natural gas, respectively. Oil and condensate
and natural gas liquids are converted to gas at a ratio of one barrel
of liquids per six Mcf of gas, based on relative energy content.
EXPLORATION AND PRODUCTION
(Dollars in Thousands Except Per Unit Amounts)
Six Months Ended
June 30, Percent
1994 1993 Change
Revenues:
Natural Gas . . . . . . . . . . . . . $138,023 $ 96,025 + 44
Oil and Condensate . . . . . . . . . 11,837 13,396 - 12
Natural Gas Liquids . . . . . . . . . 1,307 1,625 - 20
Other . . . . . . . . . . . . . . . . (49) (1,342) + 96
151,118 109,704 + 38
Lifting Costs . . . . . . . . . . . . . 31,621 26,661 + 19
General Operating Expense . . . . . . . 6,040 5,562 + 9
Exploration Charges . . . . . . . . . . 10,218 10,352 - 1
Depreciation, Depletion
and Amortization . . . . . . . . . . 69,608 50,434 + 38
Operating Profit . . . . . . . . . . . $ 33,631 $ 16,695 +101
OPERATING DATA (1):
Net Daily Production (2):
Natural Gas (MMcf) . . . . . . . . . 375.3 273.6 + 37
Oil and Condensate (Bbl) . . . . . . 4,466 4,221 + 6
Natural Gas Liquids (Bbl) . . . . . . 853 728 + 17
Combined (MMcfe) (3) . . . . . . . . 407.2 303.3 + 34
Average Sales Prices:
Natural Gas ($ per Mcf) . . . . . . . 2.03 1.94 + 5
Oil and Condensate ($ per Bbl) . . . 14.64 17.54 - 17
Natural Gas Liquids ($ per Bbl) . . . 8.47 12.33 - 31
Combined ($ per Mcfe) (3) . . . . . . 2.05 2.00 + 2
Lifting Costs ($ per Mcfe) (3):
Lease Operating . . . . . . . . . . . 0.24 0.27 - 11
Workovers . . . . . . . . . . . . . . 0.02 0.03 - 33
Production Taxes . . . . . . . . . . 0.07 0.08 - 12
Transportation . . . . . . . . . . . 0.08 0.07 + 14
Ad Valorem Taxes . . . . . . . . . . 0.02 0.03 - 33
Total . . . . . . . . . . . . . . . . 0.43 0.49 - 12
DD&A Rate ($ per Mcfe) (3) . . . . . . 0.94 0.92 + 2
<FN>
(1) Domestic and Canadian operations combined.
(2) Natural gas stated in million cubic feet ("MMcf") or thousand cubic
feet ("Mcf"); oil and condensate and natural gas liquids stated in
barrels ("Bbl").
(3) MMcfe and Mcfe represent the equivalent of one million and one
thousand cubic feet of natural gas, respectively. Oil and condensate
and natural gas liquids are converted to gas at a ratio of one barrel
of liquids per six Mcf of gas, based on relative energy content.
The increase in operating profit of the E&P segment for the three and
six month periods ended June 30, 1994 as compared to the 1993 periods was
due to increases in revenues as a result of significant increases in
natural gas production, which were partially offset by increased
depreciation, depletion and amortization ("DD&A") expense and lifting
costs.
The increases in natural gas production were primarily due to
production contributed from properties acquired in connection with the
Seagull Canada Acquisition on January 4, 1994, which averaged 52.4 and 51.1
MMcf per day for the 1994 quarter and six month period, respectively, and
to production flowing for the first time in late 1993 and early 1994 from
certain of the Company's discoveries and three newly installed Company
operated production facilities offshore Texas and Louisiana. The increases
in production would have been somewhat higher but for voluntary
curtailments in the first half of June 1994 due to inferior natural gas
prices.
DD&A expense and lifting costs increased for the three and six month
periods ended June 30, 1994 as a result of the significant increases in
production, although lifting costs per equivalent unit of production
declined 14% and 12%, respectively, for the 1994 periods.
Exploration charges declined for the six months ended June 30, 1994
due to significant declines in dry hole costs as a result of Seagull's less
active exploratory program in comparison to the 1993 period. Two of six
wells drilled were successful, two wells were drilling, and another two
wells were being evaluated as of late July 1994 in comparison to six
successes out of 20 wells drilled for the 1993 period. However,
exploration charges increased for the 1994 second quarter due primarily to
the completion of 3-D seismic evaluations of many of Seagull's offshore
prospect inventory and to dry hole costs of approximately $1.8 million
relating to an exploratory well in which the Company participated in the
South China Sea which was not successful. Evaluations of the over one
million acre block in the South China Sea will be ongoing, although the
Company does not anticipate further drilling in this venture until sometime
in 1995. Seagull still plans to drill approximately 30 exploratory wells
in 1994, including five or six to be drilled in Canada and two in United
Kingdom waters.
Seagull's exploitative program continues to be very active in 1994.
Through late July 1994, 68 of 76 development wells drilled, all onshore,
were successful including 14 successes out of 14 wells drilled in Canada.
The Company plans to continue its exploitation activities at a comparable
pace throughout the year, focusing its efforts primarily onshore in the
Mid-Continent and Mid-South areas, as well as in Canada.
As a result of its active exploration and exploitative programs,
Seagull expects to maintain its current level of deliverability throughout
1994 with increases expected in late 1994 and early 1995 from several of
its new discoveries and from continued exploitation, especially in Canada.
However, as a result of recent fluctuations in the market price of natural
gas, the Company expects, as in the past, to curtail gas production
whenever prices are deemed to be below acceptable levels.
PIPELINE AND MARKETING
(Dollars in Thousands)
Three Months Ended
June 30, Percent
1994 1993 Change
OPERATING PROFIT:
Pipelines . . . . . . . . . . . . . $1,788 $2,142 - 17
Marketing and Supply . . . . . . . 1,597 776 +106
Gas Processing . . . . . . . . . . 134 332 - 60
Operating and Construction
Services . . . . . . . . . . . . 137 315 - 57
$3,656 $3,565 + 3
OPERATING DATA:
Average Daily Volumes (MMcf):
Gas Gathering . . . . . . . . . . . 289 321 - 10
Partnership Systems (net) . . . . . 111 105 + 6
Marketing and Supply . . . . . . . 554 444 + 25
Gas Processing:
Average Daily Inlet Volumes
(MMcf) . . . . . . . . . . . . . 278 268 + 4
Average Daily Net Production
(Bbl) . . . . . . . . . . . . . . 4,538 3,351 + 35
PIPELINE AND MARKETING
(Dollars in Thousands)
Six Months Ended
June 30, Percent
1994 1993 Change
OPERATING PROFIT:
Pipelines . . . . . . . . . . . . . . $3,371 $4,857 - 31
Marketing and Supply . . . . . . . . 2,949 1,337 +121
Gas Processing . . . . . . . . . . . (222) 847 -126
Operating and Construction
Services . . . . . . . . . . . . . 765 427 + 79
$6,863 $ 7,468 - 8
OPERATING DATA:
Average Daily Volumes (MMcf):
Gas Gathering . . . . . . . . . . . . 284 332 - 14
Partnership Systems (net) . . . . . . 111 124 - 10
Marketing and Supply . . . . . . . . 580 440 + 32
Gas Processing:
Average Daily Inlet Volumes
(MMcf) . . . . . . . . . . . . . . 282 277 + 2
Average Daily Net Production
(Bbl) . . . . . . . . . . . . . . . 3,478 3,637 - 4
In the pipeline and marketing segment, operating profit declined for
the six months ended June 30, 1994 over the 1993 period due primarily to
declines in the pipelines and gas processing areas which more than offset
improvements in the marketing and supply and operating and construction
services areas. Operating profit for the second quarter of 1994 improved
slightly from the 1993 period due to improvements in the marketing and
supply area which more than offset declines in all other areas of this
segment.
Operating profit in the pipelines area, which includes the Company's
gas gathering and product pipelines systems, as well as the Company's
interest in two partnership systems, declined primarily due to reduced
volumes delivered for the periods. Gas processing operating profit
declined in 1994 due primarily to significant declines in prices received
for extracted products.
In the marketing and supply area, operating profit improved in the
1994 quarter and six month period due to 25% and 32% increases,
respectively, in sales volumes due partially to increases in the E&P
segment's domestic natural gas production and 25% and 24% increases,
respectively, in margins.
For the six months ended June 30, 1994, Seagull recognized additional
profit on a construction project the Company began in mid-1993 -- an 8.7
mile, 16 inch gas pipeline that Seagull constructed for an international
exploration company from a platform to a gathering pipeline offshore
Louisiana. The project was completed early in the first quarter of 1994.
ALASKA TRANSMISSION AND DISTRIBUTION
(Dollars in Thousands)
Three Months Ended
June 30, Percent
1994 1993 Change
Revenues . . . . . . . . . . . . . $19,083 $18,925 + 1
Cost of Gas Sold . . . . . . . . . 9,598 10,478 - 8
Operations and Maintenance Expense 5,401 5,221 + 3
Depreciation, Depletion and
Amortization . . . . . . . . . . 1,950 1,866 + 4
Operating Profit . . . . . . . . . $ 2,134 $ 1,360 +57
OPERATING DATA:
Degree Days (*) . . . . . . . . . . 1,575 1,420 +11
Volumes (Bcf):
Gas Sold . . . . . . . . . . . . 5.5 5.0 +10
Gas Transported . . . . . . . . . 3.0 2.2 +36
Combined . . . . . . . . . . . . 8.5 7.2 +18
Margins ($ per Mcf):
Gas Sold . . . . . . . . . . . . 1.53 1.51 + 1
Gas Transported . . . . . . . . . 0.35 0.40 -12
Combined . . . . . . . . . . . . 1.12 1.18 - 5
Customers (end of period) . . . . . 88,754 86,842 + 2
<FN>
(*) A measure of weather severity calculated by subtracting the mean
temperature for each day from 65 degrees Fahrenheit. More degree days
equate to colder weather.
ALASKA TRANSMISSION AND DISTRIBUTION
(Dollars in Thousands)
Six Months Ended
June 30, Percent
1994 1993 Change
Revenues . . . . . . . . . . . . . . . . $55,349 $58,117 - 5
Cost of Gas Sold . . . . . . . . . . . . 28,848 33,006 -13
Operations and Maintenance Expense . . . 11,021 10,930 + 1
Depreciation, Depletion and
Amortization . . . . . . . . . . . . . 3,899 3,722 + 5
Operating Profit . . . . . . . . . . . . $11,581 $10,459 +11
OPERATING DATA:
Degree Days (*) . . . . . . . . . . . . . 5,462 5,328 + 3
Volumes (Bcf):
Gas Sold . . . . . . . . . . . . . . . 16.6 15.8 + 5
Gas Transported . . . . . . . . . . . . 5.4 4.9 +10
Combined . . . . . . . . . . . . . . . 22.0 20.7 + 6
Margins ($ per Mcf):
Gas Sold . . . . . . . . . . . . . . . 1.48 1.47 + 1
Gas Transported . . . . . . . . . . . . 0.37 0.39 - 5
Combined . . . . . . . . . . . . . . . 1.21 1.21 -
Customers (end of period) . . . . . . . . 88,754 86,842 + 2
<FN>
(*) A measure of weather severity calculated by subtracting the mean
temperature for each day from 65 degrees Fahrenheit. More degree days
equate to colder weather.
Operating profit of the Alaska transmission and distribution segment
(ENSTAR Natural Gas Company, a division of the Company, and Alaska Pipeline
Company, a wholly owned subsidiary, (collectively referred to herein as
"ENSTAR Alaska")) for the three and six month periods ended June 30, 1994
improved from the 1993 periods primarily as a result of higher non-power
customer demand due to an increase in customers for the periods and colder
temperatures during the 1994 second quarter.
Margins ($ per Mcf) on volumes transported declined 12% and 5%,
respectively, for the three and six month periods ended June 30, 1994 due
to the addition of a large transport customer during the second quarter of
1994 at a transportation fee approximately 53% lower than the average fee
received for all ENSTAR Alaska's other transport customers. However,
increases in volumes transported due to the addition of this customer,
representing approximately 40% of ENSTAR Alaska's transport volumes for the
1994 quarter, more than offset declines in revenues resulting from declines
in average margins realized.
This segment's business is seasonal with approximately 65% of its
sales made in the first and fourth quarters of each year.
OTHER (INCOME) EXPENSE
(Dollars in Thousands)
Three Months Ended
June 30, Percent
1994 1993 Change
General and Administrative . . $ 4,054 $ 3,257 +24
Interest Expense . . . . . . . 12,002 7,820 +53
Interest Income and Other . . . (166) (180) - 8
$15,890 $10,897 +46
OTHER (INCOME) EXPENSE
(Dollars in Thousands)
Six Months Ended
June 30, Percent
1994 1993 Change
General and Administrative . . . . . $ 7,045 $ 6,755 + 4
Interest Expense . . . . . . . . . . 23,547 18,355 +28
Interest Income and Other . . . . . . (273) (685) -60
$30,319 $24,425 +24
General and administrative expenses increased for the second quarter
of 1994 in comparison to 1993 primarily due to charges for costs relating
to potential acquisitions which were not consummated.
General and administrative expenses increased for the six months ended
June 30, 1994 due to increases in payroll related expenses and costs
related to potential acquisitions which were not consummated, substantially
offset by a decline in costs associated with three compensation plans, one
for outside directors, one for key managers, and the other for all Seagull
employees, that are tied directly to the price of Seagull Common Stock.
The closing price of Seagull Common Stock increased 2% during the 1994 six
month period compared to a 73% increase in the 1993 period.
Increases in interest expense for the 1994 periods were a result of an
increase in the level of debt outstanding due primarily to new debt
incurred to finance the Seagull Canada Acquisition. Seagull expects its
interest costs will continue to rise throughout the remainder of 1994 due
to the increased level of debt previously mentioned as well as anticipated
increases in overall market rates of interest projected for the latter part
of 1994.
INCOME TAXES
The increase in income taxes for the six months ended June 30, 1994
was primarily a result of an increase in earnings before income taxes for
the period.
The decline in income taxes for the 1994 quarter was primarily due to
a significant reduction in Seagull's projected annual effective income tax
rate for 1994 which resulted in an income tax benefit for the second
quarter.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for the 1994 periods were higher than those for
1993 due in part to increases in Seagull's exploitative activities,
primarily resulting from the large number of prospects in the Mid-South
area as well as prospects acquired in connection with the Seagull Canada
Acquisition, which more than offset declines in the Company's exploratory
activities for the periods. However, as discussed earlier, the Company has
very active exploitation and exploration programs planned for the second
half of 1994.
Capital expenditures for the 1994 and 1993 periods were as follows:
(Dollars in Thousands)
Three Months Ended
June 30, Percent
1994 1993 Change
Exploration and Production:
Lease acquisitions . . . . . . . . . $ 5,512 $ 956 +477
Exploration costs . . . . . . . . . . 4,648 6,297 - 26
Development costs . . . . . . . . . . 19,222 16,699 + 15
29,382 23,952 + 23
Pipeline and Marketing . . . . . . . . 197 73 +170
Alaska Transmission and Distribution . 1,779 2,563 - 31
Corporate . . . . . . . . . . . . . . . 2,359 685 +244
$33,717 $27,273 + 24
(Dollars in Thousands)
Six Months Ended
June 30, Percent
1994 1993 Change
Exploration and Production:
Lease acquisitions . . . . . . . . . . $ 7,396 $ 1,994 +271
Exploration costs . . . . . . . . . . . 7,820 15,492 - 50
Development costs . . . . . . . . . . . 35,460 26,962 + 32
50,676 44,448 + 14
Pipeline and Marketing . . . . . . . . . 588 651 - 10
Alaska Transmission and Distribution . . 3,164 3,903 - 19
Corporate . . . . . . . . . . . . . . . . 2,837 1,219 +133
$57,265 $50,221 + 14
Current plans for 1994 call for capital expenditures of slightly more
than $170 million, including about $160 million in exploration and
production. Of the $160 million, Seagull anticipates spending
approximately $100 million for development activities.
In May 1994, Seagull amended its existing revolving credit facility
(the "Revolver") with a group of major U. S. and international banks. The
facility was amended to, among other things, (i) increase the maximum
commitment from $475 million to $725 million, (ii) extend the maturity date
to December 31, 2000, (iii) adjust certain financial covenants relating to
dividend limitations and permitted leverage ratios and (iv) to adjust the
pricing features of the credit facility.
The provisions of the Revolver limit the total amount of senior
indebtedness available to the Company (the "Borrowing Base"). The
Borrowing Base is based upon the value of the proved reserves of the
Company's exploration and production segment and the financial performance
of the Company's other business segments as provided for under the
Revolver. In May 1994, the Borrowing Base was redetermined and the total
amount of senior indebtedness available to the Company was increased from
$610 million to $625 million. The available commitment under the Revolver,
up to the maximum of $725 million, is subject to the Borrowing Base and is
determined after consideration of outstanding borrowings under Seagull's
other senior debt facilities. As of August 5, 1994, borrowings outstanding
under the Revolver were $155 million, leaving immediately available unused
commitments of approximately $204.1 million, net of outstanding letters of
credit of $2.2 million, $100 million of borrowings outstanding under the
Company's senior notes, the nominated maximum borrowing availability of
$160 million under the Canadian Credit Agreement discussed below, and $3.7
million of borrowings outstanding under Seagull's money market facilities.
In connection with the Seagull Canada Acquisition, Seagull Energy
Canada Ltd. ("Seagull Canada"), the indirect wholly owned subsidiary of
Seagull which acquired Novalta, entered into a new $175 million reducing
revolving credit facility (the "Canadian Credit Agreement") with a group of
10 Canadian affiliates of major U. S. and international banks. The
Canadian Credit Agreement provides for dual currency borrowings in U. S.
and Canadian dollars with a nominated maximum borrowing availability of
$160 million, which may be increased or decreased by the Company at any
time pursuant to provisions of the Canadian Credit Agreement, up to a
maximum commitment of $175 million. The Canadian Credit Agreement was also
amended by the Company in May 1994 for items similar to amendments (ii),
(iii) and (iv) to the Revolver noted above.
In addition to the facilities discussed above, Seagull has money
market facilities with two major U. S. banks with a combined maximum
commitment of $70 million. These lines of credit bear interest at rates
made available by the banks at their discretion and may be canceled at
either Seagull's or the banks' discretion. The lines are subject to annual
renewal.
Management believes that the Company's capital resources will be
sufficient to finance current and forecasted operations. However, the
Company continues to actively pursue potential acquisitions and, depending
upon the size and terms of any such acquisition, additional financing may
be required.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on June 1,
1994, the shareholders voted to authorize certain amendments to the
Company's Articles of Incorporation that would, among other things, (i)
authorize 25,000,000 shares of a new class of common stock of the Company,
the Seagull Energy Corporation - ENSTAR Alaska Group Common Stock, par
value $0.10 per share (the "ENSTAR Alaska Stock") and (ii) amend the terms
of the existing capital stock of the Company to allow for the issuance of
the ENSTAR Alaska Stock. In addition, shareholders voted to ratify the
selection of KPMG Peat Marwick as independent auditors of the Company for
the fiscal year ended December 31, 1994. Votes cast for each matter were
as follows:
Broker
For Against Abstained Non-Votes
Approval of Amendments to the
Company's Articles of
Incorporation . . . . . . . 28,204,651 922,668 688,347 1,535,172
Ratification of Selection of
KPMG Peat Marwick as
Independent Auditors for
1994 . . . . . . . . . . . 31,142,073 31,922 176,843 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
* 4.1 Credit Agreement, $725 million Reducing Revolving Credit and
Competitive Bid Facility, dated May 24, 1994 by and among
Seagull, each of the banks signatory thereto and Texas
Commerce Bank National Association and Chemical Bank, as
co-agents (without exhibits and schedules).
* 4.2 Form of Committed Note executed in connection with the
Credit Agreement included as Exhibit 4.1 hereto.
* 4.3 Form of Competitive Note executed in connection with the
Credit Agreement included as Exhibit 4.1 hereto.
* 4.4 Form of Assignment and Acceptance executed in connection
with the Credit Agreement included as Exhibit 4.1 hereto.
* 4.5 First Amendment to Credit Agreement, U. S. $175 million
Reducing Revolving Credit Facility by and among Seagull
Energy Canada Ltd., each of the banks signatory thereto, and
Chemical Bank of Canada, The Bank of Nova Scotia and
Canadian Imperial Bank of Commerce, as co-agents, dated
May 24, 1994 (without exhibits).
* 4.6 Form of Note (U. S. Dollars) executed in connection with the
First Amendment to Credit Agreement included as Exhibit 4.5
hereto.
* 4.7 Form of Note (Canadian Dollars) executed in connection with
the First Amendment to Credit Agreement included as Exhibit
4.5 hereto.
* 4.8 First Amendment to Intercreditor Agreement executed in
connection with the First Amendment to Credit Agreement
included as Exhibit 4.5 hereto.
(b) Reports on Form 8-K:
On May 2, 1994, the Company filed an amendment on Form 8-K/A amending
its Current Report on Form 8-K dated January 4, 1994 with respect to
Item 7(b), Pro Forma Financial Information. The following financial
statements were amended with this filing:
Item 7.(b)(ii) Pro forma financial information:
The unaudited pro forma condensed financial statements
of the Company giving effect to the Seagull Canada
Acquisition.
*Filed herewith
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.
SEAGULL ENERGY CORPORATION
By: /s/ Robert W. Shower
Robert W. Shower, Executive Vice
President and Chief Financial
Officer (Principal Financial
Officer)
Date: August 11, 1994
By: /s/ Rodney W. Bridges
Rodney W. Bridges, Vice
President and Controller
(Principal Accounting Officer)
Date: August 11, 1994
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
Exhibits:
* 4.1 Credit Agreement, $725 million Reducing
Revolving Credit and Competitive Bid
Facility, dated May 24, 1994 by and among
Seagull, each of the banks signatory thereto
and Texas Commerce Bank National Association
and Chemical Bank, as co-agents (without
exhibits and schedules).
* 4.2 Form of Committed Note executed in connection
with the Credit Agreement included as Exhibit
4.1 hereto.
* 4.3 Form of Competitive Note executed in
connection with the Credit Agreement included
as Exhibit 4.1 hereto.
* 4.4 Form of Assignment and Acceptance executed in
connection with the Credit Agreement included
as Exhibit 4.1 hereto.
* 4.5 First Amendment to Credit Agreement, U. S.
$175 million Reducing Revolving Credit
Facility by and among Seagull Energy Canada
Ltd., each of the banks signatory thereto,
and Chemical Bank of Canada, The Bank of Nova
Scotia and Canadian Imperial Bank of
Commerce, as co-agents, dated May 24, 1994
(without exhibits).
* 4.6 Form of Note (U. S. Dollars) executed in
connection with the First Amendment to Credit
Agreement included as Exhibit 4.5 hereto.
* 4.7 Form of Note (Canadian Dollars) executed in
connection with the First Amendment to Credit
Agreement included as Exhibit 4.5 hereto.
* 4.8 First Amendment to Intercreditor Agreement
executed in connection with the First
Amendment to Credit Agreement included as
Exhibit 4.5 hereto.
*Filed herewith