UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[root] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
- ---------
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From..................... to....................
Commission File Number 1-8287
RIO GRANDE, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 74-1973357
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10101 Reunion Place, Suite 210, San Antonio, Texas 78216-4156
(Address of Principal Executive Office) (Zip Code)
Issuer's Telephone Number Including Area Code: 210-308-8000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
[root] No .
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
At May 31, 1997 there were 5,760,984 shares of the registrant's common
stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
RIO GRANDE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (unaudited)
April 30, 1997
--------------
Assets
------
Current assets:
Cash and cash equivalents $ 1,486,455
Trade receivables 971,660
Prepaid expenses 126,251
-------------
Total current assets 2,584,366
-------------
Property and equipment, at cost:
Oil and gas properties, successful efforts method 25,886,359
Transportation equipment 133,555
Other depreciable assets 401,733
-------------
26,421,647
Less accumulated depreciation, depletion and amortization (4,718,265)
-------------
Net property and equipment 21,703,382
-------------
Other assets:
Platform abandonment fund 979,310
Other assets, net 628,246
1,607,556
-------------
Total Assets $ 25,895,304
=============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 1,094,802
Accrued expenses 464,131
Current installments of long-term debt 4,350,478
-------------
Total current liabilities 5,909,411
-------------
Accrued platform abandonment expense 1,052,687
Long-term debt, excluding current installments 9,003,998
Minority interest in limited partnership 100,613
Redeemable preferred stock, $0.01 par value; $10
redemption value. Authorized 1,700,000 shares; issued
and outstanding 1,000,000 shares 10,000,000
Common stock of $0.01 par value. Authorized
10,000,000 shares; issued and outstanding
5,552,760 shares 57,610
Additional paid-in capital
1,068,901
Deficit (1,297,916)
-------------
Total Stockholders' Equity (171,405)
-------------
Contingent liabilities
Total Liabilities and Stockholders' Equity $ 25,895,304
=============
See accompanying notes to consolidated financial statements.
-2-
Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
Three Months
Ended
April 30,
1997 1996
---- ----
Revenues:
Oil and gas sales $ 1,934,226 1,148,888
----------- ------------
Costs and expenses:
Lease operating and other production expense 836,060 541,386
Dry hole costs and lease abandonments -0- 159,822
Depletion of oil and gas producing properties 594,633 218,764
Depreciation and other amortization 57,366 53,813
Provisions for abandonment expense 10,500 46,354
General and administrative 372,881 307,189
----------- ------------
Total costs and expenses 1,871,440 1,327,328
----------- ------------
Earnings (loss) from operations 62,786 (178,440)
----------- ------------
Other income (expense):
Interest expense (260,981) (115,416)
Interest income 31,149 23,234
Gain on sale of assets -0- 21,859
Other, net 9,326 1,500
Minority interest in equity of combined
limited partnership (21,800) (28,658)
----------- ------------
Total other income (expense) (242,306) (97,481)
----------- ------------
Loss before income taxes (179,520) (275,921)
Income taxes 1,842 1,936
----------- ------------
Net loss (181,362) (277,857)
Cash dividends on preferred stock 200,100 -0-
------------ ------------
Net loss applicable to common stock $ (381,462) (277,857)
============ ============
Net loss per common share $ (0.07) $ (0.05)
============ ============
Weighted average common shares outstanding 5,672,079 5,552,760
============ ============
See accompanying notes to consolidated financial statements.
-3-
Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three Months
Ended
April 30,
1997 1996
---- ----
Cash flows from operating activities:
Loss from continuing operations $(181,362) (277,857)
Adjustments to reconcile earnings from continuing
operations to net cash used in operating activities:
Depreciation and other amortization 57,366 53,813
Depletion of oil and gas producing properties 594,633 218,764
Provision for abandonment expense 10,500 45,000
Gain on sale of assets -0- (21,859)
Minority interest in equity of limited
partnership 21,800 28,658
(Increase) decrease in trade receivables 837,003 (337,496)
(Increase) decrease in prepaid expenses (89,432) (49,013)
Increase (decrease) in accounts payable and
accrued expenses 123,959 (16,822)
Increase (decrease) in accrued platform
abandonment expense (8,519) (2,191)
Increase in note payable -0- 1,405,254
------------ -----------
Net cash provided by (used in) continuing
operating activities 1,365,848 1,046,251
------------ ----------
Cash flows from investing activities:
Purchase of oil and gas producing properties (909,893) (4,103,787)
Purchase of other property and equipment (1,800) (5,794)
Deletions from (additions to) platform
abandonment fund 22,653 (47,397)
Deletions from (additions to) other assets (19,697) (68,194)
Proceeds from sale of property and equipment -0- 31,256
------------ ----------
Net cash provided by (used in) investing activities (908,737) (4,193,916)
------------ ----------
Cash flows from financing activities:
Proceeds from long-term debt -0- 3,879,998
Repayment of long-term debt (6,832) (1,629,407)
Proceeds from issuance of common stock 41,645 -0-
Distributions to limited partners (50,800) -0-
----------- ----------
Net cash provided by (used in) financing activities (15,987) 2,250,591
----------- ----------
Net increase (decrease) in cash and cash equivalents 441,124 (897,074)
Cash and cash equivalents at beginning of period 1,045,331 1,244,268
----------- ----------
Cash and cash equivalents at end of period $1,486,455 347,194
=========== ==========
See accompanying notes to consolidated financial statements.
-4-
RIO GRANDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Accounting Policies
The accounting policies of Rio Grande, Inc. and Subsidiaries as set forth
in the notes to the Company's audited financial statements in the Form
10-KSB Report filed for the year ended January 31, 1997 are incorporated
herein by reference. Refer to those notes for additional details of the
Company's financial condition, results of operations and cash flows. All
material items included in those notes have not changed except as a result
of normal transactions in the interim, or any items which are disclosed in
this report.
The consolidated financial statements include the accounts of Rio Grande,
Inc. (the "Company") and its subsidiaries and majority-owned limited
partnerships as follows:
Form of Ownership
Name Organization Interest
Rio Grande Drilling Company Texas Corporation 100%
("Drilling")
Rio Grande Desert Oil Company Nevada Corporation 100%
("RG-Desert")
Rio Grande Offshore, Ltd. Texas Limited Partnership 100%
("Offshore")
Rio Grande GulfMex, Ltd. Texas Limited Partnership 80%
("GulfMex")
As a result of the Company's 80% ownership interest, GulfMex's
financial statements are consolidated with the Company's financial
statements. The minority interests of the outside limited partners are
set forth separately in the balance sheet and the statements of
operations of the Company.
All intercompany balances and transactions have been eliminated in the
consolidation.
In the opinion of management, the consolidated financial statements
reflect all adjustments which are necessary for a fair presentation of
the financial position and results of operations. Adjustments made for
the three months ended April 30, 1997 are considered normal and
recurring in nature.
The Company utilizes the successful efforts method of accounting for
its oil and gas properties. Under this method, the acquisition costs of
oil and gas properties acquired with proven reserves are capitalized
and amortized on the unit-of-production method as produced. Development
costs or exploratory costs are capitalized and amortized on the
unit-of-production method if proved reserves are discovered, or
expensed if the well is a dry hole.
-5-
Capitalized costs of proved properties are periodically reviewed for
impairment on a property-by-property basis, and, if necessary, an
impairment provision is recognized to reduce the net carrying amount of
such properties to their estimated fair values. Fair values for the
properties are based on future net cash flows as reflected on the year
end reserve report.
Earnings Per Share
Earnings per share computations are based on the weighted average
number of shares and dilutive common stock equivalents outstanding
during the respective periods. Fully diluted earnings per share is the
same as earnings per common and common equivalent share.
Recently Issued Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," which establishes standards for
computing and presenting earnings per share. This Standard, effective
for financial statements issued for periods ending after December 15,
1997, replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. In addition, this standard
requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations. The Company does not
anticipate the adoption of SFAS No. 128 will have an impact on earnings
per share for 1997 and 1996.
(2) Acquisition of Oil and Gas Properties
The business of acquiring producing oil and gas properties is an
inherently speculative activity that involves a high degree of business
and financial risk. Property acquisition decisions generally are based
on various assumptions and subjective judgments relating to achievable
production and price levels which are inherently uncertain and
unpredictable. Although available geological and geophysical
information can provide information on the potential for previously
overlooked or untested formations, it is impossible to determine
accurately the ultimate production potential, if any, of a particular
well. Actual oil and gas production may vary considerably from
anticipated results. Moreover, the acquisition of a property or the
successful recompletion of an oil or gas well does not assure a profit
on the investment or return of the cost thereof. There can be no
assurance that the Company will succeed in its efforts to acquire
additional older oil and gas wells or in its development efforts aimed
at increasing or restoring production from either currently owned or
acquired wells. If the Company over-estimates the potential oil and gas
reserves of a property to be acquired, or if its subsequent operations
on the property are unsuccessful, the acquisition of the property could
result in losses to the Company. Except to the extent that the Company
acquires additional recoverable reserves or conducts successful
exploration and development programs on its existing properties, the
proved reserves of the Company will decline over time as they are
produced. There can be no assurances that the Company will be able to
increase or replace reserves through acquisitions, exploration and
development.
On January 16, 1997, Offshore completed the acquisition of producing
oil and gas properties in the Righthand Creek Field ("Righthand Creek")
located in Allen Parish, Louisiana. The effective date of the Righthand
Creek acquisition was November 1, 1996. The acquisition price for
Righthand Creek was approximately $15.3 million for total estimated
remaining proved producing reserves as of the effective date of
approximately 2 million bbls of oil and 2 bcf natural gas net to
-6-
Offshore's interest. Due to timing of closing the acquisition, the
revenues and related lease operating expenses for November 1996 through
January 1997 have been recorded as an adjustment to the acquisition
price. Drilling is the operator for the Righthand Creek wells.
(3) Long-Term Debt
Effective January 16, 1997, the Company and Drilling executed the First
Amendment to the loan agreement with a senior lender which provided for
the increase of the senior credit facility ("Senior Credit Facility")
from $10 million to $50 million and the increase of the credit
available under the Senior Credit Facility (the "Borrowing Base") from
approximately $5 million to approximately $17 million on January 16,
1997. The Borrowing Base is subject to monthly reductions of $333,000
beginning April 1, 1997 until maturity or the next determination of the
Borrowing Base on February 1, 1998. The Company may, at its sole
expense, request a redetermination prior to February 1, 1998. The First
Amendment also provided for extending the maturity date of the Senior
Credit Facility to February 1, 2000.
All of the Company's interests (direct or indirect) in existing oil and
gas properties, miscellaneous assets, and future oil and gas property
acquisitions will serve as collateral for the Senior Credit Facility.
The Senior Credit Facility contains various restrictions including, but
not limited to, restrictions on payments of dividends or distributions
other than those capital distributions to the outside minority interest
limited partners in GulfMex, maintenance of positive working capital,
and no change in the ownership control or the President of the Company.
At April 30, 1997, the Company was in compliance with the restrictions
in the Senior Credit Facility.
The First Amendment to the Senior Credit Facility provides for the
payment of dividends on the various preferred stock acquired by Koch
Exploration Company ("Koch") unless an event of default under the
Senior Credit Facility has occurred and is continuing. The stock
purchase agreement with Koch provides for certain restrictions on the
Company's total indebtedness. The Company can only increase
indebtedness through the Senior Credit Facility; however, if the
incurrence of additional debt results in the Company's total
indebtedness exceeding 65% of the present value of the Company's proved
reserves discounted at 12%, the Company cannot incur any additional
debt.
The interest rate options available to the Company are based either on
a prime rate determination or a Eurodollar rate determination. The
outstanding principal balance under the Borrowing Base will be subject
to the senior lender's prime rate plus 0.5% calculated on actual days
of a year consisting of 365 days unless written notice is provided to
the bank to elect an amount to be converted to a Eurodollar rate
determination. The Company can select any amount of the outstanding
principal under the Borrowing Base to be converted into recurring terms
of 30, 60, 90 or 180 day periods. The interest rate is based on the
time period selected plus an incremental margin payable to the senior
lender equivalent to 2.25%. Interest under the Eurodollar rate is
determined on actual days of a year consisting of 360 days. For any
unused portion of the Borrowing Base, a commitment fee of 3/8ths of one
percent per annum will be charged to the Company. The senior lender was
paid a loan origination fee of $75,000 to facilitate the First
Amendment. The outstanding principal balance of the Senior Credit
Facility was $13.3 million at January 31, 1997 and April 30, 1997.
-7-
On January 31, 1997, the Company paid in full the 11.50% subordinated
notes which were issued for a total principal amount of $2 million in
September 1995.
Interest expense paid during the three months ended April 30, 1997 and
1996, was approximately $261,000 and $115,000, respectively. The
average interest rate for the three months ended April 30, 1997 and
1996 was 8.00% and 8.61%, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
1. Material Changes in Financial Condition
The Company's financial condition for the three
months ended April 30, 1997 has changed significantly
from the quarter ended April 30, 1996, as a result of
the acquisitions and operations of oil and gas
properties acquired in January 1997. The acquisition
price of the Righthand Creek Field ("Righthand
Creek") was approximately $15.3 million which was
funded by approximately $9 million borrowed under the
Senior Credit Facility and approximately $6 million
from the proceeds of $10 million preferred stock
purchase agreement entered into with Koch. In
addition, dividends accrued for the benefit of the
preferred stockholders and subsequently paid on May
1, 1997 were accrued during the quarter ended April
30, 1997.
2. Material Changes in Results of Operations
Revenues and Lease Operating Expenses
Oil and gas sales increased from $1,149,000 for the
three months ended April 30, 1996 to $1,934,000 for
the three months ended April 30, 1997, a 68%
increase. Likewise, lease operating expenses
increased from $541,000 for the three months ended
April 30, 1996 to $836,000 for the three months ended
April 30, 1997, a 54% increase. The growth in oil and
gas sales and related lease operating expenses is the
result of the operations from the oil and gas
properties acquired during the fiscal year 1997 which
were not fully reflected during the three months
ended April 30, 1996.
-8-
The following table summarizes the operating activity
for oil and gas properties for the three months ended
April 30, 1997 and 1996. The existing properties are
those oil and gas properties which were acquired by
the Company prior to February 1, 1996.
Three Months
Acquisition Ended April 30,
Date 1997 1996
------------ ---- ----
Oil and gas sales:
Existing properties -- $623,850 962,668
Wheeler County properties March 1996 85,351 23,586
Block 76 March 1996 136,852 66,037
Belle properties April 1996 225,497 96,597
Righthand Creek properties January 1997 862,676 0
--------- ---------
Total oil and gas sales $1,934,226 1,148,888
========== =========
Lease operating expenses:
Existing properties -- $317,977 471,217
Wheeler County properties March 1996 24,398 4,835
Block 76 March 1996 9,608 5,395
Belle properties April 1996 195,672 59,939
Righthand Creek properties January 1997 288,405 0
--------- ---------
Total lease operating expenses $836,060 541,386
========= ========
Depletion of oil and gas producing properties:
Existing properties -- $111,485 185,248
Wheeler County properties March 1996 4,568 3,603
Block 76 March 1996 78,026 7,459
Belle properties April 1996 64,015 22,454
Righthand Creek properties January 1997 336,539 0
--------- --------
Total depletion of oil and gas
producing properties $594,633 218,764
========= ========
Operating profit (loss) %:
Existing properties -- 31% 32%
Wheeler County properties March 1996 66% 64%
Block 76 March 1996 36% 81%
Belle properties (1) April 1996 -15% 15%
Righthand Creek properties January 1997 28% -
---------- -------
Total operating profit % 26% 34%
========== =======
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Acquisition Three Months
Ended April 30,
Date 1997 1996
---- ---- ----
Oil production volumes (bbl):
Existing properties -- 9,242 22,410
Wheeler County properties March 1996 73 0
Block 76 March 1996 1,908 0
Belle properties April 1996 11,072 4,785
Righthand Creek properties January 1997 33,928 0
-------- -------
Total production volumes (bbl) 56,223 27,195
======== =======
Gas production volume (mcf):
Existing properties -- 171,014 192,781
Wheeler County properties March 1996 36,349 11,973
Block 76 March 1996 22,671 22,021
Belle properties April 1996 11 0
Righthand Creek properties January 1997 41,033 0
-------- -------
Total gas production volume (mcf) 271,078 226,775
======== =======
Average oil price per bbl $20.37 $19.04
======== =======
Average gas price per mcf $2.89 $2.76
======== =======
(1) The operating loss reflected by the Belle properties is primarily the result
of greater than expected operating costs and lower than expected revenues.
Dry Hole Costs and Lease Abandonments
For the three months ended April 30, 1996, the
Company recognized $130,000 related to dry hole
expense for a dry hole in Wheeler County. For the
three months ended April 30, 1997, no dry hole costs
or lease abandonment expenses were incurred.
Depletion of Oil and Gas Producing Properties
Depletion expense increased from $219,000 for the
three months ended April 30, 1996 to $595,000 for the
three months ended April 30, 1997. The increase in
depletion expense is primarily due to the
amortization as depletion of the capitalized
acquisition costs for oil and gas properties acquired
during fiscal year 1997. Depletion expense for those
oil and gas properties acquired during fiscal year
1997 was $483,000 and $33,000 for the quarter ended
April 30, 1997 and 1996, respectively.
-10-
General and Administrative
General and administrative expenses have increased
$66,000 from $307,000 to $373,000 for the three
months ended April 30, 1996 and 1997, respectively.
This increase is primarily the result of hiring three
additional employees during the quarter ended April
30, 1997 and salary cost of living and merit
increases provided to all staff and clerical
employees in January 1997.
As condition to closing the Koch stock purchase
agreement, the President and Chief Financial Officer
were required to enter into employment agreements
with the Company and Drilling for initial terms of
five years. The employment agreements may be renewed
annually thereafter. The base salaries of $125,000
and $100,000 per annum, respectively, as provided by
the employment agreements increased the combined
annual salaries of the President and Chief Financial
Officer by approximately $60,000.
Interest Expense
Interest expense increased from $115,000 in 1996 to
$261,000 in 1997. The increase is due to the
additional debt outstanding during the three months
ended April 30, 1997. On January 31, 1997, the
Company paid in full the 11.50% subordinated notes
which were issued for a total principal amount of $2
million in September 1995. The average interest rate
for the three months ended April 30, 1997 was 8% as
compared to 8.61% for the quarter ended April 30,
1996.
The interest rate options available to the Company
are based either on a prime rate determination or a
Eurodollar rate determination. The outstanding
principal balance under the Borrowing Base will be
subject to the senior lender's prime rate plus 0.5%
calculated on actual days of a year consisting of 365
days unless written notice is provided to the bank to
elect an amount to be converted to a Eurodollar rate
determination. The Company can select any amount of
the outstanding principal under the Borrowing Base to
be converted into recurring terms of 30, 60, 90 or
180 day periods. The interest rate is based on the
time period selected plus an incremental margin
payable to the senior lender equivalent to 2.25%.
Interest under the Eurodollar rate is determined on
actual days of a year consisting of 360 days. For any
unused portion of the Borrowing Base, a commitment
fee of 3/8ths of one percent per annum will be
charged to the Company. The senior lender was paid a
loan origination fee of $75,000 to facilitate the
First Amendment. The outstanding principal balance of
the Senior Credit Facility was $13.3 million at
January 31, 1997 and April 30, 1997.
Gain on Sale of Assets
The Company recognized approximately $22,000 gain on
sale of assets during the quarter ended April 30,
1996. No properties were sold during the quarter
ended April 30, 1997.
-11-
Sales Contract
Effective February 1, 1997, Offshore's contract
marketing agent entered into a one year sales
contract with an independent oil purchaser to deliver
up to an average of 650 bbl crude oil daily in
Righthand Creek. The sales contract provides for a
floor price of $20 per bbl and a ceiling price of
$23.45 per bbl crude oil delivered from Righthand
Creek. The price determination for the crude oil is
based on the posted price of Louisiana Sweet Crude at
St. James, Louisiana ("LLS") plus a posting bonus of
$1.50 per bbl ("Bonus"). Under the terms of the sales
contract, there is no penalty for under delivery of
oil from Righthand Creek unless the LLS plus Bonus
exceeds $23.45 per bbl. If the penalty clause is
invoked, the amount of penalty due would be computed
as follows: the sum of 650 bbl daily crude oil
contracted times the number of days in the month less
the actual barrels delivered times the difference
between LLS plus Bonus less $23.45. Although the
Righthand Creek wells are currently producing less
than the 650 bbl daily crude oil requirement, the LLS
plus Bonus has been less than $23.45 per bbl.
Except as described above, the Company is not
obligated to provide a fixed or determinable quantity
of oil and gas in the future under any existing
contracts, agreements, hedge or swap arrangements.
Recent Operating Developments
The Company's future results of operations and the
other forward looking statements contained in this
Quarterly Report involve a number of risks and
uncertainties. In particular, no assurances can be
given that any current or future development or
exploration plans and operations will be successful
or that, if successful, production from the wells and
the associated revenues over the production life of
the properties will equal or exceed the costs
associated with properties and their development.
Offshore commenced the workover and additional
development work at Righthand Creek in March 1997. A
workover drilling rig was placed on a previously
abandoned well in the field and was able to
recomplete the well in the Wilcox "B" formation.
Production has averaged approximately 63 bbls per day
during April and May 1997. The Company is currently
performing recompletion procedures on the Wilcox "A"
formation to test the productive capacity of that
formation. A temporary bridge plug was placed above
the "B" formation to facilitate this test. The total
workover and completion costs incurred for this well
was approximately $275,000 through May 31, 1997. It
will be necessary to produce the well for several
months before any determination can be made on the
total estimated reserves of the Wilcox "A" and "B"
producing formations.
On March 26, 1997, a drilling rig commenced an 11,300
foot Wilcox formation development well in Righthand
Creek. This development well, budgeted at
approximately $800,000, will be tested in various
producing horizons. Completion of the well is
expected to occur in mid to late June 1997.
-12-
On April 1, 1997, production from Block 76 was
suspended to repair mechanical problems with the
downhole equipment. The total workover cost was
approximately $2.8 million. Offshore's portion of the
workover expense was approximately $117,000. As of
April 30, 1997 the level of production net to
Offshore's interest has been restored to
approximately 550 mcf per day as compared to
approximately 700 mcf per day prior to the suspension
of production.
Capital Resources and Liquidity
Effective January 16, 1997, the Company and Drilling
executed the First Amendment to the Senior Credit
Facility which provided for the increase of the
Senior Credit Facility from $10 million to $50
million and the increase of the Borrowing Base on
January 16, 1997 to approximately $17 million. The
First Amendment also provided for extending the
maturity date of the Senior Credit Facility to
February 1, 2000. The Borrowing Base is subject to
monthly reductions of $333,000 beginning April 1,
1997 until maturity or the next determination of the
Borrowing Base. The Borrowing Base of approximately
$16.5 million as of April 30, 1997 shall continue to
reduce until February 1, 1998. The Company may, at
its sole expense, request a redetermination prior to
February 1, 1998.
The interest rate options available to the Company
are based on either a prime rate determination or a
Eurodollar rate determination. The outstanding
principal balance under the Borrowing Base will be
subject to the senior lender's prime rate plus 0.5%
calculated on actual days of a year consisting of 365
days, unless written notice is provided to the bank
to elect an amount to be converted to a Eurodollar
rate determination. The Company can elect that any
amount of the outstanding principal under the
Borrowing Base be converted into Eurodollar interest
rate financing for recurring 30, 60, 90 or 180 day
periods. The Eurodollar interest rate is based on the
time period selected plus an incremental margin
payable to the senior lender equivalent to 2.25%.
Interest calculated under the Eurodollar rate is
determined on actual days in a year consisting of 360
days. For any unused portion of the Borrowing Base, a
commitment fee of 3/8ths of one percent per annum
will be charged to the Company. The outstanding
principal balance of the Senior Credit Facility was
$13.3 million at January 31, 1997 and April 30, 1997.
On January 16, 1997, the Company and Koch Exploration
Company concluded a $10 million private placement
("Koch Private Placement"). Koch acquired 500,000
shares of Series A Preferred Stock for $5 million and
500,000 shares of Series B Preferred Stock for $5
million. The Koch Private Placement provides Koch the
right and option to purchase up to an additional
200,000 shares of Series A Preferred Stock at the
face value of $10 per share of Series A Preferred
Stock at any time after January 16, 1999 but on or
before January 16, 2000. The option may be exercised
in whole or part. The Koch Private Placement also
provides for a financing right of first refusal,
which requires the Company to give Koch written
notice of any intention of the Company to issue new
securities, further describing the amount of funds
the Company wishes to raise, the type of new
securities to be issued, the price and general terms.
Under the terms of the Koch Private Placement, Koch
-13-
has 15 days from the date of its receipt of such
notice to agree to purchase all or part of such new
securities.
The following is a brief summary of various rights
and terms of the Preferred Stock.
Preferred Stock
-------------------------------------
Series A Series B Series C
-------- -------- --------
Number of shares
issued 500,000 500,000 -0-
Face value
per share $10 $10 $10
Cumulative
dividends 15% of 0.35 shares 14% of
face value of Series C face value
Dividends
payable Feb. 1, May 1, Feb. 1, May 1, Feb. 1, May 1,
Aug. 1, Nov. 1 Aug. 1, Nov. 1 Aug. 1, Nov. 1
First dividend
payment May 1, 1997 May 1, 1997 Aug. 1, 1997
The Company's ability to meet its current financial
commitments, including those imposed by the Senior
Credit Facility and the terms of the Preferred Stock,
and to have access to additional working capital to
operate and develop its existing oil and gas
properties is principally dependent on the market
prices for oil and natural gas, the production levels
of the Company's properties, and the success of the
development program commenced by the Company. The
Company presently has no commitment for additional
financing and there can be no assurance that the
Company will be successful in obtaining additional
financing when and if required. If the Company is
unable to obtain additional financing when needed, it
would consider, among other alternatives, sale of
certain of its leasehold interests for additional
capital, the curtailment of property acquisitions or
development activities until internally generated
funds become available, or other strategic
alternatives in an effort to meet its financial
requirements.
Oil and gas exploration and production operations
involve substantial economic risks. No assurances can
be given that any current or future development plans
and operations will be successful or that, if
successful, production from the wells and the
associated revenues over the productive life of the
properties will equal or exceed the costs associated
with the oil and gas properties and their
development.
Statements in this Quarterly Report including those
contained in the foregoing discussion and other items
herein, concerning the Company which are (a)
statements of plans and objectives for future
operations, (b) statements of future economic
performance, or (c) statements of assumptions or
estimates underlying or supporting the foregoing are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. The
ultimate accuracy of forward-looking statements is
-14-
subject to a wide range of business risks and changes
in circumstances, and actual results and outcomes
often differ from expectations. Any number of
important factors could cause actual results to
differ materially from those in the forward- looking
statements herein, including the following: the
timing and extent of changes in crude oil and natural
gas prices; actions of the Company's purchasers and
competitors; changes in the cost or availability of
pipelines and other means of transporting products;
state and federal environmental, economic, safety and
other policies and regulations, any changes therein,
and any legal or regulatory delays or other factors
beyond the Company's control; weather conditions
affecting the Company's operations or the areas in
which the Company's products are marketed; future
well performance; the extent of the Company's success
in acquiring oil and gas properties and in
discovering, developing and producing reserves;
political developments in foreign countries; and the
conditions of the capital markets and equity markets
during the periods covered by the forward-looking
statements. The Company undertakes no obligation to
publicly release the result of any revisions to any
such forward-looking statements that may be made to
reflect the events or circumstances after the date
hereof or to reflect the occurrence of unanticipated
events.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying Index to
Exhibits on page E-1 are filed as part of this Form
10-QSB. The Company will furnish a copy of any
exhibit to a requesting shareholder upon payment of a
fee of $.25 per page.
(b) Reports on Form 8-K
None.
-15-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIO GRANDE, INC.
Date: June 13, 1997 By: /s/ Guy R. Buschman
-------------------------------------
Guy R. Buschman, President
Date: June 13, 1997 By: /s/ Gary Scheele
-------------------------------------
Gary Scheele, Secretary and Treasurer
(principal financial officer)
-16-
INDEX TO EXHIBITS
The following exhibits are numbered in accordance with Item 601 of Regulation
S-B:
3(a) Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3(a) to Form 8-K dated December 29, 1986 [File No. 1-8287]).
3(b) Bylaws of the Company (incorporated by reference to Exhibit 3(b) to
Form 8-K dated December 29, 1986 [File No. 1-8287]).
3(c) Certificate of Amendment of Certificate of Incorporation of the Company
(E-3).
4(a) Specimen stock certificate (incorporated by reference to Exhibit 4(a)
to Form 8-K dated December 29, 1986 [File No. 1-8287]).
4(b) Specimen Stock Purchase Warrant (incorporated by reference to Exhibit
4(b) to form 8-K dated December 29, 1986 [File No. 1- 8287]).
4(c) Note Purchase Agreement, dated September 27, 1995, by and among the
Company, Rio Grande Drilling Company, and the various purchasers of
11.50% Subordinated Notes due September 30, 2000 (incorporated herein
by reference from October 31, 1995 Form 10-QSB).
4(d) Form of Common Stock Purchase Warrant issued in connection with the
Offering described in this report (incorporated herein by reference
from October 31, 1995 Form 10-QSB).
4(e) Amendments to Note Purchase Agreement, by and among the Company,
Drilling and the Holders (incorporated herein by reference from March
26, 1996 Form 8-K).
4(f) Amendments to Notes, by and among the Company and the Holders
(incorporated herein by reference from March 26, 1996 Form 8-K).
4(g) Consents to Proposed Transactions by the Holders to the Company
(incorporated herein by reference from March 26, 1996 Form 8-K).
4(h) Amendment to Warrant Agreement among the Company and the Holders
(incorporated herein by reference from March 26, 1996 Form 8-K).
4(i) Certificate of Designation, Preferences and Rights of Series A
Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock
of Rio Grande, Inc. dated January 15, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
4(j) Preferred Stock Purchase Agreement between Koch Exploration Company and
Rio Grande, Inc. dated January 16, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
4(k) Registration Rights Agreement between Rio Grande, Inc. and Koch
Exploration Company dated January 16, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
E-1
4(l) Stockholders Agreement between Robert A. Buschman, Guy Bob Buschman,
Rio Grande, Inc., and Koch Exploration Company dated January 16, 1997
(incorporated herein by reference from January 31, 1997 Form 8-K).
10(a) Asset Purchase Agreement dated June 26, 1992 by and between SHV Oil and
Gas Company and Rio Grande Drilling Company (incorporated herein by
reference from July 31, 1992 Form 10-Q).
10(b) Agreement of Limited Partnership dated June 25, 1992 for Rio Grande
Offshore, Ltd. between Rio Grande Drilling Company, Robert A. Buschman,
H. Wayne Hightower and H. W. Hightower, Jr. (incorporated herein by
reference from July 31, 1992 Form 10-Q).
10(c) Loan Agreement by and between International Bank of Commerce and Rio
Grande Drilling Company dated June 26, 1992 (incorporated herein by
reference from July 31, 1992 Form 10-Q).
10(d) Purchase and Sale Agreement dated May 24, 1995, between Newfield
Exploration Company and Rio Grande Offshore, Ltd. for the sale of Ewing
Bank Blocks 947/903 and Ship Shoal Block 356 at a sales price of
$1,200,000 (incorporated by reference from July 31, 1995 Form 10-QSB).
10(e) Consulting Agreement dated August 10, 1995, between Hobby A. Abshier
and Rio Grande, Inc. (incorporated by reference from July 31, 1995 Form
10-QSB).
10(f) Closing Agreement between Fortune Petroleum Corporation, Pendragon
Resources, L.L.C. and Rio Grande Offshore, Ltd. dated March 6, 1996 for
the acquisition of South Timbalier Block 76 (incorporated by reference
from March 26, 1996 Form 8-K).
10(g) Loan Agreement between Comerica Bank-Texas, Rio Grande, Inc. and Rio
Grande Drilling Company dated March 8, 1996 for a senior credit
facility of $10,000,000 (incorporated herein by reference from March
26, 1996 Form 8-K).
10(h) Purchase and Sale Agreement between Belle Oil, Inc., Belle Exploration,
Inc., Louisiana Well Service Co., Alton J. Ogden, Jr., Alton J. Ogden,
Sr., Jeff L. Burkhalter and Rio Grande Offshore, Ltd. (incorporated
herein by reference from April 29, 1996 Form 8-K).
10(i) Engagement letter between Reid Investment Corporation and Rio Grande,
Inc. dated August 28, 1996, as exclusive agent to sell equity in Rio
Grande, Inc. (incorporated herein by reference from October 31, 1996
Form 10-QSB).
10(j) Purchase and Sale Agreement between Brechtel Energy Corporation, et al
and Rio Grande Offshore, Ltd. dated November 20, 1996 for the
acquisition of oil and gas properties located in the Righthand Creek
Field, Allen Parish, Louisiana (incorporated herein by reference from
October 31, 1996 Form 10-QSB).
10(k) First Amendment to Loan Agreement between Rio Grande, Inc., Rio Grande
Drilling Company and Comerica Bank - Texas dated January 15, 1997
(incorporated herein by reference from January 31, 1997 Form 8-K).
E-2
10(l) Employment Agreement between Rio Grande, Inc., Rio Grande Drilling
Company and Guy Bob Buschman dated January 16, 1997 (incorporated
herein by reference from January 31, 1997 Form 8-K).
10(m) Employment Agreement between Rio Grande, Inc., Rio Grande Drilling
Company and Gary Scheele dated January 16, 1997 (incorporated herein by
reference from January 31, 1997 Form 8-K).
10(n) Master Commodity Swap Agreement between Rio Grande, Inc. and Koch Oil
Company dated January 16, 1997 (incorporated herein by reference from
January 31, 1997 Form 8-K).
10(o) Participation Agreement between Mortimer Exploration Company and Rio
Grande Offshore, Ltd. for the Texas/Louisiana Yegua Project dated March
10, 1997 with attached amended letter agreement (E-4).
22 The following list sets forth the name of each subsidiary or affiliate
of the Company, with the State of incorporation as noted which are
wholly-owned by the Company (except as noted):
Rio Grande Drilling Company, Texas corporation Rio Grande
Desert Oil Company, Nevada corporation Rio Grande Offshore,
Ltd., a Texas limited partnership Rio Grande GulfMex, Ltd., a
Texas limited partnership (80% interest)
27 Financial Data Schedule (E-4).
99(a) Private Offering Memorandum of the Company dated August 27, 1995
(incorporated herein by reference from October 31, 1995 Form 10-QSB).
E-3