FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
( )Transition Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Commission File Number 1-9743
ENRON OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0684736
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 Smith Street, P.O. Box 4362
Houston, Texas 77210-4362
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 853-6161
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 .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of July 31, 1996.
Common Stock, $.01 Par Value 159,849,840 shares
Class Number of Shares
ENRON OIL & GAS COMPANY
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income -
Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995 3
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
NET OPERATING REVENUES
Natural Gas
Associated Companies $ 54,507 $ 52,473 $ 82,639 $122,070
Trade 89,556 48,458 180,051 95,060
Crude Oil, Condensate and Natural Gas Liquids
Associated Companies 8,627 14,415 21,253 30,011
Trade 25,459 13,970 49,683 28,056
Gains on Sales of Reserves and Related Assets 17,661 53,673 19,521 59,278
Other 1,303 985 2,992 4,861
Total 197,113 183,974 356,139 339,336
OPERATING EXPENSES
Lease and Well 19,974 16,907 38,730 33,609
Exploration 11,489 10,677 23,407 21,954
Dry Hole 2,579 5,136 5,090 6,905
Impairment of Unproved Oil and Gas Properties 4,980 7,037 9,843 14,116
Depreciation, Depletion and Amortization 58,965 48,585 122,286 101,703
General and Administrative 14,298 14,410 28,487 27,183
Taxes Other Than Income 11,185 7,848 22,656 17,663
Total 123,470 110,600 250,499 223,133
OPERATING INCOME 73,643 73,374 105,640 116,203
OTHER EXPENSE, NET (8) 481 (523) (110)
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 73,635 73,855 105,117 116,093
INTEREST EXPENSE
Incurred
Affiliate 554 99 1,140 488
Other 4,123 4,107 9,054 8,168
Capitalized (1,374) (1,682) (2,747) (3,394)
Net Interest Expense 3,303 2,524 7,447 5,262
INCOME BEFORE INCOME TAXES 70,332 71,331 97,670 110,831
INCOME TAX PROVISION 22,750 23,193 24,165 33,068
NET INCOME $ 47,582 $ 48,138 $ 73,505 $ 77,763
EARNINGS PER SHARE OF COMMON STOCK $ .30 $ .30 $ .46 $ .49
AVERAGE NUMBER OF COMMON SHARES 159,910 159,965 159,922 159,968
The accompanying notes are an integral part of these consolidated financial
statements.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 38,062 $ 23,039
Accounts Receivable
Associated Companies 65,172 60,777
Trade 128,412 107,737
Inventories 15,760 11,697
Other 20,158 14,582
Total 267,564 217,832
OIL AND GAS PROPERTIES (Successful Efforts Method) 3,429,437 3,380,924
Less: Accumulated Depreciation, Depletion and Amortization (1,547,671) (1,499,379)
Net Oil and Gas Properties 1,881,766 1,881,545
OTHER ASSETS 40,738 47,881
TOTAL ASSETS $2,190,068 $2,147,258
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Associated Companies $ 13,657 $ 12,902
Trade 135,535 120,756
Accrued Taxes Payable 16,058 19,595
Dividends Payable 4,806 4,795
Other 11,095 11,249
Total 181,151 169,297
LONG-TERM DEBT
Affiliate 28,000 141,520
Other 260,563 147,559
OTHER LIABILITIES 14,533 11,629
DEFERRED INCOME TAXES 312,001 308,141
DEFERRED REVENUE 179,594 205,453
SHAREHOLDERS' EQUITY
Common Stock, $.01 Par, 320,000,000 Shares Authorized and
160,000,000 Shares Issued 201,600 201,600
Additional Paid In Capital 391,777 399,379
Unearned Compensation (6,628) -
Cumulative Foreign Currency Translation Adjustment (10,712) (10,747)
Retained Earnings 640,649 576,740
Common Stock Held in Treasury, 90,160 shares at June 30, 1996
and 150,045 shares at December 31, 1995 (2,460) (3,313)
Total Shareholders' Equity 1,214,226 1,163,659
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,190,068 $2,147,258
The accompanying notes are an integral part of these consolidated financial
statements.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 73,505 $ 77,763
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization 122,286 101,703
Impairment of Unproved Oil and Gas Properties 9,843 14,116
Deferred Income Taxes 4,814 25,832
Other, Net 761 2,156
Exploration Expenses 23,407 21,954
Dry Hole Expenses 5,090 6,905
Gains on Sales of Reserves and Related Assets (19,521) (59,278)
Other, Net (2,693) (142)
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable (16,165) 2,675
Inventories (4,063) 315
Accounts Payable 15,534 (30,079)
Accrued Taxes Payable (3,537) 2,356
Other Liabilities 3,809 759
Other, Net (3,016) (2,139)
Amortization of Deferred Revenue (21,613) (21,494)
Changes in Components of Working Capital Associated with
Investing Activities (4,093) 4,665
NET OPERATING CASH INFLOWS 184,348 148,067
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (177,425) (206,039)
Exploration Expenses (23,407) (21,954)
Dry Hole Expenses (5,090) (6,905)
Proceeds from Sales of Reserves and Related Assets (Note 5) 60,688 97,749
Changes in Components of Working Capital Associated with
Investing Activities 4,093 661
Other, Net (5,245) (2,781)
NET INVESTING CASH OUTFLOWS (146,386) (139,269)
FINANCING CASH FLOWS
Long-Term Debt
Affiliate (113,520) (25,000)
Other 114,000 49,300
Dividends Paid (9,585) (9,599)
Treasury Stock Purchased (24,486) (6,765)
Proceeds from Sales of Treasury Stock 10,652 3,213
Changes in Components of Working Capital Associated with
Financing Activities - (5,326)
NET FINANCING CASH INFLOWS(OUTFLOWS) (22,939) 5,823
INCREASE IN CASH AND CASH EQUIVALENTS 15,023 14,621
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,039 5,810
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,062 $ 20,431
The accompanying notes are an integral part of these consolidated financial
statements.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Enron Oil & Gas
Company and subsidiaries (the "Company") included herein have
been prepared by management without audit pursuant to the rules
and regulations of the Securities and Exchange Commission.
Accordingly, they reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
financial results for the interim periods. Certain information
and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to
make the information presented not misleading. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior period
financial statements to conform with the current presentation.
2. Cash and Cash Equivalents at June 30, 1996 includes $24.1
million of funds deposited with Enron Corp. and an affiliated
company under revolving credit agreements. No such funds funds
were deposited under these agreements at December 31, 1995.
3. Income tax provision for the three-month and six-month periods
ended June 30, 1996 and 1995 includes tax benefits of $4.9
million, $7.7 million, $6.2 million and $12.8 million,
respectively, related to tight gas sand federal income tax credit
utilization. Income tax provision for the six-month period ended
June 30, 1996 also includes an $8.5 million tax benefit primarily
associated with a reassessment of deferred tax requirements and
the successful resolution on audit of Canadian income taxes for
certain prior years.
4. Natural Gas and Crude Oil, Condensate and Natural Gas Liquids
Net Operating Revenues
Natural Gas Net Operating Revenues are comprised of the
following (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Wellhead Natural Gas Revenues
Associated Companies (1)(2) $ 49.1 $ 39.3 $106.0 $83.8
Trade 73.0 38.3 141.6 73.5
Total $122.1 $ 77.6 $247.6 $157.3
Other Natural Gas Marketing Activities
Gross Revenues from:
Associated Companies $ 17.2 $ 16.3 $ 36.1 $ 43.7
Trade (3) 33.1 23.8 72.6 51.3
Total 50.3 40.1 $108.7 95.0
Associated Cost from:
Associated Companies (1)(4) 25.6 19.2 58.6 47.1
Trade 16.6 13.8 34.2 30.2
Total 42.2 33.0 92.8 77.3
Net 8.1 7.1 15.9 17.7
Commodity Price Swap Gain(Loss)
Trading (5) - - (1.2) 11.3
Non-Trading (6) 13.8 16.2 .4 30.8
Total 13.8 16.2 (.8) 42.1
Total $ 21.9 $ 23.3 $ 15.1 $ 59.8
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Crude Oil, Condensate and Natural Gas Liquids Net Operating
Revenues are comprised of the following (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Wellhead Crude Oil, Condensate and
Natural Gas Liquid Revenues
Associated Companies $ 11.5 $ 15.0 $ 25.1 $ 30.2
Trade 25.5 14.0 49.7 28.1
Total $ 37.0 $ 29.0 $ 74.8 $ 58.3
Other Crude Oil and Condensate Marketing
Activities
Commodity Price Hedging Loss(6) $ (2.9) $ (.6) $ (3.9) $ (.2)
(1) Wellhead Natural Gas Revenues include $24.7 million, $19.0
million, $57.5 million and $38.0 million for the three-month and
six-month periods ended June 30, 1996 and 1995, respectively,
associated with deliveries by Enron Oil & Gas Company to Enron
Oil & Gas Marketing, Inc., a wholly-owned subsidiary, reflected
as a cost in Other Natural Gas Marketing Activities - Associated
Costs.
(2) Includes $3.4 million, $3.5 million, $7.3 million and $7.2
million for the three-month and six-month periods ended June 30,
1996 and 1995, respectively, associated with the equivalent
wellhead value of volumes delivered under the terms of a
volumetric production payment agreement effective October 1,
1992, as amended, net of transportation.
(3) Includes $10.8 million, $10.8 million, $21.6 million and
$21.5 million for the three-month and six-month periods ended
June 30, 1996 and 1995 associated with the amortization of
deferred revenues under the terms of a volumetric production
payment and exchange agreements effective October 1, 1992, as
amended.
(4) Includes $7.8 million, $6.8 million, $16.1 million and $13.5
million for the three-month and six-month periods ended June 30,
1996 and 1995, respectively, for volumes delivered under the
terms of a volumetric production payment and exchange agreements
effective October 1, 1992, as amended, including equivalent
wellhead value, any applicable transportation costs and location
differentials.
(5) The six-month period ended June 30, 1996 includes a $1.2
million loss associated with certain call option transactions.
The comparable period in 1995 includes an $11.3 million gain
associated with certain NYMEX-related commodity market
transactions designated for trading purposes. In the first half
of 1996, the Company restructured an option covering notional
volumes of 73 trillion British thermal units ("TBtu") for each of
the years 1997 and 1998 into four options each exercisable, in
total, at one time by the counterparty before December 31, 1996,
1997, 1998 and 1999, respectively, to purchase natural gas at an
average fixed price of $1.98, $1.98, $1.93 and $1.93 per million
British thermal units ("Btu") for the years 1997, 1998, 1999 and
2000, respectively. The options each cover notional volumes of
37 TBtu for each of the years. During 1996, the Company entered
into contracts to purchase 37 TBtu and 18 TBtu of natural gas at
an average fixed price of $2.01 and $2.05 per British thermal
unit for 1997 and 1998, respectively.
(6) Represents gain or loss associated with commodity price swap
transactions primarily with Enron Corp. affiliated companies
based on NYMEX-related commodity prices in effect on dates of
execution, less customary transaction fees. These transactions
were originally entered into as price hedges for a portion of
wellhead sales.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Concluded)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Gains on sales of certain oil and gas reserves and related
assets in the amount of $19.5 million and $59.3 million for the
six-month periods ended June 30, 1996 and 1995, respectively, are
required by current accounting guidelines to be removed from net
income in connection with determining net operating cash inflows
while the related proceeds are classified as investing cash
flows. The Company believes the proceeds from the sales of
reserves and related assets should be considered in analyzing the
elements of operating cash flows.
6. In June 1996, the Company cancelled an existing revolving
credit agreement and replaced it with a new revolving credit
agreement entered into with a group of banks (the "Credit
Agreement"). The Credit Agreement provides for aggregate
borrowings of up to $200 million, with provisions for increases,
at the option of the Company, but subject to lender approval, up
to $600 million. The facility matures on June 28, 2001.
Advances under the Credit Agreement bear interest, at the option
of the Company, based on a base rate, an adjusted CD rate or a
Eurodollar rate. There were no advances outstanding under the
Credit Agreement at June 30, 1996.
7. In the first quarter of 1996, the Company adopted Statement
of Financial Accounting Standards No. 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" which resulted in a non-cash impairment charge which
was immaterial to and is included in depreciation, depletion and
amortization.
8. In January 1996, 301,500 shares of common stock of the
Company were granted to certain officers and key employees of the
Company under the Enron Oil & Gas Company 1992 Stock Plan, as
amended, and the Amended and Restated Enron Oil & Gas Company
1994 Stock Plan. Such shares are restricted and vest, subject to
continued employment and certain net income performance goals, on
the anniversary date of grant which could begin as early as 1998,
but in any event no later than January 2002. The fair value of
the shares at the date of grant has been recorded in
shareholders' equity as unearned compensation and is being
amortized as compensation expense.
9. As reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, the Company has been named as a
potentially responsible party in certain Comprehensive
Environmental Response Compensation and Liability Act
proceedings. However, management does not believe that any
potential assessments resulting from such proceedings will
individually or in the aggregate have a materially adverse effect
on the financial condition or results of operations of the
Company.
10. On May 7, 1996, the shareholders of the Company approved a
resolution submitted by the Board of Directors to amend the
Restated Certificate of Incorporation of the Company to increase
the total number of authorized shares of the common stock of the
Company from 160 million to 320 million shares.
11. On August 9, 1996, the Company filed a registration
statement for the offer and sale of up to $150 million in debt
securities and/or common stock. When combined with a previously
filed registration statement for debt securities in the amount of
$250 million, the Company will have the ability from time to time
to issue up to $400 million in any combination of debt securities
and common stock.During August 1996, the Company replaced an
existing registration statement filed with the Securities and
Exchange Commission providing for the issuance of up to $250
million of debt securities to the public with a registration
statement providing for the issuance of debt securities and
common stock of up to $400 million.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENRON OIL & GAS COMPANY
The following review of operations for the three-month and six-
month periods ended June 30, 1996 and 1995 should be read in
conjunction with the consolidated financial statements of the
Company and Notes thereto.
Results of Operations
Three Months Ended June 30, 1996
vs. Three Months Ended June 30, 1995
In the second quarter of 1996, Enron Oil & Gas Company (the
"Company") realized net income of $47.6 million compared to net
income of $48.1 million for the second quarter of 1995. Net
operating revenues for the second quarter of 1996 were $197.1
million as compared to $184.0 million for the second quarter of
1995.
Wellhead volume and price statistics are as follows:
1996 1995
Natural Gas Volumes (MMcf/d)(1)
North America (2) 700 548
Trinidad 140 122
Total 840 670
Average Natural Gas Prices ($/Mcf)(3)
North America (4) $ 1.72 $ 1.34
Trinidad 1.00 0.97
Composite 1.60 1.27
Crude Oil/Condensate Volumes (MBbl/d)(1)
North America 11.0 10.9
Trinidad 5.4 4.8
India 2.7 1.7
Total 19.1 17.4
Average Crude Oil/Condensate Prices ($/Bbl)(3)
North America $20.62 $17.93
Trinidad 19.61 17.14
India 20.56 18.13
Composite 20.33 17.73
(1) Million cubic feet per day or thousand barrels per
day, as applicable.
(2) Includes 48 MMcf per day for the three-month periods
ended June 30, 1996 and 1995 delivered under the terms
of a volumetric production payment agreement and exchange
agreements effective October 1, 1992, as amended.
(3) Dollars per thousand cubic feet or per barrel, as
applicable.
(4) Includes an average equivalent wellhead value of
$.76/Mcf and $.79/Mcf for the three-month periods
ended June 30, 1996 and 1995, respectively, for the
volumes described in note (2), net of transportation
costs.
Second quarter 1996 average wellhead natural gas prices were
up approximately 26% from the comparable period in 1995
increasing net operating revenues by approximately $25 million.
The 25% increase in wellhead natural gas volumes from the second
quarter of 1995 added $20 million to net operating revenues. The
North America increase in North America wellhead natural gas
volumes was primarily the result of eliminating voluntary
curtailments in the second quarter of 1996 due to the significant
increases realized in average wellhead natural gas prices over
the prices realized during the comparable period in 1995 in all
areas other than the Rocky Mountains. Second quarter 1996
wellhead crude oil and condensate average prices were up 15%
increasing net operating revenues approximately $5 million from
the second quarter of 1995. Wellhead crude oil and condensate
volumes increased 10% adding approximately $3 million to net
operating revenues compared to the second quarter of 1995.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Other marketing activities associated with sales and
purchases of natural gas, NYMEX-related natural gas and crude oil
price swap transactions and margins related to the volumetric
production payment increased net operating revenue by $19 million
during the second quarter of 1996, a decrease of approximately $4
million from the comparable period in 1995. This reduction is
primarily attributable to a $3 million loss on NYMEX-related
crude oil price swap transactions in the second quarter of 1996.
During the second quarter of 1996, operating expenses were
approximately $13 million higher than in the second quarter of
1995. Lease and well expenses increased approximately $3 million
primarily due to continually expanding operations and increases
in production activity. Dry hole expenses decreased
approximately $3 million primarily due to decreased exploratory
drilling activities outside North America and higher success
rates outside North America. Lease impairments of $5 million in
the second quarter of 1996 were $2 million lower than the
comparable period in 1995 primarily due to lower impairments in
1996 of unproved properties with individually significant
acquisition costs. Depreciation, depletion and amortization
("DD&A") expense increased approximately $10 million to $59
million primarily reflecting an increase in production volumes.
The average DD&A rate in the second quarter of 1996 was $.67 per
thousand cubic feet equivalent ("Mcfe") compared to $.69 per Mcfe
in the second quarter of 1995. Second quarter 1996 taxes other
than income increased approximately $3 million over the
comparable period in 1995 primarily reflecting lower applicable
tax credits in Trinidad and higher taxable United States revenue
resulting from higher wellhead volumes and average prices.
The per unit operating costs of the Company for lease and
well, DD&A, general and administrative, interest expense, and
taxes other than income averaged $1.22 per Mcfe during the second
quarter of 1996 compared to $1.27 per Mcfe during the second
quarter of 1995. The reduction primarily reflects lower per unit
lease and well, DD&A and general and administrative expenses
partially offset by higher per unit taxes other than income.
Totalwhich per unit operating costs were beneficially impacted by
the higher daily rate of production during the second quarter of
1996.
Federal income taxes accrued in interim periods are
calculated using the estimated annual effective income tax rate.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Six Months Ended June 30, 1996
vs. Six Months Ended June 30, 1995
In the first half of 1996, the Company realized net income
of $73.5 million compared to net income of $77.8 million for the
comparable period in 1995. Net operating revenues for the first
half of 1996 were $356.1 million as compared to $339.3 million
for the comparable period a year ago.
Wellhead volume and price statistics are as follows:
1996 1995
Natural Gas Volumes (MMcf/d)
North America (1) 708 584
Trinidad 136 109
Total 844 693
Average Natural Gas Prices ($/Mcf)
North America (2) $ 1.73 $ 1.31
Trinidad 1.00 0.97
Total Composite 1.61 1.25
Crude Oil/Condensate Volumes (MBbl/d)
North America 11.1 11.3
Trinidad 6.2 4.2
India 2.9 2.2
Total 20.2 17.7
Average Crude Oil/Condensate Prices ($/Bbl)
North America $19.50 $17.25
Trinidad 18.67 16.44
India 18.88 17.20
Total Composite 19.16 17.06
(1) Includes 48 MMcf per day for the six-month periods
ended June 30, 1996 and 1995 delivered under the terms
of a volumetric production payment agreementand exchange
agreements effective October 1, 1992, as amended.
(2) Includes an average equivalent wellhead value of
$.84/Mcf and $.83/Mcf for the six-month periods
ended June 30, 1996 and 1995, respectively, for the
volumes described in note (1), net of transportation
costs.
Average wellhead natural gas prices for the first six months
of 1996 were up approximately 29% from the comparable period in
1995 increasing net operating revenues by approximately $55
million. A 22% increase in wellhead natural gas volumes from the
first half of 1995 added net operating revenues of approximately
$35 million. The increase in North America wellhead natural gas
volumes was primarily the result of no voluntary curtailments
during 1996 due to significant increases realized in average
wellhead natural gas prices over the prices realized during the
comparable period in 1995 in all areas other than the Rocky
Mountains. Wellhead crude oil and condensate average prices
increased 12% adding approximately $8 million to net operating
revenues over the first half of 1995. Crude oil and condensate
wellhead volumes increased 14% from the comparable period a year
ago adding approximately $8 million to net operating revenues.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
Other marketing activities associated with sales and
purchases of natural gas, NYMEX-related natural gas and crude oil
price swap transactions and margins related to the volumetric
production payment increased net operating revenue by $11 million
during the first half of 1996, a decrease of approximately $48
million from the comparable period in 1995. During December 1995
and the first quarter of 1996, to facilitate participation in
anticipated wellhead natural gas price upside, the Company closed
all 1996 natural gas price swap transactions originally entered
into as hedges. Included in the first half of 1996 is a $16
million reduction related to the early closing of first half 1996
natural gas price swap transactions. This reduction is offset by
the recognition of a $15 million gain in the first half of 1996
related to natural gas price swap agreements with an Enron Corp.
affiliated company received in 1995 in exchange for certain fuel
supply and purchase contracts and related price swap agreements
associated with a cogeneration facility. This $1 million net
loss compares to a $31 million gain on similar transactions in
the first half of 1995. In the first half of 1996, the Company
also incurred a $1 million loss related to call option
transactions compared to an $11 million gain in the first half of
1995 related to certain natural gas price swap transactions with
an Enron Corp. affiliated company designated for trading
purposes. Deferred gains of approximately $13 million related to
the closing of the remainder of the 1996 NYMEX-related natural
gas price swap transactions will be recognized during the
remaining six months of the year. The Company also incurred a
loss of approximately $4 million on its 1996 first half NYMEX-
related crude oil price swap transactions.
During the first half of 1996, operating expenses of $250
million were $27 million higher than the $223 million incurred in
the comparable period in 1995. Lease and well expenses increased
approximately $5 million to $39 million primarily due to
continually expanding operations and increases in production
activity. Impairment of unproved oil and gas properties for the
first half of 1996 decreased $4 million from the comparable
period a year ago reflecting lower impairment in 1996 of unproved
properties with individually significant acquisition costs. DD&A
expense increased $21 million to $122 million primarily
reflecting increased production volumes. The average DD&A rate
in the first half of 1996 and 1995 was $.69 per Mcfe. Taxes other
than income were $5 million higher in the first half of 1996
compared to the first half of 1995 primarily due to higher state
severance taxes associated with higher taxable wellhead revenues
resulting from higher United States volumes and average prices
and lower applicable tax credits in Trinidad in 1996.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
ENRON OIL & GAS COMPANY
The Company reduced its total per unit operating costs for
lease and well, DD&A, general and administrative, interest
expense, and taxes other than income by $.04 per Mcfe, averaging
$1.23 per Mcfe during the first half of 1996 compared to $1.27
per Mcfe during the comparable period in 1995. The reduction
primarily reflects a decrease in per unit general and
administrative expense. Total per unit operating costs were
beneficially impacted by the higher daily rate of production
during the first half of 1996.
Income tax provision decreased $9 million for the first half
of 1996 as compared to the first half of 1995 primarily resulting
from an $8.5 million tax benefit in the first half of 1996
associated with a reassessment of deferred tax requirements and
the successful resolution on audit of Canadian income taxes for
certain prior years and lower income before income taxes,
partially offset by lower benefits associated with tight gas sand
federal income tax credits utilized in the first half of 1996 as
compared to the first half of 1995.
Capital Resources and Liquidity
The Company's primary sources of cash during the six months
ended June 30, 1996 included funds generated from operations,
proceeds from the sales of selected oil and gas reserves and
related assets, proceeds from new borrowings and proceeds from
the sales of treasury stock on stock option exercises. Primary
cash outflows included funds used in operations, exploration and
development expenditures, common stock repurchases, dividends
paid to the Company shareholders and the repayment of debt.
Discretionary cash flow, a frequently used measure of
performance for exploration and production companies, is derived
by adjusting net income to eliminate the effects of depreciation,
depletion and amortization, impairment of unproved oil and gas
properties, deferred income taxes, gains on sales of reserves and
related assets, certain other miscellaneous non-cash amounts,
except for amortization of deferred revenue, and exploration and
dry hole expenses and to include proceeds from sales of reserves
and related assets. The Company generated discretionary cash
flow of $278 million during the first half of 1996, compared to
$289 million generated for the comparable period in 1995,
primarily reflecting lower proceeds from the sales of selected
reserves and related assets and higher current federal income
taxes mostly offset by higher production related net operating
revenues net of increased cash operating costs.
Net operating cash flows of $184 million for the first half
of 1996 increased approximately $36 million as compared to the
first half of 1995 primarily due to higher production related net
operating revenues net of cash operating expenses partially
offset by higher current federal income taxes. Based upon
existing economic and market conditions, management believes net
operating cash flow and available financing alternatives in 1996
will be sufficient to fund net investing and other cash
requirements of the Company for the remainder of the year.
Exploration and development expenditures for the first half
of 1996 and 1995 are as follows (in millions):
1996 1995
North America $ 167 $ 200
Outside North America
Trinidad 1 34
India 29 9
Other 9 11
Total $ 206 $ 254
PART I. FINANCIAL INFORMATION - (Concluded)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
ENRON OIL & GAS COMPANY
Exploration and development expenditures for the first half
of 1996 were lower than expenditures in the first half of 1995
primarily due to acquisitions in North America in 1995 with no
significant acquisitions completed in 1996 and a large
developmental drilling program in Trinidad completed in 1995
partially offset by an increase in North America and India
development expenditures.
The level of exploration and development expenditures will
vary in future periods depending on energy market conditions and
other related economic factors. The Company has significant
flexibility with respect to financing alternatives and the
ability to adjust its exploration and development expenditure
budget as circumstances warrant. There are no material
continuing commitments associated with expenditure plans.
Information Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q includes forward looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that
such expectations will be achieved. Important factors that could
cause actual results to differ materially from those in the
forward looking statements herein include, but are not limited
to, the timing and extent of changes in commodity prices for
crude oil, natural gas and related products and interest rates,
the extent of the Company's success in acquiring oil and gas
properties and in discovering, developing and producing reserves,
political developments around the world and conditions of the
capital and equity markets during the periods covered by the
forward looking statements.
PART II. OTHER INFORMATION
ENRON OIL & GAS COMPANY
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the quarterly period ended June 30, 1996.
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.
ENRON OIL & GAS
COMPANY
(Registrant)
Date: August 12, 1996 By /S/ W. C. WILSON
W. C. Wilson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1996 By /S/ BEN B. BOYD
Ben B. Boyd
Vice President and Controller
(Principal Accounting Officer)