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 September 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 October 31, 1996.
Common Stock, $.01 Par Value 159,799,870 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 September 30, 1996 and
1995 and Nine Months Ended September 30, 1996
and 1995 3
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 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 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 6. Exhibits and Reports on Form 8-K 16
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
NET OPERATING REVENUES
Natural Gas
Associated Companies $ 52,060 $ 55,893 $134,699 $177,963
Trade 84,127 58,992 264,178 154,052
Crude Oil, Condensate and Natural Gas Liquids
Associated Companies 6,053 14,293 27,306 44,304
Trade 25,863 17,982 75,546 46,038
Gains on Sales of Reserves and Related Assets 813 3,268 20,334 62,546
Other 1,266 2,578 4,258 7,439
Total 170,182 153,006 526,321 492,342
OPERATING EXPENSES
Lease and Well 18,003 19,309 56,733 52,918
Exploration 13,503 9,636 36,910 31,590
Dry Hole 4,427 1,681 9,517 8,586
Impairment of Unproved Oil and Gas Properties 5,607 6,337 15,450 20,453
Depreciation, Depletion and Amortization 59,421 56,172 181,707 157,875
General and Administrative 13,006 14,003 41,493 41,186
Taxes Other Than Income 10,036 7,943 32,692 25,606
Total 124,003 115,081 374,502 338,214
OPERATING INCOME 46,179 37,925 151,819 154,128
OTHER EXPENSE, NET 1,445 1,033 1,968 1,143
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 44,734 36,892 149,851 152,985
INTEREST EXPENSE, NET 1,373 3,548 8,820 8,810
INCOME BEFORE INCOME TAXES 43,361 33,344 141,031 144,175
INCOME TAX PROVISION 11,994 376 36,159 33,444
NET INCOME $ 31,367 $ 32,968 $104,872 $110,731
EARNINGS PER SHARE OF COMMON STOCK $ .20 $ .21 $ .66 $ .69
AVERAGE NUMBER OF COMMON SHARES 159,850 159,916 159,898 159,951
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)
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 9,680 $ 23,039
Accounts Receivable
Associated Companies 49,043 60,777
Trade 136,719 107,737
Inventories 19,379 11,697
Other 16,775 14,582
Total 231,596 217,832
OIL AND GAS PROPERTIES (Successful Efforts Method) 3,565,379 3,380,924
Less: Accumulated Depreciation, Depletion and Amortization (1,606,709) (1,499,379)
Net Oil and Gas Properties 1,958,670 1,881,545
OTHER ASSETS 34,826 47,881
TOTAL ASSETS $ 2,225,092 $2,147,258
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Associated Companies $ 12,379 $ 12,902
Trade 164,726 120,756
Accrued Taxes Payable 21,767 19,595
Dividends Payable 4,814 4,795
Other 11,936 11,249
Total 215,622 169,297
LONG-TERM DEBT
Affiliate 12,758 141,520
Other 287,936 147,559
OTHER LIABILITIES 13,921 11,629
DEFERRED INCOME TAXES 305,178 308,141
DEFERRED REVENUE 152,648 205,453
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 389,192 399,379
Unearned Compensation (6,354) -
Cumulative Foreign Currency Translation Adjustment (10,443) (10,747)
Retained Earnings 667,221 576,740
Common Stock Held in Treasury, 150,160 shares at
September 30, 1996 and 150,045 shares at December 31, 1995 (4,187) (3,313)
Total Shareholders' Equity 1,237,029 1,163,659
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,225,092 $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)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 104,872 $ 110,731
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization 181,707 157,875
Impairment of Unproved Oil and Gas Properties 15,450 20,453
Deferred Income Taxes (1,653) 15,586
Other, Net 3,682 3,968
Exploration Expenses 36,910 31,590
Dry Hole Expenses 9,517 8,586
Gains on Sales of Reserves and Related Assets (20,334) (62,546)
Other, Net (2,886) (148)
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable (20,288) (9,093)
Inventories (7,682) 4,091
Accounts Payable 43,447 (12,076)
Accrued Taxes Payable 2,172 5,773
Other Liabilities 2,874 2,842
Other, Net 387 (1,848)
Amortization of Deferred Revenue (32,538) (32,418)
Changes in Components of Working Capital Associated with
Investing Activities (31,052) (14,156)
NET OPERATING CASH INFLOWS 284,586 229,210
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (320,077) (345,351)
Exploration Expenses (36,910) (31,590)
Dry Hole Expenses (9,517) (8,586)
Proceeds from Sales of Reserves and Related Assets (Note 5) 62,837 100,659
Changes in Components of Working Capital Associated with
Investing Activities 28,816 12,338
Other, Net (5,930) (9,106)
NET INVESTING CASH OUTFLOWS (280,781) (281,636)
FINANCING CASH FLOWS
Long-Term Debt
Affiliate (128,762) (8,680)
Other 141,880 83,300
Dividends Paid (14,372) (14,397)
Treasury Stock Purchased (32,973) (13,231)
Proceeds from Sales of Treasury Stock 14,827 6,262
Changes in Components of Working Capital Associated with
Financing Activities 2,236 1,818
NET FINANCING CASH INFLOWS(OUTFLOWS) (17,164) 55,072
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,359) 2,646
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,039 5,810
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,680 $ 8,456
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. Net interest expense includes $0.4 million, $0.1 million, $1.5
million and $0.6 million for the three-month and nine-month
periods ended September 30, 1996 and 1995, respectively,
associated with financing obtained from affiliated companies.
3. Income tax provision for the three-month and nine-month
periods ended September 30, 1996 and 1995 includes tax benefits
of $6.0 million, $3.1 million, $12.2 million and $15.8 million,
respectively, related to tight gas sand federal income tax credit
utilization. Income tax provision for the nine-month period
ended September 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. Income tax provision for
the three-month and nine-month periods ended September 30, 1995
includes a $10.0 million and a $12.0 million benefit,
respectively, associated with the successful resolution on audit
of federal 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Wellhead Natural Gas Revenues
Associated Companies (1)(2) $ 44.7 $ 36.4 $150.6 $120.2
Trade 69.5 48.5 211.1 121.9
Total $114.2 $ 84.9 $361.7 $242.1
Other Natural Gas Marketing Activities
Gross Revenues from:
Associated Companies $ 26.4 $ 16.8 $ 62.6 $ 60.4
Trade (3) 31.1 23.5 103.7 74.9
Total 57.5 40.3 $166.3 135.3
Associated Cost from:
Associated Companies (1)(4) 35.8 17.4 94.4 64.5
Trade 16.6 13.1 50.8 43.3
Total 52.4 30.5 145.2 107.8
Net 5.1 9.8 21.1 27.5
Commodity Price Swap Gain(Loss)
Trading (5) - - (1.2) 11.3
Non-Trading (6) 16.9 20.2 17.3 51.1
Total 16.9 20.2 16.1 62.4
Total $ 22.0 $ 30.0 $ 37.2 $ 89.9
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Wellhead Crude Oil, Condensate and
Natural Gas Liquid Revenues
Associated Companies $ 9.9 $ 13.2 $ 35.1 $ 43.4
Trade 25.9 18.0 75.6 46.0
Total $ 35.8 $ 31.2 $110.7 $ 89.4
Other Crude Oil and Condensate Marketing
Activities
Commodity Price Hedging Gain(Loss)(6) $ (3.9) $ 1.1 $ (7.8) $ 0.9
(1) Wellhead Natural Gas Revenues include $24.7 million, $17.0
million, $82.2 million and $55.0 million for the three-month and
nine-month periods ended September 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 $4.0 million, $2.8 million, $11.4 million and $10.0
million for the three-month and nine-month periods ended
September 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 $10.9 million, $10.9 million, $32.5 million and
$32.4 million for the three-month and nine-month periods ended
September 30, 1996 and 1995 associated with the amortization of
deferred revenues under the terms of a volumetric production
payment agreement effective October 1, 1992, as amended.
(4) Includes $8.5 million, $6.3 million, $24.6 million and $19.8
million for the three-month and nine-month periods ended
September 30, 1996 and 1995, respectively, for volumes delivered
under the terms of a volumetric production payment agreement
effective October 1, 1992, as amended, including equivalent
wellhead value, any applicable transportation costs and location
differentials.
(5) The nine-month period ended September 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 May
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 ("MMBtu") for the years 1997, 1998, 1999
and 2000, respectively. The options each cover notional volumes
of 37 TBtu for each of the years. The 1997 and 1998 options were
subsequently restructured to be exercisable monthly
at a price of $2.16 and $2.07 per MMBtu, respectively. These
options cover notional volumes averaging 3 TBtu per month during
1997 and 1998. During 1996, the Company entered into price swap
agreements which fix the cost to purchase 37 TBtu and 18 TBtu of
natural gas at an average fixed price of $2.01 and $2.05 per MMBtu
for 1997 and 1998, respectively.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6)Represents gains 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.
5. Gains on sales of certain oil and gas reserves and related
assets in the amount of $20.3 million and $62.5 million for the
nine-month periods ended September 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 September 30, 1996.
In October 1996, the Company was advanced $30 million under
a credit agreement with a financial institution. Such advance is
due October 1999 and bears interest at a variable rate based on
the London Interbank Offered Rate.
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.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Concluded)
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. In August 1996, the Company filed a shelf registration
statement for the offer and sale from time to time of up to $150
million of Company debt securities and/or common stock. Such
registration statement was declared effective by the Securities
and Exchange Commission on September 12, 1996. When combined
with a previously filed registration statement declared effective
in September 1991, such registration statements provide for the
offer and sale from time to time of Company debt securities and
common stock by the Company, and Company common stock by Enron
Corp. as a selling shareholder, in an aggregate amount up to $400 million.
As of November 8, 1996, the Company had sold no securities, and
Enron Corp. had sold no shares of Company common stock pursuant to
such registration statements.
12. Effective October 1, 1996, the Company acquired all
of the South Texas Lobo Trend properties of Amoco Production
Company ("Amoco"). The acquisition also includes Amoco's
producing properties in Atascosa and Kleberg counties in South
Texas. Net production from the properties as of October 1, 1996
was 25 million cubic feet equivalent per day of natural gas.
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 nine-
month periods ended September 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 September 30, 1996
vs. Three Months Ended September 30, 1995
In the third quarter of 1996, Enron Oil & Gas Company (the
"Company") realized net income of $31.4 million compared to net
income of $33.0 million for the third quarter of 1995. Net
operating revenues for the third quarter of 1996 were $170.2
million as compared to $153.0 million for the third quarter of
1995.
Wellhead volume and price statistics are as follows:
1996 1995
Natural Gas Volumes (MMcf/d)(1)
North America (2) 670 657
Trinidad 104 112
Total 774 769
Average Natural Gas Prices ($/Mcf)(3)
North America (4) $ 1.70 $ 1.24
Trinidad 1.00 0.97
Composite 1.60 1.20
Crude Oil/Condensate Volumes (MBbl/d)(1)
North America 10.8 12.0
Trinidad 4.5 5.9
India 2.4 2.3
Total 17.7 20.2
Average Crude Oil/Condensate Prices ($/Bbl)(3)
North America $21.29 $16.57
Trinidad 19.73 15.76
India 19.60 16.10
Composite 20.67 16.28
(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 September 30, 1996 and 1995 delivered under the
terms of a volumetric production payment agreement
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
$.91/Mcf and $.62/Mcf for the three-month periods
ended September 30, 1996 and 1995, respectively, for the
volumes described in note (2), net of transportation
costs.
Third quarter 1996 average wellhead natural gas prices were
up approximately 33% from the comparable period in 1995
increasing net operating revenues by approximately $29 million.
Third quarter 1996 wellhead crude oil and condensate average
prices were up 27% increasing net operating revenues by
approximately $7 million from the third quarter of 1995.
Wellhead crude oil and condensate volumes decreased 12% reducing
net operating revenues by approximately $4 million compared to
the third quarter of 1995 reflecting a 24% reduction in Trinidad
volumes primarily attributed to Ibis Field crude oil production.
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 $18 million
during the third quarter of 1996, a decrease of approximately $13
million from the comparable period in 1995. This decrease is
partially attributable to a $4 million loss on NYMEX-related
crude oil price swap transactions in the third quarter of 1996
compared to a gain of $1 million in the third quarter of 1995.
Gains on natural gas commodity price hedging activities utilizing
NYMEX-related commodity market transactions of $17 million in the
third quarter of 1996 were approximately $3 million less than the
comparable period a year ago. An increase in other natural
gas marketing volumes and a decrease in margins associated with
sales and purchases of natural gas and certain production
exchange agreements reduced net operating revenues by
approximately $5 million compared to the third quarter of 1995.
During the third quarter of 1996, operating expenses were
approximately $9 million higher than in the third quarter of
1995. Exploration expenses increased approximately $4 million
and dry hole expenses increased approximately $3 million
primarily due to increased exploratory drilling activities.
Depreciation, depletion and amortization ("DD&A") expense
increased approximately $3 million to $59 million primarily
reflecting a slight increase in the average DD&A rate. Third
quarter 1996 taxes other than income increased approximately $2
million over the comparable period in 1995 primarily reflecting
lower applicable exploration cost deductions in Trinidad and
higher taxable United States revenue resulting from higher
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 $1.24 per thousand cubic feet
equivalent ("Mcfe") during the third quarter of 1996 compared to
$1.23 per Mcfe during the third quarter of 1995.
Income tax provision increased $12 million for the third
quarter of 1996 as compared to the same period in 1995 primarily
due to a $10 million benefit recognized in the third quarter of
1995 associated with the settlement on audit of taxes for prior
years.
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
Nine Months Ended September 30, 1996
vs. Nine Months Ended September 30, 1995
In the first nine months of 1996, the Company realized net
income of $104.9 million compared to net income of $110.7 million
for the comparable period in 1995. Net operating revenues for
the first nine months of 1996 were $526.3 million as compared to
$492.3 million for the comparable period a year ago.
Wellhead volume and price statistics are as follows:
1996 1995
Natural Gas Volumes (MMcf/d)
North America (1) 695 609
Trinidad 126 110
Total 821 719
Average Natural Gas Prices ($/Mcf)
North America (2) $ 1.72 $ 1.28
Trinidad 1.00 0.97
Total Composite 1.61 1.23
Crude Oil/Condensate Volumes (MBbl/d)
North America 11.0 11.5
Trinidad 5.6 4.8
India 2.8 2.3
Total 19.4 18.6
Average Crude Oil/Condensate Prices ($/Bbl)
North America $20.09 $17.01
Trinidad 18.95 16.16
India 19.09 16.82
Total Composite 19.62 16.77
(1) Includes 48 MMcf per day for the nine-month periods
ended September 30, 1996 and 1995 delivered under the
terms of a volumetric production payment agreement
effective October 1, 1992, as amended.
(2) Includes an average equivalent wellhead value of
$.86/Mcf and $.76/Mcf for the nine-month periods
ended September 30, 1996 and 1995, respectively, for the
volumes described in note (1), net of transportation
costs.
Average wellhead natural gas prices for the first nine
months of 1996 were up approximately 31% from the comparable
period in 1995 increasing net operating revenues by approximately
$84 million. A 14% increase in wellhead natural gas volumes from
the first nine months of 1995 added net operating revenues of
approximately $36 million. The increase in North America
wellhead natural gas volumes was primarily the result of
eliminating voluntary curtailments in the United States during
1996 due to significant increases realized in average wellhead
natural gas prices over the prices realized during the comparable
period in 1995. Wellhead crude oil and condensate average prices
increased 17% adding approximately $15 million to net operating
revenues over the first nine months of 1995. Crude oil and
condensate wellhead volumes increased 4% from the comparable
period a year ago adding approximately $4 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 revenues by $29
million during the first nine months of 1996, a decrease of
approximately $61 million from the comparable period in 1995.
This decrease primarily results from a gain of $17 millon on
natural gas commodity price hedging activities utilizing NYMEX-
related commodity market transactions in the first nine months of
1996 compared to a $51 million gain on similar transactions in
the first nine months of 1995. The Company also incurred a $1
million loss related to call option transactions in the first
nine months of 1996 compared to an $11 million gain in the first
nine months of 1995 related to certain natural gas price swap
transactions with an Enron Corp. affiliated company designated
for trading purposes. The margin associated with certain
production exchange agreements was approximately $8 million which
is $5 million less than the comparable period in 1995 due to
higher costs of gas delivered under the terms of the exchange
agreement. Additionally, the Company incurred an $8 million loss
on its NYMEX-related crude oil price swap transactions in the first
nine months of 1996 compared to a $1 million gain in the first nine
months of 1995.
During the first nine months of 1996, operating expenses
were $36 million higher than the comparable period in 1995.
Lease and well expenses increased approximately $4 million to $57
million primarily due to continually expanding operations and
increases in production activity. Exploration expense increased
approximately $5 million to $37 million primarily due to
increased exploratory drilling activities. Impairment of
unproved oil and gas properties for the first nine months of 1996
decreased $5 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 $24 million to $182 million primarily reflecting
increased production volumes. Taxes other than income were $7
million higher in the first nine months of 1996 compared to the
first nine months 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 exploration cost deductions in Trinidad in 1996.
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 $.02 per Mcfe, averaging
$1.23 per Mcfe during the first nine months of 1996 compared to
$1.25 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 nine months of 1996.
Income Tax provision increased $3 million for the first nine
months of 1996 as compared to the first nine months of 1995
primarily as a result of lower benefits associated with tight gas
sands federal income tax credits.
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
Capital Resources and Liquidity
The Company's primary sources of cash during the nine months
ended September 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 in conjunction with the
exercise of stock options. Primary cash outflows included funds
used in operations, exploration and development expenditures,
common stock repurchases, dividends paid to 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 $390 million during the first nine months of 1996,
compared to $387 million generated for the comparable period in
1995.
Net operating cash flows of $285 million for the first nine
months of 1996 increased approximately $55 million as compared to
the first nine months 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 nine
months of 1996 and 1995 are as follows (in millions):
1996 1995
North America $ 291 $ 343
Outside North America
Trinidad 5 32
India 53 14
Other 18 16
Total $ 367 $ 405
Exploration and development expenditures for the first nine
months of 1996 were lower than expenditures in the first nine
months 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 increases 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.
PART I. FINANCIAL INFORMATION - (Concluded)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
ENRON OIL & GAS COMPANY
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 1. Legal Proceedings
See Part I, Item 1, Note 9 to Consolidated Financial
Statements which is incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the quarterly period ended September 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: November 8, 1996 By /S/ W. C. WILSON
W. C. Wilson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 8, 1996 By /S/ BEN B. BOYD
Ben B. Boyd
Vice President and Controller
(Principal Accounting Officer)