FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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_________________________________________________________
For Quarter Ended September 30, 1994 Commission file number 1-10509
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SNYDER OIL CORPORATION
- - --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2306158
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Main Street, Fort Worth, Texas 76102
- - ------------------------------------------ -----------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (817)338-4043
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- - --------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ].
24,179,044 Common Shares were outstanding as of October 28, 1994
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements included herein have been prepared
in conformity with generally accepted accounting principles. The
statements are unaudited, but reflect all adjustments which, in the
opinion of management, are necessary to fairly present the Company's
financial position and the results of operations.
2
SNYDER OIL CORPORATION
CONSOLIDATED BALANCE SHEETS (Notes 1 and 2)
(In thousands)
December 31, September 30,
1993 1994
-------------- -------------
(Unaudited)
Current assets
Cash and equivalents $ 10,913 $ 27,124
Accounts receivable 47,472 36,677
Other 3,407 10,779
---------- ----------
61,792 74,580
---------- ---------
Investments (Note 4) 29,383 44,175
---------- ---------
Oil and gas properties, full cost method (Note 5) 468,764 600,651
Accumulated depletion, depreciation and amortization (126,123) (166,712)
--------- ---------
342,641 433,939
--------- ---------
Gas processing and transportation facilities (Note 5) 60,015 96,011
Accumulated depreciation (14,295) (19,304)
--------- ---------
45,720 76,707
--------- ---------
$479,536 $629,401
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 37,262 $ 39,867
Accrued liabilities 23,239 22,569
-------- ---------
60,501 62,436
-------- ---------
Senior debt, net (Notes 3 and 5) 114,952 152,934
Convertible subordinated notes, net (Note 3) - 83,569
Deferred taxes and other (Note 9) 6,842 16,851
Commitments and contingencies (Note 10)
Minority interest in subsidiary - 5,460
Stockholders' equity (Note 6)
Preferred stock, $.01 par, 10,000,000 shares authorized,
8% convertible preferred, 1,186,005 and 1,146,230 shares
issued and outstanding 12 11
6% convertible preferred, 1,035,000 shares
issued and outstanding 10 10
Common stock, $.01 par, 75,000,000 shares authorized,
23,259,658 and 23,891,670 issued and outstanding 233 239
Capital in excess of par value 250,574 257,395
Retained earnings 46,954 50,869
Common stock held in treasury, 122,018 shares - (2,288)
Foreign currency translation (542) 1,117
Unrealized gains on investments (Note 4) - 798
--------- ---------
297,241 308,151
--------- ---------
$479,536 $629,401
========= ==========
<FN>
The accompanying notes are an intergral part of these statements
3
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Notes 1 and 2)
(In thousands except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
1993 1994 1993 1994
-------- -------- -------- --------
(Unaudited)
Revenues (Note 8)
Oil and gas sales $ 30,085 $ 33,868 $ 90,951 $ 100,375
Gas processing, transportation and marketing 27,037 30,483 64,197 85,481
Other 4,166 6,700 9,289 11,588
-------- -------- --------- ---------
61,288 71,051 164,437 197,444
-------- -------- --------- ---------
Expenses
Direct operating 10,182 12,932 33,091 36,948
Cost of gas and transportation 24,288 28,117 56,985 75,734
General and administrative 1,400 2,995 5,443 6,872
Interest and other 1,736 3,386 5,549 7,620
Depletion, depreciation and amortization 11,412 15,899 37,805 45,599
------- ------- -------- --------
Income before taxes and extraordinary item 12,270 7,722 25,564 24,671
------- ------- -------- --------
Provision for income taxes (Note 7)
Current - 25 390 75
Deferred 5,647 2,669 5,647 8,135
-------- -------- -------- -------
5,647 2,694 6,037 8,210
-------- ------- -------- -------
Income before extraordinary item 6,623 5,028 19,527 16,461
Minority interest in subsidiary - (26) - (26)
Extraordinary item - early extinguishment of debt,
net of taxes of $198 and $446 (Note 3) (462) - (846) -
-------- -------- --------- --------
Net income $ 6,161 $ 5,002 $ 18,681 $ 16,435
======== ======== ======== ========
Net income per common share (Note 2)
Before extraordinary item $ .17 $ .10 $ .57 $ .35
Extraordinary item (.02) - (.04) -
-------- -------- --------- --------
Total $ .15 $ .10 $ .53 $ .35
======== ======== ========= ========
Average common shares outstanding (Note 6) 23,164 23,688 23,058 23,460
======== ======== ========= ========
<FN>
The accompanying notes are an integral part of these statements
4
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (Notes 1, 2 and 6)
(In thousands)
Preferred Stock Common Stock Capital in
----------------------- ------------------- Excess of Retained
Shares Amount Shares Amount Par Value Earnings
-------- -------- -------- -------- ----------- -----------
Balance, December 31, 1992 1,200 $ 12 22,874 $ 229 $ 148,670 $ 35,482
Issuance of preferred 1,035 10 - - 99,315 -
Common stock grants and
exercise of options - - 309 3 2,590 -
Conversion of preferred
to common (14) - 77 1 (1) -
Dividends - - - - - (14,192)
Net income - - - - - 25,664
-------- -------- -------- -------- ---------- ---------
Balance, December 31, 1993 2,221 22 23,260 233 250,574 46,954
Common Stock grants and
exercise of options - - 413 4 3,373 -
Conversion of preferred
to common (40) (1) 219 2 (2) -
Issuance of warrants - - - - 3,450 -
Dividends - - - - - (12,520)
Net income - - - - - 16,435
-------- -------- -------- -------- ---------- ---------
Balance, September 30, 1994
(Unaudited) 2,181 $ 21 23,892 $ 239 $ 257,395 $ 50,869
======== ======== ======== ======== ========== =========
<FN>
The accompanying notes are an integral part of these statements.
5
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Notes 1 and 2)
(In thousands)
Nine Months Ended September 30,
--------------------------------
1993 1994
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(Unaudited)
Operating activities
Net income $ 18,681 $ 16,435
Adjustments to reconcile net income to net cash
provided by operations
Depletion, depreciation and amortization 37,805 45,599
Deferred taxes 5,647 8,135
Extraordinary item - early extinguishment of debt 846 -
Gain on sale of securities (1,202) (7,804)
Amortization of deferred credits (2,946) (2,335)
Changes in operating assets and liabilities
Decrease (increase) in
Accounts receivable (16,700) 10,795
Other current assets (1,160) (7,372)
Increase (decrease) in
Accounts payable 9,627 3,021
Accrued liabilities 1,185 2,636
Other liabilities (37) 1,172
Other (367) (174)
---------- ----------
Net cash provided by operations 51,379 70,108
---------- ----------
Investing activities
Acquisition, development and exploration (140,913) (164,102)
Proceeds from investments 3,564 4,686
Outlays for investments (25,276) (8,463)
Sale of properties 5,549 1,818
---------- ---------
Net cash used by investing (157,076) (166,061)
---------- ---------
Financing activities
Issuance of common 1,507 942
Issuance of preferred 99,354 -
Issuance of convertible subordinated notes - 83,569
Increase in indebtedness 16,659 37,982
Premium on debt extinguishment (1,292) -
Dividends (10,115) (12,520)
Deferred credits 925 2,191
---------- ----------
Net cash realized by financing 107,038 112,164
---------- ----------
Increase in cash 1,341 16,211
Cash and equivalents, beginning of period 20,485 10,913
---------- ----------
Cash and equivalents, end of period $ 21,826 $ 27,124
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
6
SNYDER OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Snyder Oil Corporation (the "Company") is primarily engaged in
the acquisition, production, development and exploration of domestic
oil and gas properties. The Company is also involved in gas
processing, transportation, gathering and marketing. Additionally,
the Company is engaged to a modest but growing extent in
international acquisition, development and exploration and maintains
a number of special purpose subsidiaries which are engaged in
ancillary activities including gas transmission, water disposal and
management of oil and gas assets on behalf of institutional
investors. The Company, a Delaware corporation, is the successor to
a company formed in 1978.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
Snyder Oil Corporation and its subsidiaries (collectively, the
"Company"). Affiliates in which the Company owns more than 50% are
fully consolidated, with the related minority interest being deducted
from subsidiary earnings and stockholders' equity. The Company
accounts for its interest in joint ventures and partnerships using
the proportionate consolidation method, whereby its share of assets,
liabilities, revenues and expenses are consolidated with other
operations.
The Company follows the "full cost" accounting method. All
costs of development and exploration are capitalized as incurred,
including salaries, benefits and other internal costs directly
attributable to these activities. The Company capitalized $3.0
million and $3.4 million, respectively, of internal costs in 1993 and
for the nine months ended September 30, 1994. Future dismantlement,
abandonment and site restoration costs, net of estimated salvage
values, are not expected to be significant, and, accordingly, no
provision has been recorded in the financial statements. Depletion,
depreciation and amortization ("depletion") is provided on the unit-
of-production method based on proved reserves. Gas is converted to
equivalent barrels at the rate of six Mcf per barrel. The depletion
rates per equivalent barrel produced were $4.77 and $4.84,
respectively, for the nine months ended September 30, 1993 and 1994.
No gains or losses are recognized upon the disposition of oil and gas
properties except in extraordinary transactions. Proceeds are
credited to the carrying value of the properties. Maintenance and
repairs are expensed. Expenditures which enhance the value of the
properties are capitalized. Depreciation on gas processing and
transportation facilities is generally provided on a straight-line
basis over 15 years.
The Company's investment in its Australian affiliate is
accounted for using the equity method, whereby the cash basis
investment is increased for equity in earnings and would be decreased
for dividends if any were received. The affiliate's functional
currency is the Australian dollar. The reported foreign currency
translation adjustments are the result of the translation of the
Australian balance sheet into United States dollars at the balance
sheet dates and the related impact of exchange rates subsequent to
purchase.
All highly liquid investments with a maturity of three months or
less are considered to be cash equivalents. Earnings per share are
computed by dividing net income less dividends on preferred stock by
average common shares outstanding. Differences between primary and
fully diluted earnings per share were insignificant for all periods
presented. General and administrative expenses are reduced by
reimbursements for well operations, drilling and management of
partnerships and services provided to unconsolidated affiliates.
Reimbursements amounted to $12.9 million and $18.1 million,
respectively, for the nine months ended September 30, 1993 and 1994.
7
In the opinion of management, those adjustments to the financial
statements (all of which are of a normal and recurring nature)
necessary to present fairly the financial position and results of
operations have been made. These interim financial statements should
be read in conjunction with the 1993 annual report on Form 10-K.
(3) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
December 31, September 30,
1993 1994
------------ -------------
(In thousands)
Revolving credit facility $ 114,901 $ 152,901
Other 66 50
------------ ------------
114,967 152,951
Less current portion (15) (17)
------------ ------------
Senior debt, net $ 114,952 $ 152,934
============ ============
Convertible subordinated notes, net $ - $ 83,569
=========== ============
The Company maintains a $500 million revolving credit facility.
The facility is divided into a $400 million long-term portion and a
$100 million short-term portion. The elected borrowing base
available under the facility at September 30, 1994 was $200 million.
The majority of the borrowings under the facility currently bear
interest at LIBOR plus .75% with the remainder at prime, with an
option to select CD plus .75%. The margin on LIBOR or CD will
increase to 1% if the Company's consolidated senior debt becomes
greater than 80% of its tangible net worth. For the three months
ended September 30, 1993 and 1994, the average borrowing cost under
the facility was 5.1% and 5.6%, respectively. The Company pays
certain fees based on the unused portion of the borrowing base.
Covenants require maintenance of minimum working capital, limit the
incurrence of debt and restrict payments for dividends, stock
repurchases, certain investments, other indebtedness and unrelated
business activities. Such restricted payments are limited by a
formula that includes underwriting proceeds, cash flow and other
items. Based on such limitations, approximately $103.9 million was
available for the payment of dividends and other restricted payments
as of September 30, 1994.
In May 1994, the Company issued $86.3 million of 7% convertible
subordinated notes due May 15, 2001. The net proceeds were $83.6
million. The notes are convertible into common stock at $23.16 per
share, and are redeemable at the option of the Company on or after
May 15, 1997, initially at 103.51% of principal, and at prices
declining to 100% at May 15, 2000, plus accrued interest.
In March 1993, the Company retired 40% of the cumulative
participating rights associated with its $25 million of subordinated
notes. The portion of the payment in excess of principal and accrued
interest was expensed as an extraordinary item, net of income taxes,
for $384,000. In August 1993, the Company retired $10 million (40%)
of the subordinated notes and recorded an extraordinary expense of
$462,000, net of taxes. In November 1993, the remaining $15 million
of the subordinated notes and all remaining cumulative rights were
retired and an extraordinary expense of $1.1 million was reported.
Scheduled maturities of indebtedness are zero for the remainder
of 1994, $17,000 in 1995 and 1996, $16,000 in 1997, $152.9 million in
1998, zero in 1999 and 2000, and $83.6 million in 2001. The long-
term portion of the revolving credit facility is scheduled to expire
in 1998; however, management's policy is to renew the facility and
extend the maturity on a regular basis.
8
Cash payments for interest expense were $4.7 million and $4.1
million, respectively, for the nine months ended September 30, 1993
and 1994.
(4) INVESTMENTS
The Company has investments in foreign and domestic energy
companies and notes receivable, which at December 31, 1993 and
September 30, 1994, had a book value of $29.4 million and $44.2
million, respectively. The corresponding fair market values were
$54.2 million and $54.3 million at December 31, 1993 and September
30, 1994. In the first quarter of 1994, the Company adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." Per the pronouncement, investments carried on the cost
basis must be adjusted to their market value with a corresponding
increase or decrease to stockholder's equity. The pronouncement does
not apply to equity basis investments.
In May 1993, the Company acquired 92 million of the outstanding
shares of Command Petroleum Holdings N.L. ("Command"), an Australian
exploration and production company, for $18.2 million. The
investment is accounted for by the equity method. The Sydney based
company is listed on the Australian Stock Exchange, and holds
interests in various international exploration and production permits
and licenses as well as a 47.5% interest in a publicly traded
Netherlands exploration and production company whose assets are
located primarily in the North Sea. The market value of the
investment in Command based on its closing price on September 30,
1994 was $33.1 million. Command has outstanding stock options
covering the issuance of up to 53.3 million common shares that expire
November 30, 1994. Given that the exercise price of the options is
substantially below its current stock price, the Company assumes they
will be exercised. In January 1994, Command completed an offering of
43 million of its common shares, and in February 1994 paid $1.6
million in cash and issued 2.5 million of its common shares in return
for an additional 18.8% interest in the publicly traded Netherlands
exploration and production company bringing its ownership from 28.7%
to 47.5% at June 30, 1994. Additionally, in May and August 1994, 1.7
million and 359,000, respectively, of the November 1994 options were
exercised. As a result of these transactions, the Company's
ownership in Command was reduced to 35.0% and a $2.5 million gain was
recognized. If as expected, all of the November 1994 options are
exercised, the Company's ownership would be reduced to 29.3%.
In early 1993, the Company formed the Permtex joint venture to
develop proven oil fields in the Volga-Urals Basin of Russia. To
finance its portion of planned development expenditures, the Company
sold a portion of its investment in the project to three industry
participants. As a result, its equity basis investment was reduced
from 50% to 20.6% as a $1.7 million net gain was recorded. The
Russian investment had a cost and fair market value at September 30,
1994 of $1.7 million.
The Company has investments in securities of publicly traded
domestic energy companies, not accounted for by the equity method,
having a book value and total cost at December 31, 1993 and September
30, 1994 of $9.7 million and $15.4 million, respectively. The market
value of these securities at December 31, 1993 and September 30, 1994
approximated $13.3 million and $16.6 million, respectively.
Accordingly, at September 30, 1994, investments were increased by
$1.2 million, stockholders' equity was increased by $798 thousand and
deferred taxes payable were increased by $430,000 as required by SFAS
No. 115.
The Company holds $2.9 million in notes receivable due from
privately held corporations. All notes are secured by certain
assets, including stock and oil and gas properties. At December 31,
1993 and September 30, 1994, the fair value of the notes receivable,
based on existing market conditions and the anticipated future net
cash flow related to the notes, approximated their book value.
9
(5) OIL AND GAS PROPERTIES
The cost of oil and gas properties at December 31, 1993 and
September 30, 1994 includes $9.8 million and $18.7 million,
respectively, of unevaluated leasehold. Such properties are held for
exploration, development or resale and are excluded from
amortization. The following table sets forth costs incurred related
to oil and gas properties and gas processing and transportation
facilities:
Nine
Year Ended Months Ended
December 31, September 30,
1993 1994
------------ -------------
Acquisition $ 50,997 $ 29,055
Development 90,182 100,789
Gas processing, transportation and other 22,595 35,996
Exploration 2,952 900
--------- ---------
$ 166,726 $ 166,740
========= =========
Development expenditures for the nine months ended September 30,
1994, were concentrated primarily in the DJ Basin of Colorado where
expenditures totalled $67.4 million. A total of 288 wells were
placed on production there in the first nine months of 1994 with 53
in progress at September 30. In the Piceance Basin of western
Colorado in the Hunter Mesa Unit, 14 wells have been drilled in 1994
with five placed on sales and the other nine in various stages of
completion or evaluation. In the East Washakie Basin of southern
Wyoming, the 1994 Mesaverde drilling program was initiated with plans
to drill throughout the year. A total of 25 wells have been drilled
with 18 placed on sales and seven in process at September 30. In
central Wyoming, five Company operated and three third party operated
Tensleep formation wells were drilled and placed on production during
the period. In the Giddings Field in south Texas, the Company
continued its horizontal drilling program with the addition of 12
producing wells during the first nine months of 1994 with six in
progress at September 30.
The Company's gas facilities expansion continued with $32.4
million expended during 1994, primarily on facilities in the DJ
Basin. Construction of a new gas processing plant on the west end of
the Wattenberg Field with an approximate cost of $21.0 million was
near completion at quarter end with $18.6 million in costs incurred
through September 30. Financing has since been obtained for the full
project cost under a seven-year term capital lease with a fixed 8.2%
interest rate. A total of $7.9 million was expended to increase the
Company's gathering systems in the DJ Basin to add pipelines, feeder
lines, an additional compressor and new well connections for the
continuing drilling activity in the area. Additionally, $2.2 million
of pipe inventory was acquired for upcoming expansion. At the Roggen
plant, $2.1 million was expended to add a new de-ethanizer station,
improve metering and boost compression, among other projects.
Another $1.6 million in expenditures were for system expansions in
the Piceance Basin, Nebraska and the Washakie Basin.
The Company expended $29.1 million for domestic acquisitions, of
which $20.2 million was for proven properties and $8.9 million for
unproven acreage. The most notable producing acquisitions were a
total of $6.6 million for properties in the Piceance Basin of western
Colorado, $4.1 million in the Giddings area of south Texas and $6.6
million for a controlling interest in a company that owns and
operates properties in the Gulf of Mexico.
(6) STOCKHOLDERS' EQUITY
A total of 75 million common shares, $.01 par value, are
authorized of which 23.9 million were issued and outstanding at
September 30, 1994. In 1993, the Company issued 386,000 shares, with
309,000 shares issued primarily for the exercise of stock options by
employees and 77,000 shares issued on conversion of 14,000 preferred
shares. During the nine months ended September 30, 1994, the Company
issued 632,000 shares, with
10
413,000 shares issued for the exercise of stock options by employees
(for which 122,000 shares were received as consideration in lieu of
cash and are held in treasury) and 219,000 shares issued on
conversion of 40,000 preferred shares. In 1993, the Company paid
first and second quarter dividends of $.05 per share and increased
dividends to $.06 per share in the third and fourth quarters. In
1994, the Company paid first and second quarter dividends of $.06 per
share and increased dividends to $.065 per share in the third
quarter.
A total of 10 million preferred shares, $.01 par value, are
authorized. In December 1991, 1.2 million shares of convertible
exchangeable preferred stock were sold through an underwriting. The
net proceeds were $57.4 million. The preferred stock carries an 8%
dividend and is convertible into common stock at $9.07 per share.
The stock is exchangeable at the option of the Company for 8%
convertible subordinated debentures on any dividend payment date.
The stock is redeemable at the option of the Company after December
31, 1994. The liquidation preference is $50.00 per share, plus
accrued and unpaid dividends. Beginning on December 31, 1994, the
stock is redeemable at $52.50 per share if the closing price exceeds
$13.61. After 1995, no minimum stock price is required. The
redemption price declines $.50 per year to $50.00 per share in 2000.
In 1993, 14,000 preferred shares were converted into 77,000 common
shares. During the nine months ended September 30, 1994, 40,000
preferred shares were converted into 219,000 common shares.
In April 1993, 4.1 million depositary shares (each representing
a one quarter interest in one share of $100 liquidation value stock)
of convertible preferred stock were sold through an underwriting.
The net proceeds were $99.3 million. The preferred stock carries a
6% dividend and is convertible into common stock at $21.00 per share.
The stock is exchangeable at the option of the Company for 6%
convertible subordinated debentures on any dividend payment date.
The stock is redeemable at the option of the Company on or after
March 31, 1996. The liquidation preference is $25.00 per depositary
share, plus accrued and unpaid dividends. The Company paid $2.8
million and $2.7 million, respectively, in dividends for all
preferred shares for the three months ended September 30, 1993 and
1994, $6.4 million and $8.2 million, respectively, for the nine
months ended September 30, 1993 and 1994.
In February 1994, the Company granted warrants to purchase two
million shares of its common stock to Union Pacific Resources
Corporation ("UPRC") in exchange for rights to develop UPRC's
previously uncommitted acreage in the Wattenberg area of Colorado.
Of the warrants, one million expire in February 1997, and are
exercisable at $25 per share, while the other one million expire in
February 1998 and are exercisable at $27 per share. On February 8,
1995, the exercise prices may be reduced to 120% of the average
closing price of the Company stock for the preceding 20 consecutive
trading days, but not below $21.60 per share. The expiration date of
the warrants may also be extended one year if the average closing
price over that 20 day trading period is less than $16.50 per share.
For financial purposes, the warrants were valued at $3.5 million,
which was included as an increase to capital in excess of par value.
The Company maintains a stock option plan for employees providing
for the issuance of options at prices not less than fair market
value. Options to acquire up to 3 million shares of common stock may
be outstanding at any given time. The specific terms of grant and
exercise are determinable by a committee of independent members of
the Board of Directors. Virtually all outstanding options vest over
a three-year period (30%, 60%, 100%) and expire five to seven years
from date of grant.
In 1990, the shareholders adopted a stock grant and option plan
(the "Directors' Plan") for non-employee Directors of the Company.
The Directors' Plan provides for each non-employee director to
receive 500 common shares quarterly in payment of their annual
retainer. It also provides for 2,500 options to be granted annually
to each non-employee Director. The options vest over a three-year
period (30%, 60%, 100%) and expire five years from date of grant.
At September 30, 1994, 1.5 million options were outstanding under
both plans at exercise prices of $4.53 to $20.38 per share. At
September 30, 1994, a total of 529,000 of such options were vested
having exercise prices of $4.53 to $19.25 per share. During 1993,
309,000 options were exercised at prices of $4.53 to $9.13 per share,
and 23,000 were forfeited. During the nine months ended September
30, 1994, 413,000 options were exercised at prices of $4.53 to $13.00
per share, and 2,000 were forfeited.
11
(7) FEDERAL INCOME TAXES
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes," effective January 1, 1992. At September 30, 1994, the
Company had no liability for foreign taxes. A reconciliation of the
United States federal statutory rate to the Company's effective
income tax rate follows:
Nine Months Ended September 30,
-------------------------------
1993 1994
--------- ---------
Federal statutory rate 35% 35%
Utilization of net deferred tax asset (11%) -
Prior year tax reimbursement - (2%)
------- -------
Effective tax rate 24% 33%
======= =======
As a result of its extensive drilling program and the related
deduction of certain costs for tax purposes that are capitalized for
financial reporting purposes, the Company had a net operating tax
loss carryforward of $69.1 million at December 31, 1993. These
carryforwards expire between 1997 and 2008. At December 31, 1993,
the Company had alternative minimum tax credit carryforwards of $1.4
million and depletion carryforwards of $1.1 million, both of which
are available indefinitely. Current income taxes shown in the
financial statements reflect estimates of alternative minimum taxes
due. Cash payments during the nine months ended September 30, 1993
and 1994 were $75,000 and $10,000, respectively.
(8) SALES TO MAJOR CUSTOMERS
For the nine months ended September 30, 1993 and 1994, Amoco
Production Company accounted for 14% and 13%, respectively, of
revenues. Management believes that the loss of any individual
purchaser would not have a material adverse impact on the financial
position or results of operations of the Company.
(9) DEFERRED CREDITS
In 1992, an institutional investor agreed to contribute $7
million to a partnership formed to monetize Section 29 tax credits to
be realized from the Company's properties, mainly in the DJ Basin.
The initial $3 million was contributed in 1992, an additional $3
million contributed during 1993 and $1 million received in March
1994. In June 1994, the arrangement was extended and an additional
$1.5 million was received. A revenue increase of more than $.40 per
Mcf is realized on production generated from qualified Section 29
properties in this partnership. The Company recognized $2.9 million
and $2.3 million, respectively, during the nine months ended
September 30, 1993 and 1994.
(10) COMMITMENTS AND CONTINGENCIES
The Company rents office space and gas compressors at various
locations under non-cancelable operating leases. Minimum future
payments under such leases approximate $525,000 for the remainder of
1994, $2.2 million for 1995, $2.3 million for 1996 and 1997, and $2.1
million for 1998.
In 1993, the Company received a $5.3 million settlement on a gas
contract dispute. Of the proceeds, $3.5 million was reflected as
other income in second quarter 1993, with the remaining $1.8 million
reflected as a reserve for possible contingencies. In second and
third quarter 1994, the reserve was reduced by $610,000 and $927,000,
respectively, based on the receipt of a determination letter from the
taxing authorities. In April 1993, the Company was granted a $2.7
million judgment in litigation involving the allocation of proceeds
from a pipeline dispute. The judgment has been appealed. The
Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse
impact on its financial position or results of operations. The
financial statements reflect favorable legal judgments only upon
receipt of cash, final judicial determination or execution of a
settlement agreement.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenues for the three month and nine month periods ended
September 30, 1994 rose to $71.1 million and $197.4 million,
respectively. These represented increases of 16% and 20% over the
respective prior year periods. Equivalent oil and gas production for
the third quarter 1994 grew 21% from the prior year quarter, while
production for the nine months ended September 30, 1994 increased 25%
over the prior year period. Oil and gas prices continued to limit
the revenue growth as the nine month average price received per
equivalent barrel was $11.98, which was 11% lower than in 1993. Net
income for the three months ended September 30, 1994 was $5.0
million, a 19% decrease from third quarter 1993, as a result of lower
gas prices, greater administrative expenses and increased interest
expense. Net income per share was $.10 in third quarter 1994,
compared to $.15 in 1993.
Average daily production in the third quarter of 1994 climbed to
11,709 barrels and 116.5 MMcf (31,125 barrels of oil equivalent),
increases of 25% and 19%, respectively. The production increases
resulted from development drilling in the DJ Basin of Colorado and
recently initiated acquisition and development projects in the
Greater Green River Basin of western Wyoming, the Giddings Field of
south Texas and the Piceance Basin of western Colorado. During the
first nine months of 1994, 288 wells were placed on production in the
DJ Basin, 18 in the Greater Green River Basin, 12 in Giddings and
five in Piceance. DJ Basin second and third quarter production
continued to be hindered by compression problems, delays in
connecting new wells, downtime at third party plants and permitting
difficulties. The completion of a new gas processing plant which
became operational in early November should reduce problems caused by
compression and downtime at third party plants. Some progress has
been made with the permitting agency and as harvests were completed,
drilling activity has increased. As a result of the delays
associated with permitting difficulties, the impact of declining gas
prices and less than expected drilling results, the Company has
reduced drilling in certain non-core areas in the DJ Basin and
anticipates a total of approximately 400 completed wells there in
1994, compared to earlier estimates of 500. At the end of the third
quarter, wells in various stages of drilling and completion included
53 in the DJ Basin, seven in Greater Green River, nine in Piceance
and six in Giddings. This increased activity should benefit
production in the fourth quarter of 1994 and thereafter.
The gross margin from production operations for the third quarter
of 1994 was $20.9 million, a 6% increase over the 1993 quarter. The
price received per equivalent barrel decreased 7% between periods to
average $11.83 in third quarter 1994. Third quarter 1994 operating
costs (including production taxes) were $4.52 per equivalent barrel,
compared to $4.31 in the prior year quarter. The 1993 period was
reduced by $.55 per BOE as a result of refunds of prior year
severance taxes. Had the prior period refunds not been received,
third quarter 1993 expenses would have been $4.86 per equivalent
barrel, or $.34 higher than in 1994. More than 70% of the effective
$.34 per BOE expense decrease resulted from a reduction in the
portion of internal production overhead expenses charged to lease
operating expense. This reduction decreased 1994 operating expenses
by $728,000 and increased general and administrative expenses for the
period by the same amount. The remainder of the expense decrease was
from cost reduction efforts.
The gross margin from gas processing, transportation and marketing
activities was $2.4 million in third quarter 1994, compared to $2.7
million in the 1993 period. The margin decrease was due to current
quarter gas marketing losses of $303,000 as a result of the
precipitous decline in spot market gas prices during the quarter and
a narrowing of the differentials between Rocky Mountain gas prices
compared to markets in the Mid-continent and Gulf Coast regions. The
Company plans to decrease its involvement in third party marketing
activities until the markets recover. In third quarter 1994, the
purchaser under the Company's Oklahoma cogeneration sales contract
lowered the contract price due to a change in the method by which the
purchaser's
13
customer determines its weighted average cost of gas. The Company is
investigating whether this change was permitted under the contract.
The Company earned a $268,000 margin on the cogeneration contract in
third quarter 1994. Gathering and processing margins were $2.4
million in third quarter 1994, essentially equal to the prior year
period. DJ Basin gathering facilities daily throughput averaged 95.7
MMcf in third quarter 1994 compared to 76.9 MMcf in 1993, a 24%
increase. However, lower liquids product prices offset the majority
of the gains. In early November, the Company completed a new gas
processing plant in the DJ Basin, capable of processing up to 80 MMcf
per day which should improve future margins.
Other income was $6.7 million during the three month period ended
September 30, 1994, compared to $4.2 million in third quarter 1993.
The increase resulted from greater gains from security transactions
as a result of domestic stock sales, the sale of equity securities by
the Company's Australian affiliate and the previously announced sale
of a portion of our interest in the Permtex joint venture in Russia.
After these transactions, the Company's interests in Command and
Permtex were reduced to 35.0% and 20.6%, respectively. General and
administrative expenses, net of reimbursements, for third quarter
1994 represented 4.2% of revenues, compared to 2.3% in third quarter
1993. The rise resulted in part from a $728,000 expense increase
between periods as a result of the aforementioned change in
classification of internal producing overhead costs. The remainder
of the overhead expense rise was due to an increase in staffing in
anticipation of expansion in new development areas. Interest and
other expense increased by $1.7 million to $3.4 million in the three
months ended September 30, 1994, as a result of an increase in
outstanding debt levels due to the continuing capital expenditure
projects.
Depletion, depreciation and amortization expense for third quarter
1994 increased $4.5 million from the prior period. Of the increase,
$3.2 million was related to the growth in oil and gas production,
$966,000 to the expansion of gas gathering and processing facilities
and $291,000 to a rise in purchased field and office equipment.
Development, Acquisition and Exploration
During the nine months ended September 30, 1994, the Company
incurred $166.7 million in property and equipment capital
expenditures; including $100.8 million for oil and gas property
development, $32.4 million for gas facility expansion, $29.1 million
for acquisitions, $3.5 million for field and office equipment and
$900 thousand for exploration.
Of the total development expenditures, $67.4 million was
concentrated in the DJ Basin of Colorado. A total of 288 wells were
placed on production there in 1994 with 53 in progress at September
30. Six wells spudded during the period were plugged and abandoned.
Difficulty in obtaining drilling and recompletion permits in a timely
fashion and agricultural season activity contributed to a
considerable drilling slowdown during the third quarter. Drilling
activity was increased in the fourth quarter as locations have become
available. Current estimates are to place an additional 110 wells on
production in the fourth quarter, bringing the total for 1994 to
approximately 400. This amount is reduced from earlier estimates as
a result of delays associated with permitting difficulties, the
impact of declining gas prices and somewhat less than anticipated
results in certain non-core areas.
The Company expended $33.4 million for other development and
recompletion projects during the first nine months of 1994. In the
Piceance Basin of western Colorado, where the Company formed the
53,000 acre Hunter Mesa Unit in late 1993, 14 wells have been spudded
in 1994 with five placed on sales, six more completed and waiting on
pipeline and three in progress at quarter end. The Company plans to
drill a total of 27 wells there in 1994 and may institute a more
significant drilling program thereafter. In the East Washakie Basin
of southern Wyoming, the Company initiated its Mesaverde drilling
program and plans to drill over 40 wells there by yearend. A total
of 25 wells have been spudded with 18 placed on sales and seven in
process at September 30. Acreage acquisition and farm out
opportunities continue to be pursued there. In the central Wyoming
fields acquired in late 1992, five Company operated and three third
party operated Tensleep formation wells were
14
drilled and placed on production in the first six months. On Company
operated properties there, three wells were spudded during the third
quarter with two on sales and one in progress at September 30. In
the Giddings Field of south Texas, the Company continued its
horizontal drilling program with the addition of 12 producing wells
during the first nine months of 1994 with six in progress at quarter
end. Nine more wells are scheduled for the fourth quarter.
The Company's gas gathering and processing facility operations
continue to grow with $32.4 million of capital expenditures in the
first nine months of 1994. The work was heavily concentrated in the
Wattenberg area of the DJ Basin. Construction of a new $21.0 million
gas processing plant on the west end of the Wattenberg Field was near
completion at quarter end with $18.6 million in costs incurred
through September 30. Capital lease financing has since been
obtained for the full project cost. Initial start up for the plant
occurred in early November 1994. A total of $7.9 million was
expended to increase the Company's gathering systems in the DJ Basin
to add pipelines, feeder lines, an additional compressor and new well
connections for the continuing drilling activity in the area.
Additionally, $2.2 million of pipe inventory was acquired at discount
prices for upcoming expansion use. At the Roggen plant, $2.1 million
was expended to add a new de-ethanizer station, improve metering and
boost compression, among other projects. Another $1.6 million in
expenditures were for system expansions in the Piceance Basin,
Nebraska and the Washakie Basin.
In the nine months ended September 30, 1994, the Company expended
$29.1 million for domestic acquisitions, of which $20.1 million was
for proven properties and $8.9 million for unproven acreage. The
most notable producing acquisitions were a total of $6.6 million for
properties in the Piceance Basin of western Colorado, $4.1 million
for properties in the Giddings area of south Texas and $6.6 million
for a controlling interest in a company that owns and operates
properties in the Gulf of Mexico. The remaining producing interests
were acquired in existing Company hub areas. The unproved acreage
was also predominantly in or around our existing hubs. In October
1994, the Company closed a $9.7 million acquisition in northeast
Louisiana of which $3.0 million was proven and $6.7 million was for
330,000 net mineral acres which are classified as unproven.
Exploration costs for 1994 were $900,000, most of which was
expended on international projects. In Russia, commercial production
began late in the quarter with pipeline construction still in
progress in the southernmost field in the contract area. Three
industry partners have committed $11.25 million to the joint venture
to fully fund the western participants' anticipated equity
requirements, of which $5.25 million has been received. In June
1994, a commitment letter was executed with the Overseas Private
Investment Corporation ("OPIC") whereby OPIC will commit $40 million
to the Russian Permtex project. It is expected that the final OPIC
agreement and associated debt financing will be put in place during
the first quarter of 1995. In Mongolia and Tunisia, seismic
acquisition and processing continues.
Financial Condition and Capital Resources
At September 30, 1994, the Company had total assets of $629
million. Total capitalization was $562 million, of which 55% was
represented by stockholder's equity, 27% by senior debt, 15% by
convertible subordinated notes and the remainder by deferred taxes.
During the nine months ended September 30, 1994, cash provided by
operations was $70.1 million, an increase of 36% over 1993. As of
September 30, 1994, commitments for capital expenditures totalled
$16.3 million. The Company anticipates that 1994 expenditures for
development drilling and gas facilities will exceed $200 million.
The level of these and other future expenditures is largely
discretionary, and the amount of funds devoted to any particular
activity may increase or decrease significantly, depending on
available opportunities and market conditions. The Company plans to
finance its ongoing development, acquisition and exploration
expenditures using internally generated cash flow and existing credit
facilities. In addition, joint ventures or future public and private
offerings of debt or equity securities may be utilized.
15
In 1994, the Company renegotiated its bank credit facility and
increased it to $500 million. The new facility is divided into a
$100 million short-term portion and a $400 million long-term portion
that expires on December 31, 1998. Management's policy is to renew
the facility on a regular basis. Credit availability is adjusted
semiannually to reflect changes in reserves and asset values. The
borrowing base was $200 million at September 30, 1994, and was
expected to increase in fourth quarter 1994. The majority of the
borrowings currently bear interest at LIBOR plus .75% with the
remainder at prime. The Company also has the option to select CD
plus .75%. The margin on LIBOR or CD loans will increase to 1% if
the Company's consolidated senior debt becomes greater than 80% of
its tangible net worth. Financial covenants limit debt, require
maintenance of minimum working capital and restrict certain payments,
including stock repurchases, dividends and contributions or advances
to unrestricted subsidiaries. Such restricted payments are limited
by a formula that includes underwriting proceeds, cash flow and other
items. Based on such limitations, approximately $103.9 million was
available for the payment of dividends and other restricted payments
as of September 30, 1994.
In May 1994, the Company issued $86.3 million of 7% Convertible
Subordinated Notes due 2001 in an underwritten public offering for
net proceeds of $83.6 million. The net proceeds of the offering were
used to repay a portion of the borrowings under the bank credit
facility. The resulting borrowing capacity under the credit facility
will be used to fund development drilling, gas facility expansion and
acquisitions.
In February 1994, the Company executed an agreement with Union
Pacific Resources Corporation ("UPRC") whereby the Company gained the
right to drill wells on UPRC's previously uncommitted acreage in the
Wattenberg area. The transaction significantly increased the
Company's inventory of undeveloped Wattenberg acreage. UPRC retained
a royalty and the right to participate as a 50% working interest
owner in each well, and received warrants to purchase two million
shares of Company stock. One million of the warrants expire February
1997 and are exercisable at $25 per share. The other million expire
in February 1998 and are exercisable at $27 per share. On February
8, 1995, the exercise prices may be reduced to 120% of the average
closing price of the Company stock for the preceding 20 consecutive
trading days, but not below $21.60 per share. The expiration date of
the warrants will be extended one year if the average closing price
over the 20 day trading period is less than $16.50 per share. For
financial reporting purposes, the warrants were valued at $3.5
million, which was recorded as an increase to oil and gas properties
and capital in excess of par value.
In 1992, an institutional investor agreed to contribute $7 million
to a partnership formed to monetize Section 29 tax credits to be
realized from the Company's properties, mainly in the DJ Basin. The
initial $3 million was contributed in 1992, an additional $3 million
contributed during 1993 and $1 million received in March 1994. In
June 1994, the arrangement was extended and an additional $1.5
million was received. This transaction is anticipated to increase
cash flow and net income through 1996. Discussions are in progress
to extend this transaction beyond that date. A revenue increase of
more than $.40 per Mcf is realized on production generated from
qualified Section 29 properties in this partnership. The Company
recognized $2.9 million and $2.3 million, respectively, of this
revenue during the nine months ended September 30, 1993 and 1994.
The Company maintains a program to divest marginal properties and
assets which do not fit its long range plans. During the nine months
ended September 30, 1993 and 1994, the Company received $5.5 million
and $1.8 million, respectively, in proceeds from sales of properties.
The 1993 proceeds included $4.0 million of cash receipts previously
accrued for late 1992 sales. The Company intends to continue to
evaluate and dispose of nonstrategic assets.
In 1993, the Company received a $5.3 million settlement on a gas
contract dispute. Of the proceeds, $3.5 million was reflected as
other income in second quarter 1993, with the remaining $1.8 million
reflected as a reserve for possible contingencies. In second and
third quarter 1994, the reserve was reduced by $610,000 and $927,000,
respectively, based on the receipt of a determination letter from the
regulatory authorities. In April 1993, the Company was granted a
$2.7 million judgment in litigation involving the allocation of
proceeds from a pipeline dispute. The judgment has been appealed.
The financial statements reflect these judgments only upon
16
receipt of cash, final judicial or governmental determination or
execution of a settlement agreement.
The Company believes that its capital resources are more than
adequate to meet the requirements of its business. However, future
cash flows are subject to a number of variables including the level
of production and oil and gas prices, and there can be no assurance
that operations and other capital resources will provide cash in
sufficient amounts to maintain planned levels of capital expenditures
or that increased capital expenditures will not be undertaken.
Inflation and Changes in Prices
While certain of its costs are affected by the general level of
inflation, factors unique to the petroleum industry result in
independent price fluctuations. Over the past five years,
significant fluctuations have occurred in oil and gas prices.
Although it is particularly difficult to estimate future prices of
oil and gas, price fluctuations have had, and will continue to have,
a material effect on the Company.
The following table indicates the average oil and gas prices
received over the last five years and highlights the price
fluctuations by quarter for 1993 and 1994. Average gas prices prior
to 1994 exclude the Thomasville gas production. During 1993, the
Company renegotiated its Thomasville gas contract and received a
substantial payment. After January 1994, the Company still receives
a higher than market price for its Thomasville gas sales, however the
price is significantly below the previously received average price of
over $12.00 per Mcf. Average price computations exclude contract
settlements and other nonrecurring items to provide comparability.
Average prices per equivalent barrel indicate the composite impact of
changes in oil and gas prices. Natural gas production is converted
to oil equivalents at the rate of 6 Mcf per barrel.
Average Prices
------------------------------------------
Crude Oil Per
and Natural Equivalent
Liquids Gas Barrel
--------- --------- ---------
(Per Bbl) (Per Mcf)
Annual
------
1989 $ 18.30 $ 1.65 $ 12.84
1990 23.65 1.69 15.61
1991 20.62 1.68 14.36
1992 18.87 1.74 13.76
1993 15.41 1.94 13.41
1994 (nine months) 14.63 1.72 11.98
Quarterly
---------
1993
------
First $ 16.62 $ 2.05 $ 14.25
Second 16.76 1.87 13.65
Third 14.78 1.85 12.73
Fourth 13.80 2.02 13.12
1994
------
First $ 12.02 $ 1.98 $ 11.93
Second 15.55 1.65 12.20
Third 16.21 1.53 11.83
In September 1994, the Company received an average of $15.16
per barrel and $1.45 per Mcf for its production.
17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
12 Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
27 Financial Data Schedule
(b) Reports on Form 8-K -
No reports on Form 8-K were filed by Registrant during the
quarter ended September 30, 1994.
18
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.
SNYDER OIL CORPORATION
By /s/ James H. Shonsey
-----------------------
James H. Shonsey, Vice President
November 8, 1994
19