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 March 31, 1995
--------------------------------
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 March 31, 1995 Commission file number 1-10509
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SNYDER OIL CORPORATION
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(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
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(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 [ ].
30,270,275 Common Shares were outstanding as of May 10, 1995
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, March 31,
1994 1995
-------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and equivalents $ 21,733 $ 17,227
Accounts receivable 37,055 41,682
Inventory and other 13,651 14,885
---------- ----------
72,439 73,794
---------- ---------
Investments (Note 4) 43,301 43,025
---------- ---------
Oil and gas properties, successful efforts method (Note 5) 680,215 712,416
Accumulated depletion, depreciation and amortization (207,976) (224,408)
--------- ---------
472,239 488,008
--------- ---------
Gas processing and transportation facilities (Note 5) 106,622 110,781
Accumulated depreciation (21,342) (24,896)
--------- ---------
85,280 85,885
--------- ---------
$673,259 $690,712
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 44,874 $ 42,665
Accrued liabilities 25,112 20,292
Current portion of long term debt (Note 3) 1,745 1,934
-------- ---------
71,731 64,891
-------- ---------
Senior debt, net (Notes 3) 216,034 247,434
Convertible subordinated notes (Note 3) 83,650 83,752
Capital lease, net (Note 3) 18,823 18,329
Deferred taxes and other (Note 7 and 9) 3,211 8,304
Minority interest 5,724 4,579
Commitments and contingencies (Note 10)
Stockholders' equity (Note 6)
Preferred stock, $.01 par, 10,000,000 shares authorized,
6% convertible preferred, 1,035,000 shares
issued and outstanding 10 10
Common stock, $.01 par, 75,000,000 shares authorized,
30,209,197 and 30,252,439 issued 302 303
Capital in excess of par value 255,961 256,052
Retained earnings 20,959 11,468
Common stock held in treasury, 122,018 and 127,800 shares at cost (2,288) (2,369)
Foreign currency translation adjustment 1,222 (368)
Unrealized gains on investments (Note 4) (2,080) (1,673)
--------- ---------
274,086 263,423
--------- ---------
$673,259 $690,712
========= ==========
<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 Ended March 31,
-----------------------------------
1994 1995
------------ ------------
(Unaudited)
Revenues (Note 8)
Oil and gas sales $ 32,647 $ 37,601
Gas processing, transportation and marketing 26,923 13,566
Other 3,886 1,850
-------- ---------
63,456 53,017
-------- ---------
Expenses
Direct operating 11,943 14,105
Cost of gas and transportation 23,265 10,029
Exploration 898 1,121
General and administrative 1,791 3,433
Interest and other 1,565 6,404
Litigation settlement (Note 10) - 4,400
Depletion, depreciation and amortization 19,391 19,986
-------- ---------
Income (loss) before taxes and minority interest 4,603 (6,461)
-------- ---------
Provision for income taxes (Note 7)
Current 25 25
Deferred - (591)
-------- ---------
25 (566)
-------- ---------
Minority interest (Note 2) - (86)
-------- ---------
Net income (loss) $ 4,578 $ (5,981)
======== =========
Net income (loss) per common share (Note 6) $ .08 $ (.25)
======== =========
Weighted average common shares outstanding (Note 6) 23,307 30,035
======== =========
<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, 1993 2,221 $ 22 23,260 $ 233 $ 249,713 $ 25,308
Common stock grants and
exercise of options - - 414 4 2,851 -
Conversion of preferred
to common (1,186) (12) 6,535 65 (53) -
Issuance of warrants - - - - 3,450 -
Dividends - - - - - (16,721)
Net income - - - - - 12,372
-------- -------- -------- -------- ---------- ---------
Balance, December 31, 1994 1,035 10 30,209 302 255,961 20,959
Common stock grants and
exercise of options - - 43 1 91 -
Dvidends - - - - - (3,510)
Net loss - - - - - (5,981)
-------- -------- -------- -------- ---------- ---------
Balance, March 31, 1995
(Unaudited) 1,035 $ 10 30,252 $ 303 $ 256,052 $ 11,468
======== ======== ======== ======== ========== =========
<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)
Three Months Ended March 31,
----------------------------------
1994 1995
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(Unaudited)
Operating activities
Net income (loss) $ 4,578 $ (5,981)
Adjustments to reconcile net income to net cash
provided by operations
Gain on sales of properties (1,641) (732)
Exploration expense 898 1,121
Depletion, depreciation and amortization 19,391 19,986
Deferred taxes - (591)
Gain on sale of securities (1,158) (1,236)
Equity in losses 64 562
Amortization of deferred credits (861) (529)
Changes in operating assets and liabilities
Decrease (increase) in
Accounts receivable 8,771 (5,399)
Inventory and other (1,325) (1,234)
Increase (decrease) in
Accounts payable (671) (2,209)
Accrued liabilities (699) 4,825
Other liabilities (150) (39)
Other 63 49
---------- ----------
Net cash provided by operations 27,260 8,593
---------- ----------
Investing activities
Acquisition, development and exploration (55,351) (44,601)
Proceeds from investments 2,372 764
Outlays for investments (3,719) -
Sale of properties 1,848 1,530
---------- ---------
Net cash used by investing (54,850) (42,307)
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Financing activities
Issuance of common 404 43
Increase in indebtedness 26,100 31,008
Dividends (4,136) (3,510)
Deferred credits 2,673 1,748
Repurchase of common - (81)
---------- ----------
Net cash realized by financing 25,041 29,208
---------- ----------
Decrease in cash (2,549) (4,506)
Cash and equivalents, beginning of period 10,913 21,733
---------- ----------
Cash and equivalents, end of period $ 8,364 $ 17,227
========== ==========
<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. 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.
In 1994, the Company changed from the full cost to the successful
efforts method of accounting for its oil and gas properties, in order
to more accurately reflect its results as it continues to expand its
development and exploration efforts. Accordingly, the three months
ended March 31, 1994 statement of operations has been restated to
conform to successful efforts. The cumulative effect was to reduce
January 1, 1992, retained earnings by $9.5 million. For the 1992 and
1993 years previously reported, the effect of the accounting change
restatement, was to reduce net income by $6.0 million ($.27 per
share) and $6.1 million ($.26 per share), respectively. Under
successful efforts, oil and gas leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically on a
property-by-property basis and impairments in value are charged to
expense. Exploratory expenses, including geological and geophysical
expenses and delay rentals, are charged to expense as incurred.
Exploratory drilling costs, including stratigraphic test wells, are
initially capitalized, but charged to expense if and when the well is
determined to be unsuccessful. Costs of productive wells,
developmental dry holes and productive leases are capitalized and
amortized on a unit-of-production basis over the life of the
remaining proved or proved developed reserves, as applicable. Gas is
converted to equivalent barrels at the rate of 6 Mcf to 1 barrel.
Generally, amortization of capitalized costs is provided on a
property-by-property basis.
Generally, the Company provides an impairment reserve for
significant proved and unproved oil and gas property groups to the
extent that net capitalized costs exceed the undiscounted future
value. During the three months ended March 31, 1994, the Company
provided impairment reserves of $2.1 million.
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 decreased for dividends, if any
were received. The affiliate's functional currency is the Australian
dollar. The foreign currency translation adjustments reported in the
balance sheet are the result of the translation of the Australian
dollar balance sheet into United States dollars at the balance sheet
dates and changes in the exchange rate subsequent to purchase.
7
To a limited extent, the Company enters into commodities contracts
to hedge the price risk of a portion of its production. In 1994, the
Company entered into certain gas sales arrangements in order to lock
in the price differential between the Rocky Mountain and the NYMEX
Henry Hub prices to reduce exposure to the Rocky Mountain spot
prices. The contracts included 31,000 MMBtu per day (20,000 MMBtu
for a period of ten years and 11,000 MMBtu through July 1995). At
December 31, 1994 and March 31, 1995, the net present value of the
contracts was estimated to be $4.9 million and $5.0 million,
respectively, with no recorded carrying value.
All liquid investments with a maturity of three months or less are
considered to be cash equivalents. General and administrative
expenses are reduced by reimbursements for well operations, drilling,
management of partnerships and services provided to unconsolidated
affiliates. Reimbursements amounted to $5.4 million and $7.0
million, respectively, for the three months ended March 31, 1994 and
1995.
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 1994 annual report on Form 10-K.
(3) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
December 31, March 31,
1994 1995
-------------- -------------
(In thousands)
Revolving credit facility $ 216,001 $ 247,401
Other 50 50
------------ ------------
216,051 247,451
Less current portion (17) (17)
------------ ------------
Senior debt, net $ 216,034 $ 247,434
============ ============
Convertible subordinated notes, net $ 83,650 $ 83,752
============ ============
Capital lease 20,551 20,246
Less current portion (1,728) (1,917)
------------ -----------
Capital lease, net $ 18,823 $ 18,329
============ ===========
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 borrowing base available under
the facility at March 31, 1995 was $250 million. Subsequent to
quarter end, the borrowing base was increased to $270 million. In
August 1995, the borrowing base will be reduced to $260 million. The
majority of the borrowings under the facility currently bear interest
at LIBOR plus 1% with the remainder at prime, with an option to
select CD plus 1%. The margin on LIBOR or CD will decrease to .75%
if the Company's consolidated senior debt becomes less than 80% of
its tangible net worth. During the three months ended March 31,
1995, the average interest rate under the revolver was 7.1%. 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 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, over $100 million was available
for the payment of dividends and other restricted payments as of
March 31, 1995.
In May 1994, the Company issued $86.3 million of 7% convertible
subordinated notes due May 15, 2001. The net proceeds were $83.4
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. At March
31, 1995, the fair market value of the notes, based on their closing
price on the New York Stock Exchange, was $77.6 million.
8
In November 1994, the Company entered into an agreement with a
bank whereby the bank purchased the recently constructed West
Wattenberg Gas Plant from the Company for $21 million and leased it
back. The lease has a term of seven years and includes an option to
repurchase the plant at the end of the lease for $4.2 million. As a
capital lease, the asset and related debt are recorded on the balance
sheet of the Company. At March 31, 1995, the Company's future
minimum rentals under the lease were $23.1 million. At March 31,
1995, the present value of net minimum capital lease payments
recorded as a liability in the accompanying balance sheet was $20.2
million, of which $1.9 million was classified as current.
Scheduled maturities of indebtedness for the next five years are
$1.4 million for the remainder of 1995, $2.1 million in 1996, $2.2
million in 1997, $218.5 million in 1998 and $2.5 million in 1999.
The long-term portion of the revolving credit facility is scheduled
to expire in 1998; however, it is management's policy to renew the
facility and extend the maturity on a regular basis.
Cash payments for interest were $1.3 million and $4.0 million,
respectively, for the three months ended March 31, 1994 and 1995.
(4) INVESTMENTS
The Company has investments in foreign and domestic energy
companies and long term notes receivable, which at December 31, 1994
and March 31, 1995, had a book cost of $46.5 million and $45.8
million, respectively. The corresponding fair market values were
$48.2 million and $46.1 million at December 31, 1994 and March 31,
1995, respectively. In 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 stockholders' equity. The pronouncement does not apply
to investments accounted for by the equity method.
In May 1993, the Company acquired 42.8% of the outstanding shares
of Command Petroleum Limited ("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 45.4% interest in a publicly traded Netherlands
exploration and production company whose assets are located primarily
in the North Sea. In January 1994, Command completed an offering of
43 million of its common shares, and in February 1994 paid $1.1
million in cash and issued 2.5 million of its common shares in return
for an incremental interest in the Netherlands company. Additionally
in 1994, 51.9 million of stock options were exercised and 4.7 million
partly paid shares were issued. As a result of these transactions,
the Company's ownership in Command was reduced to 29.0% and a $3.1
million gain was recognized. In 1995, the Company acquired an
additional 4.7 million shares of Command common stock in exchange for
the Company's interest in the Fejaj Permit area in Tunisia and will
receive an additional 4.7 million shares if a commercial discovery is
made as the result of the initial 4,000 meter drilling commitment.
Depending on Command's success in locating farmout partners to drill
the first well on the concession, the Company has agreed to pay up to
$750,000 of the costs incurred by Command in drilling such well. As
a result of this transaction, the Company's ownership in Command was
increased to 30.0% and a $602,000 gain was recognized. The market
value of the Company's investment in Command based on Command's
closing price at March 31, 1995 was $27.0 million, compared to a cost
basis of $23.9 million.
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 in 1994. As a result, its equity basis investment was
reduced from 50% to 20.6% and a $3.5 million net gain was recorded.
The Russian investment had a cost and fair value at March 31, 1995 of
$3.0 million.
9
The Company has investments in securities of publicly traded
domestic energy companies, not accounted for by the equity method,
with a total cost at December 31, 1994 and March 31, 1995 of $15.4
million. The market value of these securities at December 31, 1994
and March 31, 1995 approximated $12.2 million and $12.6 million,
respectively. Accordingly, at December 31, 1994 and March 31, 1995,
investments were decreased by $3.2 million and $2.8 million,
stockholders' equity was decreased by $2.1 million and $1.7 million,
and deferred taxes payable were decreased by $1.1 million and $1.1
million, respectively, as required by SFAS No. 115.
The Company holds $3.5 million in long term notes receivable due
from privately held corporations. All notes are secured by certain
assets, including stock and oil and gas properties. At December 31,
1994 and March 31, 1995, 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.
(5) OIL AND GAS PROPERTIES AND GAS FACILITIES
The cost of oil and gas properties at December 31, 1994 and March
31, 1995 includes $23.7 million and $26.2 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:
Three
Year Ended Months Ended
December 31, March 31,
1994 1995
------------ -------------
Acquisition $ 70,255 $ 4,096
Development 156,912 27,496
Gas processing, transportation and other 46,607 2,519
Exploration 5,514 930
----------- -----------
$ 279,288 $ 35,041
=========== ===========
Development expenditures for the three months ended March 31,
1995 were concentrated primarily in the DJ Basin of Colorado, the
Green River Basin of southern Wyoming, the Giddings Field of
southeast Texas, the Uinta Basin of northeast Utah and the Piceance
Basin of western Colorado. A total of 54 wells were placed on
production in DJ Basin in the first quarter of 1995 with 17 in
progress at quarter end. In the Green River Basin of southern
Wyoming, 6 wells were placed on sales during the quarter. In the
horizontal drilling program in the Giddings Field of southeast Texas,
11 wells were placed on sales in the first quarter, with one in
progress at quarter end. The Uinta Basin development program in
northeast Utah is still in its early stages with 8 wells placed on
sales and one well abandoned in the first quarter. In the Piceance
Basin of western Colorado, 4 wells were placed on sales in the first
quarter.
During the three months ended March 31, 1995, the Company
expended $4.1 million for domestic acquisitions, of which $3.0
million was for acreage purchases in or around the Company's
operating hubs and $1.1 million for producing properties.
Acquisitions are accounted for utilizing the purchase method. The
pro forma effect of the acquisitions was not material to the
Company's results of operations.
10
(6)STOCKHOLDERS' EQUITY
A total of 75 million common shares, $.01 par value, are
authorized of which 30.3 million were issued at March 31, 1995. In
1994, the Company issued 6,949,000 shares, with 414,000 shares issued
primarily 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 6,535,000 shares issued on conversion of all
remaining shares of the 8% preferred. During the three months ended
March 31, 1995, the Company issued 43,000 shares primarily for the
exercise of stock options by employees (for which 6,000 shares were
received as consideration in lieu of cash and are held in treasury).
In 1994, the Company paid first and second quarter dividends at the
rate of $.06 per share and increased the rate to $.065 per share in
the third and fourth quarters. Dividends of $.065 per share were
paid for the three months ended March 31, 1995.
A total of 10 million preferred shares, $.01 par value, are
authorized. In December 1991, 1.2 million shares of 8% convertible
exchangeable preferred stock were sold through an underwriting. The
net proceeds were $57.4 million. In 1993, 14,000 of the preferred
shares were converted into 77,000 common shares. Effective December
31, 1994, the remaining 8% convertible preferred shares were
converted into 6,535,000 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 6% preferred stock were sold through an underwriting. The net
proceeds were $99.3 million. The stock is convertible into common
stock at $21.00 per share and is exchangeable at the option of the
Company for 6% convertible subordinated debentures on any dividend
payment date. The 6% convertible preferred 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 $10.8 million and $1.6
million, respectively, in preferred dividends during 1994 and the
three months ended March 31, 1995.
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 three 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. The majority of currently 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 March 31, 1995, a total of 1.9 million options were outstanding
at exercise prices of $6.00 to $20.13 per share. At March 31, 1995,
a total of 818,000 of such options were vested having exercise prices
of $6.00 to $19.25 per share. During 1994, 414,000 options were
exercised at prices of $4.53 to $13.00 per share, and 2,000 were
forfeited. During the three months ended March 31, 1995, 43,000
options were exercised at prices of $4.53 to $13.00 per share, and
65,000 were forfeited.
Earnings per share are computed by dividing net income, less
dividends on preferred stock, by average common shares outstanding.
Net income (loss) available to common for the three months ended
March 31, 1994 and 1995, was $1.8 million and ($7.5) million,
respectively. Differences between primary and fully diluted earnings
per share were insignificant for all periods presented.
11
(7)FEDERAL INCOME TAXES
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes," effective January 1, 1992. At March 31, 1995, 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 as they apply to the provision for 1994 and the benefit for 1995
follows:
Three Months Ended March 31,
1994 1995
------------ ----------
Federal statutory rate 35% (35%)
Utilization of net deferred tax (asset) liability (34%) 26%
------ ------
Effective income tax rate 1% (9%)
====== ======
At December 31, 1994, the Company had a net deferred tax
liability of $591,000. The effective tax rate for the three months
ended March 31, 1995, representing a nine percent benefit, results
from the recognition of tax benefit only to the extent of this
liability.
For tax purposes, the Company had net operating loss
carryforwards of $162.6 million at December 31, 1994. These
carryforwards expire between 1997 and 2009. At December 31, 1994,
the Company had alternative minimum tax credit carryforwards of $1.4
million and depletion carryforwards of $1.5 million, both of which
are available indefinitely. Current income taxes shown in the
financial statements reflect estimates of alternative minimum taxes.
(8) MAJOR CUSTOMERS
For the three months ended March 31, 1994 and 1995, no
purchaser accounted for more than 10% 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
$1.8 million was received. In early 1995, a second investor was
added and the limited partners committed to contribute an additional
$5.0 million of which $1.9 million was received in January 1995. As
a result, this transaction is anticipated to increase cash flow and
net income through 1996. 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 $861,000 and
$529,000 of this revenue during the three months ended March 31, 1994
and 1995, respectively.
(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 $1.8 million for the remainder
of 1995, $2.5 million for 1996 and 1997, $2.4 million for 1998, and
$2.0 million for 1999.
In 1993, the Company received a $5.1 million net settlement on
a gas contract dispute. Of the proceeds, $3.5 million was reflected
as other income in 1993, with $1.6 million reported as other income
in 1994.
12
In April 1995, the Company settled a lawsuit in Harris County,
Texas filed by certain landowners relating to certain alleged
problems at a Company well site. The Company recorded a charge of
$4.4 million during the first quarter to reflect the cost of the
settlement. A primary insurer honored its commitments in full and
participated in the settlement. The Company's excess carriers have
declined, to date, to honor indemnification for the loss. Based on
the advice of counsel, the Company plans to vigorously pursue the
non-participating carriers for the great majority of the cost of
settlement. However, given the time period which may be involved in
resolving the matter, the full amount of the settlement has been
provided for in the financial statements.
The financial statements reflect favorable legal proceedings
only upon receipt of cash, final judicial determination or execution
of a settlement agreement. In April 1993, the Company was granted a
$2.7 million judgment in litigation involving the allocation of
proceeds from a pipeline dispute. This 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.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Effective December 31, 1994, the Company changed its method of
accounting for oil and gas properties from the full cost method to
the successful efforts method. The change was applied retroactively
and prior periods presented have been restated. The following
discussions of operating results are based on those restated amounts.
Total revenues for the three months ended March 31, 1995 declined
16% to $53.0 million. The revenue decrease was primarily the result
of the Company's decision to suspend third party gas marketing until
the markets recover. However, oil and gas sales rose 15% to $37.6
million. The increase was due to a 29% increase in equivalent oil
and gas production offset by an 11% decrease in the average price
received per equivalent barrel. Net loss for the first quarter of
1995 was $6.0 million as compared to net income of $4.6 million for
the same period in 1994. In addition to the price decline, which
reduced current quarter revenues by $4.5 million, the decrease
resulted from increased expenses for general and administrative
costs, interest and a $4.4 million accrual related to a litigation
settlement. Net loss per common share dropped to $.25 compared to
net income of $.08 in 1994.
Average daily production in the first quarter of 1995 climbed to
12,836 barrels and 158 MMcf (39,174 barrels of oil equivalent),
increases of 10% and 40%, respectively. The production increases
resulted primarily from the Company's continued development program
in 1994 and, to a lesser extent, 1995. During first quarter 1995, an
additional 103 wells were placed on production with 25 wells in
various stages of drilling and completion at March 31, 1995. The
gross margin from production operations was $23.5, a 14% increase
over the prior year quarter. Average oil prices rebounded somewhat
to $16.40 per barrel compared to $12.02 received in the first quarter
of 1994. However, that increase was more than offset by a drastic
reduction in gas prices. The average gas price during the quarter
was only $1.31 per Mcf, a 34% decrease from the $1.98 received in
first quarter 1994. First quarter operating expenses per equivalent
barrel (including production taxes) decreased to $4.00 from $4.37 in
1994 as operating expenses were held to a 18% increase while
production rose by 26%.
The gross margin from gas processing, transportation and marketing
activities decreased by 3% to $3.5 million from $3.7 million in 1994.
The decrease is primarily attributable to the Company's decision to
suspend third party gas marketing until markets recover. This
resulted in a $335,000 decrease in margins. During the first
quarter, transportation throughput for the Wyoming Systems increased
to an average of 53.5 MMcf per day, up from 36.0 MMcf in first
quarter 1994. The growth was a direct result of development drilling
in the area. Both transportation and processing throughput in the DJ
Basin remained relatively stable in the first quarter as compared to
prior year. Although additional processing capacity was added in the
fourth quarter of 1994, significant processing volume increases have
not been realized. This is due primarily to industry wide drilling
cut backs in the DJ Basin attributed primarily to the low gas prices.
Subsequent to quarter end, the Company announced that it had signed
a letter of intent covering the sale of the recently constructed gas
processing plant on the west end of the Wattenberg area of the DJ
Basin along with certain related assets. The assets covered by the
agreement are part of the Wattenberg gas gathering and processing
facilities which had previously been disclosed as being offered for
sale.
Other income was $1.9 million in the first quarter of 1995
compared to $3.9 million in 1994. The decrease is primarily due to
$909,000 less in gains on sales of securities, $845,000 of gas
balancing proceeds received in 1994, and $490,000 more in equity
losses of international subsidiaries. These decreases were offset,
to a lesser extent, by $602,000 and $456,000, respectively, of gains
resulting from the sale of our Tunisia interest to Command and a
partial interest in our Mongolia venture.
G&A expenses, net of reimbursements, for first quarter 1995
represented 6.5% of revenues compared to 2.9% in 1994. The increase
is attributable to the decrease in gas processing, transportation and
marketing revenue which generally has a smaller percentage of G&A as
well as expense rising due to an increase in staffing related to
development projects taken on subsequent to the first quarter of
1994. The Company also recorded a $600,000 charge for future
severance costs related to the reduction in personnel.
14
Interest and other expense was $6.4 million compared to $1.6
million in the first three months of 1994. The majority of the
increase is the result of a rise in outstanding debt levels due to
capital expenditures, at higher average interest rates. The
litigation settlement of $4.4 million is the result of a lawsuit in
Harris County, Texas filed by certain landowners relating to certain
alleged problems at a Company well site that was settled in April
1995.
Depletion, depreciation and amortization expense for the first
quarter increased 3% from the same period in 1994. The increase,
excluding impairments recognized in the first quarter of 1994 of $2.1
million (versus none in 1995), was 16%. This increase is primarily
due to the increase in production as compared to 1994. The increase
due to increased production was offset by a lower depletion,
depreciation and amortization rate of $4.84 compared to $5.80 in
1994. The difference in rates is due primarily to the mix of
production shifting towards lower depletion, depreciation and
amortization rate properties.
Development, Acquisition and Exploration
During the three months ended March 31, 1995, the Company incurred
$35.0 million in capital expenditures; including $27.5 million for
oil and gas development, $4.1 million for acquisitions, $2.1 million
for gas facility expansion, $930,000 for exploration and $408,000 for
field and office equipment.
Of the total development expenditures, $7.8 was concentrated in
the DJ Basin of Colorado. A total of 54 wells were placed on
production there in the first quarter of 1995 with 17 in progress at
quarter end. There were no dry holes drilled in the first quarter.
The rate of drilling was lower than had been previously estimated as
a result of delays associated with permitting difficulties, the
impact of the declining gas prices and disappointing results on
certain outlying Wattenberg acreage, including part of the lands
under option from Union Pacific Resources. With the continued
declines in gas prices in the first quarter, the Company has reduced
its DJ Basin drilling plans for the remainder of 1995 to
approximately 50 wells.
The Company expended $19.7 million for other development and
recompletion projects during the three months ended March 31, 1995.
In the Green River Basin of southern Wyoming, 6 wells were placed on
sales with none in progress at quarter end. In the horizontal
drilling program in the Giddings Field of southeast Texas, 11 wells
were placed on sales in the first quarter, with one in progress at
quarter end. The Uinta Basin development program in northeast Utah
is still in its early stages with 8 wells placed on sales and one
well abandoned in the first quarter, with none in progress at quarter
end. In the Piceance Basin of western Colorado, 4 wells were placed
on sales, with none in progress at quarter end.
During the three months ended March 31, 1995, the Company expended
$4.1 million for domestic acquisitions, of which $3.0 million was for
acreage purchases in or around the Company's operating hubs and $1.1
million for producing properties. Although a number of potential
producing property acquisitions are under review, no individually
significant purchases were consummated during the first quarter.
The Company's gas gathering and processing facility operations
continue to grow with $2.1 million of capital expenditures in the
first quarter of 1995. The work was concentrated primarily in the
Wattenberg area of DJ Basin, the Piceance Basin in western Colorado
and the Washakie Basin in southern Wyoming. Subsequent to quarter
end, the Company announced that it has signed a letter of intent
covering the sale of certain assets associated with the Wattenberg
gas facilities.
Exploration costs for the three months ended March 31, 1995 were
$930,000, primarily for geological and other studies on the newly
acquired undeveloped acreage. Expenditures of $163,000 were incurred
on international projects. In Russia, commercial production began
late in 1994 with pipeline construction still in progress in the
southernmost field in the contract area. Three industry partners
committed $11.25 million to the joint venture to fully fund the
western participants' anticipated equity requirements, of which $8.5
million was received in 1994 and the remainder expected to be
received in the second quarter of 1995. 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 second half of 1995.
15
In Mongolia and Tunisia, seismic acquisition and processing
continues. In January 1995, agreements were reached whereby 100% of
the Tunisia project was sold to Command for stock and 10% of the
Mongolia properties were sold for cash at gains of $602,000 and
$456,000, respectively. In Tunisia, the gain recorded in the first
quarter could increase by up to $750,000 if a farm out on certain of
the acreage is completed. Additionally, an exploratory well is
planned and the Company will receive additional proceeds if reserves
are discovered. In Mongolia, the Company has a carried interest in
two exploratory wells.
Financial Condition and Capital Resources
At March 31, 1995, the Company had total assets of $690.7 million.
Total capitalization was $621.2 million, of which 42% was represented
by stockholder's equity, 40% by senior debt, 16% by subordinated debt
and the remainder by deferred taxes and other. During the three
months ended March 31, 1995, cash provided by operations was $8.6
million, a decrease of 68% compared to the same period in 1994. As
of March 31, 1995, commitments for capital expenditures totalled $5.6
million. The Company anticipates that 1995 expenditures for
development drilling and gas facilities will approximate $80 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, asset sales
proceeds and existing credit facilities. In addition, joint ventures
or future public and private offerings of debt or equity securities
may be utilized.
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 increased to $250 million in the fourth quarter of
1994. Subsequent to quarter end, the borrowing base was increased to
$270 million. In August 1995, the borrowing base will be reduced to
$260 million. The majority of the borrowings currently bear interest
at LIBOR plus 1% with the remainder at prime. The Company also has
the option to select CD plus 1%. The margin on LIBOR or CD loans
will decrease to .75% if the Company's consolidated senior debt
becomes less 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, more than $100 million was available for the payment of
dividends and other restricted payments as of March 31, 1995.
In early 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. On February 8, 1995, the exercise prices
were reset to $21.60 per share and their expiration extended one
year. One million of the warrants expire in February 1998 and the
other million expire in February 1999. 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 early 1995, the Company paid UPRC $400,000
for an extension of the time period to drill the commitment wells and
released a portion of the outlying acreage committed to the venture.
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 $1.8
million was received. In early 1995, a second investor was added and
the limited partners committed to contribute an additional $5.0
million. As a result, this transaction is anticipated to increase
cash flow and net income through 1996. 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
$861,000 and $529,000, respectively, of this revenue during the three
months ended March 31, 1994 and 1995.
16
The Company maintains a program to divest marginal properties and
assets which do not fit its long range plans. During the three
months ended March 31, 1994 and 1995, the Company received $1.8
million and $1.5 million, respectively, in proceeds from sales of
properties. In early 1995, the Company announced that it was
considering the sale of its Wattenberg gas facilities and certain
non-strategic assets to increase its financial flexibility. In April
1995, the Company announced that it had signed a letter of intent
covering the sale of the recently constructed gas processing plant on
the west end of the Wattenberg area along with certain related
assets, all of which are part of the Wattenberg gas facilities.
The Company believes that its capital resources are 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 1994 and 1995. Average gas prices prior
to 1994 exclude Mississippi gas production sold under a high price
contract. During 1993, the Company renegotiated the gas contract and
received a substantial payment. As of January 1994, the Company
still receives a higher than market price for the Mississippi 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
------
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 14.80 1.67 11.82
Quarterly
---------
1994
----
First $ 12.02 $ 1.98 $ 11.93
Second 15.55 1.65 12.20
Third 16.21 1.53 11.83
Fourth 15.30 1.56 11.39
1995
----
First $ 16.40 $ 1.31 $ 10.66
In March 1995, the Company received an average of $16.75 per
barrel and $1.21 per Mcf for its production.
17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
10.12 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 March 31, 1995.
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 (James H. Shonsey)
---------------------
James H. Shonsey, Vice President
March 10, 1995
19