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 June 30, 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 June 30, 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 [ ].
30,187,441 Common Shares were outstanding as of August 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, June 30,
1994 1995
-------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and equivalents $ 21,733 $ 20,211
Accounts receivable 37,055 39,371
Inventory and other 13,651 13,990
---------- ----------
72,439 73,572
---------- ---------
Investments (Note 4) 43,301 44,805
---------- ---------
Oil and gas properties, successful efforts method (Note 5) 680,215 727,746
Accumulated depletion, depreciation and amortization (207,976) (241,550)
--------- ---------
472,239 486,196
--------- ---------
Gas processing and transportation facilities (Note 5) 106,622 96,223
Accumulated depreciation (21,342) (28,429)
--------- ---------
85,280 67,794
--------- ---------
$673,259 $672,367
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 44,874 $ 46,867
Accrued liabilities 25,112 19,969
Current portion of long term debt (Note 3) 1,745 813
-------- ---------
71,731 67,649
-------- ---------
Senior debt, net (Notes 3) 216,034 229,418
Convertible subordinated notes (Note 3) 83,650 83,854
Capital lease, net (Note 3) 18,823 18,968
Deferred taxes and other (Note 7 and 9) 3,211 7,769
Minority interest 5,724 4,712
Commitments and contingencies (Note 10)
Stockholders' equity (Note 6)
Preferred stock, $.01 par, 10,000,000 shares authorized,
6% Convertible preferred stock, 1,035,000 shares
issued and outstanding 10 10
Common stock, $.01 par, 75,000,000 shares authorized,
30,209,197 and 30,320,726 issued 302 303
Capital in excess of par value 255,961 256,633
Retained earnings 20,959 8,479
Common stock held in treasury, 122,018 and 133,605 shares at cost (2,288) (2,450)
Foreign currency translation adjustment 1,222 (1,222)
Unrealized loss on investments (Note 4) (2,080) (1,756)
--------- ---------
274,086 259,997
--------- ---------
$673,259 $672,367
========= ==========
<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 Six Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1994 1995 1994 1995
------------ ------------ ------------ ------------
(Unaudited)
Revenues (Note 8)
Oil and gas sales $ 33,860 $ 38,806 $ 66,507 $ 76,407
Gas processing, transportation and marketing 28,075 11,412 54,998 24,978
Other 2,643 7,250 6,529 9,100
-------- --------- -------- ---------
64,578 57,468 128,034 110,485
-------- --------- -------- ---------
Expenses
Direct operating 12,073 15,612 24,016 29,717
Cost of gas and transportation 24,352 8,444 47,617 18,473
Exploration 1,546 937 2,444 2,058
General and administrative 2,086 3,236 3,877 6,669
Interest and other 2,669 7,906 4,234 14,310
Litigation settlement (Note 10) - - - 4,400
Depletion, depreciation and amortization 18,164 20,675 37,555 40,661
-------- --------- -------- ---------
Income (loss) before taxes and minority interes 3,688 658 8,291 (5,803)
-------- --------- -------- ---------
Provision for income taxes (Note 7)
Current 25 - 50 25
Deferred - - - (591)
-------- --------- -------- ---------
25 - 50 (566)
-------- --------- -------- ---------
Minority interest (Note 2) - (133) - (219)
-------- --------- -------- ---------
Net income (loss) $ 3,663 $ 525 $ 8,241 $ (5,456)
======== ========= ======== =========
Net income (loss) per common share (Note 6) $ .04 $ (.03) $ .12 $ (.28)
======== ========= ======== =========
Weighted average shares outstanding (Note 6) 23,381 30,155 23,344 30,109
======== ========= ======== =========
<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 - - 112 1 672 -
Dividends - - - - - (7,024)
Net loss - - - - - (5,456)
-------- -------- -------- -------- ---------- ---------
Balance, June 30, 1995
(Unaudited) 1,035 $ 10 30,321 $ 303 $ 256,633 $ 8,479
======== ======== ======== ======== ========== =========
<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)
Six Months Ended June 30,
----------------------------------
1994 1995
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(Unaudited)
Operating activities
Net income(loss) $ 8,241 $ (5,456)
Adjustments to reconcile net income to net cash
provided by operations
Gain on sales of properties (1,641) (1,830)
Exploration expense 2,444 1,993
Depletion, depreciation and amortization 37,555 40,661
Deferred taxes - (591)
Gain on sale of investments (2,017) (4,959)
Equity in (earnings) losses (669) 1,338
Amortization of deferred credits (1,632) (1,058)
Changes in operating assets and liabilities
Decrease (increase) in
Accounts receivable 10,276 (2,974)
Inventory and other (4,465) (339)
Increase (decrease) in
Accounts payable (1,899) 2,051
Accrued liabilities (402) 4,197
Other liabilities (150) (1,268)
Other 121 98
---------- ----------
Net cash provided by operations 45,762 31,863
---------- ----------
Investing activities
Acquisition, development and exploration (104,395) (66,433)
Proceeds from investments 4,456 2,467
Outlays for investments (7,313) -
Proceeds from sale of properties 1,818 21,679
---------- ---------
Net cash used by investing (105,434) (42,287)
---------- ---------
Financing activities
Issuance of common 696 413
Increase in indebtedness 69,938 13,733
Debt issuance costs (2,855) -
Dividends (8,277) (7,024)
Deferred credits 2,694 1,780
---------- ----------
Net cash realized by financing 62,196 8,902
---------- ----------
Decrease in cash 2,524 (1,522)
Cash and equivalents, beginning of period 10,913 21,733
---------- ----------
Cash and equivalents, end of period $ 13,437 $ 20,211
========== ==========
<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 and water disposal. 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. Affiliates in
which the Company owns less than 50% are accounted for under the
equity method.
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 June 30, 1994 and the six months
ended June 30, 1994 consolidated statements of operations have 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.
Amortization of capitalized costs is generally 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 six months ended June 30, 1994, the Company
provided impairment reserves of $3.5 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 June 30, 1995, the net present value
at 10% of the contracts was estimated to be $4.9 million and $4.7
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 $12.1 million and $17.1
million, respectively, for the six months ended June 30, 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, June 30,
1994 1995
-------------- ------------
(In thousands)
Revolving credit facility $ 216,001 $ 229,401
Other 50 34
------------ ------------
216,051 229,435
Less current portion (17) (17)
------------ ------------
Senior debt, net $ 216,034 $ 229,418
============ ============
Convertible subordinated notes, net $ 83,650 $ 83,854
=========== ============
Capital lease 20,551 19,764
Less current portion (1,728) (796)
------------ ------------
Capital lease, net $ 18,823 $ 18,968
============ ============
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 June 30, 1995 was $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 six months ended June 30, 1995,
the average interest rate under the revolver was 7.0%. 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, more than $100 million was available for the payment of
dividends and other restricted payments as of June 30, 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
June 30, 1995, the fair market value of the notes, based on their
closing price on the New York Stock Exchange, was $76.3 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. In June 1995, the Company sold the West
Wattenberg Gas Plant and certain related assets and relinquished
plant operations to the purchaser. In conjunction with the sale, the
lease will remain in effect until November 1995. At that time, the
lease will be paid with additional borrowings under the revolving
credit facility. As a result of the sale, the Company recorded a
gain of $565,000, net of accrued penalties associated with the lease
early termination.
Scheduled maturities of indebtedness for the next five years
are $813,000 for the remainder of 1995, $17,000 in 1996, zero in
1997, $248.4 million in 1998 and zero 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 $2.8 million and $11.7
million, respectively, for the six months ended June 30, 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 June 30, 1995, had a book cost of $46.5 million and $47.7
million, respectively. The corresponding fair market values were
$48.2 million and $45.3 million at December 31, 1994 and June 30,
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 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. 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 a publicly traded Netherlands exploration and
production company which was subsequently sold in the second quarter
of 1995. 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. 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 Company had retained the
obligation to pay up to $750,000 of the costs incurred by Command in
drilling the first well on the concession. Subsequent to quarter
end, however, Command successfully located farmout partners to drill
this first well which has relieved the Company from any future
commitment related to drilling such well. The market value of the
Company's investment in Command based on Command's closing price at
June 30, 1995 was $24.0 million, compared to a cost basis of $23.5
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.
In 1995, the three industry participants paid the final installments
of their contributions to the venture and as a result, the Company
recognized an additional gain of $1.1 million. The Russian
investment had a cost and fair value at June 30, 1995 of $4.5
million.
9
In late 1994, the Company formed a consortium to explore the
Tamtsag Basin of eastern Mongolia. In late 1994 and 1995, the
Company sold a portion of its investment to three industry
participants, one of which committed to fund the drilling of two
wells (the first well having been drilled in the second quarter and
found to be noncommercial, with the second well scheduled to be
drilled in the second half of 1995), one of which purchased its
interest for cash and a third participant who assigned its
exploration rights in the basin to the venture. Accordingly, the
Company's equity basis investment was reduced from 100% to 49% and
had a cost and fair value at June 30, 1995 of $1.8 million.
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 June 30, 1995 of $15.4
million and $15.0 million, respectively. The market value of these
securities at December 31, 1994 and June 30, 1995 approximated $12.2
million and $12.1 million, respectively. Accordingly, at December
31, 1994 and June 30, 1995, investments were decreased by $3.2
million and $2.9 million, stockholders' equity was decreased by $2.1
million and $1.8 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 $2.9 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 June 30, 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
June 30, 1995 includes $23.7 million and $26.4 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:
Six
Year Ended Months Ended
December 31, June 30,
1994 1995
------------ ------------
Acquisition $ 70,255 $ 6,386
Development 156,912 42,896
Gas processing, transportation and other 46,607 4,378
Exploration 5,514 2,177
----------- -----------
$ 279,288 $ 55,837
=========== ===========
Development expenditures for the six months ended June 30,
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 64 wells were placed on
production in DJ Basin in the first half of 1995 with seven in
progress at quarter end. In the Green River Basin of southern
Wyoming, 9 wells were placed on sales during the six months ended
June 30, 1995 with three in progress at quarter end. In the
horizontal drilling program in the Giddings Field of southeast Texas,
15 wells were placed on sales in the six months ended June 30, 1995,
with two in progress at quarter end. The Uinta Basin development
program in northeast Utah is still in its early stages with 10 wells
placed on sales and three wells abandoned in the first half of 1995.
In the Piceance Basin of western Colorado, 4 wells were placed on
sales with one in progress at quarter end.
During the six months ended June 30, 1995, the Company
expended $6.4 million for domestic acquisitions, of which $4.3
million was for acreage purchases in or around the Company's
operating hubs and $2.1 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
In June 1995, the Company sold its recently constructed gas
processing plant on the west end of the Wattenberg area of the DJ
Basin along with certain related assets for a sales price of $18.5
million. A net gain of $565,000 was recognized as a result of this
sale. The proforma effect of the disposition was not material to the
Company's results of operations. Subsequent to quarter end, the
Company announced that it had signed a letter of intent covering the
sale of substantially all of its remaining Wattenberg gas gathering
and processing facilities for $63.5 million.
(6) STOCKHOLDERS' EQUITY
A total of 75 million common shares, $.01 par value, are
authorized of which 30.3 million were issued at June 30, 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 six months ended
June 30, 1995, the Company issued 112,000 shares primarily for the
exercise of stock options by employees (for which 12,000 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 first and second quarters of 1995.
A total of 10 million preferred shares, $.01 par value, are
authorized. In 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 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 $3.1
million, respectively, in preferred dividends during 1994 and the six
months ended June 30, 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 June 30, 1995, a total of 1.8 million options were
outstanding at exercise prices of $6.00 to $20.13 per share. At June
30, 1995, a total of 779,000 of such options were vested having
exercise prices of $6.00 to $20.13 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 six months ended June 30, 1995,
112,000 options were exercised at prices of $4.53 to $13.00 per
share, and 139,000 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 six months ended June
30, 1994 and 1995, was $2.8 million and ($8.6) million, respectively.
Differences between primary and fully diluted earnings per share were
insignificant for all periods presented.
11
(7) FEDERAL INCOME TAXES
At June 30, 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:
<caption
Six Months Ended June 30,
-------------------------
1994 1995
-------- --------
Federal statutory rate 35% (35%)
Utilization of net deferred tax (asset) liability (34%) 26%
------ ------
Effective income tax rate 1% (9%)
====== ======
The effective tax rate for the six months ended June 30, 1995
was a benefit of nine percent. This benefit would have been greater
but was limited to the extent of the net deferred tax liability at
December 31, 1994 of $591,000.
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 six months ended June 30, 1994 and 1995, Amoco
Production Company accounted for approximately 12% and 10%,
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
$1.8 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 $2.0 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 $1.6 million
and $1.1 million of this revenue during the six months ended June 30,
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 $1.2 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 and additional $610,000 reported as
other income in second quarter 1994. The remainder was reflected as
a reserve for possible contingencies at June 30, 1994 and later in
the year reported as income.
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 was provided
for in the financial statements in the first quarter of 1995.
In June 1995, the Company recorded a receivable for $1.5
million as a net settlement of a dispute involving a gas processing
agreement. The settlement proceeds were received in July 1995.
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. On appeal, the appellate court
upheld the verdict but reduced the judgment to approximately $1.4
million. The judgment may be further 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 month and six month periods ended
June 30, 1995 declined to $57.5 million and $110.5 million,
respectively. The amounts represented decreases of 11% and 14% as
compared to the respective prior year periods. 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% for both periods to $38.8 million for the three months
ended June 30, 1995 and $76.4 million for the six months ended June
30, 1995. The increase was due to a 28% increase in equivalent oil
and gas production for both periods. The benefit of these increases
did not fully impact revenues as the average price received per
equivalent barrel dropped 10% for both periods to $10.95 and $10.81
for the three month and six month periods ended June 30, 1995. Net
income for the second quarter was $575,000 as compared to net income
of $3.7 million for the same period in 1994. The decrease was due
primarily to the price decline, which reduced current quarter
revenues by $4.4 million, increased general and administrative costs
and increased interest expense, partially offset by the continued
growth in production. Net loss per common share for the six months
ended June 30, 1995 was $.28 compared to net income of $.12 in 1994.
Average daily production in the second quarter of 1995 climbed
to 12,829 barrels and 157 MMcf (38,944 barrels of oil equivalent),
increases of 4% and 44%, respectively. The production increases
resulted primarily from the Company's continued development program
in 1994 and, to a lesser extent, 1995. During the first six months
of 1995, an additional 133 wells were placed on production with 13
wells in various stages of drilling and completion at June 30, 1995.
The gross margin from production operations was $23.2 million, a 6%
increase over the prior year quarter. Average oil prices rebounded
somewhat to $17.52 per barrel compared to $15.55 received in the
second quarter of 1995. However, that increase was more than offset
by a continued drastic reduction in gas prices. The average gas
price during the quarter was only $1.29 per Mcf, a 22% decrease from
the $1.65 received in second quarter 1994. Second quarter operating
expenses per equivalent barrel (including production taxes) remained
relatively stable at $4.41 compared to $4.35 for the second quarter
of 1994.
The gross margin from gas processing, transportation and
marketing activities decreased by 20% to $3.0 million from $3.7
million in the same quarter of 1994. The decrease is primarily
attributable to the Company's decision to suspend third party gas
marketing until markets recover and increased operating expenses
associated with additional processing capacity without a
proportionate increase in processing revenues. In June 1995, the
Company sold its recently constructed gas processing plant on the
west end of the Wattenberg area of the DJ Basin along with certain
related assets. As a result of the sale, the Company recorded a net
gain of $565,000. The assets included in the sale are part of the
Wattenberg gas gathering and processing facilities which had
previously been disclosed as being offered for sale. Subsequent to
quarter end, the Company announced that it had signed a letter of
intent covering the sale of substantially all of its remaining
Wattenberg gas gathering and processing facilities for $63.5 million.
During the second quarter, transportation throughput for the Wyoming
Systems increased to an average of 53.1 MMcf per day, up from 37.1
MMcf in second quarter 1994. The growth was a direct result of
development drilling in the area.
Other income was $7.3 million in the second quarter of 1995
compared to $2.6 million in 1994. The $7.3 million consists
primarily of $2.3 million from the Company's international
subsidiaries, $1.5 million as a result of a settlement of a dispute
involving a gas processing agreement, $1.5 million in gains on sales
of securities and $1.1 million in gains on property sales.
14
G&A expenses, net of reimbursements, for second quarter 1995
represented 5.8% of revenues compared to 3.2% for the same period 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 second quarter of 1994.
Interest and other expense was $7.9 million compared to $2.7
million in the three month period ended June 30, 1994. The majority
of the increase is the result of a rise in outstanding debt levels,
due to the increase in capital expenditure projects, at higher
average interest rates.
Depletion, depreciation and amortization expense for the
second quarter increased 14% from the same period in 1994. The
increase, excluding impairments recognized in the second quarter of
1994 of $1.4 million (versus none in 1995), was 19%. This increase
is primarily due to the 28% increase in production as compared to the
same period in 1994. The increase due to increased production was
offset by a lower depletion, depreciation and amortization rate of
$4.82 compared to $5.48 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 six months ended June 30, 1995, the Company
incurred $55.8 million in capital expenditures; including $42.9
million for oil and gas development, $6.4 million for acquisitions of
proved reserves and acreage, $3.1 million for gas facility expansion,
$2.2 million for exploration and $1.2 million for field and office
equipment.
Of the total development expenditures, $10.8 million was
concentrated in the DJ Basin of Colorado. A total of 64 wells were
placed on production there in the first half of 1995 with no dry
holes drilled and seven in progress at quarter end. With the
continued declines in gas prices in 1995, the Company has reduced its
DJ Basin drilling plans for the remainder of 1995 to approximately 37
wells.
The Company expended $32.1 million for other development and
recompletion projects during the six months ended June 30, 1995. In
the Green River Basin of southern Wyoming, 9 wells were placed on
sales with three in progress at quarter end. In the horizontal
drilling program in the Giddings Field of southeast Texas, 15 wells
were placed on sales, with two in progress at quarter end. The Uinta
Basin development program in northeast Utah is still in its early
stages with 10 wells placed on sales and three wells abandoned in the
first half of 1995, with none in progress at quarter end. In the
Piceance Basin of western Colorado, 4 wells were placed on sales,
with one in progress at quarter end.
During the six months ended June 30, 1995, the Company
expended $6.4 million for domestic acquisitions, of which $4.3
million was for acreage purchases in or around the Company's
operating hubs and $2.1 million for producing properties. Although
a number of potential producing property acquisitions are under
review, no individually significant purchases were consummated during
the first half of 1995.
The Company's gas gathering and processing facility operations
incurred $3.1 million of capital expenditures in the first half of
1995. The work was concentrated primarily in the Wattenberg area of
DJ Basin, the Piceance Basin in western Colorado, the Washakie Basin
in southern Wyoming and the Giddings Field in south Texas. In June
1995, the Company sold its recently constructed gas processing plant
on the west end of the Wattenberg area of the DJ Basin along with
certain related assets for a sales price of $18.5 million. A net
gain of $565,000 was recognized as a result of this sale.
Subsequent to quarter end, the Company announced that it had signed
a letter of intent covering the sale of substantially all of its
remaining Wattenberg gas gathering and processing facilities for
$63.5 million.
Exploration costs for the six months ended June 30, 1995 were
$2.2 million, primarily for geological and other studies on the newly
acquired undeveloped acreage. Expenditures of $123,000 were incurred
on international projects. In Russia, commercial production began in
mid 1994 with pipeline construction in the southernmost field in the
contract area now completed. Three industry partners committed
15
$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 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. The Company is also
exploring alternatives to the OPIC financing, including sales of
additional equity interests in the venture. In Mongolia and Tunisia,
seismic acquisition and processing continues. In 1995, agreements
were reached whereby 100% of the Tunisia project was sold to Command
for stock and 51% of the Mongolia properties were sold for a
combination of cash and property rights at gains of $602,000 and
$456,000, respectively. Subsequent to June 30, 1995, a farmout
agreement was reached by Command in Tunisia whereby the Company can
recognize an additional $750,000 gain in the third quarter 1995. The
Company will receive additional proceeds if commercial reserves are
discovered on the planned exploratory well.
Financial Condition and Capital Resources
At June 30, 1995, the Company had total assets of $672.4
million. Total capitalization was $600.0 million, of which 43% was
represented by stockholder's equity, 38% by senior debt, 14% by
subordinated debt and the remainder by deferred taxes and other.
During the six months ended June 30, 1995, net cash provided by
operations was $31.9 million, a decrease of 30% compared to the same
period in 1994. As of June 30, 1995, commitments for capital
expenditures totalled $5.0 million. The Company anticipates that
1995 expenditures for development drilling and gas facilities will
approximate $80 million to $100 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.
The Company maintains a $500 million revolving credit
facility. The 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 available
under the facility at June 30, 1995 was $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. 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 June 30, 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.
16
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 $1.6 million and $1.1 million, respectively, of this
revenue during the six months ended June 30, 1994 and 1995.
The Company maintains a program to divest marginal properties
and assets which do not fit its long range plans. During the six
months ended June 30, 1994 and 1995, the Company received $1.8
million and $21.7 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. Included
in the 1995 proceeds are $18.5 million of proceeds related to the
June 1995 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.
Subsequent to quarter end, the Company announced that it had signed
a letter of intent covering the sale of substantially all of its
remaining Wattenberg gas gathering and processing facilities for
$63.5 million.
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. In 1993, the Company renegotiated the gas contract and
received a substantial payment. 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.
17
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
Second 17.52 1.29 10.95
In June 1995, the Company received an average of $16.99 per
barrel and $1.42 per Mcf for its production.
18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
10.11.1 First Amendment dated as of May 1, 1995 to Fifth
Restated Credit Agreement.
10.11.2 Second Amendment dated as of June 30, 1995 to
Fifth Restated Credit Agreement.
10.12.1 Second Amendment dated June 30, 1995 to Facility
Agreement.
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 June 30, 1995.
19
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
August 10, 1995
20