UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------------------------
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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---------------------------------------------------------
Commission file number 1-10509
SNYDER OIL CORPORATION
- -----------------------------------------------------------------------
Delaware 75-2306158
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Main Street, Fort Worth, Texas 76102
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (817) 338-4043
--------------------
- --------------------------------------------------------------------------------
(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 .
33,335,005 Common Shares were outstanding as of November 4, 1998
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
SNYDER OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
------------- ------------
(In thousands)
ASSETS
Current assets
Cash and equivalents $ 6,322 $ 89,443
Accounts receivable 28,921 21,521
Inventory and other 3,216 2,911
---------- -----------
38,459 113,875
---------- -----------
Investments 34,273 143,066
---------- -----------
Oil and gas properties, successful efforts method 512,376 410,973
Accumulated depletion, depreciation and amortization (171,339) (136,669)
----------- -----------
341,037 274,304
---------- -----------
Gas facilities and other 25,166 21,317
Accumulated depreciation and amortization (8,971) (6,474)
----------- -----------
16,195 14,843
---------- -----------
$ 429,964 $ 546,088
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 27,749 $ 23,278
Accrued liabilities 49,557 34,271
---------- -----------
77,306 57,549
---------- -----------
Senior debt 1 1
Subordinated notes 173,751 173,635
Deferred taxes payable - 31,649
Other noncurrent liabilities 19,101 19,498
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par, 75,000,000 shares authorized,
36,041,893 and 35,696,213 shares issued 360 357
Capital in excess of par value 238,426 234,118
Retained earnings 25,620 44,390
Common stock held in treasury, 2,708,808 and 2,366,891 shares at cost (46,207) (40,461)
Unrealized gain or loss on investments (58,394) 25,352
----------- -----------
159,805 263,756
---------- -----------
$ 429,964 $ 546,088
========== ===========
The accompanying notes are an integral part of these statements.
2
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands except per share data)
Revenues
Oil and gas sales $ 32,636 $ 52,156 $ 100,039 $ 168,992
Gas transportation, processing and marketing 862 669 2,492 7,433
Gains on sales of equity interests in investees - (168) - 32,800
Gains on sales of properties 3,261 3,824 4,564 8,666
--------- --------- --------- ---------
36,759 56,481 107,095 217,891
--------- --------- --------- ---------
Expenses
Direct operating 10,586 13,127 28,374 39,651
Cost of gas and transportation 566 423 1,333 6,371
Exploration 24,674 7,212 35,192 12,602
General and administrative 3,927 5,178 12,233 15,990
Financing costs, net 3,596 7,579 9,265 20,648
Other (97) (61) (128) 1,673
(Gain) loss on sale of subsidiary interest - (10,000) - -
Depletion, depreciation and amortization 13,987 22,302 39,674 68,274
Property impairments - 4,500 - 5,125
--------- --------- --------- ---------
Income (loss) before income taxes, minority interest
and extraordinary item (20,480) 6,221 (18,848) 47,557
--------- --------- --------- ---------
Provision (benefit) for income taxes
Current - - - 500
Deferred (7,168) 1,898 (6,597) 13,387
--------- --------- --------- ---------
(7,168) 1,898 (6,597) 13,887
--------- --------- --------- ---------
Minority interest in subsidiaries - 690 - 4,119
--------- --------- --------- ---------
Income (loss) before extraordinary item (13,312) 3,633 (12,251) 29,551
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit of $1,533 - - - 2,848
--------- --------- --------- ---------
Net income (loss) (13,312) 3,633 (12,251) 26,703
Preferred dividends - 1,548 - 4,648
--------- --------- --------- ---------
Net income (loss) applicable to common $ (13,312) $ 2,085 $ (12,251) $ 22,055
========= ========= ========= =========
Income (loss) per common share before
extraordinary item $ (.40) $ .07 $ (.37) $ .83
========= ========= ========= =========
Net income (loss) per common share $ (.40) $ .07 $ (.37) $ .73
========= ========= ========= =========
Income (loss) per common share before
extraordinary item - assuming dilution $ (.40) $ .07 $ (.37) $ .82
========= ========= ========= =========
Net income (loss) per common
share - assuming dilution $ (.40) $ .07 $ (.37) $ .72
========= ========= ========= =========
Weighted average shares outstanding 33,461 29,504 33,443 30,121
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
3
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(Unaudited)
Total Unrealized Common Capital in
Stockholders' Gains on Stock Held Retained Excess of Common Preferred
Equity Investments in Treasury Earnings Par Value Stock Stock
---------- ----------- ----------- -------- ---------- ------- ---------
(In thousands) (1)
Balance, December 31, 1996 $294,668 $ 11,921 $ (3,510) $ 25,711 $ 260,221 $ 315 $ 10
Net income 32,617 - - 32,617 - - -
Other comprehensive income,
net of tax
Unrealized gain on investments 13,431 13,431 - - - - -
--------
Comprehensive income 46,048
--------
Issuance of 607,000 shares for
common stock grants and
exercise of stock options 2,957 - - - 2,951 6 -
Conversion of subordinated
notes into common shares 25 - - - 25 - -
Issuance of 530,000 shares held
in treasury 8,655 - 8,655 - - - -
Repurchase of 2,647,000 shares
of common (45,606) - (45,606) - - - -
Repurchase of 291,000 shares
of preferred (30,102) - - (1,049) (29,050) - (3)
Conversion of 743,000 shares of
preferred to 3,632,000 shares
of common - - - - (29) 36 (7)
Dividends (12,889) - - (12,889) - - -
-------- -------- -------- -------- -------- ------- -------
Balance, December 31, 1997 263,756 25,352 (40,461) 44,390 234,118 357 -
Net loss (12,251) - - (12,251) - - -
Other comprehensive loss,
net of tax
Unrealized loss on investments (70,716) (70,716) - - - - -
Deferred tax valuation allowance (13,030) (13,030)
--------
Comprehensive loss (95,997)
--------
Issuance of 345,680 shares for
common stock grants and
exercise of stock options 4,311 - - - 4,308 3 -
Repurchase of 341,917 shares
of common (5,746) - (5,746) - - - -
Dividends (6,519) - - (6,519) - - -
-------- -------- -------- -------- -------- ------- -------
Balance, September 30, 1998 $159,805 $(58,394) $(46,207) $ 25,620 $238,426 $ 360 $ -
======== ======== ======== ======== ======== ======= =======
(1) Represents total accumulated other comprehensive income.
The accompanying notes are an integral part of these statements.
4
SNYDER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-----------------------------------
1998 1997
----------- -----------
(In thousands)
Operating activities
Net income (loss) $ (12,251) $ 26,703
Adjustments to reconcile net income to net
cash provided by operations
Gains on sales of equity interests in investees - (32,800)
Gains on sales of properties (4,564) (8,666)
Equity in earnings of investees - (549)
Exploration expense 35,192 12,602
Loss on sale of subsidiary interest - -
Depletion, depreciation and amortization 39,674 68,274
Property impairments - 5,125
Amortization of discount on subordinated notes 108 -
Deferred taxes (6,597) 11,854
Minority interest in subsidiaries - 4,119
Loss on early extinguishment of debt - 4,381
Changes in current and other assets and liabilities
Decrease (increase) in
Accounts receivable (3,400) 21,371
Inventory and other (952) 587
Increase (decrease) in
Accounts payable 4,471 (4,192)
Accrued liabilities 4,253 (1,414)
Other liabilities (425) (3,054)
----------- -----------
Net cash provided by operations 55,509 104,341
----------- -----------
Investing activities
Acquisition, exploration and development (131,647) (104,832)
Proceeds from sales of investments - 39,221
Proceeds from sales of properties 324 10,634
----------- -----------
Net cash used by investing (131,323) (54,977)
----------- -----------
Financing activities
Issuance of common 4,311 2,140
Issuance of subordinated notes - 168,261
Decrease in indebtedness - (89,796)
Early extinguishment of convertible subordinated notes - (85,199)
Dividends (6,519) (10,461)
Repurchase of stock (5,099) (39,363)
----------- -----------
Net cash used by financing (7,307) (54,418)
------------ -----------
Decrease in cash (83,121) (5,054)
Cash and equivalents, beginning of period 89,443 27,922
----------- -----------
Cash and equivalents, end of period $ 6,322 $ 22,868
=========== ===========
Noncash investing and financing activities
Exchange of Company stock to retire notes receivable $ 647 $ -
Acquisition of properties and stock via stock issuances - 8,655
Exchange of subsidiary stock for stock of investee - 30,923
The accompanying notes are an integral part of these statements.
5
SNYDER OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
These unaudited financial statements have been prepared by Snyder Oil
Corporation (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. Certain amounts in the prior periods' consolidated
financial statements have been reclassified to conform with current
classification. These financial statements should be read in conjunction with
the financial statements and the summary of significant accounting policies and
notes thereto included in the Company's most recent Annual Report on Form 10-K.
In October 1997, the Company sold its 74 percent interest in Patina Oil
and Gas Corporation ("Patina"). Net proceeds from the sale were approximately
$127 million resulting in a $2.8 million gain, net of tax. For informational and
comparative purposes, the following table represents the Company's condensed
income statements, excluding Patina for 1997. Future results may differ
substantially from these condensed statements due to changes in oil and gas
prices, production declines and other factors. Therefore, such statements cannot
be considered indicative of future operations.
6
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- --------- --------- --------
(In thousands, except per share and production data)
Revenues
Oil and gas sales $ 32,636 $ 30,904 $ 100,039 $ 95,627
Other 4,123 4,325 7,056 48,899
-------- --------- --------- --------
36,759 35,229 107,095 144,526
Expenses
Direct operating 10,586 8,942 28,374 26,144
Exploration 24,674 7,154 35,192 12,482
General and administrative 3,927 3,992 12,233 12,193
Financing costs, net 3,596 3,591 9,265 8,175
Other 469 813 1,205 8,722
Loss on sale of subsidiary interest - (10,000) - -
Depletion, depreciation and amortization 13,987 10,815 39,674 32,011
Property impairments - 4,500 - 5,125
-------- --------- --------- --------
Income (loss) before income taxes, minority interest
and extraordinary item (20,480) 5,422 (18,848) 39,674
Provision (benefit) for income taxes (7,168) 1,898 (6,597) 13,887
Minority interest - 1 - 616
Extraordinary item - - - 2,848
-------- --------- --------- --------
Net income (loss) $(13,312) $ 3,523 $ (12,251) $ 22,323
======== ========= ========= ========
Net income (loss) per common share $ (.40) $ .07 $ (.37) $ .59
======== ========= ========= ========
Weighted average shares outstanding 33,461 29,504 33,443 30,121
======== ========= ========= ========
Daily oil production (Bbls) 5,358 5,596 5,301 5,724
Daily gas production (Mcf) 158,865 119,499 151,004 110,056
(2) INVESTMENTS
The Company holds marketable securities of two foreign energy companies
accounted for using the cost method. The Company follows Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities," which requires that such investments be adjusted
to their fair value with a corresponding increase or decrease to stockholders'
equity. The following table sets forth the book/fair values and carrying costs
of these investments (in thousands):
September 30, 1998 December 31, 1997
---------------------------- ----------------------------
Book/Fair Carrying Book/Fair Carrying
Value Cost Value Cost
----------- ----------- ----------- -----------
Cairn $ 26,028 $ 73,140 $ 96,062 $ 73,140
SOCI plc 8,245 30,923 47,004 30,923
----------- ----------- ----------- -----------
$ 34,273 $ 104,063 $ 143,066 $ 104,063
=========== =========== =========== ===========
7
Cairn
In November 1996, the Company exchanged its interest in Command
Petroleum Ltd. for 16.2 million shares of freely marketable common stock of
Cairn, an international independent oil company based in Edinburgh, Scotland
whose shares are listed on the London Stock Exchange. In the first quarter of
1997, the Company sold 4.5 million shares at an average price of $8.81 per share
realizing $39.2 million in proceeds resulting in a gain of $13.0 million. In
accordance with SFAS 115, at September 30, 1998, investments were decreased by
$47.1 million in gross unrealized holding losses, stockholders' equity was
decreased by $30.6 million and deferred taxes payable was decreased by $16.5
million. At December 31, 1997, investments were increased by $22.9 million in
gross unrealized holding gains, stockholders' equity was increased by $14.9
million and deferred taxes payable was increased by $8.0 million.
SOCI plc
In May 1997, a newly formed entity, SOCI plc, completed an initial
public offering of its shares on the London Stock Exchange. Simultaneously with
the offering, the Company exchanged its shares of SOCO International Operations,
Inc., which included the Company's interests in projects in Russia, Mongolia and
Thailand, for 7.8 million shares (15.9 percent of the total) of SOCI plc. The
offering raised approximately $75 million of new equity capital for SOCI plc to
fund its ongoing projects. The Company recognized a gain of $19.8 million as a
result of this exchange and is restricted from selling its shares until May
1999. In accordance with SFAS 115, at September 30, 1998, investments were
decreased by $22.7 million in gross unrealized holding losses, stockholders'
equity was decreased by $14.7 million and deferred taxes payable was decreased
by $7.9 million. At December 31, 1997, investments were increased by $16.1
million in gross unrealized holding gains, stockholders' equity was increased by
$10.5 million and deferred taxes payable was increased by $5.6 million.
Notes Receivable
The Company held notes receivable due from a director at December 31,
1997, which originated in connection with an option to purchase ten percent of
the Company's international affiliates due April 10, 1998. In March 1998, the
director tendered 31,000 shares of Company common stock to retire the notes.
(3) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Comprehensive income includes net income and other comprehensive income, which
includes, but is not limited to, unrealized gains for marketable securities and
future contracts, foreign currency translation adjustments and minimum pension
liability adjustments. The accompanying consolidated financial statements for
the Company reflect other comprehensive income consisting of unrealized gains or
losses for marketable securities. SFAS 130 did not have any effect on the
Company's financial condition or operations.
8
(4) EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which
prescribes standards for computing and presenting earnings per share and
supersedes APB Opinion No. 15, "Earnings per Share." In accordance with SFAS
128, income applicable to common has been calculated based on the weighted
average shares outstanding during the year and income applicable to
common-assuming dilution has been calculated assuming the exercise or conversion
of all dilutive securities as of January 1, 1998 and 1997, or as of the date of
issuance if later. The following table illustrates the calculation of earnings
per share for income from continuing operations.
Income Shares Per-Share
----------- ----------- ---------
For the Three Months Ended September 30, 1998
---------------------------------------------
Loss applicable to common shareholders $ (13,312) 33,461 $ (.40)
=========== ===========
For the Three Months Ended September 30, 1997
---------------------------------------------
Income before extraordinary item $ 3,633
Preferred dividends (1,548)
-----------
Income before extraordinary item
available to common shareholders 2,085 29,504 $ .07
Effect of dilutive securities
Stock options - 713
----------- -----------
Income before extraordinary item
applicable to common-assuming dilution $ 2,085 30,217 $ .07
=========== ===========
9
Income Shares Per-Share
------------ ----------- ---------
For the Nine Months Ended September 30, 1998
--------------------------------------------
Loss applicable to common shareholders $ (12,251) 33,443 $ (.37)
=========== ===========
For the Nine Months Ended September 30, 1997
--------------------------------------------
Income before extraordinary item $ 29,551
Preferred dividends (4,648)
-----------
Income before extraordinary item
available to common shareholders 24,903 30,121 $ .83
Effect of dilutive securities
Stock options - 345
----------- -----------
Income before extraordinary item
applicable to common-assuming dilution $ 24,903 30,466 $ .82
=========== ===========
As of September 30, 1998, the only potentially dilutive securities
outstanding were stock options that have yet to be exercised.
(5) COMMITMENTS AND CONTINGENCIES
The Company rents offices at various locations under noncancelable
operating leases. Minimum future payments under such leases approximate $878,000
for the remainder of 1998, $3.5 million for 1999, $3.5 million for 2000, $2.6
million for 2001 and $1.0 million for 2002.
In September 1996, the Company and other interest owners in a lease in
southern Texas were sued by the royalty owners in Texas State court in Brooks
County, Texas. The Company's net working interest in the lease is approximately
20 percent. The complaint alleges, among other things, that the defendants have
failed to pay proper royalties under the lease, have unlawfully commingled
production with production from other leases and have breached their duties to
reasonably develop the lease. The plaintiffs also claim damages for fraud,
commingling, trespass and similar matters, and demand actual and punitive
damages. Although the complaint does not specify the amount of damages claimed,
plaintiffs have submitted calculations showing total damages against all owners
in excess of $100 million. The Company and the other interest owners have filed
an answer denying the claims and intend to contest the suit vigorously. Activity
in the case has been stayed pending resolution of a variety of administrative
motions in the matter.
At this time, the Company is unable to estimate the range of potential
loss, if any, from the foregoing uncertainty. However, the Company believes that
resolution should not have a material adverse effect on the Company's financial
position, although an unfavorable outcome in any reporting period could have a
material impact on the Company's results of operations for that period.
The Company and its subsidiaries and affiliates are named defendants in
lawsuits and involved from time to time in governmental proceedings, all arising
in the ordinary course of business. Although the outcome of these lawsuits and
proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position of the
Company.
The Company's operations are affected by political developments and
federal and state laws and regulations. Oil and gas industry legislation and
administrative regulations are periodically changed for a variety of political,
10
economic and other reasons. Numerous departments and agencies, federal, state,
local and Indian, issue rules and regulations binding on the oil and gas
industry, some of which carry substantial penalties for failure to comply. The
regulatory burden on the oil and gas industry increases the Company's cost of
doing business, decreases flexibility in the timing of operations and may
adversely affect the economics of capital projects.
The financial statements reflect favorable legal proceedings only upon
receipt of cash, final judicial determination or execution of a settlement
agreement. 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.
(6) RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," was released. The statement requires disclosure of certain
information about operating segments and geographic areas of operation. SFAS 131
will be adopted in the December 31, 1998 financial statements and will not have
any effect on the Company's financial condition or operations.
In June 1998, Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities,"
was released. The statement establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that derivatives be
recognized as assets or liabilities and measured at their fair value. SFAS 133
will be adopted in 2000 and is not expected to have a material effect on the
Company's financial condition or operations.
(7) FEDERAL INCOME TAXES
The Company has a deferred tax liability from operations of $11.4
million at September 30, 1998. The unrealized loss reflected in comprehensive
income associated with the investments in marketable securities (see Note 2)
generated a tax benefit of $24.4 million and a valuation allowance of $13.0
million. The valuation allowance is a result of the unrealized nature of the
loss.
(8) OTHER
The Company completed a non-cash acquisition in the second quarter of
1998. The Company acquired 75 percent of Amoco Production Company's ("Amoco")
interest in the Beaver Creek Unit and two associated gas plants in the Wind
River Basin in Wyoming in exchange for the Jonah Field portion of the Company's
properties in the Deep Green River Basin project in Wyoming. Under terms of the
agreement, effective January 1, 1998, SOCO also received Amoco's interest in the
Deep Green River project outside the Jonah Field area and retains the deep
rights in Jonah beneath the Mesa Verde horizon at about 12,250 feet.
During the third quarter of 1998, the Company exchanged its interest in
the Cage Ranch Field in South Texas for CIG Exploration's interest in certain
producing and non-producing properties in the Washakie Basin of Wyoming. The
Company will receive $1.5 million, net, in cash as part of the exchange.
Exploration expense of $24.7 million for the third quarter includes
four unsuccessful tests totaling $16.8 million and $6.6 million for seismic
acquisitions.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Snyder Oil Corporation (the "Company") is engaged in the production,
development, acquisition and exploration of domestic oil and gas properties,
primarily in the Gulf of Mexico, the Rocky Mountains and North Louisiana. The
Company also has investments in two international exploration and production
companies, SOCO International plc ("SOCI plc") and Cairn Energy plc ("Cairn"),
both listed on the London Stock Exchange.
In October 1997, the Company sold its 74 percent interest in Patina Oil
and Gas Corporation ("Patina"). Net proceeds from the sale were approximately
$127 million resulting in a $2.8 million gain, net of tax.
Excluding Patina, production was up 25 percent in the third quarter
compared to the third quarter of 1997. Offshore production was hampered by two
hurricanes in the third quarter causing the Company's significant Gulf of Mexico
wells to be shut-in for much of September. However, even with the impact of the
hurricanes, production was up slightly from the second quarter of 1998
reflecting the balanced growth in our three core areas. The exchange during the
third quarter of non-strategic properties in South Texas will expand a
significant core operating area in the Rockies.
Third quarter exploration expense includes charges for two unsuccessful
tests in the Gulf of Mexico. However, the Company has been successful on five of
eight tests drilled in the Gulf year to date, and overall finding and
development costs for the year are still expected to be approximately five
dollars per barrel.
Financial Performance
The Company reported a net loss in the third quarter of $13.3 million
or ($.40) per share compared to net income for the 1997 quarter of $3.6 million
or $.07 per share. Excluding gains on sales of properties, the 1998 quarter
resulted in a net loss of $15.4 million compared to a net loss applicable to
common of $6.9 million in the 1997 quarter, excluding Patina, gains on sales of
equity interests in investees, gains on sales of properties, gain on sale of
subsidiary interest, and minority interest. The nine month period reported a net
loss of $12.3 million compared to net income applicable to common of $22.1
million in 1997. Excluding Patina and the same one time adjustments, the net
loss was $15.2 million for the 1998 nine month period and $5.8 million
applicable to common in the 1997 period. Higher exploration expense and 39
percent lower oil prices offset the 37 percent increase in gas production for
the comparable nine month periods, excluding Patina.
Net cash provided by operating activities decreased to $55.5 million
during the nine months ended September 30, 1998, as compared to $104.3 million
during the same period in 1997. This decrease is attributed to the sale of
Patina, which accounted for $44.3 million of last year's cash flow.
12
Results of Operations
Oil and Gas Production
The following tables reflect activities for the Company's oil and gas
properties for the three months and nine months ended September 30, 1998 and
1997. Two columns are provided for 1997 to show the effect of the October 1997
disposition of Patina. The discussion following the tables will concentrate on
differences between 1998 and 1997, excluding Patina.
Three Months Ended September 30,
-----------------------------------------------------
1997
Excluding
1998 Patina 1997
------------- ------------- -------------
(In thousands, except production, average
price and cost data)
Oil and gas sales $ 32,636 $ 30,904 $ 52,156
Direct operating costs (10,586) (8,942) (13,127)
-------------- -------------- --------------
Production margin $ 22,050 $ 21,962 $ 39,029
============= ============= =============
Average daily production:
Oil (Bbls) 5,358 5,596 10,542
Gas (Mcf) 158,865 119,499 190,942
Average oil price (per Bbl) $ 10.31 $ 17.57 $ 18.09
Average gas price (per Mcf) 1.89 1.99 1.97
Direct operating costs (per BOE):
Lease operating $ 2.76 $ 2.81 $ 2.40
Production taxes .62 .74 .81
Workovers .23 .26 .16
------------- ------------- -------------
Total direct operating costs $ 3.61 $ 3.81 $ 3.37
============= ============= =============
Depletion, depreciation and amortization $ 4.78 $ 4.61 $ 5.72
============= ============= =============
13
Nine Months Ended September 30,
-----------------------------------------------------
1997
Excluding
1998 Patina 1997
------------- ------------- -------------
(In thousands, except production, average
price and cost data)
Oil and gas sales $ 100,039 $ 95,627 $ 168,992
Direct operating costs (28,374) (26,144) (39,651)
------------- ------------- -------------
Production margin $ 71,665 $ 69,483 $ 129,341
============= ============= =============
Average daily production:
Oil (Bbls) 5,301 5,724 10,999
Gas (Mcf) 151,004 110,056 184,271
Average oil price (per Bbl) $ 11.46 $ 18.67 $ 19.21
Average gas price (per Mcf) 2.02 2.21 2.21
Direct operating costs (per BOE):
Lease operating $ 2.59 $ 2.90 $ 2.43
Production taxes .67 .82 .90
Workovers .16 .26 .15
------------- ------------- -------------
Total direct operating costs $ 3.42 $ 3.98 $ 3.48
============= ============= =============
Depletion, depreciation and amortization $ 4.77 $ 4.86 $ 6.00
============= ============= =============
An increase in gas production partially offset by a decline in oil
prices drove oil and gas sales up in both the three and nine months ended
September 30, 1998. Increased gas production, primarily from the Gulf of Mexico,
is attributed to the installation of a production platform at Main Pass 261,
which began production at the end of March 1998, and development drilling in the
Gulf of Mexico. Also, production from the Rocky Mountain Region continues to
experience steady growth from an active development program. The decline in oil
production reflects the delay of workovers and drilling where feasible on oil
projects in light of low oil prices.
Gas prices received at the wellhead during the three and nine months
ended September 30, 1998 were $1.72 and $1.87 per Mcf, respectively, with
downstream activities adding $.17 and $.15 per Mcf to the reported prices. These
compare to $1.88 and $2.13 per Mcf at the wellhead and $.11 and $.08 per Mcf
from downstream activities for the same periods in 1997. Oil prices received at
the wellhead during the three and nine months ended September 30, 1998 were
$10.31 and $11.46 per Bbl, respectively, with no downstream activities. These
compare to $17.05 and $18.14 per Bbl at the wellhead and $.52 and $.53 per Bbl
from downstream activities for the same periods in 1997.
Direct Operating Costs
Direct operating costs decreased $.20 and $.56 per BOE for the three
and nine months ended September 30, 1998 due to ongoing cost cutting efforts,
lower workover costs and the absence of production taxes on the growing
production in the Gulf of Mexico.
14
Depletion, Depreciation and Amortization
DD&A expense for the three and nine months ended September 30, 1998
increased by $3.2 million and $7.7 million from the same periods in 1997 due to
the significant increase in production. DD&A per BOE increased $.17 from the
three months ended September 30, 1997 and decreased $.09 from the nine months
ended September 30, 1997 to the same periods in 1998, respectively, reflecting
changes in the production mix between the Gulf of Mexico and Rocky Mountains.
Non-Recurring Gains and Losses
Non-recurring gains and losses added approximately $36.3 million to
income before taxes, minority interest and extraordinary item in the first nine
months of 1997 and $4.6 million for the 1998 period. Gains on sales of equity
interests in investees during the nine months ended September 30, 1997 included
a $13.0 million gain on the sale of Cairn stock and a $19.8 million gain related
to the initial public offering of SOCI plc. Gains on sales of properties
recorded during the nine months ended September 30, 1997 included a $2.1 million
gain in the first quarter on the sale of an offshore block in the Gulf of
Mexico, a $2.2 million gain in the second quarter on the sale of the Company's
Santa Fe Springs Unit in California, and a $3.0 million gain in the third
quarter on a swap of an offshore property in the Gulf of Mexico. None of these
properties were included in the Company's long-term strategic plans. For the
first nine months of 1998, gains on sales of properties included a $3.1 million
gain from the exchange of non-strategic South Texas properties for the expansion
of a core area in the Rocky Mountains.
Exploration Expense
Exploration expense of $24.7 million for the 1998 quarter represents an
increase from the 1997 quarter's expense of $7.2 million. Exploration expense
for the nine months ended September 30, 1998 was $35.2 million compared to $12.5
million in 1997. The 1998 periods included $19.5 million for three dry holes in
the Gulf of Mexico and increased expenditures for the purchase and evaluation of
3-D seismic which support our exploration efforts in the Gulf of Mexico and
North Louisiana. This reflects the change in focus from primarily exploitation
projects to a more balanced approach through exploitation and exploration.
General and Administrative Expenses
General and administrative expenses, net of reimbursements, for the
three and nine months ended September 30, 1998 were relatively consistent with
the same periods in 1997 at $3.9 million and $12.2 million, respectively.
Financing Costs
Interest expense, net of interest income, was $3.6 million and $9.3
million for the three and nine months ended September 30, 1998, respectively,
compared to $3.6 million and $8.2 million for the same periods in 1997. The
increase in the year to date amount is a result of the higher principal balance
and effective interest rate from the subordinated notes issued in June 1997,
offset partially by higher interest income. Interest income for the three and
nine months ending September 30, 1998 was $290,000 and $2.3 million compared to
$266,000 and $961,000 for the same periods in 1997, as the Company had a higher
average cash balance due to the proceeds from the disposition of Patina.
Minority Interest in Subsidiaries
Minority interest recognized during 1997 related to the ten percent
of SOCO International, Inc. which was owned by a director of the Company and the
minority share of Patina. In May 1997, SOCO International, Inc. exchanged its 90
15
percent ownership in SOCO International Operations, Inc. for shares of SOCO
International plc. The Company's investment in SOCO International plc is
accounted for on the cost basis. In July 1997, SOCO International, Inc. acquired
the director's ten percent ownership of SOCO International Holdings, Inc. for
shares of common stock of the Company. The Company's investment in Patina was
sold in the fourth quarter of 1997.
Extraordinary Items
The extraordinary item recorded in the second quarter of 1997 related
to the early extinguishment of the Company's convertible subordinated notes.
Capital Expenditures
Exploration and Development Activities
During the first nine months of 1998, the Company incurred $123.5
million on exploration and development activities while placing 55 operated
wells on production with 25 in progress at quarter end. In the Gulf of Mexico,
development activity included $10.3 million to complete the installation of a
production platform at Main Pass 261. An additional $8.7 million was incurred
for one development well. Exploration activities included $25.3 million for five
exploration successes and $19.5 million for three unsuccessful tests.
Additionally, $6.4 million was incurred for 3-D seismic acquisition and
evaluation.
The Company continued its successful drilling program in the Rockies.
Expenditures for the nine months ended September 30, 1998 totaled $37.2 million
to place 48 development wells on production with 16 wells in progress at quarter
end. One exploration well was successful totaling $552,000 and one unsuccessful
test totaled $560,000. Three exploration wells are in progress at quarter end.
Additional exploration expense of $2.0 million was incurred for 3-D seismic
acquisition and evaluation.
The Company spent $6.9 million in North Louisiana with three
development wells in progress at quarter end from which results are anticipated
in the fourth quarter of 1998. An additional $6.8 million of exploration expense
was incurred for additional acquisition and evaluation of 3-D seismic in the
area with one exploratory dry hole and one exploration well in progress at
quarter end.
Acquisitions
During the nine months ended September 30, 1998, the Company spent
$16.2 million to acquire producing properties and $6.0 million on acreage
purchases in and around the Company's operating hubs. Of the producing property
acquisitions, $5.4 million was incurred to purchase an incremental interest in
the Main Pass properties operated by the Company in the Gulf of Mexico. The
Company also spent $2.6 million in North Louisiana to purchase producing
properties and a gas processing facility and $7.7 million to purchase
incremental interests in properties in the Piceance Basin of western Colorado
and East Washakie Basin of southern Wyoming.
The Company also completed a non-cash acquisition in the second quarter
of 1998. The Company acquired 75 percent of Amoco Production Company's ("Amoco")
interest in the Beaver Creek Unit and two associated gas plants in the Wind
River Basin in Wyoming in exchange for the Jonah Field portion of the Company's
properties in the Deep Green River Basin project in Wyoming. Under terms of the
agreement, effective January 1, 1998, SOCO also received Amoco's interest in the
Deep Green River project outside the Jonah Field area and retains the deep
rights in Jonah beneath the Mesa Verde horizon at about 12,250 feet.
16
During the third quarter of 1998, the Company exchanged its interest
in the Cage Ranch Field in South Texas for CIG Exploration's interest in certain
producing and non-producing properties in the Washakie Basin of Wyoming. The
Company will receive approximately $1.5 million, net, in cash as part of the
exchange.
Capital Commitments
As of September 30, 1998, commitments for capital expenditures totaled
approximately $26.3 million. The Company anticipates that 1998 expenditures for
exploration and development will approximate $200 million. The level of these
and other future expenditures is largely discretionary, and the amount of funds
devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions.
Capital Resources and Liquidity
Capital Resources
The Company's primary needs for cash are for exploration, development
and acquisition of oil and gas properties, payment of interest on outstanding
indebtedness and working capital obligations. The Company's primary capital
resources are available cash, net cash provided by operating activities,
existing credit facilities and proceeds from sales of marketable securities and
nonstrategic assets. The Company expects that these resources will be sufficient
to fund its capital commitments in 1998.
Net cash provided by operating activities was $55.5 million during the
nine months ended September 30, 1998. During the nine months ended September 30,
1997, $44.3 million of the $104.3 million in net cash provided by operations was
generated by Patina.
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.
In the fourth quarter of 1998, the Company increased the borrowing
base under the existing credit facility to $150 million from $100 million in
order to provide the flexibility to continue to pursue growth opportunities. As
the Company continues to pursue balanced growth through exploitation,
exploration and acquisitions, the Company may utilize alternative financing
sources, including the issuance of fixed rate long-term public debt, convertible
securities or preferred stock. The Company may also issue securities in exchange
for oil and gas properties, stock or other interests in other oil and gas
companies or related assets.
The Board of Directors has authorized, at management's discretion, the
repurchase of up to $70 million of the Company's securities. From 1996 through
the third quarter of 1998, the Company repurchased $61.5 million of its
securities including 3.6 million common shares for $57.0 million under this
plan. In addition, during 1997, the Company redeemed its preferred depositary
shares by issuing 3.6 million shares of common stock and paying $30.1 million in
cash.
The Company has developed a plan to ensure its systems are compliant
with the requirements to process transactions in the year 2000 and beyond. The
majority of the Company's systems are already compliant, with a detailed plan
for the remaining systems scheduled to be modified or replaced within one year.
The expected costs associated with final compliance are approximately $300,000
for software modifications.
17
Liquidity
At September 30, 1998, the Company had $6.3 million of cash and cash
equivalents on hand, compared to $89.4 million at December 31, 1997. The
Company's ratio of current assets to current liabilities was .50 at September
30, 1998, down from 1.98 at December 31, 1997 due to the redeployment of cash
for exploration and development projects.
Forward-Looking Information
All statements other than statements of historical fact contained in
this Quarterly Report on Form 10-Q and other materials filed or to be filed by
the Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) contain or will contain or include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may be or may concern, among other things, capital
expenditures, drilling activity, acquisitions and dispositions, development or
exploratory activities, cost savings efforts, production activities and volumes,
hydrocarbon reserves, hydrocarbon prices, hedging activities and the results
thereof, financing plans, liquidity, regulatory matters, competition and the
Company's ability to realize efficiencies related to certain transactions or
organizational changes.
Forward-looking statements generally are accompanied by words such as
"anticipate," "believe," "estimate," "expect," "intend," "plan," "project,"
"potential" or similar statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Factors that
could cause the Company's results to differ materially from the results
discussed in such forward-looking statements include the risks described under
"Risk Factors and Investment Considerations" in the Company's Annual Report on
Form 10-K, such as the fluctuations of the prices received or demand for the
Company's oil and gas, the ability to replace depleting reserves, potential
additional indebtedness, the requirements for capital, drilling risks, operating
hazards, the cost and availability of drilling rigs, acquisition risks, the
uncertainty of reserve estimates, competition and the effects of governmental
and environmental regulation. All forward-looking statements are expressly
qualified in their entirety by the cautionary statements in this section.
While production levels are somewhat controllable by the Company, the
majority of the Company's sales of oil and gas are made in the spot market, or
pursuant to contracts based on spot market prices, and not pursuant to long-term
fixed-price contracts. Accordingly, the prices received by the Company for oil
and gas production are dependent upon numerous factors beyond the control of the
Company. These factors include, but are not limited to, the level of seasonal
demand for oil and gas products, governmental regulations and taxes, the price
and availability of alternative fuels, the level of foreign imports of oil and
gas, and the overall economic environment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Dividends.
27 Financial Data Schedule.
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 (Mark A. Jackson)
-------------------------------------------------
Mark A. Jackson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
November 6, 1998
20