UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-11871
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
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 [ ]
ON MAY 1, 1996, THERE WERE OUTSTANDING 11,812,483 SHARES OF THE
REGISTRANT'S COMMON STOCK, PAR VALUE $0.05 PER SHARE.
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1996
(Unaudited)
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
1996 and December 31, 1995.......................... 1
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1996 and 1995...... 2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1996 and 1995...... 3
Notes to Condensed Consolidated Financial Statements... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 9
SIGNATURES....................................................... 10
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
MARCH 31, DECEMBER 31,
1996 1995
--------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash and temporary cash investments....................................... $ 5,761 $ 7,496
Accounts receivable....................................................... 16,129 14,520
Receivable from partnerships.............................................. - 429
Other current assets...................................................... 1,010 966
--------------- ---------------
Total current assets................................................... 22,900 23,411
--------------- ---------------
Property, plant and equipment:
Oil and gas properties, based on successful efforts accounting............ 311,895 292,027
Other property and equipment.............................................. 13,068 13,036
--------------- ---------------
324,963 305,063
Less: Accumulated depreciation, depletion and amortization.............. 159,325 154,646
--------------- ---------------
Property, plant and equipment, net..................................... 165,638 150,417
--------------- ---------------
Other assets................................................................. 2,676 2,202
--------------- ---------------
Total assets....................................................... $ 191,214 $ 176,030
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 12,872 $ 18,149
Payable to partnerships................................................... 1,919 -
Accrued liabilities....................................................... 20,059 16,953
--------------- ---------------
Total current liabilities.............................................. 34,850 35,102
--------------- ---------------
Long-term debt............................................................... 56,000 40,000
--------------- ---------------
Other liabilities............................................................ 6,460 6,448
--------------- ---------------
Stockholders' equity:
Convertible preferred stock, $1.00 par value, 4,000 shares
issued and outstanding (1996 and 1995)................................. 4 4
Common stock, par value $.05 per share; 11,812,483 shares issued
and outstanding (1996 and 1995)........................................ 591 591
Additional paid-in capital................................................ 276,713 276,713
Accumulated deficit....................................................... (183,208) (182,543)
Unearned compensation..................................................... (173) (219)
Notes receivable from officers............................................ (23) (66)
--------------- ---------------
Total stockholders' equity............................................. 93,904 94,480
--------------- ---------------
Total liabilities and stockholders' equity......................... $ 191,214 $ 176,030
=============== ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1996 1995
------------ ------------
REVENUES:
Oil and gas sales................................................................. $ 15,913 $ 17,832
Gain on sales of oil and gas properties........................................... 656 147
Other revenues (costs), net....................................................... (4) 858
------------ ------------
Total revenues................................................................. 16,565 18,837
------------ ------------
COSTS AND EXPENSES:
Production and operating.......................................................... 4,982 6,762
Depreciation, depletion and amortization.......................................... 6,450 7,732
General and administrative........................................................ 1,641 1,485
Taxes other than income........................................................... 1,312 1,430
Exploration....................................................................... 1,588 120
------------ ------------
Total costs and expenses....................................................... 15,973 17,529
------------ ------------
INCOME FROM OPERATIONS............................................................... 592 1,308
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense.................................................................. (789) (1,971)
Other income (expense), net....................................................... (18) 121
------------ ------------
Total other expense............................................................ (807) (1,850)
------------ ------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM...................................... (215) (542)
Income tax benefit................................................................... - 47
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM....................................................... (215) (495)
Extraordinary gain on extinguishment of debt......................................... - 2,456
------------ ------------
NET INCOME (LOSS).................................................................... (215) 1,961
Preferred stock dividends............................................................ (450) (450)
------------ ------------
NET INCOME (LOSS) TO COMMON STOCK.................................................... $ (665) $ 1,511
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary and fully diluted:
Income (loss) before extraordinary item........................................ $ (.06) $ (.08)
Extraordinary item............................................................. - .21
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE.......................................... $ (.06) $ .13
============ ============
NUMBER OF COMMON AND EQUIVALENT SHARES:
Primary and fully diluted......................................................... 11,812 11,807
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $ (215) $ 1,961
Adjustments to arrive at net cash provided by operating activities:
Depreciation, depletion and amortization....................................... 6,450 7,732
Gain on sales of oil and gas properties........................................ (656) (147)
Exploration expense............................................................ 1,404 109
Extraordinary gain on extinguishment of debt................................... - (2,456)
Other, net..................................................................... 152 136
Changes in operating working capital:
Accounts receivable............................................................ 153 (293)
Other current assets........................................................... 68 (65)
Accounts payable and accrued liabilities....................................... (5,770) 1,105
Other operating................................................................... (512) (275)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................... 1,074 7,807
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties............................................. (14,521) (1,939)
Development and exploration expenditures.......................................... (4,861) (9,000)
Proceeds from sales of oil and gas properties, net................................ 1,135 112
Other investing................................................................... (59) 2,738
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES.......................................... (18,306) (8,089)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank debt borrowings.............................................................. 17,000 36,000
Bank debt repayments.............................................................. (1,000) -
Bridge debt repayments............................................................ - (31,128)
Repayments of other debt.......................................................... (42) (1,034)
Preferred stock dividends......................................................... (450) (450)
Debt and equity issuance costs and other.......................................... (11) 19
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................................... 15,497 3,407
------------ ------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS....................... (1,735) 3,125
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD........................... 7,496 9,973
------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD................................. $ 5,761 $ 13,098
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by American Exploration Company ("American" or the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial statements reflect adjustments of a normal
recurring nature which are, in the opinion of management, necessary to present
fairly such information. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including significant accounting policies, normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. Certain amounts in the prior year financial statements have
been reclassified to conform with current classifications.
The Company effected a one-for-ten reverse split of its common stock
(the "Reverse Stock Split") during the second quarter of 1995. All references to
number of shares of common stock and per share amounts have been restated to
give retroactive recognition to the Reverse Stock Split for all periods
presented.
(2) PRO FORMA INFORMATION
The following pro forma summary of consolidated results of operations
for the three months ended March 31, 1996 and 1995 gives effect to: (i) the
acquisition of interests in five offshore blocks in the Gulf of Mexico (the
"Offshore Properties") in March 1996, (ii) the sale of the Sawyer Field in July
1995, (iii) the 1995 sales of interests in several other fields for
approximately $2.5 million, and (iv) the acquisition of investors' interests in
a series of institutional programs (the "APPL Consolidation"), which was
completed in the first half of 1995, as if these transactions had occurred as of
January 1, 1995.
(In thousands except for per share amounts) For the Three Months
Ended March 31,
-----------------------
1996 1995
------- -------
Pro forma revenues.............................. $18,565 $17,023
Pro forma net income before extraordinary item.. 1,200 567
Pro forma net income to common stock............ 750 2,573
Pro forma income per common share:
Primary and fully diluted:
Income before extraordinary item.......... $ .06 $ .01
Net income................................ .06 .22
Weighted average shares outstanding:
Primary and fully diluted..................... 11,812 11,812
The pro forma amounts do not purport to be indicative of the results of
operations of American that may be reported in the future or that would have
been reported had these transactions occurred as of January 1, 1995.
4
(3) DEBT
In March 1996, the Company borrowed $14.0 million under the bank credit
facility to fund the acquisition of the Offshore Properties. Outstanding bank
debt totaled $21.0 million as of March 31, 1996.
The borrowing base under the bank credit facility is currently in the
process of being redetermined by the banks. Based on discussions with American's
lenders, management expects that the borrowing base of $40.0 million will be
increased to give effect to the acquisition of the Offshore Properties.
(4) CASH FLOW INFORMATION
Net cash provided by operating activities included cash payments for
interest totaling $233,000 and $814,000, net of capitalized interest of $379,000
and $359,000, for the first three months of 1996 and 1995, respectively. No
taxes were paid by the Company in the first three months of 1996. The Company
received income tax refunds totaling $46,800 for the first quarter of 1995.
Noncash investing and financing activities in 1995 related to the APPL
Consolidation. In January 1995, American issued approximately 346,000 shares of
common stock valued at $12.50 per share to acquire $1.2 million of oil and gas
properties, including working capital, and to eliminate $4.7 million of
nonrecourse debt, resulting in an extraordinary gain of $1.6 million.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods presented in the accompanying financial statements.
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1996 1995
AVERAGE SALES PRICE: ------- -------
Gas ($/Mcf).................................... $ 1.86 $ 1.67
Oil ($/Bbl).................................... 16.58 16.52
BOE ($/BOE).................................... 13.16 11.76
PRODUCTION DATA:
Gas (MMcf)..................................... 4,600 6,662
Oil (MBbls).................................... 442 406
MBOE........................................... 1,209 1,516
AVERAGE COST ($/BOE) DATA:
Production and operating costs................. $ 4.12 $ 4.46
Production and severance taxes................. 0.48 0.60
Depreciation, depletion and amortization....... 5.33 5.10
REVENUES
Oil and gas sales totaled $15.9 million for the first quarter of 1996
compared to $17.8 million for the first quarter of 1995. The decrease in sales
was mainly attributable to a 20% production decline offset in part by the impact
of higher gas prices.
Gas production decreased to 4,600 MMcf for the first quarter of 1996
from 6,662 MMcf for the same period of 1995, which negatively impacted sales by
$3.4 million. The 31% decline in gas production primarily resulted from the loss
of production of approximately 20 MMcf per day due to the sale of the Sawyer
Field in July 1995. Oil production for the first three months of 1996 totaled
442 MBbls, or 9% above first quarter 1995 production of 406 MBbls. Higher oil
production contributed $600,000 to sales and was attributable to the fourth
quarter 1995 acquisition of an additional interest in the Buckner Field and the
successful horizontal drilling program at the Midway Field during 1995.
The impact of lower production was partially mitigated by an 11%
increase in the average gas price received. American's average realized gas
price increased to $1.86 per mcf for the first quarter of 1996, compared to the
first quarter 1995 price of $1.67 per mcf, with the favorable price variance
contributing $900,000 to sales. Oil prices were relatively stable at $16.58 and
$16.52 for the first quarter of 1996 and 1995, respectively. For the first three
months of 1996, American had entered into commodity price swap agreements
covering approximately 75% of the Company's gas production and approximately 60%
of its oil production. As a result of the price hedges, the Company's oil and
gas sales revenues were reduced by $1.4 million during the first quarter of 1996
and were increased by $900,000 during the same period of 1995. Excluding the
impact of the hedging gains and losses, the Company's average gas price would
have been $2.04 per mcf and $1.52 per mcf for the first quarter of 1996 and
1995, respectively. Similarly, American's average oil price would have been
$17.96 per BOE for the first quarter of 1996 exclusive of the hedging loss. The
Company's oil price realization during the first three months of 1995 was not
materially impacted by the price swap agreements then in effect.
American recognized gains on the sales of oil and gas properties
totaling $656,000 and $147,000 for the first three months of 1996 and 1995,
respectively, which resulted from the divestiture of various minor properties.
In the first quarter of 1995, the Company recorded net gas settlement income of
$879,000 as a result of a final judgment in certain litigation regarding the
terms of a gas purchase contract.
6
EXPENSES
Production and operating costs totaled $5.0 million in the first quarter
of 1996 compared to $6.8 million for the same period of 1995. The decrease in
costs primarily reflects the sale of the Sawyer Field in July 1995, sales of
other minor properties during December 1995 and January 1996, and lower
environmental expenses incurred in 1996. On a unit of production basis,
American's operating cost per BOE decreased 8% to $4.12 per BOE in the first
quarter of 1996 from $4.46 per BOE for the comparable period of 1995.
Depreciation, depletion and amortization ("DD&A") totaled $6.5 million
in the first three months of 1996, or 17% below first quarter 1995 DD&A of $7.7
million. The decrease in DD&A expense in 1996 reflects lower production volumes
as discussed above. American's DD&A rate per BOE increased 5% over the 1995
first quarter to an average rate of $5.33 per BOE for the first three months of
1996.
General and administrative expense ("G&A") increased 11% to $1.6 million
for the first quarter of 1996. The $156,000 increase in G&A primarily reflects
additional legal fees incurred in 1996 and the loss of management and technical
fee reimbursements from certain partnerships as a result of the acquisition of
investors' interests in a series of institutional programs (the "APPL
Consolidation") in late 1994 and early 1995.
American recorded $1.6 million of exploration expense in the first
quarter of 1996, of which $1.0 million represented the costs of three
unsuccessful exploratory wells, including one offshore well in the Gulf of
Mexico. The remainder of the increase in first quarter 1996 exploration expense,
as compared to the same period of 1995, related to geological and geophysical
costs arising from increased exploration activity this year.
Interest expense totaled $789,000 and $2.0 million for the first quarter
of 1996 and 1995, respectively. American's outstanding debt balance has been
significantly reduced in 1996 due to the repayment of bank debt in mid-1995
using the proceeds of the Sawyer sale. During the first quarter of 1995, the
Company had over $60 million of outstanding bank debt primarily incurred in
conjunction with the APPL Consolidation.
EXTRAORDINARY ITEM
The $2.5 million extraordinary gain recorded in 1995 resulted from the
extinguishment of nonrecourse debt in conjunction with the APPL Consolidation.
NET INCOME (LOSS)
American reported a net loss of $215,000, or $.06 loss per share, for
the first quarter of 1996 compared to net income of $2.0 million, or $.13 per
share, for the same quarter last year. Although the Company's operating margin
improved during the first quarter of 1996, which was attributable to increases
in gas prices combined with reductions in production costs and interest expense,
a net loss for the quarter resulted from higher exploration expense recorded in
1996. Net income in the first three months of 1995 reflected the extraordinary
gain on debt extinguishment and the proceeds of a gas contract settlement.
Excluding the impact of these nonrecurring items in 1995, the Company would have
recorded a net loss of $.15 per share for the first quarter of 1995.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $1.1 million during
the first three months of 1996 compared to $7.8 million during the same period
of 1995. The decline in operating cash flows in the first quarter of 1996 from
the same period of 1995 reflected changes in operating working capital of $6.3
million which were mainly attributable to the timing of certain payments which
were accrued at year-end 1995.
During the first three months of 1996, capital expenditures for the
acquisition of oil and gas properties totaled $14.5 million, compared to $1.9
million in the same period of 1995. On March 15, 1996, the Company and Dominion
Reserves, Inc. acquired interests in five offshore blocks in the Gulf of Mexico
(the "Offshore Properties") from a private company for a purchase price of
approximately $56.0 million. American's 25% share of the acquisition totaled
$14.0 million. The Offshore Properties added estimated proved reserves totaling
11.3 Bcf of natural gas and 600 MBbls of crude oil and liquids, net to
American's interest. Acquisition expenditures in 1995 primarily related to the
APPL Consolidation.
7
Development and exploration expenditures for the first quarter totaled
$4.9 million and $9.0 million in 1996 and 1995, respectively. Development
activity in 1996 included a successful well at High Island Block 13-L which is
currently producing at a rate of 4,000 mcf per day (2,200 mcf per day net to
American). The Company is conducting additional development activity in the
Texas State Waters area of the Gulf of Mexico, at the Midway and Buckner fields
in Arkansas and at the West McAllen Field in South Texas. Three exploratory
wells drilled in the first quarter of 1996 were unsuccessful. Approximately $30
million of additional development and exploration expenditures are budgeted for
the remainder of 1996. Significant projects in 1995 included drilling in the
Gulf of Mexico and development activity in the West McAllen Field.
In March 1996, the Company borrowed $14.0 million under the bank credit
facility to fund the acquisition of the Offshore Properties. Outstanding bank
debt totaled $21.0 million as of March 31, 1996. The borrowing base under the
bank credit facility is currently in the process of being redetermined by the
banks. Based on discussions with American's lenders, management expects that the
borrowing base of $40.0 million will be increased to give effect to the
acquisition of the Offshore Properties.
The Company intends to fund its planned capital expenditures,
commitments and working capital requirements through cash flows from operations
and, if necessary, borrowings under its bank credit facility. However, if there
are changes in oil and gas prices, which correspondingly affect cash flows and
bank borrowings, or if additional development and exploration opportunities
arise, American has the discretion and ability to adjust its capital budget
accordingly. Other potential sources of capital for the Company include property
sales and financings through the placement of notes or the sale of equity.
Management believes that the Company will have sufficient capital resources and
liquidity to fund its capital expenditures and meet its financial obligations as
they are due.
8
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed Form 8-K, dated March 15, 1996, reporting
American's acquisition of certain interests in the Gulf of Mexico.
9
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.
AMERICAN EXPLORATION COMPANY
Date: May 7, 1996 By: /S/ MARK ANDREWS
Mark Andrews
Chairman of the Board
and Chief Executive Officer
Date: May 7, 1996 By: /S/ JOHN M. HOGAN
John M. Hogan
Senior Vice President
and Chief Financial Officer
(Also Principal Accounting Officer)
10