UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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: MARCH 31, 1997
OR
[_] 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: 1-10671
TEXAS MERIDIAN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0319553
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15995 N. BARKERS LANDING, SUITE 300, HOUSTON, TEXAS 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 281-558-8080
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 and 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 [_]
Number of shares of common stock outstanding at May 1, 1997 14,393,304
Page 1 of 13
TEXAS MERIDIAN RESOURCES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) for
the Three Months Ended March 31, 1997 and 1996 ............... 3
Consolidated Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996 ........................................ 4
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1997 and 1996 ................... 6
Notes to Consolidated Financial Statements (unaudited) .......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................. 12
SIGNATURE ................................................................ 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TEXAS MERIDIAN RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------
1997 1996
------- --------
(in thousands, except for
per share information)
REVENUES:
Oil and natural gas .......................... $ 8,131 $ 4,626
Interest and other ........................... 198 453
------- --------
8,329 5,079
------- --------
COSTS AND EXPENSES:
Oil and natural gas operating ................ 368 199
Severance and ad valorem taxes ............... 662 310
Depletion, depreciation
and amortization .......................... 2,657 2,017
General and administrative ................... 1,413 923
Interest ..................................... -- 1
------- --------
5,100 3,450
------- --------
INCOME BEFORE INCOME TAXES ...................... 3,229 1,629
------- --------
INCOME TAX EXPENSE:
Current ...................................... -- (26)
Deferred ..................................... 1,130 280
------- --------
1,130 254
------- --------
NET INCOME ...................................... $ 2,099 $ 1,375
======= ========
Net income per common
and common equivalent share .................. $ 0.13 $ 0.09
======= ========
Weighted average number of common and
common equivalent shares ..................... 15,900 15,628
======= ========
See notes to consolidated financial statements.
3
TEXAS MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
(unaudited)
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 5,709 $ 17,267
Accounts receivable (less allowance for
doubtful receivables of $121,000) .......... 7,145 7,116
Due from affiliates ........................... 1,076 857
Prepaid expenses and other .................... 301 105
--------- ---------
Total current assets .................... 14,231 25,345
--------- ---------
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, full cost
method (including $35,319,000 [1997]
and $29,718,000 [1996] not subject
to depletion) .............................. 108,234 92,902
Land .......................................... 478 478
Equipment ..................................... 2,946 2,628
--------- ---------
111,658 96,008
Less accumulated depletion and depreciation ... (21,134) (18,506)
--------- ---------
90,524 77,502
--------- ---------
OTHER ASSETS ..................................... 385 415
--------- ---------
$ 105,140 $ 103,262
========= =========
See notes to consolidated financial statements.
4
TEXAS MERIDIAN RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
(unaudited)
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................. $ 11,457 $ 4,225
Revenues and royalties payable ................ 4,550 5,530
Accrued liabilities ........................... 3,704 11,752
--------- ---------
Total current liabilities .................. 19,711 21,507
--------- ---------
DEFERRED INCOME TAXES ............................ 4,510 3,380
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value
(25,000,000 shares authorized,
none issued and outstanding) ............... -- --
Common stock, $0.01 par value (100,000,000
shares authorized, 14,453,302 [1997]
and 14,453,298 [1996] issued ............... 146 145
Additional paid-in capital .................... 75,816 75,265
Accumulated earnings .......................... 6,487 4,388
Unamortized deferred compensation ............. (450) (343)
--------- ---------
81,999 79,455
Treasury stock, at cost (60,000 shares) ....... (1,080) (1,080)
--------- ---------
Total stockholders' equity .................... 80,919 78,375
--------- ---------
$ 105,140 $ 103,262
========= =========
See notes to consolidated financial statements.
5
TEXAS MERIDIAN RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED MARCH 31,
--------------------
1997 1996
-------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 2,099 $ 1,375
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion and depreciation .................... 2,628 1,996
Amortization of other assets .................. 29 21
Deferred income taxes ......................... 1,130 280
Non-cash compensation ......................... 445 --
Changes in assets and liabilities:
Accounts receivable ........................... (29) (827)
Due from affiliates ........................... (219) (583)
Prepaid expenses and other current assets ..... (196) 21
Accounts payable .............................. 7,232 2,298
Revenues and royalties payable ................ (980) 865
Accrued liabilities ........................... (21) 40
-------- --------
Net cash provided by operating activities ........ 12,118 5,486
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions .............. (23,676) (9,597)
-------- --------
Net cash used in investing activities ............ (23,676) (9,597)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............. (11,558) (4,111)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ........................... 17,267 35,658
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD ................................. $ 5,709 $ 31,547
======== ========
See notes to consolidated financial statements.
6
TEXAS MERIDIAN RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
These consolidated financial statements reflect the accounts of Texas Meridian
Resources Corporation (the "Company" or "TMRC") and its subsidiaries after
elimination of all significant intercompany transactions and balances. The
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in TMRC's Annual Report on Form
10-K for the year ended December 31, 1996, as filed with the Securities and
Exchange Commission ("SEC").
The financial statements included herein as of March 31, 1997, and for the three
month periods ended March 31, 1997 and 1996 are unaudited, and, in the opinion
of management, the information furnished reflects all material adjustments,
consisting of normal recurring adjustments, necessary for a fair statement of
the results for the interim periods presented.
2. NET INCOME PER SHARE
Net income per share is calculated by dividing net income by the weighted
average common shares and (in periods in which they have a dilutive effect)
common share equivalents outstanding during the period, excluding shares held in
treasury. Shares of common stock issuable under stock options, warrants and
stock rights are treated as common share equivalents when dilutive.
For the periods presented, there is no difference between primary and fully
diluted net income per share.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following is a discussion of the Company's financial operations for the
three months ended March 31, 1997 and 1996. The notes to the Company's
consolidated financial statements included in this report, as well as the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (and
the notes attached thereto), should be read in conjunction with this discussion.
OVERVIEW
Results for the first quarter of 1997 reflected a continuing increase in the
Company's oil and natural gas production. Oil production was up 76% for the
first three months of 1997 compared to the first three months of 1996 and
natural gas production was up 16% for the first three months of 1997 compared to
the first three months of 1996. These increases in production reflected the
continuing increase in exploration and development activities by the Company and
the addition of new producing wells during the last twelve months. Late in the
first quarter of 1997, the Company placed on production two new oil wells. These
new wells are expected to partially offset declines in production from other
wells. The Company currently has three wells in the process of being drilled and
anticipates spudding two additional wells before the end of the second quarter.
Although there can be no assurance as to the results of the Company's current
drilling program, the increase in the Company's exploration activities is
expected to result in increased revenue and income for the remainder of 1997 and
into 1998. Future results, however, will be subject to the level of success in
the program and prevailing prices of crude oil and natural gas.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1997, the Company's liquidity needs were met
from oil and natural gas production sales and from cash reserves. As of March
31, 1997, the Company had a cash balance of $5.7 million and a negative working
capital of $5.5 million. The decrease in both the cash balance and working
capital reflects capital expenditures related to the Company's increasing
exploration activities.
In order to provide the Company with additional funds to finance its future
exploration and development program and to satisfy working capital needs, the
Company's operating subsidiary, Texas Meridian Resources Exploration, Inc.
("TMRX"), maintains a line of credit with The Chase Manhattan Bank ("Chase").
TMRX's obligations under this facility are guaranteed by the Company and secured
by the stock of TMRX and certain other subsidiaries of the Company. Borrowings
under the credit agreement mature on December 31, 1999. Under this facility, the
Company may borrow, on a revolving basis, up to $20 million, subject to
satisfaction of a borrowing base as determined from time to time by The Chase
Manhattan Bank. The initial
8
borrowing base under the facility was established at $7.5 million and is subject
to increase based on the Company's reserves. Based on discussions with Chase,
the Company believes that its reserves would support an increase in its
borrowing base to an amount in excess of $20 million. The Company intends to
increase the borrowing base during the remainder of the year as needed to fund
its 1997 exploration program.
Capital expenditures for the first quarter of 1997 consisted of $15.3 million
for property and equipment additions related to exploration and development of
various prospects, including lease, seismic data acquisitions, drilling and
completion costs. The Company has budgeted approximately $50 million in capital
expenditures during 1997 for the further development and drilling of its south
Louisiana and southeast Texas prospects as well as costs associated with
additional acquisition of leases, seismic data and interpretive work. Future
cash requirements will be provided from existing cash, cash flow from current
properties and newly-drilled properties developed on the Company's exploration
prospects and anticipated borrowings under the Company's credit facility with
The Chase Manhattan Bank.
In management's opinion, the Company has sufficient capital resources available
to it to fund its 1997 development and drilling plans and other obligations and
liquidity. Cash requirements beyond 1997 will be dependent upon the success of
the Company's current drilling program and the nature and extent of capital
expenditures that might be required for exploration and development activities
at that time.
It is the policy of the Company to retain its existing cash for reinvestment in
the businesses of the Company and not to pay dividends with respect to its
common stock in the foreseeable future.
9
RESULTS OF OPERATIONS
OPERATING REVENUES. First quarter 1997 oil and natural gas revenues increased
$3.5 million as compared to first quarter 1996 revenues due to increases in both
production and average prices. Oil and natural gas production rose by 76% and
16%, respectively, due in large part to the successful completion of several new
wells. Natural gas prices rose by 37% over the same time period due to, among
other things, higher demand and lower storage levels to satisfy supply needs.
Oil prices also increased, by 17% over prices for the first quarter of 1996.
The following table summarizes operating revenues, production volumes and
average sales prices for the Company for the three months ended March 31, 1997
and 1996.
THREE MONTHS ENDED
MARCH 31, 1997
------------------ 1997 PERCENTAGE
1997 1996 INCREASE INCREASE
-------- -------- -------- --------
Volume:
Oil (Mbbl) .......................... 153 87 66 76%
Natural Gas (Mmcf) .................. 1,442 1,246 196 16%
Average Price Per Unit:
Oil (Bbl) ........................... $ 22.48 $ 19.28 $ 3.20 17%
Natural Gas (Mcf) ................... $ 3.25 $ 2.37 $ 0.88 37%
Gross Revenues (000's):
Oil ................................. $ 3,439 $ 1,677 $ 1,762 105%
Natural Gas ......................... 4,692 2,949 1,743 59%
-------- -------- -------- --------
Total ......................... $ 8,131 $ 4,626 $ 3,505 76%
======== ======== ======== ========
OPERATING EXPENSES. Oil and natural gas operating expenses increased $0.2
million to $0.4 million for the three months ended March 31, 1997, compared to
$0.2 million for the three months ended March 31, 1996. The increase was
primarily due to added operating expenses related to the additional wells
brought on production during the last twelve months.
SEVERANCE AND AD VALOREM TAXES. Severance and ad valorem taxes increased $0.4
million for the current quarter as compared to the same period in 1996. This
increase is a direct result of the increase in producing wells and revenues and
an increased level of oil production in Louisiana, which has the highest
severance tax rate for all of the Company's production.
INTEREST AND OTHER INCOME. Interest and other income during the first quarter
1997 decreased $0.3 million from the comparable period in 1996. This decrease
was the result of a decrease in average cash balances reflecting the Company's
increase in capital expenditures.
10
DEPLETION, DEPRECIATION AND AMORTIZATION. Depletion, depreciation and
amortization expense increased during the first quarter of 1997 to $2.7 million
from $2 million for the same period of 1996. This increase was primarily a
result of increased capital expenditures subject to depletion and increased
total production. The natural gas equivalent production for the three months
ended March 31, 1997, was 2,360 MMCFE as compared to 1,768 MMCFE for the three
months ended March 31, 1996. The Company uses the unit of production method of
depletion of its oil and natural gas properties.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
$0.5 million for the first quarter of 1997 as compared to the first quarter of
1996. The increase is due primarily to an increase in salaries and wages and
related employee costs associated with the Company's expanded exploration
activities and overall growth.
INCOME TAX EXPENSE. The provision for deferred income taxes was $1.1 million for
the first quarter of 1997 as compared to $0.3 million for the first quarter of
1996. The deferred income tax increase is due to the Company's increase in net
income and due to prior years' loss carryforwards having been fully utilized for
accounting purposes in 1996.
FORWARD-LOOKING INFORMATION
From time-to-time, the Company may make certain statements that contain
"forward-looking" information as defined in the Private Securities Litigation
Reform Act of 1995 and that involves risk and uncertainty. These forward-looking
statements may include, but are not limited to exploration and seismic
acquisition plans, anticipated results from current and future exploration
prospects, the anticipated results of wells based on logging data and production
tests, future sales of production, earnings, margins, production levels and
costs, market trends in the oil and natural gas industry and the exploration and
development sector thereof, environmental and other expenditures and various
business trends. Forward-looking statements may be made by management orally or
in writing including, but not limited to, the Management's Discussion and
Analysis of Financial Condition and Results of Operations section and other
sections of the Company's filings with the Securities and Exchange Commission
under the Securities Act of 1933 and the Securities and Exchange Act of 1934.
Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to, the success of the Company's
exploration and development program, changes in the price of oil and natural
gas, world-wide political stability and economic growth, the Company's
successful execution of internal exploration, development and operating plans,
environmental regulation and costs, regulatory uncertainties and legal
proceedings.
11
PART II - OTHER INFORMATION
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 no reports on Form 8-K during the quarter covered by
this report.
12
SIGNATURE
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.
TEXAS MERIDIAN RESOURCES CORPORATION AND SUBSIDIARIES
(Registrant)
Date: MAY 8, 1997 By: LLOYD V. DELANO
Lloyd V. DeLano
Vice President
(Chief Financial and Accounting Officer)
13