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 June 30, 1996
-------------
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 1-10537
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NUEVO ENERGY COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0304436
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1331 Lamar, Suite 1600, Houston, Texas 77010
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 713/652-0706
---------------------------
Not Applicable
-----------------------------------------------------------------------------
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_______
--------
As of August 8, the number of outstanding shares of the Registrant's common
stock was 18,255,363.
NUEVO ENERGY COMPANY
--------------------
INDEX
-----
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
June 30, 1996 (Unaudited) and December 31, 1995.......... 3
Condensed Consolidated Statements of Operations (Unaudited):
Three and six months ended June 30, 1996 and
June 30, 1995....................................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited):
Six months ended June 30, 1996 and
June 30, 1995....................................... 7
Notes to Condensed Consolidated Financial Statements
(Unaudited).............................................. 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 14
PART II. OTHER INFORMATION............................................. 22
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(AMOUNTS IN THOUSANDS)
ASSETS
------
June 30, 1996 December 31, 1995
-------------- ------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents.................. $ 10,681 $ 5,765
Accounts receivable........................ 64,799 21,195
Product inventory.......................... 527 2,187
Due from affiliates........................ 103 ---
Prepaid expenses and other................. 3,310 573
---------- ---------
Total current assets..................... 79,420 29,720
---------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties (full cost method).. 980,258 460,800
Pipeline and other facilities.............. 100,510 50,970
Gas plant facilities....................... 26,264 25,661
---------- ---------
1,107,032 537,431
Accumulated depreciation, depletion and
amortization............................. (330,845) (269,989)
---------- ---------
776,187 267,442
---------- ---------
OTHER ASSETS................................ 16,836 9,382
---------- ---------
$ 872,443 $ 306,544
========== =========
See accompanying notes to condensed consolidated financial statements.
3
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
-------------------------------------------------
(AMOUNTS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, 1996 December 31,1995
-------------- ----------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable...................... $ 21,258 $ 4,591
Accrued interest...................... 4,302 972
Accrued liabilities................... 25,759 2,930
Gas balancing liabilities............. 442 479
Due to affiliates..................... --- 1,314
Current maturities of long-term debt.. 5,216 3,677
-------- --------
Total current liabilities.......... 56,977 13,963
-------- --------
OTHER LONG-TERM LIABILITIES............. 2,252 1,949
DEFERRED REVENUE........................ 6,743 8,932
LONG-TERM DEBT.......................... 444,932 113,032
DEFERRED TAXES.......................... 20,651 12,926
MINORITY INTEREST....................... 933 1,134
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, $1,000
per share liquidation preference,
10,000,000 shares authorized; 7%
Cumulative Convertible Preferred Stock,
Series A and B, 12,619 and 2,500 shares
issued and outstanding at June 30,
1996 and December 31, 1995, respectively 15 15
Common stock, $.01 par value,
50,000,000 shares authorized,
18,210,363 and 11,716,919 shares issued
and outstanding at June 30, 1996 and
December 31, 1995, respectively....... 182 117
Additional paid-in capital............ 325,864 151,442
Retained earnings..................... 13,894 3,034
-------- --------
Total stockholders' equity........ 339,955 154,608
-------- --------
$872,443 $306,544
======== ========
See accompanying notes to condensed consolidated financial statements.
4
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended June 30,
-----------------------------
1996 1995
------------- --------------
REVENUES:
Oil and gas revenues...................... $83,484 $27,112
Gas plant revenues........................ 7,776 6,915
Pipeline and other revenues............... 1,643 1,923
Interest and other income................. 612 205
------- -------
93,515 36,155
------- -------
COSTS AND EXPENSES:
Lease operating expenses.................. 30,624 7,833
Gas plant operating expenses.............. 6,863 5,635
Pipeline and other operating expenses..... 1,557 1,206
Depreciation, depletion and
amortization.......................... 23,473 11,157
General and administrative expenses....... 6,053 2,396
Interest expense.......................... 12,445 3,948
Other expense.............................. 31 (29)
------- -------
81,046 32,146
------- -------
Income before income taxes and minority
interest.................................... 12,469 4,009
Provision for income taxes................... 5,308 1,464
Minority interest............................ (27) 5
------- -------
NET INCOME................................... $ 7,188 $ 2,540
======= =======
Dividends on preferred stock................. $ 264 $ 437
------- -------
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS.... $ 6,924 $ 2,103
======= =======
Earnings per common and common equivalent
share....................................... $.38 $.19
======= =======
Earnings per common and common equivalent
share assuming full dilution................ $.37 $.19
======= =======
Average common and common equivalent shares
outstanding................................. 18,292 11,090
======= =======
Average common and common equivalent shares
outstanding assuming full dilution.......... 19,579
=======
See accompanying notes to condensed consolidated financial statements.
5
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
-----------------------------------------------------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Six Months Ended June 30,
1996 1995
------------ -----------
REVENUES:
Oil and gas revenues.................................................... $ 109,071 $ 52,704
Gas plant revenues...................................................... 14,798 14,209
Pipeline and other revenues............................................. 3,345 4,039
Interest and other income............................................... 726 288
--------- --------
127,940 71,240
--------- --------
COSTS AND EXPENSES:
Lease operating expenses................................................ 37,316 14,507
Gas plant operating expenses............................................ 12,454 11,385
Pipeline and other operating expenses................................... 2,781 2,498
Depreciation, depletion and
amortization........................................................... 31,533 22,628
General and administrative expenses..................................... 8,551 4,983
Interest expense........................................................ 16,183 7,762
Other expense............................................................ 49 24
--------- --------
108,867 63,787
--------- --------
Income before income taxes and minority
interest.................................................................. 19,073 7,453
Provision for income taxes................................................. 7,725 2,718
Minority interest.......................................................... (41) 12
--------- --------
NET INCOME................................................................. $ 11,389 $ 4,723
========= ========
Dividends on preferred stock............................................... 529 875
--------- --------
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS.................................. $ 10,860 $ 3,848
========= ========
Earnings per common and common equivalent
share.................................................................... $.71 $.35
========= ========
Earnings per common and common equivalent..................................
share assuming full dilution............................................. $.68 $.35
========= ========
Average common and common equivalent
shares outstanding....................................................... 15,260 11,005
========= ========
Average common and common equivalent
shares outstanding assuming full dilution................................ 16,647
=========
See accompanying notes to condensed consolidated financial statements.
6
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Six Months Ended June 30,
-------------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 11,389 $ 4,723
Adjustments to reconcile net income to net cash provided by operating
activities: Depreciation, depletion and amortization................... 31,533 22,611
Amortization of other costs........................................... 187 181
Deferred revenues..................................................... (2,189) (3,362)
Deferred taxes........................................................ 7,725 2,176
Minority interest..................................................... (41) 12
--------- --------
48,604 26,341
Change in assets and liabilities:
Accounts receivable.................................................... (43,522) (2,443)
Gas balancing receivables/payables..................................... 74 103
Accounts payable and accrued liabilities............................... 43,386 63
Due (to) from affiliates............................................... (1,417) (7,195)
Other.................................................................. (8,592) (5,406)
Minority interest distributions........................................ (160) ---
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 38,373 11,463
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties..................................... (481,958) (23,731)
Additions to gas plant facilities....................................... (603) (291)
Additions to pipeline and other facilities.............................. (49,438) (200)
Additions to other property............................................. (102) 34
Proceeds from sales of properties....................................... 28,793 591
Other................................................................... --- 2,850
--------- --------
NET CASH USED IN INVESTING ACTIVITIES...................................... (503,308) (20,747)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................................ 408,000 15,013
Payments of long-term debt.............................................. (74,608) (2,187)
Preferred stock dividends............................................... (529) (875)
Issuance of Common Stock................................................ 136,988 612
--------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................................................... 469,851 12,563
--------- --------
Net increase in cash and cash equivalents............................... 4,916 3,279
Cash and cash equivalents at beginning of period........................ 5,765 3,447
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 10,681 $ 6,726
========= ========
7
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-----------------------------------------------------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Six Months Ended June 30,
-------------------------
1996 1995
------ ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................... $12,094 $ 7,030
Income taxes ................................ $ --- $ ---
See accompanying notes to condensed consolidated financial statements.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and, therefore, do
not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements include
all adjustments, which are of a normal recurring nature, necessary to present
fairly the financial position at June 30, 1996 and December 31, 1995 and the
results of operations and changes in cash flows for the periods ended June
30, 1996 and 1995. These financial statements should be read in conjunction
with the financial statements and notes to the financial statements in the
1995 Form 10-K of Nuevo Energy Company ("the Company") that was filed with
the Securities and Exchange Commission.
USE OF ESTIMATES
----------------
In order to prepare these financial statements in conformity with generally
accepted accounting principles, management of the Company has made a number
of estimates and assumptions relating to the reporting of assets and
liabilities, the disclosure of contingent assets and liabilities and reserve
information (which affects the depletion calculation as well as the
computation of the full cost ceiling limitation). Actual results could
differ from those estimates.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
2. INDUSTRY SEGMENT INFORMATION
----------------------------
The Company's operations are concentrated primarily in two segments; the
exploration and production of oil and natural gas and gas plant, pipeline and
gas storage operations.
For the Six Months Ended
------------------------
June 30, June 30,
1996 1995
----------- -----------
Sales to unaffiliated customers:
Oil and gas.............................. $109,071 $52,704
Gas plant, pipelines and other........... 18,143 18,248
-------- -------
Total sales................................... 127,214 70,952
Other revenues........................... 726 288
-------- -------
Total revenues................................ $127,940 $71,240
======== =======
Operating profit before income taxes:
Oil and gas.............................. $ 42,237 $17,371
Gas plant, pipelines and other........... 959 2,652
-------- -------
43,196 20,023
Unallocated corporate expenses................ 7,940 4,808
Interest expense.............................. 16,183 7,762
-------- -------
Income before income taxes and
minority interest........................ $ 19,073 $ 7,453
======== =======
Depreciation, depletion and amortization:
Oil and gas.............................. $ 29,518 $20,826
Gas plant, pipelines and other........... 1,949 1,713
-------- -------
$ 31,467 $22,539
======== =======
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
3. ACCOUNTING PRONOUNCEMENTS
-------------------------
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
issued by the Financial Accounting Standards Board ("FASB") in March 1995,
was implemented by the Company in the first quarter of 1996. This standard
addresses the accounting for the recognition and measurement of impairment
losses for long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used. This standard also addresses
the accounting for long-lived assets and certain identifiable intangibles to
be disposed of.
The adoption of Accounting Standard 121 did not have a significant impact
on consolidated results of operations or the financial position of the
Company.
The Company follows the intrinsic value method for stock options granted to
employees. In October 1995, the FASB issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation." The
Company did not adopt the fair value method for stock-based compensation
plans, but will provide pro forma disclosures pursuant to an optional
provision of Accounting Standard 123.
4. ACQUISITIONS
------------
On April 9, 1996 the Company consummated the acquisition of (i) certain
upstream oil and gas properties located onshore and offshore California
("Unocal Properties") of Union Oil Company of California ("Unocal") for an
adjusted purchase price of $480.5 million in cash and (ii) certain California
oil properties ("Point Pedernales Properties," and together with the Unocal
Properties, the "California Properties") from Torch Energy Advisors
Incorporated ("Torch") and certain of its wholly owned subsidiaries for a net
adjusted purchase price of $35.7 million. The acquisition of the California
Properties was effective as of October 1, 1995, and the purchase price was
reduced by the net cash flows from production between such date and closing.
The Unocal acquisition was recorded using the purchase method effective April
1, 1996 for accounting purposes. Finalization of the purchase price
allocation to the acquired net assets is pending the receipt of certain
requested information from the seller, fair value appraisals, and analysis of
reserve estimates by the Company. See the Company's current report on Form
8-K filed with the Securities and Exchange Commission on April 23, 1996.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
The following table presents the unaudited pro forma results of operations as
if the acquisition of the California Properties had occurred as of the
beginning of the six months ended June 30, 1996. These pro forma results are
based on assumptions and estimates and are not necessarily indicative of the
Company's results of operations had the transaction occurred as of the
beginning of the six months ended June 30, 1996 or in the future (amounts in
thousands except per share data).
Revenues.................................... $178,361
Income...................................... $ 22,637
Net income.................................. $ 13,510
Earnings per common and common
equivalent share.......................... $ .69
Earnings per common and common
equivalent share assuming full dilution... $ .68
5. Financing Activities
--------------------
In April 1996, the Company financed the acquisition of the Unocal Properties
with the proceeds from the sale to the public of 5,109,200 shares of common
stock (the "Common Stock Offering") and a principal amount of $160 million
Senior Subordinated Notes due 2006 of the Company, and by borrowings under a
revolving credit facility dated as of April 1, 1996 with a syndicate of banks
which provides the Company with a line of credit of up to $385 million. Such
proceeds were also used to retire the borrowings under an existing credit
facility in the amount of $27.0 million. The purchase of the Point
Pedernales Properties was financed by the issuance to Torch of 1,275,000
shares of the Company's Common Stock valued at the public offering price of
$28 per share in the Common Stock offering.
The Company also entered into a bridge commitment with a bank group led by
NationsBank of Texas, N. A. The facility was not drawn down; however, $1.7
million in fees associated with the bridge commitment were expensed in the
second quarter of 1996.
In February 1995, in connection with the acquisition of the Yombo field
properties, a subsidiary of the Company entered into a $25.0 million non-
recourse credit facility (the "OPIC Facility") with the Overseas Private
Investment Corporation and an agent bank to finance $8.8 million of the
purchase price for such properties. The remaining funds under the credit
facility will be used to finance 75% of a development drilling program in the
Yombo field. A portion of the remaining outstanding commitment, $6.0
million, was drawn down in January 1996 to fund the first phase of the
development drilling program in the Yombo field. The interest rate
associated with such credit facility is LIBOR plus 20 basis points and a
guaranty fee of 2.75% of the outstanding loan balance, all of which is
payable quarterly. The loan agreement requires principal to be repaid in 16
equal quarterly installments commencing in October 1995.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
6. Property Sales
--------------
On June 28, 1996, the Company consummated the sale of most of its Austin
Chalk properties to a third party for $24.8 million in net proceeds. Such
proceeds were used to reduce debt outstanding under the Company's credit
facility.
7. Contingencies
-------------
The Company has been named as a defendant in certain lawsuits incidental to
its business. Management does not believe that the outcome of such
litigation will have a material adverse impact on the Company.
In connection with their respective acquisitions of two subsidiaries owning
interests in the Yombo field offshore West Africa (each a "Congo
subsidiary"), the Company and a wholly owned subsidiary of CMS NOMECO Oil &
Gas Co. ("CMS") agreed with the seller of the subsidiaries not to claim
certain tax losses ("dual consolidated losses") incurred by such subsidiaries
prior to the acquisitions. Pursuant to the agreement, the Company and CMS
may be liable to the seller for the recapture of dual consolidated losses
utilized by the seller in years prior to the acquisitions if certain
triggering events occur, including (i) a disposition by either the Company or
CMS of its respective Congo Subsidiary, (ii) either Congo subsidiary's sale
of its interest in the Yombo field, (iii) the acquisition of the Company or
CMS by another consolidated group or (iv) the failure of the Company's or
CMS's Congo subsidiary to continue as a member of its respective consolidated
group. A triggering event will not occur, however, if a subsequent purchaser
enters into certain agreements specified in the U.S. Internal Revenue
Service's consolidated return regulations intended to ensure that such dual
consolidated losses will not be claimed. The Company and CMS have agreed
among themselves that the party responsible for the triggering event shall
indemnify the other for any liability to the seller as a result of such
triggering event. The Company's potential direct liability could be as much
as $60 million if a triggering event with respect to the Company occurs, and
the Company believes that CMS's liability (for which the Company will be
jointly liable with an indemnification right against CMS) could be as much as
$80 million. The Company does not expect a triggering event to occur with
respect to it or CMS and does not believe the agreement will have a material
adverse effect upon the Company.
8. Subsequent Event
----------------
In July 1996, the Company completed the acquisition of a package of East
Texas oil and gas properties for a net purchase price of $9.3 million.
13
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Resources and Liquidity
-------------------------------
Nuevo seeks to increase reserves, production and cash flow from operations
through its ongoing strategy of (i) acquiring producing oil and gas
properties, at favorable prices, with significant exploitation and
development potential, (ii) focusing on exploitation activities to maximize
production and ultimate reserve recovery, (iii) exploring and developing non-
producing properties, (iv) utilizing advanced technologies in its
exploitation, development and exploration activities and (v) maintaining a
low cost operating structure. Funding for the Company's activities has
historically been provided by operating cash flows, debt and bank financing,
equity sales, property divestitures and joint ventures with industry
participants. Net cash provided by operating activities was $38.4 million
and $11.5 million for the six months ended June 30, 1996 and 1995,
respectively, and $40.1 million and $63.8 million in 1995 and 1994,
respectively. The Company invested $482.0 million and $23.7 million in oil
and gas properties for the six months ended June 30, 1996 and 1995
respectively, and $42.6 and $108.2 million in 1995 and 1994, respectively.
The Company also has $22.4 million of working capital and unused commitments
under the revolving credit facility of $94 million subject to borrowing base
determination. The Company believes cash flows from operations, working
capital and financing sources are sufficient to meet its obligations as they
become due and finance its exploration and development programs. The Company
is currently formulating plans to dispose of certain unidentified assets in
order to further reduce borrowings under the credit facility.
Capital Expenditures
--------------------
The Company has identified substantial development and exploitation
opportunities, and plans a development program for the California Properties
with estimated capital expenditures of approximately $50 million in 1996. In
addition to capital expenditures relating to the California Properties, the
Company has a capital expenditure budget of approximately $50 million for
1996 for its other properties.
Financing Activities
--------------------
The Company has negotiated a commitment from a bank group led by NationsBank
of Texas, N.A. to extend to the Company a $385.0 million credit facility
maturing on May 17, 2001. The maximum borrowings that may be outstanding
under the credit facility may not exceed a borrowing base ("Borrowing Base")
based on the present value of the Company's oil and gas reserves based on
assumptions regarding prices, production and costs approved by the bank
group. The Borrowing Base at closing was determined to be $289.0 million, and
will be reset annually. Sales of assets in excess of $10.0 million will
trigger a requirement to re-calculate the Borrowing Base. If amounts
outstanding under the credit facility exceed the Borrowing Base, as
redetermined from time to time, the Company will be required to repay such
excess, and may be required to sell assets to make such repayments. Amounts
outstanding under the credit facility will bear interest at a rate equal to
the London Interbank Offered Rate ("LIBOR") plus a number of basis points
which increases as the senior indebtedness of the
14
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Company as a percent of the Borrowing Base increases. Currently, the
Company's interest rate under the line of credit is LIBOR plus .75% with
outstanding borrowings in the amount of $195 million. Such proceeds were used
to finance a portion of the purchase price of the Unocal Properties as well
as retire the borrowings under an existing credit facility in the amount of
$27.0 million.
In April 1996, the Company financed a portion of the purchase price of the
Unocal Properties with the proceeds from the sale to the public of a
principal amount of $160 million, 9.5% Senior Subordinated Notes (the
"Notes") due 2006 of the Company. The Notes mature on April 15, 2006 and
interest expense is payable semi-annually on April 15 and October 15,
commencing October 15, 1996. The Company also has $75 million of 12.5%
Senior Subordinated Notes outstanding due 2002.
The Company also entered into a bridge commitment with a bank group led by
NationsBank of Texas, N.A. The facility was not drawn down; however, $1.7
million in fees associated with the bridge commitment were expensed in the
second quarter of 1996.
In February 1995, in connection with the acquisition of the Yombo field
properties, a subsidiary of the Company entered into a $25.0 million non-
recourse credit facility (the "OPIC Facility") with the Overseas Private
Investment Corporation and an agent bank to finance $8.8 million of the
purchase price for such properties. The remaining funds under the credit
facility will be used to finance 75% of a development drilling program in the
Yombo field. A portion of the remaining outstanding commitment, $6.0
million, was drawn down in January 1996 to fund the first phase of the
development drilling program in the Yombo field. The interest rate
associated with such credit facility is LIBOR plus 20 basis points and a
guaranty fee of 2.75% of the outstanding loan balance, all of which is
payable quarterly. The loan agreement requires principal to be repaid in 16
equal quarterly installments commencing in October 1995. At June 30, 1996,
$13.2 million is outstanding of which $3.7 million is due in 1996.
Gas Balancing
-------------
It is customary in the industry for various working interest partners to sell
more or less than their entitled share of natural gas. The settlement or
disposition of existing gas balancing positions is not anticipated to
materially impact the financial condition of the Company.
Derivative Financial Instruments
--------------------------------
The Company periodically uses derivative financial instruments to manage oil
and natural gas price risk. Settlement of gains and losses on price swap
contracts are realized monthly, generally based upon the difference between
the contract price and the average closing New York Mercantile Exchange
(NYMEX) price and are reported as a component of oil and gas revenues. Gains
or losses attributable to the termination of a swap contract are deferred and
recognized in revenue when the hedged crude oil and natural gas are sold.
There were no such deferred gains or losses at June 30, 1996 or 1995.
15
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
As of June 30, 1996, the Company had two separate energy swap agreements
the first of which hedges 1,500 barrels per day of No. 6 fuel oil at an
average price of $15.75 for March through November designated for the
Congo oil production. The second contract hedges 10,000 MMBtu of natural
gas per day at a ceiling price of $2.00 and a floor price of $1.70 for
April through October 1996.
As a result of hedging transactions, oil and gas revenues were reduced by
$.9 million and increased by $70,000 in the second quarter of 1996 and
1995, respectively. During the first six months of 1996, oil and gas
revenues were reduced by $1.1 million as a result of these transactions.
Gains and losses on other derivative financial instruments that qualify
as a hedge of firmly committed or anticipated purchases and sales of oil
and gas commodities are deferred and recognized in income when the
related hedged transaction occurs. Gains or losses on derivative
financial instruments that do not qualify as a hedge are recognized in
income currently.
Accounting Pronouncements
-------------------------
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," issued by the Financial Accounting Standards Board ("FASB") in March
1995, was implemented by the Company in the first quarter of 1996. This
standard addresses the accounting for the recognition and measurement of
impairment losses for long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used. This standard
also addresses the accounting for long-lived assets and certain
identifiable intangibles to be disposed of.
The adoption of Accounting Standard 121 did not have a significant impact
on consolidated results of operations or the financial position of the
Company.
The Company follows the intrinsic value method for stock options granted
to employees. In October 1995, the FASB issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation."
The Company did not adopt the fair value method for stock-based
compensation plans, but will provide pro forma disclosures pursuant to an
optional provision of Accounting Standard 123.
Contingencies
-------------
The Company has been named as a defendant in certain lawsuits incidental
to its business. Management does not believe that the outcome of such
litigation will have a material adverse impact on the Company.
In connection with their respective acquisitions of two subsidiaries
owning interests in the Yombo field offshore West Africa (each a "Congo
subsidiary"), the Company and a wholly owned subsidiary of CMS NOMECO Oil
& Gas Co. ("CMS") agreed with the seller of the subsidiaries not to claim
16
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
certain tax losses ("dual consolidated losses") incurred by such
subsidiaries prior to the acquisitions. Pursuant to the agreement, the
Company and CMS may be liable to the seller for the recapture of dual
consolidated losses utilized by the seller in years prior to the
acquisitions if certain triggering events occur, including (i) a
disposition by either the Company or CMS of its respective Congo
Subsidiary, (ii) either Congo subsidiary's sale of its interest in the
Yombo field, (iii) the acquisition of the Company or CMS by another
consolidated group or (iv) the failure of the Company's or CMS's Congo
subsidiary to continue as a member of its respective consolidated group.
A triggering event will not occur, however, if a subsequent purchaser
enters into certain agreements specified in the U.S. Internal Revenue
Service's consolidated return regulations intended to ensure that such
dual consolidated losses will not be claimed. The Company and CMS have
agreed among themselves that the party responsible for the triggering
event shall indemnify the other for any liability to the seller as a
result of such triggering event. The Company's potential direct liability
could be as much as $60 million if a triggering event with respect to the
Company occurs, and the Company believes that CMS's liability (for which
the Company will be jointly liable with an indemnification right against
CMS) could be as much as $80 million. The Company does not expect a
triggering event to occur with respect to it or CMS and does not believe
the agreement will have a material adverse effect upon the Company.
Results of Operations (Three months ended June 30, 1996, and 1995)
- ------------------------------------------------------------------
The following table sets forth certain operating information of the Company
(inclusive of the effect of crude oil and natural gas price swaps) for the
periods presented:
Three Months
Ended June 30,
-------------------- %
Increase/
1996 1995 (Decrease)
------------ ------ ----------
Production:
Oil and condensate (MBBLS)............... 4,096 1,009 306%
Natural gas (MMCF)....................... 10,457 7,603 38%
Average Sales Price:
Oil and condensate....................... $ 15.48 $14.96 3%
Natural gas/(1)/......................... $ 1.90 $ 1.53 24%
Average unit production cost/(2)/ per BOE..... $ 5.24 $ 3.42 53%
Average unit depletion rate per BOE-Domestic.. $ 4.02 $ 5.10 (21%)
Average unit depletion rate per BOE-Congo..... $ .75 $ .75 ---
/(1)/ Average sales price for natural gas includes revenues received from the
sale of natural gas liquids.
/(2)/ Costs incurred to operate and maintain wells and related equipment and
facilities, including ad valorem and severance taxes.
17
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Revenues
- --------
Oil and gas revenues for the three months ended June 30, 1996 were $83.5
million, or 208% higher than oil and gas revenues of $27.1 million for the same
period in 1995 mainly due to the acquisition of the California Properties.
Gas plant revenues of approximately $7.8 million and $6.9 million are reflected
in the three months ended June 30, 1996 and 1995, respectively. The 13% increase
in gas plant revenues is primarily due to increased natural gas liquids prices.
Pipeline and other revenues for the three months ended June 30, 1996 were $1.6
million, or 16% lower than pipeline and other revenues of $1.9 million for the
same period in 1995 primarily due to reduced throughput in the Bright Star
gathering system associated with reduced volumes resulting from producers in the
Alabama Ferry Field employing gas lift recovery in their reservoir maintenance
operations, partially offset by higher natural gas and natural gas liquids
prices.
Expenses
- --------
Lease operating expenses for the three months ended June 30, 1996 totaled $30.6
million or 292% higher than $7.8 million for the three months ended June 30,
1995 primarily due to the acquisition of the California Properties. Lease
operating expenses per barrel of oil equivalent were $5.24 in the second quarter
of 1996 when compared to $3.42 in the same period in 1995 due primarily to
higher lifting costs associated with the California Properties.
Plant operating expenses were approximately $6.9 million in the three months
ended June 30, 1996 as compared to $5.6 million for the three months ended June
30, 1995. The 23% increase in gas plant expenses in 1996 over 1995 is due
primarily to increased liquids settlements under percent of proceeds contracts
as a result of higher natural gas and natural gas liquids prices.
Pipeline and other operating expenses for the three months ended June 30, 1996
were $1.6 million, or 33% higher than pipeline and other operating expenses of
$1.2 million for the same period in 1995, which is mostly attributable to
increased natural gas and natural gas liquids prices.
Depreciation, depletion and amortization of $23.5 million for the three months
ended June 30, 1996 reflects a 110% increase from $11.2 million in the same
period in 1995 due to increased production volumes as a result of the
acquisition of the California Properties, partially offset by a decreased
depletion rate per barrel of oil equivalent as a result of increased estimated
proved oil and gas reserves.
General and administrative expenses totaled $6.1 million and $2.4 million in the
three months ended June 30, 1996 and 1995, respectively. The 154% increase is
due primarily to the increase in management fees, resulting from significant
growth in the assets of the Company.
18
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Interest expense increased to $12.4 million for the three months ended June 30,
1996 from $3.9 million in the same period of 1995. The increase in interest
expense is the result of increased borrowings under the new credit facility as
well as the issuance of $160 million Senior Subordinated Notes due 2006 in order
to finance the acquisition of the California Properties. Additionally, the
Company entered into a bridge commitment in relation to the acquisition of the
California Properties. The facility was not drawn down; however, $1.7 million
in fees associated with the bridge commitment were expensed in the second
quarter of 1996.
Net Income
- ----------
Net income of $7.2 million was generated for the three months ended June 30,
1996 as compared to net income of $2.5 million in the same period of 1995.
Earnings available to common stockholders totaled $6.9 million after deductions
for preferred stock dividends for the three months ended June 30, 1996 versus
$2.1 million for the same period in 1995.
Results of Operations (Six months ended June 30, 1996 and 1995)
- ---------------------------------------------------------------
The following table sets forth certain operating information of the Company
(inclusive of the effect of crude oil and natural gas price swaps) for the
periods presented:
Six Months
Ended June 30,
-------------- %
Increase/
1996 1995 (Decrease)
-------------- ------- -----------
Production:
Oil and condensate (MBBLS)............... 4,987 1,938 157%
Natural gas (MMCF)....................... 16,292 15,553 5%
Average Sales Price:
Oil and condensate....................... $ 15.56 $ 14.72 6%
Natural gas/(1)/......................... $ 1.90 $ 1.51 26%
Average unit production cost/(2)/ per BOE..... $ 4.82 $ 3.18 52%
Average unit depletion rate per BOE-Domestic.. $ 4.12 $ 5.10 (19%)
Average unit depletion rate per BOE-Congo..... $ .75 $ .75 ---
/(1)/ Average sales price for natural gas includes revenues received from the
sale of natural gas liquids.
/(2)/ Costs incurred to operate and maintain wells and related equipment and
facilities including ad valorem and severance taxes.
19
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Revenues
- --------
Oil and gas revenues for the six months ended June 30, 1996 were $109.1 million,
or 107% higher than oil and gas revenues of $52.7 million for the same period in
1995. The increase in oil and gas revenues was attributable primarily to
production from the California Properties and higher oil prices.
Gas plant revenues of approximately $14.8 million and $14.2 million are
reflected in the six months ended June 30, 1996 and 1995, respectively.
Pipeline and other revenues for the six months ended June 30, 1996 were
approximately $3.3 million, or 18% less than pipeline and other revenues of
approximately $4.0 million for the same period in 1995. The decrease is
primarily due to decreased throughput at the Bright Star and West Delta
pipelines; which was partially offset by increased natural gas and natural gas
liquids prices.
Expenses
- --------
Lease operating expenses for the six months ended June 30, 1995 totaled $37.3
million, compared to $14.5 million for the same period in 1995. Lease operating
expenses per BOE were $4.82 in the first half of 1996 when compared to $3.18 in
the same period in 1995 due primarily to higher lifting costs associated with
the California Properties.
Increased plant operating expenses of $12.5 million are reflected in the six
months ended June 30, 1996 as compared to $11.4 million for the six months ended
June 30, 1995. The 10% increase in gas plant expenses in 1996 compared to 1995
primarily relates to increased liquids settlements under percent of proceeds
contracts as a result of higher natural gas and natural gas liquids prices.
Pipeline and other operating expenses for the six months ended June 30, 1996
were $2.8 million, or 12% higher than pipeline operating expenses of
approximately $2.5 million for the same period in 1995, due to increased natural
gas and natural gas liquids prices.
Depreciation, depletion and amortization of $31.5 million for the six months
ended June 30, 1996 reflects an increase of 39% from $22.6 million in the same
period in 1995 due to increased oil and gas production volumes as a result of
the acquisition of the California Properties partially offset by a decreased
depletion rate per barrel of oil equivalent as a result of increased estimated
proved oil and gas reserves.
General and administrative expenses totaled $8.6 million and $5.0 million in the
six months ended June 30, 1996 and 1995, respectively. The 72% increase in
general and administrative expense is due primarily to the increase in
management fees, resulting from significant growth in the assets of the company.
20
NUEVO ENERGY COMPANY
--------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Interest expense increased to $16.2 million for the six months ended June 30,
1996 from $7.8 million in the same period of 1995. The increase in interest
expense is the result of increased borrowings under the new credit facility as
well as the issuance of $160 million Senior Subordinated Notes due 2006 in order
to finance the acquisition of the California Properties. Additionally, the
Company entered into a bridge commitment in relation to the acquisition of the
California Properties. The facility was not drawn down; however, $1.7 million
in fees associated with the bridge commitment were expensed in the second
quarter of 1996.
Net Income
- ----------
Net income of approximately $11.4 million was generated for the six months ended
June 30, 1996, as compared to net income of $4.7 million in the same period of
1995. Earnings available to common stockholders totaled $10.9 million after
deductions for preferred stock dividends for the six months ended June 30, 1996
versus $3.8 million for the same period in 1995.
21
NUEVO ENERGY COMPANY
--------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
None.
ITEM 2. CHANGES IN SECURITIES
- ------- ---------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------- -------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
At the annual meeting of the stockholders of the Company,
held on May 20, 1996, the following matters were voted upon
by the stockholders with the following results:
(1) J.P. Bryan, Gary Peterson, John B. Connally, III,
Michael D. Watford, Thomas D. Barrow and Isaac Arnold,
Jr., continue their terms as directors. Robert L. Gerry,
III, Robert H. Allen, T. Michael Long and James T.
Hackett were elected as directors with a total of
14,830,342 voting in favor and 126,875 withheld
authority for Robert L. Gerry, III, Robert H. Allen and
T. Michael Long and 127,401 withheld authority for James
T. Hackett.
(2) The stockholders approved a proposal to ratify the
selection of KPMG Peat Marwick, LLP as the Company's
independent auditors for the year ending December 31,
1996 with a total of 14,921,011 shares voting in favor,
a total of 9,072 shares voting against and a total of
27,134 shares abstaining.
(3) The stockholders approved the adoption of an amendment
to the Nuevo Energy Stock Incentive Plan with a total of
10,135,872 shares voting in favor, a total of 2,024,677
voting against and 50,491 shares abstaining.
ITEM 5. OTHER INFORMATION
- ------- -----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. Exhibits
27 - Financial Data Schedule
b. Reports on Form 8-K.
None.
22
NUEVO ENERGY COMPANY
--------------------
PART II. OTHER INFORMATION (CONTINUED)
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.
NUEVO ENERGY COMPANY
--------------------
(Registrant)
Date: August 13, 1996 By:/s/ Michael D. Watford
----------------------------- -----------------------------
Michael D. Watford
President, Chief Executive Officer
and Chief Operating Officer
Date: August 13, 1996 By:/s/ Robert M. King
----------------------------- ------------------------------
Robert M. King
Chief Financial Officer
23