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 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 1-10537
-----------
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 1650, 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 May 6, the number of outstanding shares of the Registrant's common stock
was 20,202,137.
NUEVO ENERGY COMPANY
--------------------
INDEX
-----
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
March 31, 1997 (Unaudited) and December 31, 1996............. 3
Condensed Consolidated Statements of Operations (Unaudited):
Three months ended March 31, 1997 and March 31, 1996......... 5
Condensed Consolidated Statements of Cash Flows (Unaudited):
Three months ended March 31, 1997 and March 31, 1996......... 6
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................. 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 12
PART II. OTHER INFORMATION.............................................. 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(AMOUNTS IN THOUSANDS)
ASSETS
------
March 31, 1997 December 31, 1996
--------------- -----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents.................. $ 8,685 $ 13,636
Accounts receivable........................ 51,178 37,595
Product inventory.......................... 2,139 2,731
Due from affiliates........................ --- 5,609
Prepaid expenses and other................. 4,253 4,067
---------- ----------
Total current assets..................... 66,255 63,638
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Land....................................... 49,696 49,696
Buildings and improvements................. 5,304 5,304
Oil and gas properties (full cost method).. 1,082,594 1,031,057
Pipeline and other facilities.............. 47,136 46,887
Gas plant facilities....................... 42,172 41,694
---------- ----------
1,226,902 1,174,638
Accumulated depreciation, depletion and
amortization............................. (416,817) (392,977)
---------- ----------
810,085 781,661
---------- ----------
OTHER ASSETS................................ 18,147 18,504
---------- ----------
$ 894,487 $ 863,803
========== =========
See accompanying notes to condensed consolidated financial statements.
3
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
-------------------------------------------------
(AMOUNTS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, 1997 December 31,1996
--------------- ----------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable............................................................................... $ 13,751 $ 18,720
Accrued interest............................................................................... 10,347 4,736
Accrued liabilities............................................................................ 32,942 11,236
Due to affiliates.............................................................................. 3,698 ---
Current maturities of long-term debt........................................................... 4,863 5,408
-------- --------
Total current liabilities................................................................... 65,601 40,100
-------- --------
OTHER LONG-TERM LIABILITIES...................................................................... 4,046 3,864
DEFERRED REVENUE................................................................................. 3,878 4,828
LONG-TERM DEBT, NET OF CURRENT MATURITIES........................................................ 264,476 287,038
DEFERRED TAXES................................................................................... 43,940 35,153
MINORITY INTEREST................................................................................ 690 704
GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN COMPANY'S CONVERTIBLE DEBENTURES
(TECONS)......................................................................................... 115,000 115,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares authorized, 20,201,637 and 19,852,478 shares
issued and outstanding at March 31, 1997 and December 31, 1996, respectively................ 202 199
Additional paid-in capital..................................................................... 346,117 340,126
Retained earnings.............................................................................. 50,537 36,791
-------- --------
Total stockholders' equity................................................................. 396,856 377,116
-------- --------
$894,487 $863,803
======== ========
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 March 31,
------------------------------
1997 1996
--------------- -------------
REVENUES:
Oil and gas revenues........................ $ 91,113 $25,587
Gas plant revenues.......................... 8,824 7,022
Pipeline and other revenues................. 1,497 1,702
Interest and other income................... 591 114
-------- -------
102,025 34,425
-------- -------
COSTS AND EXPENSES:
Lease operating expenses.................... 30,759 6,133
Gas plant operating expenses................ 7,871 5,591
Pipeline and other operating expenses....... 1,326 1,224
Depreciation, depletion and
amortization.............................. 22,244 8,060
General and administrative expenses......... 8,235 3,057
Interest expense............................ 6,745 3,738
Dividends on Guaranteed Preferred
Beneficial Interests in Company's
Convertible Debentures (TECONS)........... 1,615 ---
Other expense............................... 249 18
-------- -------
79,044 27,821
-------- -------
Income before income taxes and minority
interest.................................... 22,981 6,604
Provision for income taxes................... 9,249 2,417
Minority interest............................ (14) (14)
-------- -------
NET INCOME................................... $ 13,746 $ 4,201
======== =======
Dividends on preferred stock................. --- 265
-------- -------
EARNINGS AVAILABLE TO COMMON STOCKHOLDERS.... $ 13,746 $ 3,936
======== =======
Earnings per common and common equivalent
share....................................... $ .66 $ .32
======== =======
Average common and common equivalent shares
outstanding................................. 20,880 12,212
======== =======
See accompanying notes to condensed consolidated financial statements.
5
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three Months Ended March 31,
----------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 13,746 $ 4,201
Adjustments to reconcile net income to
net cash provided by operating activities:..
Depreciation, depletion and amortization... 22,244 8,060
Amortization of other costs................ 406 93
Deferred revenues.......................... (950) (1,148)
Deferred taxes............................. 8,787 1,934
Minority interest.......................... (14) (14)
Stock bonus awards......................... 646 ---
-------- --------
44,865 13,126
Change in assets and liabilities:
Accounts receivable......................... (13,583) 767
Accounts payable and accrued liabilities.... 22,348 6,091
Due from/(to) affiliates.................... 9,307 (1,879)
Other....................................... 549 (3,744)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 63,486 14,361
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties.......... (51,537) (10,866)
Additions to gas plant facilities............ (478) (218)
Additions to pipeline and other facilities... (249) 25
Proceeds from sales of properties............ 1,610 2,409
Other........................................ --- (10,000)
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES........ (50,654) (18,650)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings..................... --- 16,000
Payments of long-term debt................... (23,128) (9,620)
Preferred stock dividends.................... --- (265)
Proceeds from issuance of common stock....... 5,345 947
-------- --------
NET CASH (USED IN)/PROVIDED BY FINANCING
ACTIVITIES.................................... (17,783) 7,062
-------- --------
Net (decrease)/increase in cash and cash
equivalents................................. (4,951) 2,773
Cash and cash equivalents at beginning of
period...................................... 13,636 5,765
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 8,685 $ 8,538
======== ========
6
NUEVO ENERGY COMPANY
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
-----------------------------------------------------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three Months Ended March 31,
----------------------------
1997 1996
------ ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized)... $ 1,864 $ 1,072
Income taxes............................ $ --- $ ---
See accompanying notes to condensed consolidated financial statements.
7
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 March 31, 1997 and December 31, 1996 and the
results of operations and changes in cash flows for the periods ended March
31, 1997 and 1996. These financial statements should be read in conjunction
with the financial statements and notes to the financial statements in the
1996 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.
RECLASSIFICATIONS
-----------------
Certain reclassifications of prior year amounts have been made to conform
with current reporting practices.
8
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 Three Months Ended
--------------------------
March 31, March 31,
1997 1996
------------ ------------
Sales to unaffiliated customers:
Oil and gas(1)........................... $ 91,113 $25,587
Gas plant, pipelines and other........... 10,321 8,724
-------- -------
Total sales................................ 101,434 34,311
Other revenues........................... 591 114
-------- -------
Total revenues............................. $102,025 $34,425
======== =======
Operating profit before income taxes:
Oil and gas(1)........................... $ 39,207 $11,770
Gas plant, pipelines and other........... 197 1,008
-------- -------
39,404 12,778
Unallocated corporate expenses............. 8,063 2,436
Interest expense........................... 6,745 3,738
Dividends on Guaranteed Beneficial
Interests in Company's Convertible
Debentures (TECONS)....................... 1,615 ---
-------- -------
Income before income taxes and
minority interest........................ $ 22,981 $ 6,604
======== =======
Depreciation, depletion and amortization:
Oil and gas.............................. $ 21,147 $ 7,125
Gas plant, pipelines and other........... 927 901
-------- -------
$ 22,074 $ 8,026
======== =======
(1) Oil and gas sales and operating profit before income taxes include revenues
associated with gas plant facilities in California, which process immaterial
amounts of third party gas.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
3. ACCOUNTING PRONOUNCEMENTS
-------------------------
Statement of Financial Accounting Standard No. 128, "Earnings per Share," was
issued by the Financial Accounting Standards Board ("FASB") in February 1997.
This statement addresses the computation, presentation, and disclosure
requirements for earnings per share. This statement will be implemented by
the Company in the fourth quarter of 1997.
If this Statement had been implemented by the Company effective January 1,
1997, basic and fully diluted earnings per share for the three months ended
March 31, 1997 would have been $.68 and $.66, respectively. Basic and fully
diluted earnings per share for the three months ended March 31, 1996 would
have been $.34 and $.32, respectively.
4. PROPERTIES AND EQUIPMENT
------------------------
In March 1997, Nuevo Ghana, Inc., a wholly-owned subsidiary of the Company,
signed a petroleum agreement with the Republic of Ghana and the Ghana
National Petroleum Corporation for petroleum rights covering approximately
1.7 million acres offshore of Ghana in the East Cape Three Points Prospect
area. Nuevo is the operator with a 75% working interest and a third party
holds the remaining 25% working interest. Plans for 1997 include
reprocessing existing seismic and shooting additional seismic in preparation
for drilling the first exploration well in 1998.
5. FINANCING ACTIVITIES
--------------------
The 12 1/2% Senior Subordinated Notes due June 15, 2000 (the "Notes") issued
by the Company are redeemable on or after June 15, 1997, under certain
conditions. The Company has notified the Trustee of the Indenture governing
the Notes of its intent to redeem these Notes on Monday, June 16, 1997. The
Company will use its credit facility to fund the redemption.
6. STOCKHOLDERS' EQUITY
--------------------
In March 1997, the Company adopted a Shareholder Rights Plan (the "Plan") to
protect the Company's shareholders from coercive or unfair takeover tactics.
Under the Plan, each outstanding share and each share of subsequently issued
Common Stock has attached to it one Right. Generally, in the event a person
or group ("Acquiring Person") acquires or announces an intention to acquire
beneficial ownership of 15% or more of the outstanding shares of Common Stock
without the prior consent of the Company, or the Company is acquired in a
merger or other business combination, or 50% or more of its assets or earning
power is sold, each holder of a Right will have the right to receive, upon
exercise at the exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will
have a market price of two times the exercise price of the Right. The
Company may redeem each Right for $.01 at any time before a person or group
becomes an Acquiring Person without prior approval. The Rights will expire
on March 21, 2007, subject to earlier redemption by the Board of Directors of
the Company.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
In March 1997, the Board of Directors of the Company authorized the
repurchase of up to one million shares of outstanding Common Stock during
1997, at times and prices deemed attractive by management. During April
1997, the Company repurchased 500,000 shares of Common Stock in open market
transactions, at an average purchase price of $38.94 per share.
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's operating
results or financial condition. However, these actions and claims in the
aggregate seek substantial damages against the Company and are subject to the
inherent uncertainties in any litigation. The Company is defending itself
vigorously in all such matters.
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 not to claim certain tax 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 these tax losses utilized by the seller in years prior to the acquisitions
if certain triggering events occur. A triggering event will not occur,
however, if a subsequent purchaser enters into certain agreements specified
in the consolidated return regulations intended to insure that such losses
will not be claimed. The Company's potential direct liability could be as
much as $54.0 million if a triggering event with respect to the Company
occurs, and the Company believes that CMS's liability (for which the Company
would be jointly liable with an indemnification right against CMS) could be
as much as $72.0 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
----------------
On May 2, 1997, Nuevo Liquids, a wholly-owned subsidiary of the Company, sold
its 95% interest in NuStar Joint Venture, which holds a 66.7% investment in
the Benedum Plant System, for net proceeds of $18.8 million, plus the
extinguishment of a related loan facility with a balance of approximately
$6.0 million at the date of sale. The effective date of the sale is January
1, 1997. Proceeds from the sale were used to reduce outstanding debt under
the Company's revolving credit facility.
11
NUEVO ENERGY COMPAY
-------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Forward Looking Statements
--------------------------
This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). All
statements other than statements of historical facts included in this
document, including without limitation, statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the Company's financial position, estimated quantities and net
present values of reserves, business strategy, plans and objectives of
management of the Company for future operations and covenant compliance, are
forward-looking statements. Although the Company believes that the
assumptions upon which such forward-looking statements are based are
reasonable, it can give no assurances that such assumptions will prove to
have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements")
are disclosed below and elsewhere in this document. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified by the Cautionary Statements.
Capital Resources and Liquidity
-------------------------------
Since the formation of the Company, management's strategy has been to
purchase and develop producing oil and gas properties, participate in gas
processing, gas gathering and pipeline investments and to participate
selectively in exploration activities. The funding of these activities was
provided by operating cash flows, debt and bank financing, private and public
placements of equity, property divestitures and joint ventures with industry
participants. Net cash provided by operating activities was $63.5 million
and $14.4 million for the three months ended March 31, 1997 and 1996,
respectively. The Company invested $51.5 million and $10.9 million in oil and
gas properties for the three months ended March 31, 1997 and 1996
respectively. The Company also has $1.0 million of working capital and
unused commitments under the revolving credit line of $269.0 million, subject
to borrowing base determination. The Company believes its working capital,
cash flow from operations, and available financing sources are sufficient to
meet its obligations as they become due and to finance its exploration and
development programs.
On May 2, 1997, Nuevo Liquids, a wholly-owned subsidiary of the Company, sold
its 95% interest in NuStar Joint Venture, which holds a 66.7% investment in
the Benedum Plant System, for net proceeds of $18.8 million. The effective
date of the sale is January 1, 1997. Proceeds from the sale were used to
reduce outstanding debt under the Company's revolving credit facility, plus
the extinguishment of a related loan facility with a balance of approximately
$6.0 million at the date of sale.
12
NUEVO ENERGY COMPAY
-------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Expenditures
--------------------
The Company has identified substantial development and exploitation
opportunities for 1997, which it believes offer meaningful opportunities to
grow reserves and increase production. The Company anticipates spending an
additional $75.0 million on development activities during the remainder of
1997, primarily in California and in the Congo.
The Company also has an active and growing exploration program targeting
high-potential reserve opportunities in California and the onshore Gulf Coast
region. The Company anticipates spending an additional $11.0 million during
1997 on exploration projects.
Financing Activities
--------------------
The 12 1/2% Senior Subordinated Notes due June 15, 2000 (the "Notes") issued
by the Company are redeemable on or after June 15, 1997, under certain
conditions. The Company has notified the Trustee of the Indenture governing
the Notes of its intent to redeem these Notes on Monday, June 16, 1997. The
Company will use its credit facility to fund the redemption.
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 gas balancing positions is not anticipated to adversely impact
the financial condition of the Company in the near term.
Derivative Financial Instruments
--------------------------------
Commodity derivatives utilized as hedges include futures and swap contracts.
In order to qualify as a hedge, price movements in the underlying commodity
derivative must be sufficiently correlated with the hedged commodity.
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 and operating cash flows in the period
realized. 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 March 31, 1997
or 1996.
As a result of hedging transactions, oil and gas revenues were reduced by
$1.8 million in the first quarter of 1997.
For the period July 1997 through December 1997, the Company has purchased put
option contracts on 19,100 barrels per day of West Texas Intermediate Crude
at a strike price of $19.00 per barrel. The total cost of these options was
$1.8 million, which will be amortized into revenue over the six month term
beginning July 1997. The effect of these put options is to establish a floor
price on a large percentage of the Company's estimated oil production in the
3rd and 4th quarters.
13
NUEVO ENERGY COMPAY
-------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
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 on the balance sheet and recognized in income and
operating cash flows 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. 128, "Earnings per Share," was
issued by the Financial Accounting Standards Board ("FASB") in February 1997.
This statement addresses the computation, presentation, and disclosure
requirements for earnings per share. This Statement will be implemented by
the Company in the fourth quarter of 1997.
If this Statement had been implemented by the Company effective January 1,
1997, basic and diluted earnings per share for the three months ended March
31, 1997 would have been $.68 and $.66, respectively. Basic and fully
diluted earnings per share for the three months ended March 31, 1996 would
have been $.34 and $.32, respectively.
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's operating
results or financial condition. However, these actions and claims in the
aggregate seek substantial damages against the Company and are subject to the
inherent uncertainties in any litigation. The Company is defending itself
vigorously in all such matters.
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 not to claim certain tax 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 these tax losses utilized by the seller in years prior to the acquisitions
if certain triggering events occur. A triggering event will not occur,
however, if a subsequent purchaser enters into certain agreements specified
in the consolidated return regulations intended to insure that such losses
will not be claimed. The Company's potential direct liability could be as
much as $54.0 million if a triggering event with respect to the Company
occurs, and the Company believes that CMS's liability (for which the Company
would be jointly liable with an indemnification right against CMS) could be
as much as $72.0 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.
14
NUEVO ENERGY COMPAY
-------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Results of Operations (Three months ended March 31, 1997, and 1996)
- -------------------------------------------------------------------
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 March 31, %
--------------- Increase/
1997 1996 (Decrease)
------- ------ -----------
Production:
Oil and condensate (MBBLS)............... 4,148 891 366%
Natural gas (MMCF)....................... 8,954 5,835 53%
Natural gas liquids (MBBLS).............. 63 15 320%
Average Sales Price:
Oil and condensate....................... $16.58 $15.97 4%
Natural gas.............................. $ 2.24 $ 1.90 18%
Average unit production cost/(1)/ per BOE..... $ 5.39 $ 3.26 65%
Average unit depletion rate per BOE-Domestic.. $ 3.94 $ 4.50 (12%)
Average unit depletion rate per BOE-Congo..... $ .75 $ .75 ---
/(1)/ Costs incurred to operate and maintain wells and related equipment and
facilities, including ad valorem and severance taxes.
15
NUEVO ENERGY COMPAY
-------------------
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 March 31, 1997 were $91.1
million, or 256% higher than oil and gas revenues of $25.6 million for the same
period in 1996 due to the acquisition of certain upstream oil and gas properties
located onshore and offshore California (the "California Properties") in April
1996, as well as higher oil and gas prices during the period.
Gas plant revenues of approximately $8.8 million and $7.0 million are reflected
in the three months ended March 31, 1997 and 1996, respectively. The 26%
increase in gas plant revenues is primarily due to increased natural gas liquids
prices.
Pipeline and other revenues for the three months ended March 31, 1997 were $1.5
million, or 12% lower than pipeline and other revenues of $1.7 million for the
same period in 1996, primarily due to the sale of the West Delta 152 pipeline
during July 1996.
Expenses
- --------
Lease operating expenses for the three months ended March 31, 1997 totaled $30.8
million, or 405% higher than $6.1 million for the three months ended March 31,
1996, primarily due to the acquisition of the California Properties. Lease
operating expenses per barrel of oil equivalent were $5.39 in the first quarter
of 1997, compared to $3.26 in the same period in 1996, due primarily to higher
lifting costs associated with the California Properties, as well as higher steam
costs due to higher gas prices during the period.
Plant operating expenses were approximately $7.9 million for the three months
ended March 31, 1997 as compared to $5.6 million for the three months ended
March 31, 1996. The 41% increase in gas plant expenses in 1997 over 1996 is due
primarily to increased payments for liquids settlements under percent of
proceeds contracts resulting from higher natural gas liquids prices.
Pipeline and other operating expenses for the three months ended March 31, 1997
were $1.3 million, or 8% higher than pipeline and other operating expenses of
$1.2 million for the same period in 1996, which is primarily attributable to
increased costs on the gas storage facility.
Depreciation, depletion and amortization of $22.2 million for the three months
ended March 31, 1997 reflects a 174% increase from $8.1 million in the same
period in 1996 due to increased production volumes resulting from the
acquisition of the California Properties, partially offset by a decreased
depletion rate per barrel of oil equivalent caused by an increase in estimated
proved oil and gas reserves.
General and administrative expenses totaled $8.2 million and $3.1 million in the
three months ended March 31, 1997 and 1996, respectively. The 165% increase is
due primarily to the increase in management fees resulting from significant
growth in the assets of the Company, as well as additional general and
administrative costs associated with the acquisition of the California
Properties.
16
NUEVO ENERGY COMPAY
-------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------------------------------
Interest expense increased to $6.7 million for the three months ended March 31,
1997 from $3.7 million in the same period of 1996. The increase in interest
expense is the result of increased borrowings under the new credit facility as
well as the issuance of $160.0 million, 9.5% Senior Subordinated Notes due 2006
in order to finance the acquisition of the California Properties.
Net Income
- ----------
Net income of $13.7 million was generated for the three months ended March 31,
1997 as compared to net income of $4.2 million in the same period of 1996.
Earnings available to common stockholders totaled $13.7 million for the three
months ended March 31, 1997 versus $3.9 million for the same period in 1996.
17
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
- ------- ---------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- ------- -----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. Exhibits
None
b. Reports on Form 8-K.
None.
18
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: May 14, 1997 By:/s/ Michael D. Watford
------------------------ -----------------------------------
Michael D. Watford
President, Chief Executive Officer
and Chief Operating Officer
Date: May 14, 1997 By:/s/ Robert M. King
------------------------ ------------------------------------
Robert M. King
Chief Financial Officer
19