UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q*
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 333-31375*
FORMAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)*
LOUISIANA 72-0954774
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
650 POYDRAS STREET - SUITE 2200
NEW ORLEANS, LOUISIANA 70130-6101
(Address of principal executive offices) (Zip code)
(504) 586-8888
(Registrant's telephone number, including area code)
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 [ ] NO [ ] NOT APPLICABLE [X]*
As of August 4, 1997, there were 70,000 shares of the Registrant's Voting
Common Stock, no par value, and 20,000 shares of the Registrant's Non-voting
Common Stock, no par value, outstanding.
* This report is being voluntarily filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Registrant's contractual
obligations to file with the Commission the annual reports, quarterly reports
and other documents that the Company would be required to file if it were
subject to Section 13 or 15 of the Securities Exchange Act of 1934. References
to the Registrant refer to Forman Petroleum Corporation even though it is not
yet a registrant and is not required to file reports pursuant to Section 13 or
15 of the Securities Exchange Act of 1934. The Commission file number refers to
a Form S-4 Registration Statement filed by the Company under the Securities Act
of 1933, which Registration Statement has not yet become effective.
FORMAN PETROLEUM CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I
Page No.
Item 1. Financial Information:
Balance Sheets as of June 30, 1997 and
December 31, 1996 1
Statement of Operations and Accumulated
Deficit for the Three and Six Month Periods
Ended June 30, 1997 and June 30, 1996 2
Statement of Cash Flows for the Six Month
Periods Ended June 30, 1997 and June 30, 1996 3
Notes to Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
PART II
Item 2. Changes in Securities 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14-15
Signatures 16
FORMAN PETROLEUM CORPORATION
----------------------------
BALANCE SHEET
-------------
June 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 8,399,851 $ 130,551
Accounts receivable (net of bad debt allowance) 388,303 500,602
Prepaid interest 8,662,500 0
Oil and gas revenue receivable 1,080,771 2,503,478
Due from Stockholder 12,457 12,457
Other assets 126,072 60,188
-------------- -------------
Total current assets 18,669,954 3,207,276
Property and equipment:
Oil and gas properties, full cost method 64,915,462 48,359,890
Other property and equipment, at cost 1,423,214 1,425,451
-------------- -------------
66,338,676 49,785,341
Less: Accumulated depreciation, depletion
and amortization (15,088,937) (12,433,801)
-------------- -------------
Net property and equipment 51,249,739 37,351,540
Other assets:
Due from affiliate 0 327,828
Deferred financing costs
(net of accumulated amortization) 6,852,990 608,051
Funds on deposit in escrow 510,645 881,970
-------------- -------------
Other assets 7,363,635 1,817,849
TOTAL ASSETS $ 77,283,328 $ 42,376,665
============== =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
--------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 6,547,140 $ 6,241,069
Undistributed oil and gas revenues 1,042,761 1,625,517
Current portion of notes payable 14,086 21,160
Note payable to stockholder 0 500,000
-------------- -------------
Total current liabilities 7,603,987 8,387,746
Note payable (long-term portion) 67,826,520 39,021,487
Deferred tax liability 4,746,000 0
Mandatorily redeemable Preferred Stock, no par value,
1,000,000 authorized shares, 200,000 shares
outstanding 9,795,139 0
Stockholder's deficit:
Common stock, no par value, 1,000,000 shares
authorized, 90,000 issued and outstanding 1,000 1,000
Treasury stock (10) (10)
Additional paid-in capital 0 785,823
Retained deficit (12,689,308) (5,819,381)
-------------- -------------
Total stockholder's deficit (12,688,318) (5,032,568)
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 77,283,328 $ 42,376,665
============== =============
The accompanying notes are an integral part of these financial statements
1
FORMAN PETROLEUM CORPORATION
----------------------------
STATEMENT OF OPERATIONS
-----------------------
(Unaudited)
-----------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues:
Oil and gas sales $ 2,525,928 $ 2,632,636 $ 6,262,454 $ 4,886,716
Overhead reimbursements 20,421 43,130 35,165 61,261
Interest income 44,932 10,204 54,111 19,389
Other income 2,887 15,868 20,262 45,174
------------ ------------- ------------ ------------
Total revenues 2,594,168 2,701,838 6,371,992 5,012,540
Costs and expenses:
General & administrative 413,789 297,151 842,437 707,610
Lease operating expenses 641,970 654,171 1,198,679 1,239,220
Interest expense 1,640,358 942,457 2,824,601 1,843,275
Production taxes 174,495 223,831 303,647 416,437
Depreciation, depletion and amortization 2,052,445 1,027,590 3,595,006 2,088,081
------------ ------------ ------------ ------------
Total costs and expenses 4,923,057 3,145,200 8,764,370 6,294,623
------------ ------------ ------------ ------------
Net loss from operations (2,328,889) (443,362) (2,392,378) (1,282,083)
Income tax expense 4,746,000 0 4,746,000 0
------------ ------------ ------------ ------------
Net loss $ (7,074,889) $ (443,362) $ (7,138,378) $ (1,282,083)
============ ============ ============ ============
Net loss per share $ (78.61) $ (4.93) $ (79.32) $ (14.25)
============ ============ ============ ============
Pro forma data:
Net loss as reported above $ (7,074,889) $ (443,362) $ (7,138,378) $ (1,282,083)
Pro forma income tax adjustment 5,607,689 164,044 5,631,180 474,371
------------ ------------ ------------ ------------
Pro forma net loss $ (1,467,200) $ (279,318) $ (1,507,198) $ (807,712)
============ ============ ============ ============
Pro forma net loss per share $ (16.30) $ (3.10) $ (16.75) $ (8.97)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
2
FORMAN PETROLEUM CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------------------
1997 1996
-------------- --------------
Cash flows from operating activities:
Net loss $ (2,392,378) $(1,282,083)
Adjustments to reconcile net loss to
Net cash provided by operating activities:
DD&A 3,595,006 2,088,081
Change in assets and liabilities:
Decrease (Increase) in accounts receivable 112,299 (51,784)
Decrease (Increase) in prepaid expenses (27,692) (14,575)
Decrease (Increase) in due from affiliate 327,828 0
Decrease (Increase) in unbilled well costs (38,192) (15,314)
Increase (Decrease) in accounts payable/accrued liabilities 306,068 7,220,166
Increase (Decrease) in due to/from stockholder (500,000) 0
Decrease (Increase) in oil and gas revenue receivable 1,422,707 58,573
Increase (Decrease) in undistributed oil and gas revenue (582,756) (139,873)
------------ -----------
Net cash provided by operating activities 2,222,890 7,863,191
------------ -----------
Cash flows from investing activities:
Additions to oil and gas properties (16,555,572) (7,897,275)
Deposit into escrow account 371,325 (17,560)
Purchase of other property and equipment 2,236 (39,305)
------------ -----------
Net cash used in investing activities (16,182,011) (7,954,140)
------------ -----------
Cash flows from financing activities:
Purchase of FPCII assets (1,500,000) 0
Proceeds from preferred stock 10,000,000 0
Borrowings (net of prepaid interest) 20,802,130 (13,157)
Decrease (Increase) in deferred financing costs (7,073,709) (1,350)
------------ -----------
Net cash provided by financing activities 22,228,421 (14,507)
------------ -----------
Net increase/(decrease) in cash or cash equivalents 8,269,300 (105,456)
Cash and cash equivalents at beginning of period 130,551 313,070
------------ -----------
Cash and cash equivalents at end of period $ 8,399,851 $ 207,614
============ ===========
The accompanying notes are an integral part of these financial statements
3
FORMAN PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. Interim Financial Statements
The financial statements of the Company at June 30, 1997 and for the three and
six-month periods then ended are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The financial statements should be
read in conjunction with the financial statements and notes thereto, for the
year ended December 31, 1996 contained in the Company's Registration Statement
on Form S-4 (file number 333-31375) filed with the Commission on July 16, 1997.
Such Registration Statement is not yet effective.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), "Earnings Per Share", which simplifies the computation of
earnings per share ("EPS"). SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, and requires restatement for
all prior period EPS data presented. Pro forma EPS calculated under SFAS 128
would be the same as those indicated on the Statement of Operations for the
respective periods.
3. Issuance of Notes
On June 3, 1997 the Company completed the private sale to Jefferies & Company,
Inc. ("Jefferies") of 70,000 units ("Note Units") consisting of $70 million
principal amount of 13.5% Senior Secured Notes due 2004, Series A (the "Notes")
and Warrants to purchase 29,067 shares of Common Stock, no par value (the
"Common Stock"), of the Company at a price of $65,667,000 in a transaction not
registered under the Securities Act (the "Act") in reliance upon Section 4(2) of
the Act and Rule 506 of Regulation D under the Act. Jefferies thereupon offered
and resold the Note Units only to qualified institutional buyers and a limited
number of institutional accredited investors at an initial price to such
purchasers of $68,467,000. Concurrently with the offering of the Note Units, the
Company completed a private sale to Jefferies of 200,000 units ("Equity Units")
consisting of 200,000 shares of Series A Cumulative Preferred Stock and warrants
to purchase 14,533 shares of Common Stock. The Equity Units were sold to
Jefferies for $9,200,000 in a transaction not registered under the Securities
Act in reliance upon Section 4 (2) of the Act and Rule 506 of Regulation D under
the Act. Jefferies thereupon offered and resold the Equity Units only to
qualified institutional buyers and a limited number of institutional accredited
investors at an initial price to such purchasers of $10,000,000.The offerings
and sale of the Note Units and the Equity Units are referred to herein as the
"Offerings".
4
The net proceeds to the Company from the Offerings were approximately $74.9
million. A portion of the net proceeds (approximately $9.5 million) was
segregated into a capitalized interest account to pay interest on the Notes
through June 1, 1998. The Company used the remaining net proceeds of the
Offerings as follows: (i) approximately $35.2 million was used to repay all of
the outstanding indebtedness (including accrued interest and associated fees)
due under the Endowment Energy Partners ("EEP) and Endowment Energy Co-
Investment Partnership ("EECIP") loans; (ii) approximately $10.5 million was
used to repay all of the outstanding indebtedness (including accrued interest
and associated fees) due under the Joint Energy Development Investments Limited
Partnership loan; (iii) $2.6 million was used to purchase from EEP and EECIP a
7.5% overriding royalty interest in the Company's Lake Enfermer Field, Manila
Village Field and Boutte Field; (iv) $5.0 million was used in connection with
the Company's acquisition from Forman Petroleum Corporation II ("FPCII"), a
company whose sole stockholder is McLain J. Forman (the Company's Chairman and
principal stockholder), all of FPCII's interest in the Bayou Fer Blanc Field and
the West Gueydan Field, of which $1.5 million was paid to FPCII, $1.0 million
was used to pay bank debt and $2.5 million was used to pay trade payables to
third parties; (v) Jefferies received a fee of $1.9 million for financial
advisory services provided to the Company and also received a warrant to
purchase 4,844 shares of Common Stock at the initial exercise price of $1.00 per
share; and (vi) $0.9 million was used to pay expenses of the Offerings. The
remaining net proceeds from the Offerings of $9.4 million are being used for
capital expenditures, working capital and other general corporate purposes.
4. Income Taxes
As discussed in Note 3, the Company issued a second class of stock on June 3,
1997, effectively terminating its S Corporation election. As a result, the
Company will be subject to Federal and state income taxes for the results of
operations subsequent to June 2, 1997, and accordingly a benefit of $335,000 is
reflected in income tax expense in the accompanying statements of operations.
In addition, due to the termination of the Company's status as an S Corporation
for federal income tax purposes, the Company is also required to establish a net
deferred tax liability calculated at the applicable Federal and state tax rates
resulting primarily from financial reporting and income tax reporting basis
differences in oil and gas properties. Accordingly, a net deferred tax
liability of $5,081,000 was accrued at June 3, 1997 and is included in income
tax expense in the accompanying statements of operations.
For purposes of the pro forma net loss presentation, income taxes have been
adjusted to reflect the actual income tax benefit that would have been recorded
by the Company had it operated as a C Corporation throughout each of the periods
presented.
5. Per Share Amounts
Historical and pro forma net loss per share amounts are calculated by dividing
historical and pro forma net loss by the weighted average number of common
shares outstanding (90,000 for each period presented).
5
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is intended to assist in an understanding of the
Company's historical financial position and the results of operations for the
three-month and six-month periods ended June 30, 1997 and 1996. The financial
statements of the Company at June 30, 1997 and for the three and six-month
periods then ended are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for the
interim period. The financial statements should be read in conjunction with the
financial statements and notes thereto, for the year ended December 31, 1996
contained in the Company's Registration Statement on Form S-4 (file number
333-31375) filed with the Commission on July 16, 1997. Such Registration
Statement is not yet effective. The Company's historical financial statements
and notes thereto included elsewhere in this quarterly report contain detailed
information that should be referred to in conjunction with the following
discussion.
Results of Operations
The following table sets forth certain operating information with respect
to the oil and gas operations of the Company for the three-month and six-month
periods ended June 30, 1997 and 1996.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
Sales:
Oil (Bbls) 75,077 96,975 153,312 170,502
Gas (Mcf) 439,161 240,246 995,409 519,523
Oil and gas (BOE) 148,271 137,016 319,214 257,089
Sales Revenue:
Total oil sales $1,509,871 $1,978,853 $3,308,323 $3,366,620
Total gas sales $1,016,056 $ 653,782 $2,954,131 $1,520,095
Average Sales Prices:
Oil (per Bbl) $ 20.11 $ 20.41 $ 21.58 $ 19.75
Gas (per Mcf) $ 2.31 $ 2.72 $ 2.97 $ 2.93
Per BOE $ 17.04 $ 19.21 $ 19.62 $ 19.01
Average Costs (per BOE):
Severance Tax $ 1.18 $ 1.63 $ 0.95 $ 1.62
Lease Operating Expenses $ 4.33 $ 4.77 $ 3.76 $ 4.82
General & Administrative $ 2.79 $ 2.17 $ 2.64 $ 2.75
Depreciation, Depletion & Amortization $ 13.84 $ 7.50 $ 11.26 $ 8.12
6
REVENUES - The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
three-month and six-month periods ended June 30, 1997 and the comparable periods
in 1996:
SECOND QUARTER FIRST SIX MONTHS
1997 COMPARED TO 1997 COMPARED TO
SECOND QUARTER FIRST SIX MONTHS
1996 1996
---------------- ----------------
Increase (decrease) in oil and gas
revenues resulting from differences in:
Crude oil and condensate--
Prices $ (22,136) $ 281,114
Production (446,846) (339,411)
--------- ----------
(468,982) (58,297)
Natural gas--
Prices (179,034) 41,622
Production 541,308 1,392,414
--------- ----------
362,274 1,434,036
Increase (decrease) in oil and gas revenues $(106,708) $1,375,739
========= ==========
The Company's oil and gas revenues increased approximately $1.4 million, or
28% to $6.3 million for the six months ended June 30, 1997, from $4.9 million
for the comparable period in 1996. Production levels for the six months ended
June 30, 1997, increased 24% to 319 thousand barrels of oil equivalent ("MBOE")
from 257 MBOE for the comparable period in 1996. Gas production volumes
increased 91%, while oil volumes declined 10%. The Company's average sales
prices (including hedging activities) for oil and natural gas for the six months
ended June 30, 1997 were $21.58 per Bbl and $2.97 per Mcf versus $19.75 per Bbl
and $2.93 per Mcf in the 1996 period. Revenues increased $1.0 million due to
the aforementioned production increases, and by $320,000 as a result of
increased oil and gas prices.
For the quarter ended June 30, 1997, total oil and gas revenues decreased
$100,000 from revenues for the second quarter of 1996. Oil production for the
quarter ended June 30, 1997 was down 23% from the comparable quarter in 1996,
while gas production was up 83%. Oil prices for the quarterly period ended June
30, 1997 were virtually unchanged, while gas prices declined 15% from the
comparable quarter in 1996.
LEASE OPERATING EXPENSES - On a BOE basis, lease operating expenses
experienced a 22% decrease, to $3.76 per BOE for the six months ended June 30,
1997 from $4.82 per BOE in the comparable 1996. For the first six months of
1997, lease operating expenses were down 3%, from $1.24 million in 1996 to $1.20
million in the comparable 1997 period. For the quarter ended June 30, 1997,
lease operating expenses were 2% lower than for the comparable quarter in 1996.
7
SEVERANCE TAXES - The effective severance tax rate as a percentage of oil
and gas revenues decreased to 4.9% for the six months ended June 30, 1997, from
8.5% for the comparable period in 1996. For the quarter ended June 30, 1997,
the effective tax rate decreased to 6.9% from 8.5% for the comparable quarter in
1996. In each case, the decrease was due primarily to the increased production
from wells that have a state severance tax exemption under Louisiana's severance
tax abatement program.
GENERAL AND ADMINISTRATIVE EXPENSES - For the six months ended June 30,
1997, general and administrative ("G&A") expenses were $2.64 per BOE, a 4%
decrease from the $2.75 per BOE for the first six months of 1996. For the
quarter ended June 30, 1997, G&A expenses per BOE increased 29% over the
comparable quarterly period in 1996. This second quarter increase in 1997 was
due partially to costs associated with an increase in drilling activities, as
well as to increased utilization of consulting geological and accounting
services during the first six months of 1997.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE - For the six months ended
June 30, 1997, depreciation, depletion and amortization ("DD&A") expense
increased 72% over the comparable 1996 period. For the quarter ended June 30,
1997, DD&A expense increased 100% over the comparable second quarter of 1996.
The increases for both the six-month period and the second quarter are
attributable to (i) the Company's increased production and related future
capital costs during the first six months of 1997 and (ii) the write-off of
deferred financing costs related to the loans that were repaid in June, 1997.
This accelerated write-off of deferred financing costs during the six-month
period ended June 30, 1997 resulted from the December, 1996, change in the
maturity dates of the Endowment Energy Partners ("EEP") and Endowment Energy
Co-Investment Partnership ("EECIP") loans from December 31, 1999, and September
30, 1998, respectively, to June 30, 1997 for each loan.
Excluding the one-time write-off of deferred financing costs in June 1997,
the DD&A expense for the six months ended June 30, 1997 increased 37% over the
comparable 1996 period. For the quarter ended June 30, 1997, DD&A expense
increased 44% over the comparable second quarter of 1996. On a BOE basis, which
reflects the increases in production, the DD&A rate for the first six months of
1997 was $8.99 per BOE compared to $8.12 per BOE for the same period in 1996, an
increase of only 11%, and for the second quarter of 1997 was $9.99 per BOE
compared to $7.50 per BOE for the comparable period in 1996, for an increase of
33%.
INTEREST EXPENSE - For the six months ended June 30,1997, interest expense
increased to $2.8 million from $1.8 million for the comparable 1996 period. This
increase of $1.0 million in interest expense is due primarily to (i) $275,000 of
interest on a term loan from Joint Energy Development Investments Limited
Partnership ("JEDI") made in December 1996 which was repaid in June 1997, and
(ii) $528,000 of additional interest in June 1997, relating to the issuance of
$70 million principal amount of 13.5% Senior Secured Notes due 2004, Series A
(the "Notes"), on June 3, 1997 (see Liquidity and Capital Resources). For the
quarter ended June 30, 1997, interest expense increased $700,000 over the
comparable second quarter of 1996. This increase was also the result of the
additional interest due on the JEDI loan and the Notes as previously discussed.
NET LOSS FROM OPERATIONS - Due to the factors described above, net loss
from operations for the quarter ended June 30, 1997 was $2.3 million, an
increase of 500% over the net loss reported for the second quarter of 1996 of
$0.4 million. The net loss increased to $2.4 million for the six months ended
June 30, 1997, from a loss of $1.3 million for the comparable period in 1996.
8
INCOME TAX EXPENSE - The Company issued a second class of stock on June
3, 1997, effectively terminating its S Corporation election. As a result, the
Company will be subject to Federal and state income taxes for the results of
operations subsequent to June 2, 1997, and accordingly a benefit of $335,000 was
reflected in income tax expense for the three-month and six-month periods ended
June 30, 1997. In addition, due to the termination of the Company's status as
an S Corporation for federal income tax purposes, the Company was also required
to establish a net deferred tax liability calculated at the applicable Federal
and state tax rates resulting primarily from financial reporting and income tax
reporting basis differences in oil and gas properties. Accordingly, a net
deferred tax liability of $5,081,000 was accrued at June 3, 1997 and is included
in income tax expense for the three-month and six-month periods ended June 30,
1997. The net result of these two accruals was an increase of $4,700,000 in the
net loss of the Company for the three-month and six-month periods ended June 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW - The following summary table reflects
comparative cash flows for the company for the six-month periods ended June 30,
1997 and 1996:
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
Net cash provided by operating activities $ 2,223 $ 7,863
Net cash used by investing activities (16,182) (7,954)
Net cash provided (used) by financing activities 22,228 (14)
For the six months ended June 30, 1997, net cash provided by operating
activities decreased to $2.2 million from $7.9 million during the comparable
period in 1996. This decrease was primarily due to the Company's reduction of
its trade accounts payable by $6.8 million during the first six months of 1997,
partially offset by a net $750,000 decrease in oil and gas revenue receivable
during the same six-month period.
Cash used in investing activities increased by $8.2 million, from $8.0
million during the first six months of 1996 to $16.2 million during the
comparable period in 1997. This increase was a result of (i) the Company's
acquisition of the Bayou Fer Blanc Field and the West Gueydan Field for $3.5
million, (ii) the Company's acquisition of the overriding royalty interest of
EEP and EECIP in the Company's producing properties for $2.6 million, and
increased drilling activity in the Lake Enfermer Field.
During the six months ended June 30, 1997, financing activities generated
cash flow of $22.2 million, as compared to essentially no cash flow from
financing activities during the comparable period in 1996. The increase in cash
during 1997 was primarily due to the $47.0 million increase in net borrowings
through the issuance of $70 million principal amount of the
9
Notes and $10 million of Series A Cumulative Preferred Stock during June 1997,
as described below.
LONG-TERM FINANCING - On June 3, 1997 the Company completed the private
sale to Jefferies & Company, Inc. ("Jefferies") of 70,000 units ("Note Units")
consisting of $70 million principal amount of the Notes and warrants to purchase
29,067 shares of Common Stock, no par value (the "Common Stock"), of the Company
at a price of $65,667,000 in a transaction not registered under the Securities
Act (the "Act") in reliance upon Section 4(2) of the Act and Rule 506 of
Regulation D under the Act. Jefferies thereupon offered and resold the Note
Units only to qualified institutional buyers and a limited number of
institutional accredited investors at an initial price to such purchasers of
$68,467,000. Concurrently with the offering of the Note Units, the Company
completed a private sale to Jefferies of 200,000 units ("Equity Units")
consisting of 200,000 shares of Series A Cumulative Preferred Stock and warrants
to purchase 14,533 shares of Common Stock. The Equity Units were sold to
Jefferies for $9,200,000 in a transaction not registered under the Securities
Act in reliance upon Section 4 (2) of the Act and Rule 506 of Regulation D under
the Act. Jefferies thereupon offered and resold the Equity Units only to
qualified institutional buyers and a limited number of institutional accredited
investors at an initial price to such purchasers of $10,000,000. The offerings
and sale of the Note Units and the Equity Units are referred to herein as the
"Offerings".
The net proceeds to the Company from these Offerings were approximately
$74.9 million. A portion of the net proceeds (approximately $9.5 million) was
segregated into a capitalized interest account to pay interest on the Notes
through June 1, 1998. The Company used the remaining net proceeds of the
Offerings as follows: (i) approximately $35.2 million was used to repay all of
the outstanding indebtedness (including accrued interest and associated fees)
due under the EEP and EECIP loans; (ii) approximately $10.5 million was used to
repay all of the outstanding indebtedness (including accrued interest and
associated fees) due under the JEDI loan; (iii) $2.6 million was used to
purchase from EEP and EECIP a 7.5% overriding royalty interest in the Company's
Lake Enfermer Field, Manila Village Field and Boutte Field; (iv) $5.0 million
was used in connection with the Company's acquisition from Forman Petroleum
Corporation II ("FPCII"), a company whose sole stockholder is McLain J. Forman
(the Company's Chairman and principal stockholder), all of FPCII's interest in
the Bayou Fer Blanc Field and the West Gueydan Field, of which $1.5 million was
paid to FPCII, $1.0 million was used to pay bank debt and $2.5 million was used
to pay trade payables to third parties; (v) Jefferies received a fee of $1.9
million for financial advisory services provided to the Company and also
received a warrant to purchase 4,844 shares of Common Stock at the initial
exercise price of $1.00 per share; and (vi) $0.9 million was used to pay
expenses of the Offerings. The remaining net proceeds from the Offerings of $9.4
million are being used for capital expenditures, working capital and other
general corporate purposes.
HEDGING ACTIVITIES - With the objective of achieving more predictable
revenues and cash flows and reducing the exposure to fluctuations in oil and
natural gas prices, the Company has entered into hedging transactions of various
kinds with respect to both oil and natural gas. While the use of these hedging
arrangements limits the downside risk of reverse price movements, it may also
limit future revenues from favorable price movements. In January 1997, the
Company entered into forward sales and swap arrangements with respect to
approximately 40% of its
10
estimated net natural gas production in the Lake Enfermer Field through April
1997, at a weighted average price of approximately $3.18 per Mcf. At the same
time, the Company hedged approximately 30% of its estimated net oil production
through June 1997 at a weighted average price of $23.75 per Bbl. The Company
continuously reevaluates its hedging program in light of market conditions,
commodity price forecasts, capital spending and debt service requirements. The
Company may hedge additional volumes through the remainder of 1997 or it may
determine from time to time to terminate its then existing hedging positions.
FORWARD-LOOKING STATEMENTS - The foregoing discussion of Liquidity and
Capital Resources includes forwarding looking statements within the meaning of
Section 27a of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements herein include the
timing and extent of changes in commodity prices for oil and gas, the need to
develop and replace reserves, environmental risks, drilling and operating risks,
risks related to exploration and development, uncertainties about the estimates
of reserves, competition, government regulations and the ability of the Company
to meet its stated business goals.
11
PART II
ITEM 2. CHANGES IN SECURITIES
(c) On June 3, 1997 the Company completed the private sale to
Jefferies of Note Units consisting of $70 million principal amount of Notes and
warrants to purchase 29,067 shares of Common Stock, no par value (the "Common
Stock"), of the Company. Concurrently with the offering of the Note Units,
the Company completed a private sale to Jefferies of Equity Units consisting of
200,000 shares of Series A Cumulative Preferred Stock and warrants to purchase
14,533 shares of Common Stock at the purchase price of $9,200,000. Jefferies
then sold the Equity Units only to qualified institutional buyers and a limited
number of institutional accredited investors for $10,000,000 for such Equity
Units. The offerings and sale of the Note Units and the Equity Units are
referred to herein as the "Offerings".
In connection with the offering and sale of the Note Units, the
Company issued warrants to purchasers of the Note Units to entitle the
holders thereof to purchase, in the aggregate, 29,067 shares of Common Stock
(the "Note Warrants"). Each Note Warrant, when exercised, entitles the
holder thereof to receive 0.41524 shares of Common Stock at the exercise price,
as adjusted (the "Note Exercise Price"), which initially is $1.00 per share.
The Note Exercise Price, the number of shares of Common Stock received in
respect of a Note Warrant and the number of Note Warrants outstanding are
subject to adjustment in certain cases. The Note Warrants are currently
exercisable and will automatically expire on June 1, 2004. If the last day
for the exercise of the Note Warrants is not a business day, then the
Note Warrants may be exercised on the next succeeding business day.
In connection with the offering and sale of the Note Units, the
Company also issued to Jefferies & Company, Inc. a warrant to purchase 4,844
shares of Common Stock at an initial exercise price of $1.00 per share.
In connection with the offering and sale of the Equity Units, the Company
issued warrants to purchasers of the Equity Units that entitle the holders
thereof to purchase, in the aggregate, 14,533 shares of Common Stock (the
"Equity Warrants"). Each Equity Warrant, when exercised, entitles the
holder thereof to receive 0.07267 shares of Common Stock at the exercise price,
as adjusted (the "Equity Exercise Price"), which initially is $1.00 per
share. The Equity Exercise Price, the number of shares of Common Stock
received in respect of an Equity Warrant and the number of Equity Warrants
outstanding are subject to adjustment in certain cases. The Equity Warrants are
currently exercisable immediately and will automatically expire on June 1,
2004. If the last day for the exercise of the Equity Warrants is not a
business day, then the Equity Warrants may be exercised on the next succeeding
business day.
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ITEM 5. OTHER INFORMATION
OPERATIONAL ACTIVITIES - During the second quarter ended June 30, 1997, the
Company completed the drilling of its fourth post-3D well, the LPSB #2, in the
Lake Enfermer Field. An unsuccessful attempt was made to complete the well in
the deepest zone; the well was subsequently recompleted in a shallower zone and
is currently producing at a daily rate of 1,500 Mcf of gas and 10 Bbls of
condensate. A subsequent development well, the LPSB #7, targeted for the same
fault block as the LPSB #2, was drilled in July 1997, and logged approximately
40 feet of net pay. This well cut an unexpected 300' fault and was temporarily
suspended pending further evaluation of this entire fault block. The Company is
currently deepening the Lafourche Realty A-2 well, which is in an adjacent fault
block; an intermediate log indicates approximately 60 feet of net pay, and the
well is now being drilled to the deeper objectives.
The Company also has recently worked over the McNeil #6 Well in the Lake
Enfermer Field, and the well is now producing at the daily rate of 1,700 Mcf and
95 Bbls of condensate. Other workovers in the Lake Enfermer Field are in
progress and scheduled to be completed during the third quarter of 1997; these
workovers are intended to further increase production and cash flow from the
field.
Effective July 22, 1997, the Company acquired from Enron Gathering Company
and K/D Promix, L.L.C. two high pressure gas pipelines within the Lake Enfermer
Field which connect the Company's main production facility, Facility #1, to a
group of interstate pipelines. These new lines provide alternate markets for
the gas production from this field and should also result in more favorable gas
product pricing. At the same time the Company also acquired a 6" pipeline that
connects Facility #1 and Facility #2; this pipeline will allow the transport of
additional saltwater to Facility #1 for injection into the Company's waterflood
project. To date, this waterflood project has demonstrated a direct correlation
between volumes of water injected and volumes of oil produced.
In the Boutte Field, the Company has completed the first of four scheduled
recompletions. The well is currently producing approximately 110 Bbl of oil per
day. The second recompletion is currently in progress.
Study of the Bayou Fer Blanc Field 3-D seismic survey is ongoing and plans
for drilling there are in development. The Company has received the processed
3-D survey on the West Gueydan Field and is interpreting and integrating this
new data. The Company is also interpreting the results of the recently
completed 3-D survey in the Manila Village Field to identify additional drilling
or workover opportunities within the Field.
PROPOSED EXCHANGE OFFER - The Company filed its Form S-4 Registration
Statement with the Commission on July 16, 1997. The Company seeks to exchange
13.5% Senior Secured Notes due 2004, Series B ("Series B Notes"), for its 13.5%
Senior Secured Notes due 2004, Series A ("Series A Notes"). The terms of the
Series B Notes are substantially identical to those of the Series A Notes. Such
Registration Statement has not been declared effective as of the date of filing
this Form 10-Q.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following instruments and documents are included as Exhibits to this
Form 10-Q. Exhibits incorporated by reference are so indicated by parenthetical
information.
EXHIBIT NO. EXHIBIT
3(i) Restated Articles of Incorporation dated July 2, 1997 (filed as
Exhibit 3(i) to the Registration Statement on Form S-4 filed on
July 16, 1997 and is incorporated herein by reference (File No.
333-31375)).
3(ii) Bylaws (filed as Exhibit 3(ii) to the Registration Statement on
Form S-4 filed on July 16, 1997 and is incorporated herein by
reference (File No. 333-31375)).
4.1 Indenture dated as of June 3, 1997 by and among Forman Petroleum
Corporation, as issuer, and U.S.Trust Company of Texas, N.A. as
trustee (filed as Exhibit 4.1 to the Registration Statement on
Form S-4 filed on July 16, 1997 and is incorporated herein by
reference (File No. 333-31375)).
4.2 Act of Mortgage, Security Agreement, Assignment of Production and
Financing Statement dated November 21, 1996, by Forman Petroleum
Corporation for the benefit of Joint Energy Development
Investments Limited Partnership (filed as Exhibit 4.2) to the
Registration Statement on Form S-4 filed on July 16, 1997 and is
incorporated herein by reference (File No. 333-31375)).
4.3 Act of First Amendment to Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated December
23, 1996, by and among Forman Petroleum Corporation and Joint
Energy Development Investments Limited Partnership (filed as
Exhibit 4.3 to the Registration Statement on Form S-4 filed on
July 16, 1997 and is incorporated herein by reference (File No.
333-31375)).
4.4 Act of Second Amendment to Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated June 3,
1997, by and among Forman Petroleum Corporation and U.S. Trust
Company of Texas, N.A. (filed as Exhibit 4.4 to the Registration
Statement on Form S-4 filed on July 16, 1997 and is incorporated
herein by reference (File No. 333-31375)).
4.5 Act of Assignment of Note and Liens dated June 3, 1997, by and
among Joint Energy Development Investments Limited Partnership,
as assignor, and U.S. Trust Company of Texas, N.A., as assignee
(filed as Exhibit 4.5 to the Registration Statement on Form S-4
filed on July 16, 1997 and is incorporated herein by reference
(File No. 333-31375)).
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10.1 Registration Rights Agreement dated June 3, 1997 by and between
Forman Petroleum Corporation and Jefferies & Company, Inc.
regarding Notes and warrants to purchase Common Stock (filed as
Exhibit 10.1 to the Registration Statement on Form S-4 filed on
July 16, 1997 and is incorporated herein by reference (File No.
333-31375)).
10.2 Registration Rights Agreement dated June 3, 1997 by and between
Forman Petroleum Corporation and Jefferies & Company, Inc.
regarding Series A Cumulative Preferred Stock and warrants to
purchase Common Stock (filed as Exhibit 10.2 to the Registration
Statement on Form S-4 filed on July 16, 1997 and is incorporated
herein by reference (File No. 333-31375)).
10.3 Warrant Agreement dated June 3, 1997 by and between Forman
Petroleum Corporation and U.S. Trust Company of Texas, N.A.
regarding warrants issued in connection with issuance of Series A
Cumulative Preferred Stock (filed as Exhibit 10.3 to the
Registration Statement on Form S-4 filed on July 16, 1997 and is
incorporated herein by reference (File No. 333-31375)).
10.4 Warrant Agreement dated June 3, 1997 by and between Forman
Petroleum Corporation and U.S. Trust Company of Texas, N.A.
regarding warrants issued in connection with issuance of Notes
(filed as Exhibit 10.4 to the Registration Statement on Form S-4
filed on July 16, 1997 and is incorporated herein by reference
(File No. 333-31375)).
27 Financial Data Schedule
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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.
Forman Petroleum Corporation
Date: August 14, 1997 By: /s/ McLain J. Forman
-------------------------------
McLain J. Forman
Chairman of the board, Chief
Executive Officer and President
By: /s/ Marvin J. Gay
-------------------------------
Marvin J. Gay
Vice President and Chief Financial
Officer
16