UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 Identification No.)
organization)
650 POYDRAS STREET - SUITE 2200
NEW ORLEANS, LOUISIANA 70130-6101
(Address of principal (Zip code)
executive offices)
(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 [X ] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X ] No [ ]
AS OF MAY 12, 1999, THERE WERE 1,000,008 SHARES OF THE REGISTRANT'S
VOTING COMMON STOCK, NO PAR VALUE, OUTSTANDING.
* THE COMMISSION FILE NUMBER REFERS TO A FORM S-4 REGISTRATION STATEMENT
FILED BY THE COMPANY UNDER THE SECURITIES ACT OF 1933, WHICH BECAME
EFFECTIVE SEPTEMBER 26, 1997.
FORMAN PETROLEUM CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I
Page No.
Item 1. Financial Information:
Balance Sheets as of March 31, 2000 and
December 31, 1999 1
Statement of Operations and for the Three
Month Periods Ended March 31, 2000 and
March 31, 1999 2
Statement of Cash Flows for the Three Month
Periods Ended March 31, 2000 and
March 31, 1999 3
Notes to Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 15
PART II
Item 1. Legal proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
PART I
ITEM 1. FINANCIAL INFORMATION
FORMAN PETROLEUM CORPORATION
BALANCE SHEETS
March 31, December 31,
2000 1999
-------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,732,086 $ 3,180,925
Accounts receivable 166,930 236,663
Oil and gas revenue receivable 1,478,541 1,359,393
Unbilled well costs 5,706 257
Prepaid expenses 59,881 43,845
-------------- -------------
Total current assets 5,443,144 4,821,083
-------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 26,191,377 25,515,529
Unevaluated oil and gas properties 4,732,139 4,732,139
Other property and equipment 232,558 200,000
-------------- -------------
31,156,074 30,447,668
Less- accumulated depreciation, depletion and
amortization (1,211,638) ( - )
-------------- -------------
Net property and equipment 29,944,436 30,447,668
-------------- -------------
OTHER ASSETS:
Funds on deposit in escrow 490,688 490,044
-------------- -------------
TOTAL ASSETS $ 35,878,268 $ 35,758,795
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,563,781 $ 1,571,710
Undistributed oil and gas revenues 900,990 895,064
Current portion of note payables 835,551 640,608
-------------- -------------
Total current liabilities 4,300,322 3,107,382
Notes payable (long-term portion) 1,649,205 2,066,173
Deferred tax liability 9,638,761 9,900,580
-------------- -------------
Total liabilities 15,588,288 15,074,135
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized
10,000,000 shares; issued and outstanding
1,000,008 shares 20,684,660 20,684,660
Retained earnings (deficit) (394,680) -
-------------- -------------
Total stockholder's equity 20,289,980 20,684,660
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 35,878,268 $ 35,758,795
============== =============
The accompanying notes are an integral part of these financial statements.
FORMAN PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
-------------------------------
2000 1999
------------- ---------------
Revenues:
Oil and gas sales $ 3,217,682 $ 2,602,557
Interest income 12,132 4,792
Overhead reimbursements 12,783 13,945
Other income 139,454 4,493
------------- ---------------
Total revenues 3,382,051 2,625,787
------------- ---------------
Costs and expenses:
Production taxes 76,258 124,905
Lease operating expenses 812,101 926,288
General and administrative expenses 624,289 618,230
Interest expense 44,220 2,582,642
Recapitalization expense 15,225 650,822
Depreciation, depletion and amortization 1,211,639 1,681,558
------------- ---------------
Total expenses 2,783,732 6,584,445
------------- ---------------
Net income (loss) from operations before
reorganization items and income taxes 598,319 (3,958,658)
Reorganization items:
Adjustment to reorganization costs (Note 1) (1,196,317) -
------------- ---------------
Net loss before income taxes (597,998) (3,958,658)
Deferred income tax benefit (261,818)
Current income tax expense 58,500 -
------------- ---------------
Net loss attributable to common shares (394,680) (3,958,658)
Net loss per share $( 0.39) $(49.25)
========= ========
Weighted average shares outstanding 1,000,008 90,000
========= ========
The accompanying notes are an integral part of these financial statements.
FORMAN PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
------------------------------
2000 1999
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net gain (loss) $ (394,680) $ (3,958,658)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 1,211,638 1,681,558
Deferred tax benefit (261,819) -
Write-off of recapitalization costs - 384,313
Change in assets and liabilities-
(Increase) in oil and gas revenue receivable (119,148) (662,363)
Decrease (Increase) in accounts receivable 69,733 (30,737)
(Increase) in unbilled well costs (5,449) (8,739)
(Increase) in prepaid expenses (16,036) (6,692)
Increase in interest payable - 2,362,330
(Decrease) Increase in accounts payable 992,071 1,729,867
(Decrease) Increase in undistributed oil and gas revenues 5,926 (428,495)
Decrease in advance to operator - 713,089
------------- ---------------
Net cash provided by operating activities 1,482,236 1,775,473
------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to oil and gas properties (675,848) (3,039,810)
(Increase) Reduction in escrow account (644) (4,577)
Purchase of other property and equipment (32,558) (1,776)
------------- ---------------
Net cash used in investing activities (709,050) (3,046,163)
------------- ---------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of notes payable (222,025) 75,446
Deferred financing costs - -
------------- ---------------
Net cash used in financing activities (222,025) 75,446
------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 551,161 (1,195,244)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,180,925 1,474,488
------------- ---------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,732,086 $ 279,244
============= ===============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 44,220 $ -
============= ===============
Income taxes $ - $ -
============= ===============
The accompanying notes are an integral part of these financial statements.
FORMAN PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. REORGANIZATION AND FRESH START REPORTING:
Forman Petroleum Corporation ("Forman" or the "Company"), a Louisiana
corporation, is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas, with
operations primarily in the onshore Gulf Coast area of Louisiana. Forman
was incorporated in Louisiana in 1982 and began operations in that year.
REORGANIZATION
On August 6, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
District Court for the Eastern District of Louisiana (the Bankruptcy Court)
(Case No. 99-14319). On November 22, 1999, the Company and certain of its
creditors filed a Second Amended Joint Plan of Reorganization, as amended
on December 29, 1999 (the Bankruptcy Plan). The Company's reorganization
plan was confirmed by the Bankruptcy Court on December 29, 1999 and
consummated January 14, 2000.
Pursuant to the Bankruptcy Plan, all of the Company's issued and
outstanding securities were canceled and the Company issued the following
equity securities:
* 925,000 shares of new common stock, no par value, to the former holders
of the Company's 13.5% Series B Senior Notes due 2004;
* 75,000 shares of new common stock to the former holders of the
Company's Series A Cumulative Preferred Shares; and
* warrants to purchase up to 500,000 shares of new common stock to
certain of the Company's former warrant holders and to McLain J.
Forman, the former sole voting shareholder of the Company.
As of the confirmation date, the Company had total assets of $33.9 million
and liabilities of $96.0 million. With the exception of an aggregate of
approximately $2.7 million of promissory notes issued to general unsecured
creditors pursuant to the Bankruptcy Plan, approximately $300,000 in
convenience claims which were paid in full in 2000, undistributed oil and
gas revenues of $895,000, and approximately $3 million in additional pre-
petition bankruptcy claims that are disputed by the Company and still
pending before the Bankruptcy Court (Note 5), all of the Company's
liabilities as of the confirmation date were extinguished pursuant to the
Bankruptcy Plan. In addition, on May 12, 2000 the Bankruptcy Court granted
a creditor's proof of claim in the amount of approximately $984,000 as a
general unsecured creditor.
Costs incurred during 1999 directly related to the Company's
reorganization, consisting primarily of legal, accounting and financial
consulting fees, were recorded to reorganization costs in the accompanying
statement of operations. These costs are net of interest income earned on
cash and cash equivalents because the maintenance of cash balances during
1999 was directly related to the Company's bankruptcy filing.
The Company ceased accruing interest on its Senior Notes and dividends on
its preferred stock on August 6, 1999, when it filed for relief under
Chapter 11.
FRESH START REPORTING
The Company has accounted for the reorganization using the principles of
fresh start accounting required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7). For accounting purposes, the accompanying financial
statements reflect the confirmed plan as if it was consummated on
December 31, 1999. Under the principles of fresh start accounting, the
Company's total assets and liabilities were recorded at their estimated
fair market values. Accordingly, the Company's net proved oil and gas
properties were increased by approximately $3.0 million, its unevaluated
oil and gas properties were increased by approximately $3.1 million and
other net property and equipment was increased by approximately $0.2
million. Obligations arising from the Bankruptcy Plan are recorded at the
amounts expected to be paid in settlements of such obligations. In
addition, the Company's Senior Notes with a net book value of $68.6
million, related interest payable of $11.1 million, preferred stock of
$13.6 million and deferred financing costs related to the Senior Notes and
preferred stock of $4.4 million were all written off.
Since the former holders of the Company's Senior Notes (the former
noteholders) received 92.5% of the shares of the common stock, the gain on
discharge of indebtedness was computed using 92.5% of the net assets
received by the former noteholders. The remaining 7.5% of the net assets
allocable to the former holders of the Company's preferred stock was
recorded to equity and is included in fresh start accounting adjustments.
Also included in such amount is the write-off of the remaining deferred
costs allocable to the preferred stock.
The fair market value assigned to the Company's proved oil and gas
properties was estimated by adjusting the net pre-tax future cash flows
discounted at a 10% annual rate (PV10) of the Company's proved reserves
($36.4 million at December 31, 1999) as set forth in the Estimate of
Reserves and Future Revenue report on the Company's proved oil and gas
properties as of December 31, 1999, prepared by Netherland, Sewell &
Associates, independent reservoir engineers. This report was prepared in
accordance with SEC guidelines, utilizing constant prices existing as of
December 31, 1999. The Company adjusted these prices to reflect the
product prices used in valuing producing properties, ($21 per barrel of oil
and $2.75 per mcf of gas) then applied risk factors to the various
categories of proved reserves as follows:
PROVED CATEGORY RISK FACTOR
Proved Producing 95%
Proved Non-producing 75%
Proved Undeveloped 25%
Applying these risk factors and adjusting the product pricing resulted in
an estimated fair market value of the proved properties of $25.5 million.
The Company's other assets, including other property and equipment, were
valued at $4.9 million.
As a result of the implementation of fresh start accounting, the financial
statements as of December 31, 1999 and those as of March 31, 2000 and for
the three month period ended March 31, 2000 reflecting the fresh start
accounting principles discussed above are not comparable to the financial
statements of prior periods.
2. SIGNIFICANT ACCOUNTING POLICIES:
INCOME TAXES
The income tax effects of the Company's reorganization had a material
impact on the tax basis of the Company's oil and gas interests and its net
operating loss carryforwards (Note 4).
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECAPITALIZATION COSTS
Costs incurred during 1998, consisting primarily of consulting and
financial advisory fees, were capitalized in anticipation of the possible
debt restructuring or recapitalization of the Company. These costs were
written off in 1999.
DERIVATIVES
The Company uses derivative financial instruments such as swap agreements
and forward sales contracts for price protection purposes on a limited
amount of its future production and does not use them for trading purposes.
Such derivatives are accounted for on an accrual basis and amounts paid or
received under the agreements are recognized as oil and gas sales in the
period in which they accrue. For the periods ended March 31, 2000 and 1999,
the Company recorded additions to oil and gas sales of $109,800 and $-0-
respectively, under these agreements. The Company did enter into a forward
sales agreement to sell 200 barrels per day of its oil production in
October, 1999 for the twelve months ending November 30, 2000, at a price of
$22.05 per barrel. As of March 31, 2000 and through May 11, 2000, the
Company had no open forward gas sales positions.
PER SHARE AMOUNTS
Net loss per share of common stock was calculated by dividing net loss
applicable to common stock by the weighted-average number of common shares
outstanding during the periods. Due to the net losses reported in 2000 and
1999, all options and warrants outstanding were excluded from the
computation because they would have been antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting
and reporting standards that require every derivative instrument (including
certain derivative instruments embedded in other contracts) to be recorded
in the balance sheet as either an asset or a liability measured at its fair
value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
The Company will adopt SFAS No. 133 on January 1, 2001. Because of the
nature of the Company's hedging activities, the Company does not expect
that the adoption of SFAS No. 133 will have a material impact on the
Company's results of operations. However, management believes that its
hedging contracts will meet the criteria for hedge accounting treatment
under SFAS No. 133; this treatment will create volatility in items of other
comprehensive income due to the marking-to-market of the instruments.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the
presentation of such items in the current year.
3. INTERIM FINANCIAL STATEMENTS
The financial statements of the Company at March 31, 2000 and for the three
month period 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 periods. The financial statements
should be read in conjunction with the financial statements and notes
thereto, for the year ended December 31, 1999 contained in the Company's
Form 10-K (file number 333-31375) filed with the Commission on April 13,
2000.
4. INCOME TAXES
Under the applicable income tax rules and regulations, the Company is not
required to recognize taxable income, or pay taxes on the gain resulting
from discharge of indebtedness (DOI) as a result of the Bankruptcy Plan.
Rather, the gain (represented for tax purposes as the face value of the
debt and accrued interest discharged in excess of the fair market value of
the reorganized company) reduces the Company's net operating loss
carryforwards (NOLs). Any remaining gain (after offsetting the Company's
NOLs) reduced the Company's tax basis in its net assets. The magnitude of
the DOI resulted in the elimination of $20.9 million of NOLs from 1998 and
$9.6 million of net operating losses generated during 1999. Additionally,
it substantially eliminated the tax basis in the net assets of the
reorganized Company. The significant excess of book basis over tax basis
in the net assets of the Company resulted in a $9.9 million deferred tax
liability in the reorganized balance sheet (See Note 1).
5. DISPUTED CLAIMS
The Company is disputing approximately $3 million in additional pre-
petition bankruptcy claims. These claims and certain other residual
bankruptcy-related matters are still within the jurisdiction of the
Bankruptcy Court. The Company recorded an accrual at December 31, 1999 for
its estimate of the amounts expected to be paid in settlement of these
claims. In addition, on May 12, 2000 the Bankruptcy Court granted a
creditor's proof of claim in the amount of approximately $984,000 as a
general unsecured creditor. Based on the foregoing and additional
information, the Company has increased its settlement amount estimate as of
March 31, 2000, and this adjustment is reflected as a reorganization item
in the Statement of Operations for the three months ended March 31, 2000.
There can be no assurance as to the amount the Company will be required to
pay with respect to these matters.
6. LEGAL PROCEEDINGS
The Company is disputing approximately $3 million in pre-petition
bankruptcy claims, which claims and certain other residual
bankruptcy-related matters are still within the jurisdiction of the
bankruptcy court. In addition, on May 12, 2000 the Bankruptcy Court
granted a creditor's proof of claim in the amount of approximately $984,000
as a general unsecured creditor.
The Company is not a party to any other material pending legal proceedings,
other than ordinary routine litigation incidental to its business that
management believes would not have a material adverse effect on its
financial condition or results of operations.
Item 2. MANAGEMENT'S 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 periods ended March 31, 2000 and 1999. The financial
statements of the Company at March 31, 2000 and for the three month period
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 periods. The financial statements should be read
in conjunction with the financial statements and notes thereto, for the
year ended December 31, 1999 contained in the Company's Annual Report on
Form 10-K (file number 333-31375) filed with the Commission on April 13,
2000. 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.
As a result of the implementation of fresh start accounting, the financial
statements as of December 31, 1999 and those as of March 31, 2000 and for
the three month period ended March 31, 2000 reflecting the fresh start
accounting principles discussed above are not comparable to the financial
statements of prior periods.
REORGANIZATION
On August 6, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
District Court for the Eastern District of Louisiana (the Bankruptcy Court)
(Case No. 99-14319). On November 22, 1999, the Company and certain of its
creditors filed a Second Amended Joint Plan of Reorganization, as amended
on December 29, 1999 (the Bankruptcy Plan). The Company's reorganization
plan was confirmed by the Bankruptcy Court on December 29, 1999 and
consummated January 14, 2000.
Pursuant to the Bankruptcy Plan, all of the Company's issued and
outstanding securities were canceled and the Company issued the following
equity securities:
* 925,000 shares of new common stock, no par value, to the former
holders of the Company's 13.5% Series B Senior Notes due 2004;
* 75,000 shares of new common stock to the former holders of the
Company's Series A Cumulative Preferred Shares; and
* warrants to purchase up to 500,000 shares of new common stock to
certain of the Company's former warrant holders and to McLain J.
Forman, the former sole voting shareholder of the Company.
As of the confirmation date, the Company had total assets of $33.9 million
and liabilities of $96.0 million. With the exception of an aggregate of
approximately $2.7 million of promissory notes issued to general unsecured
creditors pursuant to the Bankruptcy Plan, approximately $300,000 in
convenience claims which were paid in full in 2000, undistributed oil and
gas revenues of $895,000, and approximately $3 million in additional pre-
petition bankruptcy claims that are disputed by the Company and still
pending before the Bankruptcy Court (Note 6), all of the Company's
liabilities as of the confirmation date were extinguished pursuant to the
Bankruptcy Plan. In addition, on May 12, 2000 the Bankruptcy Court granted
a creditor's proof of claim in the amount of approximately $984,000 as a
general unsecured creditor.
FRESH START REPORTING
The Company has accounted for the reorganization using the principles of
fresh start accounting required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7). For accounting purposes, the accompanying financial
statements reflect the confirmed plan as if it was consummated on
December 31, 1999. Under the principles of fresh start accounting, the
Company's total assets and liabilities were recorded at their estimated
fair market values. Accordingly, the Company's net proved oil and gas
properties were increased by approximately $3.0 million, its unevaluated
oil and gas properties were increased by approximately $3.1 million and
other net property and equipment was increased by approximately $0.2
million. Obligations arising from the Bankruptcy Plan are recorded at the
amounts expected to be paid in settlements of such obligations. In
addition, the Company's Senior Notes with a net book value of $68.6
million, related interest payable of $11.1 million, preferred stock of
$13.6 million and deferred financing costs related to the Senior Notes and
preferred stock of $4.4 million were all written off.
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 periods
ended March 31, 2000 and 1999:
Three Months Ended March 31,
-------------------------------
2000 1999
-------------- --------------
Sales:
Oil (Bbls) 69,660 85,570
Gas (Mcf) 548,402 787,510
Oil and Gas (BOE) 161,060 216,822
Sales Revenue:
Total Oil Sales $ 1,740,403 $ 902,000
Total Gas Sales 1,477,279 1,700,557
-------------- --------------
Total Sales $ 3,217,683 $ 2,602,557
Average Sales Prices:
Oil (per Bbl) $24.98 $10.54
Gas (per Mcf) $2.69 $2.16
Per BOE $19.98 $12.00
Average Costs (per BOE):
Severance Taxes $0.47 $0.58
Lease operating expenses $5.04 $4.27
General and Administrative Exp. $3.88 $2.85
Depreciation, depletion and amort. $7.45 $7.76
Revenues - The following table reflects an analysis of differences in the
Company's oil and gas revenues between the three month period ended March
31, 2000 and the comparable period in 1999:
FIRST QUARTER
2000 COMPARED TO
FIRST QUARTER 1999
Increase (decrease) in oil and gas
Revenues resulting from differences in:
Crude oil and condensate -
Prices $ 1,006,112
Production (167,709)
--------------
838,403
Natural gas -
Prices 293,054
Production (516,332)
--------------
(223,278)
--------------
Increase (decrease) in oil and gas revenues $ 615,125
==============
For the quarter ended March 31, 2000, total oil and gas revenues
increased $615,125 from revenues for the first quarter of 1999. Oil
production for the first quarter of 2000 decreased 19% from the comparable
quarter in 1999, and gas production between comparable periods decreased
30%. The decrease in oil and gas production resulted primarily from a
general decline in production from all fields, combined with the
accelerating decline in production of gas from the Lafourche Realty A-2
well. Oil prices for the quarter ended March 31, 2000 increased 137%, to
$24.98 per Bbl from $10.54 per Bbl for the first quarter of 1999. Gas
prices also increased during the quarter ended March 31, 2000 to $2.69 per
Mcf from $2.16 per Mcf for the first quarter of 1999.
LEASE OPERATING EXPENSES - On a BOE basis, lease operating expenses
increased 18%, to $5.04 per BOE for the three months ended March 31, 2000
from $4.27 per BOE in the comparable 1999 period. This increase is due to
the 26% reduction in production in 2000 as compared to the 1999 first
quarter. For the quarter ended March 31, 2000 lease operating expenses
were 12% lower than the comparable quarter in 1999. The decrease for the
quarter ended March 31, 2000 resulted primarily from the fact that major
repairs and facility upgrades performed in 1999 have decreased operating
costs.
SEVERANCE TAXES - The effective severance tax rate as a percentage of oil
and gas revenues decreased to 2.4% for the three months ended March 31,
2000 from 4.7% for the comparable period in 1999. This relatively low
effective rate is attributable to a refund of $176,310 of oil severance
taxes under Louisiana's severance tax abatement program for a well in the
Boutte Field. Without this one-time refund item, the effective severance
tax rate would have increased to 7.8%. This increase is due to the
expiration of severance tax exemptions on some wells that were exempt
during the first quarter of 1999.
GENERAL AND ADMINISTRATIVE EXPENSES - For the three months ended March 31,
2000 general and administrative ("G&A") expenses were $3.88 per BOE, a 36%
increase from the $2.85 per BOE for the first three months of 1999. For the
first three months of 2000, G&A increased 1.0%, from $618,000 in 1999 to
$624,000 in 2000. The first quarter increase in G&A per BOE in 2000
resulted directly from the decrease in production during the first quarter
of 2000 as compared to the comparable 1999 first quarter. The increase of
$6,000 in actual G&A expenses for the three month period ended March 31,
1999 was negligible.
REORGANIZATION COSTS - The Company incurred $15,200 of reorganization costs
in the first quarter of 2000, comprised of legal expenses, as compared to
$266,500 of costs directly associated with the reorganization of the
Company during the first quarter of 1999. In addition, in the first
quarter of 1999 the Company also wrote off $384,300 of accumulated
reorganization costs that were capitalized as of December 31, 1998.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE - For the three months
ended March 31, 2000 depreciation, depletion and amortization ("DD&A")
expense decreased 28.6% from the comparable 1999 period. T 9.89 he
DD&A decrease from the first quarter of 1999 to 2000 is attributable to the
Company's decreased production and related future capital costs between the
comparable periods for 1999 and 2000.
On a BOE basis, which reflects the decreases in production, the DD&A rate
for the first three months of 2000 was $7.45 per BOE compared to $7.76 per
BOE for the same period in 1999, a decrease of 3.9%.
INTEREST EXPENSE - For the three months ended March 31, 2000 interest
expense decreased to $44,000 from $2.6 million for the comparable 1999
period. This decrease in interest expense is due to the reorganization
wherein the interest bearing bonds were exchanged for new common stock in
the Company (see NOTE 1. RORGANIZATION AND FRESH START REPORTING to the
Financial Statements).
NET INCOME (LOSS) FROM OPERATIONS - Due to the factors described above, the
net income from operations for the three months ended March 31, 2000 was
$598,000, an increase of $4.6 million over the net loss of $4.0 million
reported for the first three months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW - As of March 31, 2000, the Company has $1.1
million of working capital, compared to a working capital deficit at March
31, 1999 of $79 million. The large working capital deficit at the end of
the first quarter of 1999 resulted primarily from the acceleration of long
term debt due to the default on the senior notes, compounded by declines in
both prices and production. The Company's realized oil and gas prices
increased 137% and 25%, respectively, from the first quarter of 1999 to the
first quarter of 2000. During the same period oil production declined 19%
and gas production declined 30%. The combination of the increase in
product prices and the decrease in production volumes during the first
quarter of 2000 increased the Company's revenues from production, from $2.6
million in the first quarter of 1999 to $3.2 million in the first quarter
of 2000.
The Company believes that its cash on hand plus the expected normal cash
flow from operations will be sufficient to fund its working capital needs
for the remainder of 2000.
The foregoing discussion includes many forward looking statements which are
subject to the risks and uncertainties noted below in "Forward-Looking
Statements" which could cause the actual results to differ materially from
the Company's expectations.
The following summary table reflects comparative cash flows for the Company
for the three month periods ended March 31, 2000 and 1999:
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS)
2000 1999
Net cash provided by operating activities $ 1,482 $ 1,775
Net cash (used) by investing activities (709) (3,046)
Net cash provided by financing activities (222) 75
As a result of the implementation of fresh start accounting, the financial
statements as of December 31, 1999 and those as of March 31, 2000 and for
the three month period ended March 31, 2000 reflecting the fresh start
accounting principles discussed above are not comparable to the financial
statements of prior periods.
For the three months ended March 31, 2000 net cash provided by operating
activities decreased to $1.48 million from $1.78 million during the
comparable period in 1999. Cash used in investing activities during the
three months ended March 31, 2000 was reduced to $705,000 from $3.0 million
during the comparable period in 1999. Cash provided by financing
activities decreased from $75,000 in the first quarter of 1999 to $222,000
of cash used during the first quarter of 2000.
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. For the periods ended March 31, 2000 and 1999, the Company
recorded additions to oil and gas sales of $109,800 and $-0- respectively,
under these agreements. The Company did enter into a forward sales
agreement to sell 200 barrels per day of its oil production in October,
1999 for the twelve months ending November 30, 2000, at a price of $22.05
per barrel. As of March 31, 2000 and through May 11, 2000, the Company had
no open forward gas sales positions.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards that require every
derivative instrument (including certain derivative instruments embedded in
other contracts) to be recorded in the balance sheet as either an asset or
a liability measured at its fair value and that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. The Company will to adopted SFAS No. 133
January 1, 2001. Because of the nature of the Company's only derivative
instrument, the Company does not expect that the adoption of SFAS No. 133
will have a material impact on the Company's results of operations.
However, the adoption may create volatility in equity through changes in
other comprehensive income.
The foregoing discussion includes many forward looking statements which are
subject to the risks and uncertainties noted above in "Forward-Looking
Statements" which could cause the actual results to differ materially from
the Company's expectations.
RISK FACTORS
A detailed discussion of risks and uncertainties which could affect the
Company's future results and the forward looking statements contained in
this report can be found in the "Item 1. Business - Cautionary Statements"
section of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. Those risks and uncertainties remain applicable to the
Company's operations.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, including but not limited to the discussions of
Liquidity and Capital Resources and Year 2000 Disclosure, includes
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact included in the discussions are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, such forward-looking statements
are based on numerous assumptions (some of which may prove to be incorrect)
and are subject to risks and uncertainties which could cause the actual
results to differ materially from the Company's expectations. Such risks
and uncertainties include, but are not limited to, the timing and extent of
changes in commodity process 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, as well as other risks and
uncertainties discussed in this and the Company's other filings with the
Securities and Exchange Commission (the "Cautionary Statements"). The
Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of changes in actual results, changes in
assumptions or other factors affecting such statements. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by
the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's revenues are derived from the sale of oil and natural gas
production. From time to time, the Company enters into hedging
transactions which fix, for specific periods and specific volumes of
production, the prices the Company will receive for its production. These
agreements reduce the Company's exposure to decreases in the commodity
prices on the hedged volumes, while also limiting the benefit the Company
might otherwise have received from increases in commodity prices of the
hedged production.
The Company uses hedging transactions for price protection purposes on a
limited amount of its future production and does not use these agreements
for speculative or trading purposes. The impact of hedges is recognized in
oil and gas sales in the period the related production revenues are
accrued.
Based on projected annual production volumes for 2000, a 10% decline in the
prices the Company receives for its oil and natural gas production would
have an approximate $3.9 million negative impact on the Company's
discounted future net revenues. This impact of a hypothetical 10% decline
in prices is net of any incremental gain that would be realized on hedge
agreements in place as of May 1, 2000.
PART II
ITEM 1. LEGAL PROCEEDINGS
This information is incorporated by reference to Part 1, Item 1 (Note
6 - Legal Proceedings) of this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT -
27.1 Financial Data Schedule.
REPORTS ON FORM 8-K
None
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: May 22, 1999 By: /S/ MCLAIN J. FORMAN
----------------------------------
McLain J. Forman
Chairman of the Board, Chief
Executive Officer and President
By: /S/ MICHAEL H. PRICE
---------------------------------
Michael H. Price
Chief Financial Officer