SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ 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 333-83651
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BENZ ENERGY INC.
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(Exact name of registrant as specified in its charter)
Delaware 76-0577348
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Louisiana Street, 15th Floor
Houston, Texas 77002
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 739-0351
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
----- -----
Number of shares of Benz Energy Inc. common stock,
$.01 par value, outstanding as of March 31, 2000 62,113,409
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BENZ ENERGY INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------
2000 1999
------------ ------------
REVENUES
Oil and gas sales $ 2,188,063 $ 1,370,957
EXPENSES
Depreciation, depletion and amortization 1,270,667 1,163,845
Operating costs 254,171 168,168
General and administrative 595,486 933,965
Interest expense 1,882,992 1,563,223
------------ ------------
4,003,316 3,829,201
------------ ------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSE) AND PROVISION FOR
INCOME TAXES (1,815,253) (2,458,244)
Interest income 237,259 88,219
Loss on sale of investments and other assets (1,104,173) (58,553)
------------ ------------
Total Other Income (Expense) (866,914) 29,666
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,682,167) (2,428,578)
Provision for income taxes -- --
------------ ------------
NET LOSS BEFORE PREFERRED DIVIDEND (2,682,167) (2,428,578)
Cumulative preferred stock dividends (820,865) (237,204)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (3,503,032) $ (2,665,782)
============ ============
BASIC AND DILUTED LOSS PER SHARE ON COMMON STOCK $ (0.07) $ (0.08)
============ ============
WEIGHTED AVERAGE COMMON SHARES USED TO COMPUTE:
Basic Loss per Share 51,156,886 33,727,724
Diluted Loss per Share 51,156,886 33,727,724
The accompanying notes to consolidated financial statements are
an integral part of this statement.
1
BENZ ENERGY INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended
March 31,
--------------------------------
2000 1999
------------ -------------
Net loss $ (2,682,167) $ (2,428,578)
Other comprehensive income, net of tax:
Foreign currency translation adjustment (26,108) 56,526
Unrealized gains on marketable securities -- 12,748
------------ -------------
Comprehensive loss $ (2,708,275) $ (2,359,304)
============ ============
The accompanying notes to consolidated financial statements are
an integral part of this statement.
2
BENZ ENERGY INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
March 31,
---------------------------------
2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,682,167) $ (2,428,578)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 1,270,667 1,163,845
Amortization of deferred loan costs 289,985 659,858
Loss on sale of investments 750,000 58,553
Reserve for bad debt -- 68,328
Write-off of investment in Calibre Ecuador 144,970 --
Loss on sale-leaseback of FF&E 209,203 --
Changes in operating assets and liabilities:
Decrease in receivables 3,296,910 353,757
(Increase) decrease in prepaid expenses (84,923) 168,133
Increase in amounts due from related parties (2,655) (21,363)
Decrease in other assets 97,902 425,000
Decrease in accounts payable and accrued expenses (837,814) (601,091)
Decrease in drilling advances (421,915) --
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,030,163 (153,558)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures (958,570) (4,225,656)
Proceeds from sale of stock held for investment 375,000 128,091
Other capital expenditures, net 43,518 (64,196)
Other, net -- 68,596
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (540,052) (4,093,165)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 432,866 2,699,554
Payments on long-term debt (2,904,480) (381,379)
Cost of debt and equity transactions (1,534) (129,951)
Cash overdraft position -- 304,706
Other 22,034 (55,900)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,451,114) 2,437,030
------------- -------------
Effect of change in translation (19,267) 55,574
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (980,270) (1,754,119)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,126,175 2,319,302
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,145,905 $ 565,183
============= =============
The accompanying notes to consolidated financial statements are
an integral part of this statement.
3
BENZ ENERGY INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
------------ --------------
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 2,145,905 $ 3,126,175
Receivables, net of allowance for doubtful accounts of $180,718,
respectively 3,499,807 6,796,722
Advances to related parties 622,365 622,454
Prepaid expenses 310,765 225,843
------------ --------------
Total Current Assets 6,578,842 10,771,194
------------ --------------
OIL AND GAS PROPERTIES, USING FULL COST ACCOUNTING
Costs being amortized 62,350,205 62,201,144
Costs not being amortized 21,283,459 20,433,950
------------ --------------
83,633,664 82,635,094
Less: Accumulated amortization (10,330,193) (9,107,788)
------------ --------------
Net Oil and Gas Properties 73,303,471 73,527,306
------------ --------------
PROPERTY AND EQUIPMENT 437,703 1,147,315
Less: Accumulated depreciation (147,541) (556,171)
------------ --------------
Net Property and Equipment 290,162 591,144
------------ --------------
Notes receivable 10,777,768 12,000,000
Debt issuance costs, net of accumulated amortization of $1,837,958 and
$1,547,973, respectively 3,257,733 3,546,184
Due from related parties 109,886 113,962
Other assets 268,450 575,591
------------ --------------
Total Other Assets 14,413,837 16,235,737
------------ --------------
TOTAL ASSETS $ 94,586,312 $ 101,125,381
============ ==============
The accompanying notes to consolidated financial statements are
an integral part of this statement.
4
BENZ ENERGY INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) (audited)
CURRENT LIABILITIES
Accounts payable $ 1,683,485 $ 1,821,701
Revenue payable 1,329,193 1,628,905
Accrued interest 1,058,111 1,525,022
Accrued preferred dividends 532,652 974,603
Accrued loss on termination of employee 895,957 900,957
Other accrued expenses 1,139,603 1,409,504
Drilling advances 159,224 581,139
Notes payable 33,229 37,116
Current maturities of long-term debt 75,000 1,212,212
------------- -------------
Total Current Liabilities 6,906,454 10,091,159
------------- -------------
LONG-TERM DEBT 59,405,114 60,515,189
OTHER LONG-TERM LIABILITIES 13,196 13,196
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE PREFERRED STOCK, $1 par value; 100,000,000 shares authorized;
13,888,140 shares issued and outstanding, respectively; redemption value
of $13,888,140, respectively. 13,538,140 13,518,140
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value; 100,000,000 shares authorized; 239,251 and
239,701 shares issued and outstanding, respectively; redemption value
of $23,925,100 and $23,970,100, respectively. 239,251 239,701
Common Stock, $0.01 par value; 300,000,000 shares authorized; 62,113,409
shares and 47,583,888 shares issued and outstanding, respectively. 621,134 475,839
Additional paid-in capital 46,251,020 45,131,014
Accumulated deficit (32,251,266) (28,748,234)
Cumulative foreign currency translation adjustment (136,731) (110,623)
------------- -------------
Total Stockholders' Equity 14,723,408 16,987,697
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 94,586,312 $ 101,125,381
============= =============
The accompanying notes to consolidated financial statements are
an integral part of this statement.
5
BENZ ENERGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These financial statements have been prepared by Benz Energy without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments that are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods, on a basis consistent with the annual audited financial statements.
All such adjustments are of a normal recurring nature. Certain information,
accounting policies, and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
we believe that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in our recent annual report on
Form 10K-SB filed on April 14, 2000.
1. ACQUISITIONS
In January 1999, we acquired, on behalf of the company and our partner in
the Wausau prospect, a gas pipeline in Mississippi for approximately $425,000
to provide access for gas sales. Included in the purchase were a 100% and a
93.75% before a defined pay-out ("BPO") working interest in two producing
wells. We do not anticipate these wells reaching the defined pay-out. We own
a net 53.8% interest in the pipeline and the Fairchild #1 well and a 50.5%
interest in the A. Foote Estate #1 well.
2. RESTRICTED CASH
Included in cash and cash equivalents at March 31, 2000 is $970,300 which
is restricted to expenditures on certain petroleum interests.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31, 2000
--------------
3-D Workstations $ --
Furniture and Fixtures --
Telephone and Computer Equipment --
Leasehold Improvements 368,654
Software --
Other 69,049
-----------
437,703
Less: Accumulated Depreciation (147,541)
-----------
Net Property and Equipment $ 290,162
===========
6
We recorded the following depreciation expense related to property
and equipment in the Consolidated Statement of Operations for the periods
indicated:
Three months ended March 31, 2000 $ 48,262
Three months ended March 31, 1999 $ 102,529
In February 2000, we sold all office furniture, equipment and
personal property to WIN-Houston Limited Partnership and signed an agreement
to lease back such furniture, equipment and personal property for one year
for lease payments of approximately $487 per month. We recorded a loss on the
sale-leaseback of approximately $209,203 in our Consolidated Statement of
Operations.
4. INVESTMENT IN EQUITY SECURITIES
At March 31, 2000 and 1999, marketable investments classified as available
for sale were comprised of the following:
March 31, March 31,
2000 1999
-------- ---------
Common Stocks:
Market value $ -- $ 25,969
Cost -- 98,851
-------- ---------
Gross Unrealized Holding Losses $ -- $ (72,882)
======== =========
We realized the following gross losses from the sale of equity
securities for the periods indicated:
Three months ended March 31, 2000 $ --
Three months ended March 31, 1999 $ 58,553
Benz utilizes the average cost method in computing realized gains and
losses which is included in other income (expense) in the accompanying
Consolidated Statement of Operations.
5. NOTE RECEIVABLE
On December 30, 1999, we sold a farm-out of our exploratory program to
Harken Energy Corporation. The sale involved three prospects in Texas,
including the Old Ocean project, and six prospects in Mississippi and certain
assets related to those prospects. The purchase price for the exploratory
assets was $12 million principal amount of 5% convertible subordinated notes
of Harken Energy Corporation due May 26, 2003. The notes are convertible at
the holder's sole election into Harken Energy common shares based on a
conversion price of $6.50 per share. The notes are mandatorily convertible if
the market price per share of Harken Energy common share over any consecutive
30 day period is equal to or greater than $8.125 per share. During the year
prior to maturity, Harken Energy may redeem the convertible notes for Harken
common shares based on its then market price, provided that the redemption
must be at a 10% premium if the redemption occurs within six months of
maturity. In addition to the convertible notes, Benz retained a
7
reversionary 20% working interest in the prospects, which vests after pay-out
of 100% of Harken Energy's drilling costs, land costs, certain administrative
costs, purchase price, plus a 10% rate of return.
On March 30, 2000, we sold $1.125 million of notes back to Harken for
$375,000 in cash, resulting in a loss on investment of $750,000 recorded in
our Consolidated Statement of Operations.
6. PARTICIPATION AGREEMENT
In November 1998, we entered into a participation agreement with
Burlington Resources International Inc. ("Burlington") to pursue government
contracts to participate in the redevelopment of oil and gas fields in
Ecuador. The company and Burlington had participation interests of 25% and
75%, respectively. Burlington did not renew the agreement; however, we
retained a 25% interest in any project related to the subject area pursued by
Burlington for one year. Such interest lapsed in April 2000 and we elected to
write off the investment in March 2000 for a loss of $144,970 in our
Consolidated Statement of Operations.
7. DRILLING ADVANCES
As of March 31, 2000, we have received drilling advances from joint
interest owners in the amount of $159,224. These advances are applied toward
the payment of drilling costs anticipated in the near future.
8. DEBT
March 31, December 31,
2000 1999
------------- -------------
Aquila Financing $ 27,018,166 $ 27,724,544
EnCap Junior Note 2,886,821 2,886,821
Debt Restructuring Agreement 8,683,127 10,224,036
Weisser Johnson Note 75,000 75,000
Convertible Debentures 20,817,000 20,817,000
------------- -------------
Total 59,480,114 61,727,401
Current Portion 75,000 1,212,212
------------- -------------
Total Long-Term Debt $ 59,405,114 $ 60,515,189
============= =============
During the first quarter of 2000, we repaid approximately $1.7 million
towards the Debt Restructuring Agreement with proceeds from the collection of a
receivable from an industry partner. In addition, we borrowed approximately
$432,900 under the Aquila production financing to fund side-tracking of the PEOC
#1 well and stimulation of the BOE 16-14 well. Repayments on the Aquila
financing totaled approximately $1.1 million during the three months ended March
31, 2000.
During the third quarter of 1999, we restructured our debt obligations
through the following transactions:
AQUILA FINANCING - In August 1999, we closed a new long-term production
financing facility with Aquila Energy Capital Corporation in the initial
amount of $26.8 million. The facility may be extended by up to
8
$1.5 million based on results of reservoir stimulation in the Fortenberry
well. The proceeds were used to retire existing senior secured debt and
accrued interest including the Shell production financing, the EnCap Credit
Facility and the BOCP Credit Facility. In addition, we have a firm commitment
from Aquila for an additional $3.8 million of funding for development
drilling at our Oakvale Dome Field.
The new production financing is secured by our proven oil and gas
properties and is repaid through a dedicated portion of the property income.
Terms of the financing include a 12% interest rate and assignment of 1/16th
of our interest in the proven properties following full repayment of the
production financing.
ENCAP JUNIOR NOTE - In August 1999, we borrowed $2.9 million under a
Junior Note with EnCap Energy Capital Fund III, L.P. The note matures March
31, 2001 and accrues interest at a rate of 10% per annum. Proceeds were used
to repay existing debt under the EnCap and BOCP credit facilities.
DEBT RESTRUCTURING AGREEMENT - In August 1999, we reached an agreement
with certain vendors and suppliers to convert their past due account payables
to a secured 10% note maturing August 23, 2002. The trade group agreeing to
the financing plan represented $11.2 million in past due accounts, equal to
over 90% of our accounts payable then over $10,000. Under the agreement, Benz
paid the group $1.12 million in September 1999 with proceeds from the private
placement of $4.0 million in new equity. The note will be retired using a
portion of the proceeds from the future sale of certain prospects,
collections of amounts owed to Benz from an industry partner and a portion of
our income after debt service and capital expenditures. The remaining balance
with accrued interest will be paid at maturity. The note is secured by a
subordinate lien on certain of our properties.
EXCHANGE OF CONVERTIBLE DEBENTURES - In July 1999, we closed our private
placement and exchange offer with European holders of our 9% Debentures,
Series 1. Holders exchanged $15.1 million principal amount of debentures for
$14.3 million principal amount of 8% Class A Convertible Preferred Stock
Series II and purchased an incremental $1.5 million principal amount of the
same preferred stock.
REPAYMENT OF OLD OCEAN FINANCING AND PRIVATE PLACEMENT - In conjunction
with the exchange offer discussed above, we raised new equity in Europe
through the private placement of the same preferred stock series. Of the $8.5
million of new equity raised, $3.15 million was preferred stock issued to
redeem the outstanding Old Ocean project bridge loan obtained in December
1998, and to re-purchase the net profits interest assigned to the lenders. We
received gross cash proceeds of $3.8 million from new investors and $1.5
million from debenture holders through the exchange above.
9. CAPITAL STOCK
In early January 2000, we issued 3,702,299 common shares as payment of
preferred dividends accrued through December 31, 1999. On March 31, 2000, we
issued 10,639,368 common shares as payment of the preferred dividend due
March 31, 2000 on the preferred stock, series II. In addition, 450 shares of
preferred stock, series II was converted to 187,854 common shares in March
2000 at a conversion price of $0.35 per share.
Effective March 31, 2000 the preferred stock, series II conversion price
was reduced to Cdn. $0.12 as required under the terms of the stock and based
upon the trailing average price of our common stock for the proceeding 20
trading days.
9
10. NON-CASH INVESTING AND FINANCING ACTIVITIES
Supplemental Disclosure of Cash Flow Information
We consider all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. These
investments are carried at cost, which approximates market.
In March 2000, 450 shares of preferred stock, series II were converted
into 187,854 common shares.
We paid dividends on our preferred shares, series I and II with
14,341,667 common shares of the company valued at approximately $1.3
million.
The following table provides additional disclosure of cash payments:
For the Three Months Ended
March 31,
-----------------------------
2000 1999
------------ -----------
Cash paid during the period for:
Interest $ 2,053,801 $ 1,197,296
Income taxes (net of refunds) -- --
11. EARNINGS PER SHARE
Securities that could potentially dilute basic earnings per share in the
future that were not included in the computation of diluted earnings per
share because their effect would have been antidilutive are as follows:
March 31,
---------------------------
2000 1999
--------- ---------
Warrants 6,212,826 2,493,903
Options 2,469,730 2,890,239
--------- ---------
Total shares 8,682,556 5,384,142
========= =========
12. GOING CONCERN ISSUE
The accompanying financial statements have been prepared assuming that we
will continue as a going concern. We currently have minimal cash reserves and
working capital surplus to fund our operations. A semi-annual interest
payment on our convertible debentures is due on September 30, 2000 totaling
approximately $937,000. In the event such payment is not made, we would be in
default under the trust debentures as well as other debt convenants. Such
debt may ultimately be called. The company may not be able to meet such
demand and currently does not have sufficient cash or equivalents to meet
such demand.
In January 2000, we announced that we were considering various
strategies options that could include a sale or merger of the company or
other substantial re-capitalization. We are in discussions with third parties
regarding these options, but can give no assurance as to the successful
completion of such discussions. We
10
are also exploring various options to meet the semi-annual interest payment
due September 30, 2000, but can give no assurance that such efforts will be
successful.
13. SUBSEQUENT EVENTS
In April 2000, an agreement with Prentis B. Tomlinson was signed that
included the forgiveness of the $1.7 million note payable, plus accrued
interest, due Mr. Tomlinson as a result of the Calibre acquisition in 1998.
In January 2000, Mr. Tomlinson resigned his positions as President and Chief
Executive Officer of the company while remaining on our board of directors.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations ("MD&A") should be read in conjunction with our Consolidated
Financial Statements included herein.
RECENT DEVELOPMENTS
We are sidetracking a development well in the Oakvale Dome Field in
Mississippi. The well reached proposed total depth and, based on log
evaluation, we elected to side-track the well to a more attractive location.
Consequently, our working interest increased to 87.5% from 51.5% due to the
non-consent of an industry partner.
RESULTS OF OPERATIONS
REVENUE. For the first quarter of 2000, revenue from crude oil and
natural gas production increased 60% over the same period in 1999. Natural
gas contributed 86% and crude oil contributed 14% of total oil and gas
production revenue.
The following table summarizes volume and price information with respect
to our oil and gas production for the quarter ended March 31, 2000 and 1999:
For the Quarter Ended
March 31,
-----------------------------------
Increase
2000 1999 (Decrease)
------ ----- ---------
Gas Volume - MCFGD 8,961 7,913 1,048
Average Gas Price - per MCF $2.31 $1.70 $0.61
Oil Volume - BOD 116 191 (75)
Average Oil Price - per barrel $28.52 $9.50 $19.02
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
GAS SALES. Natural gas sales increased 56%, from $1.2 million for the
first quarter of 1999 to approximately $1.9 million for the same period in
2000 due in large part to higher realized average gas prices compared to the
prior year period. Our average realized price for sales of natural gas
increased from $1.70 per Mcf in the first quarter of 1999 to $2.31 per Mcf
for the same period in 2000. Hedging activity during the first quarter of
2000 contributed $0.04 per Mcf to the increase in average realized gas
prices. Production increases also positively impacted first quarter 2000
natural gas sales. Our Oakvale Dome properties in Mississippi averaged 6,120
Mcf per day (Mcf/d) for the three months ended March 31, 2000 compared to
5,139 Mcf/d in the comparable 1999 period due primarily to the addition of
the Howell and Fortenberry wells in February 1999 and August 1999,
respectively. In addition, the BOE 16-12 and BOE 16-14 wells
12
combined to average a net 1,555 Mcf/d in the first quarter of 2000 compared
to 427 Mcf/d in the first quarter of 1999. The addition of these new wells
after the first quarter of 1999 mitigated the effect of lost production from
wells sold in 1999 and resulted in an overall increase in revenue of
approximately $175,100. Gas production in the first quarter of 2000 was 26%
less than the fourth quarter of 1999 due to early declines in production in
the Oakvale Dome field.
OIL SALES. For the first quarter of 2000, oil sales increased 84% to
$301,200, compared to $163,500 for the same period in 1999, due primarily to
higher realized average oil prices. Our average realized price for sales of
crude oil in the first quarter of 2000 increased by $19.02 per barrel, or
200%, increasing revenue by $200,900 compared to the same period in 1999. Oil
production, however, declined from 191 barrels per day in the first quarter
of 1999 to 116 barrels per day for the same period in 2000, adversely
impacting oil sales revenue by approximately $63,200. Increased production
for our Oakvale and Baber properties was more than offset by the loss of
production from wells sold in 1999.
DEPRECIATION, DEPLETION AND AMORTIZATION. Our depreciation, depletion
and amortization ("DD&A") expense for the first quarter ended March 31, 2000
totaled $1.3 million compared to $1.2 million in the comparable 1999 period.
Full cost DD&A totaled $1.2 million for the first quarter of 2000 compared to
$1.1 for the first quarter of 1999. On an equivalent MCF basis, full cost
DD&A increased $0.09 per MCFE, from $1.30 per MCFE to $1.39 per MCFE, in the
first quarter of 2000 compared to the same period in 1999. DD&A of other
assets for the first quarter ended March 31, 2000 totaled $48,300 compared to
$102,500 in the comparable 1999 period. We sold furniture, equipment and
personal property to a third party in February 2000 and leased back such
furniture, equipment and personal property for monthly payments of
approximately $487 per month resulting in lower depreciation expense for the
first quarter of 2000 compared to the prior year period.
OPERATING COSTS. Operating costs, including lease operating expense and
severance taxes, increased 51% from $168,200 in the first quarter of 1999 to
$254,200 for the same period in 2000. For the first quarter of 2000, lease
operating expense, excluding severance taxes, totaled $231,850 compared to
$138,000 for the comparable period in 1999. On an equivalent MCF basis, lease
operating expense for the first quarter increased from $0.17 per MCFE in 1999
to $0.26 per MCFE in 2000. The increase in operating costs from 1999 to 2000
resulted primarily from repair costs on the amine unit in Oakvale Dome.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
for the first quarter of 2000 decreased $338,500, or 36%, from the comparable
period in 1999. On an equivalent MCF basis, general and administrative costs
declined 41% to $0.68 per MCFE for the three months ended March 31, 2000
compared to $1.15 for the same period in 1999. The decrease in G&A costs was
due primarily to lower compensation expense. We reduced our staff level from
23 employees at March 31, 1999 to six employees at March 31, 2000.
Compensation expense for the first quarter of 2000 included approximately
$48,000 in costs associated with employees who are no longer with the
company. In addition, legal costs for the first quarter of 2000 included fees
related to the negotiation of certain non-recurring transactions described
herein.
INTEREST EXPENSE. Interest expense for the first quarter of 2000
increased $319,800, or 20 percent, from the comparable prior year. Average
debt was approximately $60 million for the three months ended March 31, 2000,
resulting in gross interest costs of $1.65 million. Partially offsetting
these costs was capitalized interest of $59,800, which is based on the
carrying value of unproved properties. Financing costs also included
amortization of debt issuance costs totaling $290,000 for the three-month
period in 2000. For the comparable 1999 three-month period, average debt was
approximately $59.8 million, resulting in gross interest costs of $1.9
million. Other financing costs included the amortization of the Shell
discount and the original issue discount for the EnCap NPI of $62,500 and
$15,300, respectively. Partially offsetting these
13
costs was capitalized interest of $1.0 million. Amortization of debt issuance
costs totaled $582,000 for the three months ended March 31, 1999.
OTHER. Other income (expense) for the first quarter of 2000 included a
$750,000 loss on the sale of Harken notes, $209,200 loss on the
sale-leaseback of furniture, equipment and personal property and $145,000 on
the write-off of our interest in Ecuador. These costs were slightly offset by
interest income of $237,300. For the comparable three-month period in 1999,
other income included interest income of $88,200 partially offset by losses
on the sale of marketable securities totaling $58,600.
NET LOSS. For the first quarter of 2000, we reported a net loss
applicable to common stockholders of $3.5 million, or $0.07 per share,
compared to a loss of $2.7 million, or $0.08 per share, for the same period
in 1999. Weighted average shares outstanding increased from approximately
33.7 million for the three months ended March 31, 1999 to 51.2 million in the
comparable 2000 period as a result of the issuance of common stock as
dividend payment on preferred shares as well as shares issued as payment of
commissions and finance fees for the July 1999 exchange offer.
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash needs are for exploration, development and acquisition
of oil and gas properties, and repayment of principal and interest on
outstanding debt. Our sources of financing include equity placements, revenue
generated from operations, ongoing sales of non-core assets and excess
interests in core prospects, and proceeds from additional production
financings. Based on the foregoing, we will require capital from certain of
the sources identified above to fund our ongoing activities and debt service
over the next 12 months. If we are unable to obtain such capital, we will
either have to sell interests in our prospects to fund our drilling program,
curtail our exploration activities and/or curtail ongoing activities, or
restructure scheduled debt service. Such curtailing of activities could
include reducing the number of wells drilled, slowing activities on projects
that we operate, selling additional interests in our prospect inventory or a
combination of the foregoing. An absence of further capital could bring into
question our viability. Many of the factors that may affect our future
operating performance and long-term liquidity are beyond our control,
including, but not limited to, oil and natural gas prices, governmental
actions and taxes, the availability and attractiveness of financing and our
operational results. We continue to examine alternative sources of long-term
capital, including bank borrowings, the issuance of debt instruments, the
sale of common stock or other equity securities, the issuance of net profits
interests, sales of promoted interests in our prospects, and various forms of
joint venture financing. In addition, the prices we receive for our future
oil and natural gas production and the level of our production will have a
significant impact on future operating cash flows.
LIQUIDITY
At March 31, 2000, we had cash and cash equivalents on hand of $2.1
million and a working capital deficit of $327,600, as compared to a cash
balance of $3.1 million and working capital of $680,000 at December 31, 1999.
Our ratio of current assets to current liabilities was 0.95:1 at March 31,
2000 compared to 1.07:1 at December 31, 1999.
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CASH FLOWS
Cash flows provided by operating activities totaled $2.0 million for the
three months ended March 31, 2000 due primarily to a decrease in receivables.
Joint interest receivables decreased $1.6 million due primarily to payment by
a significant industry partner. In addition, oil and gas receivables
decreased $2.1 million due to more timely collection of invoices. At
year-end, invoicing for three months of production was outstanding compared
to two months at March 31, 2000.
Cash used in investing activities for the first quarter of 2000 was $0.5
million. Cash outlays for exploration and development expenditures totaled
approximately $1.0 million consisting primarily of costs associated with
drilling the PEOC well. Partially offsetting these costs were proceeds from
the sale of Harken Energy notes for cash of $375,000.
Cash used in financing activities totaled $2.5 million for the three
months ended March 31, 2000 and included repayment of amounts under the debt
restructuring agreement of $1.7 million and the Aquila production financing
of $1.1 million. In addition, we borrowed $432,900 under the Aquila
production financing to fund the side-track operations on the PEOC #1 well
and stimulate the BOE 16-14 well.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
Amount of Description of the
Date of Transaction Type of Securities Securities Sold Transaction
- ------------------- ------------------ --------------- ------------------
January 2000 Common Stock 3,702,299 Preferred Dividend
Exchange for Preferred
March 2000 Common Stock 187,854 Stock, Series II
March 2000 Common Stock 10,639,368 Preferred Dividend
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
27.1 - Financial Data Table
(b) Reports filed on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
BENZ ENERGY INC.
Dated: May 15, 2000 /s/ Robert S. Herlin
------------- -------------------------------------
Robert S. Herlin
President and Chief Executive Officer
Dated: May 15, 2000 /s/ Kirsten A. Hink
------------- -------------------------------------
Kirsten A. Hink
Controller
(Chief Accounting Officer)
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