UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2000.
/ / 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: 001-13171
EVERGREEN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0834147
- --------------------------------- -------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
1401 17TH STREET SUITE 1200
DENVER, COLORADO 80202
- --------------------------------- -------------------------------
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (303) 298-8100
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. X YES NO
--- ---
As of August 7, 2000, 14,950,203 shares of the Registrant's Common Stock, no par
value, were outstanding.
EVERGREEN RESOURCES, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999................................................... 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 2000 and 1999..................................... 4-5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999............................................ 6
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2000 and 1999....................... 7
Notes to Consolidated Financial Statements................................. 8-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................10-15
Quantitative and Qualitative Disclosure
About Market Risk....................................................... 15
PART II. OTHER INFORMATION..................................................... 16-17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2000 December 31, 1999
------------- -----------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current:
Cash and cash equivalents $ 3,236 $ 651
Accounts receivable 4,586 5,021
Other current assets 1,357 749
--------- ---------
TOTAL CURRENT ASSETS 9,179 6,421
--------- ---------
Property and equipment, at cost, based on full-cost accounting
for oil and gas properties 234,366 199,179
Less accumulated depreciation, depletion and amortization 27,552 24,845
--------- ---------
NET PROPERTY AND EQUIPMENT 206,814 174,334
--------- ---------
Designated cash 1,271 2,313
Other assets 1,467 1,301
--------- ---------
$ 218,731 $ 184,369
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,848 $ 3,659
Amounts payable to oil and gas property owners 1,691 1,424
Accrued expenses and other 1,120 1,400
--------- ---------
TOTAL CURRENT LIABILITIES 5,659 6,483
Production taxes payable 1,271 2,313
Deferred revenue 650 --
Notes payable 39,500 15,500
Deferred income tax liability 9,189 6,563
--------- ---------
TOTAL LIABILITIES 56,269 30,859
--------- ---------
Stockholders' equity:
Preferred stock, $1.00 par value; shares authorized, 25,000;
none outstanding
Common stock, $.01 stated value; shares authorized,
50,000; shares issued and outstanding 14,943 and 14,621 149 146
Additional paid-in capital 152,884 147,326
Retained earnings 10,312 6,205
Accumulated other comprehensive loss (883) (167)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 162,462 153,510
--------- ---------
$ 218,731 $ 184,369
========= =========
See accompanying notes to consolidated financial statements.
3
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
2000 1999
------ ------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Natural gas revenues $8,254 $5,140
Interest and other 121 63
------ ------
Total revenues 8,375 5,203
------ ------
Expenses:
Lease operating expenses 1,538 1,114
Production taxes 368 49
Depreciation, depletion and amortization 1,340 1,137
General and administrative expenses 920 709
Interest expense 495 751
Other expense 33 30
------ ------
Total expenses 4,694 3,790
------ ------
Income before income taxes 3,681 1,413
Income tax provision - deferred 1,435 545
------ ------
Net income $2,246 $ 868
====== ======
Basic income per common share $ 0.15 $ 0.08
====== ======
Diluted income per common share $ 0.14 $ 0.07
====== ======
See accompanying notes to consolidated financial statements.
4
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended June 30,
2000 1999
------ ------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues:
Natural gas revenues $15,649 $9,712
Interest and other 162 114
------- ------
Total revenues 15,811 9,826
------- ------
Expenses:
Lease operating expenses 3,073 2,125
Production taxes 653 238
Depreciation, depletion and amortization 2,564 2,298
General and administrative expenses 1,902 1,272
Interest expense 802 1,541
Other expense 84 62
------- ------
Total expenses 9,078 7,536
------- ------
Income from continuing operations before income taxes 6,733 2,290
Income tax provision - deferred 2,626 887
------- ------
Income from continuing operations 4,107 1,403
Discontinued operations:
Gain on disposal of discontinued operations, net -- 452
------- ------
Net income $ 4,107 $1,855
======= ======
Basic income per common share:
From continuing operations $ 0.28 $ 0.12
From discontinued operations -- 0.04
------- ------
Basic income per common share $ 0.28 $ 0.16
======= ======
Diluted income per common share:
From continuing operations $ 0.26 $ 0.11
From discontinued operations -- 0.04
------- ------
Diluted income per common share $ 0.26 $ 0.15
======= ======
See accompanying notes to consolidated financial statements.
5
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2000 1999
-------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 4,107 $ 1,855
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization 2,564 2,298
Deferred income taxes 2,626 887
Gain on disposal of discontinued operations, net -- (452)
Other 215 374
Changes in operating assets and liabilities:
Accounts receivable 421 722
Other current assets (609) (655)
Accounts payable (464) 250
Accrued expenses and other (714) (558)
Deferred revenue 650 --
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,796 4,721
-------- --------
Cash flows from investing activities:
Investment in property and equipment (30,234) (21,622)
Proceeds from the sale of investment -- 2,259
Decrease in designated cash 1,042 835
Change in production taxes payable (1,042) (835)
Increase in other assets (350) (333)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (30,584) (19,696)
-------- --------
Cash flows from financing activities:
Net proceeds from (payments on) notes payable 24,000 (44,139)
Proceeds from sale of common stock, net 138 66,043
Principal payments on capital lease obligations -- (4,028)
Debt issue costs -- (57)
Increase (decrease) in cash held from operating oil and gas properties
and other 267 (1,560)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,405 16,259
-------- --------
Effect of exchange rate changes on cash (32) (6)
-------- --------
Increase in cash and cash equivalents 2,585 1,278
Cash and cash equivalents, beginning of the period 651 1,334
-------- --------
Cash and cash equivalents, end of the period $ 3,236 $ 2,612
======== ========
See accompanying notes to consolidated financial statements.
6
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
(IN THOUSANDS)
2000 1999 2000 1999
------- ----- ------- -------
Net income $ 2,246 $ 868 $ 4,107 $ 1,854
Foreign currency translation adjustments (545) (203) (716) (490)
------- ----- ------- -------
Comprehensive income $ 1,701 $ 665 $ 3,391 $ 1,364
======= ===== ======= =======
See accompanying notes to consolidated financial statements.
7
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
1. Basis of Presentation
Evergreen Resources, Inc. ("Evergreen" or the "Company") is an independent
energy company engaged in the exploration, development, production,
operation and acquisition of oil and gas properties. Evergreen's primary
focus is on developing and expanding its coal bed methane properties
located on approximately 207,000 gross acres in the Raton Basin in southern
Colorado. The Company also holds exploration licenses on approximately
500,000 acres onshore in the United Kingdom, an interest in a consortium
exploring offshore in the Falkland Islands, an oil and gas exploration
contract on approximately 2.4 million acres in northern Chile and
exploratory acreage in northwestern Colorado. Evergreen operates all of its
own producing properties.
The financial statements include the accounts of Evergreen and its
wholly-owned subsidiaries: Evergreen Operating Corporation ("EOC"),
Evergreen Resources (UK) Ltd., Powerbridge, Inc., Evergreen Well Service
Company, Primero Gas Marketing Company, EnviroSeis, LLC, and XYZ Minerals,
Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
The Company has a 40% ownership in Argos Evergreen Limited, a Falkland
Islands company which owns offshore drilling rights in the North Falklands
basin. This investment is accounted for by the equity method of accounting.
Effective February 1999, the Company sold its 49% interest in Maverick
Stimulation Company, LLC ("Maverick") which had previously been accounted
for using the equity method of accounting.
The accompanying financial statements should be read in conjunction with
the Company's audited consolidated financial statements for the year ended
December 31, 1999. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to present fairly
the Company's financial position as of June 30, 2000 and 1999 and the
results of its operations and cash flows for the three and six months then
ended. Management believes all such adjustments are of a normal recurring
nature. The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
2. Oil and Gas Properties
The Company follows the full-cost method of accounting for oil and gas
properties. Under this method, all productive and nonproductive costs
incurred in connection with the exploration for and development of oil and
gas reserves are capitalized. Such capitalized costs include lease
acquisition, geological and geophysical work, delay rentals, drilling,
completing and equipping oil and gas wells including salaries, benefits and
other internal costs directly attributable to the activities. Costs
associated with production and general corporate activities are expensed in
the period incurred. Interest costs related to unproved properties and
properties under development are also capitalized to oil and gas
properties. Normal dispositions of oil and gas properties are accounted for
as adjustments of capitalized costs, with no gain or loss recognized.
Depreciation, depletion, and amortization of proved oil and gas properties
is computed on the units-of-production method based upon estimates of
proved reserves with oil and gas being converted to a common unit of
measure based on the relative energy content. Unproved oil and gas
properties,
8
including any related capitalized interest expense, are not amortized, but
are assessed for impairment either individually or on an aggregated basis.
3. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended June 30,
2000 1999
------------------------------------ -------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Per- Per-
Weighted Share Weighted Share
Income Shares Amt. Income Shares Amt.
------- -------- ----- ------- -------- --------
Basic income per common share: $ 2,246 14,943 $0.15 $ 868 11,490 $ 0.08
======= ====== ===== ======= ====== ========
Diluted income per common share:
Net income $ 2,246 14,943 $ 868 11,490
Stock options -- 743 -- 777
------- ------ ----- ------- ------ --------
$ 2,246 15,686 $0.14 $ 868 12,267 $ 0.07
======= ====== ===== ======= ====== ========
Six Months Ended June 30,
2000 1999
------------------------------------- ------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Per- Per-
Weighted Share Weighted Share
Income Shares Amt. Income Shares Amt.
------- -------- ------ ------- -------- ------
Basic income per common share:
Net income from continuing operations $ 4,107 14,905 $ 0.28 $ 1,403 11,347 $ 0.12
====== ======
Discontinued operations, net -- -- -- 452 11,347 0.04
------- ====== ------ ------- ====== ------
$ 4,107 14,905 $ 0.28 $ 1,855 11,347 $ 0.16
======= ====== ====== ======= ====== ======
Diluted income per common share:
Net income from continuing operations $ 4,107 14,905 $ 1,403 11,347
Stock options -- 691 -- 675
------- ------ ------- ------
$ 4,107 15,596 $ 0.26 1,403 12,022 $ 0.11
====== ======
Discontinued operations, net -- -- -- 452 12,022 0.04
------- ====== ------ ------- ====== ------
$ 4,107 15,596 $ 0.26 $ 1,855 12,022 $ 0.15
======= ====== ====== ======= ====== ======
4. Discontinued Operations
Effective February 18, 1999, Evergreen sold its 49% interest in Maverick to
the managing members of Maverick for $2.26 million. The sale resulted in a
gain net of tax of approximately $452,000 or $0.04 per diluted share. This
transaction has been accounted for as a discontinued operation and the
results of operations have been excluded from continuing operations in the
consolidated statements of income.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including statements regarding, among other items,
(i) the Company's growth strategies, (ii) anticipated trends in the Company's
business and its future results of operations, and (iii) market conditions in
the oil and gas industry. These forward-looking statements are based largely on
the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Such risks and
uncertanties include, among other things, a decline in natural gas production, a
decline in natural gas prices, incorrect estimations of required capital
expenditures, increases in the cost of drilling, completion and gas gathering,
an increase in the cost of production and operations, an inability to meet
growth projections, and/or changes in general economic conditions. These and
other risks and uncertanties, which are described in more detail in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission, could cause actual results and developments to be materially
different from those expressed or implied by any of these forward-looking
statements.
GENERAL
Evergreen is an independent energy company engaged in the exploration,
development, production, operation and acquisition of oil and gas properties.
Evergreen's primary focus is on developing and expanding its coal bed methane
properties located on approximately 207,000 gross acres in the Raton Basin in
southern Colorado. The Company also holds exploration licenses on approximately
500,000 acres onshore in the United Kingdom, an interest in a consortium
exploring offshore in the Falkland Islands, an oil and gas exploration contract
on approximately 2.4 million acres in northern Chile and exploratory acreage in
northwestern Colorado. Evergreen operates all of its producing properties.
DEVELOPMENTS
GENERAL
The Company has filed an application to list its common stock on the New York
Stock Exchange ("NYSE"), beginning on or about September 8, 2000. Until that
time, the company's shares will continue trading on the Nasdaq Stock Market
under the ticker symbol "EVER." The Company's common stock on the NYSE will be
listed under the new ticker symbol "EVG."
Evergreen named Arthur L. Smith to the Company's Board for a one-year term,
filling a vacant spot on Evergreen's seven-member board. Mr. Smith is chairman
and CEO of John S. Herold, Inc., the Stamford, Connecticut based energy research
and consulting firm.
RATON BASIN
As of August 3, 2000, Evergreen had 302 net producing gas wells. Natural gas
production is currently at approximately 45 million cubic feet ("MMcf") per day
net.
The expanding production in the Raton Basin has led Colorado Interstate Gas
Co. ("CIG") to construct a 20-inch loop of its Picketwire Lateral pipeline.
The 20-inch loop will increase the pipeline's gas takeaway capacity by 34
MMcf per day. CIG anticipates having the loop completed by December 1, 2000,
with takeaway capacity increased to 134 MMcf per day by year end. Other
projects are scheduled by CIG to further increase takeaway capacity in 2001.
In April 2000, Evergreen committed to an additional 11 MMcf per day of firm
transportation, bringing its total
10
commitment to 64 MMcf per day starting December 1, 2000. If the 20-inch loop is
not completed by December 1, 2000, the Company may be limited in the amount of
gas it can sell by pipeline capacity constraints.
During the quarter ended June 30, 2000, the Company drilled 32 Vermejo coal
formation wells. During the first six months of 2000, Evergreen drilled a total
of 49 Vermejo coal formation wells and 8 Raton coal formation wells.
The Company enters into contractual obligations that require future physical
delivery of its natural gas production to attempt to manage price risk with
regard to a portion of its natural gas production. As of August 1, 2000 the
Company had entered into contracts to sell approximately 45 million British
thermal units ("MMBtu") through October 31, 2000 at average net prices in
excess of $2.00 per Mcf, and 10 MMBtu per day at NYMEX less $0.20 and 10
MMBtu per day at a net price of $2.28 per Mcf for the period of November 1,
2000 through October 1, 2001. The Company has also extended a contract to
sell 10 MMBtu per day from November 1, 2000 through March 31, 2003 for the
lesser of the current market price or a net price of $2.45 per Mcf. In
consideration for this contract, the Company will receive $1,762,000 over the
12 month period ended October 31, 2000, which will be amortized as revenue
pro-rata over the contract term including the extended term through March
2003. As of June 30, 2000, the Company has received $1,025,000, of which
$650,000 has been recognized as deferred revenue and will be recognized as
revenue in future periods.
UNITED KINGDOM
On April 27, 2000, Evergreen started the development of its coal bed methane
gas properties in the United Kingdom. A total of 8 wells have been drilled to
date, of which 5 were coal bed methane ("CBM") wells and 3 were mine-gas
interaction wells. Total well depth ranged from 2,213 feet to 3,960 feet for
CBM wells and 1,485 feet to 2,156 feet for the mine-gas interaction wells.
Total coal thickness ranged from 75 feet to 97 feet of coal. Through August
3, 2000, the Company fracture stimulated five of the CBM wells using its own
pumping equipment in conjunction with a new completion technology utilizing
"coiled tubing." Management believes this is the first time that nitrified
foam fracs using coiled tubing technology have been used in the U.K. Coiled
tubing completions isolate individual coal seams that are to be fraced versus
fracing a group of coals using current technology. Coiled tubing also
provides for a better in-zone propped fracture with increased length at lower
overall costs.
Evergreen plans to drill and complete three gob gas wells during the next
three months. The Company anticipates its evaluation of the results of the
drilling program will be completed sometime in the fourth quarter of this
year. During 2000, the Company estimates that it will spend approximately $12
million for the U.K. program. This includes the purchase of the well service
fracture stimulation equipment of approximately $3 million and the drilling
and completing of 11 coal bed methane, mine-gas interaction and gob gas wells.
11
RESULTS OF OPERATIONS-THREE AND SIX MONTHS ENDED JUNE 30, 2000
The following table sets forth certain operating data of the Company for the
periods presented ("Mcf" means thousand cubic feet and "Mcfe" means thousand
cubic feet equivalent):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Natural gas production (Mcf) 3,892 3,317 7,577 6,361
Average realized sales price per Mcf $ 2.12 $ 1.55 $ 2.07 $ 1.53
Cost per Mcfe:
Lease operating expense $ 0.40 $ 0.34 $ 0.41 $ 0.33
Production taxes $ 0.09 $ 0.01 $ 0.09 $ 0.04
Depreciation, depletion and amortization $ 0.34 $ 0.34 $ 0.34 $ 0.36
General and administrative $ 0.24 $ 0.22 $ 0.25 $ 0.20
The Company reported net income of $2,246,000 or $0.14 per diluted share for the
three months ended June 30, 2000, compared to net income of $868,000 or $0.07
per diluted share for the same period in 1999. For the six months ended June 30,
2000, the Company reported net income of $4,107,000 or $0.26 per diluted share
compared to net income of $1,855,000 or $0.15 per diluted share in 1999. The six
months earnings in 1999 included a one-time, after tax gain of $452,000 or $0.04
per diluted share, resulting from the sale of Evergreen's 49% interest in
Maverick. The increase in net income during the six months ended June 30, 2000,
as compared to the prior year was attributable to increases in gas sales volumes
and prices.
Natural gas revenues increased to $8,254,000 during the three months ended June
30, 2000, from $5,140,000 for the same period in the prior year. During the six
months ended June 30, 2000, natural gas revenues increased to $15,649,000 from
$9,712,000 for the same period in the prior year. The increases in natural gas
revenues for the three and six month periods ended June 30, 2000 compared to the
same period in 1999 were due to 17% and 19% increases in natural gas sales
volumes and 37% and 35% increases in natural gas prices, respectively. At June
30, 2000, the number of producing Raton Basin wells increased to 299 net
producing wells from 201 net producing wells at June 30, 1999.
Due to increasing production in the Raton Basin, it is anticipated that the
Picketwire Lateral will be at or near capacity of approximately 100 MMcf per day
by the fourth quarter of 2000. The expanding production in the Raton Basin has
led CIG to construct a 20-inch loop of its Picketwire Lateral pipeline. The
20-inch loop will increase the pipeline's gas takeaway capacity by 34 MMcf per
day. CIG anticipates having the loop completed by December 1, 2000, with
takeaway capacity increased to 134 MMcf per day by year end. Other projects are
scheduled by CIG to further increase takeaway capacity in 2001. Evergreen
committed to an additional 11 MMcf per day of firm transportation, bringing its
total commitment to 64 MMcf per day starting December 1, 2000. If the 20-inch
loop is not completed by December 1, 2000, the Company may be limited in the
amount of gas that it can sell by pipeline capacity constraints.
Lease operating expenses for the three months ended June 30, 2000, were
$1,538,000 or $0.40 per Mcf compared to $1,114,000 or $0.34 per Mcf for the
same period in 1999. During the six months ended June 30, 2000, lease
operating expenses were $3,073,000 or $0.41 per Mcf as compared to $2,125,000
or $0.33 per Mcf for the same period in the prior year. The increase in lease
operating expense in 2000 as compared to 1999 was due to the increase in the
number of producing wells, additional compressor expense, water management
costs for hauling and testing, increase in field personnel and work-over
costs related to well repairs
12
and maintenance costs for compressors. Production taxes increased for the three
months ended June 30, 2000 to $0.09 per Mcf as compared to $0.01 per Mcf for the
same period in 1999, due to higher natural gas prices. In addition, the 1999
property tax expense was reduced due to a refund of property taxes that was
received in the second quarter of 1999 as a result of the reduction in the
ad-valorem tax rates for prior years. For the six months ended June 30, 2000,
production taxes were $653,000 or $0.09 per Mcf as compared to $238,000 or $0.04
per Mcf for the same period in the prior year.
Depreciation, depletion and amortization expense for the three months ended June
30, 2000, was $1,340,000 compared to $1,137,000 for the same period in 1999. On
an equivalent Mcf basis, depreciation, depletion and amortization expense was
$0.34 per Mcf for both the three months ended June 30, 2000 and the same period
in the prior year. During the six months ended June 30, 2000, depreciation,
depletion and amortization expense was $2,564,000 or $0.34 per Mcf as compared
to $2,298,000 or $0.36 per Mcf for the same period in the prior year. The
decrease in the cost per Mcf for the six months in 2000 as compared to 1999 was
due to the significant increase in the estimated units of proved reserves as a
result of the number of new wells that have been drilled in 2000.
General and administrative expenses were $920,000 during the three months ended
June 30, 2000, as compared to $709,000 during the same period in 1999. For the
six months ended June 30, 2000, general and administrative expenses were
$1,902,000 as compared to $1,272,000 for the same period in the prior year. The
increase over 1999 was due to the increase in administrative staff, salaries,
and related benefits and other corporate expenses as a result of the significant
growth of the Company. Also, through March 1999, EOC operated properties for
various third party working interest owners. In January 1999, the working
interest owners sold those properties. As such EOC did not receive overhead
payments for the operation of those properties in the three months ended June
30, 2000 and 1999. For the six months ended June 30, 2000, the Company's general
and administrative expenses increased by $192,000 as compared to the same period
in 1999.
Interest expense for the three months ended June 30, 2000, was $495,000 compared
to $751,000 for the same period in 1999. During the six months ended June 30,
2000, interest expense was $802,000 compared to $1,541,000 in the prior year.
The decrease in interest expense in 2000 was due to lower average debt balances
in the first and second quarter of 2000 compared to the same period in 1999. In
June 1999, the Company paid-off all outstanding debt with proceeds received from
the public offering of common stock completed in June 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had a $75 million revolving line of credit
with a bank group consisting of Hibernia National Bank, as agent, Chase Bank
of Texas and Paribas ("the Banks"). The line is available through July 2001.
Advances pursuant to this line of credit are limited to a borrowing base,
which is presently $75 million. At the Company's election, it may use either
the London interbank offered rate plus a margin of 1.38% to 1.75% or the
prime rate plus a margin of 0% to 0.25%, with margins on both rates
determined on the average outstanding borrowings under the credit facility.
The borrowing base is redetermined semi-annually by the Banks based upon
reserve evaluations of the Company's oil and gas properties. An average
annual facility fee of 0.375% is charged quarterly for any unused portion of
the credit line. The agreement is collateralized by oil and gas properties
and also contains certain net worth and ratio requirements. At June 30, 2000,
$39.5 million was outstanding under the line of credit. The Company expects
to complete an increase in its credit facility to $125 million in August 2000.
During 2000, the Company plans to spend approximately $80 million on its total
exploration and development program. The Company's drilling program is expected
to include approximately 100 wells in the Raton Basin.
13
During the quarter ended June 30, 2000, the Company spent a total of
approximately $17 million. Activities during this period included: the drilling
of 32 Raton Basin wells, the addition of a new compressor, the completion of the
Cottontail Pass Unit 24" line and other large diameter pipe, the purchase of
fracture stimulation equipment to be used in the U.K. drilling program and the
costs incurred in the drilling of 4 CBM wells in the U.K. Total capital costs
for the six months ended June 30, 2000, were approximately $36 million.
The Company believes that cash flow from operations and available borrowings
under its line of credit will be sufficient to fund 2000 capital expenditures.
Future development of the Company's projects will require additional capital;
however, the Company believes it will have sufficient capacity to fund all of
its projects for the foreseeable future through its anticipated cash flows and
its line of credit.
Cash flows provided by operating activities were $8,796,000 for the six months
ended June 30, 2000, as compared to cash flows provided by operating activities
of $4,721,000 for the same period in 1999. The increase was primarily due to the
increase in natural gas production and natural gas prices in 2000.
Cash flows used in investing activities were $30,584,000 during the six months
ended June 30, 2000, versus $19,696,000 for the same period in 1999. The
increase in 2000 was primarily due to the costs associated with the continued
development of the Raton Basin, including an upgrade of the gas collection
system.
Cash flows provided by financing activities were $24,405,000 during the six
months ended June 30, 2000, as compared to $16,259,000 in the same period during
1999. The increase was primarily due to increased borrowings on the Company's
line of credit as a result of higher capital expenditures in 2000 as compared to
1999. In June 1999, the Company paid-off all outstanding debt with proceeds
received from the public offering of common stock completed in June 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133, superseded by SFAS No. 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Management
believes the adoption of this statement will not have a material impact on
the Company's financial statements.
In March 2000, the FASB issued Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2"), which is effective
for all such costs incurred for fiscal quarters beginning after June 30, 2000.
This Issue establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. Currently, as the Company
has no web site development costs, the adoption of EITF 00-2 would have no
impact on the Company's financial condition or results of operations. To the
extent the Company begins to incur such costs in the future, the Company will
adopt the EITF 00-2's disclosure requirements in the quarterly and annual
financial statements for the year ending December 31, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which is
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998 or January
12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company
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believes its existing stock-based compensation policies and procedures are in
compliance with FIN 44 and, therefore, that the adoption of FIN 44 will have no
material impact on the Company's financial condition, results of operations or
cash flows.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company measures its exposure to market risk at any point in time by
comparing its open positions to a market risk of fair value. The market prices
the Company uses to determine fair value are based on management's best
estimates, which consider various factors including closing exchange prices,
volatility factors and the time value of money. At June 30, 2000, the Company
was exposed to some market risk on its long-term debt, foreign currency and
natural gas prices; however, management does not believe that such risk is
material.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Except as described below, there are no material pending legal proceedings to
which the Company or its subsidiaries is a party to or which any of their
property is subject.
On July 13, 1998, a localized group of citizens, Southern Colorado C.U.R.E.,
filed a lawsuit against EOC under the citizen suit provision of the Clean
Water Act in the U.S. District Court for the District of Colorado, related to
EOC's coal bed methane drilling operations in the Raton Basin near Trinidad,
Colorado. EOC also coordinated with the EPA and the State of Colorado in the
investigation of certain practices in connection with these operations. On
January 7, 2000, EOC entered into a Compliance Order on Consent with the
Colorado Department of Public Health and Environment ("CDPHE") that resolved
water quality/discharge issues between the CDPHE and EOC. As a result, as
anticipated, the Court has granted the Company's Motion to Dismiss the
citizen suit, with prejudice, on the grounds that the Consent Order moots the
federal case and bars C.U.R.E. from seeking further penalties for the same
alleged violations. The only remaining outstanding matter relating to this
case pertains to the assertion by C.U.R.E. that it is entitled to attorney
fees, which the company disputes and will vigorously contest.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following summarizes the votes at the Company's Annual Meeting of
Shareholders held on June 16, 2000:
ELECTION OF DIRECTORS - with terms expiring at the Annual Shareholders Meeting
in 2002:
Name For Withheld
---- --- --------
Alain G. Blanchard 10,339,155 29,582
Scott D. Sheffield 10,339,158 29,579
APPROVAL OF THE 2000 STOCK INCENTIVE PLAN OF EVERGREEN RESOURCES, INC.:
For Against Abstain Not Voted
--- ------- ------- ---------
5,105,119 2,573,526 52,581 2,637,511
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits.
Exhibit 10.1 - 2000 Stock Incentive Plan of Evergreen Resources, Inc.
(Incorporated by reference to Exhibit A to the Company's definitive proxy
materials on Schedule 14A filed on May 1, 2000)*
Exhibit 27 - Financial Data Schedule.
* Compensatory plan or arrangement
(b) Reports on Form 8-K.
Not applicable.
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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.
EVERGREEN RESOURCES, INC.
(Registrant)
Date: August 11, 2000 By: /s/ Kevin R. Collins
-----------------------------------
Kevin R. Collins
VP - Finance, Chief Financial Officer
and Secretary (Principal Financial
and Accounting Officer)
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