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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-31375*
-------------------
FORMAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0954774
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
650 POYDRAS STREET - SUITE 2200 70130-6101
NEW ORLEANS, LOUISIANA (Zip code)
(Address of principal 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 15, 2001, there were 984,042 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, 2001
TABLE OF CONTENTS
Page No.
PART I
Item 1. Financial Information:
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000 1
Consolidated Statement of Operations for the Three Month
Periods Ended March 31, 2001 and March 31, 2000 2
Consolidated Statement of Cash Flows for the Three
Month Periods Ended March 31, 2001 and
March 31, 2000 3
Notes to Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
ii
PART I
ITEM 1. FINANCIAL INFORMATION
FORMAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
--------------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,617,628 $ 3,728,332
Accounts receivable 147,820 135,473
Oil and gas revenue receivable 1,451,684 2,594,724
Deferred tax asset 371,778 371,778
Unbilled well costs 2,100 198
Prepaid expenses and tax overpayment 85,831 372,960
-------------- --------------
Total current assets 8,676,841 7,203,465
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 29,230,043 28,481,661
Unevaluated oil and gas properties 5,058,024 5,006,197
Other property and equipment 281,396 287,524
-------------- --------------
34,569,463 33,775,382
Less-accumulated depreciation, depletion and amortization (5,210,116) (4,484,364)
--------------- ---------------
Net property and equipment 29,359,347 29,291,018
-------------- --------------
OTHER ASSETS:
Deferred acquisition costs 311,910 -
Funds on deposit in escrow 493,467 487,783
-------------- --------------
TOTAL ASSETS $ 38,841,565 $ 36,982,266
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 456,717 $ 518,760
Undistributed oil and gas revenues 517,659 745,024
Current taxes payable 739,677
-
Current portion of notes payable 1,214,131 1,219,214
-------------- --------------
Total current liabilities 2,928,184 2,482,998
Notes payable (long-term portion) 1,015,913 1,309,790
Deferred tax liability 10,794,199 10,788,208
-------------- --------------
Total liabilities 14,738,296 14,580,996
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized 10,000,000
shares; issued and outstanding 984,042 shares 20,685,007 20,685,007
Retained earnings (deficit) 3,418,262 1,716,263
-------------- ---------------
Total stockholder's equity 24,103,269 22,401,270
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,841,565 $ 36,982,266
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
1
FORMAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
(unaudited)
----------------------------------
2001 2000
------------- -------------
Revenues:
Oil and gas sales $ 5,030,994 $ 3,217,682
Interest income 53,543 12,132
Overhead reimbursements 8,068 12,783
Other income 3,040 139,454
------------- -------------
Total revenues 5,095,645 3,382,051
------------- -------------
Costs and expenses:
Production taxes 222,830 76,258
Lease operating expenses 866,013 812,101
General and administrative expenses 579,465 389,397
Recapitalization expense - 15,225
Depreciation, depletion and amortization 725,752 1,211,639
------------- -------------
Total expenses 2,394,060 2,504,620
------------- -------------
Net income from operations before
reorganization items and income taxes 2,701,585 877,431
Reorganization items:
Adjustment to reorganization costs - (1,383,600)
------------- -------------
Net income before income taxes 2,701,585 (506,169)
Income taxes 999,586 (187,283)
------------- -------------
Net income (loss) 1,701,999 (318,886)
------------- -------------
Per common share amounts:
Net income (loss) per share $ 1.73 $ (0.32)
============= =============
Weighted average basic and diluted shares outstanding 984,042 984,042
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
2
FORMAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(unaudited)
-------------------------------------
2001 2000
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,701,999 $ (318,886)
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 725,752 1,211,638
Deferred tax expense (benefit) 5,991 (58,501)
Change in assets and liabilities-
Decrease (Increase) in oil and gas revenue receivable 1,143,040 (119,148)
(Increase) Decrease in accounts receivable (12,347) 69,733
Decrease (Increase) in unbilled well cost and prepaid expenses 31,309 (21,485)
Decrease in tax overpayment 253,918 -
(Decrease) Increase in accounts payable (62,043) 992,071
(Decrease) Increase in undistributed oil and gas revenues (227,365) 5,926
(Increase) in deferred acquisition costs (311,910) -
Increase in current taxes payable 739,677 -
-------------- --------------
Net cash provided by operating activities 3,988,021 1,761,348
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to oil and gas properties (800,209) (954,960)
(Increase) in escrow account (5,684) (644)
Sale (Purchase) of other property and equipment 6,127 (32,558)
-------------- ---------------
Net cash used in investing activities (799,766) (988,162)
-------------- --------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of notes payable (298,959) (222,025)
--------------- ---------------
Net cash used in financing activities (298,959) (222,025)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,889,296 551,161
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,728,332 3,180,925
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 6,617,628 $ 3,732,086
============== ==============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 51,827 $ 44,220
============== ==============
Income taxes $ - $ -
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
3
FORMAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
1. BUSINESS
OVERVIEW
Forman Petroleum Corporation (the "Company," "we" or "us") is an independent
energy company engaged in the acquisition, exploitation, exploration,
development and production of natural gas and crude oil. We have been active in
the Gulf Coast Basin since 1982. The accompanying financial statements include
the accounts of the Company and its wholly owned subsidiary, Ascent Energy Inc.
PROPOSED RESTRUCTURING AND ACQUISITION.
In January 2001, our majority stockholders organized a new corporation, Ascent
Energy Inc., to acquire Pontotoc Production, Inc. Pursuant to that certain
Agreement and Plan of Merger dated as of January 19, 2001, by and among Ascent
Energy, Pontotoc Acquisition Corp. and Pontotoc Production, Inc. ("Pontotoc"),
Ascent Energy has agreed to exchange $9.00 in cash and one share of its 8%
Series B convertible preferred stock having a liquidation preference of $2.50
per share for each outstanding share of Pontotoc common stock (the "Offer").
Promptly following completion of the Offer, Ascent Energy intends to merge
Pontotoc Acquisition Corp., its wholly owned subsidiary, with Pontotoc. Ascent
Energy is obligated under the merger agreement to pay Pontotoc $2 million within
five days of termination of the merger agreement if the termination is due to
the failure of Ascent Energy to obtain financing and all other conditions to the
Offer have been met. We have guaranteed this obligation.
On March 20, 2001, we acquired all the outstanding shares of Ascent Energy
common stock from our majority stockholders in exchange for $1,000 cash. In
addition, we have agreed to cause Ascent Energy to repay approximately $76,000,
in the aggregate, to our majority stockholders for certain out-of-pocket costs.
Concurrently with the consummation of the Offer, it is expected that we will be
restructured as a holding company by contributing all of our assets and recorded
liabilities to Ascent Energy in exchange for additional shares of Ascent Energy
common stock.
To help fund the Pontotoc acquisition, Ascent Energy plans to offer
approximately $21.1 million of its 8% Series A Redeemable Preferred Stock and
warrants to purchase shares of its common stock to our existing stockholders on
a pro rata basis. Ascent Energy expects to obtain the remainder of the funds
necessary to finance the Pontotoc acquisition from borrowings under a new credit
facility that it is currently negotiating with its primary lender and from its
internal resources.
Upon the closing of the Pontotoc acquisition, Ascent expects to have outstanding
21,100 shares of Series A preferred stock with a liquidation preference of $21.1
million, 5.3 million shares of
4
Series B preferred stock with a liquidation preference of $13.3 million and term
debt of approximately $30 million. The credit agreement will be secured by
substantially all of our assets, which will be contributed to Ascent Energy
concurrently with the consummation of the Offer.
2. SIGNIFICANT ACCOUNTING POLICIES
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.
DEFERRED ACQUISITION COSTS
Costs incurred during 2001, consisting primarily of consulting, legal and
financial advisory fees, were capitalized in anticipation of the Pontotoc
acquisition. These costs will be expensed in the event the acquisition is not
ultimately completed.
DERIVATIVES
We use derivative financial instruments such as swap agreements and forward
sales contracts for price protection purposes from time to time on a limited
amount of our future production and not 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, 2001 and 2000, we recorded additions to
oil and gas sales of $-0- and $109,800, respectively, under these agreements. As
of March 31, 2001 and through May 15, 2001, we had no open forward gas sales
positions.
PER SHARE AMOUNTS
Net income or 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 year. For 2001 and 2000, warrants and options were
excluded because the exercise price of outstanding options and warrants (490,516
in 2001 and 490,526 in 2000) exceeded the fair value of our common stock.
5
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." We adopted SFAS No. 133 on January 1, 2001.
SFAS No.133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet as either an asset or
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. Certain contracts that provide for the purchase or sale of a
commodity that will be delivered in quantities expected to be used or sold by us
over a reasonable period in the normal course of business may qualify for
exemption from the provisions of SFAS No. 133. Our fixed-price forward sales
contracts and swap contracts cover the pricing of physical delivery of our
production in the normal course of business and are not subject to the
requirements of SFAS No. 133 as we have designated these as normal sales.
Therefore, the adoption of SFAS No. 133 did not have a material impact on our
financial position or results of operations.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the presentation
of such items in the current year.
3. INTERIM FINANCIAL STATEMENTS
Our financial statements at March 31, 2001 and for the three month period then
ended are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in our opinion, 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, 2000
contained in our Form 10-K (file number 333-31375) filed with the Commission on
April 2, 2001.
4. LEGAL PROCEEDINGS
From time to time, we may be a party to various legal proceedings. We currently
are a party to a lawsuit arising in the ordinary course of business. Management
does not expect this matter to have a material adverse effect on our financial
position or results of operations.
6
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 our
historical financial position and the results of operations for the three-month
periods ended March 31, 2001 and 2000. Our financial statements at March 31,
2001 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, 2000 contained in our Annual Report on Form 10-K
(file number 333-31375) filed with the Commission on April 2, 2001. Our
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.
RECENT DEVELOPMENTS
In January 2001, our majority stockholders organized a new corporation, Ascent
Energy Inc., to acquire Pontotoc Production, Inc. Pursuant to that certain
Agreement and Plan of Merger dated as of January 19, 2001, by and among Ascent
Energy, Pontotoc Acquisition Corp. and Pontotoc Production, Inc. ("Pontotoc"),
Ascent Energy has agreed to exchange $9.00 in cash and one share of its 8%
Series B convertible preferred stock having a liquidation preference of $2.50
per share for each outstanding share of Pontotoc common stock (the "Offer").
Promptly following completion of the Offer, Ascent Energy intends to merge
Pontotoc Acquisition Corp., its wholly owned subsidiary, with Pontotoc. Ascent
Energy is obligated under the merger agreement to pay Pontotoc $2 million within
five days of termination of the merger agreement if the termination is due to
the failure of Ascent Energy to obtain financing and all other conditions to the
Offer have been met. We have guaranteed this obligation.
On March 20, 2001, we acquired all the outstanding shares of Ascent Energy
common stock from our majority stockholders in exchange for $1,000 cash. In
addition, we have agreed to cause Ascent Energy to repay approximately $76,000,
in the aggregate, to our majority stockholders for certain out-of-pocket costs.
Concurrently with the consummation of the Offer, it is expected that we will be
restructured as a holding company by contributing all of our assets and recorded
liabilities to Ascent Energy in exchange for additional shares of Ascent Energy
common stock.
To help fund the Pontotoc acquisition, Ascent Energy plans to offer
approximately $21.1 million of its 8% Series A Redeemable Preferred Stock and
warrants to purchase shares of its common stock to our existing stockholders on
a pro rata basis. Ascent Energy expects to obtain the remainder of the funds
necessary to finance the Pontotoc acquisition from borrowings under a new credit
facility that it is currently negotiating with its primary lender and from its
internal resources.
7
Upon the closing of the Pontotoc acquisition, Ascent expects to have outstanding
21,100 shares of Series A preferred stock with a liquidation preference of $21.1
million, 5.3 million shares of Series B preferred stock with a liquidation
preference of $13.3 million and term debt of approximately $30 million. The
credit agreement will be secured by substantially all of our assets, which will
be contributed to Ascent Energy concurrently with the consummation of the Offer.
RESULTS OF OPERATIONS
The following table sets forth certain operating information with respect to our
oil and gas operations for the three-month periods ended March 31, 2001 and
2000:
Three Months Ended March 31,
-------------------------------
2001 2000
----------- -----------
Sales:
Oil (Bbls) 62,140 69,660
Gas (Mcf) 457,553 548,402
Oil and Gas (BOE)(1) 138,399 161,060
Sales Revenue:
Total oil sales $1,694,779 $1,740,403
Total gas sales 3,336,215 1,477,279
----------- -----------
Total sales $5,030,994 $3,217,683
Average sales prices:
Oil (per Bbl) $27.27 $24.98
Gas (per Mcf) $7.29 $2.69
Per BOE $36.35 $19.98
Average costs (per BOE):
Severance taxes $1.61 $0.47
Lease operating expenses $6.26 $5.04
General and administrative expenses $4.19 $2.42
Depreciation, depletion and amort. $5.24 $7.45
- -----------------
(1) Barrels of oil equivalent, determined using the ratio of six Mcf of natural
gas to one Bbl of crude oil, condensate or natural gas liquids.
REVENUES - The following table reflects an analysis of differences in our oil
and gas revenues between the three month period ended March 31, 2001 and the
comparable period in 2000:
8
FIRST QUARTER
2001 COMPARED TO
FIRST QUARTER 2000
------------------
Increase (decrease) in oil and gas
Revenues resulting from differences in:
Crude oil and condensate -
Prices $ 142,258
Production (187,882)
-----------
(45,624)
Natural gas -
Prices 2,103,664
Production (244,728)
-----------
1,858,936
Increase (decrease) in oil and gas revenues $ 1,813,312
===========
For the quarter ended March 31, 2001, total oil and gas revenues increased
$1,813,312 from revenues for the first quarter of 2000. Oil production for the
first quarter of 2001 decreased 10.8% from the comparable quarter in 2000, and
gas production between comparable periods decreased 16.6%. The decrease in oil
and gas production resulted primarily from a general decline in production from
all fields, combined with the 70% decline in production of gas from the
Simoneaux 17 well. Oil prices for the quarter ended March 31, 2001 increased
9.2%, to $27.27 per Bbl from $24.98 per Bbl for the first quarter of 2000. Gas
prices also increased during the quarter ended March 31, 2001 to $7.29 per Mcf
from $2.69 per Mcf for the first quarter of 2000.
LEASE OPERATING EXPENSES - On a BOE basis, lease operating expenses increased
24.1%, to $6.26 per BOE for the three months ended March 31, 2001 from $5.04 per
BOE in the comparable 2000 period. This increase is due to the 14% reduction in
production in 2001 as compared to the 2000 first quarter. For the quarter ended
March 31, 2001 actual lease operating expenses were 6.6% higher than the
comparable quarter in 2000. The increase for the quarter ended March 31, 2001
resulted primarily from the overall increase in the cost of services, combined
with a salary increase for all field operating personnel, effective January 1,
2001.
SEVERANCE TAXES - The effective severance tax rate as a percentage of oil and
gas revenues increased to 4.4% for the three months ended March 31, 2001 from
2.4% for the comparable period in 2000. The relatively low effective rate in
2000 was attributable to a refund of oil severance taxes received in the first
quarter of 2000 of $176,310 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 for 2000 would have been 7.8%. Excluding the effect of this
refund in 2000, the effective severance tax rate actually decreased between
first quarter 2000 and the comparable quarter in 2001, due primarily to the 125%
increase in gas sales in 2001 over 2000, where the severance tax rate is related
to the volumes sold, rather than the sales value. This decrease in 2001 is
partially offset by an increase in oil severance taxes due to the expiration of
severance tax exemptions on the Harrison #3 well.
GENERAL AND ADMINISTRATIVE EXPENSES - For the three months ended March 31, 2001
general and administrative ("G&A") expenses were $4.19 per BOE, a 73% increase
from the $2.42 per BOE
9
for the first three months of 2000. The first quarter increase in G&A per BOE
in 2001 resulted primarily from the decrease in production during the first
quarter of 2001 as compared to the first quarter of 2000, combined with an
increase in the total actual G&A between the periods. For the first three
months of 2001, actual G&A increased 49%, from $389,397 in 2000 to $579,465
in 2001. The increase of $190,068 in actual G&A expenses for the three month
period ended March 31, 2001 was the result of increases in contract services,
salaries, and travel expenses. We capitalized $234,892 of our G&A into the
full cost pool in the first quarter of 2000 and $255,815 of G&A was similarly
capitalized in the first quarter of 2001. Without this capitalization of G&A,
actual G&A in the first quarter of 2001 increased $211,000, or 34%, over the
comparable 2000 first quarter.
REORGANIZATION COSTS - In conjunction with our reorganization under Chapter
11, as discussed in our Form 10K for the year ended December 31, 2000 (file
number 333-31375) filed with the Commission on April 2, 2001, we incurred
additional reorganization costs of $1,383,600 during the first quarter of
2000. No such reorganization costs were incurred in the first quarter of 2001.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE - For the three months ended
March 31, 2001 depreciation, depletion and amortization ("DD&A") expense
decreased 40.1% from the comparable 2000 period. The DD&A decrease from the
first quarter of 2000 to 2001 is attributable to our decreased production and
related future capital costs between the comparable periods for 2000 and 2001,
combined with the effect of the historically high year-end gas prices at
December 31, 2000, as reflected in our reserve report, and our use of the future
gross revenue method of computing DD&A.
On a BOE basis, which reflects the decreases in production, the DD&A rate for
the first three months of 2001 was $5.24 per BOE compared to $7.52 per BOE for
the same period in 2000, a decrease of 30.3%.
INTEREST EXPENSE - All interest expense incurred in the first quarter of 2000
and in the first quarter of 2001 was capitalized into the unevaluated
properties. Net of the interest capitalized for each of these periods, interest
expense actually increased to $52,000 for the first quarter of 2001 from $44,000
for the comparable 2000 period. This increase in interest expense is due to the
addition of $984,000 to our notes payable to the creditors in bankruptcy,
resulting from a judgment in favor of the creditor in the second half of 2000.
NET INCOME (LOSS) FROM OPERATIONS - Due to the factors described above, the net
income from operations for the three months ended March 31, 2001 was $2.7
million, an increase of $1.8 million over the net income of $877,431 reported
for the first three months of 2000.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW - As of March 31, 2001, we had $6.5 million of
working capital, compared to working capital at March 31, 2000 of $1.1 million.
The large working capital increase between the first quarter of 2000 and the
first quarter of 2001 resulted primarily from the large increase in natural gas
prices during the period between the comparable quarters, combined with the fact
that we did not drill any new wells during the intervening period. Our realized
oil and gas prices increased 9% and 171%, respectively, from the first quarter
of 2000 to the first quarter of 2001. During the same period oil production
declined 11% and gas production declined 17%. The combination of the increase in
product prices and the decrease in
10
production volumes for the first quarter of 2001 increased our revenues from
production, from $3.2 million in the first quarter of 2000 to $5.1 million in
the first quarter of 2001.
We believe that our cash on hand plus the expected normal cash flow from
operations will be sufficient to fund our working capital needs for the
remainder of 2001. See also "Recent Developments" above.
The following summary table reflects our comparative cash flows for the three
month periods ended March 31, 2001 and 2000:
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS)
----------------------
2001 2000
------- -------
Net cash provided by operating activities $ 3,988 $ 1,761
Net cash (used) by investing activities (800) (988)
Net cash provided by financing activities (299) (222)
For the three months ended March 31, 2001 net cash provided by operating
activities increased to $3.99 million from $1.76 million during the comparable
period in 2000. Cash used in investing activities during the three months ended
March 31, 2001 increased to $800,000 from $988,000 during the comparable period
in 2000. Cash used by financing activities increased from $222,000 in the first
quarter of 2000 to $299,000 of cash used during the first quarter of 2001.
HEDGING ACTIVITIES -For the periods ended March 31, 2001 and 2000, we recorded
additions to oil and gas sales of $-0- and $109,800, respectively, under hedging
agreements. We entered 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, 2001 and through May
14, 2001, we had no open forward gas sales positions.
ACCOUNTING CHANGES - In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." We adopted SFAS No. 133 on
January 1, 2001. SFAS No.133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded on the balance sheet as
either an asset or 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. Certain contracts that provide for the
purchase or sale of a commodity that will be delivered in quantities expected to
be used or sold by us over a reasonable period in the normal course of business
may qualify for exemption from the provisions of SFAS No. 133. Our fixed-price
forward sales contracts and swap contracts cover the pricing of physical
delivery of our production in the normal course of business and are not subject
to the requirements of SFAS No. 133 as we have designated these as normal sales.
Therefore, the adoption of SFAS No. 133 did not have a material impact on our
financial position or results of operations.
11
RISK FACTORS
A detailed discussion of risks and uncertainties which could affect our future
results and the forward looking statements contained in this report can be found
in the "Item 1. Business - Cautionary Statements" section of our Annual Report
on Form 10-K for the year ended December 31, 2000. Those risks and uncertainties
remain applicable to our 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, 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 we believe 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 our expectations. Such risks and uncertainties include,
but are not limited to, the timing and extent of changes in commodity prices for
oil and gas, the need to develop and replace reserves, environmental risks,
drilling and operating risks, risks related to exploration and development,
uncertainties about the estimates of reserves, competition, government
regulations and our ability to meet its stated business goals, as well as other
risks and uncertainties discussed in this and our other filings with the
Securities and Exchange Commission (the "Cautionary Statements"). We undertake
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 us or persons acting on our behalf are expressly
qualified in their entirety by the Cautionary Statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our revenues are derived from the sale of oil and natural gas production. With
the objective of achieving more predictable revenues and cash flows and reducing
the exposure to fluctuations in oil and natural gas prices, from time to time,
we may enter 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 our exposure to decreases in the
commodity prices on the hedged volumes, while also limiting the benefit we might
otherwise have received from increases in commodity prices of the hedged
production.
We use hedging transactions for price protection purposes on a limited amount of
its future production and do 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 2001, a 10% decline in the
prices we receives for its oil and natural gas production would have an
approximate $21.6 million negative impact on our discounted future net revenues.
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT -
None
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K dated March 27, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORMAN PETROLEUM CORPORATION
Date: May 15, 2000 By: /s/ JEFFREY CLARKE
--------------------------------
Jeffrey Clarke
President
By: /s/ MICHAEL H. PRICE
-------------------------------
Michael H. Price
Chief Financial Officer
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