- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
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 September 30, 1994
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: 0-7062
NOBLE AFFILIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-0785597
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
110 WEST BROADWAY
ARDMORE, OKLAHOMA 73401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(405) 223-4110
(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
----- -----
Number of shares of common stock outstanding as of October 28, 1994:
49,985,259
Page 1 of 12 pages
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------ -----------
ASSETS:
Current Assets:
Cash and short-term cash investments ......... $ 44,784 $ 176,432
Accounts receivable-trade .................... 48,293 66,314
Materials and supplies inventories ........... 3,706 3,302
Other current assets ......................... 18,186 10,516
--------- --------
Total Current Assets ......................... 114,969 256,564
--------- ---------
Property, Plant and Equipment .................. 1,592,253 1,487,068
Less: accumulated depreciation,
depletion and amortization ............ (762,104) (692,463)
--------- ---------
830,149 794,605
Other Assets ................................... 20,171 16,827
--------- ---------
Total Assets ................................. $ 965,289 $1,067,996
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable ............................. $ 64,844 $ 29,354
Other current liabilities .................... 25,245 19,241
Short-term borrowing ......................... 95,600
Income taxes ................................. 3,843 2,343
--------- ----------
Total Current Liabilities .................... 93,932 146,538
--------- ----------
Deferred Income Taxes .......................... 59,013 45,108
Other Deferred Credits and
Noncurrent Liabilities ....................... 10,446 7,158
Long-term Debt ................................. 376,947 453,760
Shareholders' Equity:
Common stock ................................. 171,697 171,535
Capital in excess of par value ............... 141,211 140,703
Retained earnings ............................ 127,461 118,612
--------- ----------
440,369 430,850
Less common stock in treasury
(at cost, 1,524,900 shares) ................ (15,418) (15,418)
---------- ----------
Total Shareholders' Equity ................... 424,951 415,432
---------- ----------
Total Liabilities and Shareholders' Equity ... $ 965,289 $1,067,996
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 2
FORM 10-Q
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1994 1993
--------- ---------
REVENUES:
Oil and gas sales and royalties ............... $238,745 $194,374
Gathering, marketing and processing revenues .. 27,372
Other income .................................. 6,897 6,153
------- --------
273,014 200,527
-------- -------
COSTS AND EXPENSES:
Oil and gas operations ........................ 56,120 54,502
Oil and gas exploration ....................... 32,960 25,245
Gathering, marketing and processing costs ..... 26,862
Depreciation, depletion and amortization ..... 93,371 66,212
Selling, general and administrative ........... 27,296 23,466
Interest expense .............................. 19,525 12,557
Interest capitalized .......................... (6,006) (3,076)
------- --------
250,128 178,906
------- --------
INCOME BEFORE INCOME TAXES ...................... 22,886 21,621
INCOME TAX PROVISION ............................ 8,041(1) 8,866(1)
------- --------
NET INCOME ...................................... $ 14,845 $ 12,755
------- --------
------- --------
NET INCOME PER SHARE ............................ $ .30(2) $ .27(2)
------- --------
------- --------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 3
FORM 10-Q
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1994 1993
-------- --------
REVENUES:
Oil and gas sales and royalties ............... $ 76,850 $ 63,356
Gathering, marketing and processing revenues .. 18,889
Other income .................................. 1,702 990
-------- --------
97,441 64,346
-------- --------
COSTS AND EXPENSES:
Oil and gas operations ........................ 19,623 17,614
Oil and gas exploration ....................... 15,390 6,723
Gathering, marketing and processing costs ..... 18,477
Depreciation, depletion and amortization ...... 28,931 23,680
Selling, general and administrative ........... 8,445 6,964
Interest expense .............................. 5,235 3,370
Interest capitalized .......................... (1,820) (2,525)
-------- --------
94,281 55,826
-------- --------
INCOME BEFORE INCOME TAXES ...................... 3,160 8,520
INCOME TAX PROVISION ............................ 1,109(1) 4,255(1)
-------- --------
NET INCOME ...................................... $ 2,051 $ 4,265
-------- --------
-------- --------
NET INCOME PER SHARE ............................ $ .04(2) $ .09(2)
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 4
FORM 10-Q
NOBLE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1994 1993
--------- ----------
Cash Flows from Operating Activities:
Net income .......................................................................... $ 14,845 $ 12,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization .......................................... 93,371 66,212
Amortization of undeveloped lease costs, net ...................................... 4,955 9,812
Increase (decrease) in deferred income taxes ...................................... 13,905 2,235
Increase (decrease) in other deferred credits ..................................... 3,288 1,317
Change in other assets and other noncash items, net ............................... (3,206) 4,269
Changes in working capital, not including cash:
(Increase) decrease in accounts receivable ........................................ 18,021 12,511
(Increase) decrease in other current assets and inventories ....................... (8,074) (818)
Increase (decrease) in accounts payable ........................................... 35,490 4,180
Increase (decrease) in other current liabilities .................................. 7,504 6,340
-------- --------
Net Cash Provided by Operating Activities ............................................. 180,099 118,813
-------- --------
Cash Flows From Investing Activities:
Capital expenditures ................................................................ (135,445) (172,746)
Proceeds from sale of property, plant and equipment ................................. 1,624 10,957
-------- --------
Net Cash Provided by (Used in) Investing Activities ................................... (133,821) (161,789)
-------- --------
Cash Flows From Financing Activities:
Retirement of long-term debt ........................................................ (125,000)
Retirement of short-term debt for property acquisition .............................. (95,600)
Proceeds from line of credit borrowings ............................................. 48,000
Exercise of stock options ........................................................... 670 4,289
Cash dividends ...................................................................... (5,996) (5,769)
Retirement of convertible debt ...................................................... (1,845)
-------- --------
Net Cash Used in Financing Activities ................................................. (177,926) (3,325)
-------- --------
Increase (Decrease) in Cash and Short-term Cash Investments ........................... (131,648) (46,301)
Cash and Short-term Cash Investments at Beginning of Period ........................... 176,432 118,726
-------- --------
Cash and Short-term Cash Investments at End of Period ................................. $ 44,784 $ 72,425
-------- --------
-------- --------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) ................................................ $ 10,625 $ 3,463
Income taxes (net of refund) ........................................................ $ 84 $ 4,550
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 5
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
necessary and normal recurring adjustments, necessary to present fairly the
Company's financial position as of September 30, 1994 and December 31, 1993, and
the results of operations for the three month and nine month periods ended
September 30, 1994 and 1993 and the cash flows for the nine month periods ended
September 30, 1994 and 1993. These consolidated condensed financial statements
should be read in conjunction with the financial statements and the notes
thereto incorporated in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
(1) INCOME TAX PROVISION
For the nine months ended September 30:
(IN THOUSANDS)
-------------------------
1994 1993
---- ----
Current ....................................... $(5,864) $ 9,669
Deferred ...................................... 13,905 (803)
------- -------
$ 8,041 $ 8,866
------- -------
------- -------
For the three months ended September 30:
(IN THOUSANDS)
-------------------------
1994 1993
---- ----
Current ....................................... $(2,379) $ 3,706
Deferred ...................................... 3,488 549
------- -------
$ 1,109 $ 4,255
------- -------
------- -------
(2) NET INCOME PER SHARE
The earnings per share of common stock was computed using the weighted
average number of shares of common stock outstanding during the period as
follows:
(IN THOUSANDS)
-------------------------
1994 1993
---- ----
For the nine months ended September 30 ......... 49,959 47,487
For the three months ended September 30 ........ 49,982 49,858
Page 6
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $180.1 million in
the nine months ended September 30, 1994 from $118.8 million in the same period
of 1993. Cash and short-term cash investments decreased from $176.4 million at
December 31, 1993 to $44.8 million at September 30, 1994.
In January 1994, the Company repaid $95.6 million of short-term debt which
was issued in October 1993 to acquire a producing property. On June 1, 1994, the
Company redeemed all of its outstanding 10 1/8% Notes Due June 1, 1997, being
$125 million aggregate principal amount. The Company used its available cash
plus borrowings of $48 million under its bank credit line to complete the
redemption. The Company expects to reduce its 1994 interest expense by
approximately $7.5 million as a result of this redemption.
The Company expended approximately $135.4 million of its $190.5 million
capital budget through September 30, 1994 and currently plans to expend all of
its remaining capital budget in the remainder of the year. The Company estimates
that through September 30, 1994, it has added new gas reserves sufficient to
replace its estimated gas production of 100 billion cubic feet for 1994.
Additionally, the Company estimates that through September 30, 1994, it has also
added enough oil and gas reserves on an equivalent barrel basis to exceed its
estimated oil and gas production of 25 million equivalent barrels for 1994. The
Company believes it can fund internally its remaining capital budget. The
Company believes it is positioned to access external sources of funding should
it be necessary or desirable in connection with an acquisition.
The Company's current ratio (current assets divided by current liabilities)
was 1.2 at September 30, 1994 compared to 1.7 at December 31, 1993. The
Company's ratio of long-term debt to book capital (defined as the Company's
long-term debt plus shareholders' equity) at September 30, 1994 was 47 percent
compared to 52 percent at December 31, 1993.
The Company follows an entitlements method of accounting for its gas
imbalances. The Company's gas imbalance receivables were $14.0 million at
September 30, 1994 and $12.9 million at December 31, 1993. Gas imbalance
liabilities were $10.8 million at September 30, 1994 and $7.6 million at
December 31, 1993. These imbalances are valued at the amount which is expected
to be received or paid to settle the imbalances. The settlement of the
imbalances can occur either over the life or at the end of the life of a well,
on a volume basis or by cash settlement. The Company does not expect that a
significant portion of the settlements will occur in any one year. Thus, the
Company believes the settlement of gas imbalances will have little impact on its
liquidity.
RESULTS OF OPERATIONS
During the third quarter of 1994, the Company recorded net income of $2.1
million, or 4 cents per share, compared to net income of $4.3 million, or 9
cents per share, in the third quarter of 1993. During the first nine months of
1994, the Company recorded net income of $14.8 million, or 30 cents per share,
compared to net income of $12.8 million, or 27 cents per share, in the first
nine months of 1993.
Noble Gas Marketing, Inc. (NGM), a wholly owned subsidiary of the Company,
started marketing the Company's natural gas in June 1994. NGM has sold $27.4
million of third party gas through September 30, 1994. NGM's business plan calls
for it to sell gas directly to end-users, gas marketers, industrial users,
interstate and intrastate gas pipelines and local distribution companies. The
Company records all of NGM's sales as gathering, marketing and processing
revenues. All intercompany sales from Samedan Oil Corporation, a wholly owned
subsidiary of the Company engaged in oil and gas exploration and production, to
NGM have been eliminated.
Gas sales, excluding third party sales by NGM, increased 12 percent and 34
percent, respectively, for the three months and nine months ended September 30,
1994. The increase in revenues is primarily due to a 33 percent increase in
average daily production, offset by a 15 percent decrease in average gas price
for the three months ended September 30, 1994 and a 34 percent increase in
average daily production with a flat average gas price for the nine months ended
September 30, 1994.
Page 7
FORM 10-Q
Oil revenues increased 33 percent for the three months ended September 30,
1994, compared to the same period of 1993. The increase in revenues is primarily
due to a 27 percent increase in average daily production due in part to
properties acquired from Freeport-McMoRan in October of 1993. Average oil prices
increased 4 percent.
Oil revenues increased 9 percent for the nine months ended September 30,
1994, compared to the same period of 1993. Average daily oil production
increased 25 percent due in part to properties acquired from Freeport-McMoRan in
October of 1993. The oil production increase was offset in part by an average
oil price decrease of 13 percent.
The marketing of natural gas results in price risk due to a fixed supply
cost and a variable market or, conversely, a variable supply cost and a fixed
market. NGM employs various hedging techniques to lock in profits or limit its
exposure to price risk. The Company had no oil or gas hedges in place, or any
hedge related deposits, at December 31, 1993. The Company would be required to
pay $70,000 in excess of the carrying value to terminate the contracts at
September 30, 1994. These contracts represent approximately 41,000 MBTU's
(thousand British thermal unit) per day for its October production at prices
ranging from $1.33 to $1.42.
Certain selected gas and oil operating statistics follow:
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
Gas revenues (in thousands) ...... $ 39,670 $ 35,528 $139,846 $104,706
Average daily gas - MCF ........... 243,399 183,607 255,616 190,708
Average gas price per MCF ......... $ 1.83 $ 2.15 $ 2.05 $ 2.05
Oil revenues (in thousands) ....... $ 34,499 $ 25,983 $ 91,886 $ 84,072
Average daily oil - BBLS .......... 23,297 18,402 23,000 18,420
Average oil price per BBL ......... $ 16.26 $ 15.60 $ 14.74 $ 17.03
BBLS - BARRELS
MCF - THOUSAND CUBIC FEET
Oil and gas operations expense decreased $.57 and $.84, respectively, on a
barrel of oil equivalent basis (converting gas to oil on the basis of 6 MCF per
barrel) for the three months and nine months ended September 30, 1994, as
compared to the same periods of 1993. Properties acquired from Freeport-McMoRan
Inc. in 1993 increased oil and gas operations expense for the first nine months
of 1994 by approximately $7.2 million, compared to the same period of 1993.
However, a decline in expensed workovers in 1994 decreased oil and gas
operations expense approximately $1.0 million compared to the same period of
1993, and the effect of the sale of certain non-core properties in 1993
decreased oil and gas operations expense in 1994 by $.6 million compared to the
same period of 1993. Oil and gas operations expenses on foreign properties
decreased $2.1 million in 1994 compared to the first nine months of 1993 due to
sale of Indonesian properties.
Oil and gas exploration expense increased 129 percent, or $8.7 million, for
the three months ended September 30, 1994, compared to the same period in 1993.
The increase resulted in part from a $8.3 million increase in dry hole expense
and a $.5 million increase in seismic expense offset by a $.7 million decrease
in undeveloped lease impairment. Oil and gas exploration expense for the first
nine months of 1994 increased 31 percent, or $7.7 million, compared with the
first nine months of 1993. The increase resulted in part from a $10.4 million
increase in dry hole expense and a $2.2 million increase in seismic expense
offset by a $4.8 million decrease in undeveloped lease impairment.
Depreciation, depletion and amortization (DD&A) expense increased 22
percent and 41 percent, respectively, for the three months and nine months ended
September 30, 1994, compared to the same periods in 1993. The increase is due
primarily to higher production volumes and higher unit rates on properties
acquired effective October 1, 1993. The unit rate of DD&A per equivalent barrel,
converting gas to oil on the basis of 6 MCF per barrel, was $5.21 for the first
nine months of 1994 compared to $4.83 for the same period of 1993. The Company
has recorded, through charges to DD&A, a reserve for future liabilities related
to dismantlement and reclamation costs for offshore facilities. This reserve is
based on the best estimates of Company engineers of such costs to be incurred in
future years.
Page 8
FORM 10-Q
Interest expense increased 55 percent for both the three months and nine
months ended September 30, 1994, compared to the same periods of 1993 as a
result of the increase in long-term debt incurred in connection with the October
1, 1993 acquisition.
Interest capitalized decreased $.7 million for the three months ended
September 30, 1994 when compared to the same period of 1993. The decrease
resulted from the completion of several major projects on which the Company has
been capitalizing interest. Interest capitalized increased $2.9 million for the
nine months ended September 30, 1994, when compared to the same period in 1993.
This increase is primarily due to the increase in the capitalization of interest
on the development of properties in the Gulf of Mexico.
FUTURE TRENDS
Both oil and gas production in the three months and nine months ended
September 30, 1994 were higher than the same periods a year ago. This increase
is due in part to volumes of oil and gas produced from properties acquired from
Freeport-McMoRan Inc. on October 1, 1993. The Company anticipates its oil and
gas production volumes will continue to increase in 1994 as compared to 1993 as
a result of the properties acquired from Freeport-McMoRan Inc. as well as new
oil and gas properties commencing production in 1994.
Management believes that the Company is well positioned with its balanced
reserves of oil and gas to take advantage of future price increases that may
occur. However, the uncertainty of oil and gas prices continues to affect the
domestic oil and gas industry. Due to the volatility of oil and gas prices, the
Company, from time to time, uses hedging and may do so in the future as a means
of controlling its exposure to price changes. The Company cannot predict the
extent to which its revenues will be affected by inflation, government
regulation, or changing prices.
Page 9
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The information required by this Item 6(a) is set forth in the Index to
Exhibits accompanying this quarterly report and is incorporated herein
by reference.
(b) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1994.
Page 10
FORM 10-Q
SIGNATURE
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.
NOBLE AFFILIATES, INC.
-----------------------------------------
(Registrant)
Date November 14, 1994 WM. D. DICKSON
--------------------- -----------------------------------------
WM. D. DICKSON, Vice President-Finance
and Treasurer
(Principal Financial Officer
and Authorized Signatory)
Page 11
INDEX TO EXHIBITS
-----------------
Sequentially
Exhibit Numbered
Number Exhibit Page
- - - ------------ ------- ------------
27.1 Financial Data Schedule.