Securities and Exchange Commission
Washington, DC 20549
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FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1995
Commission File Number 0-10077
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 of Organization) Number)
1000 WRITER SQUARE
1512 LARIMER STREET
DENVER, COLORADO 80202
(Address of Principal Executive (Zip Code)
Offices)
(303) 534-0400
(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.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest date.
CLASS OUTSTANDING AT AUGUST 10, 1995
Common Stock, No Par Value 5,672,159
EVERGREEN RESOURCES, INC.
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of June 30, 1995
and March 31, 1995 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three Months
Ended June 30, 1995 and June 30, 1994. . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1995 and June 30, 1994. . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 7 - 10
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 10
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EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 1995 March 31 1995
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CURRENT:
Cash and cash equivalents $ 1,449,077 $ 2,038,157
Accounts receivable:
Oil and gas sales, net of allowance 273,716 297,602
Joint interest billings and other 1,095,161 945,557
Other current assets 93,025 76,341
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TOTAL CURRENT ASSETS 2,910,979 3,357,657
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PROPERTY AND EQUIPMENT:
Proved oil and gas properties, based on full-cost accounting 33,921,128 33,442,534
Unevaluated properties not subject to amortization 8,157,562 8,136,519
Gas gathering equipment 3,909,295 3,417,086
Support equipment 709,930 676,051
Less accumulated depreciation, depletion and amortization (11,293,248) (11,140,276)
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NET PROPERTY AND EQUIPMENT 35,404,667 34,531,914
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RESTRICTED CASH 385,462 593,024
OTHER ASSETS 542,479 657,573
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$ 39,243,587 $39,140,168
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,062,453 $ 843,852
Accrued expenses and other 38,692 89,646
Royalties and production taxes payable 1,115,738 567,656
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TOTAL CURRENT LIABILITIES 2,216,883 1,501,154
PRODUCTION TAX ESCROW 385,452 593,024
LONG TERM LIABILITIES 1,255,845 1,094,128
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TOTAL LIABILITIES 3,858,180 3,188,306
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REDEEMABLE PREFERRED STOCK 3,750,000 3,750,000
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COMMON STOCKHOLDERS' EQUITY:
Common stock, shares issued and outstanding,
5,672,159 56,721 56,721
Additional paid-in capital 41,406,665 41,419,179
Accumulated deficit (9,706,367) (9,266,898)
Foreign currency translation adjustment (121,612) (7,140)
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TOTAL STOCKHOLDERS' EQUITY 31,635,407 32,201,862
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$ 39,243,587 $ 39,140,168
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See accompanying notes to consolidated financial statements
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EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30
--------------------------
1995 1994
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REVENUE:
Oil and gas production $ 251,596 $ 567,767
Oil and gas services 185,890 205,656
Gas gathering income 32,143 --
Interest and dividend income 23,190 42,446
Other income 15,210 29,067
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TOTAL REVENUES 508,029 844,936
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COSTS AND EXPENSES:
Cost of production and operations 255,751 298,611
Cost of oil and gas services 195,095 180,547
Gas gathering expenses 50,737 --
Depreciation, depletion and amortization 167,150 176,524
General and administrative expenses 202,260 259,068
Interest expense 9,214 --
Other expense (7,709) 63,813
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TOTAL COSTS AND EXPENSES 872,498 978,563
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NET LOSS (364,469) (133,627)
PREFERRED STOCK DIVIDENDS 75,000 --
----------- -----------
NET LOSS ATTRIBUTABLE
TO COMMON STOCK $ (439,469) $ (133,627)
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----------- -----------
LOSS PER SHARE OF COMMON STOCK $ (0.08) $ (0.03)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,672,159 5,083,406
See accompanying notes to consolidated financial statements.
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EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30
--------------------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (364,469) $ (133,627)
Adjustments to reconcile loss to
cash provided by operating activities:
Depreciation, depletion and amortization 167,150 176,523
Loss on sale of marketable securities -- 50,571
Other 10,280 4,252
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (126,204) 248,177
Decrease (increase) in current assets (16,762) (41,374)
Increase (decrease) in accounts payable 219,571 (859,780)
Increase (decrease) in accrued expenses (50,208) (69,510)
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NET CASH USED BY OPERATING ACTIVITIES (160,642) (624,768)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities -- 1,577,211
Exploration and development and gas gathering costs (997,067) (1,218,956)
Proceeds from sale of oil and gas assets 21,000 7,187
Restricted cash 207,562 91,792
Change in production tax escrow (207,562) (91,792)
Decrease (increase) in other assets 112,889 (66,545)
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NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES (863,178) 298,897
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CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred Stock Offering costs (12,515) --
Proceeds from issuance of common stock - net -- 78,126
Debt issue costs (23,546) --
Principal payments on capital lease obligations (13,283) --
Payment of preferred stock dividends (75,000) --
Increase in cash held from operating oil
and gas properties 548,082 111,077
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NET CASH PROVIDED BY FINANCING ACTIVITIES 423,738 189,203
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 10,425 73,968
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NET DECREASE IN CASH AND CASH EQUIVALENTS (589,657) (62,700)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD 2,038,742 930,273
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CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD $ 1,449,085 $ 867,573
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See accompanying notes to consolidated financial statements.
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EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995
1. 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, 1995 and the results of its
operations and changes in financial position for the three months then
ended. All such adjustments are of a normal recurring nature.
2. Certain information at March 31, 1995 has been condensed from the audited
financial statements included in the Company's most recent filing on Form
10-K.
3. The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Evergreen Operating Corporation ("EOC")
and Evergreen Resources (UK) Limited ("ERUK"). Primero Gas Gathering, Co.
(Primero), a 50% owned subsidiary, is recorded on a pro-rata consolidation
basis. All significant intercompany balances and transactions have been
eliminated.
4. 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 and other related costs. Normal
dispositions of oil and gas properties are accounted for as adjustments of
capitalized costs, with no gain or loss recognized.
5. Depreciation and depletion 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, including any
related capitalized interest expense, are not amortized, but are assessed
for impairment either individually or on an aggregated basis.
6. Restricted cash and production and ad valorem tax payable represent amounts
withheld from revenue for subsequent distribution to county taxation
authorities.
7. The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign
currency into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during the
period. The gains or losses resulting from such translation are included
in stockholders' equity.
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EVERGREEN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
PREFERRED STOCK
On December 8, 1994, the Company received $3.75 million through the private
placement, with Institutional Investors, of 3,750,000 shares of ten year term 8%
Convertible Preferred Stock, $1.00 par value ("the Preferred"). The Company
received an additional $3.75 million on July 26, 1995 by issuing an additional
3,750,000 shares. All proceeds are to be used for development of the Company's
oil and gas leases in the Raton Basin of Colorado.
The Preferred is convertible into Common Stock at a conversion price of $8.34
per share. Annual cash dividends of 8% are payable quarterly. Evergreen may
call the Preferred at any time in whole or in part prior to the mandatory
redemption (minimum call being 20% of original issue), at par value, plus
accrued dividends. Evergreen has issued warrants which will be triggered and
will become exerciseable for 10 years at $8.34 per share if Evergreen exercises
all or part of its call option.
Evergreen can require the conversion of all of the Preferred Stock into Common
Stock provided the Common Stock has traded at not less than $16 per share for 30
consecutive days.
A mandatory Sinking Fund of $1,250,000 is due annually commencing at the end of
year 5. All outstanding shares of Preferred Stock must be redeemed by Evergreen
in ten years at par value, plus accrued dividends.
The Preferred carries antidilution provisions, registration rights and, under
certain circumstances, voting rights.
MANAGEMENT CHANGES
Effective July 15, 1995 Kevin R. Collins was named Vice President and Treasurer,
completing the consolidation of all of the Company's operations to the Denver
office.
RATON BASIN
Since December 1991, Evergreen has acquired oil and gas leases covering over
120,000 gross acres in the Raton Basin, Las Animas County in Southeastern
Colorado. This acreage position will support over 300 wells on 320 acre
spacing. Optimum spacing may be 160 acres, which would double the number of
drilling locations. Independent engineering estimates indicate reserve
potential of approximately 2 billion cubic feet of gas per well.
In August 1993 Evergreen formed a joint venture with PBI Fuels LP ("PBI"). PBI
will participate with a 25 - 50% working interest in development of the Project.
Evergreen has retained the remaining 50 - 75% working interest and serves as
Operator.
In early 1994, Evergreen completed and production tested four evaluation wells
in the Vermejo coal intervals at depths ranging from 1,200 to 1,800 feet. In
addition to the Vermejo coals, the shallower Raton coals were present in
thicknesses believed to be commercial. Commencing in October 1994, an
additional six wells were drilled and completed and placed
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on production, together with three of the original four wells - the fourth to be
placed in production when gathering facilities are available.
In January 1995, Evergreen and PBI completed a $4 million gathering system
designed to accommodate production from approximately 60 wells. The system is
tied in to a new 24 mile pipeline which was completed in December 1994.
Evergreen's first gas sales began in January, 1995. Combined gross production
from the first nine producing wells is now approximately 2 million cubic feet
per day.
In March 1995, the Bureau of Land Management designated approximately 67,000
acres of Evergreen's Raton Basin oil and gas leases as a Federal Unit called the
Spanish Peaks Unit. Evergreen has been named Unit Operator. Formation of the
Unit allows Evergreen to base development decisions within the Unit on
technical, geologic and geophysical data rather than the fulfillment of term
lease obligations.
Evergreen's Unit obligation is to establish commercial production through the
drilling of three new unit wells and the re-completion of an existing well, with
the work program to be conducted during the next 2 years.
In March 1995, drilling commenced on seven additional wells targeting the
Vermejo coal intervals at projected total depths of 1,000 to 2,100 feet.
Evergreen has a 50% working interest in these wells, which are located within
the newly formed Spanish Peaks Unit in close proximity to Evergreen's producing
wells and present gas gathering facilities. During July and August 1995, the
new wells were placed into production. Three are producing a total of
approximately 1,000,000 cubic feet of gas per day; four are still de-watering.
Evergreen also has a 75% working interest in the recompletion of an existing
well bore in the Raton coals. The well bore was recently acquired by Evergreen
from an unaffiliated third party.
The Raton recompletion and one of the new Vermejo wells will fulfill Evergreen's
1995 work obligation to the Spanish Peaks Unit.
Evergreen plans a phased development of the Raton Basin acreage, including new
drilling and expansion of gathering and compression systems.
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $7.5 million revolving line of credit with Hibernia
National Bank of New Orleans with interest at the Bank's prime rate. Advances
pursuant to this line of credit are limited to the borrowing base, presently
$5.3 million. There are no restrictions associated with advances under the
line. An annual fee of one half of one percent is paid quarterly for any unused
portion of the credit line. The borrowing base is redetermined semi-annually by
the bank based upon reserve evaluations of the Company's oil and gas properties.
Management anticipates that its cash and funds available from the preferred
stock offering and the line-of-credit will be sufficient to meet the Company's
capital requirements for the remainder of the current fiscal year, estimated to
be $3 -5 million. While the Company did not generate cash flow from operating
activities during the quarter ended June 30, 1995, the Company anticipates that
cash from operations will improve during the year as production improves on
current wells and drilling on future wells is completed.
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Leases expiring in 1995 are not material and do not require significant drilling
expenditures. The Company's properties outside of the Raton Basin are held by
production, and thus there is no requirement to drill and expend capital.
Cash flows used by operating activities were approximately $161,000 for the
three months ended June 30, 1995, primarily as a result of the net loss for the
current quarter ($364,000) which was offset by depreciation, depletion and
amortization of $167,000.
Cash flows used by investing activities was $863,000 for the three months ended
June 30, 1995, which consisted of $997,000 in exploration and development costs
($646,000) and gas gathering system costs ($317,000). The exploration,
development and gas gathering costs were offset by the decrease in other assets
of $113,000.
Cash flows provided by financing activities were $424,000 during the three
months ended June 30, 1995. This amount consisted of $548,000 in cash held for
future distribution to outside owners was partially offset by payments of
preferred stock dividends of $75,000.
Under the terms of certain gas gathering and tie-in agreements, EOC is committed
to meeting certain minimum volume levels during the term of the agreements.
Through June 30, 1995, volume levels have been below the required minimums and
EOC has accrued approximately $1,031,000 for this shortfall, which is included
with long-term liabilities. Such amount is refundable if future volumes exceed
the minimums and EOC is currently having discussions with the owner of the
system concerning obtaining additional volumes or other possible alternatives.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995
The Company reported a net loss of $439,469 or $0.08 per common share for the
three months ended June 30, 1995, compared to net loss of $133,627 or $.03 per
share for the same period in 1994.
Principal factors in the year to year earnings decline were sharply lower gas
prices and lower oil revenues in the current year.
Oil and gas revenues were $251,000 during the three months ended June 30, 1995
as compared with $567,800 for the three months ended June 30, 1994. The
decrease in revenues of $316,000 or 56% was primarily due to a decrease in gas
production of 20,000 Mcf or 10% to 177,700 Mcf during the three months ended
June 30, 1995 versus 197,000 Mcf from the prior year. The Company received an
average price of $1.20 per Mcf during the three months ended June 30, 1995,
compared to $1.95 per Mcf the previous year. The gas price and volume variance
resulted in a decrease in revenues of approximately $171,000. Additionally,
first three months oil production was 2,000 barrels, 83% lower than the prior
year due to disposal of non-core properties and production declines. The
Company received an average price of $16.64 per barrel during the three months
ended June 30, 1995, compared to $16.01 per barrel in the prior year. The oil
volume variance resulted in a decrease in revenues of approximately $145,000.
Oil and gas production costs and taxes for the three months ended June 30, 1995,
were $255,800 compared to $298,600 for the three months ended June 30, 1994, a
decrease of $42,800 or 14%. The decrease was primarily due to property sales in
fiscal 1995. The decrease in oil and gas production costs were partially offset
by higher operating costs associated with start-up costs of wells in the Raton
Basin.
Oil and gas service revenues and cost of oil and gas services are attributable
to the Company's wholly owned subsidiary Evergreen Operating Corporation (EOC),
which is primarily
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responsible for drilling, evaluation and production activities associated with
various properties and for negotiating the sales of oil and gas production from
the properties. As of August 10, 1995, EOC was serving as Operator for
approximately 160 producing wells owned by the Company and also by other
unaffiliated third parties.
During the three months ended June 30, 1995, oil and gas service revenues were
$185,900, versus $205,700 for the three months ended June 30, 1994, a decrease
of 10%. The decrease is primarily due to the reduction of special services
provided and billed to outside parties. Costs of oil and gas services during
the three months ended June 30, 1995 were 8% higher than the prior period due
primarily to higher administrative costs.
General and administrative expenses for the three months ended June 30, 1995
were $202,260 versus $259,000 for the three months ended June 30, 1994, a 20%
reduction. The decrease is primarily due to the reduction of the number of
personnel and related salary costs of $45,000.
During the three months ended June 30, 1995, the Company had gas gathering
revenues of $32,000 and operating expenses of $50,700. The Raton Basin gas
gathering system was completed in the last quarter of fiscal 1995 and gas
started flowing through the system in January 1995. Operating expenses are
within budgeted amounts. The system will continue to incur losses until gas
volumes increase above their current levels.
Other expenses (income) was ($7,700) during the three months ended June 30, 1995
versus $64,000 during the three months ended June 30, 1994. The decrease of
$71,700 is primarily due to the loss on the sale of preferred stocks in the
prior year of $59,600 and the reversal of income tax accruals during the current
year of $19,500.
Depreciation, depletion and amortization expenses for the three months ended
June 30, 1995 decreased 5% from the prior year.
Interest and preferred stock dividend income for the three months ended June 30,
1995 was $23,200 as compared to $42,400 in 1994 due to lower cash available for
investment in the current period and dividends received in 1994 not received in
1995 due to the sale of preferred stock.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not engaged in any material pending legal proceedings to which
the Company or its subsidiary is a party or to which any of its property is
subject.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At Evergreen's Annual Meeting, held on August 10, 1995, Shareholders elected
Dennis R. Carlton, Mark S. Sexton and James S. Williams as Directors for three-
year terms expiring in August 1998 and James C. Ryan, Jr. for a one year term
expiring in August 1996.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter for which this report is
filed.
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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, 1995 By: /s/ James S. Williams
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James S. Williams
Chairman of the Board
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