Securities and Exchange Commission
Washington, DC 20549
-----------------------
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1997
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 APRIL 28, 1997
Common Stock, No Par Value 9,392,720
EVERGREEN RESOURCES, INC.
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 ................................... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and March 31, 1996........... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and March 31, 1996.................. 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
2
EVERGREEN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS March 31, 1997 December 31, 1996
------ -------------- -----------------
CURRENT:
Cash and cash equivalents $ 1,209,836 $ 2,640,300
Accounts receivable:
Oil and gas sales 1,322,136 1,182,635
Joint interest billings and other 758,440 727,283
Other current assets 242,088 113,964
------------ -------------
TOTAL CURRENT ASSETS 3,532,500 4,664,182
------------ -------------
PROPERTY AND EQUIPMENT:
Proved oil and gas properties, based on
full-cost accounting 51,567,285 49,323,572
Unevaluated properties not subject to amortization 8,682,784 8,579,220
Gas gathering equipment 16,746,463 13,952,381
Support equipment 1,574,427 1,422,955
------------ -------------
78,570,959 73,278,128
Less accumulated depreciation, depletion and
amortization (13,088,400) (12,578,205)
------------ -------------
NET PROPERTY AND EQUIPMENT 65,482,559 60,699,923
------------ -------------
DESIGNATED CASH 1,791,079 1,493,114
OTHER ASSETS 1,344,749 1,386,376
------------ -------------
$ 72,150,887 $ 68,243,595
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,615,838 $ 3,223,047
Amounts payable to oil and gas property owners 1,516,498 1,068,532
Accrued expenses and other 510,616 415,748
Current portion - capital leases 455,258 275,348
------------ -------------
TOTAL CURRENT LIABILITIES 4,098,210 4,982,675
Production taxes payable 1,791,079 1,493,114
Obligations under capital leases 2,731,348 1,173,500
Notes payable 1,700,000 --
Other long term liabilities 2,430,878 2,230,798
------------ -------------
TOTAL LIABILITIES 12,751,515 9,880,087
------------ -------------
REDEEMABLE PREFERRED STOCK 6,000,000 6,000,000
------------ -------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, shares issued and outstanding,
9,392,720 and 9,336,320 93,922 93,636
Additional paid-in capital 61,553,858 61,369,368
Accumulated deficit (8,278,545) (9,198,780)
Foreign currency translation adjustment 30,137 99,284
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 53,399,372 52,363,508
------------ -------------
$ 72,150,887 $ 68,243,595
------------ -------------
------------ -------------
See accompanying notes to consolidated financial statements
3
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31
---------------------------
1997 1996
---- ----
REVENUE:
Oil and gas production $ 2,437,701 $ 484,276
Oil and gas services 181,771 205,938
Interest and dividend income 40,489 63,748
Other income --- 8,039
------------ ----------
TOTAL REVENUES 2,659,961 762,001
------------ ----------
COSTS AND EXPENSES:
Cost of production and operations 405,003 124,620
Gas gathering costs 36,262 49,564
Cost of oil and gas services 187,105 182,569
Depreciation, depletion and amortization 586,709 172,033
General and administrative expenses 292,916 213,961
Interest expense 105,936 2,001
Other expense 5,796 (3,118)
------------ ----------
TOTAL COSTS AND EXPENSES 1,619,727 741,630
------------ ----------
NET INCOME (LOSS) 1,040,234 20,371
PREFERRED STOCK DIVIDENDS 120,000 150,000
------------ ----------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK $ 920,234 $ (129,629)
------------ ----------
------------ ----------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ .10 $ (0.02)
------------ ----------
------------ ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,392,720 5,800,036
------------ ----------
------------ ----------
See accompanying notes to consolidated financial statements.
4
EVERGREEN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,040,234 $ 20,370
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation, depletion and amortization 586,709 172,033
Other 22,080 31,555
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (170,686) (115,955)
Decrease (increase) in current assets 38,798 32,083
Increase (decrease) in accounts payable (256,423) 571,428
Increase (decrease) in accrued expenses 94,867 (5,938)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,355,579 705,576
----------- -----------
Cash flows from investing activities:
Investment in property and equipment (5,073,356) (1,253,848)
Proceeds from sale of oil and gas assets --- (39,587)
Proceeds from sale of subsidiary --- 457,820
Designated cash (297,965) 124,679
Change in production taxes payable 297,965 (124,679)
Decrease (Increase) in other assets (6,946) 92,107
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (5,080,303) (743,508)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable and long-term debt 2,077,120 --
Proceeds from sale of common stock 303,904
Debt issue costs (13,598)
Principal payments on capital lease obligations (110,825) (22,980)
Payment of preferred stock dividends (120,000) (150,000)
Increase in cash held from operating oil
and gas properties 447,965 25,962
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,294,260 143,288
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (49,338)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,430,464) 56,018
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 2,640,300 3,646,492
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF THE PERIOD $ 1,209,836 $ 3,702,510
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
5
EVERGREEN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1997
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 March 31, 1997 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 December 31, 1996 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"),
Evergreen Resources (UK) Limited ("ERUK"), Primero Gas Marketing Co.
(Primero), and Powerbridge, Inc. ("PBI"). 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. Designated cash represents the cash withheld for payment of production taxes
from third party revenue interest owners 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.
8. Effective with the period ended December 13, 1996, the Company elected to
begin utilizing a December 31 year-end.
6
EVERGREEN RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS -- 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 500 wells on 160 acre
spacing. Independent engineering estimates indicate reserve potential of
approximately 1.5 -2.0 billion cubic feet of gas per well.
Since early 1994 Evergreen has drilled 54 coalbed methane gas wells in the
Vermejo coals at depths of 1,000 to 2,100 feet. Evergreen has a 100% interest
in these wells, 53 of which are in production - one of which is awaiting hook-
up. Gas sales began in January 1995 and have improved as new wells have been
drilled to a present level of 17.5 million cubic feet per day gross.
On March 10, 1997, drilling commenced on 18 new development wells and 4
exploratory wells. All wells will be drilled to the Vermejo coal intervals at
depths ranging from 900 feet to 3100 feet. Three groups of 6-7 development
wells will be drilled, completed and placed into production in approximately
45-day intervals. These 18 wells will be located in the Southern portion of
the Spanish Peaks Unit.
Two of the exploratory wells will be drilled in the Northern portion of
the Spanish Peaks Unit, and the other two exploratory wells will be drilled in
the central portion of the Sangre de Cristo Unit. The exploratory wells are
being drilled in order to test production levels, provide additional geologic
control, and also to fulfill Unit obligations.
The Company's MINIMUM natural gas price target for the full year is $1.60
per Mcf. While the first quarter 1997 price averaged $1.88 per Mcf, gas prices
have recently declined, principally because of milder end-of-winter weather and
corresponding lower demand.
In order to help insure Evergreen's 1997 minimum target gas price, the
Company has entered into several contracts which collectively represent 100% of
present Raton Basin sales volumes. The contracts are all for the period May-
October 1997. The average sales price resulting from these sales contracts
will be approximately $1.61/Mcf.
By entering into these contracts, Evergreen has also fulfilled all Raton
Basin volume commitments during May-October 1997 and now qualifies for reduced
transportation charges of approximately $0.20 per Mcf on all volumes sold above
the contracted levels during the six month period.
LIQUIDITY AND CAPITAL RESOURCES
Evergreen currently has a $20.0 million revolving line of credit with
Hibernia National Bank of New Orleans. Advances pursuant to this line of
credit are limited to the borrowing base, which is presently $20.0 million. 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.
As of April 28, 1997, the Company had $3.0 million of borrowings on the line.
7
The Company anticipates drilling 40 wells and expanding and upgrading gas
gathering facilities during fiscal 1997. Capital requirements for the remainder
of fiscal 1997 are estimated to be approximately $11 million. The Company
believes that cash flow from operations,and funds under its line of credit,
will be sufficient to fulfill the 1997 development objectives. Leases expiring
in fiscal 1997 are not material and do not require significant drilling
expenditures.
Cash flows provided by operating activities were $1,355,600 for the three
months ended March 31, 1997 as compared to cash provided by operating
activities of $705,600 in the prior year. The significant increase in the cash
flows provided by operating activities is due primarily to improved operating
results as a result of higher gas production and higher gas prices.
Cash flows used by investing activities were $5,080,300 during the three
months ended March 31, 1997 versus $743,500 during the same period in 1996.
The increase was primarily due to the continued development of the Raton Basin
including an upgrade of the gas gathering system.
Cash flows provided by financing activities were $2,294,300 during the
three months ended March 31, 1997 as compared to $143,300 in the prior period.
The increase was due primarily to increased borrowings to fund the drilling and
gathering system development in the Raton Basin.
The Company's production from its San Juan basin properties has not met
the minimum volume requirements under its transportation agreements with El
Paso Field Services ("El Paso"). As of March 31, 1997, the cumulative
obligation of the Company to El Paso resulting from this shortfall was
$2,434,000. At current rates of production, this liability would increase to
over $3 million by the end of the contract term in July 1998. The Company is
currently in discussions with El Paso concerning alternative resolutions to the
shortfall, including the purchase by the Company of a portion of El Paso's
pipeline system. However, there is no assurance that an alternative agreement
will be reached.
Some of the information contained herein is forward-looking. Actual
results could materially differ and could be affected by, among other things,
natural gas prices, and/or general economic conditions.
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
No. 128). This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion (APB) No. 15, "Earnings Per Share". SFAS 128 provides
for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. The Company will adopt SFAS No.
128 in 1997 and its implementation is not expected to have a material effect on
the consolidated financial statements.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997
The Company reported net income of $920,200 or $0.10 per common share for
the three months ended March 31, 1997, compared to a net loss of $129,600 or
$0.02 per common share for the same period in 1996.
8
Natural gas revenues were $2,437,700 during the three months ended March
31, 1997, compared to $484,300 for the same period in the prior year. The
Company has no significant oil reserves, production or revenues.
The significant year-to-year increase in natural gas revenue during the
three months ended March 31, 1997, is attributable to sharply higher Raton
Basin production volumes and improved natural gas prices.
During the quarter ended March 31, 1997, Raton Basin gas production
represented approximately 93% of the Company's total gas production, compared
to 65% for the same period in the prior year. At March 31, 1997, there were 53
producing Raton Basin wells compared to 21 producing wells at March 31, 1996.
Production costs and taxes (lifting costs) for the three months ended
March 31, 1997, were $405,000 compared to $124,600 for the same period in 1996.
On an equivalent Mcf basis (Mcfe), lifting costs declined from $0.39 per Mcf in
the three months ended March 31, 1996 to $0.31 per Mcf in the current year.
Three Months Ended
March 31,
-------------------
1997 1996
Gas Production (Mcf) 1,297,900 302,555
Gas Revenues $2,437,700 $427,600
Avg. Price per Mcf $ 1.88 $1.49
Production Cost per Mcfe $ 0.31 $0.39
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 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 April 28, 1997,
EOC was serving as Operator for approximately 170 producing wells owned by the
Company and also by other unaffiliated third parties.
During the three months ended March 31, 1997, oil and gas service revenues
were $181,800, versus $205,900 for the three months ended March 31, 1996, a 12%
decrease. Costs of oil and gas services during the three months ended March
31, 1997 were $187,100 vs. $182,500 for the prior year, a 3% increase.
Depreciation, depletion and amortization expense for the three months
ended March 31, 1997, was $586,700 compared to $172,000 in the prior year. The
increase is due to the significant increase in gas production in the Raton
Basin and the increase in capital costs for drilling and the gas gathering
system.
General and administrative expenses were $292,900 during the three months
ended March 31, 1997 as compared to $213,900 during the same period in 1996.
The $79,000 (or 37%) increase is due to an increase in overall corporate
activity.
9
Interest income for the three months ended March 31, 1997 was $40,500
compared to $63,700 in 1996.
Interest expense for the three months ended March 31, 1997 was $105,900
versus $2,000 during the same period in 1996. The $103,900 increase in
interest expense is due to increased borrowings to fund the Raton Basin
development.
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 subsidiaries 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not applicable.
10
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: April 28, 1997 By: /s/ James S. Williams
------------------------------------
James S. Williams
Chairman of the Board
11