1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Commission file number 1-12534
NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 72-1133047
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
363 N. Sam Houston Parkway E.
Suite 2020
Houston, Texas 77060
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (281) 847-6000
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 [ ]
As of April 30, 1997, there were 35,352,287 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
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TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements:
Balance Sheet as of March 31, 1997
and December 31, 1996. . . . . . . . . . . . 1
Statement of Income for the three months ended
March 31, 1997 and 1996. . . . . . . . . . . 2
Statement of Cash Flows for the three months
ended March 31, 1997 and 1996. . . . . . . . 3
Notes to Financial Statements . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 5
PART II
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 10
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NEWFIELD EXPLORATION COMPANY
BALANCE SHEET
(In thousands of dollars, except share data)
(Unaudited)
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $ 12,819 $ 13,290
Accounts receivable, oil and gas. . . . . . 29,064 46,814
Other . . . . . . . . . . . . . . . . . . . 1,070 1,179
------------ ------------
Total current assets. . . . . . . . . . . 42,953 61,283
------------ ------------
Oil and gas properties (full cost method, of
which $41,029 at March 31, 1997 and $55,305
at December 31, 1996 were excluded from
amortization) . . . . . . . . . . . . . . . 578,686 526,680
Furniture, fixtures and equipment . . . . . . 2,712 2,496
Less-accumulated depreciation, depletion and
amortization. . . . . . . . . . . . . . . . (218,900) (199,161)
------------ ------------
362,498 330,015
------------ ------------
Other assets. . . . . . . . . . . . . . . . . 4,455 4,640
------------ ------------
Total assets. . . . . . . . . . . . . . . $ 409,906 $ 395,938
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities. . $ 42,851 $ 46,072
Advances from joint owners. . . . . . . . . 679 3,612
Current maturities of capital lease obligations 102 163
------------ ------------
Total current liabilities . . . . . . . . 43,632 49,847
------------ ------------
Other liabilities . . . . . . . . . . . . . . 3,040 2,048
Long-term debt. . . . . . . . . . . . . . . . 60,000 60,000
Deferred taxes. . . . . . . . . . . . . . . . 50,246 44,141
------------ ------------
Total long-term liabilities . . . . . . . 113,286 106,189
------------ ------------
Commitments and contingencies (Note 2). . . . --- ---
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000
shares authorized, no shares issued). . . --- ---
Common stock ($0.01 par value, 50,000,000
shares authorized; 35,352,127 and
35,243,040 shares issued and outstanding
at March 31, 1997 and December 31, 1996,
respectively) . . . . . . . . . . . . . . 354 352
Additional paid-in capital. . . . . . . . . . 148,062 147,291
Unearned compensation . . . . . . . . . . . . (2,320) (2,746)
Retained earnings . . . . . . . . . . . . . . 106,892 95,005
------------ ------------
Total stockholders' equity. . . . . . . . 252,988 239,902
------------ ------------
Total liabilities and stockholders' equity $ 409,906 $ 395,938
============ ============
The accompanying notes are an integral part of these financial statements.
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NEWFIELD EXPLORATION COMPANY
STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------
1997 1996
----------- -----------
Oil and gas revenues. . . . . . . . . . . . . $ 46,927 $ 32,962
----------- -----------
Operating expenses:
Lease operating . . . . . . . . . . . . . . 5,583 3,346
Depreciation, depletion and amortization. . 19,754 14,721
General and administrative, net . . . . . . 2,953 2,430
Stock compensation. . . . . . . . . . . . . 430 342
----------- -----------
Total operating expenses. . . . . . . . . 28,720 20,839
----------- -----------
Income from operations. . . . . . . . . . . . 18,207 12,123
Other income (expense):
Interest income . . . . . . . . . . . . . . 373 154
Interest expense, net . . . . . . . . . . . (325) (74)
----------- -----------
48 80
----------- -----------
Income before income taxes. . . . . . . . . . 18,255 12,203
Income tax provision. . . . . . . . . . . . . 6,368 4,274
----------- -----------
Net income. . . . . . . . . . . . . . . . . . $ 11,887 $ 7,929
=========== ===========
Earnings per common share . . . . . . . . . . $ 0.32 $ 0.22
=========== ===========
Weighted average number of shares and
common stock equivalents outstanding. . . . . 37,674 36,784
=========== ===========
The accompanying notes are an integral part of these financial statements.
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NEWFIELD EXPLORATION COMPANY
STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net Income. . . . . . . . . . . . . . . . $ 11,887 $ 7,929
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion
and amortization. . . . . . . . . . . 19,754 14,721
Deferred taxes. . . . . . . . . . . . . 6,473 4,477
Stock compensation. . . . . . . . . . . 430 342
------------ ------------
38,544 27,469
Changes in operating assets and liabilities:
Decrease in accounts receivable,
oil and gas . . . . . . . . . . . . . 17,750 3,979
Decrease in other current assets. . . . 109 3,613
Decrease (increase) in other assets . . 185 (301)
Decrease in accounts payable
and accrued liabilities . . . . . . . (12,177) (1,595)
Increase (decrease) in advances
from joint owners . . . . . . . . . . (2,933) 1,261
Increase in other liabilities . . . . . 992 438
------------ ----------
Net cash provided by
operating activities. . . . . . . . 42,470 34,864
------------ ----------
Cash flows from investing activities:
Additions to oil and gas properties . . (43,050) (16,251)
Additions to furniture, fixtures and
equipment (231) (174)
------------ -----------
Net cash used in
investing activities. . . . . . . . (43,281) (16,425)
------------ -----------
Cash flows from financing activities:
Proceeds from borrowings. . . . . . . . 94,000 34,000
Repayments of borrowings. . . . . . . . (94,000) (47,000)
Proceeds from issuances of common
stock, net. . . . . . . . . . . . . . 400 674
Payments on capital lease obligations . (60) (120)
------------ -----------
Net cash provided by (used in)
financing activities 340 (12,446)
------------ -----------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . (471) 5,993
Cash and cash equivalents,
beginning of period . . . . . . . . . . 13,290 12,533
------------ -----------
Cash and cash equivalents, end of period. . . $ 12,819 $ 18,526
============ ===========
The accompanying notes are an integral part of these financial statements.
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NEWFIELD EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Accounting Policies
The unaudited financial statements of Newfield Exploration Company
(the "Company") reflect, in the opinion of management, all adjustments,
consisting only of normal and recurring adjustments, necessary to present
fairly the Company's financial position at March 31, 1997 and the
Company's results of operations and cash flows for the three-month
periods ended March 31, 1997 and 1996. The financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all disclosures required of financial statements
prepared in conformity with generally accepted accounting principles.
Interim period results are not necessarily indicative of results of
operations or cash flows for a full-year period.
These financial statements and the notes thereto should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, including those financial statements and notes
thereto incorporated by reference from the Company's 1996 Annual Report
to Stockholders.
(2) Contingencies
The Company has been named as a defendant in certain lawsuits arising
in the ordinary course of business. While the outcome of these lawsuits
cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
(3) Subsequent Events
Subsequent to March 31, 1997, the Company's available Borrowing Base
was redetermined to be $160 million effective April 14, 1997.
Additionally, the Company's credit facility was amended to permit the
Company, subject to notification and conditioned upon the then effective
Borrowing Base, to increase the size of the credit facility to $200
million. Further, the revolving credit period was extended through June
30, 1999, at which time the aggregate loans outstanding under the credit
facility convert to a term loan with quarterly maturities through June 30,
2002.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
As an independent oil and gas producer, the Company's revenue,
profitability and future rate of growth are substantially dependent upon
prevailing prices for natural gas, oil and condensate, which are
dependent upon numerous factors beyond the Company's control, such as
economic, political and regulatory developments and competition from
other sources of energy. The energy markets have historically been very
volatile and there can be no assurance that oil and gas prices will not
be subject to wide fluctuations in the future. A substantial or extended
decline in oil and gas prices could have a material adverse effect on the
Company's financial position, results of operations, cash flows,
quantities of oil and gas reserves that may be economically produced
and access to capital.
The Company's results of operations may vary significantly from
quarter to quarter as a result of development operations, commodity
prices, the curtailment of production in association with workover and
recompletion activities and the incurrence of expenses related thereto,
the timing and amount of reimbursement for customary overhead costs
received by the Company and other factors, and, therefore, the results
of operations for any one quarter may not be indicative of results for
the full fiscal year.
The Company uses the full cost method of accounting for its oil and
gas properties. Under this method, all acquisition, exploration and
development costs, including certain related employee costs (less any
joint interest reimbursements for such costs) incurred for the purpose
of acquiring and finding oil and gas reserves are capitalized in a "full
cost pool" as incurred. The Company records depletion of its full cost
pool using the unit of production method and uses its internal estimates
of proved quantities of oil and gas reserves for financial accounting
matters. To the extent that such capitalized costs in the full cost pool
(net of depreciation, depletion and amortization and related deferred
taxes) exceed the present value (using a 10% discount rate) of estimated
future net after-tax cash flows from proved oil and gas reserves, such
excess costs are charged to operations. Once incurred, a write-down of
oil and gas properties is not reversible at a later date even if oil or
gas prices increase.
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Results of Operations
The following table sets forth certain operating information with
respect to the oil and gas operations of the Company:
Three Months Ended
March 31,
--------------------------
1997 1996
------------ ------------
Production:
Oil and condensate (MBbls) 806 615
Gas (MMcf) 11,387 9,733
Total production (MMcfe) 16,222 13,423
Average Realized Price:
Oil and condensate (per Bbl) $ 22.32 $ 18.17
Gas (per Mcf) 2.55 2.24
Average Costs (per Mcfe)
Lease operating $ 0.34 $ 0.25
Depreciation, depletion and amortization 1.22 1.10
General and administrative, net 0.21 0.21
Production. Net production increased 21%, from 13.4 billion cubic
feet of natural gas equivalent ("Bcfe") for the three months ended March
31, 1996 to 16.2 Bcfe for the three months ended March 31, 1997. Oil
and condensate production for the three months ended March 31, 1997
increased 191 thousand barrels ("MBbls"), or 31%, compared to the same
period of 1996. Increased oil and condensate production was due primarily
to production increases from development drilling activities during 1996 at
West Delta 152 and Ewing Bank 947, the acquisition of Ship Shoal 69 in the
third quarter of 1996 and a well drilled and placed on production late in
the fourth quarter 1996 at Vermilion 398. Gas production increased by 1.7
billion cubic feet ("Bcf"), or 17%, from 9.7 Bcf for the three months ended
March 31, 1996 to 11.4 Bcf for the comparable period of 1997. Increased
gas production was due to production increases from development drilling
activities during 1996 at Ewing Bank 947, South Timbalier 148 and West
Delta 152 and a well drilled and placed on production during the fourth
quarter of 1996 at Vermillion 308. These increases were partially offset
by natural production decline on other properties of the Company.
Oil and Gas Revenues. Oil and gas revenues for the three months
ended March 31, 1997 increased by $14.0 million, or 42%, compared to the
same period of 1996, primarily as a result of increased oil and gas
production and increased oil and gas prices. The average realized price
of oil and condensate increased by 23% and the average realized price of
natural gas increased by 14%.
For the three months ended March 31, 1997, the average realized gas
price was $2.55 per thousand cubic feet ("Mcf"), which, as a result of
hedging activities, was 87% of the $2.93 per Mcf average gas sales price
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that would have otherwise been received. As a result of hedging
activities for gas production for the three months ended March 31, 1996,
the Company realized an average gas price of $2.24 per Mcf, or 74% of
the $3.04 per Mcf average gas sales price that would have otherwise been
received. For the three months ended March 31, 1996, the average realized
oil and condensate price was $18.17, which, as a result of hedging
activities, was 98% of the $18.63 per barrel average oil and condensate
sales price that would have otherwise been received. There were no oil
hedging activities for the three months ended March 31, 1997.
Lease Operating Expense. Lease operating expense for the three months
ended March 31, 1997 increased to $5.6 million from $3.3 million for the
comparable period of 1996. Lease operating expense per Mcf equivalent
("Mcfe") increased from $0.25 for the three months ended March 31, 1996 to
$0.34 for the comparable period of 1997. The increase in lease operating
expense per unit is primarily attributable to a general increase in costs
in the oil service industry, increased workover activities and lease
operating costs associated with properties the Company acquired after March
31, 1996 partially offset by higher production volumes.
Depreciation, Depletion and Amortization Expense. During the three
months ended March 31, 1997, depreciation, depletion, and amortization
expense increased to $19.8 million from $14.7 million for the comparable
period of 1996. The increase was the result of an increased depletion rate
per Mcfe combined with production increases from acquisitions and
exploratory and development drilling activities in 1996. The depletion
rate per unit for the three months ended March 31, 1997 increased 11% to
$1.22 per Mcfe from $1.10 per Mcfe for the comparable period of 1996. The
increase is primarily attributable to increased costs of drilling goods and
services, platform and facilities construction and transportation services
in the industry.
General and Administrative Expense, Net. General and administrative
expense, which is net of overhead reimbursements received by the Company
from other working interest owners, increased to $3.0 million for the three
months ended March 31, 1997 as compared to $2.4 million for the same period
of 1996. Performance based compensation, as a component of general and
administrative expense, increased in the aggregate from $1.1 million for
the three months ended March 31, 1996 to $1.4 million for the three months
ended March 31, 1997 but remained constant on a per unit basis. Direct
costs associated with staff increases during 1996 were partially offset by
joint interest reimbursements. To the extent that the Company continues to
grow and increase its ownership in certain properties, the Company expects
general and administrative expenses, in the aggregate, to continue to
increase.
Net Income. As a result of the foregoing, the Company had net income
of $11.9 million, or $0.32 per share, for the three months ended March 31,
1997, an increase of $4.0 million compared to $7.9 million, or $0.22 per
share, for the comparable period of 1996.
Liquidity and Capital Resources
The Company had a working capital deficit at March 31, 1997 of $0.7
million as compared to $11.4 million of working capital at December 31,
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1996. The $12.1 million decrease in working capital is primarily due to
higher accruals of current liabilities associated with drilling and
construction activities not being immediately offset with borrowings under
the Company's credit facility. Historically, the Company has funded its
oil and gas activities through cash flow from operations, equity capital
from private and public sources and bank borrowings.
From time to time, the Company has utilized hedging transactions
with respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the
downside risk of adverse price movements, they may also limit future
revenues from favorable price movements. The use of hedging transactions
also involves the risk that the counterparties will be unable to meet the
financial terms of such transactions. Substantially all of the Company's
hedging transactions to date were carried out in the over-the-counter
market and the obligations of the counterparties have been guaranteed by
entities with at least an investment grade rating or secured by letters of
credit. The Company accounts for these transactions as hedging activities
and, accordingly, gains or losses are included in oil and gas revenues when
the hedged production is delivered. As of March 31, 1997, the Company had
entered into commodity price swap contracts effectively fixing the price of
2.4 Bcf of natural gas for April through June 1997 at a volume weighted
average price of $1.93 per MMBtu (or approximately $2.08 per Mcf based upon
the average energy content of the Company's gas production for the twelve
months ended December 31, 1996). Subsequent to March 31, 1997, the Company
purchased put option contracts for 6.3 Bcf of natural gas for July through
September 1997 which, after accounting for the cost of such options, will
result in the Company receiving not less than $2.01 per Mcf for the covered
production. These gas hedging transactions are settled based on reported
sales prices of natural gas delivered into those pipelines at the physical
locations where the Company sells its production (the "Sales Point Price").
Because substantially all of the Company's natural gas production is sold
under spot contracts that reference to the Sales Point Price, the Company
has no basis risk with respect to these transactions.
The Company maintains a $125 million unsecured revolving credit
facility with The Chase Manhattan Bank, N.A., as agent. As of March 31,
1997, the borrowing base was $125 million, of which $60 million was
outstanding. Subsequent to March 31, 1997, the Company's available
Borrowing Base was redetermined to be $160 million effective April 14,
1997. Additionally, the Company's credit facility was amended to permit
the Company, subject to notification and conditioned upon the then
effective Borrowing Base, to increase the commitment amount from the
current level of $125 million up to $200 million. Further, the revolving
credit period was extended through June 30, 1999, at which time the
aggregate loans outstanding under the credit facility convert to a term
loan with quarterly maturities through June 30, 2002.
The Company's net cash flow from operations for the first three months
of 1997 was $42.5 million compared to $34.9 million for the same period of
1996. The increase is primarily due to increases in oil and gas production
and average realized oil and gas prices and working capital changes. Net
cash flow from operations before changes in operating assets and
liabilities for the first three months of 1997 was $38.6 million compared
to $27.5 million for the same period of 1996. The increase in net cash
flow from operations before changes in operating assets and liabilities is
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primarily attributable to increases in oil and gas production and average
realized oil and gas prices.
Capital expenditures for the three months ended March 31, 1997 were
$52.0 million compared to $18.9 million for the same period of 1996. The
Company's exploration capital expenditures for the first three months of
1997 were $20 million of the total of approximately $68 million budgeted
for 1997. Development drilling and construction expenditures for
platforms, facilities and pipelines were $25 million for the first three
months of 1997 of the total of approximately $92 million budgeted for 1997.
Expenditures for proved property acquisitions for the first three months of
1997 were $7 million. No significant abandonment or dismantlement costs
are anticipated during 1997. The Company continues to pursue attractive
acquisition opportunities. The timing and size of any acquisition and the
associated capital commitments are unpredictable.
Actual levels of capital expenditures may vary significantly due to
many factors, including drilling results, oil and gas prices, industry
conditions, the prices of goods and services and the extent to which proved
properties are acquired. The Company anticipates that these capital
expenditures will be funded principally from cash flow from operations,
working capital, and bank borrowings. During the first quarter of 1997,
the Company borrowed $94 million and repaid $94 million under the credit
facility. The Company anticipates additional borrowings under this
facility during the remainder of 1997.
To cover the various obligations of lessees on the Outer Continental
Shelf (the "OCS"), the United States Department of the Interior Minerals
Management Service (the "MMS") generally requires that lessees have
substantial net worth or post bonds or other acceptable assurances that
such obligations will be met. The cost of such bonds or other surety can
be substantial and there is no assurance that bonds or other surety can
be obtained in all cases. Additionally, the MMS may require operators in
the OCS to post supplement bonds in excess of lease and area wide bonds to
assure that abandonment obligations on specific properties will be met.
The Company is currently exempt from the supplemental bonding requirements
of the MMS. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such
suspension or termination could materially and adversely affect the
Company's financial condition and operations.
The Company's operations are subject to various federal, state and
local laws and regulations relating to the protection of the environment.
The Company believes its current operations are in material compliance
with current environmental laws and regulations. There can be no
assurance, however, that current regulatory requirements will not change,
currently unforseen environmental incidents will not occur or past non-
compliance with environment laws will not be discovered.
The Company has been named as a defendant in certain lawsuits arising
in the ordinary course of business. While the outcome of these lawsuits
cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
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Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 First Amendment to Credit Agreement among Newfield
Exploration Company, as the Company, the Chase Manhattan
Bank, as Agent, and the Banks signatory hereto, effective as
of April 1, 1997 (without Exhibits)
11.1 Computation of Earnings per Share
27 Financial Data Schedule (included only in the electonic
filing of this document)
(b) Reports on Form 8-K:
None
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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.
NEWFIELD EXPLORATION COMPANY
Date: May 1, 1997 By: /s/ TERRY W. RATHERT
Terry W. Rathert
Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
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EXHIBIT INDEX
Exhibit
Number Description of Exhibits
--------- -----------------------
10.1 First Amendment to Credit Agreement among Newfield
Exploration Company, as the Company, the Chase
Manhattan Bank, as Agent, and the Banks signatory
hereto, effective as of April 1, 1997 (without
Exhibits)
11.1 Computation of Earnings Per Share
27 Financial Data Schedule (included
only in the electronic filing of
this document)