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 June 30, 1995
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 No. 0-10727
TIDE WEST OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 84-0846048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6666 South Sheridan Road
Suite 250
Tulsa, Oklahoma 74133
(Address of principal executive offices)
(918) 488-8962
(Registrant's telephone number)
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 August 11, 1995, 9,837,428 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
TIDE WEST OIL COMPANY
Index to Quarterly Report on Form 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - 3
December 31, 1994 and June 30, 1995
Consolidated Statements of Income 4
(Unaudited) -Three months and six months
ended June 30, 1994 and 1995
Consolidated Statements of Cash Flows 5
(Unaudited) - Six months ended June 30, 1994 and 1995
Notes to Consolidated Financial Statements 6-9
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 10-17
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings 18
Item 2. Changes in securities 18
Item 3. Defaults upon senior securities 18
Item 4. Submission of matters to a vote of security-holders 18-19
Item 5. Other information 19
Item 6. Exhibits and reports on Form 8-K 19
Signatures 20
2
Part I. Financial Information
Item 1. Financial Statements
Tide West Oil Company
Consolidated Balance Sheets
(UNAUDITED)
December 31, June 30,
(In thousands, except shares and per share amounts) 1994 1995
--------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $-- $3,756
Short-term investments, at cost -- 633
Accounts receivable:
Revenues 14,977 15,961
Other 2,960 3,350
Other current assets 1,753 1,896
---------- ----------
Total current assets 19,690 25,596
Property and Equipment:
Oil and gas properties (successful efforts method) 110,948 141,868
Other property and equipment 1,619 1,614
---------- ----------
112,567 143,482
Accumulated depreciation, depletion and amortization (20,350) (29,886)
---------- ----------
Property and equipment, net 92,217 113,596
Investments 12,064 1,004
Other Assets - Net 349 317
---------- ----------
$124,320 $140,513
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Gas purchases $9,652 $10,501
Other 2,706 3,362
Revenues payable 3,604 3,797
Accrued liabilities 736 1,574
---------- ----------
Total current liabilities 16,698 19,234
Long-term Debt 32,300 44,900
Deferred Tax Liability 4,863 5,767
Minority Interest -- 100
Commitments and Contingencies -- --
Stockholders' Equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized, none outstanding -- --
Common stock, $.01 par value, 20,000,000 shares authorized, 9,901,690 and
9,926,228 shares issued and outstanding at December 31, 1994 and June 30, 1995 99 100
Additional paid-in capital 60,685 60,768
Treasury stock -- (1,123)
Retained earnings 9,675 10,767
---------- ----------
Total stockholders' equity 70,459 70,512
---------- ----------
$124,320 $140,513
========== ==========
See notes to the unaudited consolidated financial statements
3
Tide West Oil Company
Consolidated Statements of Income
(UNAUDITED)
Three months Three months Six months Six months
ended ended ended ended
(In thousands, except per share amounts) June 30, 1994 June 30, 1995 June 30, 1994 June 30, 1995
---------------------------------------------------------------------------------------------------------------------------------
Revenues:
Oil and gas $7,362 $8,959 $15,023 $17,405
Trading and transportation 23,210 21,548 50,404 40,788
------------- ------------- ------------- ------------
Total revenues 30,572 30,507 65,427 58,193
Operating expenses:
Lease operating 1,153 1,990 2,338 3,903
Severance taxes 491 619 1,011 1,203
Dryhole costs -- 10 10 22
Trading and transportation 22,789 21,063 49,344 39,801
General and administrative:
Oil and gas 723 849 1,433 1,754
Trading and transportation 120 152 239 291
Compensation expense - stock options 45 45 90 90
Depreciation, depletion and amortization 2,361 3,537 4,805 7,144
------------- ------------- ------------- ------------
Total operating expenses 27,682 28,265 59,270 54,208
------------- ------------- ------------- ------------
Operating Income 2,890 2,242 6,157 3,985
------------- ------------- ------------- ------------
Other Income (Expense):
Interest income 28 66 49 123
Interest expense (338) (801) (685) (1,529)
Gain (loss) on sale of assets 63 (107) 87 (104)
Equity in earnings of unconsolidated affiliate 342 -- 146 --
Loss on commodities transactions, net -- (3,420) -- (518)
Minority Interest -- (1) -- 7
Other income (expense) 15 (121) 18 (117)
------------- ------------- ------------- ------------
Total other income (expense) 110 (4,384) (385) (2,138)
Income (Loss) Before Provision for (Benefit of) 3,000 (2,142) 5,772 1,847
Income Taxes
Provision for (Benefit of) Income Taxes 1,011 (660) 2,148 737
------------- ------------- ------------- ------------
Net Income (Loss) $1,989 ($1,482) $3,624 $1,110
============= ============= ============= ============
Weighted Average Common Shares Outstanding 9,902 9,926 9,902 9,953
Net Income (Loss) Per Common Share $0.20 ($0.15) $0.37 $0.11
See notes to the unaudited consolidated financial statements.
4
Tide West Oil Company
Consolidated Statements of Cash Flows
(UNAUDITED)
Six months Six months
ended ended
(In thousands) June 30, 1994 June 30, 1995
---------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income $3,624 $1,110
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 4,805 7,144
Gain (loss) from sale of assets (87) 104
Equity in earnings of unconsolidated affiliate (146) --
Minority interest of consolidated interest -- 100
Increase in loss on commodity transactions, net -- 518
Changes in operating assets and liabilities:
Increase in short-term investments, at cost -- (633)
(Increase) decrease in accounts receivable (174) 889
Increase in income tax receivable -- (197)
Increase in other current assets (614) (119)
Increase in other assets (57) --
Increase in income taxes payable 109 --
Increase (decrease) in accounts and revenues payable and accrued liabilities 658 (122)
Increase in deferred income taxes 930 904
------- -------
Total adjustments 5,424 8,588
------- -------
Net cash provided by operating activities 9,048 9,698
Investing Activities:
Capital expenditures (6,229) (18,109)
Proceeds from sale of assets 376 186
Payment on note receivable 67 125
Investment in partnership (824) --
------- -------
Net cash used in investing activities (6,610) (17,798)
Financing Activities:
Borrowings of long-term debt 5,600 24,984
Principal payments on long-term debt (8,000) (12,384)
Issuance of note receivable (2) --
Payment on note receivable - officer 5 15
Purchase of common shares -- (1,123)
------- -------
Net cash provided by (used in) financing activities (2,397) 11,492
------- -------
Net Increase in Cash and Cash Equivalents 41 3,392
Cash and Cash Equivalents, Beginning of Period 72 364
------- -------
Cash and Cash Equivalents, End of Period $113 $3,756
======= =======
See notes to the unaudited consolidated financial statements.
5
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995
Note 1. Basis of Presentation
---------------------
The consolidated financial statements included in this Report have
been prepared by Tide West Oil Company (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission
for interim reporting and include all adjustments (consisting of only
normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation. These consolidated
financial statements have not been audited by an independent
accountant. The consolidated financial statements include the
accounts of the Company, its majority-owned subsidiaries and Horizon
Gas Partners, L.P. ("Horizon") which was previously accounted for on
the equity method (see Note 2). All significant intercompany accounts
and transactions have been eliminated. The consolidated balance sheet
at December 31, 1994, included in this Report, has been derived from
the audited consolidated balance sheet.
On April 10, 1995, Killgore Investments, Inc. ("Killgore") was merged
with and into the Company, and 149,538 shares of the Company's common
stock were issued in exchange for all of the outstanding common stock
of Killgore. The merger was accounted for as a pooling of interests.
Prior periods financial statements were not restated because the
effect of this business combination is not material.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. These financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994. The financial data
for the interim periods presented may not necessarily reflect the
results to be anticipated for the complete year.
Note 2. Summary of Significant Accounting Policies
------------------------------------------
Investments
-----------
Effective January 1, 1995, the Company began consolidating Horizon in
its financial statements. This partnership was accounted for under
the equity method during 1994 (its first full year of operations).
The Company's remaining unconsolidated investment at June 30, 1995
consists of a 17.9 percent limited partnership interest in an oil and
gas partnership accounted for under the cost method.
6
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995
Note 2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, the Company accounts for income
taxes on an asset and liability method which requires the recognition
of deferred tax liabilities and assets for the tax effects of (a)
temporary differences between tax bases and financial reporting bases
of assets and liabilities, (b) operating loss carryforwards and (c)
tax credit carryforwards.
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
During the six months ended June 30, 1994 and 1995, cash payments for
interest totaled $613,000 and $1.1 million, respectively, of which
$117,000 was capitalized for the six months ended June 30, 1995. No
interest was capitalized during 1994. Cash payments for income taxes
totaled $1.1 million and $31,000 for the six months ended June 30,
1994 and 1995, respectively.
Effective January 1, 1995, the Company began consolidating the
accounts and operations of Horizon in the consolidated financial
statements. On April 10, 1995, Killgore was merged with and into the
Company, and 149,538 shares of the Company's common stock were issued
in exchange for all of the outstanding common stock of Killgore. The
following table presents Killgore's balance sheet accounts that were
combined in the Company's consolidated balance sheet at the dates
indicated.
Horizon Killgore
(In thousands) 01/01/95 04/10/95
------------------------------------------------------------------------
Cash $ 364 $ 3
Accounts receivable 1,997 160
Other current assets 21 --
Property and equipment 11,941 1,052
Accumulated depreciation, depletion and
amortization 2,245 355
Other non current assets 166 --
Accounts and revenues payable and
accrued liabilities 1,345 150
Long-term debt -- 645
Stockholders equity -- 65
7
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995
Note 2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Depreciation, Depletion, and Amortization
-----------------------------------------
Depreciation, depletion and amortization per equivalent barrel of
production from the Company's oil and gas properties for the six
months ended June 30, 1994 and 1995, was $3.87 and $4.13,
respectively. The increased rate was due to oil property acquisitions
in the first half of 1995 and the consolidation of Horizon.
Reclassification
----------------
Certain reclassifications were made to the 1994 financial statements
to conform to the presentation used in 1995.
Note 3. Earnings per Share
------------------
During the first half of 1995, the Company repurchased 125,000 shares
of the Company's outstanding common stock on the open market for an
aggregate price of $1.1 million. The cost of these shares is
reflected as Treasury stock. On April 10, 1995, Killgore was merged
with and into the Company, and 149,538 shares of the Company's common
stock were issued in exchange for all of the outstanding common stock
of Killgore. The merger was accounted for as a pooling of interests
but prior periods earnings per share are not restated since the
effect is immaterial. Earnings per common share for the periods
presented have been computed using the weighted average number of
common shares outstanding. Outstanding stock options and warrants are
not included in the weighted average shares outstanding for any
period since their effect on earnings per share is immaterial or not
dilutive.
Note 4. Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107 "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
the fair value of certain financial instruments. The carrying value
of cash, accounts receivable, short-term borrowing, accounts payable
and accrued liabilities approximates fair value because of the
short-term maturity of these instruments. The carrying value of
long-term debt is also considered to approximate fair value based
on its current interest rate and terms. The estimated fair value
amounts of the Company's
8
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995
Note 4. Fair Value of Financial Instruments (continued)
-----------------------------------------------
off--balance sheet financial instruments have been determined by the
Company, using appropriate market information and valuation
methodologies. Considerable judgement is required to develop the
estimates of fair value, thus, the estimates provided herein are not
necessarily indicative of the amounts that could be realized in a
current market exchange.
(In thousands) June 30, 1995
---------------------------------------------------------------------------------------------
Carrying Fair
Amount Value
---------------------------------------------------------------------------------------------
Off-Balance Sheet Financial Instruments --
Unrealized Losses:
Interest rate swap agreements $ -- $ (788)
Commodity contracts (338) (338)
During the first quarter of 1995, the Company recorded an unrealized
mark-to-market gain of $2.9 million on 20.0 Bcf of natural gas
commodity contracts which do not qualify as hedges. In the second
quarter of 1995, the Company reversed the $2.9 million mark-to-
market gain and recorded a realized (or cash) loss of $180,000 on
10.0 Bcf of the natural gas commodity contracts which expired or
which were cleared in the three months ended June 30, 1995.
Additionally a mark-to-market unrealized loss of $338,000 was
recorded at June 30, 1995 on the remaining 10.0 Bcf. The effect of
these commodity transactions on the Company's financial statements
was a second quarter loss of $3.4 million and a year to date loss of
$518,000 as reflected in the heading Loss on commodity transaction,
net. The cash effect of the remaining 10.0 Bcf will be realized in
the months when the contracts actually expire or when the positions
are closed out. The Company has the potential to recognize
significant gains or losses as a result of these transactions.
Note 5. Subsequent Event
----------------
On July 21, 1995 the Company repurchased 88,800 shares of the
Company's common stock on the open market at $10.25 per share.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
-------
The factors that most significantly affect the Company's operating results are
(i) the sales prices of oil and natural gas; (ii) the amount of oil and gas
sold; (iii) the amount of operating expenses; and (iv) the interest rates on,
and amounts of, borrowing. Sales of oil and gas are significantly affected by
the Company's ability to complete producing property acquisitions and to
maintain or increase production from existing properties through development
drilling and production enhancement activities. The following table reflects
certain operating data for the periods presented.
Three Months Ended Six Months Ended
------------------------ -------------------
June 30, June 30,
------------------------ -------------------
1994 1995(1) 1994 1995(1)
------ ------ ------ --------
Net Sales Volumes:
Oil (MBbls) 95 134 191 259
Natural gas (MMcf) 3,268 4,481 6,299 8,823
Oil equivalent (MBOE) 639 881 1,240 1,730
Average Sales Prices:
Oil (per Bbl) $15.89 $17.50 $14.55 $16.73
Natural gas (per Mcf)(2) 1.70 1.41 1.87 1.41
Operating Expenses per BOE of Net Sales:
Lease operating $ 1.80 $ 2.26 $ 1.89 $ 2.26
Severance tax .77 .70 .82 .70
General and administrative(3) 1.32 1.14 1.35 1.18
----------------------
(1) Amounts for the three months and six months ended June 30, 1995, include
the Company's proportionate share of Horizon.
(2) Does not include the effect of the Company's hedging activities.
(3) Does not include compensation expense -- stock options.
Prices received by the Company for sales of oil and natural gas fluctuate
significantly from period to period. Relatively modest changes in either oil or
gas prices can significantly impact the Company's results of operations and cash
flows. The prices for natural gas are influenced by weather conditions and
supply imbalances, particularly in the domestic market, and by world wide oil
price levels. The large drop in spot market natural gas prices had a significant
adverse effect on the value of the Company's reserves at year end 1994.
Likewise, declines in natural gas or oil prices could adversely affect the
semi-annual borrowing base determination under the Company's current credit
agreement.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the period from October 1989 through June 30, 1995, the Company completed
52 property acquisitions for a total expenditure of approximately $129.0
million. As a result, the Company's equivalent reserves increased 210% in 1992,
63% in 1993 and 22% in 1994, while production and revenues have also increased.
Through its wholly-owned subsidiary, Tide West Trading & Transport Company, the
Company actively markets its own natural gas production as well as that of third
parties. The Company believes that this activity gives it more control over the
marketing of its product and, thus affords the Company a higher sales price than
it would otherwise receive if its gas were marketed by a third party. These
revenues and the associated expenses are recognized under the heading "Trading
and transportation."
The results of the Company's operations vary due to seasonal fluctuations in the
sales prices and volumes of natural gas. Due to these seasonal fluctuations,
results of operations for individual quarterly periods may not be indicative of
the results which may be realized on an annual basis.
Three Months Ended June 30, 1995
Compared to Three Months Ended June 30, 1994
Oil and gas revenues increased $1.6 million, or 22%, during the three months
ended June 30, 1995 compared to the same period in 1994. This increase was due,
in part, to a 42% increase in crude oil sales volumes and a 37% increase in
natural gas sales volumes, while average sales prices received for crude oil
increased by $1.61 per Bbl, or 10%, and natural gas decreased by $0.29 per Mcf,
or 17%. The increase in production is primarily related to the production from
certain oil and gas properties acquired through various acquisitions which were
closed during the last half of 1994 and the first quarter of 1995, and the
consolidation of Horizon in the first quarter of 1995. The consolidation of
Horizon increased oil and gas revenues by $923,000, or 12%. Excluding the
consolidation of Horizon, oil and gas revenues increased by $674,000, or 10%.
The Trading and transportation net margins increased in the second quarter of
1995 as compared to the second quarter of 1994 by $65,000. The average sales
price of gas sold in the second quarter of 1995 was $1.57, significantly lower
than the average sales price of $1.86 in the second quarter of 1994. The average
cost of gas sold was proportionately lower as well. The average net margin per
MMBTU decreased to two cents per MMBTU in the second quarter of 1995, down from
three cents per MMBTU in the second quarter of 1994. Offsetting the one cent
decrease in net margins per MMBTU was an increase in the quantity of gas
marketed in the second quarter of 1995, up to 16.2 Bcf, from 14.7 Bcf in the
second quarter of 1994. Natural gas marketed for the Company amounted to 16% of
the total gas sold by Tide West Trading & Transport Company in both the second
quarters of 1994 and 1995.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In order to reduce price fluctuation risk, Tide West Trading & Transport Company
hedges its position throughout each trading month. The second quarter 1995
hedging activity yielded a gain of $111,000, however, the second quarter of 1994
hedging activity yielded a gain of only $14,000. The primary reason for the
increase in net Trading and transportation margins in the second quarter of
1995, when compared to the same period in 1994, was the additional hedging gains
in the second quarter of 1995.
Lease operating expenses increased $837,000, or 73% for the second quarter of
1995 compared to the second quarter of 1994. The increase in lease operating
expense is due to the property acquisitions added in the last half of 1994 and
in the first quarter of 1995 and the consolidation of Horizon in the first
quarter of 1995. The consolidation of Horizon increased lease operating expenses
by $240,000, or 21%. Excluding the consolidation of Horizon, lease operating
expenses increased by $597,000 or 52%.
Severance taxes increased $128,000, or 26% as a result of a 22% increase in oil
and gas revenues.
General and administrative expenses, excluding compensation expense -- stock
options, increased $158,000, or 19%, for the second quarter of 1995 compared to
the second quarter of 1994, due primarily to the expansion of the Company's
developmental drilling and workover activities, the acquisition of oil and gas
properties during the last half of 1994 and the first quarter of 1995, and the
consolidation of Horizon in the first quarter of 1995. The consolidation of
Horizon increased general and administrative expenses, $109,000, or 13%.
Excluding the consolidation of Horizon, general and administrative expenses
increased $49,000, or 6%.
Depreciation, depletion and amortization increased $1.2 million, or 50% as a
result of the oil and gas properties acquired in the last half of 1994 and the
first quarter of 1995, and the consolidation of Horizon in the first quarter of
1995. The consolidation of Horizon increased depreciation, depletion and
amortization $396,000 or 17%. Excluding the consolidation of Horizon,
depreciation, depletion and amortization increased $780,000 or 33%, due in part
to the acquisition of oil properties in the first quarter of 1995 which have a
high depletion rate per BOE.
Interest expense increased by $463,000, or 137%, as a result of the increase in
the average outstanding advances under the Company's revolving credit facility
and an increase in interest rates.
Interest income increased $38,000, or 136%, due to interest earned on a $1.5
million required margin account balance associated with the Company's futures
transactions in the first half of 1995 and the consolidation of Horizon.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the first quarter of 1995, the Company recorded an unrealized mark-to-
market gain of $2.9 million on 20.0 Bcf of natural gas commodity contracts which
do not qualify as hedges. In the second quarter of 1995, the Company reversed
the $2.9 million mark-to-market gain and recorded a realized (or cash) loss of
$180,000 on 10.0 Bcf of the natural gas commodity contracts which expired or
which were cleared in the three months ended June 30, 1995. Additionally, a
mark-to-market unrealized loss of $338,000 was recorded at June 30, 1995 on
the remaining 10.0 Bcf. The effect of these commodity transactions on the
Company's financial statements was a second quarter loss of $3.4 million and a
year to date loss of $518,000, as reflected in the heading Loss on commodity
transactions, net. The cash effect of the remaining 10.0 Bcf will be realized in
the months when the contracts actually expire or when the positions are closed
out. The Company did not have any gains or losses in the comparable period of
1994.
Equity in earnings of unconsolidated affiliate was recorded in the second
quarter of 1994 due to the Company's investment in Horizon. Effective January 1,
1995, the Company began consolidating Horizon in the Company's consolidated
statements (see Note 2).
Six Months Ended June 30, 1995
Compared to Six Months Ended June 30, 1994
Oil and gas revenues increased $2.4 million, or 16%, during the six months ended
June 30, 1995 compared to 1994. This increase was due, in part, to a 36%
increase in crude oil sales volumes and a 40% increase in natural gas sales
volumes, while average sales prices received for crude oil increased by $2.15
per bbl, or 15%, and natural gas decreased by $.46 per Mcf, or 25%. The increase
in production is primarily related to the production from certain oil and gas
properties acquired through various acquisitions which were closed during the
last half of 1994 and the first quarter of 1995, and the consolidation of
Horizon in the first quarter of 1995. The consolidation of Horizon increased oil
and gas revenues by $2.1 million, or 14%. Excluding the consolidation of
Horizon, oil and gas revenues increased by $304,000 or 2%.
The Trading and transportation net margins decreased in the six month period
ended June 30, 1995 as compared to the six month period ended June 30, 1994 by
$73,000. The average sales price of gas sold in the six month period ended June
30, 1995 was $1.49, considerably lower than the average sales price of $2.00 in
the six month period ended June 30, 1994. The average cost of gas sold was
proportionately lower as well, with both the six months ended June 30, 1994 and
1995 yielding an average of three cents net margin per MMBTU. The quantity of
gas marketed increased in the six month period ended June 30, 1995 to 32.6 Bcf,
up from 29.3 Bcf in the six month period ended June 30, 1994. Natural gas
marketed for the Company amounted to 16% of the total gas sold by Tide West
Trading & Transport Company in the six month period ended June 30, 1995 and 14%
in the six month period ended June 30, 1994.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In order to reduce price fluctuation risk, Tide West Trading & Transport Company
hedges its position throughout each trading month. This hedging activity impacts
the Trading and transportation revenue reported. The six month period ended June
30, 1995 yielded a loss of $4,500, however, the six month period ended June 30,
1994 hedging activity yielded a gain of $180,820. The primary reason for the
decrease in net Trading and transportation margins for the six month period
ended June 30, 1995, when compared to the same period in 1994, was the hedging
gains reported in the six month period ended June 30, 1994.
Lease operating expenses increased $1.6 million, or 67%, for the first six
months of 1995 compared to the first six months of 1994. The increase in lease
operating expense is due to the property acquisitions added in the last half of
1994 and in the first quarter of 1995 and the consolidation of Horizon in the
first quarter of 1995. The consolidation of Horizon increased lease operating
expenses by $814,000, or 35%. Excluding the consolidation of Horizon, lease
operating expenses increased $751,000, or 32%.
Severance taxes increased $192,000, or 19%, as a result of a 16% increase in oil
and gas revenues.
General and administrative expenses, excluding compensation expense -- stock
options, increased $373,000 or 22%, for the first six months of 1995 compared to
the first six months of 1994, due primarily to the expansion of the Company's
developmental drilling and workover activities, the acquisition of oil and gas
properties during the last half of 1994 and the first quarter of 1995, and the
consolidation of Horizon in the first quarter of 1995. The consolidation of
Horizon increased general and administrative expenses $212,000, or 13%.
Excluding the consolidation of Horizon, general and administrative expenses
increased $161,000, or 9%.
Depreciation, depletion and amortization increased $2.3 million, or 49%, as a
result of the oil and gas properties acquired in the last half of 1994 and the
first quarter of 1995, and the consolidation of Horizon in the first quarter of
1995. The consolidation of Horizon increased depreciation, depletion and
amortization $932,000, or 20%. Excluding the consolidation of Horizon, depre-
ciation depletion and amortization increased $1.4 million, or 29%, due in part
to the acquisition of oil properties in the first quarter of 1995 which have a
high depletion rate per BOE.
Interest expense increased by $844,000, or 123%, as a result of the increase in
the average outstanding advances under the Company's revolving credit facility
and an increase in interest rates.
Interest income increased $74,000, or 151%, due to interest earned on a $1.5
million required margin account balance associated with the Company's futures
transactions in the first half of 1995 and the consolidation of Horizon.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Losses on commodity transactions were recorded in the amount $518,000 before
income taxes in the first half of 1995. These commodity transactions do not
qualify as hedges. In the first six months of 1995, the Company purchased 20.0
Bcf of natural gas, at an average NYMEX price of $1.70 per Mcf, for deliveries
from June 1995 through September 1996. During the first half of 1995, 10.0 Bcf
of the commodity transactions were cleared or expired. The positions which were
cleared or which expired resulted in a realized loss of $180,000 before tax. A
mark-to-market unrealized loss of $338,000 was recorded at June 30, 1995 on
the remaining 10.0 Bcf. The cash effect of the remaining 10.0 Bcf will be
realized in the months when the contracts actually expire or when the positions
are closed out. The Company has the potential to recognize significant gains or
losses as a result of these contracts. The Company did not have any unrealized
gains or losses in the comparable period in 1994.
Equity in earnings of unconsolidated affiliate was recorded in the first six
months of 1994 due to the Company's investment in Horizon. Effective January 1,
1995, the Company began consolidating Horizon in the Company's consolidated
statements (see Note 2).
Capital Resources and Liquidity
The Company intends to continue to expand its reserve base through acquisitions
of producing oil and gas properties. Sources of capital for such expansion
include internally generated cash flow and borrowing capacity under the
Company's revolving credit facility. At June 30, 1995, the Company had working
capital of $6.4 million, long-term debt of $44.9 million and stockholders'
equity was $70.5 million.
The Company's principal source of cash flow is the production and sale of its
crude oil and natural gas reserves, which are depleting assets. Cash flow from
oil and gas sales depends upon the quantity of production and the price obtained
for such production. An increase in prices permits the Company to finance its
operations to a greater extent with internally generated funds. A decline in
prices reduces the cash flow generated by operations, which in turn reduces the
funds available for servicing debt, acquiring additional properties and
exploring for and developing new reserves.
Net cash provided by operating activities was $9.0 million and $9.7 million for
the six months ended June 30, 1994 and 1995, respectively.
Capital Expenditures
The Company's ability to finance its oil and gas acquisitions is determined by
its cash flow from operations and sources of debt financing. The Company
anticipates capital expenditures during the remainder of 1995 of approximately
$32.0 million. The timing of most capital expenditures is discretionary since
the Company has no material long-term commitments. Thus, the Company
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
has flexibility to adjust expenditure levels as conditions warrant. The Company
primarily uses internally generated cash flow to fund capital expenditures
associated with development and enhancement of existing properties. In the event
the Company's internally generated cash flow should be otherwise insufficient to
meet its debt service or other obligations, the Company may reduce the level of
discretionary capital expenditures in order to meet such obligations. The level
of the Company's capital expenditures will vary in future periods, depending on
energy market conditions, potential return on investment and other related
economic factors. The Company believes that cash flow and available credit
capacity will be sufficient to fund budgeted capital expenditures and debt
service during the remainder of 1995.
Net cash used in investing activities was $6.6 million and $17.8 million for the
six month periods ended June 30, 1994 and 1995, respectively. The increase in
net cash used in investing activities for 1995 was primarily due to the
acquisition of oil and gas properties in the first quarter of 1995.
Of the $18.1 million in capital expenditures for the first half of 1995, $6.4
million was spent on development drilling and workover programs and $11.7
million on producing property acquisitions.
Financing Arrangements
Under the Company's bank facility, certain banks have provided the Company with
a revolving credit facility, which is secured by substantially all of the
Company's oil and gas assets, and is renewable on July 1 of each year. In the
event of non-renewal, the outstanding advances are converted to a three year
term loan. On a semi-annual basis, the banks redetermine the Company's
borrowing base based upon their review of the Company's oil and gas reserves. On
June 15, 1995, the Company renewed it's revolving facility and the Company's
borrowing base was increased from $58.0 million to $80.0 million.
Advances under the revolving credit facility bear interest, payable monthly, at
a floating rate based on the prime rate or, at the Company's option, at a fixed
rate for up to six months based on the Eurodollar market rate ("LIBOR"). The
Company's interest rate increments above prime or LIBOR vary based on the level
of outstanding advances and the borrowing base at the time. The average rate of
interest for the six months ended June 30, 1995 was 8.0%, due to the combination
of a fixed rate based upon LIBOR and the prime rate of interest (9.0% at June
30, 1995). In addition, the Company must pay a quarterly standby commitment fee
of 0.25% to 0.375% on the unused balance of the revolving credit commitment.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On April 10, 1995, the Company entered into an interest rate hedge whereby the
Company has a total of $30 million notional amount hedged for five years
beginning in 1995 and continuing through 1999, such notional amount includes the
$15.0 million notional amount hedged at December 31, 1994. The effective
interest rates on the Company's interest rate swaps are 7.9% for 1995, 8.9% for
1996 and 9% for 1997 through 1999. At June 30, 1995, the unused and available
portion of the revolving commitment under the Company's bank credit facility was
$35.1 million. The unused portion of the Company's revolving credit facility
provides liquidity to finance future acquisitions. As acquisitions are made and
properties are added to the Company's borrowing base, the banks' determination
of the borrowing base may be increased. The Company expects that cash flow from
operations which is not utilized for capital expenditures will be used to reduce
indebtedness.
The Company's wholly-owned subsidiary, Tide West Trading & Transport Company,
has a $5.0 million letter of credit facility, $4.55 million of which was
available at June 30, 1995.
Net cash (used in) provided by financing activities was $(2.4) million and $11.5
million for the six month periods ended June 30, 1994 and 1995, respectively.
The cash financing activities for the six months ended June 30, 1994 consisted
primarily of a $2.4 million reduction in long-term debt, compared with a $12.6
million net increase in long-term debt for the comparable period in 1995. The
increase in net cash provided by financing activities in the first half of 1995
was primarily due to the acquisitions of oil and gas properties.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, see the Company's Form
10-K for the fiscal year ended December 31, 1994.
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
The annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on May 2, 1995, in Tulsa, Oklahoma. At the Annual
Meeting, the stockholders of the Company elected Philip B. Smith,
Robert H. Mase, Douglas J. Flint, R. Gamble Baldwin, David R. Albin,
Kenneth A. Hersh, and Robert A. Curry as directors of the Company for
one-year terms. The stockholders also considered and approved the
appointment of Deloitte & Touche LLP as independent auditor of the
Company for the fiscal year ending December 31, 1995.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 9,238,873 shares of the common stock of the
Company, or 93.3% of the total stock outstanding and entitled to vote
at the Annual Meeting. The table below describes the results of voting
at the Annual Meeting:
AGAINST BROKER
OR NON-
FOR WITHHELD ABSTAINED VOTES
----- -------- --------- -----
1. Election of Directors:
Philip B. Smith 9,215,379 23,494 -- --
Robert H. Mase 9,215,491 23,382 -- --
Douglas J. Flint 9,214,991 23,882 -- --
R. Gamble Baldwin 9,149,191 40,682 -- --
David R. Albin 9,215,389 23,484 -- --
Kenneth A. Hersh 9,215,291 23,582 -- --
Robert A. Curry 9,215,389 23,484 -- --
18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (Continued)
2. Ratification of Deloitte & Touche LLP as independent auditor of the Company
for fiscal 1995:
AGAINST BROKER
OR NON-
FOR WITHHELD ABSTAINED VOTES
-------- -------- ---------- -----
9,234,425 2,789 1,659 --
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Second Amended and Restated Credit Agreement dated as of
June 15, 1995, among Tide West Oil Company, as borrower,
Union Bank, Texas Commerce Bank, Den Norske Bank AS and
Colorado National Bank, as lenders, and Union Bank, as
Agent.
10.2 Fourth Amendment to Credit Agreement dated April 17,
1995, among Tide West Trading & Transport Company, as
borrower, Union Bank, Den Norske Bank AS and Colorado
National Bank, as lenders, and Union Bank, as Agent.
10.3 Third Amendment to Credit Agreement dated March 17,
1995, among Tide West Trading & Transport Company, as
borrower, Union Bank, Den Norske Bank AS and Colorado
National Bank, as lenders, and Union Bank, as Agent.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
19
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.
TIDE WEST OIL COMPANY
---------------------
Registrant
By: /S/ Peggy E. Gwartney
----------------------------
Peggy E. Gwartney
Chief Financial Officer and
Treasurer (Duly Authorized Officer and
Principal Accounting Officer)
Date: August 11, 1995
20
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Sequentially
Numbered
Page
--------------
10.1 Second Amended and Restated Credit Agreement
dated as of June 15, 1995 among Tide West Oil
Company, as borrower, Union Bank, Texas
Commerce Bank, Den Norske Bank AS and
Colorado National Bank as lenders, and Union
Bank, as Agent.
10.2 Fourth Amendment to Credit Agreement dated as
of April 17, 1995, among Tide West Trading &
Transport Company, as borrower, Union Bank,
Den Norske Bank AS and Colorado National
Bank, as lenders, and Union Bank, as Agent.
10.3 Third Amendment to Credit Agreement dated as
of March 17, 1995, among Tide West Trading &
Transport Company, as borrower, Union Bank,
Den Norske Bank AS and Colorado National
Bank, as lenders, and Union Bank, as Agent.
27.0 Financial Data Schedule