SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
------ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 10, 1995, 9,839,428 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 September 30, 1995
Consolidated Statements of Income 4
(Unaudited) -Three months and nine months
ended September 30, 1994 and 1995
Consolidated Statements of Cash Flows 5
(Unaudited) - Nine months ended September 30, 1994 and 1995
Notes to Consolidated Financial Statements 6-10
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 11-16
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings 17
Item 2. Changes in securities 17
Item 3. Defaults upon senior securities 17
Item 4. Submission of matters to a vote of security-holders 17
Item 5. Other information 17
Item 6. Exhibits and reports on Form 8-K 17
Signatures 18
2
Part I. Financial Information
Item 1. Financial Statements
Tide West Oil Company
Consolidated Balance Sheets
(UNAUDITED)
December 31, September 30,
(In thousands, except shares and per share amounts) 1994 1995
- --------------------------------------------------- ------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ --- $1,752
Short-term investments, at cost --- 2,492
Accounts receivable:
Revenues 14,977 15,272
Other 2,960 3,626
Other current assets 1,753 1,812
-------- --------
Total current assets 19,690 24,954
Property and Equipment:
Oil and gas properties (successful efforts method) 110,948 144,126
Other property and equipment 1,619 1,702
-------- --------
112,567 145,828
Accumulated depreciation, depletion and amortization (20,350) (30,476)
-------- --------
Property and equipment, net 92,217 115,352
Investments 12,064 995
Other Assets, Net 349 307
-------- --------
$124,320 $141,608
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Gas purchases $9,652 $8,882
Other 2,706 3,219
Revenues payable 3,604 2,846
Accrued liabilities 736 910
-------- --------
Total current liabilities 16,698 15,857
Long-term Debt 32,300 46,265
Deferred Income Taxes 4,863 7,402
Minority Interest --- 14
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 9,839,428 shares issued and outstanding
at December 31 and September 30, 1995 99 100
Additional paid-in capital 60,685 60,764
Treasury stock (2,033)
Retained earnings 9,675 13,239
-------- --------
Total stockholders' equity 70,459 72,070
-------- --------
$124,320 $141,608
======== ========
See notes to the unaudited consolidated financial statements.
3
Tide West Oil Company
Consolidated Statements of Income
(UNAUDITED)
Three months Three months Nine months Nine months
ended ended ended ended
(In thousands except per share amounts) September 30, 1994 September 30, 1995 September 30, 1994 September 30, 1995
- --------------------------------------- ------------------ ------------------ ------------------ ------------------
Revenues:
Oil and gas $7,598 $8,719 $22,621 $26,124
Trading and transportation 18,010 19,076 68,414 59,864
------ ------ ------ ------
Total revenues 25,608 27,795 91,035 85,988
Expenses:
Lease operating 1,144 1,865 3,482 5,768
Severance taxes 520 584 1,531 1,788
Dryhole cost 59 --- 59 9
Trading and transportation 17,715 18,475 67,058 58,276
General and administrative:
Oil and gas 779 767 2,190 2,521
Trading and transportation 156 105 418 396
Compensation expense - stock options 45 45 135 135
Depreciation, depletion and amortizatation 2,944 1,509 7,759 8,653
------ ------ ------ ------
Total expenses 23,362 23,350 82,632 77,546
------ ------ ------ ------
Operating Income 2,246 4,445 8,403 8,442
------ ------ ------ ------
Other Income (Expense):
Interest income 22 75 70 197
Interest expense (506) (862) (1,191) (2,391)
Gain (loss) on sale of assets 38 62 125 (42)
Equity in earnings (loss) of
unconsolidated affiliates (71) --- 75 ---
Gain (loss) on commodities
transactions, net --- 131 --- (386)
Minority Interest --- (14) --- (7)
Other income (expense) (41) 16 (22) (113)
------ ------ ------ ------
Total other income (expense) (558) (592) (943) (2,742)
Income before income taxes 1,688 3,853 7,460 5,700
Provision for income taxes 605 1,422 2,753 2,159
------ ------ ------ ------
Net Income $1,083 $2,431 $4,707 $3,541
------ ------ ------ ------
Weighted Average Common Shares Outstanding 9,902 9,863 9,902 9,922
Net Income Per Common Share $0.11 $0.25 $0.48 $0.36
------ ------ ------ ------
See notes to the unaudited consolidated financial statements.
4
Tide West Oil Company
Consolidated Statements of Cash Flows
(UNAUDITED)
Nine months Nine months
ended ended
(In thousands) September 30, 1994 September 30, 1995
------------------ ------------------
Operating Activities:
Net Income $4,707 $3,541
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 7,759 8,653
(Gain) loss from sale of assets (125) 42
Dryhole cost 59 9
Equity in earnings of unconsolidated affiliate (75) --
Minority interest of consolidated interest -- 14
Loss on commodity transactions, net -- 386
Changes in operating assets and liabilities:
Decrease in accounts receivable 4,607 1,484
Increase in income tax receivable (740) (380)
Increase in other current assets (831) (36)
Decrease (increase) in other assets (63) 24
Decrease in income taxes payable (96) --
Decrease in accounts and revenues payable
and accrued liabilities (2,899) (3,375)
Increase in deferred income taxes 1,761 2,539
------- -------
Total adjustments 9,357 9,360
------- -------
Net cash provided by operating activities 14,064 12,901
Investing Activities:
Capital expenditures (24,623) (23,957)
Proceeds from sale of assets 638 2,806
Purchase of short-term investments -- (2,492)
Payment on note receivable 101 168
Investment in partnership (3,300) --
------- -------
Net cash used in investing activities (27,184) (23,475)
Financing Activities:
Borrowings of long-term debt 25,800 38,839
Principal payments on long-term debt (12,400) (24,874)
Exercise of stock options -- 15
Payment on note receivable - officer 17 15
Purchases of treasury stock -- (2,033)
------- -------
Net cash provided by financing activities 13,417 11,962
Net Increase in Cash and Cash Equivalents 297 1,388
Cash and Cash Equivalents, Beginning of Period 72 364
------- -------
Cash and Cash Equivalents, End of Period $369 $1,752
======= =======
See notes to the unaudited consolidated financial statements.
5
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 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 was 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 September 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 NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 30, 1994 and 1995, cash payments for
interest totaled $1.2 million and $2.6 million, respectively, of which $235,000
was capitalized for the nine months ended September 30, 1995. No interest was
capitalized during 1994. Cash payments for income taxes totaled $1.8 million
and $38,000 for the nine months ended September 30, 1994 and 1995,
respectively. The Company's total income tax liability for 1994 was $835,000,
resulting in a refund of overpaid tax in October 1995.
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 the 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 NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
Note 2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Depreciation, Depletion, and Amortization
- -----------------------------------------
During the third quarter of 1995 the Company changed from the
property-by-property basis to the field basis of applying the unit-
of-production method to calculate depreciation, depletion and
amortization ("DD&A") on producing oil and gas property. The field
basis provides a better matching of expenses with revenues over the
productive life of the properties, and, therefore, the Company
believes the new method is preferable to the property-by-property
basis. The effect of the accounting change was not material and prior
interim periods were not restated. There was no material cumulative
effect related to this change in computing DD&A at January 1, 1995.
The Company's proved reserves at September 30, 1995 were 7.2 million
barrels of oil and 253 billion cubic feet of gas, up 3.9 million
barrels of oil and 73 billion cubic feet of gas over proved reserves
at year-end 1994. At September 30, 1995, 6.0 million barrels of oil
and 186 billion cubic feet of natural gas were proved developed
reserves.
Due to the revision of reserve estimates, DD&A expense for 1995 was
recomputed based upon the revised reserves and depreciation expense
and accumulated depreciation, depletion and amortization was reduced
by $1.1 million during the three months ended September 30, 1995,
increasing net income by $725,000 and increasing earnings per share by
seven cents in the quarter ended September 30, 1995.
Depreciation, depletion and amortization per equivalent barrel of
production from the Company's oil and gas properties for the nine
months ended September 30, 1994 and 1995, was $3.95 and $3.26,
respectively.
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 nine months of 1995, the Company repurchased 213,800 shares of
its outstanding common stock on the open market for an aggregate price of
approximately $2.0 million. The cost of these shares is reflected as Treasury
stock. On September 11, 1995, 2,000 employee stock options were exercised at
$8.125 per share. 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
8
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
Note 3. Earnings per Share (continued)
------------------------------
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, short-term
investments, 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 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) September 30, 1995
- -------------- ------------------
Carrying Fair
Amount Value
-------- -----
Off-Balance Sheet Financial Instruments -
Unrealized Losses:
Interest rate swap agreements $ ---- $( 1,157)
Commodity contracts ( 155) ( 155)
In the first nine months of 1995, losses on commodity transactions were recorded
in the amount $386,000 before income taxes, of which $232,000 has been realized.
These commodity transactions do not qualify as hedges. The cash effect of the
remaining 10.0 Bcf natural gas commodity contracts, at a price of $1.81 from
December 1995 through September 1996, will be realized in the months when the
contracts 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.
9
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
Note 5. Accounting For Long-Lived Assets
--------------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("FAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". Effective for fiscal years beginning
after December 15, 1995, FAS 121 attempts to standardize methods used
to determine whether the costs of long-lived assets will be recovered,
and how such cost should be tested for value impairment. The
Company has not determined the effect of this pronouncement, if any,
on its consolidated financial statements.
Note 6. Subsequent Event
----------------
On October 18, 1995, the Company entered into an arrangement under which
the Company has engaged Merrill Lynch & Co. ("Merrill Lynch") as financial
advisor with respect to the sale of the Company. Merrill Lynch will assist the
Company in identifying purchasers for the Company and in analyzing, structuring,
negotiating and effecting proposed business combinations. Merrill Lynch's
engagement as financial advisor may be terminated by either the Company or
Merrill Lynch at any time after February 1, 1997.
10
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 Nine Months Ended
------------------ -----------------
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1994 1995(1) 1994 1995 (1)
---- ------- ---- --------
Net Sales Volumes:
Oil (MBbls) 86 153 276 412
Natural gas (MMcf) 3,820 4,616 10,118 13,439
Oil equivalent (MBOE) 722 922 1,963 2,652
Average Sales Prices:
Oil (per Bbl) $16.86 $16.18 $ 15.29 16.52
Natural gas (per Mcf)(2) 1.52 1.30 1.74 1.37
Operating Expenses per BOE
of Net Sales:
Lease operating $ 1.58 $ 2.02 $ 1.77 2.18
Severance tax .72 .63 .78 .67
General and
administrative(3) 1.29 .95 1.33 1.10
- -----------------
(1)Amounts for the three months and nine months ended September 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 SEC price based valuation 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.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the period from October 1989 through September 30, 1995, the Company
completed 52 property acquisitions for a total expenditure of approximately
$129.0 million. At September 30, 1995, the Company's proved reserves were 7.2
million barrels of oil and 253 billion cubic feet of gas, up 3.9 million barrels
of oil and 73 billion cubic feet of gas over proved reserves at year-end 1994.
The Company's equivalent reserves increased 210% in 1992, 63% in 1993, 22% in
1994, and 48% for the nine months ended September 30, 1995, while production and
oil and gas 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 September 30, 1995
Compared to Three Months Ended September 30, 1994
Oil and gas revenues increased $1.1 million, or 15%, during the three months
ended September 30, 1995 compared to the same period in 1994. Crude oil sales
volumes increased a total of 78% in the third quarter of 1995 as compared to the
same period in 1994. Excluding the consolidation of Horizon, crude oil sales
volumes increased 65% as a result of oil and gas property acquisitions and
increased drilling activity in the first half of 1995. Natural gas sales
volumes increased 21%, while average sales prices received for natural gas
decreased by $0.22 per Mcf, or 14%, in the comparable three month period. There
was no significant decrease in the sales price received for oil. The
consolidation of Horizon, in 1995, increased oil and gas revenues by 11%.
Excluding the consolidation of Horizon, the increase in crude oil and natural
gas sales volumes, offset by a decrease in natural gas prices, increased oil and
gas revenues 4% in the third quarter of 1995 as compared to the third quarter of
1994.
The Trading and transportation net margins increased by $306,000 in the third
quarter of 1995 as compared to the same period in 1994. The quantity of gas
marketed increased to 16.4 Bcf in the third quarter of 1995 from 13.4 Bcf in the
third quarter of 1994. Net margins per MMBTU increased to four cents from three
cents per MMBTU in the third quarter of 1995 compared to 1994. Natural gas
marketed for the Company amounted to 21% of the total gas sold by Tide West
Trading & Transport Company in both the third quarters of 1994 and 1995.
In order to reduce price fluctuation risk, Tide West Trading & Transport Company
hedges its position throughout each trading month. The third quarter of 1995
hedging activity yielded a loss of $12,730 compared to a loss of $87,455 in the
third quarter of 1994.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Lease operating expenses increased $721,000, or 63%, for the third quarter of
1995 compared to the third quarter of 1994. The increase in lease operating
expense is due to the property acquisitions, development wells drilled and the
consolidation of Horizon in 1995. The consolidation of Horizon increased lease
operating expenses by $449,000, or 39%. Excluding the consolidation of Horizon,
lease operating expenses increased by $272,000, or 24%.
Severance taxes increased $64,000, or 12%, as a result of a 15% increase in oil
and gas revenues.
Depreciation, depletion and amortization decreased $1.4 million, or 49%,
primarily as a result of the revisions to the beginning of the year estimated
reserves. The consolidation of Horizon increased depreciation, depletion and
amortization $339,000, or 11%. Excluding the consolidation of Horizon,
depreciation, depletion and amortization decreased $1.8 million, or 60%,
primarily due to the revision of estimated reserves (see Note 2 to the Notes to
the Consolidated Financial Statements).
Interest expense increased by $356,000, or 70%, 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 $53,000, or 241%, due to short-term investments and
the consolidation of Horizon in 1995.
Equity in earnings of unconsolidated affiliate was recorded in the third quarter
of 1994 from the Company's investment in Horizon. Effective January 1, 1995,
the Company began consolidating Horizon in its consolidated financial statements
(see Note 2 to the Notes to the Consolidated Financial Statements).
Nine Months Ended September 30, 1995
Compared to Nine Months Ended September 30, 1994
Oil and gas revenues increased $3.5 million, or 15%, during the nine months
ended September 30, 1995 compared to the same period in 1994. This increase was
due to a 49% increase in crude oil sales volumes and a 33% increase in natural
gas sales volumes, while average sales prices received for crude oil increased
by $1.23 per Bbl, or 8%, and natural gas decreased by $.37 per Mcf, or 21%.
Excluding the consolidation of Horizon, crude oil sales volumes increased 31%
and natural gas sales volumes increased 17% due to the oil and gas property
acquisitions and increased drilling activity in the first half of 1995. The
consolidation of Horizon, in 1995, increased oil and gas revenues by 13%.
Excluding the consolidation of Horizon, the increase in crude oil and natural
gas sales volumes, offset by a net decrease in oil and natural gas prices,
increased oil and gas revenues 2% in the nine months ended September 30, 1995
compared to 1994.
The Trading and transportation net margins increased by $233,000 in the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. The quantity of gas marketed in the first nine months of 1995
increased to 49 Bcf, up from 42.7 Bcf during the same period of 1994. Net
margins per MMBTU were slightly higher at 3.4 cents per MMBTU for the first nine
months of 1995, compared
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to 3.3 cents per MMBTU for the same period in 1994, despite the decrease in
average sales prices to $1.48 during the first nine months of 1995, down from
$1.90 during the same period in 1994. Natural gas marketed for the Company
amounted to 18% of the total gas sold by Tide West Trading & Transport Company
in the nine months ended September 30, 1995 and 16% in the nine months ended
September 30, 1994.
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 nine months ended
September 30, 1995 yielded a loss of $17,000, however, the nine months ended
September 30, 1994 hedging activity yielded a gain of $49,000.
Lease operating expenses increased $2.3 million, or 66%, for the first nine
months of 1995 compared to the first nine months of 1994. The increase in lease
operating expense is due to the property acquisitions completed in the first
half of 1995, the development wells drilled in 1995, and the consolidation of
Horizon in 1995. The consolidation of Horizon increased lease operating
expenses by $1.3 million, or 37%. Excluding the consolidation of Horizon, lease
operating expenses increased $1.0 million, or 29%.
Severance taxes increased $257,000, or 17%, as a result of a 15% increase in
oil and gas revenues.
General and administrative expenses, excluding compensation expense - stock
options, increased $309,000, or 12%, for the first nine months of 1995 compared
to the first nine months of 1994, due primarily to the consolidation of Horizon
in 1995. The consolidation of Horizon increased general and administrative
expenses $322,000, or 12%.
Depreciation, depletion and amortization increased $894,000, or 12%, primarily
as a result of the consolidation of Horizon, offset by the decrease due to the
revision of the beginning of the year reserves. The consolidation of Horizon
increased depreciation, depletion and amortization $1.3 million, or 17%.
Excluding the consolidation of Horizon, depreciation depletion and amortization
decreased $378,000, or 5%.
Interest expense increased by $1.2 million, or 101%, 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 $127,000, or 181%, due to interest earned on short-
term investments and the consolidation of Horizon.
In the first nine months of 1995, losses on commodity transactions were recorded
in the amount $386,000 before income tax, of which $232,000 has been realized.
These commodity transactions do not qualify as hedges. The cash effect of the
remaining 10.0 Bcf natural gas commodity contracts, at a price of $1.81 from
December 1995 through September 1996, will be realized in the months when the
contracts 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.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Equity in earnings of unconsolidated affiliate was recorded in the first nine
months of 1994 from the Company's investment in Horizon. Effective January 1,
1995, the Company began consolidating Horizon in the Company's consolidated
statements (see Note 2 to the Notes to the Consolidated Financial Statements).
Capital Resources and Liquidity
The Company expands its reserve base through acquisitions of producing oil and
gas properties, development drilling and workover programs. Sources of capital
for such expansion include internally generated cash flow and borrowing capacity
under the Company's revolving credit facility. At September 30, 1995, the
Company had working capital of $9.1 million, long-term debt of $46.3 million
and stockholders' equity was $72.1 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 $14.1 million and $12.9 million
for the nine months ended September 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
$3.0 million. The timing of most capital expenditures is discretionary since
the Company has no material long-term commitments. Thus, the Company 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 capital
expenditures and debt service during the remainder of 1995.
Net cash used in investing activities was $27.2 million and $23.5 million for
the nine months ended September 30, 1994 and 1995, respectively. Of the $24.0
million in capital expenditures for the first nine months of 1995, $12.1 million
was spent on development drilling and workover programs and $11.9 million on
producing property acquisitions.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Arrangements
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 its
revolving credit 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 nine months ended
September 30, 1995 was 8.0%, due to the combination of a fixed rate based upon
LIBOR and the prime rate of interest (8.75% at September 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.
At September 30, 1995, the unused and available portion of the revolving
commitment under the Company's revolving credit facility was $33.7 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 oil and gas reserves, 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 has a total of $40 million notional amount hedged through interest
rate swaps for five years beginning in 1995 and continuing through 1999. The
effective interest rates on the Company's interest rate swaps are 7.9% for 1995,
8.7% for 1996 and 8.8% for 1997 through 1999.
Net cash provided by financing activities was $13.4 million and $12.0 million
for the nine months ended September 30, 1994 and 1995, respectively. The cash
provided by financing activities for the nine months ended September 30, 1994
consisted primarily of a $13.4 million increase in long-term debt, compared with
a $14.0 million net increase in long-term debt, offset by $2.0 million treasury
stock purchases for the comparable period in 1995.
Recent Developments
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On October 18, 1995, the Company entered into an arrangement under which the
Company has engaged Merrill Lynch & Co. ("Merrill Lynch") as financial advisor
with respect to the sale of the Company. Merrill Lynch will assist the Company
in identifying purchasers for the Company and in analyzing, structuring,
negotiating and effecting proposed business combinations. Merrill Lynch's
engagement as financial advisor may be terminated by either the Company or
Merrill Lynch at any time after February 1, 1997.
16
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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
17
SIGNATURES
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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: November 13, 1995
18
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
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27.0 Financial Data Schedule