1
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 March 31, 1996
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 Number 1-12480
LOUIS DREYFUS NATURAL GAS CORP.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1098614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14000 QUAIL SPRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (405) 749-1300
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
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 .
----- -----
27,800,000 shares of common stock, $.01 par value, issued and outstanding at
May 7, 1996.
2
LOUIS DREYFUS NATURAL GAS CORP.
Table of Contents
PART I. FINANCIAL INFORMATION Page
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets:
December 31, 1995 and March 31, 1996 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income:
Three months ended March 31, 1995 and 1996 . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows:
Three months ended March 31, 1995 and 1996 . . . . . . . . . . . . . 6
Condensed Notes to Consolidated Financial Statements . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 22
3
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
A S S E T S
December 31, March 31,
1995 1996
----------- -----------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . $ 1,584 $ 9,731
Receivables:
Oil and gas sales . . . . . . . . . . . . . . . . 23,443 23,515
Joint interest and other. . . . . . . . . . . . . 5,300 2,199
Deposits . . . . . . . . . . . . . . . . . . . . . 3,900 4,157
Inventory and other. . . . . . . . . . . . . . . . 3,095 2,724
----------- -----------
Total current assets. . . . . . . . . . . . . . . 37,322 42,326
----------- -----------
PROPERTY AND EQUIPMENT, at cost, based on
successful efforts accounting . . . . . . . . . . 778,348 800,489
Less accumulated depreciation, depletion,
amortization and impairment . . . . . . . . . . . (188,495) (202,911)
----------- -----------
589,853 597,578
----------- -----------
OTHER ASSETS, net. . . . . . . . . . . . . . . . . 7,762 7,417
----------- -----------
$ 634,937 $ 647,321
=========== ===========
4
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED BALANCE SHEETS (continued)
(dollars in thousands)
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
December 31, March 31,
1995 1996
----------- -----------
(unaudited)
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . $ 21,458 $ 18,509
Accrued liabilities. . . . . . . . . . . . . . . . 7,912 10,124
Revenues payable . . . . . . . . . . . . . . . . . 4,687 4,507
----------- -----------
Total current liabilities . . . . . . . . . . . . 34,057 33,140
SENIOR DEBT. . . . . . . . . . . . . . . . . . . . 216,000 227,300
SUBORDINATED DEBT. . . . . . . . . . . . . . . . . 98,760 98,797
DEFERRED REVENUE . . . . . . . . . . . . . . . . . 25,627 24,603
OTHER LONG-TERM LIABILITIES. . . . . . . . . . . . 4,285 4,151
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 13,627 14,497
----------- -----------
392,356 402,488
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01; 10 million
shares authorized; no shares outstanding. . . . . -- --
Common stock, par value $.01; 100 million
shares authorized; 27,800,000 shares
issued and outstanding. . . . . . . . . . . . . . 278 278
Additional paid-in capital . . . . . . . . . . . . 197,291 197,291
Retained earnings. . . . . . . . . . . . . . . . . 45,012 47,264
----------- -----------
242,581 244,833
----------- -----------
$ 634,937 $ 647,321
=========== ===========
See accompanying notes to consolidated financial statements.
5
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
------------------
1995 1996
-------- --------
REVENUES
Oil and gas sales . . . . . . . . . . . . . . . . . . . $ 38,360 $ 39,184
Other income. . . . . . . . . . . . . . . . . . . . . . 1,050 666
-------- --------
39,410 39,850
-------- --------
EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . . . 8,275 10,440
General and administrative. . . . . . . . . . . . . . . 4,276 4,253
Depreciation, depletion, amortization
and impairment . . . . . . . . . . . . . . . . . . . . 13,413 15,063
Interest. . . . . . . . . . . . . . . . . . . . . . . . 4,783 6,732
-------- --------
30,747 36,488
-------- --------
Income before income taxes. . . . . . . . . . . . . . . 8,663 3,362
Income taxes. . . . . . . . . . . . . . . . . . . . . . 2,859 1,110
-------- --------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 5,804 $ 2,252
======== ========
Net income per share. . . . . . . . . . . . . . . . . . $ .21 $ .08
======== ========
Weighted average common shares outstanding. . . . . . . 27,800 27,800
======== ========
See accompanying notes to consolidated financial statements.
6
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Three Months Ended
March 31,
----------------------
1995 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,804 $ 2,252
Items not affecting cash flows:
Depreciation, depletion, amortization
and impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . 14,020 15,063
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 2,339 870
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 35
--------- ---------
22,174 18,220
Net change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . (1,369) 3,029
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 (257)
Inventory and other . . . . . . . . . . . . . . . . . . . . . . . . (166) 371
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . (2,907) (2,949)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . (12) 2,212
Revenues payable. . . . . . . . . . . . . . . . . . . . . . . . . . (787) (180)
--------- ---------
17,154 20,446
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property and equipment. . . . . . . . . . . . . . . (12,098) (22,479)
Proceeds from sale of property and equipment . . . . . . . . . . . . 11,495 39
--------- ---------
(603) (22,440)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term bank borrowings. . . . . . . . . . . . . . . 20,500 47,505
Repayments of long-term bank borrowings. . . . . . . . . . . . . . . (36,500) (36,205)
Change in deferred revenue . . . . . . . . . . . . . . . . . . . . . (323) (1,024)
Change in other long-term liabilities. . . . . . . . . . . . . . . . (100) (135)
--------- ---------
(16,423) 10,141
--------- ---------
Change in cash and cash equivalents. . . . . . . . . . . . . . . . . 128 8,147
Cash and cash equivalents, beginning of period . . . . . . . . . . . 2,980 1,584
--------- ---------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . $ 3,108 $ 9,731
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,861 $ 3,542
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 --
--------- ---------
$ 4,361 $ 3,542
========= =========
See accompanying notes to consolidated financial statements.
7
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1996
NOTE 1 -- ACCOUNTING PRINCIPLES AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q as prescribed by the
Securities and Exchange Commission. All material adjustments, consisting of
only normal and recurring adjustments, which, in the opinion of Management,
were necessary for a fair presentation of the results for the interim periods
have been reflected. The results of operations for the three-month period
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year. Certain reclassifications have been made to the
prior year statements to conform with the current year presentation.
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 for an expanded discussion of the Company's financial
disclosures and accounting policies.
NOTE 2 -- OIL AND GAS PROPERTY ACQUISITION
On April 4, 1996, the Company purchased certain producing oil and gas
properties and associated leasehold acreage from Coastal Oil and Gas Company
for $29.9 million. The properties consist of approximately 60 Bcfe of proved
reserves attributable to approximately 800 producing wells located primarily
in Oklahoma. Such properties were producing at closing approximately 12 MMcf
of gas and 375 Bbls of oil per day net to the interest acquired by the
Company. The acquisition will be accounted for as a purchase; accordingly,
the results of operations relating to this acquisition will be included in the
Company's financial results for the periods subsequent to closing.
NOTE 3 -- FIXED-PRICE CONTRACTS
The Company entered into two long-term, fixed-price contracts to hedge a
portion of the production from the properties acquired from Coastal Oil and
Gas Company. The first contract is a ten-year, 20-Bcf natural gas swap with
Duke/Louis Dreyfus L.L.C., an affiliate, which commences June 1997. The fixed
prices in this contract range from $2.05 to $2.51 per MMBtu. The second
contract, which was entered into with an unrelated third party, is a
five-year, 9-Bcf natural gas swap that provides an average fixed price of
$2.10 per MMBtu. This contract also commences June 1997.
8
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
General. The Company was acquired by S.A. Louis Dreyfus et Cie in July 1990
for the purpose of engaging in oil and gas acquisition, development,
production and marketing activities in North America. Since that date, the
Company's oil and gas reserves and production have grown significantly as the
result of a number of proved reserve acquisitions. Each acquisition has been
accounted for as a purchase; accordingly, the results of operations relating
to each acquisition have been included in the Company's financial results for
the periods subsequent to the closing of each transaction. In November 1993,
the Company completed an initial public offering of 7.8 million shares of
common stock, reducing S.A. Louis Dreyfus et Cie's ownership to 72%. As of
March 31, 1996, S.A. Louis Dreyfus et Cie's ownership in the Company was
approximately 74%.
The Company manages the risk associated with fluctuations in the price of
natural gas and, to a lesser extent, oil primarily through fixed-price
contracts, which include both long-term physical delivery contracts and energy
swaps (collectively, "Fixed-Price Contracts"). For the three-month periods
ended March 31, 1995 and 1996, Fixed-Price Contracts hedged 95% and 57%,
respectively, of the Company's natural gas production not otherwise subject to
fixed prices, and 97% and 63%, respectively, of the Company's oil production
for such periods. Moreover, the Company's Fixed-Price Contracts hedge 366 Bcf
of natural gas and 809 MBbls of oil to be produced in future periods. See
"Fixed-Price Contracts."
Forward-Looking Statements. Forward-looking statements for 1996 and for
later periods are made in various places in this discussion, which include all
statements other than purely historical information. Such statements
represent the estimates of Management based on the Company's historical
operating trends, its proved reserves position as of December 31, 1995, its
Fixed-Price Contract position as of March 31, 1996 and other information
available to management. See "Estimates for Fiscal Year 1996" for a
discussion of the risks, uncertainties and other important factors which could
cause actual results to differ materially from those projected in such
statements.
Certain Definitions. As used herein, the abbreviations listed below are
defined as follows.
CERTAIN DEFINITIONS
Bbl. 42 U.S. gallons, the basic unit for measuring crude oil and natural
gas condensate.
Bcf. Volume of one billion cubic feet.
Bcfe. Bcf equivalent, determined using the ratio of one Bbl of oil or
condensate to six Mcf of natural gas.
9
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
CERTAIN DEFINITIONS (continued)
BBtu. One billion Btus.
Btu. British thermal unit, which is the quantity of heat required to raise
the temperature of a one-pound mass of water from 58.5 to 59.5
degrees Fahrenheit.
MBbls. Volume of one thousand barrels.
Mcf. Volume of one thousand cubic feet, the basic unit for measuring
natural gas.
Mcfe. Mcf equivalent, determined using the ratio of one Bbl of oil or
condensate to six Mcf of natural gas.
MMBbls. Volume of one million barrels.
MMcf. Volume of one million cubic feet.
MMcfe. MMcf equivalent, determined using the ratio of one Bbl of oil or
condensate to six Mcf of natural gas.
Selected Operating Data. The following table provides certain operating data
relating to the Company's operations.
SELECTED OPERATING DATA
Three Months Ended
March 31,
--------------------
1995 1996
-------- --------
Oil and Gas Sales: (M$)
Wellhead oil sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,228 $ 8,297
Effect of Fixed-Price Contracts. . . . . . . . . . . . . . . . . . . . 508 (198)
-------- --------
Total oil sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,736 $ 8,099
======== ========
Wellhead natural gas sales:
Sales under Sonora Gas Contract . . . . . . . . . . . . . . . . . . . . $ 10,952 $ --
Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,998 29,692
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,950 29,692
Effect of Fixed-Price Contracts (1) . . . . . . . . . . . . . . . . . . . 7,674 1,393
-------- --------
Total natural gas sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,624 $ 31,085
======== ========
10
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
SELECTED OPERATING DATA, CONTINUED
Three Months Ended
March 31,
--------------------
1995 1996
-------- --------
Production:
Oil production (MBbls). . . . . . . . . . . . . . . . . . . . . . . . . . 427 449
Natural gas production (MMcf):
Sold under Sonora Gas Contract. . . . . . . . . . . . . . . . . . . . . 2,825 --
Other production. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,340 14,580
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,165 14,580
======== ========
Net equivalent production (MMcfe) . . . . . . . . . . . . . . . . . . . . 13,727 17,273
Average Sales Price:
Oil (per Bbl):
Wellhead price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16.93 $ 18.49
Effect of Fixed-Price Contracts . . . . . . . . . . . . . . . . . . . . 1.19 (.44)
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18.12 $ 18.05
======== ========
Average fixed price received under Fixed-Price Contracts. . . . . . . . $ 19.58 $ 19.22
Net effective realization (2) . . . . . . . . . . . . . . . . . . . . . 93% 94%
Natural gas (per Mcf):
Sales under Sonora Gas Contract . . . . . . . . . . . . . . . . . . . . $ 3.88 $ --
Other wellhead sales. . . . . . . . . . . . . . . . . . . . . . . . . . 1.44 2.03
-------- --------
Average price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.06 2.03
Effect of Fixed-Price Contracts (1) . . . . . . . . . . . . . . . . . . .68 .10
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.74 $ 2.13
======== ========
Average fixed price received under Fixed-Price Contracts. . . . . . . . $ 2.54 $ 2.32
Net effective realization (2) . . . . . . . . . . . . . . . . . . . . . 98% 95%
Equivalent price (per Mcfe) . . . . . . . . . . . . . . . . . . . . . . . $ 2.79 $ 2.27
Expenses: (per Mcfe)
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .60 $ .60
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . .31 .25
Depreciation, depletion, amortization and
impairment - oil and gas. . . . . . . . . . . . . . . . . . . . . . . . . .91 .82
<FN>
(1) - Net of basis results and amortization of deferred hedging gains and losses. See
"Fixed-Price Contracts -- Market Risk."
(2) - Represents the net effective price realized for the Company's hedged production (after
consideration for basis results and amortization of deferred hedging gains and losses) as
a percentage of the fixed prices in the Company's Fixed-Price Contracts. See
"Fixed-Price Contracts -- Market Risk."
11
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1995
Net Income and Cash Flows from Operating Activities. For the quarter ended
March 31, 1996, the Company realized net income of $2.3 million, or $.08 per
share, on total revenue of $39.9 million. This compares with net income of
$5.8 million, or $.21 per share, on total revenue of $39.4 million for the
first quarter of 1995. Cash flows from operating activities (before working
capital changes) for the first quarter of 1996 were $18.2 million compared to
$22.2 million reported for the first quarter of 1995. The decline in first
quarter 1996 earnings and cash flows was principally the result of lower
average natural gas prices caused by the expiration in December 1995 of a
wellhead contract with Lone Star Gas Company. This contract paid $3.88 per
Mcf for approximately 25% of the Company's total natural gas production in the
first quarter of 1995. Cash flows provided by operating activities after
consideration of the net change in working capital increased to $20.4 million
from the $17.2 million reported for the first quarter of 1995. This
improvement was primarily driven by the collection of certain receivables and
a reduction in the amount of income taxes paid in relation to the 1995 first
quarter.
Production. The Company produced 17.3 Bcfe for the first quarter of 1996
compared to 13.7 Bcfe for the prior-year first quarter, an increase of 26%.
This increase in overall production is principally attributable to proved
property acquisitions made during 1995, the largest of which was the July 1995
acquisition of oil and gas properties in the Sonora field for $86.6 million,
and the results of the Company's drilling program. Gas production improved to
14.6 Bcf compared to 11.2 Bcf for the first quarter of 1995, an increase of
31%. Oil production for the first quarter of 1996 increased 5% to 449 MBbls
compared to 427 MBbls for the prior-year first quarter.
Oil and Gas Prices. On a natural gas equivalent basis, the Company received
an average price of $2.27 per Mcfe for the quarter ended March 31, 1996, a
decrease of 19% from the $2.79 received for the first quarter of 1995. The
Company's gas production yielded an average price of $2.13 per Mcf, a 22%
decline compared to $2.74 per Mcf for the prior-year first quarter. This
decline is principally attributable to the expiration of the Lone Star
contract in December 1995, as previously discussed. The Company's average gas
price for the 1996 first quarter was enhanced $.10 per Mcf as a result of the
Company's hedging activities. The average gas price for the first quarter of
1995 was enhanced $.68 as a result of the Fixed-Price Contracts in effect for
that period. The average oil price for the first quarter of 1996 was $18.05
per Bbl compared to $18.12 per Bbl for the prior-year first quarter. The 1996
first quarter average oil price was reduced $.44 per Bbl as a result of the
Company's hedging activities. Fixed-Price contracts in effect during the
first quarter of 1995 increased the average oil price by $1.19 per Bbl.
The combination of higher gas production and lower average gas price
increased gas sales to $31.1 million for the first quarter of 1996 compared to
12
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
$30.6 million for the first quarter of 1995. The net effect of higher oil
production and lower oil prices was to increase oil sales to $8.1 million from
the $7.7 million reported for the prior-year quarter. The aggregate impact of
the Company's oil and gas hedging activities was to increase oil and gas sales
by $8.2 million and $1.2 million for the quarters ended March 31, 1995 and
1996, respectively. See "Fixed-Price Contracts -- Market Risk."
Other Income. Other income for the first quarter of 1996 was $666,000
compared to $1.1 million for the first quarter of 1995. The higher amount
recorded for the prior year quarter is primarily attributable to gains
recorded on the sale of certain oil and gas properties and other nonrecurring
miscellaneous income transactions.
Operating Costs. Operating costs, which include direct lease operating
expenses and production taxes, increased to $10.4 million for the first quarter
of 1996 compared to $8.3 million for the first quarter of 1995. This increase is
principally attributable to the properties acquired during 1995 and to wells
drilled during 1995 and the first quarter of 1996. On a natural gas equivalent
unit of production basis, total operating costs for the first quarter of 1996
remained constant at $.60 per Mcfe in relation to the prior-year quarter.
General and Administrative Expense. General and administrative expense
("G&A") for the first quarter of 1996 was $4.3 million, consistent with the
amount incurred for the prior-year first quarter. On a natural gas equivalent
unit of production basis, G&A decreased to $.25 per unit of production for the
1996 first quarter compared to $.31 for the first quarter of 1995. This
decrease is primarily attributable to growth in oil and gas production without
corresponding increases in personnel costs.
Depreciation, Depletion, Amortization and Impairment. Depreciation,
depletion, amortization and impairment ("DD&A") for the first quarter of 1996
was $15.1 million compared to $13.4 million for the prior-year first quarter.
This increase in DD&A is attributable to the increase in production volumes
previously discussed. The oil and gas DD&A rate per Mcfe produced (including
leasehold impairment) was $.82 for the 1996 first quarter compared to $.91 for
the first quarter of 1995. This decrease in rate is due principally to the
SFAS 121 impairment charge taken in the fourth quarter of 1995 and to
favorable finding cost results attributable to the Company's 1995 acquisition
and drilling programs.
Interest Expense. Interest expense for the first quarter of 1996 was $6.7
million compared to $4.8 million for the first quarter of 1995. This increase
is primarily attributable to a higher level of outstanding indebtedness for
the 1996 first quarter as a result of 1995 acquisitions funded with
availability under the Company's bank credit facility. The net impact of
interest rate swaps in effect for the first quarter of 1996 was to increase
interest expense by $212,000. The net impact of interest rate swaps in effect
during the first quarter of 1995 was to decrease interest expense by $166,000.
13
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
See "Capital Resources and Liquidity -- Credit Facility."
Income Taxes. For the first quarter of 1996, the Company recorded a tax
provision of $1.1 million on pretax income of $3.4 million, an effective
rate of 33%. This compares to an income tax provision of $2.9 million
provided on pretax income of $8.7 million, an effective rate of 33%, for the
first quarter of 1995. The effective rate for both quarters was lower than
the statutory rate primarily due to the availability of Section 29 credits.
CAPITAL RESOURCES AND LIQUIDITY
General. During the quarters ended March 31, 1995 and 1996, the Company
funded its investing activities primarily through cash provided by operating
activities. The Company's income (excluding gains and losses on sales and
retirements of assets and non-cash charges and write downs) before deduction
for interest, income taxes, and DD&A ("EBITDA") decrease from $27.5 million
for the first quarter of 1995 to $25.1 million for the first quarter of 1996.
This decrease in EBITDA has occurred primarily as a result of the expiration
of the Lone Star contract in December 1995. The Company's bank credit
facility and the indenture agreement for the 9-1/4% Senior Subordinated Notes
due 2004 include certain covenants based in part on EBITDA. However, EBITDA
should not be considered an alternative to net income as an indicator of
Company operating performance or an alternative to cash flows as a measure of
liquidity.
Credit Facility. The Company has a revolving credit facility with a
syndicate of banks (the "Credit Facility"), as most recently amended in
October 1994, which provides for borrowings and letters of credit up to the
lesser of the Commitment or the Oil and Gas Reserves Loan Value as defined by
the agreement. The maximum amount of letters of credit available for issuance
thereunder is further limited to $75 million. The Oil and Gas Reserves Loan
Value is based on a periodic valuation of the Company's oil and gas reserves
and Fixed-Price Contracts, subject to certain adjustments, and was most
recently reset to be $325 million in May 1996. The Commitment is $300 million
and reduces at the rate of $18.75 million per quarter commencing December 31,
1997 through September 30, 2001. The Company has relied upon the Credit
Facility to provide funds for acquisitions and to provide letters of credit to
meet the Company's margin requirements under Fixed-Price Contracts. See
"Fixed-Price Contracts -- Margining." As of March 31, 1996, the Company had
$212.0 million of principal and $1.9 million of letters of credit outstanding
under the Credit Facility.
The Company has the option of either borrowing at a LIBOR-based interest
rate or the Base Rate (approximating the prime rate). The agreement also
provides for a competitive bid option for borrowings under the facility. The
LIBOR interest rate margin and the commitment fee payable under the facility
are subject to a sliding scale based on the relationship of outstanding
indebtedness to the discounted present value of the Company's oil and gas
reserves and Fixed-Price Contracts. The LIBOR interest rate margin varies
from .5% to 1% per annum. The commitment fee payable on the difference
14
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
between the total amount available for borrowing and actual outstandings under
the Credit Facility varies from .125% to .25% per annum. At March 31, 1996,
the applicable interest rate was LIBOR plus .75% and the commitment fee was
.1875%. The Credit Facility also requires the payment annually of an
additional fee equal to .125% of the Commitment each year.
The Credit Facility contains various affirmative and restrictive covenants.
These covenants, among other things, limit additional indebtedness, the extent
to which volumes under Fixed-Price Contracts can exceed proved reserves in any
year and in the aggregate, the sale of assets and the payment of dividends,
and require the Company to meet certain financial tests. Borrowings under the
Credit Facility are unsecured.
The Company has entered into interest rate swaps to hedge the interest rate
exposure associated with the Credit Facility. As of March 31, 1996, the
Company had fixed the interest rate on average notional amounts of $191
million for the balance of 1996, and $153 million, $99 million and $33 million
for the years ending December 31, 1997, 1998 and 1999, respectively. Under
the interest rate swaps, the Company receives the LIBOR three-month rate (5.5%
at March 31, 1996) and pays an average rate of 6.1% for the balance of 1996,
and 6.1%, 6.3% and 6.5% for the years ending December 31, 1997, 1998 and 1999,
respectively. The notional amounts are less than the maximum amount
anticipated to be available under the Credit Facility in such years. As of
March 31, 1996, the effective interest rate for borrowings under the Credit
Facility, including the effect of interest rate swaps, was 6.6%.
For each interest rate swap, the differential between the fixed rate and the
floating rate multiplied by the notional amount is the swap gain or loss.
Such gain or loss is included in interest expense in the period for which the
indebtedness was hedged. If an interest rate swap is liquidated or sold prior
to maturity, the gain or loss is deferred and amortized into interest expense
over the original contract life. At March 31, 1996, the amount of such
deferrals was not material.
Subordinated Notes. In June 1994, the Company completed the sale of $100
million of 9-1/4% Senior Subordinated Notes due 2004 (the "Notes") in a public
offering. The Notes were sold at 98.534% of face value to yield 9.48% to
maturity. Interest is payable semi-annually on June 15 and December 15.
Proceeds from the offering were used to retire $94.0 million of indebtedness
outstanding under the Credit Facility and for general working capital
purposes. The associated indenture agreement contains certain restrictive
covenants which limit, among other things, the prepayment of the Notes, the
incurrence of additional indebtedness, the payment of dividends and the
disposition of assets.
Other. The Company has certain other unsecured lines of credit available to
it which aggregated $53 million as of March 31, 1996. Such short-term lines
of credit are primarily used to meet letter of credit obligations under
Fixed-Price Contracts and for working capital purposes. At March 31, 1996,
the Company had $15.3 million of indebtedness and $17.9 million of letters of
15
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
credit outstanding under such credit lines. Repayment of indebtedness
thereunder is expected to be made through Credit Facility availability.
The Company believes that the borrowing capacity currently available under
the Credit Facility, combined with the Company's internal cash flows, will be
adequate to finance the capital expenditure program planned for the balance of
1996 and to meet the Company's margin requirements under its Fixed-Price
Contracts. See "Commitments and Capital Expenditures" and "Fixed-Price
Contracts -- Margining." At March 31, 1996, the Company had working capital
of $9.2 million and a current ratio of 1.28 to 1. Total long-term debt
outstanding at March 31, 1996 was $326.1 million. The Company's long-term
debt as a percentage of its total capitalization was 57%.
COMMITMENTS AND CAPITAL EXPENDITURES
The Company's primary business strategy is to increase oil and gas production
and reserves through acquisition, development and exploration activities. For
the quarter ended March 31, 1996, the Company expended $22.5 million in
connection with this strategy, including $3.7 million for exploration projects,
funded principally through internally generated cash flows and working capital.
For the balance of 1996, the Company currently plans to spend approximately $54
million in connection with its drilling program, the vast majority of which is
development drilling, focused principally in its core operating areas of Sonora,
the Mid-Continent, the Permian Region and the Gulf Coast. Such planned
expenditure levels include approximately $4 million of additional exploration
drilling and other exploration costs. Actual levels of drilling, development and
exploration expenditures may vary due to many factors, including drilling
results, new drilling opportunities, oil and natural gas prices and acquisition
opportunities. As of May 7, 1996, the Company had drilled 90 wells, 85 of which
were successfully completed as producers, and an additional 45 wells were in
progress.
On April 4, 1996, the Company purchased certain producing oil and gas
properties and associated leasehold acreage from Coastal Oil and Gas Company
for $29.9 million. The properties, which are located primarily in Oklahoma,
consist of approximately 60 Bcfe of proved reserves attributable to
approximately 800 wells. The Company continues to actively search for
attractive proved reserve acquisitions but is not able to predict the timing
or amount of any capital expenditure which may be employed in acquisitions and
is not currently obligated to make any material acquisitions.
FIXED-PRICE CONTRACTS
Description of Contracts. Oil and gas prices are subject to significant and
often volatile fluctuation. As part of the Company's risk management
strategy, it enters into Fixed-Price Contracts to reduce its exposure to
unfavorable changes in such prices. The Company's Fixed-Price Contracts are
comprised of energy swaps for both crude oil and natural gas, and physical
delivery contracts for natural gas. These contracts allow the Company to
predict with greater certainty the effective oil and gas prices to be received
for its hedged production and benefit the Company when market prices are less
16
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
than the fixed prices provided in its Fixed-Price Contracts. However, the
Company will not benefit from market prices that are higher than the fixed
prices in such contracts for its hedged production. During the first quarter
of 1996, Fixed-Price Contracts hedged 57% of the Company's gas production and
63% of its oil production. Moreover, Fixed-Price Contracts are in place to
hedge approximately 60% of the Company's estimated future production from
proved gas reserves through the year 2000 and 809 MBbls for the balance of
1996.
Under its energy swap sales contracts, the Company receives a fixed price
for the respective commodity and pays a floating market price (generally a
NYMEX-based or regional spot market index), as defined in each contract, to
the counterparty. For its physical delivery contracts, the Company purchases
gas in the spot market at floating market prices and delivers such gas to the
contract counterparty for a fixed price. Under its energy swap purchase
contracts, the Company pays a fixed price for the commodity and receives a
floating market price.
The following table summarizes the volumes, fixed prices and future amounts
to be received (or paid) under the Company's Fixed-Price Contracts as of March
31, 1996. Such amounts do not reflect the future floating price payments (in
the case of energy swaps) or the future cost of supplying gas (in the case of
physical delivery contracts) pursuant to these contracts.
17
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
FIXED-PRICE CONTRACTS (1)
Nine
Months
Ending
December Years Ending December 31, Balance
31, -------------------------------------- through
1996 1997 1998 1999 2000 2017 Total
-------- -------- -------- -------- -------- -------- ----------
NATURAL GAS SWAPS
Sales Contracts
Contract volumes
(BBtu) (2). . . . . . . . -- 4,247 13,833 15,832 9,843 37,360 81,115
Weighted average
fixed price per MMBtu . . $ -- $ 2.19 $ 2.33 $ 2.44 $ 2.46 $ 2.96 $ 2.65
Future receipts (M$). . . $ -- $ 9,285 $ 32,259 $ 38,644 $ 24,192 $110,572 $ 214,952
Purchase Contracts
Contract volumes (BBtu). . -- (1,825) (9,125) (10,950) -- -- (21,900)
Weighted average fixed
price per MMBtu. . . . . . $ -- $ 2.01 $ 2.09 $ 2.18 $ -- $ -- $ 2.13
Future payments (M$) . . . $ -- $ (3,668) $(19,108) $(23,880) $ -- $ -- $ (46,656)
NATURAL GAS PHYSICAL
DELIVERY CONTRACTS
Contract volumes (BBtu). . 22,086 32,510 36,059 28,203 26,750 161,391 306,999
Weighted average fixed
price per MMBtu. . . . . . $ 2.41 $ 2.50 $ 2.64 $ 2.85 $ 3.06 $ 4.15 $ 3.46
Future receipts (M$) . . . $ 53,316 $ 81,379 $ 95,349 $ 80,482 $ 81,950 $669,147 $1,061,623
CRUDE OIL SWAPS
Contract volumes (MBbls) . 809 -- -- -- -- -- 809
Weighted average fixed
price per Bbl. . . . . . . $ 19.22 $ -- $ -- $ -- $ -- $ -- $ 19.22
Future receipts (M$) . . . $ 15,547 $ -- $ -- $ -- $ -- $ -- $ 15,547
<FN>
(1)- The Company expects the prices to be realized for its hedged production will be less than
the prices shown due to location, quality and other factors which create a differential
between wellhead prices and the floating prices under its Fixed-Price Contracts. See
"Fixed-Price Contracts -- Market Risk."
(2)- Includes 20,000 BBtu attributable to a natural gas swap entered into with an affiliate in
April 1996. See "Significant New Contracts."
Accounting. The differential between the fixed price and the floating price
for each contract settlement period multiplied by the associated contract
volumes is the contract profit or loss. The realized contract profit or loss
is included in oil and gas sales in the period for which the underlying
commodity was hedged. All of the Company's Fixed-Price Contracts have been
executed in connection with its natural gas and crude oil hedging program and
not for trading purposes. Consequently, no amounts are reflected in the
Company's balance sheet or income statement related to changes in market value
of the contracts. If a Fixed-Price Contract is liquidated or sold prior to
maturity, the gain or loss is deferred and amortized into oil and gas sales
over the original life of the contract. At March 31, 1996, the amount of such
deferrals was not material.
18
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Credit Risk. The terms of the Company's Fixed-Price Contracts generally
provide for monthly settlements and energy swap contracts provide for the
netting of payments. The counterparties to the contracts are comprised of
independent power producers, pipeline marketing affiliates, financial
institutions, a municipality and S.A. Louis Dreyfus et Cie, among others. In
some cases, the Company requires letters of credit or corporate guarantees to
secure the performance obligations of the contract counterparty. Should a
counterparty to a contract default or cancel a contract, there can be no
assurance that the Company would be able to enter into a new contract with a
third party on terms comparable to the original contract. The loss of a
contract would subject a greater portion of the Company's oil and gas
production to market prices and could adversely affect the carrying value of
the Company's oil and gas properties and the amount of borrowing capacity
available under the Credit Facility. See "Capital Resources and Liquidity."
Two Fixed-Price Contracts which hedge an aggregate 113.5 Bcf of natural gas
as of March 31, 1996 are with independent power producers who sell electrical
power under firm fixed-price contracts to Niagara Mohawk Corporation ("NIMO"),
a New York state utility. As of March 31, 1996, the future value of these
contracts (defined as the extent such contracts are "in the money" in relation
to quoted forward market prices for natural gas), discounted at 10%, was
approximately $140 million. The ability of these counterparties to perform
their respective obligations to the Company is largely dependent on the
continued performance by NIMO of its power purchase obligations to the
counterparties. NIMO in recent years has initiated judicial and regulatory
proceedings designed to curtail power purchase obligations under its contracts
with non-regulated power generators. As of March 31, 1996, with regard to the
Company's counterparties, NIMO had not been successful in these proceedings.
In April 1996, the Federal Energy Regulatory Commission issued Order No. 888
which, among other things, affirmed the ability of public utilities to recover
stranded investment costs when open-access transmission rules become
effective. The implications of Order No. 888 are far reaching and its
ultimate impact to NIMO is unknown; however, the order is anticipated to allow
NIMO to recover costs, such as power purchase obligations with non-regulated
power generators which have become "stranded" as the result of customers
having access to electricity from other generators through NIMO's transmission
system. In October 1995, NIMO announced a proposal to its regulators to
restructure its power generation, marketing and distribution businesses which
could have significant adverse consequences for the counterparties to these
contracts. As of March 31, 1996, NIMO had made limited progress in achieving
support for its restructuring proposal. At this time, the likelihood of
NIMO's proposal being accepted cannot be predicted, nor can any potential
impact on future counterparty performance if the proposal is accepted. The
Company has not experienced non-performance by any counterparty.
Market Risk. The Company's Fixed-Price Contracts hedge 366.2 Bcf of proved
natural gas reserves, substantially all of which are proved developed
reserves, and 809 MBbls of oil at fixed prices. If the Company's proved
reserves are produced at rates less than anticipated, the volumes specified
19
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
under the Fixed-Price Contracts may exceed production volumes. In such case,
the Company would be required to satisfy its contractual commitments at market
prices in effect for each settlement period, which may be above the contract
price, without a corresponding offset in wellhead revenue for such volumes.
The Company expects future production volumes to be equal to or greater than
the volumes provided for in its contracts.
The differential between the floating price paid under each swap contract,
or the cost of gas to supply physical delivery contracts, and the price
received at the wellhead for the Company's production is termed "basis" and is
the result of differences in location, quality, contract terms, timing and
other factors. The effective price realizations which result from the
Company's Fixed-Price Contracts are affected by movements in basis. For its
gas production in 1994 and 1995, the Company realized approximately 11% and 3%
less than the prices specified in its natural gas fixed-price contracts due to
basis, respectively. For its oil production hedged by Fixed-Price Contracts
in 1994 and 1995, the Company realized approximately 8% and 7% less than the
prices specified in such contracts, respectively. For the quarter ended
March 31, 1996, the Company received approximately 5% and 6% less than the
prices specified in its natural gas contracts and crude oil contracts,
respectively. Such results do not include the $4.3 million basis charge
recognized in the fourth quarter of 1995, discussed below. Basis results for
the first quarter of 1996 are not necessarily indicative of the results to be
expected for the full year. Basis movements can result from a number of
variables, including temporary regional market aberrations, changes in the
Company's portfolio of Fixed-Price Contracts and the composition of the
Company's producing property base. Such movements are generally considerably
less than the price movements affecting the underlying commodity, but their
effect can be significant. A 1% change in price realization for hedged
natural gas production in 1996 would represent a $728,000 change in gas sales.
A 1% change in price realization for hedged oil production in 1996 would
represent a $210,000 change in oil sales. The Company actively manages its
exposure to basis movements and from time to time will enter into contracts
designed to reduce such exposure.
In the first quarter of 1996, the Company experienced an unprecedented
widening of basis for certain of its Fixed-Price Contracts. These particular
contracts have floating indices tied to the NYMEX natural gas contract or
involve the purchase of gas in the spot market priced at or near the Henry Hub
delivery point in Louisiana. The Henry Hub price has historically had high
correlation to the market prices received by the Company for its gas
production, making such contracts effective natural gas price hedges. This
effectiveness, however, was lost for the first quarter 1996 settlement
periods. As a result, the Company recognized a $4.3 million charge in the
fourth quarter of 1995 (when the anomaly was identified) to reflect the
estimated basis loss incurred. To reduce exposure to Henry Hub basis
volatility, the Company monetized a 20-Bcf contract with S.A. Louis Dreyfus et
Cie in January 1996, receiving $1.6 million in proceeds. These proceeds are
being amortized into oil and gas sales over the original 19-month contract
20
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
term which commenced January 1996. The Company has also entered into several
basis swaps with third parties which are designed to substantially eliminate
the Company's exposure to Henry Hub basis volatility over the next five years.
Margining. The Company is required to post margin in the form of bank
letters of credit under certain of its Fixed-Price Contracts. In some cases,
the amount of such margin is fixed; in others, the amount changes as the
market value of the respective contract changes, or if certain financial tests
are not met. During 1994 and 1995, the maximum aggregate amount of margin
posted by the Company was $41.0 million and $23.4 million, respectively. If
natural gas prices were to rise, or if the Company fails to meet the financial
tests contained in certain of its Fixed-Price Contracts, margin requirements
could increase significantly. The Company believes that it will be able to
meet such requirements through the Credit Facility and such other credit lines
that it has or may obtain in the future. If the Company is unable to meet its
margin requirements, a contract could be terminated and the Company could be
required to pay damages to the counterparty which generally approximate the
cost to the counterparty of replacing the contract. At March 31, 1996, the
Company had issued margin in the form of letters of credit and treasury bills
totaling $18.9 million and $4.2 million, respectively.
Significant New Contracts. The Company entered into two long-term,
Fixed-Price Contracts to hedge a portion of the production acquired from
Coastal Oil and Gas Company. The first contract is a ten-year, 20-Bcf natural
gas swap with Duke/Louis Dreyfus L.L.C., an affiliate, which commences June
1997. The fixed prices in this contract range from $2.05 to $2.51 per MMBtu.
The second contract, which was entered into with an unrelated third party, is
a five-year, 9-Bcf natural gas swap that provides an average fixed price of
$2.10 per MMBtu. This contract also commences June 1997.
ESTIMATES FOR FISCAL YEAR 1996
General. The fiscal year 1996 estimates provided below and other statements
in this document other than purely historical information (collectively
"Forward-Looking Statements") are based on the Company's historical operating
trends, its proved reserves as of December 31, 1995, its Fixed-Price Contract
position as of March 31, 1996 and other information available to Management.
These statements assume that market conditions for the Company's oil and gas
production are comparable to those experienced in 1995 as modified for changes
in oil and gas prices through April 1996. These statements also assume that
no significant changes occur in the operating environment for the Company's
oil and gas properties. And finally, the Forward-Looking Statements assume no
material changes in the composition of the Company's property base as the
result of material acquisitions or divestitures except as disclosed herein.
THE COMPANY CAUTIONS THAT THE FORWARD-LOOKING STATEMENTS PROVIDED HEREIN ARE
SUBJECT TO ALL THE RISKS AND UNCERTAINTIES INCIDENT TO THE ACQUISITION,
DEVELOPMENT AND MARKETING OF, AND EXPLORATION FOR, OIL AND GAS RESERVES.
THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, COMMODITY PRICE RISK,
ENVIRONMENTAL RISK, DRILLING RISK, RESERVE, OPERATIONS AND PRODUCTION RISK,
AND COUNTERPARTY RISK. MANY OF THESE RISKS ARE DESCRIBED ELSEWHERE HEREIN.
21
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
MOREOVER, THE COMPANY MAY MAKE MATERIAL ACQUISITIONS, MODIFY ITS FIXED-PRICE
CONTRACT POSITION BY ENTERING INTO NEW CONTRACTS OR TERMINATING EXISTING
CONTRACTS, OR ENTER INTO FINANCING TRANSACTIONS. NONE OF THESE CAN BE
PREDICTED WITH CERTAINTY AND, ACCORDINGLY, ARE NOT TAKEN INTO CONSIDERATION IN
THE FORWARD-LOOKING STATEMENTS MADE HEREIN. FOR ALL OF THE FOREGOING REASONS,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS AND
THERE IS NO ASSURANCE THAT THE ASSUMPTIONS USED ARE NECESSARILY THE MOST
LIKELY.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Estimates for Fiscal Year 1996"
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 for an expanded discussion of 1996 estimates. Discussed
below are the more significant revisions to those estimates.
Net Income and Cash Flows from Operating Activities. The Company presently
estimates that its earnings and cash flows from operating activities for the
year ending December 31, 1996 may exceed those achieved for 1995. The
principal reasons for this anticipated improvement are revisions to the
Company's production and commodity price forecast for the remainder of 1996,
as discussed below.
Production. Based on the results of the Company's drilling program through
the first quarter of 1996, planned drilling expenditures for the balance of
the year and the acquisition in April 1996 of oil and gas properties from
Coastal Oil and Gas Company, the Company expects higher growth in gas
production for 1996. The Company now expects its estimated gas production to
be within the range of 63 to 67 Bcf for 1996.
Oil and Gas Prices. The Company cannot predict the market prices that will
be received for its unhedged production for the balance of 1996. However,
because less than one-half of the Company's estimated 1996 production is
hedged by Fixed-Price Contracts, the Company's 1996 oil and gas revenues are
benefitting from the increase in commodity prices realized during the first
four months of 1996 compared to the same period of 1995. If prices for the
balance of 1996 are at or above levels indicated by the NYMEX futures market
in April 1996, the Company estimates exceeding 1995's earnings and operating
cash flow results.
Income Taxes. An improvement in pretax earnings will cause the utilization
of Section 29 credits in its tax provision for 1996 to have a lower relative
impact. This, in turn, will cause the overall effective tax rate to increase.
The Company currently estimates an overall effective tax rate of between 30%
to 35%. The Company estimates paying cash taxes of approximately $1.3 million
to $1.5 million.
22
LOUIS DREYFUS NATURAL GAS CORP.
PART II. OTHER INFORMATION
ITEM 1 -- NONE
ITEM 2 -- NONE
ITEM 3 -- NONE
ITEM 4 -- NONE
ITEM 5 -- NONE
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits:
10.1 -- Notice of Execution for a natural gas swap transaction between Louis
Dreyfus Natural Gas Corp. and Duke/Louis Dreyfus L.L.C. dated April
1, 1996.
No reports on Form 8-K.
23
LOUIS DREYFUS NATURAL GAS CORP.
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.
LOUIS DREYFUS NATURAL GAS CORP.
------------------------------------------
(Registrant)
Date: May 14, 1996 /s/ Jeffrey A. Bonney
------------------------------------------
Jeffrey A. Bonney
Vice President and Chief Accounting Officer