UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 1-10578
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VINTAGE PETROLEUM, INC.
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(Exact name of registrant as specified in charter)
Delaware 73-1182669
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 One Williams Center Tulsa, Oklahoma 74172
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(918) 592-0101
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
----- -------------------------------
Common Stock, $.005 Par Value 24,067,462
-1-
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. FINANCIAL STATEMENTS
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VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS
------
September 30, December 31,
1996 1995
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 5,339 $ 2,545
Accounts receivable -
Oil and gas sales 43,275 40,256
Joint operations 5,360 4,616
Prepaids and other current assets 13,536 11,665
-------- --------
Total current assets 67,510 59,082
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 859,184 762,582
Oil and gas gathering systems 12,872 12,765
Other 7,681 7,733
-------- --------
879,737 783,080
Less accumulated depreciation, depletion and
amortization 256,645 205,334
-------- --------
623,092 577,746
-------- --------
OTHER ASSETS, net 10,756 10,711
-------- --------
TOTAL ASSETS $701,358 $647,539
======== ========
See notes to unaudited consolidated financial statements.
-3-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30, December 31,
1996 1995
------------- ------------
CURRENT LIABILITIES:
Revenue payable $ 18,910 $ 16,855
Accounts payable - trade 14,702 15,514
Other payables and accrued liabilities 21,103 18,697
Current portion of long-term debt 7,929 7,930
-------- --------
Total current liabilities 62,644 58,996
-------- --------
LONG-TERM DEBT, less current portion above 336,380 315,846
-------- --------
DEFERRED INCOME TAXES 45,735 37,753
-------- --------
OTHER LONG-TERM LIABILITIES 3,081 3,922
-------- --------
MINORITY INTEREST IN SUBSIDIARY 2,286 7,062
-------- --------
STOCKHOLDERS' EQUITY per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares
authorized, zero shares issued and outstanding - -
Common stock, $.005 par, 40,000,000 shares
authorized, 24,062,462 and 23,661,162 shares
issued and outstanding 120 118
Capital in excess of par value 152,121 149,725
Retained earnings 98,991 74,117
-------- --------
251,232 223,960
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $701,358 $647,539
======== ========
See notes to unaudited consolidated financial statements.
-4-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -------------------
1996 1995 1996 1995
------- ------- -------- --------
REVENUES:
Oil and gas sales $62,905 $41,931 $185,847 $112,809
Oil and gas gathering 4,865 3,338 15,310 8,472
Gas marketing 8,047 4,342 21,519 13,631
Other income 135 490 659 1,461
------- ------- -------- --------
75,952 50,101 223,335 136,373
------- ------- -------- --------
COSTS AND EXPENSES:
Lease operating, including
production taxes 22,791 17,101 67,606 47,520
Oil and gas gathering 4,145 2,559 12,838 6,636
Gas marketing 7,499 3,751 19,885 12,210
General and administrative 3,829 3,431 12,026 8,258
Depreciation, depletion, and
amortization 17,773 13,932 51,313 36,875
Interest 7,729 5,784 22,467 13,379
------- ------- -------- --------
63,766 46,558 186,135 124,878
------- ------- -------- --------
Income before provision for
income taxes and minority
interest 12,186 3,543 37,200 11,495
PROVISION FOR INCOME TAXES:
Current 491 222 2,061 687
Deferred 1,705 1,259 7,982 3,895
MINORITY INTEREST IN
(INCOME) LOSS OF SUBSIDIARY (163) 662 (361) 662
------- ------- -------- --------
NET INCOME $ 9,827 $ 2,724 $ 26,796 $ 7,575
======= ======= ======== ========
NET INCOME PER SHARE $ .40 $ .13 $ 1.10 $ .36
======= ======= ======== ========
Weighted average common shares and
common equivalent shares
outstanding 24,556 21,550 24,454 21,322
======= ======= ======== ========
See notes to unaudited consolidated financial statements.
-5-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Capital
Common Stock In Excess
--------------- of Par Retained
Shares Amount Value Earnings Total
------ ------ --------- -------- -----
Balance at December 31, 1995 23,661 $118 $149,725 $74,117 $223,960
Net income - - - 26,796 26,796
Exercise of warrants 306 2 1,530 - 1,532
Exercise of stock options
and resulting tax effects 96 - 866 - 866
Cash dividends declared
($.08 per share) - - - (1,922) (1,922)
------ ---- -------- ------- --------
Balance at September 30, 1996 24,063 $120 $152,121 $98,991 $251,232
====== ==== ======== ======= ========
See notes to unaudited consolidated financial statements.
-6-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
September 30,
--------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,796 $ 7,575
Adjustments to reconcile net income to
cash provided by operating activities -
Depreciation, depletion and amortization 51,313 36,875
Minority interest in income/(loss) of subsidiary 361 (662)
Provision for deferred income taxes 7,982 3,895
--------- ---------
86,452 47,683
(Increase) decrease in receivables (3,763) 3,953
Increase (decrease) in payables and accrued
liabilities 4,340 (1,531)
Other (4,082) (1,201)
--------- ---------
Cash provided by operating activities 82,947 48,904
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -
Oil and gas properties (92,441) (78,427)
Other property and equipment (1,567) (775)
Purchase of additional interest in subsidiary (5,213) (41,594)
Other (1,478) (129)
--------- ---------
Cash used by investing activities (100,699) (120,925)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 1,753 129
Advances on revolving credit facility and other
borrowings 108,048 88,410
Payments on revolving credit facility and other
borrowings (87,614) (14,061)
Dividends paid (2,514) (1,344)
Other 873 -
--------- ---------
Cash provided by financing activities 20,546 73,134
--------- ---------
Net increase in cash and cash equivalents 2,794 1,113
Cash and cash equivalents, beginning of period 2,545 431
--------- ---------
Cash and cash equivalents, end of period $ 5,339 $ 1,544
========= =========
See notes to unaudited consolidated financial statements.
-7-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 30, 1996 AND 1995
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of the Company and its wholly- and
majority-owned subsidiaries. Management believes that all material
adjustments (consisting of only normal recurring adjustments) necessary for
a fair presentation have been made. These financial statements and notes
should be read in conjunction with the 1995 audited financial statements and
related notes. Certain reclassifications have been made to the prior year
financial statements to conform to the 1996 presentations. These
reclassifications had no effect on previously reported net income or cash
flow.
2. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
During the nine months ended September 30, 1996 and 1995, cash payments for
interest totaled $19,141,953 and $14,161,441, respectively. During the nine
months ended September 30, 1996 and 1995, cash payments for U.S. Federal and
state income taxes totaled $700,000 and $545,453, respectively. Cash
payments for Argentina withholding taxes totaling $64,949 were made during
the nine months ended September 30, 1996. No cash payments were made for the
nine months ended September 30, 1995, for foreign income taxes.
Depreciation, Depletion, and Amortization
Amortization per equivalent barrel of the Company's U.S. oil and gas
properties for the three months ended September 30, 1996 and 1995, was $3.73
and $3.82, respectively. For the nine months ended September 30, 1996 and
1995, amortization per U.S. equivalent barrel was $3.76 and $3.87,
respectively. Amortization per equivalent barrel of the Company's Argentina
oil and gas properties for the three months and nine months ended September
30, 1996, was $4.16 and $4.18, respectively. For the three months ended
September 30, 1995, amortization per Argentina equivalent barrel was $4.29.
The Company had no Argentina operations prior to July 1995.
Income Taxes
Deferred income taxes are provided on transactions which are recognized in
different periods for financial and tax reporting purposes. Such temporary
differences arise primarily from the deduction of certain oil and gas
exploration and development costs which are capitalized for financial
reporting purposes and differences in the methods of depreciation. The
Company follows the provisions of Statement of Financial Accounting
Standards No. 109 when calculating the deferred income tax provision for
financial purposes.
-8-
Earnings of the Company's foreign subsidiaries, Cadipsa S.A. and Vintage Oil
Argentina, Inc., are subject to Argentina income taxes. Due to significant
Argentina net operating loss carryforwards for both companies, the Company
does not expect to pay any foreign income taxes related to these
subsidiaries in 1996. No U.S. deferred tax liability has been recognized
related to the unremitted earnings of these foreign subsidiaries, as it is
the Company's intention, generally, to reinvest such earnings permanently.
3. LONG-TERM DEBT
Long-term debt at September 30, 1996, and December 31, 1995, consists of the
following:
September 30, December 31,
1996 1995
------------- ------------
(in thousands)
9% Senior Subordinated Notes Due 2005,
net of discount............................. $149,623 $149,592
Bank revolving credit facility................. 164,800 74,300
Bank term loan................................. - 36,736
5.92% Senior note.............................. - 9,948
Subsidiary debt (a) -
International Finance Corporation Notes..... 25,986 28,000
Bank of Boston Senior note.................. - 20,000
Other subsidiary debt....................... 3,900 5,200
-------- --------
344,309 323,776
Less - Current portion of long-term debt....... 7,929 7,930
-------- --------
$336,380 $315,846
======== ========
(a) Subsidiary debt relates to borrowings of the Company's international
subsidiaries and is non-recourse to the Company except for $9.2 million
advanced by the International Finance Corporation.
Bank Revolving Credit Facility
The Company has available an unsecured revolving credit facility under the
Credit Agreement dated August 29, 1996, as amended (the "Credit Agreement"),
among the Company, and certain banks. The Credit Agreement establishes a
borrowing base (currently $295 million) based on the banks' evaluation of
the Company's U.S. and certain Argentina oil and gas reserves.
-9-
Outstanding advances under the Company's revolving credit facility bear interest
payable quarterly at a floating rate based on Bank of Montreal's alternate base
rate (as defined) 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 the alternate base rate and LIBOR vary based on the level
of outstanding senior debt and the portion of the borrowing base attributable to
the U.S. reserves at the time. In addition, the Company must pay a commitment
fee ranging from 0.250 to 0.375 percent per annum on the unused portion of the
banks' commitment. Total outstanding advances at September 30, 1996, were $164.8
million at an average interest rate of approximately 6.5 percent.
On a semiannual basis, the Company's borrowing base is redetermined by the banks
based upon their review of the Company's U.S. and certain Argentina oil and gas
reserves. If the sum of outstanding senior debt exceeds the borrowing base, as
redetermined, the Company must repay such excess. Any principal advances
outstanding at October 1, 1999, will be payable in 12 equal consecutive
quarterly installments commencing January 1, 2000, with maturity at October 1,
2002.
The terms of the Credit Agreement impose certain restrictions on the Company
regarding the pledging of assets and limitations on, among other things,
additional indebtedness and the payment of dividends and other distributions.
In addition, the Credit Agreement requires the maintenance of a minimum current
ratio (as defined) and tangible net worth (as defined) of $200 million plus 75
percent of net proceeds of any future equity offerings.
4. PENDING TRANSACTIONS
On October 3, 1996, the Company entered into an agreement to purchase from Exxon
Company, U.S.A. certain oil and gas properties and facilities located in south
Alabama for approximately $29.6 million, subject to closing adjustments. Funds
for this transaction will be provided through advances under the Company's
revolving credit facility. The properties consist of all of Exxon's interests
in two fields totaling approximately 5,000 net acres located in Escambia County
in south Alabama and are to be operated by Vintage. Current net daily
production from the properties averages approximately 1,450 barrels of crude oil
and liquids and 2,800 Mcf of gas. The transaction is expected to close in
November 1996.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. The following table reflects the Company's oil and gas
production and its average oil and gas prices for the periods presented:
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
Production:
Oil (MBbls) -
U.S.............................. 1,910 1,725 5,683 4,933
Argentina (1).................... 1,115 377 2,966 377
Total............................ 3,025 2,102 8,649 5,310
Gas, all U.S. (MMcf)................ 7,943 8,052 24,535 22,489
Total MBOE.......................... 4,349 3,444 12,738 9,058
Average prices:
Oil (per Bbl) -
U.S.............................. $16.55 $15.12 $17.08 $15.42
Argentina (1).................... 15.86 14.20 15.87 14.20
Total............................ 16.30 14.96 16.66 15.33
Gas, all U.S. (per Mcf)............. $ 1.71 $ 1.30 $ 1.70 $ 1.42
- -------------------
(1) Argentina operations commenced July 5, 1995.
Average oil and gas prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil and spot
market prices for gas, however, spot market prices for gas may vary
significantly by region. The Company's average gas price for the third quarter
of 1996 was 32 percent above the same period in 1995, due primarily to the
increases in the average spot market prices for gas. The Company's average gas
price for the first nine months of 1996 was negatively impacted by six cents per
Mcf as a result of certain gas hedges that were in place for 40,000 Mcf of gas
per day for the period January through March 1996. The Company's average gas
price for the first nine months of 1996, after the impact of hedging, was 20
percent higher than the same period in 1995.
-11-
The Company experienced a nine percent increase in its average oil price in
the third quarter of 1996 compared to the same period in 1995. The Company
realized an average oil price, before the impact of hedges, which was
approximately 91 percent of WTI posted prices for the third quarters of 1996 and
1995.
During the third quarter, the impact of oil hedges reduced the Company's
overall average oil price $2.62 to $16.30 per barrel. The Company's average
Argentina oil price was reduced $3.56 to $15.86 per barrel while its average
U.S. oil price was reduced $2.07 to $16.55 per barrel. Approximately 88 percent
of the Company's Argentina production and 58 percent of its U.S. oil production
(a combined 2.084 million barrels) were covered by oil hedges in the third
quarter.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. Currently, the Company has oil
hedges (swap agreements) in place for the fourth quarter of 1996 covering 2.204
million barrels at an average NYMEX reference price of $18.27 per barrel. The
Company has also entered into oil hedges for the calendar year 1997 covering
2.738 million barrels at an average NYMEX reference price of $19.26. Before the
impact of oil hedges, the Company's average realized oil price for the first
nine months of 1996 was $17.83 per barrel or approximately 84 percent of the
average NYMEX reference price.
Relatively modest changes in either oil or gas prices significantly impact
the Company's results of operations and cash flow. However, the impact of
changes in the market prices for oil and gas on the Company's average realized
prices may be reduced or increased from time to time based on the level of the
Company's hedging activities. Based on 1996 third quarter oil production, a
change in the average price realized by the Company of $1.00 per Bbl for oil,
excluding the impact of hedges, would result in a change in net income and cash
flow before income taxes on a quarterly basis of approximately $2.2 million and
---------------
$2.9 million, respectively. A change in the average price realized of 10 cents
per Mcf for gas, excluding the impact of hedges, would result in a change in net
income and cash flow before income taxes on a quarterly basis of approximately
---------------
$0.5 million and $0.8 million, respectively.
PERIOD TO PERIOD COMPARISONS
During 1995, the Company made various acquisitions which significantly
impacted the period to period comparison for the third quarter and the first
nine months of 1996. These acquisitions (the "1995 Acquisitions") include the
purchase of certain U.S. oil and gas properties from Texaco Exploration and
Production, Inc. ("Texaco") in May 1995, the acquisition of a controlling
interest in Cadipsa S.A. ("Cadipsa") in July 1995, the acquisition of Vintage
Oil Argentina, Inc. (formerly BG Argentina, S.A.) in September 1995 and the
acquisition of certain Argentine oil and gas properties from Astra Compania
Argentina de Petroleo S.A. and Shell Compania Argentina de Petroleo S.A.
(collectively, the "Astra/Shell Properties") in November 1995 and December 1995,
respectively.
-12-
The Company's consolidated revenues and expenses for 1996 and 1995 include
the consolidation of 100 percent of Cadipsa from the date of acquisition under
the purchase method of accounting. The minority interest in income\loss of
subsidiary reflects the portion of Cadipsa's income\loss attributable to the
minority ownership during the three months and nine months ended September 30,
1996 and 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net income was $9.8 million for the quarter ended September 30, 1996, up
263 percent from $2.7 million for the same period in 1995. Increases in the
Company's oil and gas production of 26 percent on an equivalent barrel basis, an
increase of 32 percent in natural gas prices, and an increase of nine percent in
oil prices are primarily responsible for the increase in net income. The
production increases primarily relate to the 1995 Acquisitions and various
exploitation and exploration activities on the Company's Argentina properties.
Oil and gas sales increased $21.0 million (50 percent), to $62.9 million
for the third quarter of 1996 from $41.9 million for the third quarter of 1995.
A 44 percent increase in oil production and a nine percent increase in average
oil prices combined to account for $17.9 million of the increase. A 32 percent
increase in average gas prices contributed to an additional $3.1 million
increase.
Lease operating expenses, including production taxes, increased $5.7
million (33 percent), to $22.8 million for the third quarter of 1996 from $17.1
million for the third quarter of 1995, due primarily to the 1995 Acquisitions.
Lease operating expenses per equivalent barrel produced increased five percent
to $5.24 in the third quarter of 1996 from $4.97 for the same period in 1995.
General and administrative expenses increased $0.4 million (12 percent), to
$3.8 million for the third quarter of 1996 from $3.4 million for the third
quarter of 1995, due primarily to the acquisition of Vintage Oil Argentina, Inc.
in the fourth quarter of 1995.
Depreciation, depletion and amortization increased $3.9 million (28
percent), to $17.8 million for the third quarter of 1996 from $13.9 million for
the third quarter of 1995, due primarily to the 26 percent increase in
production on an equivalent barrel basis. Amortization per equivalent barrel of
the Company's U.S. oil and gas properties declined to $3.73 in the third quarter
of 1996 from $3.82 in 1995. Amortization per equivalent barrel of the Company's
Argentina oil and gas properties for the third quarter of 1996 was $4.16 as
compared to $4.29 in 1995.
Interest expense increased $1.9 million (32 percent), to $7.7 million for
the third quarter of 1996 from $5.8 million for the third quarter of 1995, due
primarily to a 17 percent increase in the Company's total average outstanding
debt related primarily to the 1995 Acquisitions.
-13-
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net income was $26.8 million for the first nine months of 1996, up 253
percent from $7.6 million for the same period in 1995. Increases in the
Company's oil and gas production of 41 percent on an equivalent barrel basis, an
increase of 20 percent in natural gas prices, and an increase of nine percent in
oil prices are primarily responsible for the increase in net income. The
production increases primarily relate to the 1995 Acquisitions.
Oil and gas sales increased $73.0 million (65 percent), to $185.8 million
for the first nine months of 1996 from $112.8 million for the first nine months
of 1995. A 63 percent increase in oil production and a nine percent increase in
average oil prices combined to account for $62.7 million of the increase. A nine
percent increase in gas production and a 20 percent increase in average gas
prices contributed to an additional $10.3 million increase.
Oil and gas gathering net margins (revenue less expenses) increased
$700,000 (39 percent), to $2.5 million for the first nine months of 1996 from
$1.8 million for the first nine months of 1995, due primarily to improved
profitability on a gathering system located in Texas, additional net margins
from a gathering system located in California acquired from Texaco in May 1995
and increased gas prices.
Gas marketing net margins (revenue less expenses) increased $200,000 (14
percent), to $1.6 million for the first nine months of 1996 from $1.4 million
for the first nine months of 1995, due primarily to an increase in the reserve
for doubtful accounts associated with gas sales in the first nine months of 1995
with no similar increase in 1996.
Lease operating expenses, including production taxes, increased $20.1
million (42 percent), to $67.6 million for the first nine months of 1996 from
$47.5 million for the first nine months of 1995. The increase in lease operating
expenses is due primarily to the 1995 Acquisitions. Lease operating expenses
per equivalent barrel produced increased one percent to $5.31 in the first nine
months of 1996 from $5.25 for the same period in 1995.
General and administrative expenses increased $3.7 million (45 percent), to
$12.0 million for the first nine months of 1996 from $8.3 million for the first
nine months of 1995, due primarily to the acquisitions of Cadipsa and Vintage
Oil Argentina, Inc. in the last half of 1995.
Depreciation, depletion and amortization increased $14.4 million (39
percent), to $51.3 million for the first nine months of 1996 from $36.9 million
for the first nine months of 1995, due primarily to the 41 percent increase in
production on an equivalent barrel basis. Amortization per equivalent barrel of
the Company's U.S. oil and gas properties declined to $3.76 in the first nine
months of 1996 from $3.87 in 1995. Amortization per equivalent barrel of the
Company's Argentina oil and gas properties for the first nine months of 1996 was
$4.18 as compared to $4.29 in the same period for 1995.
Interest expense increased $9.1 million (68 percent), to $22.5 million for
the first nine months of 1996 from $13.4 million for the first nine months of
1995, due primarily to a 46 percent increase in the Company's total average
outstanding debt related primarily to the 1995 Acquisitions.
-14-
CAPITAL EXPENDITURES
During the first nine months of 1996, the Company's U.S. capital
expenditures totaled $60.6 million, including $14.0 million for the acquisition
of certain producing oil and gas properties from Conoco. Funds for the
acquisition were provided by an advance under the Company's revolving credit
facility.
The Company's capital expenditures in Argentina during the nine months
ended September 30, 1996, were $34.1 million. These capital expenditures
included $5.2 million for the purchase of an additional 24.1 percent of the
outstanding common stock of Cadipsa, increasing the Company's total ownership of
Cadipsa to 95.7 percent at September 30, 1996.
The timing of most of the Company's capital expenditures is discretionary
with no material long-term capital expenditure commitments. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. The Company primarily uses internally
generated cash flow to fund capital expenditures other than significant
acquisitions and anticipates that its cash flow will be sufficient to fund its
planned 1996 non-acquisition capital expenditures of approximately $48 million
in the U.S. and approximately $49 million in South America. The Company does
not have a specific acquisition budget since the timing and size of acquisitions
are difficult to forecast. The Company is actively pursuing additional
acquisitions of oil and gas properties. In addition to internally generated
cash flow and advances under the Company's revolving credit facility, the
Company may seek additional sources of capital to fund any future significant
acquisitions (see "-Liquidity").
LIQUIDITY
Internally generated cash flow and the borrowing capacity under the
Company's revolving credit facility are its major sources of liquidity. In
addition, the Company may use other sources of capital, including the issuance
of additional debt securities or equity securities, to fund any major
acquisitions it might secure in the future and to maintain its financial
flexibility. The Company funds its capital expenditures (excluding
acquisitions) and debt service requirements primarily through internally
generated cash flows from operations. Any excess cash flow is used to reduce
outstanding advances under the Company's revolving credit facility and other
indebtedness.
In the past, the Company has accessed the public equity markets to finance
significant acquisitions and provide liquidity for its future activities. In
August 1990, the Company sold 3.4 million shares of its common stock for net
proceeds of approximately $32.8 million which were used to fund an acquisition
of oil and gas properties and reduce indebtedness under the Company's revolving
credit facility. In January 1993, the Company sold 3.9 million shares of its
common stock for net proceeds of approximately $44.8 million which were used to
reduce indebtedness under the Company's revolving credit facility.
-15-
On December 20, 1995, the Company completed a public offering of 2,793,700
shares of common stock of which 2,500,000 shares were sold by the Company and
293,700 shares were sold by a stockholder. Net proceeds to the Company, after
underwriting commission and other expenses, were approximately $49.5 million and
were used to fund a substantial portion of the purchase of the Astra/Shell
Properties.
Also on December 20, 1995, the Company issued $150 million of its 9% Senior
Subordinated Notes Due 2005 (the "Notes"). The net proceeds to the Company from
the sale of the Notes of approximately $145.1 million were used principally to
reduce a portion of the outstanding balance under the Company's revolving credit
facility. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 15, 2000. Upon a change in control of
the Company, holders of the Notes may require the Company to purchase all or a
portion of the Notes at a purchase price equal to 101 percent of the principal
amount thereof, plus accrued and unpaid interest. The Notes will mature on
December 15, 2005, with interest payable semiannually on June 15 and
December 15 of each year.
Under its Credit Agreement dated August 29, 1996, as amended, certain banks
have provided to the Company an unsecured revolving credit facility. The
revolving credit facility establishes an aggregate borrowing base (currently
$295 million) determined by the banks' evaluation of the Company's U.S. and
certain Argentina oil and gas reserves.
Outstanding advances under the revolving credit facility bear interest
payable quarterly at a floating rate based on Bank of Montreal's alternate base
rate (as defined) 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 the alternate base rate and LIBOR vary based on the level
of outstanding senior debt and the borrowing base attributable to the U.S.
reserves at the time. As of October 31, 1996, the Company had elected a fixed
rate based on LIBOR for a substantial portion of its outstanding advances which
resulted in an average interest rate of approximately 6.5 percent per annum. In
addition, the Company must pay a commitment fee ranging from 0.250 percent to
0.375 percent per annum on the unused portion of the banks' commitment.
On a semiannual basis, the Company's aggregate borrowing base is
redetermined by the banks based upon their review of the Company's U.S. and
certain Argentina oil and gas reserves. If the sum of outstanding senior debt
exceeds the aggregate borrowing base, as redetermined, the Company must repay
such excess. Any principal advances outstanding at October 1, 1999, will be
payable in 12 equal consecutive quarterly installments commencing January 1,
2000, with maturity at October 1, 2002.
The unused portion of the revolving credit facility was approximately $122
million at October 31, 1996. The unused portion of the revolving credit facility
and the Company's internally generated cash flow provide liquidity which may be
used to finance future capital expenditures, including acquisitions. As
additional U.S. and Argentina acquisitions are made and properties are added to
the borrowing base, the banks' determination of the borrowing base and their
commitment may be increased.
-16-
INCOME TAXES
The total provision for U.S. income taxes is based on the Federal corporate
statutory income tax rate plus an estimated average rate for state income taxes.
The Company had a current provision of $2.1 million for U.S. income taxes in the
first nine months of 1996 and a current provision of $0.7 million in the same
period of 1995. The Company has a $5.4 million U.S. alternative minimum tax
credit carryforward which does not expire and is available to offset U.S.
regular income taxes in future years, but only to the extent that U.S. regular
income taxes exceed the U.S. alternative minimum tax in such years.
Earnings of the Company's foreign subsidiaries, Cadipsa and Vintage Oil
Argentina, Inc., are subject to Argentina income taxes. Due to significant
Argentina net operating loss carryforwards for both companies, the Company does
not expect to pay any foreign income taxes related to these subsidiaries in
1996. No U.S. deferred tax liability has been recognized related to the
unremitted earnings of these foreign subsidiaries, as it is the Company's
intention, generally, to reinvest such earnings permanently. As a result of the
Company's Argentina earnings and U.S. federal tax credits, the Company's
effective tax rate for the first nine months of 1996 was 27 percent as compared
to 39 percent for the same period of 1995. The Company had no Argentina
operations prior to July 1995.
FOREIGN OPERATIONS
Substantially all of the Company's foreign operations are located in
Argentina. The Company believes Argentina offers a politically stable
environment and does not anticipate any significant change in the near future.
The current democratic form of government has been in place since 1983 and,
since 1989, has pursued a steady process of privatization, deregulation and
economic stabilization and reforms involving the reduction of inflation and
public spending. Argentina's 12-month trailing inflation rate measured by the
Argentine Consumer Price Index declined from 200.7 percent as of June 1991 to
zero as of July 1996.
The Company believes that its Argentine operations present minimal currency
risk. All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are Argentine peso denominated. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur,
its revenues would be unaffected and its operating costs would not be
significantly increased. At the present time, there are no foreign exchange
controls preventing or restricting the conversion of pesos into dollars.
-17-
PART II
OTHER INFORMATION
-18-
Item 1. Legal Proceedings
-----------------
not applicable
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
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.
10.1 Credit Agreement dated as of August 29, 1996, among the
Company, as borrower, certain commercial lending
institutions, as lenders, and Bank of Montreal, as agent.
10.2 First Amendment to Credit Agreement dated as of October 21,
1996, among the Company, as borrower, certain commercial
lending institutions, as lenders, and Bank of Montreal, as
agent.
27. Financial Data Schedule.
b) Reports on Form 8-K
none
********************************************************************************
-19-
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VINTAGE PETROLEUM, INC.
-----------------------
(Registrant)
DATE: November 7, 1996 \s\ Michael F. Meimerstorf
---------------- -----------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
-20-
EXHIBIT INDEX
The following documents are included as exhibits to the 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.
Exhibit
Number Description
- ------ ----------------------------------------
10.1 Credit Agreement dated as of August 29, 1996,
among the Company, as borrower, certain commercial
lending institutions, as lenders, and Bank of Montreal,
as agent.
10.2 First Amendment to Credit Agreement dated as of
October 21, 1996 among the Company, as borrower,
certain commercial lending institutions, as lenders,
and Bank of Montreal, as agent.
27. Financial Data Schedule.