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 March 31, 1998
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 One Williams Center Tulsa, Oklahoma 74172
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(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 April 30, 1998
- ----------------------------- -----------------------------
Common Stock, $.005 Par Value 51,636,086
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PART I
FINANCIAL INFORMATION
-2-
ITEM 1. FINANCIAL STATEMENTS
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VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS
------
March 31, December 31,
1998 1997
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,832 $ 5,797
Accounts receivable -
Oil and gas sales 52,168 60,878
Joint operations 6,627 6,358
Deferred income taxes - 4,206
Prepaids and other current assets 10,575 12,443
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Total current assets 71,202 89,682
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 1,279,694 1,230,288
Oil and gas gathering systems 13,855 12,943
Other 9,299 8,420
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1,302,848 1,251,651
Less accumulated depreciation, depletion and amortization 409,516 370,103
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893,332 881,548
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OTHER ASSETS, net 25,059 18,825
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TOTAL ASSETS $ 989,593 $ 990,055
============ ============
See notes to unaudited consolidated financial statements.
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VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
1998 1997
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CURRENT LIABILITIES:
Revenue payable $ 21,690 $ 27,085
Accounts payable - trade 30,395 21,088
Other payables and accrued liabilities 26,239 31,504
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Total current liabilities 78,324 79,677
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LONG-TERM DEBT 467,924 451,096
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DEFERRED INCOME TAXES 63,041 71,797
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OTHER LONG-TERM LIABILITIES 3,617 3,955
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STOCKHOLDERS' EQUITY per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding - -
Common stock, $.005 par, 80,000,000 shares authorized,
51,636,086 and 51,558,886 shares issued and
outstanding 258 258
Capital in excess of par value 202,790 202,008
Retained earnings 173,639 181,264
----------- ------------
376,687 383,530
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 989,593 $ 990,055
=========== ============
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 Ended
March 31,
-------------------
1998 1997
--------- ---------
REVENUES:
Oil and gas sales $ 72,820 $ 83,997
Oil and gas gathering 2,679 4,847
Gas marketing 14,255 10,271
Other income 349 119
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90,103 99,234
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COSTS AND EXPENSES:
Lease operating, including production taxes 32,180 24,514
Oil and gas gathering 2,253 4,324
Gas marketing 13,601 9,852
General and administrative 4,919 4,391
Depreciation, depletion and amortization 28,003 20,000
Write-down of oil and gas properties 11,596 -
Interest 9,077 8,178
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101,629 71,259
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Income (loss) before provision for income
taxes and minority interest (11,526) 27,975
PROVISION (BENEFIT) FOR INCOME TAXES:
Current (442) 1,415
Deferred (4,492) 5,454
MINORITY INTEREST IN INCOME OF SUBSIDIARY - (117)
--------- ---------
NET INCOME (LOSS) $ (6,592) $ 20,989
========= =========
EARNINGS PER SHARE:
Basic $ (.13) $ .42
========= =========
Diluted $ (.13) $ .41
========= =========
Weighted average common shares outstanding:
Basic 51,608 50,105
========= =========
Diluted 51,608 51,397
========= =========
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 THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Capital
Common Stock In Excess
---------------- of Par Retained
Shares Amount Value Earnings Total
-------- ------ --------- --------- ------------
Balance at December 31, 1997 51,559 $258 $202,008 $181,264 $383,530
Net loss - - - (6,592) (6,592)
Exercise of stock options and
resulting tax effects 77 - 782 - 782
Cash dividends declared
($.02 per share) - - - (1,033) (1,033)
-------- ------ --------- --------- ------------
Balance at March 31, 1998 51,636 $258 $202,790 $173,639 $376,687
======== ====== ========= ========= ============
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)
Three Months Ended
March 31,
----------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,592) $ 20,989
Adjustments to reconcile net income (loss)
to cash provided by operating activities -
Depreciation, depletion and amortization 28,003 20,000
Write-down of oil and gas properties 11,596 -
Minority interest in income of subsidiary - 117
Provision (benefit) for deferred income taxes (4,492) 5,454
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28,515 46,560
Decrease in receivables 9,094 19,228
Decrease in payables and accrued liabilities (2,534) (5,795)
Other (3,625) (768)
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Cash provided by operating activities 31,450 59,225
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -
Oil and gas properties (49,406) (37,346)
Other property and equipment (2,064) (157)
Purchase of subsidiary - (27,233)
Other (962) (9,890)
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Cash used by investing activities (52,432) (74,626)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 70 47,181
Sale of 8 5/8% Senior Subordinated Notes - 96,270
Advances on revolving credit facility and other borrowings 22,472 42,908
Payments on revolving credit facility and other borrowings (4,494) (168,657)
Dividends paid (1,031) (722)
Other - (495)
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Cash provided by financing activities 17,017 16,485
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Net (decrease) increase in cash and cash equivalents (3,965) 1,084
Cash and cash equivalents, beginning of period 5,797 2,774
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Cash and cash equivalents, end of period $ 1,832 $ 3,858
========== =========
See notes to unaudited consolidated financial statements.
-7-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 1998 AND 1997
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 1997 audited financial statements and
related notes.
On September 12, 1997, the Company's Board of Directors approved a two-for-
one stock split of its common stock effective October 7, 1997, to
stockholders of record on September 26, 1997. All references to the number
of shares and per share amounts in the financial statements and notes
thereto have been restated to reflect the stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
Cash payments for interest totaled $7,364,411 and $4,387,298 and cash
payments for U.S. Federal and state income taxes were $500 and $85,600
during the three months ended March 31, 1998 and 1997, respectively. During
the three months ended March 31, 1998 and 1997, the Company made no cash
payments for foreign income taxes.
Oil and Gas Properties
The Company's unamortized costs of oil and gas properties are limited, on a
country-by-country basis, to the sum of the future net revenues attributable
to proved oil and gas reserves discounted at 10 percent plus the cost of any
unproved properties. At March 31, 1998, the Company's unamortized costs in
oil and gas properties in the U.S. exceeded this ceiling amount by
approximately $24.6 million (net of taxes). However, due to subsequent
increases in the Company's U.S. oil and gas prices, the full cost ceiling
limitation as of March 31, 1998, was recomputed giving effect to such price
increases, as prescribed by SEC guidelines. The Company's U.S. unamortized
costs exceeded this recomputed ceiling amount by $7.1 million (net of
taxes). The Company has reflected this $7.1 million non-cash charge to
earnings in the quarter ended March 31, 1998, by recording a write-down of
oil and gas properties of $11.6 million (or $1.94 per equivalent barrel
produced during the quarter) and the related reduction in the provision for
deferred income taxes of $4.5 million. At March 31, 1998, the Company's cost
of oil and gas properties in countries other than the U.S. did not exceed
such ceiling amounts. However, if oil prices remain at the current low
levels for a prolonged period, the Company may be required to reflect
additional non-cash charges to earnings in future quarterly periods related
to the Company's unamortized costs in oil and gas properties in the U.S. or
other countries.
-8-
Amortization per equivalent barrel of the Company's U.S. oil and gas
properties for the three months ended March 31, 1998 and 1997, was $4.68 and
$3.92, respectively, exclusive of any write-down impact. The write-down of
capitalized oil and gas costs increased amortization per equivalent barrel
of the Company's U.S. oil and gas properties for the three months ended
March 31, 1998, by an additional $2.78. Amortization per equivalent barrel
of the Company's Argentina oil and gas properties for the three months ended
March 31, 1998 and 1997, was $4.56 and $4.15, respectively. Amortization per
equivalent barrel of the Company's Bolivia oil and gas properties for the
three months ended March 31, 1998 and 1997, was $1.86 and $3.66,
respectively.
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.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("SFAS No. 128"), establishing new standards for
computing and presenting earnings per share. The provisions of SFAS No. 128
are effective for earnings per share calculations for periods ending after
December 15, 1997. The Company has adopted SFAS No. 128 effective December
31, 1997, and all earnings per share amounts disclosed herein have been
calculated under the provisions of SFAS No. 128. The adoption of SFAS No.
128 did not have a material effect on previously reported earnings per share
or on 1997 earnings per share. Basic earnings per common share were computed
by dividing net income by the weighted average number of shares outstanding
during the period. Diluted earnings per common share were computed assuming
the exercise of all dilutive options, as determined by applying the treasury
stock method.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income ("SFAS No. 130"), establishing
standards for reporting and display of comprehensive income and its
components in financial statements. SFAS No. 130 defines comprehensive
income as the total of net income and all other nonowner changes in equity.
The Company had no nonowner changes in equity other than net income during
the three months ended March 31, 1998 and 1997.
-9-
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
Ended
March 31,
------------------
1998 1997
--------- --------
Production:
Oil (MBbls) -
U.S. (1)..... 2,474 2,015
Argentina.... 1,538 1,320
Bolivia...... 35 25
Total........ 4,047 3,360
Gas (MMcf) -
U.S. (1)..... 10,180 7,578
Bolivia...... 1,388 1,216
Total........ 11,568 8,794
Total MBOE....... 5,975 4,826
Average prices:
Oil (per Bbl) -
U.S.......... $ 12.89 $19.77
Argentina.... 12.18 17.87
Bolivia...... 13.95 18.13
Total........ 12.59 19.01
Gas (per Mcf) -
U.S.......... $ 2.03 $ 2.46
Bolivia...... 1.02 1.22
Total........ 1.89 2.29
____________
(1) First quarter 1998 production was reduced by approximately 113 MBbls of oil
and 250 MMcf of gas, or 155 MBOE, due to severe weather in California.
-10-
Average U.S. oil prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil. The
Company's Argentina oil production is sold at WTI spot prices less a specified
differential. The Company experienced a 34 percent decrease in its average oil
price in the first quarter of 1998 compared to the first quarter of 1997.
During the first quarter of 1997, the impact of Argentina oil hedges reduced the
Company's overall average oil price 50 cents to $19.01 per Bbl and its average
Argentina oil price was reduced $1.28 to $17.87 per Bbl. The Company was not a
party to any oil hedges in the first quarter of 1998. Before the impact of oil
hedges, the Company realized an average oil price for the first quarter of 1998
which was approximately 92 percent of WTI posted prices compared to a
realization of 93 percent of WTI posted prices for the year earlier quarter.
However, due to an increase in the differential between WTI posted prices and
the NYMEX reference price ("NYMEX"), the Company's average realized prices
(before hedges) declined to 79 percent of NYMEX in the first quarter of 1998
compared to 86 percent of NYMEX in the year earlier quarter.
Average U.S. gas prices received by the Company fluctuate generally with
changes in spot market prices, which may vary significantly by region. The
Company's Bolivia average gas price is tied to a long-term contract for which
the price varies primarily with seasonal differential adjustments. The
Company's average gas price for the first quarter 1998 was 17 percent lower than
1997's first 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, there are no oil or
gas hedges in place.
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 from time to time based on the level of the Company's
hedging activities. Based on first quarter 1998 oil production, a change in the
average oil price realized by the Company of $1.00 per Bbl would result in a
change in net income (before any impact of write-downs of capitalized oil and
gas costs) and cash flow before income taxes on a quarterly basis of
approximately $2.5 million and $3.9 million, respectively. A 10 cent per Mcf
change in the average price realized by the Company for gas would result in a
change in net income (before any impact of write-downs of capitalized oil and
gas costs) and cash flow before income taxes on a quarterly basis of
approximately $0.7 million and $1.1 million, respectively, based on first
quarter 1998 gas production.
The Company's unamortized costs of oil and gas properties are limited, on a
country-by-country basis, to the sum of the future net revenues attributable to
proved oil and gas reserves discounted at 10 percent plus the cost of any
unproved properties. At March 31, 1998, the Company's unamortized costs in oil
and gas properties in the U.S. exceeded this ceiling amount by approximately
$24.6 million (net of taxes). However, due to subsequent increases in the
Company's U.S. oil and gas prices, the full cost ceiling limitation as of March
31, 1998, was recomputed giving effect to such price increases, as prescribed by
SEC guidelines. The Company's U.S. unamortized costs exceeded this recomputed
ceiling amount by $7.1 million (net of taxes). The Company has reflected this
$7.1 million non-cash charge to earnings in the quarter ended March 31, 1998, by
recording a write-down of oil and gas properties of $11.6 million (or $1.94 per
equivalent barrel produced during the quarter) and the related reduction in the
provision for deferred income taxes of $4.5 million. At March 31, 1998, the
Company's cost of oil and gas properties in countries other than the U.S. did
not exceed such ceiling amounts. However, if oil prices remain at the current
low levels for a prolonged period, the Company may be required to reflect
additional non-cash charges to earnings in future quarterly periods related to
the Company's unamortized costs in oil and gas properties in the U.S. or other
countries.
-11-
PERIOD TO PERIOD COMPARISON
PERIOD ENDED MARCH 31, 1998, COMPARED TO PERIOD ENDED MARCH 31, 1997
The Company reported a net loss of $6.6 million for the quarter ended March
31, 1998, reflecting the impact of a $7.1 million (net of taxes) non-cash charge
to earnings to write-down the Company's unamortized costs in U.S. oil and gas
properties to the ceiling limitation prescribed under the full cost method of
accounting. Excluding the write-down, the Company would have recognized net
income of $0.5 million for the quarter ended March 31, 1998, down 98 percent
from $21.0 million for the same period in 1997. An increase in the Company's
oil and gas production of 24 percent on an equivalent barrel basis was more than
offset by a 34 percent decrease in average oil prices and a 17 percent decrease
in average gas prices. The production increases primarily relate to the
acquisition of certain producing oil and gas properties from Burlington
Resources Inc. (the "Burlington Properties") in April 1997, the exploitation
activities in Argentina and the exploration activities in the Galveston Bay
area. The production increases were reduced by the impact of the severe weather
in California during the first quarter of 1998. The resulting mudslides and
flooding forced the Company to temporarily shut-in some of its oil and gas
properties for a portion of the quarter lowering production by approximately
113,000 barrels of oil and 250,000 Mcf of gas.
Oil and gas sales decreased $11.2 million (13 percent), to $72.8 million for
the first quarter of 1998 from $84.0 for the first quarter of 1997. A 34
percent decrease in average oil prices, partially offset by a 20 percent
increase in oil production, accounted for a decrease of $12.9 million. A 32
percent increase in gas production, partially offset by a 17 percent decrease in
average gas prices, reduced by $1.7 million the negative impact of the decline
in average oil prices.
Lease operating expenses, including production taxes, increased $7.7 million
(31 percent), to $32.2 million for the first quarter of 1998 from $24.5 million
for the first quarter of 1997. The increase in lease operating expenses is due
primarily to operating costs associated with the Burlington Properties and
estimated costs of $1.0 million for the first quarter of 1998 related to storm
damage repair and cleanup as a result of the severe weather in California.
Lease operating expenses per equivalent barrel produced increased to $5.39
($5.09 before the effects of the severe weather in California) in the first
quarter of 1998 from $5.08 for the same period in 1997.
General and administrative expenses increased $0.5 million (11 percent), to
$4.9 million for the first quarter of 1998 from $4.4 million for the first
quarter of 1997, due primarily to the addition of personnel as a result of the
acquisition of the Burlington Properties. General and administrative expenses
per equivalent barrel produced actually declined to $0.82 ($0.80 before the
effects of the severe weather in California) from $0.91 in the year earlier
quarter.
Depreciation, depletion and amortization increased $8.0 million (40 percent),
to $28.0 million for the first quarter of 1998 from $20.0 million for the first
quarter of 1997, due primarily to the 24 percent increase in production on an
equivalent barrel basis. Amortization per equivalent barrel of the Company's
oil and gas properties (exclusive of the write-down of oil and gas properties)
increased to $4.53 in the first quarter of 1998 from $4.02 in 1997.
-12-
As a result of the impact of substantially lower oil prices on the ceiling
limitation prescribed under the full cost method of accounting, the Company
recorded an $11.6 million non-cash charge in the first quarter of 1998 to write-
down its oil and gas properties to the ceiling limitation. The Company's
capitalized oil and gas costs have not exceeded the applicable ceiling
limitation in any prior reporting period; therefore, no similar write-down has
been required.
Interest expense increased $0.9 million (11 percent), to $9.1 million for the
first quarter of 1998 from $8.2 million for the first quarter of 1997, due
primarily to a 20 percent increase in the Company's total average outstanding
debt as a result of the acquisition of the Burlington Properties. The increase
in interest expense was partially offset by a decrease in the Company's overall
average interest rate from 8.05% in the first quarter of 1997 to 7.83% in the
first quarter of 1998.
CAPITAL EXPENDITURES
During the first quarter of 1998, the Company's domestic oil and gas capital
expenditures totaled $30.4 million. Exploratory activities accounted for $14.8
million of the domestic capital expenditures with exploitation activities
contributing another $15.6 million. During the first quarter of 1998, the
Company's international oil and gas capital expenditures totaled $19.2 million,
including $13.5 million in Argentina, primarily on exploitation activities.
The Company is committed to perform 17,728 work units within the next three
years related to its concession rights in the Naranjillos field in Santa Cruz
Province, Bolivia. The work unit commitment is guaranteed by the Company
through an $88.6 million letter of credit; however, the Company anticipates that
it will fulfill this three-year work unit commitment through approximately $45
to $50 million of various seismic and drilling capital expenditures. In
addition, the Company is committed to perform 1,400 work units related to an
exploration program within the Chaco Block in Bolivia. The entire obligation
can be fulfilled by the drilling of one 15,000 foot well. The Company estimates
the cost of this well to be approximately $4.5 million and expects to fulfill
the obligation by drilling a well in 1998. Under the Company's exploration
contract on Block 19 in Ecuador, the Company is required to participate in the
drilling of one additional well. The Company expects to drill the well during
1999 at a cost of approximately $4.0 million.
Except for the commitments discussed above, 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, net of debt service obligations, will be sufficient to fund a
substantial portion of its planned $185 million of non-acquisition capital
expenditures during 1998. Any capital expenditures in excess of internally
generated cash flow may be funded by advances under its revolving credit
facility. The Company's planned 1998 non-acquisition capital expenditure budget
is currently allocated 65 percent to exploitation activities, including
development and infill drilling, and approximately 35 percent to exploration
activities. The Company does not have a specific acquisition budget since the
-13-
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 its 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 its revolving
credit facility are the Company's 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 revolving
credit facility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. In
conjunction with the purchase of substantial oil and gas assets in 1990, 1992
and 1995, the Company completed three public equity offerings, as well as a
public debt offering in 1995, which provided the Company with aggregate net
proceeds of approximately $272 million.
On February 5, 1997, the Company completed a public offering of 3,000,000
shares (after giving effect to the Company's two-for-one common stock split
effected on October 7, 1997) of common stock, all of which were sold by the
Company. Net proceeds to the Company of approximately $47 million were used to
repay a portion of existing indebtedness under the revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96 million were used to repay a portion of existing
indebtedness under the revolving credit facility.
The Company's unsecured revolving credit facility under the Amended and
Restated Credit Agreement dated December 8, 1997 (the "Credit Agreement"),
establishes a borrowing base (currently $450 million) determined by the banks'
evaluation of the Company's U.S. and Argentina oil and gas reserves.
Outstanding advances under the Credit Agreement 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 to the borrowing base. As of April 30, 1998, 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 0.25 to 0.375 percent per annum on the unused portion of the banks'
commitment.
-14-
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 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 under the Credit Agreement at December 1, 2000, will be payable in
12 equal consecutive quarterly installments commencing March 1, 2001, with
maturity at December 1, 2003.
The unused portion of the Credit Agreement was approximately $114 million at
April 30, 1998. The Company has recently requested and the Company's agent bank
has recommended an increase in its borrowing base from $450 million to $500
million which, if approved by the banks, would increase the unused portion under
the facility to approximately $164 million based on April 30, 1998, debt levels.
The unused portion of the Credit Agreement 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 commitments may be increased.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
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 incurred a current benefit for income taxes of approximately $0.4
million for the first quarter of 1998 and a current provision of $1.4 million
for the first quarter of 1997.
The Company has a U.S. Federal alternative minimum tax ("AMT") credit
carryforward of approximately $2.9 million which does not expire and is
available to offset U.S. Federal regular income taxes in future years, but only
to the extent that U.S. Federal regular income taxes exceed the AMT in such
years.
Earnings of the Company's foreign subsidiary, Vintage Petroleum Boliviana,
Ltd. ("Vintage Boliviana"), are subject to Bolivia income taxes. Earnings of
the Company's foreign subsidiary, Vintage Oil Argentina, Inc. are subject to
Argentina income taxes. As of December 31, 1997, the Company had estimated net
operating loss carryforwards of $35.4 million for Argentina income tax reporting
purposes which can be used to offset future taxable income in Argentina. The
carryforward amount includes certain Argentina net operating loss carryforwards
which were acquired in a purchase business combination and are recorded at cost,
which is less than the calculated value under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. These
unrecorded net operating loss carryforwards will reduce the Company's foreign
income tax provision for financial purposes in future years by approximately
$4.5 million when their benefit is realized. No U.S. deferred tax liability
will be recognized related to the unremitted earnings of these foreign
subsidiaries as it is the Company's intention, generally, to reinvest such
earnings permanently.
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FOREIGN OPERATIONS
A significant portion of the Company's foreign operations are located in
Argentina. The Company believes Argentina offers a relatively stable political
environment and does not anticipate any significant change in the near future.
The current democratic form of the 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
negative 1.98 percent as of March 1998.
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 denominated in Argentine pesos. 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 Argentine pesos into dollars.
With the purchase of Vintage Boliviana, the Company expanded its
international operations into Bolivia. Since the mid-1980's, Bolivia has been
undergoing major economic reform, including the establishment of a free-market
economy and the encouragement of foreign private investment. Economic activities
that had been reserved for government corporations were opened to foreign and
domestic private investments. Barriers to international trade have been reduced
and tariffs lowered. A new investment law and revised codes for mining and the
petroleum industry, intended to attract foreign investment, have been
introduced.
On February 1, 1987, a new currency, the Boliviano ("Bs"), replaced the peso
at the rate of one million pesos to one Boliviano. The exchange rate is set
daily by the Government's exchange house, the Bolsin, which is under the
supervision of the Bolivian central bank. Foreign exchange transactions are not
subject to any controls. The US$:Bs exchange rate at March 31, 1998, was
US$1:Bs5.45. The Company believes that any currency risk associated with its
Bolivian operations would not have a material impact on the Company's financial
position or results of operations.
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PART II
OTHER INFORMATION
-17-
Item 1. Legal Proceedings
-----------------
For information regarding legal proceedings, see the Company's Form
10-K for the year ended December 31, 1997.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
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.
27. Financial Data Schedule
b) Reports on Form 8-K
none
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-18-
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: May 7, 1998 \s\ Michael F. Meimerstorf
-------------- --------------------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
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.
Exhibit
Number Description
- ------ ------------------------------------------------
27. Financial Data Schedule