UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 1-7940
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Goodrich Petroleum Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0466193
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(State or other jurisdiction of (I.R.S. Employer ID. No.)
incorporation or organization)
815 Walker Street, Suite 1040, Houston, Texas 77002
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(Address of principal executive offices) (Zip Code)
(713) 780-9494
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(Registrant's telephone number, including area code)
None
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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. [ X ] Yes [ ] No
At August 11, 2000, there were 8,985,789 shares of Goodrich Petroleum
Corporation common stock outstanding.
1
GOODRICH PETROLEUM CORPORATION
FORM 10-Q
June 30, 2000
INDEX
Page No.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
June 30, 2000 (Unaudited) and December 31, 1999.................... 3-4
Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 2000 and 1999............................ 5
Three Months Ended June 30, 2000 and 1999.......................... 6
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2000 and 1999............................ 7
Consolidated Statements of Stockholders' Equity (Unaudited)
Six Months Ended June 30, 2000 and 1999............................ 8
Notes to Consolidated Financial Statements............................ 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16-18
PART II - OTHER INFORMATION 19
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
2
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2000 1999
------------ -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents...........................$ 4,952,434 $ 5,929,229
Accounts receivable
Trade and other, net of allowance................. 808,837 669,741
Accrued oil and gas revenue....................... 4,298,895 1,937,711
Prepaid insurance and other......................... 25,050 53,806
----------- -----------
Total current assets.......................... 10,085,216 8,590,487
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts method).. 71,459,022 65,401,168
Furniture, fixtures and equipment................... 223,175 213,524
----------- -----------
71,682,197 65,614,692
Less accumulated depletion, depreciation
and amortization.................................. (22,651,070) (19,566,835)
------------ -----------
Net property and equipment.................... 49,031,127 46,047,857
----------- -----------
OTHER ASSETS
Restricted Cash..................................... 1,320,000 ---
Other .............................................. 1,425,765 1,620,208
----------- -----------
Total Other Assets............................ 2,745,765 1,620,208
----------- -----------
TOTAL ASSETS...........................$ 61,862,108 $ 56,258,552
=========== ===========
See notes to consolidated financial statements.
3
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
June 30, December 31,
2000 1999
------------- ------------
Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt...............$ 3,600,000 $ 3,600,000
Accounts payable................................ 2,994,107 2,711,746
Accrued liabilities............................. 1,677,391 1,326,995
Current portion other non-current liabilities... 821,454 1,182,306
----------- -----------
Total current liabilities................. 9,092,952 8,821,047
----------- -----------
LONG TERM DEBT ............................... 31,712,853 33,353,117
OTHER NON-CURRENT LIABILITIES
Production payment payable...................... 1,342,462 1,630,784
Accrued abandonment costs....................... 3,223,757 3,108,281
Accrued interest long term debt................. 749,440 251,154
PREFERRED STOCKHOLDERS EQUITY IN A
SUBSIDIARY COMPANY.............................. --- 2,683,125
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par
value $1.00 per share; issued and out-
standing 796,318 shares (liquidation
preference $10 per share, aggregating
to $7,963,180)............................ 796,318 796,318
Series B convertible preferred stock, par
value $1.00 per share; issued and out-
standing 662,700 and 665,759 shares,
respectively (liquidation preference $10
per share, aggregating to $6,627,000)..... 662,700 665,759
Common stock, par value $0.20 per share;
authorized 25,000,000 shares; issued
and outstanding 8,985,789 shares.......... 1,797,158 1,083,434
Additional paid-in capital...................... 25,115,768 18,156,114
Accumulated deficit............................. (12,631,300) (14,290,581)
------------ -----------
Total stockholders' equity......... 15,740,644 6,411,044
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.....$ 61,862,108 $ 56,258,552
=========== ===========
See notes to consolidated financial statements.
4
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Six Months Ended
June 30,
--------------------------
2000 1999
---------- -----------
REVENUES
Oil and gas sales..................................$ 11,066,051 5,607,822
Other.............................................. 285,880 163,404
---------- ----------
Total revenues............................... 11,351,931 5,771,226
---------- ----------
EXPENSES
Lease operating expense and production taxes....... 3,044,567 1,367,534
Depletion, depreciation and amortization........... 2,568,106 2,466,956
Exploration........................................ 726,187 822,074
Interest expense................................... 2,391,993 1,082,172
General and administrative......................... 1,197,257 1,125,260
Preferred dividend requirements of a subsidiary... 38,364 ---
---------- ----------
Total costs and expenses..................... 9,966,474 6,863,996
---------- ----------
GAIN (LOSS) ON SALE OF ASSETS....................... 273,824 (519,495)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES................... 1,659,281 (1,612,265)
Income taxes ...................................... --- ---
---------- ----------
NET INCOME (LOSS)................................... 1,659,281 (1,612,265)
Preferred stock dividends
(2000 and 1999 amounts in arrears)................ 603,552 627,824
---------- ----------
INCOME (LOSS) APPLICABLE TO COMMON STOCK............$ 1,055,729 (2,240,089)
========== ==========
BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE........$ .13 (.43)
========== ===========
DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE......$ .10 (.43)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING - BASIC........... 7,972,848 5,254,501
AVERAGE COMMON SHARES OUTSTANDING - DILUTED......... 11,111,691 5,254,501
See notes to consolidated financial statements.
5
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
---------------------------
2000 1999
----------- ------------
REVENUES
Oil and gas sales..............................$ 6,577,103 2,784,953
Other....... .............................. 101,038 44,577
---------- ----------
Total revenues........................... 6,678,141 2,829,530
---------- ----------
EXPENSES
Lease operating expense and production taxes... 1,703,902 700,780
Depletion, depreciation and amortization....... 1,264,343 1,158,403
Exploration.................................... 365,373 423,293
Interest expense............................... 1,209,555 561,692
General and administrative..................... 718,242 561,378
---------- ----------
Total costs and expenses................. 5,261,415 3,405,546
---------- ----------
GAIN ON SALE OF ASSETS.............................. 273,261 ---
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES................... 1,689,987 (576,016)
Income taxes................................... --- ---
---------- ----------
NET INCOME (LOSS)................................... 1,689,987 (576,016)
Preferred stock dividends
(2000 and 1999 amounts in arrears)........... 295,945 313,912
---------- ----------
INCOME (LOSS) APPLICABLE TO COMMON STOCK............$ 1,394,042 (889,928)
========== ==========
BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE........$ .16 (.17)
========== ==========
DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE......$ .12 (.17)
========== ==========
AVERAGE COMMON SHARES OUTSTANDING - BASIC........... 8,892,668 5,261,221
AVERAGE COMMON SHARES OUTSTANDING - DILUTED......... 12,057,286 5,261,221
See notes to consolidated financial statements.
6
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months
Ended June 30,
------------------------
2000 1999
---------- -----------
OPERATING ACTIVITIES
Net income (loss)......................................$ 1,659,281 (1,612,265)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion, depreciation and amortization........... 2,568,106 2,466,956
Amortization of leasehold costs.................... 516,130 563,506
Amortization of deferred debt-financing............ 226,178 ---
Accrued interest on private placement borrowings... 498,286 ---
Amortization of detachable stock purchase warrants. 285,000 ---
Amortization of production payment discount........ 121,410 ---
Preferred dividends of subsidiary.................. 38,364 ---
(Gain) Loss on sale of asset....................... (273,824) 519,495
Director stock grant............................... 30,000 30,000
Capital expenditures charged to income............. 4,709 43,922
---------- ----------
5,673,640 2,011,614
Net change in:
Accounts receivable................................... (2,500,280) 1,667,852
Prepaid insurance and other........................... 27,020 (41,669)
Accounts payable...................................... 282,361 (1,027,299)
Accrued liabilities................................... 350,396 (774,712)
Other Liabilities..................................... (484,525) ---
---------- ----------
Net cash provided by operating activities............ 3,348,612 1,835,786
---------- ----------
INVESTING ACTIVITIES
Proceeds from sales of assets.......................... 426,050 240,105
Acquisition of oil and gas properties.................. (1,198,631) ---
Capital expenditures................................... (5,025,809) (1,525,583)
--------- ----------
Net cash used in investing activities................ (5,798,390) (1,285,478)
--------- ----------
FINANCING ACTIVITIES
Proceeds from private placement of common stock........ 4,500,000 ---
Principal payments of bank borrowings.................. (1,925,264) (600,000)
Exercise of stock purchase warrants.................... 217,511 ---
Exercise of employee stock options..................... 191,444 ---
Exercise of director stock options..................... 9,875 ---
Net change in restricted cash.......................... (1,320,000) ---
Production payments.................................... (170,583) ---
Payment of debt restructure costs...................... (30,000) ---
---------- ----------
Net cash provided by (used in) financing activities.. 1,472,983 (600,000)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............. (976,795) (49,692)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 5,929,229 95,630
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..............$ 4,952,434 45,938
========== ==========
See notes to consolidated financial statements.
7
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Three Months Ended March 31, 2000 and 1999
(Unaudited)
Series A* Series B*
Preferred Stock Preferred Stock Common Stock
--------------- --------------- ------------
Number of Par Number of Par Number of Par
Shares Value Shares Value Shares Value
Balance at December 31, 1998 796,318 $ 796,318 750,000 $ 750,000 5,247,705 $ 1,049,541
Net Loss --- --- --- --- --- ---
Realized loss on sale of marketable securities --- --- --- --- --- ---
Total Comprehensive Income (Loss) --- --- --- --- --- ---
Directors stock grant --- --- --- --- 30,000 6,000
Balance at June 30, 1999 796,318 $ 796,318 750,000 $ 750,000 5,277,705 $ 1,055,541
------- ------- ------- ------- --------- ---------
Balance at December 31, 1999 796,318 $ 796,318 665,759 $ 665,759 5,417,171 $ 1,083,434
Net Income --- --- --- --- --- ---
Total Comprehensive Income --- --- --- --- --- ---
Issuance of Common Stock --- --- --- --- 1,533,333 306,667
Conversion of preferred stock of
subsidiary to common stock --- --- --- --- 1,547 665 309,533
Exercise of director stock option --- --- --- --- 12,500 2,500
Exercise of common stock purchase warrants --- --- --- --- 220,011 44,002
Exercise of employee stock option --- --- --- --- 245,698 49,140
Director stock grant --- --- --- --- 6,000 1,200
Conversion of Series B preferred
stock to common stock --- --- (3,059) (3,059) 3,411 682
------- ------- ------- ------- --------- ---------
Balance at June 30, 2000 796,318 $ 796,318 662,700 $ 662,700 8,985,789 $ 1,797,158
------- ------- ------- ------- --------- ---------
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Three Months Ended March 31, 2000 and 1999
(Unaudited)
Accumulated
Other Comprehensive Loss
Additional Unrealized Gain (Loss) Total
Paid-In Accumulated on Marketable Stockholders'
Capital Deficit Equity Securities Equity
------- ------- ----------------- ------
Balance at December 31, 1998 $15,226,027 $ (12,461,598) $ (400,900) $ 4,959,388
Net Loss --- (1,612,265) --- (1,612,265)
Realized loss on sale of marketable securities --- --- 400,900 400,900
Total Comprehensive Income (Loss) --- --- --- (1,211,365)
Directors stock grant --- --- --- 30,000
---------- ----------- --------------- ------------
Balance at June 30, 1999 $15,250,027 $ (14,073,863) $ --- $ 3,778,023
========== =========== =============== ============
Balance at December 31, 1999 $18,156,114 $ (14,290,581) $ --- $ 6,411,044
Net Income --- 1,659,281 --- 1,659,281
Total Comprehensive Income --- --- --- 1,659,281
Issuance of Common Stock 4,193,333 --- --- 4,500,000
Conversion of preferred stock of
subsidiary to common stock 2,411,956 --- --- 2,721,489
Exercise of director stock option 7,375 --- --- 9,875
Exercise of common stock purchase warrants 173,509 --- --- 217,511
Exercise of employee stock option 142,304 --- --- 191,444
Director stock grant 28,800 --- --- 30,000
Conversion of Series B preferred
stock to common stock 2,377 --- --- ---
---------- ----------- --------------- ------------
Balance at June 30, 2000 $25,115,768 $ (12,631,300) $ --- $ 15,740,644
========== =========== =============== ============
*Dividends are cumulative and arrearages amounted to $1,852,994 and $627,824
or $0.23 and $.12 per share at June 30, 2000 and 1999 respectively.
See notes to consolidated financial statements.
8
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(Unaudited)
NOTE A - Basis of Presentation
- ------------------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The financial statements and footnotes included in this Form 10-Q
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1999.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of June 30, 2000 and the results of its operations for the six and three months
ended June 30, 2000 and 1999.
The results of operations for the six and three month periods ended June 30,
2000 are not necessarily indicative of the results to be expected for the full
year.
NOTE B - Conversion of Convertible Notes
- ----------------------------------------
On July 27, 2000, the Company announced its intention to call and convert
approximately $12,900,000 in principal and interest in convertible notes into
common stock of the Company at $4.00 per share. The Company notified the holders
of the convertible notes that it intends to prepay the principal and accrued
interest, plus a prepayment penalty of ten percent (10%)($645,000), on the
Goodrich Petroleum - Lafitte, LLC portion of the notes, on August 17, 2000. In
lieu of taking cash for the notes, the noteholders have the right to convert all
of their principal and accrued interest into common stock of the Company at
$4.00 per share. The conversion of the notes will increase stockholders equity
by approximately $10,100,000 to approximately $25,841,000.
The Company has secured an underwriting to assist in the purchase of the notes
of any of the noteholders that elect not to convert their principal and interest
into the Company's common stock. Any notes purchased by the underwriters will be
converted into the common stock of the Company at $4.00 per share. Two of the
underwriters are, or are affiliates of, members of the Company's board. Each
underwriter will receive 15,000 shares of the Company's common as compensation
for their services. In addition, one of the underwriters will receive an
additional 15,000 shares of common stock for their role as agent for the
noteholders. The underwriters will then convert these notes into common stock of
the Company at $4.00 per share.
9
NOTE C - Acquisition of Oil and Gas Properties
- ----------------------------------------------
On March 2, 2000, the Company completed its acquisition of working interests in
the Burrwood and West Delta 83 Fields, comprising approximately 8,600 acres, in
Plaquemines Parish, Louisiana for $1,650,000 and the assumption of the fields
plugging and abandonment obligation estimated at $5,000,000. The Company
acquired an approximate 95% working interest of all rights from the surface to
approximately 10,600' and an approximate 47.5% working interest in the deep
rights below 10,600'. In connection with the acquisition the Company secured a
performance bond and established an escrow account to be used for the payment of
obligations associated with the plugging and abandonment of the wells, salvage
and removal of platforms and related equipment, and the site restoration of the
fields. Required escrowed outlays include an initial cash payment of $750,000
and monthly cash payments of $70,000 beginning June 1, 2000 and continuing until
June 1, 2005 subject to a redetermination at August 1, 2000. In addition, as
part of the purchase agreement, the Company has agreed to shoot a 3-D seismic
survey over the fields by June 30, 2001 or remit payment to the seller in the
amount of $3,500,000. The cost of the seismic study is expected to be
approximately $2,500,000 and the Company has escrowed cash compensating balances
of $500,000 with Compass Bank to be used solely for payments or reimbursements
of amounts expended in satisfaction of the seismic requirement.
NOTE D - Private Placement
- --------------------------
On February 18, 2000, the Company completed a private placement of shares of its
common stock resulting in net proceeds to the Company of $4,500,000. The Company
issued 1,533,333 shares of common stock in an offering, which began on January
28, 2000. The $4,500,000 in offering proceeds, in addition to the Company's
existing working capital and anticipated cash flow from operations, have been
used to assist in the acquisition of and will be used in the development of the
Burrwood and West Delta 83 fields, and to further develop the Lafitte field
purchased in 1999. The Company owns an approximate 49% working interest in the
Lafitte field in Jefferson Parish, Louisiana, which was acquired in September
1999.
Note E - Conversion of Preferred Units
- --------------------------------------
On January 28, 2000, the Company notified holders of Goodrich Petroleum Company,
LLC's Series A Preferred Units that it intended to call for redemption all the
outstanding units which were convertible into the Company's common stock at
$2.00 per share. On February 17, 2000, all of the holders of the Preferred
Units, representing one hundred percent of the 300,000 of outstanding Units,
converted the Units into approximately 1,550,000 shares of the common stock of
Goodrich Petroleum Corporation. The conversion of the preferred units and
private placement increased the Company's stockholders equity by approximately
$7,200,000.
NOTE F - Lafitte Field Acquisition
- ----------------------------------
On September 23, 1999 the Company acquired an approximate 49% working interest
in the Lafitte Field located in Jefferson Parish, Louisiana for $2,940,000. The
field encompasses over 8,000 acres and is located approximately thirty miles
south of New Orleans. The Company commenced development activities in the fourth
quarter of 1999.
10
The consideration granted to seller included a production payment to be
satisfied through the delivery of production from the property. In connection
with the transaction, the Company recorded a production payment liability of
approximately $2,200,000, representing the discounted present value of the
estimated production payments necessary to satisfy the obligation.
Additionally, the Company recorded a $3,800,000 liability for its interest in
the estimated plugging and abandonment costs assumed in connection with the
purchase. It is expected that approximately $265,000 of the costs will be funded
within the next 12 months.
NOTE G - Commitments and Contingencies
- --------------------------------------
The U.S. Environmental Protection Agency ("EPA") has identified the Company as a
potentially responsible party ("PRP") for the cost of clean-up of "hazardous
substances" at an oil field waste disposal site in Vermilion Parish, Louisiana.
The Company has estimated that the remaining cost of long-term clean up of the
site will be approximately $3.5 million with the Company's percentage of
responsibility to be approximately 3.05%. As of June 30, 2000, the Company has
paid approximately $321,000 in costs related to this matter and $122,500 accrued
for the remaining liability. These costs have not been discounted to their
present value. The EPA and the PRPs will continue to evaluate the site and
revise estimates for the long-term clean up of the site. There can be no
assurance that the cost of clean up and the Company's percentage responsibility
will not be higher than currently estimated. In addition, under the federal
environmental laws, the liability costs for the clean-up of the site is joint
and several among all PRPs. Therefore, the ultimate cost of the clean up to the
Company could be significantly higher than the amount presently estimated or
accrued for this liability.
NOTE H - Income (Loss) Per Share
- --------------------------------
Net income (loss) was used as the numerator in computing both basic and diluted
income (loss) per Common share for the three and six months ended June 30, 2000
and 1999. The following table reconciles the weighted-average shares outstanding
used for these computations.
Reconciliation of Shares Outstanding
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Basic Method............... 8,892,668 5,261,221 7,972,848 5,254,501
Dilutive Stock Warrants.... 2,822,658 --- 2,641,459 ---
Dilutive Stock Options..... 341,960 --- 497,384 ---
----------- --------- --------- ----------
Diluted Method............. 12,057,286 5,261,221 11,111,691 5,254,501
11
The computations of earnings per share in the consolidated Statements of Income
did not consider outstanding convertible notes convertible into 3,187,360 shares
of common stock and convertible preferred stock convertible into 1,070,737
shares of common stock for the three and six months ended June 30, 2000 because
the effects of these convertible securities would have improved the Company's
earnings per share.
Beginning in 1999, the Company suspended dividend payments on its Series A and
Series B convertible preferred stock. Dividends on both classes of its preferred
stock are cumulative and arrearages amounted to $603,000 and $628,000 for the
six months ended June 30, 2000 and 1999, respectively. Total cumulative
arrearages amounted to $1,853,000 at June 30, 2000. Accordingly, undeclared
dividends held in arrears have been considered in computing per share amounts
applicable to common stockholders.
As of June 30, 2000, the Company had not paid dividends on the Series A
preferred stock for six consecutive quarters. Accordingly, the Series A
preferred holders are entitled to elect two members to the Company's board of
directors.
NOTE I - Stock Option Plan
- --------------------------
At the March 29, 2000 Board of Directors meeting, the Compensation Committee
voted to accelerate the vesting schedule on options granted to employees on
February 25, 1999. The vesting period for the applicable options was immediate
and the total number of options affected was 235,698.
NOTE J - Income Taxes
- ---------------------
No provision for income taxes has been recorded for the Company for the six and
three months ended June 30, 2000 and 1999 due to the availability of net
operating loss carry forwards in 2000 and its incurring a net operating loss for
the 1999 period. A valuation allowance has been provided for the amount of net
operating losses incurred in 1999.
12
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Changes in Results of Operations
- --------------------------------
Six months ended June 30, 2000 versus six months ended June 30, 1999
Total revenues for the six months ended June 30, 2000 amounted to $11,352,000
and were $5,581,000 higher than the $5,771,000 for the six months ended June 30,
1999 due to higher oil and gas revenues. Oil and gas sales were $5,458,000
higher due primarily to higher oil and gas prices and higher oil production
slightly offset by lower gas production. Oil and gas sales were reduced by
$1,038,000 in the six months ended June 30, 2000 as a result of settlement of
the Company's outstanding futures contracts.
The following table reflects the production volumes and pricing information for
the periods presented.
Six months Six months
ended June 30, 2000 ended June 30, 1999
Production Average Price Production Average Price
Gas (Mcf)........ 1,489,061 $ 3.18 1,564,419 $ 1.95
Oil (Bbls)....... 262,025 24.15 203,326 12.60
Lease operating expense and production taxes were $3,045,000 for the six months
ended June 30, 2000, versus $1,368,000 for the six months ended June 30, 1999,
or $1,677,000 higher due primarily to higher oil and gas sales, additional costs
associated with the Company's Lafitte and Burrwood/West Delta 83 Field
acquisitions and higher lease operating costs associated with certain older,
mature oil and gas fields. Depletion, depreciation and amortization was
$2,568,000 for the six months ended June 30, 2000, versus $2,467,000 for the six
months ended June 30, 1999, or $101,000 higher due to slightly higher depletion
rates and higher oil volumes in the first six months of 2000 versus 1999.
Exploration expense for the six months ended June 30, 2000 was $726,000 versus
$822,000 for the same period of 1999, or $96,000 lower due primarily to seismic
costs and prospect depletion of $5,000 and $516,000 for the six months ended
June 30, 2000 versus $73,000 and $564,000 in the same period in 1999.
Interest expense was $2,392,000 in the six months ended June 30, 2000 compared
to $1,082,000 in the six months ended June 30, 1999 due to the Company having a
higher effective interest rate and higher average debt outstanding for the six
months ended June 30, 2000 as a result of the September 1999 private placement.
The 2000 amount includes $511,000 of non cash expenses associated with the
amortization of financing costs and detachable common stock purchase warrants
issued in connection with the September 1999 private placement and amortization
of the discount associated with the production payment liability recorded in
connection with the Lafitte Field acquisition.
13
General and administrative expenses amounted to $1,197,000 in the six months
ended June 30, 2000 versus $1,125,000 in the six months ended June 30, 1999.
The Company recorded a gain on the sale of certain non-core oil and gas
properties located in Louisiana and Texas of $274,000 for the three months ended
June 30, 2000. The Company incurred a loss on the sale of marketable equity
securities of $519,000 for the six months ended June 30, 1999.
Three months ended June 30, 2000 versus three months ended June 30,1999
Total revenues for the three months ended June 30, 2000 amounted to $6,678,000
and were $3,848,000 higher than the $2,830,000 for the three months ended June
30, 1999. Oil and gas sales were $3,792,000 higher due primarily to higher oil
and gas prices and increased oil and gas production. Oil and gas sales were
reduced by $553,000 in the three months ended June 30, 2000 as a result of the
settlement of the Company's outstanding futures contracts.
The following table reflects the production volumes and pricing information for
the periods presented.
Six months Six months
ended June 30, 2000 ended June 30, 1999
Production Average Price Production Average Price
Gas (Mcf)........ 777,239 $ 3.74 679,463 $ 2.11
Oil (Bbls)....... 152,281 24.12 88,706 15.25
Lease operating expense and production taxes were $1,704,000 for the three
months ended June 30, 2000, versus $701,000 for the three months ended June 30,
1999, or $1,003,000 higher due primarily to higher oil and gas sales, additional
costs associated with the Company's Lafitte and Burrwood/West Delta 83 Field
acquisitions and higher lease operating costs associated with certain older,
mature oil and gas fields. Depletion, deprecation and amortization was
$1,264,000 for the three months ended June 30, 2000, versus $1,158,000 for the
three months ended June 30, 1999, or $106,000 higher than the second quarter of
1999 due to higher production volumes in the second quarter of 2000 versus 1999
offset by lower overall depletion rates.
The Company incurred $365,000 of exploration expense in the second quarter of
2000, compared to $423,000 in the second quarter of 1999, or $58,000 lower
primarily due to prospect depreciation and seismic costs of $242,000 and $4,000,
respectively in the three months ended June 30, 2000 versus $273,000 and $39,000
respectively, in the same period in 1999.
Interest expense was $1,210,000 in the three months ended June 30, 2000 compared
to $562,000 in the second quarter of 1999 due to higher average debt outstanding
for the quarter ended June 30, 2000 as a result of the September 1999 private
placement. The 2000 amount includes $256,000 in non cash expenses associated
with the amortization of financing costs and detachable common stock purchase
warrants issued in connection with the September 1999 private placement and
amortization of the discount associated with the production payment liability
recorded in connection with the Lafitte Field acquisition.
14
General and administrative expenses amounted to $718,000 in the three months
ended June 30, 2000 versus $561,000 in the second quarter of 1999 due to
increased legal costs and the timing of certain other expenses.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $3,349,000 in the six months ended
June 30, 2000 compared to $1,836,000 in the six months ended June 30, 1999. The
Company's accompanying consolidated statements of cash flows identify major
differences between net income and net cash provided by operating activities for
each of the periods presented.
Net cash used in investing activities totaled $5,798,000 for the six months
ended June 30, 2000 compared to $1,285,000 in 1999. The six months ended June
30, 2000 reflects capital expenditures paid totaling $5,026,000, cash paid in
connection with the acquisition of oil and gas properties of $1,199,000, and
proceeds from the sale of oil and gas properties of $426,000. The six months
ended June 30, 1999 reflects capital expenditures paid totaling $1,526,000 and
proceeds from the sales of marketable equitable securities of $240,000.
Net cash provided by financing activities was $1,473,000 for the six months
ended June 30, 2000 as compared to net cash used in financing activities of
$600,000 in the prior year period. The 2000 amount includes proceeds from the
issuance of common stock of $4,500,000 and paydowns by the Company under its
line of credit of $1,925,000. The 2000 amount includes changes in restricted
cash of $1,320,000, proceeds from the exercise of stock purchase warrants and
director options of 227,000 and the exercise of employee stock options of
$191,000. The 2000 amount also includes production payments of $171,000 and
payment of debt financing costs of $30,000. The 1999 amount includes pay downs
of $600,000 by the Company under its line of credit.
Compass Credit Facility
- -----------------------
On March 2, 2000 the Company amended its credit agreement with Compass Bank. The
amended facility provides for a Borrowing Base of $27,100,000 with continued
monthly reductions of $300,000, until July 1, 2001. On June 30, 2000, the amount
outstanding under the credit facility was $25,165,000. The maturity date for
amounts drawn under the bank credit facility is July 1, 2001 with no borrowing
base redeterminations conducted prior to that date. Interest on the credit
facility is the Compass Bank Index Rate plus 5/8%.
Substantially all of the Company's assets are pledged to secure this credit
facility.
The revised credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principal and interest under the borrowing base.
Additionally, under the terms of the credit facility, the Company may not make
any distributions or pay dividends, including dividends on any class of its
preferred stock without lender approval.
15
Capital Expenditures
- --------------------
The Company had $6,224,000 in capital expenditures in the six months ended June
30, 2000. The Company's budget for 2000 capital expenditures was set at the
beginning of the year at $12,500,000. Such budget is under constant review
during the year and could change due to actual and estimated cash flow,
commodity prices, business opportunities and other factors. The Company expects
to fund capital expenditures for the remainder of 2000 from operating cash flow,
cash and other financing arrangements.
Stock Listing
- -------------
On July 28, 1999 the Company was notified by the New York Stock Exchange that it
had revised its minimum financial criteria for listed companies and the time
frame required for listed companies to become compliant. In addition, the
Company was informed that it was not in compliance with the revised criteria.
The Company submitted a revised twelve-month business plan to the Exchange in
response to the notice on September 10, 1999. The business plan was accepted by
the New York Stock Exchange and is being monitored by the Exchange for
compliance on a quarterly basis. The short-term nature of the business plan may
make it difficult to adhere to this business plan. If the Company fails to do
so, there can be no assurance that the New York Stock Exchange will not delist
the Company's common stock.
Accounting Matters
- ------------------
The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, in June 1997. This statement
established accounting and reporting standards for derivative instruments and
hedging activities. Effective January 1, 2001, the Company must recognize the
fair value of all derivative instruments as either assets or liabilities in its
Consolidated Balance Sheet. As derivative instruments meeting certain conditions
may be designated as a hedge of a specific exposure, accounting for changes in a
derivative's fair value will depend on the intended use of the derivative and
the resulting designation. Any transition adjustments resulting from adopting
this statement will be reported in net income or other comprehensive income, as
appropriate, as the cumulative effect of a change in accounting principle
period. As described under the heading "Quantitative and Qualitative Disclosures
About Market Risk" below of this Form 10-Q report, the Company makes use of
derivative instruments to hedge specific market risks. The Company has not yet
determined the effects that SFAS No. 133 will have on its future consolidated
financial statements or the amount of the cumulative adjustment that will be
made upon adopting this new standard.
16
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Debt and debt-related derivatives
- ---------------------------------
The Company is exposed to interest rate risk on its long-term debt with variable
interest rates. Based on the overall interest rate exposure on variable rate
debt at June 30, 2000 a hypothetical 2% change in the interest rates would
increase annual interest expense by approximately $503,000.
Hedging Activity
- ----------------
The Company engages in futures contracts ("Agreements") with certain of its
production. The Company considers these to be hedging activities and, as such,
monthly settlements on these contracts are reflected in oil and gas sales. In
order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future production and (ii) the
contract must reduce the Company's exposure to the risk of changes in prices.
Changes in the market value of futures contracts treated as hedges are not
recognized in income until the hedged item is also recognized in income. If the
above criteria are not met, the Company will record the market value of the
contract at the end of each month and recognize a related gain or loss. Proceeds
received or paid relating to terminated contracts or contracts that have been
sold are amortized over the original contract period and reflected in oil and
gas sales. The Company enters into hedging activities in order to secure an
acceptable future price relating to a portion of future production. The primary
objective of the activities is to protect against decreases in price during the
term of the hedge.
The Agreements provide for separate contracts tied to the NYMEX light sweet
crude oil and natural gas futures contracts. The Company has contracts which
contain specific contracted prices ("Swaps") or price ranges ("Collars") that
are settled monthly based on the differences between the contract price or price
ranges and the average NYMEX prices for each month applied to the related
contract volumes. To the extent the average NYMEX price exceeds the contract
price, the Company pays the spread, and to the extent the contract price exceeds
the average NYMEX price the Company receives the spread.
As of June 30, 2000, the Company's open forward position on its outstanding
crude oil hedging contracts was as follows:
(a) 350 barrels of oil per day with a no cost "collar" of $19.00 and $21.00 per
barrel through December 2000;
(b) 150 barrels of oil per day with a no cost "collar" of $18.20 and $20.20 per
barrel through December 2000; and.
(c) 500 barrels of oil per day with a no cost "collar" of $21.00 and $29.00 per
barrel beginning May 2000 through September 2000.
(d) 500 barrels of oil per day with a no cost "collar" of $20.00 and $28.40 per
barrel beginning January 2001 through December 2001.
At June 30, 2000 the Company's open forward position on its outstanding crude
oil hedging contracts was 1,000 bbl per day at an average price of $25.06. The
fair value of the crude oil hedging contracts in place at June 30, 2000 resulted
in a liability of $933,000.
17
Subsequent to June 30, 2000 the Company entered into additional futures
contracts as follows:
(a) 500 barrels of oil per day with a no cost "collar" of $25.00 to $32.44 per
day beginning October 2000 through December 2000, and
(b) 300 barrels of oil per day with a no cost "collar" of $23.00 and $29.55 per
barrel beginning January 2001 through December 2001.
As of June 30, 2000, the Company's open forward position on its outstanding
natural gas hedging contracts was as follows:
(a) 5,000 Mcf per day with a "floor" price of $2.50 per Mcf through September
2000. The cost of the "floor" contract hedge is $0.23 per Mcf over the
"floor" price;
(b) 6500 MMBtu of gas per day with a no cost "collar" of $3.70 and $4.53 per
MMBtu beginning October 2000 through December 2000; and
(c) 5000 MMBtu of gas per day with a no cost "collar" of $3.05 and $4.45 per
MMBtu beginning January 2001 through December 2001.
At June 30, 2000 the average price on its outstanding gas hedging contracts was
$3.90. The fair value of the natural gas hedging contracts in place at June 30,
2000 resulted in a liability of $113,000.
Price fluctuations and the volatile nature of markets
- -----------------------------------------------------
Despite the measures taken by the Company to attempt to control price risk, the
Company remains subject to price fluctuations for natural gas and oil sold in
the spot market. Prices received for natural gas sold on the spot market are
volatile due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil and gas prices could have a material adverse
effect on the Company's financial position, results of operations and quantities
of reserves recoverable on an economic basis.
Disclosure Regarding Forward-Looking Statement
- ----------------------------------------------
Certain statements in this quarterly report on Form 10-Q regarding future
expectations and plans for future activities may be regarded as "forward looking
statements" within the meaning of Private Securities Litigation Reform Act of
1995. They are subject to various risks, such as financial market conditions,
operating hazards, drilling risks and the inherent uncertainties in interpreting
engineering data relating to underground accumulations of oil and gas, as well
as other risks discussed in detail in the Company's Annual Report on Form 10-K
and other filings with the Securities and Exchange Commission. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On February 28, 2000, the Company commenced a suit against the operator and
joint owner of the Lafitte Field, alleging certain items of misconduct and
violations of the letter agreement associated with the joint acquisition. The
suit is in its early stages and it is too early to predict a likely outcome,
however, as the Company is the plaintiff in this action, this action is not
expected to have a significantly adverse impact on the operation or financial
position of the Company.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on May 18,
2000. Set forth below is a brief description of each matter acted upon at the
meeting and the number of votes cast for, against or withheld, and abstaining or
not voting as to each matter.
Election of Class II Directors
- ------------------------------
FOR WITHHELD
--- --------
Henry Goodrich 6,481,660 53,582
Patrick E. Malloy, III 6,486,221 49,021
Ratification of the amendment to the Company's 1995 Stock Option Plan to
- --------------------------------------------------------------------------------
increase the number of shares of common stock available for issuance from
- --------------------------------------------------------------------------------
375,000 to 1,175,000
- --------------------
FOR AGAINST WITHHELD
--- ------- --------
4,237,448 161,228 43,473
Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
- -------------------------------------------------------------------------------
independent auditors for 2000
- -----------------------------
FOR AGAINST WITHHELD
--- ------- --------
6,514,962 16,670 3,610
19
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(b) Reports on Form 8-K
None.
20
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.
GOODRICH PETROLEUM CORPORATION
(registrant)
/s/ Walter G. Goodrich
- ----------------------------------- -------------------------
Date Walter G. Goodrich, President and
Chief Executive Officer
/s/ Roland L. Frautschi
- ----------------------------------- -------------------------
Date Roland L. Frautschi, Senior Vice
President, Chief Financial Officer
and Treasurer
21