- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 21, 2003
THE MERIDIAN RESOURCE CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
TEXAS 1-10671 76-0319553
(State or Other Jurisdiction (Commission File No.) (I.R.S. Employer
of Incorporation) Identification No.)
1401 ENCLAVE PARKWAY, SUITE 300
HOUSTON, TEXAS 77077
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
281-597-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
ITEM 5. OTHER EVENTS
RISK FACTORS
You should carefully consider the following information before making
an investment decision with respect to any of the securities of The Meridian
Resource Corporation (which we sometimes refer to herein as "us", "we" or "the
company"). If any of the following risks actually occur, our financial condition
and our results of operations could be materially and adversely affected.
Additional risks and uncertainties not presently known to us may also impair our
business operations.
This report contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ from those anticipated in these
forward-looking statements as a result of both the risks described below and
factors described elsewhere in other reports, proxy statements and other
information filed by the company with the Securities and Exchange Commission.
You should read the section below entitled "Forward-Looking Statements" for
further discussion of these matters.
RISKS RELATED TO OUR DEBT
WE HAVE INCURRED A HIGH LEVEL OF DEBT.
As of June 30, 2003, we had long-term indebtedness of approximately
$202.5 million (including approximately $34 million of current maturities of
long-term indebtedness) compared to approximately $134.5 million of
stockholders' equity, we had a working capital deficit of approximately $41.9
million (including approximately $34 million of current maturities of long-term
indebtedness) and we had no additional borrowing capacity available under our
credit facility. If we are unable to generate sufficient cash flows from
operations in the future to service our debt, we may need to refinance all or a
portion of our existing debt or to obtain additional financing. We cannot assure
you that any such refinancing or additional financing would be possible. Our
ability to meet our debt service obligations and to reduce our total
indebtedness will depend on our future performance and our ability to maintain
or increase cash flows from our operations. These outcomes are subject to
general economic conditions and to financial, business and other factors
affecting our operations, many of which we do not control, including the
prevailing market prices for oil and natural gas. We cannot assure you that our
business will continue to generate cash flows at or above current levels.
BORROWING LIMITS UNDER OUR CREDIT FACILITY ARE SUBJECT TO REDETERMINATION.
As of June 30, 2003, we have outstanding indebtedness of $165 million
under our revolving credit facility (including approximately $26.5 million of
current maturities of long-term indebtedness under the credit facility), which
is the current limit to our borrowings under that facility. The borrowing base
under that facility is subject to quarterly redeterminations by our lenders. Our
borrowing base is determined primarily by our oil and gas reserve amounts. Our
lenders can redetermine the borrowing base to a lower level than the current
borrowing base if they determine that our oil and gas reserves at the time of
redetermination are inadequate to support the borrowing base then in effect. If
we are required to repay debt under our credit facility as a result of a
downward borrowing base redetermination, we cannot assure you that we would be
able to obtain alternate borrowing sources at commercially reasonable rates.
OUR LENDERS IMPOSE RESTRICTIONS ON US THAT LIMIT OUR ABILITY TO CONDUCT
BUSINESS.
Our credit facility contains restrictive covenants. The restrictive
covenants impose significant operating and financial restraints that could
impair our ability to obtain future financing, to make capital expenditures, to
pay dividends, to engage in mergers or acquisitions, to withstand future
downturns in our
business or in the general economy or to otherwise conduct necessary corporate
activities. Furthermore, we have pledged substantially all of our oil and
natural gas properties and the stock of all of our principal operating
subsidiaries as collateral for the indebtedness under our credit facility. If we
are in material default of our obligations under that credit facility, the
lenders are entitled to liens on additional oil and natural gas properties. This
pledge of collateral to our credit facility lenders could impair our ability to
obtain additional financing on favorable terms.
A default under a restrictive covenant could result in a lender
accelerating the payment of all borrowed funds, together with accrued and unpaid
interest. We cannot assure you that we would be able to remit such an
accelerated payment or to access sufficient funds from alternative sources to
remit any such payment. Even if we could obtain additional financing, we cannot
assure you that the terms of that financing would be favorable or acceptable to
us.
RISKS OF OUR BUSINESS
THE OIL AND NATURAL GAS MARKET IS VOLATILE AND EXPOSES US TO FINANCIAL RISKS.
Our profitability and cash flow are highly dependent on the market
prices of oil and natural gas. Historically, the oil and natural gas markets
have proven cyclical and volatile as a result of factors that are beyond our
control. These factors include changes in tax laws, the level of consumer
product demand, weather conditions, the price and availability of alternative
fuels, the price and level of imports and exports of oil and natural gas,
worldwide economic, political and regulatory conditions, and action taken by the
Organization of Petroleum Exporting Countries.
Any significant decline in oil and natural gas prices or any other
unfavorable market conditions could have a material adverse effect on our
financial condition and on the carrying value of our proved reserves.
Consequently, we may not be able to generate sufficient cash flows from
operations to meet our obligations and to make planned capital expenditures.
Price declines may also affect the measure of discounted future net cash flows
of our reserves, a result that could adversely impact the borrowing base under
our credit facility and may increase the likelihood that we will incur
additional impairment charges on our oil and natural gas properties for
financial accounting purposes.
OUR HEDGING TRANSACTIONS MAY NOT ADEQUATELY PREVENT LOSSES.
We cannot predict future oil and natural gas prices with certainty. To
manage our exposure to the risks inherent in such a volatile market, from time
to time, we have entered into commodities futures, swap or option contracts to
hedge a portion of our oil and natural gas production against market price
changes. Hedging transactions are intended to limit the negative effect of
further price declines, but may also prevent us from realizing the benefits of
price increases above the levels reflected in the hedges.
OUR RESERVE ESTIMATES MAY PROVE TO BE INACCURATE AND FUTURE NET CASH FLOWS ARE
UNCERTAIN.
Our estimates of the quantities of proved reserves and our projections
of both future production rates and the timing of development expenditures are
uncertain and may prove to be inaccurate. You should not construe these reserve
estimates as the current market value of our oil and natural gas reserves. Any
downward revisions of these estimates could adversely affect our financial
condition and our borrowing base under the credit facility.
Our reserves must be estimated by our reserve engineers, T.J. Smith &
Company, Inc. The accuracy of those reserve estimates depends in large part on
the quality of available data and on the engineering and geological
interpretation of our engineers. Our engineers may calculate estimates that
vary widely from estimates calculated by another team of independent engineers.
Our engineers may even make material changes to reserve estimates based on the
results of actual drilling, testing and production. Consequently, our reserve
estimates often differ from the quantities of oil and natural gas we ultimately
recover.
We also make certain assumptions regarding future oil and natural gas
prices, production levels, and operating and development costs that may prove
incorrect when judged against our actual experience. Any significant variance
from these assumptions could greatly affect our estimates of reserves, future
net cash flows and our ability to borrow under our credit facility.
WE DEPEND ON KEY PERSONNEL TO EXECUTE OUR BUSINESS PLANS.
The loss of any key executives or any other key personnel could have a
material adverse effect on our operations. We depend on the efforts and skills
of our key executives, including Joseph A. Reeves, Jr., Chairman of the Board
and Chief Executive Officer, and Michael J. Mayell, President and Chief
Operating Officer. Moreover, as we continue to grow our asset base and the scope
of our operations, our future profitability will depend on our ability to
attract and retain qualified personnel.
WE COMPETE AGAINST SIGNIFICANT PLAYERS IN THE OIL AND NATURAL GAS INDUSTRY.
The oil and natural gas industry is highly competitive. Our ability to
acquire additional properties and to discover additional reserves depends on our
ability to consummate transactions in this highly competitive environment. We
compete with major oil companies, other independent oil and natural gas
companies, and individual producers and operators. Many of these competitors
have access to greater financial and personnel resources than those to which we
have access. Moreover, the oil and natural gas industry competes with other
industries in supplying the energy and fuel needs of industrial, commercial and
other consumers. Increased competition causing oversupply or depressed prices
could materially adversely affect our revenues.
THE OIL AND NATURAL GAS MARKET IS HEAVILY REGULATED.
We are subject to various federal, state and local laws and
regulations. These laws and regulations govern safety, exploration, development,
taxation and environmental matters that are related to the oil and natural gas
industry. To conserve oil and natural gas supplies, regulatory agencies may
impose price controls and may limit our production. Certain laws and regulations
require drilling permits, govern the spacing of wells and the prevention of
waste, and limit the total number of wells drilled or the total allowable
production from successful wells. Other laws and regulations govern the
handling, storage, transportation and disposal of oil and natural gas and any
byproducts produced in oil and natural gas operations. These laws and
regulations could materially adversely impact our operations and our revenues.
Laws and regulations that affect us may change from time to time in
response to economic or political conditions. Thus, we must also consider the
impact of future laws and regulations that may be passed in the jurisdictions
where we operate. We anticipate that future laws and regulations related to the
oil and natural gas industry will become increasingly stringent and cause us to
incur substantial compliance costs.
THE NATURE OF OUR OPERATIONS EXPOSES US TO ENVIRONMENTAL LIABILITIES.
Our operations create the risk of environmental liabilities. We may
incur liability to governments or to third parties for any unlawful discharge of
oil, gas or other pollutants into the air, soil or water. We could potentially
discharge oil or natural gas into the environment in any of the following ways:
o from a well or drilling equipment at a drill site,
o from a leak in storage tanks, pipelines or other gathering and
transportation facilities,
o from damage to oil or natural gas wells resulting from
accidents during normal operations, or
o from blowouts, cratering or explosions.
Environmental discharges may move through the soil to water supplies or
adjoining properties, giving rise to additional liabilities. Some laws and
regulations could impose liability for failure to obtain the proper permits for,
to control the use of, or to notify the proper authorities of a hazardous
discharge. Such liability could have a material adverse effect on our financial
condition and our results of operations and could possibly cause our operations
to be suspended or terminated on such property.
We may also be liable for any environmental hazards created either by
the previous owners of properties that we purchase or lease or by acquired
companies prior to the date we acquire them. Such liability would affect the
costs of our acquisition of those properties. In connection with any of these
environmental violations, we may also be charged with remedial costs. Pollution
and similar environmental risks generally are not fully insurable.
Although we do not believe that our environmental risks are materially
different from those of comparable companies in the oil and natural gas
industry, we cannot assure you that environmental laws will not result in
decreased production, substantially increased costs of operations or other
adverse effects to our combined operations and financial condition.
WE REQUIRE SUBSTANTIAL CAPITAL REQUIREMENTS TO FINANCE OUR OPERATIONS.
We have substantial anticipated capital requirements. Our ongoing
capital requirements consist primarily of the need to fund our 2003 capital and
exploration budget and the acquisition, development, exploration, production and
abandonment of oil and natural gas reserves.
We plan to finance anticipated ongoing expenses and capital
requirements with funds generated from the following sources:
o cash provided by operating activities,
o available cash and cash investments,
o capital raised through debt and equity offerings and
o funds received under our bank line of credit.
Although we believe the funds provided by these sources will be
sufficient to meet our 2003 cash requirements, the uncertainties and risks
associated with future performance and revenues will ultimately determine our
liquidity and our ability to meet anticipated capital requirements. If declining
prices cause our revenues to decrease, we may be limited in our ability to
replace our reserves, to maintain current production levels and to undertake or
complete future drilling programs. As a result, our production and revenues
would continue to decrease over time and may not be sufficient to satisfy our
projected capital expenditures. We cannot assure you that we will be able to
obtain additional debt or equity financing in such a circumstance.
OUR OPERATIONS ENTAIL INHERENT CASUALTY RISKS FOR WHICH WE MAY NOT HAVE ADEQUATE
INSURANCE.
We must continually acquire, explore and develop new oil and natural
gas reserves to replace those produced and sold. Our hydrocarbon reserves and
our revenues will decline if we are not successful in our drilling, acquisition
or exploration activities. Although we have historically maintained our reserve
base primarily through successful exploration and development operations, we
cannot assure you that future efforts will be similarly successful. Casualty
risks and other operating risks could cause reserves and revenues to decline.
Our onshore and offshore operations are subject to inherent casualty
risks such as fires, blowouts, cratering and explosions. Other risks include
pollution, the uncontrollable flows of oil, natural gas, brine or well fluids,
and the hazards of marine and helicopter operations such as capsizing, collision
and adverse weather and sea conditions. These risks may result in injury or loss
of life, suspension of operations, environmental damage or property and
equipment damage, all of which would cause us to experience substantial
financial losses.
Our drilling operations involve risks from high pressures and from
mechanical difficulties such as stuck pipes, collapsed casings and separated
cables. Our offshore properties involve higher exploration and drilling risks
such as the cost of constructing exploration and production platforms and
pipeline interconnections as well as weather delays and other risks. Although we
carry insurance that we believe is in accordance with customary industry
practices, we are not fully insured against all casualty risks incident to our
business. We do not carry business interruption insurance. Should an event occur
against which we are not insured, that event could have a material adverse
effect on our financial position and our results from operations.
OUR OPERATIONS ALSO ENTAIL SIGNIFICANT OPERATING RISKS.
Our drilling activities involve risks, such as drilling non-productive
wells or dry holes, which are beyond our control. The cost of drilling and
operating wells and of installing production facilities and pipelines is
uncertain. Cost overruns are common risks that often make a project
uneconomical. The decision to purchase and to exploit a property depends on the
evaluations made by our reserve engineers, the results of which are often
inconclusive or subject to multiple interpretations. We may also decide to
reduce or cease our drilling operations due to title problems, weather
conditions, noncompliance with governmental requirements or shortages and delays
in the delivery or availability of equipment or fabrication yards.
WE MAY NOT BE ABLE TO MARKET EFFECTIVELY OUR OIL AND NATURAL GAS PRODUCTION.
We may encounter difficulties in the marketing of our oil and natural
gas production. Effective marketing depends on factors such as the existing
market supply and demand for oil and natural gas and the limitations imposed by
governmental regulations. The proximity of our reserves to pipelines and the
available capacity of such pipelines and other transportation, processing and
refining facilities also affect our marketing efforts. Even if we discover
hydrocarbons in commercial quantities, a substantial period of time may elapse
before we begin commercial production. If pipeline facilities in an area are
insufficient, we may have to wait for the construction or expansion of pipeline
capacity before we can market production from that area. Another risk lies in
our ability to negotiate commercially satisfactory arrangements with the owners
and operators of production platforms in close proximity to our wells. Also,
natural gas wells may be shut in for lack of market demand or because of the
inadequate capacity or unavailability of natural gas pipelines or gathering
systems.
WE ARE DEPENDENT ON OTHER OPERATORS WHO INFLUENCE OUR PRODUCTIVITY.
We have limited influence over the nature and timing of exploration and
development on oil and natural gas properties we do not operate, including
limited control over the maintenance of both safety and environmental standards.
The operators of those properties may:
o refuse to initiate exploration or development projects (in
which case we may propose desired exploration or development
activities),
o initiate exploration or development projects on a slower
schedule than we prefer, or
o drill more wells or build more facilities on a project than we
can adequately finance, which may limit our participation in
those projects or limit our percentage of the revenues from
those projects.
The occurrence of any of the foregoing events could have a material
adverse effect on our anticipated exploration and development activities.
OUR WORKING INTEREST OWNERS FACE CASH FLOW AND LIQUIDITY CONCERNS.
If oil and natural gas prices decline, many of our working interest
owners may experience liquidity and cash flow problems. These problems may lead
to their attempting to delay the pace of drilling or project development in
order to conserve cash. Any such delay may be detrimental to our projects. In
most cases, we can influence the pace of development by enforcing our joint
operating agreements. Some working interest owners, however, may be unwilling or
unable to pay their share of the project costs as they become due. A working
interest owner may declare bankruptcy and refuse or be unable to pay its share
of the project costs and we would be obligated to pay that working interest
owner's share of the project costs.
OUR INABILITY TO ACQUIRE OR INTEGRATE ACQUIRED COMPANIES OR TO DEVELOP NEW
EXPLORATION PROSPECTS MAY INHIBIT OUR GROWTH.
From time to time and under certain circumstances, our business
strategy may include acquisitions of businesses that complement or expand our
current business and acquisition and development of new exploration prospects
that complement or expand our prospect inventory. We cannot assure you that we
will be able to identify attractive acquisition or prospect opportunities. Even
if we do identify attractive opportunities, we cannot assure you that we will be
able to complete the acquisition of the business or prospect or to do so on
commercially acceptable terms. If we do complete an acquisition, we must
anticipate difficulties in integrating its operations, systems, technology,
management and other personnel with our own. These difficulties may disrupt our
ongoing operations, distract our management and employees and increase our
expenses. Even if we are able to overcome such difficulties, we cannot assure
you that we will realize the anticipated benefits of any acquisition.
Furthermore, we may incur additional debt or issue additional equity securities
to finance any future acquisitions. Any issuance of additional securities may
dilute the value of shares currently outstanding.
TERRORIST ATTACKS AND THREATS OR ACTUAL WAR MAY NEGATIVELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our business is affected by general economic conditions and
fluctuations in consumer confidence and spending, which can decline as a result
of numerous factors outside of our control, such as terrorist attacks and acts
of war. Recent terrorist attacks in the United States, as well as events
occurring in response to or in connection with them, including future terrorist
attacks against U.S. targets, rumors or
threats of war, actual conflicts involving the United States or its allies, or
military or trade disruptions impacting our suppliers or our customers, may
adversely impact our operations. Strategic targets such as energy-related assets
may be at greater risk of future terrorist attacks than other targets in the
United States. These occurrences could have an adverse impact on energy prices,
including prices for our natural gas and crude oil production. In addition,
disruption or significant increases in energy prices could result in
government-imposed price controls. It is possible that any or a combination of
these occurrences could have a material adverse effect on our business,
financial condition and results of operations.
FORWARD-LOOKING STATEMENTS
We believe that some statements contained in this report or in other
documents we file with the Securities and Exchange Commission relate to results
or developments that we anticipate will or may occur in the future and are not
statements of historical fact. Those statements are "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). Words such as
"anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan",
"predict", "project", "will" and similar expressions identify forward-looking
statements. Examples of forward looking statements include statements about the
following:
o our future operating results,
o our repayment of debt,
o our future capital expenditures,
o our expansion and growth of operations, and
o our future investments in and acquisitions of oil and natural
gas properties.
We have based these forward-looking statements on assumptions and
analyses made in light of our experience and our perception of historical
trends, current conditions, and expected future developments. However, you
should be aware that these forward-looking statements are only our predictions
and we cannot guarantee any such outcomes. Future events and actual results may
differ materially from the results set forth in or implied in the
forward-looking statements. Factors that might cause such a difference include:
o general economic and business conditions,
o exposure to market risks in our financial instruments,
o fluctuations in worldwide prices and demand for oil and
natural gas,
o the direct or indirect effects on our business resulting from
recent terrorist incidents,
o fluctuations in the levels of our oil and natural gas
exploration and development activities,
o risks associated with oil and natural gas exploration and
development activities,
o competition for raw materials and customers in the oil and
natural gas industry,
o technological changes and developments in the oil and natural
gas industry,
o regulatory uncertainties and potential environmental
liabilities,
o potential for and uncertainty of the outcome of pending or
threatened litigation, and
o additional matters discussed under "Risk Factors".
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MERIDIAN RESOURCE CORPORATION
(Registrant)
/s/ LLOYD V. DeLANO
--------------------------------------
Lloyd V. DeLano
Senior Vice President
Date: August 21, 2003