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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 O-8043
SOUTHERN MINERAL CORPORATION
(Exact name of Small Business Issuer as specified on its charter)
STATE OF NEVADA 36-2068676
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
17001 NORTHCHASE DR., SUITE 690, HOUSTON, TX 77060-2138
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code 713/872-7621
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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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
As of October 31, 1995 there were 6,279,858 shares of the issuer's common stock
outstanding.
Traditional Small Business Disclosure Format (check one):
Yes x No
--- ---
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ITEM 1. FINANCIAL STATEMENTS.
PART 1
SOUTHERN MINERAL CORPORATION
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ----------------
1995 1994 1995 1994
----- ----- ----- -----
(000'S OMITTED)
(EXCEPT FOR PER SHARE)
REVENUES
OIL AND GAS $572 $429 $1,611 $1,320
INTEREST 22 14 67 37
OTHER 26 62 101 89
----- ----- ----- -----
620 505 1,779 1,446
----- ----- ----- -----
EXPENSES
PRODUCTION 190 118 466 417
EXPLORATION 5 13 198 1,210
DEPRECIATION AND DEPLETION 178 117 458 379
VALUATION REDUCTION - ASSETS
HELD FOR DISPOSAL 0 0 0 1,334
GENERAL AND ADMINISTRATIVE 155 158 558 737
SEVERANCE BENEFIT 0 0 117 0
----- ----- ----- -----
528 406 1,797 4,077
----- ----- ----- -----
NET INCOME (LOSS) BEFORE INCOME TAXES 92 99 (18) (2,631)
BENEFIT FROM INCOME TAXES 0 0 0 (545)
----- ----- ----- -----
NET INCOME (LOSS) $92 $99 ($18) ($2,086)
===== ===== ===== =====
NET INCOME (LOSS) PER SHARE $0.01 $0.02 ($0.00) ($0.52)
===== ===== ===== =====
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 6,275 4,024 5,507 4,024
===== ===== ===== =====
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SOUTHERN MINERAL CORPORATION
CONDENSED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
1995 1994
------ ------
(000'S OMITTED)
ASSETS
CURRENT ASSETS
CASH $548 $55
MARKETABLE SECURITIES 1,249 1,569
RECEIVABLES 278 277
REFUNDABLE INCOME TAXES 16 10
OTHER 29 62
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TOTAL CURRENT ASSETS 2,120 1,973
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PROPERTY AND EQUIPMENT, AT COST
USING THE SUCCESSFUL EFFORTS METHOD
FOR OIL AND GAS ACTIVITIES
MINERAL RIGHTS 102 102
OIL & GAS PRODUCING PROPERTIES 5,988 3,544
UNPROVEN PROPERTIES 70 22
OFFICE EQUIPMENT & FURNITURE 159 160
ACCUMULATED DEPRECIATION AND DEPLETION (2,923) (2,481)
------ ------
TOTAL PROPERTY AND EQUIPMENT 3,396 1,347
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OTHER ASSETS
OIL AND GAS PRODUCING PROPERTIES HELD FOR SALE 0 50
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TOTAL ASSETS $5,516 $3,370
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $217 $290
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TOTAL CURRENT LIABILITIES 217 290
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DEFERRED INCOME TAXES 0 0
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STOCKHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.01 PER SHARE
AUTHORIZED 10,000,000 SHARES AT
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994,
ISSUED 6,369,519 AND 4,161,600 SHARES AT
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994,
RESPECTIVELY 64 42
ADDITIONAL PAID-IN CAPITAL 3,038 843
RETAINED EARNINGS 2,250 2,268
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5,352 3,153
LESS COST OF 91,120 AND 137,179 SHARES OF
COMMON STOCK IN TREASURY AT SEPTEMBER 30, 1995
AND DECEMBER 31, 1994, RESPECTIVELY (53) (73)
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TOTAL STOCKHOLDERS' EQUITY 5,299 3,080
------ ------
$5,516 $3,370
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SOUTHERN MINERAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1995 1994
---- ----
(000'S OMITTED)
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS ($18) ($2,086)
ADJUSTMENTS TO NET LOSS 640 2,711
---- ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 622 625
---- ------
CASH FLOWS FROM INVESTING ACTIVITIES
PROCEEDS FROM SALES OF PROPERTIES 77 139
DECREASE IN MARKETABLE
SECURITIES 320 413
CAPITAL EXPENDITURES (555) (924)
OTHER (2) (8)
---- ------
NET CASH USED IN
INVESTING ACTIVITIES (160) (380)
---- ------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF COMMON STOCK 31 0
DIVIDENDS PAID 0 (202)
---- ------
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES 31 (202)
---- ------
NET INCREASE IN CASH 493 43
CASH AT BEGINNING OF PERIOD 55 66
---- ------
CASH AT END OF PERIOD $548 $109
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SOUTHERN MINERAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The unaudited condensed financial statements included herein have been prepared
by the Registrant, pursuant to the rules and regulations of the Securities and
Exchange Commission. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Registrant's latest Annual Report to shareholders and the Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December 31,
1994. In the opinion of the Registrant, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position as of September 30, 1995 and December 31, 1994, the results of
operations for the three months and nine months ended September 30, 1995 and
1994, and statements of cash flows for the nine months then ended have been
included.
Note B - Acquisition
On April 6, 1995, the Registrant completed the acquisition of Diverse
Production Co. ("DPC", subsequently renamed SMC Production Co.), a Texas
corporation, whose primary asset is its 15% general partner interest in Diverse
GP III, a Texas general partnership. The operating results of this acquisition
are included in the Registrant's consolidated results of operations from April
1, 1995. The unaudited consolidated results of operations on a pro forma basis
as though DPC had been acquired as of the beginning of the Registrant's fiscal
years 1994 and 1995 are as follows:
Nine Months Ended September 30,
1995 1994
(000's omitted, except per share data)
Revenues $ 2,029 $ 2,089
Net Income (Loss) 43 (1,882)
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Net Income (Loss) Per Share $ .01 $ (.30)
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These pro forma results are not necessarily indicative of those that would have
occurred had the acquisition taken place at the beginning of 1994 or 1995,
respectively.
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ITEM 2.
SOUTHERN MINERAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The Registrant recorded income of $92,000, or $.01 per share, for the three
months ended September 30, 1995, compared to income of $99,000, or $.02 per
share, in the comparable 1994 period. Registrant's 1995 third quarter results
include $29,000 of income attributable to its interest acquired in Diverse GP
III, a Texas general partnership ("DGP III").
On April 6, 1995, Registrant acquired SMC Production Co. (formerly named
Diverse Production Co.), a Texas corporation ("SMPC"), whose primary asset is
its 15% general partner interest in DGP III. Registrant's acquisition of SMPC
is consolidated for reporting purposes as of April 1, 1995. Registrant
acquired all of SMPC's outstanding capital stock in consideration for issuing
SMPC's shareholders an aggregate of 2,193,919 shares of Registrant's common
stock and options to acquire an additional 325,000 shares of common stock at
any time before April 7, 2000, at an exercise price of $1.25 per share.
In the 1995 third quarter, oil sales volumes increased 27% from 17,688 barrels
to 22,486 barrels and gas sales volumes increased 89% from 68.6 Mmcf to 130.0
Mmcf, compared to the 1994 quarter. Although the Registrant's properties
continue to decline in oil and gas sales volumes year to year, the addition of
the 15% DGP III interest incrementally added 7,011 barrels and 68.6 Mmcf to the
Registrant's production volumes in the 1995 quarter.
For the quarter, average oil prices decreased 3%, from $16.96 per barrel in the
comparable 1994 period to $16.37 per barrel in 1995. Gas prices decreased 19%,
from an average price of $1.89 per Mcf in the 1994 quarter to $1.53 per Mcf in
1995's third quarter.
The increase in oil and gas sales volumes contributed greatly to increasing the
1995 quarter revenues to $620,000 from $505,000 in the 1994 period.
Depreciation and depletion increased to $178,000 in the 1995 quarter versus
only $117,000 in the 1994 quarter, which is attributable to the increased
depletion expense from the 15% DGP III interest.
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NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The Registrant recorded a loss of $18,000 for the nine months ended September
30, 1995, compared to a loss of $2,086,000, or $.52 per share, in the
comparable 1994 period. The current period loss is due to severance benefits
paid in the second quarter, and to limited exploration expenses of $198,000
that are a result of commitments made in 1994. The 1994 period losses are due
to the combination of valuation reductions and exploration expenses.
Production volumes increased during the year to year period comparisons. Oil
production for the first nine months of 1995 totalled 65,356 barrels compared
to 59,612 barrels in the 1994 period, reflecting a 10% increase. Gas volumes
increased more than 46% in the period to period comparison, from 222.1 Mmcf in
the 1994 period to 324.1 Mmcf in the 1995 period. Oil prices averaged $16.85
per barrel in the first nine months of 1995, reflecting a 12% increase in the
period to period comparison. Gas prices declined 19% from the 1994 to the 1995
nine month period, from $1.89 per Mcf to $1.54 per Mcf, respectively.
Revenues increased to $1,779,000 during the nine month period in 1995, 19%
higher than the 1994 nine month period total of $1,446,000. Expenses decreased
considerably as a result of limited exploration expenses and no valuation
writedowns. General and administrative expenses declined 24% from $737,000 in
the 1994 period to $558,000 in the 1995 period, which is a result of staff
reductions and other expense containment in the year to year comparisons.
Charges for severance benefits totalled $117,000 for the current nine month
period for which there are no comparable charges in the 1994 period.
Results for the first nine months are impacted by the acquisition of interests
from DGP III, which was closed on April 6, 1995, but consolidated for reporting
purposes as of April 1, 1995. Without the consolidation of the DGP III
results, Registrant's reported loss would have been over $137,000.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's working capital increased to $1,903,000 at September 30, 1995,
from $1,683,000 at December 31, 1994. Cash flows from operating activities
decreased from $625,000 in the nine month period in 1994 to $622,000 for the
comparable 1995 period. Cash and marketable securities increased from
$1,624,000 at December 31, 1994, to $1,797,000 at September 30, 1995.
Cash payments of $9,000 and $11,000 were made for Federal and state income
taxes for the nine months ending September 30, 1995 and 1994, respectively.
The Registrant received $3,000 and $282,000 in refunds for Federal and state
income taxes for the nine months ending September 30, 1995 and 1994,
respectively.
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As discussed in the Management's Discussion and Analysis of the Results of
Operations on April 6, 1995, the Registrant consummated the transactions
contemplated by an Exchange Agreement between the Registrant and certain
sellers. Of the $2,329,000 total cost of this transaction, $2,194,000 was
recorded as a non-cash portion of this transaction.
During October of the current year, the Registrant has entered into a joint
venture with The Links Group, Inc., a private exploration group, which is
controlled by Robert R. Hillery, a director of the Registrant. The Southern
Links Group joint venture is structured to develop and market exploration
prospects in the shallow offshore Texas state waters. The joint venture will
create salable prospects in the highly productive Gulf Coast Region. Future
efforts to acquire leases and 3-D seismic surveys will result in the
expenditures of capital from time to time, which will be recouped upon sale of
the prospects.
The Registrant is unaware of any material exposure from actual or potential
claims or lawsuits, including those involving environmental matters. As such,
no liability is accrued at September 30, 1995 or December 31, 1994.
The Registrant currently has no bank debt or lines of credit. However, the
Registrant has executed a commitment with International Bank of Commerce, San
Antonio, Texas, and is currently in the final stages of documenting a line of
credit. However, as a result of the purchase discussed in "Subsequent Events"
below, Registrant is working with International Bank of Commerce and several
other financial providers to structure a mutually satisfactory financing.
Registrant continues to pursue various acquisition opportunities, and intends
to utilize its cash and marketable securities together with third party
financing to accomplish the purchase of oil and gas property acquisitions. As
a result, balances on the Registrant's marketable securities and cash may
fluctuate in future periods.
SUBSEQUENT EVENTS
BANDERA AND EQUIPO SALE.
Effective October 1, 1995, the Registrant has sold its interests in the Bandera
and Equipo Prospects located in Maverick County, Texas. This sale includes
working interests in nine productive and shut-in wells, a gas plant and
pipeline, and two 3-D seismic survey projects.
STONE & WEBSTER PURCHASE.
On October 31, 1995, the Registrant entered into a Purchase and Sale Agreement
with Stone & Webster, Incorporated ("S&W") and Stone & Webster Oil Company,
Inc.
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("SWOC" and together with S&W, "Sellers"). Subject to the terms and conditions
of the Purchase and Sale Agreement, the Registrant will purchase certain of
SWOC's oil and gas assets, and the outstanding capital stock of three
wholly-owned subsidiaries of S&W and SWOC engaged in oil and gas related
businesses, including production, marketing and pipelines. Consummation of
these transactions (the "Closing") is scheduled for December 22, 1995.
The aggregate cash purchase price is $16,500,000, subject to adjustment for
production since September 1, 1995 and certain title defects in oil and gas
properties. The Registrant has escrowed $1,000,000 which generally either will
be credited to the purchase price upon Closing, paid to Sellers as liquidated
damages if Registrant fails to close and Sellers are not in material default,
or repaid to Registrant if Closing does not occur because Sellers are in
default (excluding title defects that do not exceed $500,000 in the aggregate).
This acquisition includes oil and gas interests in 1,200 wells located in
Canada, ten pipeline and gathering systems located in Oklahoma, Texas and
Louisiana, and 270,000 gross mineral acres along with the associated producing
royalties. This acquisition will add approximately one million barrels of oil
and 14.5 billion cubic feet of natural gas reserves along with the pipeline and
gathering systems.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as follows:
(27) (2) Financial Data Schedule for the nine months ended
September 30, 1995 (filed herewith).
(b) The Registrant filed reports on Form 8-K during the most recently
completed fiscal quarter as follows:
(1) None
2.1 Purchase and Sale Agreement, dated as of October 31, 1995, by and
among Stone & Webster, Incorporated, Stone & Webster Oil Company, Inc.
and Southern Mineral Corporation (incorporated by reference to
Registrant's Form 8-K dated October 31, 1995).
2.2 Escrow Agreement, dated as of October 31, 1995, by and among Southern
Mineral Corporation, Stone & Webster, Incorporated, Stone & Webster
Oil Company, Inc. and Texas Commerce Bank National Association
(incorporated by reference to Registrant's Form 8-K dated October 31,
1995).
2.3 Southern Links Group Joint Venture Agreement, dated October 1, 1995,
between Southern Mineral Corporation and The Links Group, Inc. (filed
herewith).
99 News Release of Southern Mineral Corporation dated November 1, 1995
(incorporated by reference to Registrants Form 8-K dated October 31,
1995).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SOUTHERN MINERAL CORPORATION
Date: By /s/ Steven H. Mikel
---------------------- -------------------------------------------
Steven H. Mikel
President, Chief Executive Officer,
and Acting Principal Financial
Officer
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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2.3 Southern Links Group Joint Venture Agreement
27 Financial Data Schedule