1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission file number 1-12534
NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 72-1133047
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
363 N. Sam Houston Parkway E.
Suite 2020
Houston, Texas 77060
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (281) 847-6000
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 [ ]
As of October 24, 1997, there were 35,916,158 shares of the
Registrant's Common Stock, par value $0.01 per share, outstanding.
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TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30,
1997 and December 31, 1996 . . . . . . . . . 1
Consolidated Statement of Income for the
three months ended September 30, 1997
and 1996 and for the nine months ended
September 30, 1997 and 1996. . . . . . . . . 3
Consolidated Statement of Cash Flows for
the nine months ended September 30, 1997
and 1996 . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 8
PART II
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 17
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share data)
(Unaudited)
September 30, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . $ 15,279 $ 13,290
Accounts receivable, oil and gas. . . . 37,222 46,814
Other . . . . . . . . . . . . . . . . . 2,711 1,179
------------ ------------
Total current assets. . . . . . . . . 55,212 61,283
------------ ------------
Oil and gas properties (full cost method,
of which $66,957 at September 30, 1997
and $55,305 at December 31, 1996 were
excluded from amortization) . . . . . . 715,018 526,680
Furniture, fixtures and equipment . . . . 3,028 2,496
Less-accumulated depreciation,
depletion and amortization. . . . . . . (266,541) (199,161)
------------ ------------
451,505 330,015
------------ ------------
Other assets . . . . . . . . . . . . . . 209 4,640
------------ ------------
Total assets . . . . . . . . . . . . $ 506,926 $ 395,938
============ ============
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share data)
(Unaudited)
September 30, December 31,
1997 1996
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities. . . . . . . . . . . . . $ 45,448 $ 46,072
Advances from joint owners . . . . . . 915 3,612
Current maturities of capital
lease obligations. . . . . . . . . . --- 163
----------- -----------
Total current liabilities. . . . . . 46,363 49,847
----------- -----------
Other liabilities. . . . . . . . . . . . 4,703 2,048
Long-term debt . . . . . . . . . . . . . 120,000 60,000
Deferred taxes . . . . . . . . . . . . . 57,620 44,141
----------- -----------
Total long-term liabilities. . . . . 182,323 106,189
----------- -----------
Commitments and contingencies (Note 2) . --- ---
Stockholders' equity:
Preferred stock ($0.01 par value,
5,000,000 share authorized,
no shares issued). . . . . . . . . . --- ---
Common stock ($0.01 par value,
100,000,000 and 50,000,000 shares
authorized; 35,879,058 and 35,243,040
shares issued and outstanding at
September 30, 1997 and December 31,
1996, respectively). . . . . . . . . 359 352
Additional paid-in capital . . . . . . . 159,265 147,291
Unearned compensation . . . . . . . . . (4,764) (2,746)
Retained earnings . . . . . . . . . . . 123,380 95,005
----------- -----------
Total stockholders' equity . . . . . 278,240 239,902
----------- -----------
Total liabilities and
stockholders' equity . . . . . . . $ 506,926 $ 395,938
=========== ===========
The accompanying notes are an integral part of these financial statements.
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Oil and gas revenues. . . . $ 49,863 $ 35,799 $ 139,135 $ 101,774
---------- ---------- ---------- ----------
Operating expenses:
Lease operating . . . . . 7,177 4,696 17,782 12,094
Depreciation, depletion
and amortization. . . . 25,442 16,189 67,415 45,535
General and
administrative, net . . 2,724 1,265 8,251 5,338
Stock compensation. . . . 297 571 1,005 1,444
---------- ---------- ---------- ----------
Total operating
expenses. . . . . . . 35,640 22,721 94,453 64,411
---------- ---------- ---------- ----------
Income from operations. . . 14,223 13,078 44,682 37,363
Other income (expense):
Interest income . . . . . 160 305 768 588
Interest expense, net . . (926) (53) (1,783) (197)
---------- ---------- ---------- ----------
(766) 252 (1,015) 391
---------- ---------- ---------- ----------
Income before income taxes . 13,457 13,330 43,667 37,754
Income tax provision . . . . 4,742 4,657 15,292 13,203
---------- ---------- ---------- ----------
Net income . . . . . . . . . $ 8,715 $ 8,673 $ 28,375 $ 24,551
========== ========== ========== ==========
Earnings per common share. . $ 0.23 $ 0.23 $ 0.75 $ 0.66
========== ========== ========== ==========
Weighted average number
of shares and common
stock equivalents
outstanding. . . . . . . . 38,120 37,549 37,771 37,132
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . $ 28,375 $ 24,551
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion
and amortization . . . . . . . . 67,415 45,535
Deferred taxes . . . . . . . . . . 15,315 13,511
Stock compensation . . . . . . . . 1,005 1,444
------------- ------------
112,110 85,041
Changes in operating assets and
liabilities:
Decrease in accounts receivable,
oil and gas. . . . . . . . . . . 9,592 744
Decrease (increase) in other
current assets . . . . . . . . . (1,511) 2,589
Decrease in other assets . . . . . 4,431 231
Increase (decrease) in accounts
payable and accrued
liabilities. . . . . . . . . . . (7,310) 9,778
Increase (decrease) in advance
from joint owners. . . . . . . . (2,697) 9,193
Increase in other liabilities. . . 2,655 1,055
------------ ------------
Net cash provided by
operating activities . . . . . 117,270 108,631
------------ ------------
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
Cash flows from investing activities:
Additions to oil
and gas properties . . . . . . . (181,652) (106,627)
Additions to furniture,
fixtures and equipment . . . . . (566) (417)
------------ ------------
Net cash used in
investing activities . . . . . (182,218) (107,044)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings . . . . . 315,000 190,000
Repayments of borrowings . . . . . (255,000) (164,000)
Proceeds from issuance of
common stock, net. . . . . . . . 7,100 2,194
Payments on capital
lease obligations. . . . . . . . (163) (357)
------------ ------------
Net cash provided by
financing activities . . . . . 66,937 27,837
------------ ------------
Increase in cash and
cash equivalents . . . . . . . . . 1,989 29,424
Cash and cash equivalents,
beginning of period. . . . . . . . 13,290 12,533
------------ ------------
Cash and cash equivalents,
end of period. . . . . . . . . . . $ 15,279 $ 41,957
============ ============
The accompanying notes are an integral part of these financial statements.
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NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Accounting Policies
Unless the context otherwise requires, references to the "Company"
include Newfield Exploration Company and its subsidiaries. The unaudited
consolidated financial statements of the Company reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly the Company's consolidated financial
position at September 30, 1997 and the Company's consolidated results of
operations for the three- and nine-month periods ended September 30, 1997
and 1996 and consolidated cash flows for the nine-month periods ended
September 30, 1997 and 1996. The consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore
do not include all disclosures required for financial statements prepared in
conformity with generally accepted accounting principles. Interim period
results are not necessarily indicative of results of operations or cash
flows for a full-year period.
The consolidated financial statements include the accounts of Newfield
Exploration Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
These consolidated financial statements and the notes thereto should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, including those financial statements and notes
thereto incorporated by reference from the Company's 1996 Annual Report to
Stockholders.
From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the
downside risk of adverse price movements, they may also limit future
revenues from favorable price movements. The use of hedging transactions
also involves the risk that the counterparties will be unable to meet the
financial terms of such transactions. All of the Company's hedging
transactions to date were carried out in the over-the-counter market and the
obligations of the counterparties have been guaranteed by entities with at
least an investment grade rating or secured by letters of credit. The
Company accounts for these transactions as hedging activities and,
accordingly, gains or losses are included in oil and gas revenues when the
hedged production is delivered. Unrealized gains and losses on these
contracts are deferred and offset in the balance sheet against the related
settlement amounts.
(2) Contingencies
The Company has been named as a defendant in certain lawsuits arising
in the ordinary course of business. While the outcome of these lawsuits
cannot be predicted with certainty, management does not expect these matters
to have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
The Company's operations are subject to various federal, state and
local laws and regulations relating to the protection of the environment.
The Company believes its current operations are in material compliance with
current environmental laws and regulations. There can be no assurance,
however, that current regulatory requirements will not change, currently
unforseen environmental incidents will not occur or past non-compliance
with environment laws will not be discovered.
(3) Acquisition Activities
In July 1997, the Company completed the acquisition of interests in
five oil and gas producing fields comprised of interests in nine offshore
blocks in the East Cameron, West Cameron and High Island areas of the
Gulf of Mexico, offshore Louisiana and Texas, for a purchase price of
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approximately $43 million. In July 1997, combined production from these
fields was approximately 18 MMcfe per day net to the interests acquired,
or approximately 10% of the Company's net daily production prior to the
acquisition.
(4) Subsequent Events
Subsequent to September 30, 1997, the Company placed, through a
Rule 144A private placement offering, $125 million in senior unsecured
notes due October 2007. The notes have registration rights. Net proceeds
from the sale of the notes were used to repay outstanding indebtedness
under the Company's revolving credit facility. The notes were issued at
99.684% of par with a 7.45% coupon, with interest payable on April 15 and
October 15, commencing April 15, 1998.
Additionally, the Company entered into an amended and restated,
unsecured, five year, $125 million revolving credit facility on October 9,
1997. The borrowing base under the facility is $225 million and the amount
available to the Company after placement of the senior notes is $100 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
As an independent oil and gas producer, the Company's revenue,
profitability and future rate of growth are substantially dependent upon
prevailing prices for natural gas, oil and condensate, which are dependent
upon numerous factors beyond the Company's control, such as economic,
political and regulatory developments and competition from other sources of
energy. The energy markets have historically been very volatile and there
can be no assurance that oil and gas prices will not be subject to wide
fluctuations in the future. A substantial or extended decline in oil and
gas prices could have a material adverse effect on the Company's financial
position, results of operations, cash flows, quantities of oil and gas
reserves that may be economically produced and access to capital.
The Company's results of operations may vary significantly from quarter
to quarter as a result of development operations, commodity prices, the
curtailment of production in association with workover and recompletion
activities and the incurrence of expenses related thereto, the timing and
amount of reimbursement for customary overhead costs received by the Company
and other factors, and, therefore, the results of operations for any one
quarter may not be indicative of results for the full fiscal year.
The Company uses the full cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain related employee costs (less any reimbursements for
such costs) incurred for the purpose of acquiring and finding oil and gas
reserves are capitalized in a "full cost pool" as incurred. The Company
records depletion of its full cost pool using the unit of production method
and uses its internal estimates of proved quantities of oil and gas reserves
for financial accounting matters. To the extent that such capitalized costs
in the full cost pool (net of depreciation, depletion and amortization and
related deferred taxes) exceed the present value (using a 10% discount rate)
of estimated future net after-tax cash flows from proved oil and gas
reserves, such excess costs are charged to operations. Once incurred, a
write-down of oil and gas properties is not reversible at a later date even
if oil or gas prices increase.
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("Statement No. 128"). The statement specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS")
and is designed to improve the EPS information provided in the financial
statements by simplifying the existing computation. When adopted this
statement is expected to result in an insignificant increase in the Company's
basic EPS. The Company will adopt the provisions of the statement in its 1997
year-end financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information About Capital Structure"
("Statement No. 129"). The statement consolidates the existing requirements
to disclose certain information about an entity's capital structure, for both
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public and nonpublic entities. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). The statement establishes standards for reporting and
display of comprehensive income and its components. In June 1997, the FASB
issued Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("Statement No. 131"). The
statement specifies revised guidelines for determining an entity's operating
and geographic segments and the type and level of financial information about
those segments to be disclosed. The Company will adopt the provisions of
Statements No. 129, 130 and 131 in its 1998 financial statements. The Company
does not believe that the adoption of Statements No. 129, 130 and 131 will
have a material effect on its results of operations or the calculation of net
income.
Results of Operations
The following table sets forth certain operating information with respect
to the oil and gas operations of the Company:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Production:
Oil and condensate (MBbls) 867 606 2,491 1,842
Gas (MMcf) 14,719 10,496 39,002 29,826
Total production (MMcfe) 19,920 14,130 53,950 40,880
Average Realized Price:
Oil and condensate (per Bbl) $ 17.60 $ 21.53 $ 19.26 $ 19.79
Gas (per Mcf) 2.35 2.17 2.34 2.19
Average Costs (per Mcfe)
Lease operating $ 0.36 $ 0.33 $ 0.33 $ 0.30
Depreciation, depletion
and amortization 1.28 1.15 1.25 1.11
General and
administrative, net 0.14 0.09 0.15 0.13
Production. Net production increased 32%, from 40.9 Bcfe for the nine
months ended September 30, 1996, to 54.0 Bcfe for the nine months ended
September 30, 1997. Oil and condensate production for the nine months ended
September 30, 1997 increased 649 MBbls, or 35%, compared to the same period of
1996. Increased oil production for the first nine months of 1997 was due
primarily to production increases from development drilling activities during
1996 at South Timbalier 148 and Ewing Bank 947, the acquisition of Ship Shoal
69 in the third quarter of 1996 and a well drilled and placed on production
late in the fourth quarter of 1996 at Vermilion 398. Gas production increased
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by 9.2 Bcf, or 31%, from 29.8 Bcf for the nine months ended September 30, 1996
to 39.0 Bcf for the comparable period of 1997. Increased gas production was
due to production increases from development drilling activities during 1996
at Ewing Bank 947, South Timbalier 148 and West Delta 152 and wells drilled
and placed on production during the fourth quarter of 1996 at Vermilion 308
and 398. These increases were partially offset by natural production decline
on other properties of the Company.
Net production increased 41%, from 14.1 Bcfe for the three months ended
September 30, 1996 to 19.9 Bcfe for the three months ended September 30, 1997.
Oil and condensate production for the three months ended September 30, 1997
increased 261 MBbls, or 43%, compared to the same period of 1996. Increased
oil production was due primarily to production increases from development
drilling activities during 1996 at South Timbalier 148 and Ewing Bank 947,
the acquisition of Ship Shoal 69 in the third quarter of 1996 and a well
drilled and placed on production late in the fourth quarter of 1996 at
Vermilion 398. Gas production increased by 4.2 Bcf, or 40%, from 10.5 Bcf for
the three months ended September 30, 1996 to 14.7 Bcf for the comparable
period of 1997. Increased gas production was due to production increases from
development drilling activities during 1996 at South Timbalier 148, a well
drilled and placed on production during the fourth quarter of 1996 at
Vermilion 398, the acquisition of Ship Shoal 69 in the third quarter of 1996
and the acquisition of West Cameron 533 in July 1997.
Oil and Gas Revenues. Oil and gas revenues for the nine months ended
September 30, 1997 increased by $37.4 million, or 37%, compared to the same
period of 1996, primarily as a result of increased oil and gas production
and higher realized gas prices. The average realized price of
natural gas increased by 6.8%.
For the nine months ended September 30, 1997, the average realized gas
price was $2.34 per Mcf, which, as a result of hedging activities, was 95% of
the $2.46 per Mcf average gas sales price that would have otherwise been
received. As a result of hedging activities for gas production for the nine
months ended September 30, 1996, the Company realized an average gas price of
$2.19 per Mcf, or 84% of the $2.60 per Mcf average gas sales price that would
have otherwise been received. There were no oil hedging activities for the
nine months ended September 30, 1997. For the nine months ended September 30,
1996, the average realized oil and condensate price was $19.79, which, as a
result of hedging activities, was 98% of the $20.15 per barrel average oil and
condensate sales price that would have otherwise been received.
Oil and gas revenues for the three months ended September 30, 1997
increased by $14.1 million, or 39%, compared to the same period of 1996,
primarily as a result of increased oil and gas production and higher realized
gas prices. The averaged realized price of natural gas increased by 8.3%.
For the three months ended September 30, 1997, the average realized gas
price was $2.35 per Mcf, which, as a result of hedging activities, was 99% of
the $2.37 per Mcf average gas sales price that would have otherwise been
received. As a result of hedging activities for gas production for the three
months ended September 30, 1996, the Company realized an average gas price of
$2.17 per Mcf, or 93% of the $2.33 per Mcf average gas sales price that would
have otherwise been received. There were no oil hedging activities for the
three months ended September 30, 1997 and 1996.
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Lease Operating Expense. Lease operating expense for the nine months
ended September 30, 1997 increased to $17.8 million from $12.1 million for the
comparable period of 1996. Lease operating expense per Mcfe increased from
$0.30 for the nine months ended September 30, 1996 to $0.33 for the comparable
period of 1997. These increases are primarily attributable to a general
increase in costs in the oilfield service industry, increased workover
activities, and lease operating costs associated with properties acquired
after September 30, 1996.
Lease operating expense for the three months ended September 30, 1997
increased to $7.2 million from $4.7 million for the comparable period of 1996.
Lease operating expense per Mcfe increased from $0.33 for the three months
ended September 30, 1996 to $0.36 for the comparable period of 1997. The
increase in lease operating expense per unit is primarily attributable to a
general increase in costs in the oilfield service industry, lease operating
costs associated with properties acquired after September 30, 1996 and
increased workover activity in the third quarter of 1997 as compared to the
third quarter of 1996.
Depreciation, Depletion and Amortization Expense. During the nine and
three months ended September 30, 1997, depreciation, depletion, and
amortization expense increased to $67.4 million and $25.4 million,
respectively, from $45.5 million and $16.2 million, respectively, for the
comparable periods of 1996. The increases were the result of an increased
depletion rate per Mcfe and production increases from acquisitions and
exploratory and development drilling activities during 1996 and 1997. The
depletion rate per unit for the nine and three month periods ended
September 30, 1997 increased to $1.25 and $1.28 per Mcfe, respectively, from
$1.11 and $1.15 per Mcfe for the comparable periods of 1996, respectively.
The increases in the depletion rate per unit are primarily attributable to
increased costs of drilling goods and services, platform and facilities
construction and transportation services in the industry.
General and Administrative Expense, Net. General and administrative
expense, which is net of overhead reimbursements received by the Company
from other working interest owners, increased to $8.3 million, or $0.15
per Mcfe, and $2.7 million, or $0.14 per Mcfe, for the nine and three month
periods ended September 30, 1997, respectively, as compared to $5.3 million,
or $0.13 per Mcfe, and $1.3 million, or $0.09 per Mcfe, for the same periods
of 1996, respectively. Performance based compensation, as a component of
general and administrative expense, increased from $3.2 million, or $0.08 per
Mcfe, and $1.0 million, or $0.07 per Mcfe, for the nine and three month
periods ended September 30, 1996, respectively, to $3.8 million, or $0.07 per
Mcfe, and $1.3 million, or $0.06 per Mcfe, for the nine and three month
periods ended September 30, 1997, respectively. Direct costs associated with
staff increases during 1996 were partially offset by joint interest
reimbursements. To the extent that the Company continues to grow and
increase its ownership in certain properties, the Company expects general
and administrative expenses, in the aggregate, to continue to increase.
Net Income. As a result of the foregoing, the Company had net income
of $28.4 million and $8.7 million, or $0.75 and $0.23 per share, for the
nine and three month periods ended September 30, 1997, respectively, as
compared to $24.6 million and $8.7 million, or $0.66 per share and $0.23 per
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share, for the comparable periods of 1996, respectively.
Liquidity and Capital Resources
The Company had $8.8 million of working capital at September 30, 1997
compared to $11.4 million at December 31, 1996. The $2.6 million decrease
in working capital is primarily due to increased drilling activity during
the first nine months of 1997 offset by the impact of increased revenues
during the period. In addition, working capital balances may fluctuate
from quarter to quarter to the extent the Company increases or decreases
borrowings under its revolving credit facility (the "Credit Facility").
Historically, the Company has funded its oil and gas activities through cash
flow from operations, equity capital from private and public sources and bank
borrowings. On October 15, 1997, the Company placed through a Rule 144A
private placement offering, $125 million in senior unsecured notes due October
2007. Net proceeds from the sale of the notes were used to repay outstanding
indebtedness under the Company's revolving credit facility. The notes were
issued at 99.684% of par with a 7.45% coupon, with interest payable on April
15 and October 15, commencing April 15, 1998.
From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the
downside risk of adverse price movements, they may also limit future
revenues from favorable price movements. The use of hedging transactions
also involves the risk that the counterparties will be unable to meet the
financial terms of such transactions. All of the Company's hedging
transactions to date were carried out in the over-the-counter market and the
obligations of the counterparties have been guaranteed by entities with at
least an investment grade rating or secured by letters of credit. The
Company accounts for these transactions as hedging activities and,
accordingly, gains or losses are included in oil and gas revenues when the
hedged production is delivered. Unrealized gains and losses on these
contracts are deferred and offset in the balance sheet against the related
settlement amounts.
As of September 30, 1997, the Company had entered into commodity price
hedging contracts with respect to its gas production as follows:
Fixed Price Swaps Collars Floor Contracts
--------------------- -------------------------- ----------------------
NYMEX
Contract Price
NYMEX Per MMBtu NYMEX
Volume in Contract Price Volume in --------------- Volume in Contract Price
Period MMMBtu Per MMBtu MMMBtu Floor Ceiling MMMBtu per MMBtu
---------- --------- ----------- --------- ----- ------- -------- ------------
October 1997 1,500 (1) $ 2.41 --- --- --- 1,500 (1) $ 2.38
November 1997 1,500 (2) $ 3.02 750 $ 2.78 $ 3.34 250 $ 2.95
December 1997 1,500 (2) $ 3.10 250 $ 3.03 $ 3.85 --- ---
--- --- 750 $ 2.87 $ 3.70 --- ---
January 1998 1,500 (2) $ 3.09 250 $ 3.01 $ 4.30 --- ---
--- --- 750 $ 2.86 $ 4.13 --- ---
February 1998 1,500 (2) $ 2.77 250 $ 2.67 $ 4.03 --- ---
--- --- 750 $ 2.59 $ 3.93 --- ---
March 1998 1,500 (2) $ 2.48 250 $ 2.48 $ 3.25 750 $ 2.33
April 1998 500 (1) $ 2.25 --- --- --- --- ---
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(1) The Company has entered into a basis swap with respect to all of the
indicated volume.
(2) The Company has entered into a basis swap with respect to 50% of the
indicated volume.
These hedging transactions are settled based upon the average of the
reported settlement prices on the New York Mercantile Exchange (the "NYMEX")
for the last three trading days of a particular contract month (the
"settlement price"). With respect to any particular swap transaction, the
counterparty is required to make a payment to the Company in the event that
the settlement price for any settlement period is less than the swap price
for such transaction, and the Company is required to make payment to the
counterparty in the event that the settlement price for any settlement period
is greater than the swap price for such transaction. For any particular
collar transaction, the counterparty is required to make a payment to the
Company if the settlement price for any settlement period is below the floor
price for such transaction, and the Company is required to make payment to the
counterparty if the settlement price for any settlement period is above the
ceiling price for such transaction. For any particular floor transaction, the
counterparty is required to make a payment to the Company if the settlement
price for any settlement period is below the floor price for such transaction.
The Company is not required to make any payment in connection with the
settlement of a floor transaction.
The Company enters into basis swaps (either as part of a
particular hedging transaction or separately) tied to a particular NYMEX-
based transaction to eliminate basis risk. Because substantially all of the
Company's natural gas production is sold under spot contracts that have
historically correlated with the swap price, the Company believes that it has
no material basis risk with respect to gas swaps that are not coupled with
basis swaps.
The Company maintains its reserve-based revolving Credit Facility with
The Chase Manhattan Bank, as agent. As of September 30, 1997, $120 million
was outstanding under the Credit Facility. The Credit Facility was amended
and restated as of October 9, 1997 in connection with the Company's private
placement of $125 million of senior unsecured notes. The net proceeds of the
private placement were used primarily to repay all amounts then outstanding
under the Credit Facility. As so amended and restated, the Credit Facility
provides a $125 million revolving credit maturing on October 31, 2002,
improved interest rate pricing grids and additional flexibility under certain
covenants. The amount available under the Credit Facility is subject to a
calculated borrowing base, which base is reduced by the principal amount of
the Notes outstanding at the time of calculation. The Company has an option,
subject to the borrowing base, to increase the facility to $200 million. The
Company currently has $100 million of borrowing capacity under the Credit
Facility.
The Company's net cash flow from operations for the first nine months
of 1997 was $117.3 million as compared to $108.6 million for the same period
of 1996. The increase is primarily due to increases in oil and gas production
and average realized gas prices and changes in operating assets and
liabilities. Net cash flow from operations before changes in operating assets
and liabilities for the first nine months of 1997 was $112.1 million as
compared to $85.0 million for the same period of 1996. The increase in net
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cash flow from operations before changes in operating assets and liabilities
is primarily attributable to increased oil and gas production.
Capital expenditures for the nine months ended September 30, 1997 were
$188.3 million as compared to $120.8 million for the same period of 1996. The
Company's exploration capital expenditures for the first nine months of 1997
were $53.8 million of the total of approximately $68.9 million budgeted for
1997. Development drilling and construction expenditures for platforms,
facilities and pipelines were $86.8 million for the first nine months of 1997
of the total of approximately $112.4 million budgeted for 1997. Expenditures
for proved property acquisitions for the first nine months of 1997 were $47.7
million. No significant abandonment or dismantlement costs are anticipated
during 1997. The Company continues to pursue attractive acquisition
opportunities. The timing and size of any acquisition and the associated
capital commitments are unpredictable.
Actual levels of capital expenditures may vary significantly due to
many factors, including drilling results, oil and gas prices, industry
conditions, the prices and availability of goods and services and the extent
to which proved properties are acquired. The Company anticipates that these
capital expenditures will be funded principally from cash flow from
operations, working capital, and bank borrowings. During the first nine
months of 1997, the Company borrowed $315 million and repaid $255 million
under the Credit Facility. The Company anticipates additional borrowings
under the Credit Facility during the remainder of 1997.
To cover the various obligations of lessees on the Outer Continental
Shelf (the "OCS"), the MMS generally requires that lessees post
substantial bonds or other acceptable assurances that such obligations will
be met. The cost of such bonds or other surety can be substantial and there
is no assurance that bonds or other surety can be obtained in all cases.
Additionally, the MMS may require operators in the OCS to post supplemental
bonds in excess of lease and area wide bonds to assure that abandonment
obligations on specific properties will be met. The Company is currently
exempt from the supplemental bonding requirements of the MMS. Under certain
circumstances, the MMS may require any Company operations on federal leases
to be suspended or terminated. Any such suspension or termination could
materially and adversely affect the Company's financial condition and
operations.
The Company's operations are subject to various federal, state and
local laws and regulations relating to the protection of the environment.
The Company believes its current operations are in material compliance with
current environmental laws and regulations. There can be no assurance,
however, that current regulatory requirements will not change, currently
unforseen environmental incidents will not occur or past non-compliance
with environment laws will not be discovered.
The Company has been named as a defendant in certain lawsuits arising
in the ordinary course of business. While the outcome of these lawsuits
cannot be predicted with certainty, management does not expect these matters
to have a material adverse effect on the financial position, liquidity or
results of operations or cash flows of the Company.
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Recent Developments
In July 1997, the Company completed the acquisition of interests in nine
offshore blocks in the East Cameron, West Cameron and High Island areas of the
Gulf of Mexico, offshore Louisiana and Texas for a purchase price of
approximately $43 million. In July 1997, combined production from these
fields was approximately 18 MMcfe of natural gas per day net to the interests
acquired, or approximately 10% of the Company's net daily production prior to
the acquisition.
As a result of this acquisition and the Company's other activities,
the 1997 capital budget has been increased to $236 million. In addition, the
Company's 1997 production target has been increased to 73.5 Bcfe and
the Company has set a goal of 15-20% volume growth during 1998.
Forward Looking Information
Certain of the statements set forth in this document regarding production
targets and growth and planned capital expenditures and activities are forward
looking and are based upon assumptions and anticipated results that are
subject to numerous uncertainties. Actual results may vary significantly from
those anticipated due to many factors, including drilling results, oil and gas
prices, industry conditions, the prices of goods and services, the
availability of drilling rigs and other support services and the availability
of capital resources. In addition, the drilling of oil and gas wells and the
production of hydrocarbons are subject to governmental regulations and
operating risks.
Certain Oil and Gas Terms
The definitions set forth below shall apply to the indicated terms as
used in this document. All volumes of natural gas referred to herein are
stated at the legal pressure base of the state or area where the reserves
exist and at 60 degrees Fahrenheit and in most instances are rounded to the
nearest major multiple.
Basis Risk. The risk associated with the sales point price for oil or
gas production varying from the reference (or settlement) price for a
particular hedging transaction.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined by using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees
Fahrenheit.
MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
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Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
MMS. Minerals Management Service of the United States Department of
the Interior.
MMBbls. One million barrels of crude oil or other liquid hydrocarbons.
MMbtu. One million Btus.
MMcf. One million cubic feet.
MMcfe. One million cubic feet equivalent, determined using the ratio
of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
Working interest. The operating interest that gives the owner the right
to drill, produce and conduct operating activities on the property and a
share of production.
Workover. Operations on a producing well to restore or increase
production.
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Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Amended and Restated Credit Agreement dated as of October 9,
1997 among Newfield Exploration Company as the Company, and
The Chase Manhattan Bank as Agent, and the Banks signatory
hereto (without Exhibits)
11.1 Computation of Earnings per Share
27 Financial Data Schedule (included only in the electronic
filing of this document)
(b) Reports on Form 8-K:
On July 21, 1997, the Company filed a Current Report on Form 8-K,
dated July 16, 1997, reporting the acquisition of interests in
five oil and gas producing fields in the Gulf of Mexico.
On October 1, 1997, the Company filed a Current Report on Form 8-K,
dated September 30, 1997, reporting the offering of $125 million
of senior unsecured notes due October 2007.
On October 20, 1997, the Company filed a Current Report on Form 8-K
dated October 15, 1997, reporting the placement, through a Rule 144A
private placement, of $125 million in senior unsecured notes due
October 2007.
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SIGNATURE
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.
NEWFIELD EXPLORATION COMPANY
Date: October 27, 1997 By: /s/ Terry W. Rathert
Terry W. Rathert
Vice President-Planning and Administration
and Secretary
(Authorized Officer and Principal
Financial Officer)
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EXHIBIT INDEX
Exhibit
Number Description of Exhibits
--------- ------------------------
10.1 Amended and Restated Credit Agreement dated as of
October 9, 1997 among Newfield Exploration Company as
the Company, and The Chase Manhattan Bank as Agent,
and the Banks signatory hereto (without Exhibits)
11.1 Computation of Earnings per Share
27 Financial Data Schedule (included only in
the electronic filing of this document)
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