1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-----------------------------------
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 0-14334
--------------------------------------------
Venus Exploration, Inc.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3299127
--------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
700 North St. Mary's Street, Suite 1900, San Antonio, Texas 78205
-----------------------------------------------------------------------
(Address of principal executive offices)
(210) 222-9481
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 14, 1997
----- --------------------------------
Common Stock $.01 par value 9,736,815 shares
Page 1
2
VENUS EXPLORATION, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of 3
September 30, 1997 and December 31, 1996
(b) Consolidated Statements of Operations for 4
the three-month periods ended September 30,
1997, and September 30, 1996
(c) Consolidated Statements of Operations 5
for the nine-month periods ended
September 30, 1997 and September 30, 1996
(d) Consolidated Statements of Cash Flows 6
for the nine-month period ended
September 30, 1997, and September 30, 1996
(e) Notes to Consolidated Financial Statements 7
Item 2. - Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K 16
Signatures 17
Page 2
3
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
------------ ------------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,626 $ 1,304
Accounts receivable and other 2,850 815
-------- --------
TOTAL CURRENT ASSETS 5,476 2,119
OIL AND GAS PROPERTIES AND EQUIPMENT (successful
efforts method), at cost 9,700 2,575
Less-accumulated depreciation, depletion, amortization and impairment (1,469) (895)
-------- --------
8,231 1,680
DEFERRED FINANCING COSTS 346 372
INVESTMENT IN EQUITY SECURITIES 170 --
OTHER ASSETS 368 172
-------- --------
TOTAL ASSETS $ 14,591 $ 4,343
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,411 $ 1,074
Advances from interest owners 994 345
Accrued liabilities
Suspended revenues and settlements 300 --
Other 35 --
-------- --------
TOTAL CURRENT LIABILITIES 3,740 1,419
LONG-TERM NOTES PAYABLE 1,263 --
DEFERRED INCOME TAXES 1 --
-------- --------
TOTAL LIABILITIES 5,004 1,419
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share--authorized 15,000,000 shares;
10,295,317 shares issued; 9,736,815 and 5,626,473 shares outstanding
as of September 30, 1997 and December 31, 1996, respectively 103 56
Additional paid-in capital 16,102 6,234
Accumulated deficit (5,521) (3,366)
-------- --------
10,684 2,924
Less cost of common stock in treasury--
558,502 shares at September 30, 1997 (1,097) --
-------- --------
TOTAL STOCKHOLDERS' EQUITY 9,587 2,924
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,591 $ 4,343
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
4
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
(In thousands, except per share data)
REVENUES
Oil and gas sales $ 1,160 $ 110
Oil field operation 107 75
Management 122 82
Gain on sale of properties
and investments 2 --
Interest income and other 33 22
------- -------
Total Revenues 1,424 289
------- -------
EXPENSES
Direct operating 326 56
Exploration costs 169 54
Depreciation, depletion and amortization 379 41
General and administrative 946 639
------- -------
Total Expenses 1,820 790
------- -------
OTHER EXPENSE
Interest 60 3
------- -------
Loss before income taxes (456) (504)
PROVISION FOR INCOME TAXES -- --
------- -------
Net loss $ (456) $ (504)
======= =======
Net loss per common share and
common share equivalents $ (.05) $ (.09)
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 9,724 5,626
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
5
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
(In thousands, except per share data)
REVENUES
Oil and gas sales $ 1,914 $ 429
Oil field operation 268 241
Management 324 214
Gain on sale of properties and investments 2 239
Interest income and other 56 36
------- -------
Total Revenues 2,564 1,159
------- -------
EXPENSES
Direct operating 553 218
Exploration costs 770 70
Depreciation, depletion and amortization 615 92
General and administrative 2,647 1,435
------- -------
Total Expenses 4,585 1,815
------- -------
OTHER EXPENSE
Interest 134 6
------- -------
Loss before income taxes (2,155) (662)
PROVISION FOR INCOME TAXES -- --
------- -------
Net loss $(2,155) $ (662)
======= =======
Net loss per common share and common
share equivalents $ (.28) $ (.12)
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,606 5,626
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 5
6
VENUS EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
(In thousands)
OPERATING ACTIVITIES
Net loss $(2,155) $ (662)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 615 92
Impairments, abandoned leases and dry hole costs 485 --
Gain (loss) on sale of properties 2 (124)
Gain (loss) on investment activities -- (115)
Compensation expense for stock options 252 283
Change in operating assets and liabilities:
Decrease (increase) in accounts
receivable and other (2,004) (411)
Increase (decrease) in accounts payable 991 553
Advances from interest owners 649 --
Increase in accrued liabilities 732 --
------- -------
Net cash used in operating activities (433) (384)
------- -------
INVESTING ACTIVITIES
Property acquisition (5,549) --
Net proceeds from the sale of property -- 332
Capital expenditures (2,272) (798)
Proceeds from sale of investment securities -- 165
Investments acquired in acquisitions and other (213) --
------- -------
Net cash used in investing properties (8,034) (301)
------- -------
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 1,411 150
Repayment of long-term debt (197) --
Distributions -- (2,651)
Issuance of stock 8,575 5,957
------- -------
Net cash provided by financing activities 9,789 3,456
------- -------
INCREASE IN CASH AND EQUIVALENTS 1,322 2,771
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,304 573
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 2,626 $ 3,344
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 6
7
VENUS EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three and Nine Months Ended September 30, 1997 and 1996
1. Business Combination
On May 21, 1997, Registrant, then known as Xplor Corporation
("Xplor"), acquired substantially all of the assets and liabilities of The
New Venus Exploration, Inc. ("New Venus"), a Texas corporation, in exchange
for 5,626,473 shares of Registrant's previously authorized and unissued
shares of Common Stock and warrants to purchase 272,353 additional shares
of Common Stock. Simultaneously, Registrant acquired certain oil and gas
properties of two wholly-owned affiliates of Lomak Petroleum, Inc., Lomak
Production I L.P., a Texas limited partnership, and Lomak Resources LLC, an
Oklahoma limited liability company (together, "Lomak"), in exchange for
2,037,171 shares of Registrant's previously authorized and unissued shares
of Common Stock and warrants to purchase 272,353 additional shares of
Common Stock. On June 4, 1997 Xplor changed its name to Venus Exploration,
Inc. (the "Company").
2. Basis of Presentation
For financial reporting purposes, the transactions described in Note 1
have been accounted for as a reverse acquisition whereby New Venus is
deemed to be the acquirer. Accordingly, the historical financial statements
of New Venus and predecessor entities are presented as the historical
financial statements of the Company and the assets acquired and liabilities
assumed from Xplor and Lomak have been recorded at fair value as of the
date of the combination as required under purchase accounting. For purposes
of determining the costs of the acquisitions, management has valued the
shares and warrants issued to Lomak and the shares, options and warrants
held by Xplor shareholders based on the estimated fair values of the assets
acquired and liabilities assumed, rather than the current market price of
Xplor shares. Management believes that using the estimated fair values of
the assets acquired and liabilities assumed to determine the costs of the
acquisitions rather than the market price of the Xplor shares is
appropriate because (1) there is limited trading activity in the shares,
(2) the stock issued to effect the combination contains restrictions that
limit its marketability, and (3) the number of shares issued to effect the
combination substantially exceeds the current trading volume of the shares
in the marketplace and substantially exceeds the number of Xplor shares
outstanding prior to the combination. For all periods presented, except for
the period of May 21, 1997 through September 30, 1997, the revenues and
expenses are the historical revenues and expenses of New Venus and
predecessor entities.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated
financial statements presented should be read in connection with the 1996
audited financial statements of New Venus and Lomak included in the
Company's report on Form 8-K/A dated August 4, 1997, Xplor's 1996 Annual
Report on Form 10-K, and Xplor's March 31, 1997
Page 7
8
Quarterly Report on Form 10-Q and the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997.
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 September 30, 1997 and the results of its operations for
the three and nine months ended September 30, 1997 and 1996.
The results of operations for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year and are significantly impacted by the accounting
for the combination transactions as discussed above.
3. Summary of Significant Accounting Policies
For a description of the accounting policies followed by the Company,
refer to the notes to the 1996 financial statements of New Venus included
in the Company's report on Form 8-K/A dated August 4, 1997.
4. Earnings (loss) Per Share
Earnings (loss) per share for the three months and nine months ended
September 30, 1997, are calculated based on 9,724,206 and 7,605,833
weighted average shares outstanding. Weighted average shares were computed
assuming the following shares outstanding for the periods indicated:
December 31, 1996 to May 21, 1997 5,626,473
May 22, 1997 to June 5, 1997 9,700,815
June 6, 1997 to August 27, 1997 9,716,815
August 28, 1997 to September 30, 1997 9,736,815
The 5,626,473 shares were the total number of shares issued to New
Venus by Xplor on May 21, 1997. However, because the business combination
was accounted for as a reverse acquisition, these shares are deemed
outstanding, for periods prior to May 21, 1997, for New Venus historical
financial information as presented. The 9,700,815 shares reflect the
increase due to the issuance of shares to Lomak and the deemed issuance of
shares to Xplor to effect the business combination. On June 5, 1997 and
August 28, 1997, 16,000 shares and 20,000 shares, respectively, were issued
in connection with the exercise of options.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings Per
Share", which establishes standards for computing and presenting earnings
per share. This Standard, effective for financial statements issued for
periods ending after December 15, 1997, replaces the presentation of
primary earnings per share with a presentation of basic earnings per share.
The Company's basic and diluted earnings per share computed using the
requirements of FAS No. 128 are the same as the Company's currently
disclosed net income (loss) per common share.
5. Long-Term Debt
The Company has a loan agreement establishing a $20 million line of
credit with a bank. The agreement provides for a total borrowing base
determined every six months by the bank based on the Company's oil and gas
reserves which are used
Page 8
9
as security for the loan. Interest on amounts borrowed under the loan
agreement is based on the bank's prime rate plus one percent. Interest is
payable monthly and principal payments are required only when the balance
outstanding exceeds or is projected to exceed, prior to the next borrowing
base redetermination date, the borrowing base. The amount drawn by the
Company as of September 30, 1997 was $500,000.
In October 1996, the Company entered into a Term Loan and Security
Agreement with a lender to finance the acquisition and development of oil
and gas properties. Under the agreement, the Company may borrow up to
approximately $17.4 million to finance the acquisition and development of
new properties, subject to limitations based on the value of the Company's
proved reserves attributable to properties the Company has agreed to
include as security for such loan. As of September 30, 1997 the outstanding
loan balance was $763,000.
The credit agreements require, among other matters, maintenance of
certain financial ratios. The Company is in compliance, or has received
waivers of compliance, with the loan agreements.
6. Accounting for Income Taxes
There is no income tax provision because: (1) revenues and expenses
through September 30, 1996, are attributable to a New Venus predecessor
entity which was an S Corporation for tax reporting purposes resulting in
the individual shareholders of the entity being responsible for any taxes
due or benefits from any net operating losses and (2) of the uncertainty of
the ultimate realization of a tax benefit from the 1997 loss.
7. Hedging Transaction
The Company enters into commodity derivative contracts for non-trading
purposes as a hedging strategy to manage commodity prices associated with
certain oil and gas sales and to reduce the impact of price fluctuations.
The Company primarily uses price swaps for production on properties pledged
under the Term Loan agreement discussed in Note 5.
The Company utilizes the hedge or deferral method of accounting for
commodity derivative financial instruments whereby gains and losses on
these hedging instruments are recognized and recorded as revenues on the
statement of operations when the related natural gas or oil production has
been produced, purchased or delivered. As a result, gains and losses on
commodity financial instruments are generally offset by similar changes in
the realized prices of natural gas and crude oil. To qualify as hedging
instruments, these instruments must be highly correlated to anticipated
future sales such that the Company's exposure to the risks of commodity
price changes is reduced. While commodity financial instruments are
intended to reduce the Company's exposure to declines in the market price
of natural gas and crude oil, the commodity financial instruments may also
limit the Company's gain from increases in the market price of natural gas
and crude oil.
On December 2, 1996, the Company entered into a financial swap, as
required under the Term Loan agreement discussed in Note 5 above, whereby
the counterparty agrees to pay the Company the difference between the
floating price and the fixed price for certain volumes of production in
future months (commencing with January 1997 production) should the floating
price fall below the negotiated fixed price
Page 9
10
of $2.0497 per thousand British thermal units for natural gas or $19.045
per barrel for oil, respectively. Should the floating price exceed the
fixed price for natural gas or oil, the Company is required to remit the
difference to the counterparty. As of September 30, 1997, quantities hedged
are 80,250 mmbtu's of natural gas and 31,151 barrels of oil. As of
September 30, 1997, the estimated fair value of the Company's swap
positions was a net payable of approximately $36,157 based upon an estimate
of what the Company would receive if the contracts were liquidated.
8. Xplor and Lomak Assets and Liabilities Acquired
On May 21, 1997, the Company recorded the combination transactions
described in Note 1 which effect was primarily the recording of the assets
and liabilities of Xplor and Lomak at their fair value. The combined
amounts for Lomak and Xplor were as follows:
(In thousands)
--------------
Cash $2,607
Oil and gas properties 5,549
Accounts receivable 131
Equity securities and investments 301
Accounts payable 396
Deferred income taxes 1
9. Pro Forma Financial Information (In thousands, except per share data)
Selected results of operations on a pro forma basis as if the
combination transactions described in Note 1 had occurred on January 1,
1996 are as follows:
Nine Months Ended
September 30,
----------------------
1997 1996
------- -------
Revenues $ 3,445 $ 2,219
======= =======
Net income (loss) (1,665) (325)
======= =======
Income (loss) per common share (.17) (.03)
======= =======
Shares (see Note 4) 9,737 9,701
======= =======
10. Subsequent Events
At a Special Meeting of Stockholders (in lieu of the Annual Meeting)
held on October 28, 1997, the stockholders:
1. Reelected until the next Annual Meeting the seven directors who
assumed or continued in office following the combination
transaction,
2. Ratified and approved the appointment of KPMG Peat Marwick LLP as
the Company's independent auditors for the fiscal year ending
December 31, 1997,
3. Approved an amendment to the Certificate of Incorporation providing
for an increase in the number of authorized shares to (i) 30
million shares of common voting stock with a par value of $.01 and
(ii) 5 million shares of preferred stock with a par value of $.01
which may be issued in series, and
4. Approved the 1997 Incentive Plan
Page 10
11
Item 2. VENUS EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background of Business Combination and Basis of Presentation
On May 21, 1997, Registrant, then known as Xplor Corporation
("Xplor"), acquired substantially all of the assets and liabilities of The
New Venus Exploration, Inc. ("New Venus"), a Texas corporation, in exchange
for 5,626,473 shares of Registrant's previously authorized and unissued
shares of Common Stock and warrants to purchase 272,353 additional shares
of Common Stock. Simultaneously, Registrant acquired certain oil and gas
properties of two wholly-owned affiliates of Lomak Petroleum, Inc., Lomak
Production I L.P., a Texas limited partnership, and Lomak Resources LLC, an
Oklahoma limited liability company (together, "Lomak"), in exchange for
2,037,171 shares of Registrant's previously authorized and unissued shares
of Common Stock and warrants to purchase 272,353 additional shares of
Common Stock. On June 4, 1997 Xplor changed its name to Venus Exploration,
Inc. (the "Company").
For financial reporting purposes, the transactions have been accounted
for as a reverse acquisition whereby New Venus is deemed to be the
acquirer. Accordingly, the historical financial statements of New Venus and
predecessor entities are presented as the historical financial statements
of the Company and the assets acquired and liabilities assumed from Xplor
and Lomak have been recorded at fair value as of the date of the
combination as required under purchase accounting. For purposes of
determining the costs of the acquisitions, management has valued the shares
and warrants issued to Lomak and the shares, options and warrants held by
Xplor shareholders based on the estimated fair values of the assets
acquired and liabilities assumed, rather than the current market price of
Xplor shares. Management believes that using the estimated fair values of
the assets acquired and liabilities assumed to determine the costs of the
acquisitions rather than the market price of the Xplor shares is
appropriate because (1) there is limited trading activity in the shares,
(2) the stock issued to effect the combination contains restrictions that
limit its marketability, and (3) the number of shares issued to effect the
combination substantially exceeds the current trading volume of the shares
in the marketplace and substantially exceeds the number of Xplor shares
outstanding prior to the combination.
For all periods presented, except for the period of May 21, 1997
through September 30, 1997, the revenues and expenses are the historical
revenues and expenses of New Venus and predecessor entities. As a result,
comparison of the current and prior period financial statements presented
is significantly impacted by the combination transactions.
Liquidity and Capital Resources
(a) Liquidity
At September 30, 1997, the Company had working capital of $1,736,000
compared with $700,000 at December 31, 1996, an increase of $1,036,000.
This increase is primarily attributable to cash and equivalents, acquired
through the business
Page 11
12
combination. The ratio of current assets to current liabilities was 1.5 to
1 at September 30, 1997 and December 31, 1996.
Net cash used in operating activities during the nine months ended
September 30, 1997, was $433,000, whereas $384,000 was used in operating
activities for the same nine month period in 1996. During the first nine
months of 1997, the Company realized a net loss of $2,155,000. This
compares with a net loss of $662,000 for the first nine months of 1996. The
first nine months of 1997 includes exploration and dry hole costs of
$485,000, recognized prior to the business combination and compensation
expense on stock options of $252,000. Accounts receivable increased by
$2,004,000 primarily due to the increase in oil and gas sales and the
business combination. The increase of $732,000 in accrued liabilities
resulted primarily from the business combination. For the nine month period
ended September 30, 1996 the Company realized gains on sales of properties
and investment securities of $239,000.
For the nine months ended September 30, 1997, $8,034,000 was used in
investing activities. This compares with $301,000 used in investing
activities during the nine month period ended September 30, 1996. On May
21, 1997 the Company acquired oil and gas properties of $5,549,000 through
the business combination. During the first nine months of 1997 the Company
also incurred capital expenditures on new wells drilled and acreage
purchased of $2,272,000. During the same period in 1996, the Company
received proceeds for the sale of property and investment securities of
$497,000 and had capital expenditures of $798,000.
For the nine months ended September 30, 1997, $9,789,000 was provided
by financing activities. This includes $8,575,000 of Common Stock issued,
primarily in the business combination, and proceeds from long-term debt of
$1,411,000. This compares with $3,456,000 provided by financing activities
for the nine month period ended September 30, 1996. Of this amount,
$5,957,000 was provided from the issuance of stock offset by distributions
of $2,651,000.
(b) Capital Resources
Capital expenditures for the last three months of 1997 are budgeted at
approximately $2 million. The Company plans to finance such expenditures
from existing working capital and bank borrowings secured by existing
proved oil and gas reserves. The Company's capital expenditure budget is
continually reviewed, and revised as necessary, based on perceived
opportunities and business conditions.
(c) Results of Operations
As noted above, the statements of operations for the three and nine
month periods ended September 30, 1996 reflects the operations of New Venus
only, whereas the statements of operations for the same periods ended
September 30, 1997 reflect the operations of New Venus prior to the
combination date (May 21, 1997) and the operations of the combined entities
subsequent to the combination date. Variances are addressed in the
following paragraphs by significant operating captions.
Revenues and expenses were higher during 1997 due to the inclusion of
the combined entities subsequent to May 21, 1997 and new completed wells in
1997. As reflected in the following table, both oil and gas volumes and
average gas prices increased in 1997 compared with like periods in 1996.
Page 12
13
1997 1996
------ ------
Sales Average Sales Average
Volume Prices Volume Prices
------ ------- ------ -------
Nine Months Ended September 30
Gas (MCF) 417,405 $ 2.12 60,648 $ 1.74
Oil (BBLS) 68,352 $18.37 16,907 $18.62
Three Months Ended September 30
Gas (MCF) 278,831 $ 1.96 11,392 $ 1.48
Oil (BBLS) 45,053 $17.95 4,206 $21.36
Three Months Ended September 30, 1997 and 1996
The Company's net loss of $456,000 for the quarter ended September 30,
1997 compares with last year's net loss of $504,000 for the same period.
This $48,000 variance is primarily attributable to a $1,050,000 increase in
oil and gas sales offset by increases in the following expenses: direct
operating expenses, $270,000; depreciation, depletion, and amortization,
$338,000; and general and administrative expenses, $307,000.
For the third quarter of 1997, total revenue increased by $1,135,000.
Oil and gas revenues increased by $1,050,000 primarily as a result of six
producing wells completed and brought on stream in 1997 and the additional
revenue recorded from the properties acquired in the business combination
of May 21, 1997. Oil and gas sales for the three months ended September 30,
1997 are net of a $5,000 loss on hedging instruments. Oil field operation
and management fees increased by $72,000 and interest and other income
increased by $11,000 primarily as a result of the business combination.
Direct operating expenses of $326,000 for the quarter ended September
30, 1997, increased by $270,000 as a result of completing six producing
wells during 1997 and the operating expenses associated with the wells
acquired in the business combination. Direct operating expenses relative to
oil and gas revenues decreased to 28% compared with 51% for the quarter
ended September 30, 1996 as a result of deliveries from the six new wells
which have production levels significantly higher than operations and
maintenance expense on an equivalent unit basis as compared with the
Company's producing wells in 1996.
The Company's exploration costs of $169,000 for the quarter ended
September 30, 1997 increased $115,000 over the exploration costs of $54,000
for the quarter ended September 30, 1996. This is due to the increase in
exploration activity in 1997 as compared with 1996.
For the quarters ended September 30, 1997 and 1996, general and
administrative expenses were $946,000 and $639,000, respectively. The
increase is due to the significant increase in exploration activity and the
business combination. The 1997 exploration activities led to the creation
of nine new employee positions and the increased use of third party
engineering services and other professional consultants. The 1997 amount
also includes compensation expense related to stock options granted to a
director and costs in connection with the business combination.
Interest expense of $60,000 for the quarter ended September 30, 1997
compares
Page 13
14
with $3,000 for the quarter ended September 30, 1996. The increase is due
to the borrowing incurred during 1997 to fund drilling, completion and
exploration expenditures.
Nine Months Ended September 30, 1997 and 1996
The Company's net loss of $2,155,000 for the nine month period ended
September 30, 1997 compares with last year's net loss of $662,000 for the
same period. This $1,493,000 variance is primarily attributable to a
$1,485,000 increase in oil and gas sales offset by increases in the
following expenses: exploration costs, $700,000; depreciation, depletion
and amortization, $523,000; and general and administrative expenses,
$1,212,000.
For the first nine months of 1997 total revenue increased by
$1,405,000. Oil and gas revenues increased by $1,485,000 primarily as a
result of six new wells completed and brought on stream in 1997 and the
additional revenue recorded from the properties acquired in the business
combination of May 21, 1997. Oil and gas sales for the nine months ended
September 30, 1997 are net of a $31,000 loss on hedging instruments. Oil
field operation and management fees increased by $137,000 and interest and
other income increased by $20,000 primarily as a result of the business
combination.
Direct operating expenses of $553,000 for the nine months ended
September 30, 1997 increased by $335,000 as a result of completing six
producing wells during 1997 and the operating expenses associates with the
wells acquired in the business combination. Direct operating expenses
relative to oil and gas revenues decreased to 29% compared with 51% for the
nine month period ended September 30, 1996 as a result of the six new wells
which have production levels significantly higher than operations and
maintenance expense on an equivalent unit basis as compared with the
Company's producing wells in 1996.
The Company's exploration costs of $770,000 for the nine months ended
September 30, 1997 increased $700,000 over the exploration costs of $70,000
for the nine months ended September 30, 1996. This is due to 1997
exploration costs totaling $470,000 and increased geological and
geophysical costs related to significantly increased exploration activity
in 1997 as compared with 1996.
General and administrative expenses were $2,647,000 and $1,435,000 for
the nine month periods ended September 30, 1997 and 1996, respectively. The
increase of $1,212,000 is due to the significant increase in exploration
activity plus the business combination. The 1997 exploration activities led
to the creation of nine new employee positions and the increased use of
third party engineering services and other professional consultants. The
1997 amount also includes compensation expense related to stock options
granted to a director and costs in connection with the business
combination.
Interest expense of $134,000 for the nine month period ended September
30, 1997 compares with $6,000 for same period in 1996. The increase is due
to increased borrowings incurred during 1997 to fund drilling, completion
and exploration expenditures.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued FAS
No. 128, "Earnings Per Share", which establishes standards for computing
and presenting
Page 14
15
earnings per share. This Standard, effective for financial statements
issued for periods ending after December 15, 1997, replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share. The Company's basic and diluted earnings per share
computed using the requirements of FAS No. 128 are the same as the
Company's currently disclosed net income (loss) per common share.
Information Regarding Forward Looking Statements
The information contained in this Form 10-Q includes certain
forward-looking statements. When used in this document, such words as
"expect", "believes", "potential", and similar expressions are intended to
identify forward-looking statements. Although the Company believes that its
expectations are based on reasonable assumptions, it is important to note
that actual results could differ materially from those projected by such
forward-looking statements. Important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to, the timing and extent of changes in
commodity prices for oil and gas, the need to develop and replace reserves,
environmental risk, the substantial capital expenditures required to fund
its operations, drilling and operating risks, risks related to exploration
and development, uncertainties about the estimates of reserves,
competition, government regulation and the ability of the Company to
implement its business strategy.
Page 15
16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
11.1 Statement re: computation of per share earnings for the nine months
ended September 30, 1997 and 1996 (see Note 4 of Notes to
Consolidated Financial Statements).
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8K/A dated August 4, 1997, relating to the combination described
in Note 1 to the unaudited Consolidated Financial Statements included
herein, supplementing the current report on Form 8-K dated June 5,
1997 with respect thereto.
Page 16
17
S I G N A T U R E S
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.
VENUS EXPLORATION, INC.
Dated: November 14, 1997 BY: /s/ Eugene L. Ames, Jr.
-------------------------
Eugene L. Ames, Jr.
(Chief Executive Officer)
Dated: November 14, 1997 BY: /s/ Patrick A. Garcia
----------------------
Patrick A. Garcia
(Principal Accounting Officer)
Page 17
18
EXHIBIT INDEX
Exhibit No. Description
- ----------- ---------------------------------------------------
11.1 Statement re: computation of per share earnings for
the nine months ended September 30, 1997 and 1996
(see Note 4 of Notes to Consolidated Financial
Statements).
27 Financial Data Schedule