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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NO. 0-21411
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COSTILLA ENERGY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 75-2658940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 WEST ILLINOIS, SUITE 900
MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
(915) 683-3092
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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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 [ ] NO [X]
THERE ARE ZERO SHARES OF REGISTRANT'S COMMON STOCK CURRENTLY OUTSTANDING. ALL
SUCH SHARES WERE CANCELED AS OF THE EFFECTIVE DATE OF THE REGISTRANT'S CHAPTER
11 PLAN AS DESCRIBED THEREIN.
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COSTILLA ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 (unaudited)............................................ 4
Consolidated Statements of Operations for the three and nine months
ended September 30, 2000 and 1999 (unaudited)............................ 5
Consolidated Statements of Cash Flows for the three and nine months
ended September 30, 2000 and 1999 (unaudited)............................ 6
Notes to Consolidated Financial Statements (unaudited)..................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................... 12
Signatures................................................................................... 13
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SPECIAL NOTE REGARDING BANKRUPTCY PROCEEDINGS
Costilla Energy, Inc. (the "Company") filed Chapter 11 bankruptcy on
September 3, 1999 in a case styled In Re: Costilla Energy, Inc. Case No.
99-70653, in the United States Bankruptcy Court for the Western District of
Texas, Midland Division. The Company conducted its business as debtor in
possession from the date of filing of the bankruptcy through the sale of all of
the oil and gas assets of the Company in June 2000 and until confirmation of the
Company's Plan of Reorganization (Liquidation) as Amended, on September 15,
2000, effective October 1, 2000 (the "Plan"). The Plan provides, among other
things, for the establishment of a liquidating trust, distributions to creditors
at the discretion of the trustee of the liquidating trust, and the cancellation
of all of the Company's common stock, preferred stock and other equity
securities. As a result, effective October 1, 2000, the Company had no
shareholders, and was and continues to be under the management and control of
the trustee of the liquidating trust subject to the terms of the Plan and the
supervision of the bankruptcy court. A more detailed discussion of these and
related matters is set forth in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (the "1999 10-K").
The information contained herein is provided as of the date of the
period covered by this report. The accompanying financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the normal course of
business. However, as a result of the bankruptcy filing, the sale of all of the
Company's oil and gas assets in June 2000 and the confirmation of a plan of
reorganization (liquidation) in September 2000, the carrying amounts of all
assets may not be realized and certain liabilities will be settled for less than
the amounts recorded. Therefore, no analysis or information is provided with
respect to the Company as a going concern, whether in terms of capital
resources, capital expenditures or otherwise, due to the liquidation of the
Company in the bankruptcy as discussed above. Discussions of material events
which occurred subsequent to the period covered by this report are contained in
the 1999 10-K and Current Reports on Form 8-K filed throughout 2000 and the
exhibits thereto.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COSTILLA ENERGY, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 116,056 $ 13,418
Accounts receivable:
Trade, net 626 1,254
Oil and gas sales 493 4,558
Prepaid and other current assets 78 434
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Total current assets 117,253 19,664
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PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties 137 154,158
Unproved properties -- 5,956
Accumulated depletion, depreciation and amortization -- (88,749)
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137 71,365
Other property and equipment, net 1,427 2,413
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Total property, plant and equipment 1,564 73,778
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OTHER ASSETS:
Deferred charges 4,818 5,590
Deferred hedge charges 6,638 10,895
Other 90 1,969
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Total other assets 11,546 18,454
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$ 130,363 $ 111,896
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE:
Long-term debt $ 20,332 $ 45,940
Trade accounts payable 1,497 3,142
Undistributed revenue 1,108 2,477
Other current liabilities -- 2,160
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Total liabilities not subject to compromise 22,937 53,719
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LIABILITIES SUBJECT TO COMPROMISE:
Trade accounts payable 2,207 2,771
Other current liabilities 9,844 7,790
Long-term debt 181,378 181,550
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Total liabilities subject to compromise 193,429 192,111
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STOCKHOLDERS' DEFICIT :
Preferred stock, $.10 par value (3,000,000 shares authorized; 50,000
shares outstanding at September 30, 2000 and December 31, 1999 5 5
Common stock, $.10 par value (100,000,000 shares authorized; 14,101,580
shares outstanding at September 30, 2000 and
December 31, 1999 1,410 1,410
Additional paid-in capital 96,030 96,030
Retained deficit (183,448) (231,379)
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Total stockholders' equity (86,003) (133,934)
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COMMITMENTS AND CONTINGENCIES -- --
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$ 130,363 $ 111,896
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See accompanying notes to consolidated financial statements.
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COSTILLA ENERGY, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUES:
Oil and gas sales $ -- $ 10,977 $ 19,023 $ 36,029
Interest and other 2,291 78 2,563 94
Gain on sale of assets (3,676) 81 52,130 331
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(1,385) 11,136 73,716 36,454
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EXPENSES:
Oil and gas production -- 3,601 6,537 14,320
General and administrative 2,984 1,856 8,217 7,221
Exploration and abandonments 4 473 837 2,004
Depreciation, depletion and amortization 210 3,752 6,398 14,139
Loss on termination of purchase option -- 219 -- 47,781
Impairment of oil and gas properties 58 943 -- 10,097
Loss on commodity transactions -- 2,168 502 3,961
Interest 804 4,061 3,293 14,608
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4,060 17,073 25,784 114,131
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NET LOSS $ (5,445) $ (5,937) $ 47,932 $ (77,677)
========= ========= ========= =========
CUMULATIVE PREFERRED STOCK DIVIDEND $ -- $ -- $ -- $ 1,000
========= ========= ========= =========
NET LOSS APPLICABLE TO COMMON EQUITY $ (5,445) $ (5,937) $ 47,932 $ (78,677)
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE $ 0.39 $ (0.42) $ 3.40 $ (5.76)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 14,102 14,102 14,102 13,651
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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COSTILLA ENERGY, INC
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (5,445) $ (5,937) $ 47,932 $ (77,677)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization 210 3,752 6,287 14,139
Impairment of oil and gas properties -- 943 -- 10,097
Exploration and abandonments -- 192 406 540
Amortization of deferred charges 234 156 599 469
Amortization of deferred hedge charges -- 533 3,755 533
Loss on termination of purchase option -- -- -- 46,985
Gain (loss) on sale of oil and gas properties 5,318 (81) (50,066) (331)
Gain (loss) on commodity transactions -- 2,168 502 3,961
--------- --------- --------- ---------
317 1,726 9,415 (1,284)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (433) (1,399) (216) 714
Decrease (increase) in other assets 219 (566) 468 192
Increase (decrease) in accounts payable (866) (2,617) (3,423) (18,117)
Increase (decrease) in other liabilities 140 4,373 (265) 4,180
Increase (decrease) in deferred revenue -- (960) -- 960
--------- --------- --------- ---------
Net cash provided by (used in) operating activities (389) 1,161 5,979 (12,751)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties -- (414) (4,819) (5,590)
Proceeds from sale of oil and gas properties -- 585 127,082 30,617
Additions to other property and equipment (1) (7) 3 (50)
--------- --------- --------- ---------
Net cash used in investing activities (1) 164 122,266 24,977
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt -- -- -- 8,000
Payments of long-term debt (25,608) (485) (25,608) (13,583)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (25,608) (485) (25,608) (13,583)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (25,998) 840 102,637 (1,357)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 142,054 3,054 13,418 5,251
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 116,056 $ 3,894 $ 116,055 $ 3,894
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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COSTILLA ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information as of September 30, 2000, and for the
nine months ended September 30, 2000 and 1999, is unaudited. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, in the opinion of management, these
interim financial statements include all the necessary adjustments to fairly
present the results of the interim periods and all such adjustments are of a
normal recurring nature. The interim consolidated financial statements should be
read in conjunction with the unaudited financial statements for the year ended
December 31, 1999.
The Company is an oil and gas exploration and production concern with
properties located principally in the Gulf Coast region, the Rocky Mountain
region and the Permian Basin area of Texas and New Mexico.
2. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage
well-defined commodity price and interest rate risks. The Company is exposed to
credit losses in the event of nonperformance by the counterparties to its
commodity hedges and its interest rate swap agreements. The Company only deals
with reputable financial institutions as counterparties and anticipates that
such counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the credit standing of
the counterparties.
Commodity Hedges. The Company utilizes swap agreements to hedge the
effect of price changes on future oil and gas production. The objective of its
hedging activities is to achieve more predictable revenues and cash flows. In a
typical swap arrangement, the Company receives the difference between a fixed
price per unit of production and a price based upon a higher agreed to third
party index. However, should the fixed price exceed the agreed third party
index, the Company has to pay the difference. In the past, the Company utilized
option contracts to hedge its production. In this case, if market prices of oil
and gas exceeded the strike price of put options, the options would expire
unexercised, therefore reducing the effective price received for oil and gas
sales by the cost of the related option. If the market prices of oil and gas
exceeded the strike price of call options, the Company would be obligated to pay
the contracting counterparty an amount equal to the contracted volumes times the
difference between the market price and the strike price, therefore reducing the
effective price received for oil and gas sales by the amount paid to the
counterparty.
There were no hedge contracts outstanding at December 31, 1999 or
September 30, 2000.
3. TERMINATION OF PIONEER ACQUISITION
In September 1998, Costilla entered into an agreement with Pioneer
Natural Resources USA, Inc. ("Pioneer") to acquire certain oil and gas
properties (the "Pioneer Acquisition Properties") for $410 million. As part of
this agreement, Costilla made a $25 million forfeitable deposit plus an
additional $16 million would be paid if the transaction did not close in
December 1998. In December 1998, the previous agreement was terminated and
replaced by a new agreement. Pioneer retained the $25 million deposit and
Costilla issued three million shares of its commons stock and relinquished its
right to a property interest. In return, Costilla executed a new agreement to
purchase the Pioneer Acquisition Properties for $294 million. This agreement
terminated on March 31, 1999, and Costilla and Pioneer then entered into a new
agreement whereby Costilla would acquire certain of the Pioneer
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Acquisition Properties for $250 million. In connection with the new agreement,
the Company issued to Pioneer one million shares of its common stock. The new
agreement terminated by its terms on April 15, 1999 and the related costs, none
of which are recoverable, were expensed. The Company is review potential causes
of action against Pioneer related to this transaction.
The loss on the termination of the Pioneer acquisition consists of the
following:
(in thousands)
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Cash Deposit $25,000
Four million shares of Costilla common stock 13,700
Oil & gas property assigned to Pioneer 3,558
Interest capitalized for acquisition 1,012
Due diligence, legal, accounting and engineering 4,511
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Total loss on termination of acquisition $47,781
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4. SALE OF OIL AND GAS ASSETS
On June 15, 2000 Costilla closed the sale of its oil and gas assets to
Louis Dreyfus Natural Gas Corp. The gross purchase price for the properties was
$133.25 million, which is subject to certain adjustments called for in the Asset
Purchase Agreement with Louis Dreyfus. Proceeds from the sale have been
distributed to Costilla's creditors in accordance with an amended plan of
reorganization confirmed by the Bankruptcy Court's Order in September 2000.
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COSTILLA ENERGY, INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of Costilla to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the volatility of oil and gas prices, the Company's drilling results
and ability to replace oil and gas reserves, the availability of capital
resources, the reliance upon estimates of proved reserves, operating hazards and
uninsured risks, competition, government regulation, and the ability of the
Company to implement its business strategy, and other factors referenced in the
Company's public filings with the Securities and Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
The Company had no oil and gas revenues for the three months ended
September 30, 2000. The oil and gas properties of the Company were sold in June,
2000.
Loss on termination of purchase option relates to the termination of
the Pioneer acquisition. At March 31, 1999, management believed the probability
of successful completion of the acquisition was questionable. The costs, none of
which are recoverable, were expensed as of that date. The $47,781,000 loss
includes a cash payment of $25,000,000, the relinquishment of Costilla's right
to a property interest of $3,558,000, 4,000,000 shares of common stock valued at
$13,700,000 and capitalized interest, legal, accounting, engineering and due
diligence costs of $5,523,000.
General and administrative expenses for the three months ended
September 30, 2000 were $2,984,000, representing an increase of $1,128,000 (60%)
from 1999 of $1,856,000. The Company's agreement with Ballard Petroleum to
reimburse Ballard for certain general and administrative expenses was terminated
effective March 1, 1999 and is expected to result in a savings of approximately
$124,000 per month. Subsequent to March 31, 1999 the Company further reduced its
staff and related expenses by approximately $225,000 monthly, the effect of
which was realized beginning approximately June 1, 1999. This decrease was
offset by severance paid to terminated employees, retention bonuses for
remaining employees and increased costs related to the Company's efforts to
reorganize.
There were no exploration costs in three month period ending September
30, 2000 due to the sale of all prospects.
Depreciation, depletion and amortization ("D D & A") expense for the
three month period ended September 30, 2000 was $210,000 compared to $3,752,000
for 1999, representing a decrease of $3,542,000 (94%). The decrease was due to
the sale of all the Company's oil and gas properties in June 2000.
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Interest expense was $804,000 for the three months ended September 30,
2000, compared to $4,061,000 for the comparable period in 1999. The $3,257,000
(80%) decrease was primarily attributable to the termination of interest accrual
on 10 1/4% notes and a paydown of debt, which was partially offset by an
increase in bank interest rates on the Company's revolver.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
The Company's oil and gas revenues for the nine months ended September
30, 2000 were $19,023,000 compared to $36,029,000 in 1999. The decrease was due
to the sale of certain properties in mid-1999 and the remainder in June 2000.
Oil and gas production was 7,368 MMcfe in 2000 compared to 17,831 MMcfe
in 1999, a 59% decrease. This decline was due to the sale of certain properties
in mid 1999 and the remainder in June of 2000.
Oil and gas production costs for the nine month period ended September
30, 2000 were $6,537,000 compared to $14,320,000 in 1999, representing a
decrease of $7,783,000 (54%), due principally to the sale of certain oil and gas
properties in 1999 and the remainder in June of 2000.
Loss on termination of purchase option relates to the termination of
the Pioneer acquisition. At March 31, 1999, management believed the probability
of successful completion of the acquisition was questionable. The costs, none of
which are recoverable, were expensed as of that date. The $47,781,000 loss
includes a cash payment of $25,000,000, the relinquishment of Costilla's right
to a property interest of $3,558,000, 4,000,000 shares of common stock valued at
$13,700,000 and capitalized interest, legal, accounting, engineering and due
diligence costs of $5,523,000.
General and administrative expenses for the nine months ended September
30, 2000 were $8,217,000, representing an increase of $996,000 (14%) from 1999
of $7,221,000, The Company's agreement with Ballard Petroleum to reimburse
Ballard for certain general and administrative expenses was terminated effective
March 1, 1999 and is expected to result in a savings of approximately $124,000
per month. Subsequent to March 31, 1999 the Company further reduced its staff
and related expenses by approximately $225,000 monthly, the effect of which was
realized beginning approximately June 1, 1999. This decrease was offset by
severance paid to terminated employees, retention bonuses for remaining
employees and increased costs related to the Company's efforts to reorganize.
Depreciation, depletion and amortization ("D D & A") expense for the
nine month period ended September 30, 2000 was $6,398,000 compared to
$14,139,000 for 1999, representing a decrease of $7,741,000 (55%). The decrease
was due to the sale of all the Company's oil and gas properties in June 2000.
Interest expense was $3,293,000 for the nine months ended September 30,
2000, compared to $14,608,000 for the comparable period in 1999. The $11,315,000
(77%) decrease was primarily attributable to the termination of interest accrual
on 10 1/4% notes and a paydown of debt, which was partially offset by an
increase in bank interest rates on the Company's revolver.
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LIQUIDITY AND CAPITAL RESOURCES
Due to the Company's sale of all of its oil and gas assets in June 2000
and the plan under which it is currently being liquidated, no information is
being provided.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Company had no hedging instruments in place at December 31,
1999 or September 30, 2000, and due to the sale of all of its oil and gas assets
in June 2000, no information is provided.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
NONE.
REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COSTILLA ENERGY, INC.
Date: March 30, 2001 By: /s/ BOBBY W. PAGE
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Bobby W. Page
Plan Trustee of the
Costilla Liquidating Trust
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