1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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,
1995, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to _______
COMMISSION FILE NUMBER 1-8241
____________
PRESIDIO OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 95-3049484
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
5613 DTC PARKWAY, SUITE 750
ENGLEWOOD, COLORADO 80111-3065
(Address of principal executive offices) (Zip Code)
(303) 773-0100
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 10, 1995:
CLASS A COMMON STOCK: 25,318,085
CLASS B COMMON STOCK: 3,216,585
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2
PRESIDIO OIL COMPANY AND SUBSIDIARIES
INDEX
Page
----
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Operations -
For the Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 6
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 7
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 8,543 $ 6,423
Accounts receivable:
Oil and gas sales 3,644 6,759
Joint interest owners and other 2,880 6,828
Other 1,086 1,203
-------- --------
Total current assets 16,153 21,213
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties using full
cost accounting 510,938 511,870
Other 4,379 4,268
-------- --------
Total 515,317 516,138
Less accumulated depletion,
depreciation and amortization 298,949 287,463
-------- --------
Net property, plant and equipment 216,368 228,675
-------- --------
OTHER ASSETS:
Deferred charges 8,469 8,055
Other 1,170 1,629
-------- --------
Total other assets 9,639 9,684
-------- --------
$242,160 $259,572
======== ========
See notes to unaudited consolidated financial statements.
3
4
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(in thousands)
CURRENT LIABILITIES:
Accounts payable:
Oil and gas sales $ 2,009 $ 3,368
Trade and other 5,765 12,724
Accrued interest 16,275 3,576
Other accrued liabilities 5,302 5,413
Current portion of long-term debt 246,413 -
-------- --------
Total current liabilities 275,764 25,081
-------- --------
BANK DEBT - 21,000
-------- --------
SENIOR SECURED NOTES - 75,000
-------- --------
GAS INDEXED NOTES - 100,000
-------- --------
CONVERTIBLE SUBORDINATED DEBENTURES - 50,000
-------- --------
OTHER NONCURRENT LIABILITIES 10,977 9,039
-------- --------
STOCKHOLDERS' DEFICIT:
Class A Common stock, $.10 par value per share;
25,318,000 and 25,317,000 shares outstanding
at September 30, 1995 and December 31, 1994,
respectively 2,532 2,532
Class B Common stock, $.10 par value per share;
3,217,000 and 3,218,000 shares outstanding
at September 30, 1995 and December 31, 1994,
respectively 322 322
Additional paid-in capital 128,835 129,029
Deferred compensation (2,064) (2,394)
Retained deficit (174,206) (150,037)
-------- --------
Total stockholders' deficit (44,581) (20,548)
-------- --------
$242,160 $259,572
======== ========
See notes to unaudited consolidated financial statements.
4
5
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
Three Months Ended September 30,
-----------------------------------
1995 1994
--------- ---------
(in thousands, except
per share amounts)
Oil and gas revenues $ 6,771 $ 9,742
Less - direct costs:
Lease operating 2,663 3,172
Production taxes 366 582
Depletion, depreciation and amortization 3,407 4,177
-------- --------
335 1,811
General and administrative expense (1,076) (1,630)
Interest expense (7,417) (6,984)
Other (318) -
-------- --------
Net loss $ (8,476) $ (6,803)
======== ========
Loss per share:
Class A Common Stock $ (.31) $ (.25)
======== ========
Class B Common Stock $ (.31) $ (.25)
======== ========
See notes to unaudited consolidated financial statements.
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6
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
Nine Months Ended September 30,
-----------------------------------
1995 1994
--------- ---------
(in thousands, except
per share amounts)
Oil and gas revenues $ 23,708 $ 30,429
Less - direct costs:
Lease operating 8,775 9,304
Production taxes 1,346 1,777
Depletion, depreciation and amortization 11,138 13,187
-------- --------
2,449 6,161
General and administrative expense (4,844) (4,943)
Interest expense (21,839) (20,936)
Other 65 983
-------- --------
Net loss $(24,169) $(18,735)
======== ========
Loss per share:
Class A Common Stock $ (.89) $ (.69)
======== ========
Class B Common Stock $ (.89) $ (.69)
======== ========
See notes to unaudited consolidated financial statements.
6
7
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30,
-----------------------------------
1995 1994
--------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(24,169) $(18,735)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depletion, depreciation and amortization 11,486 13,532
Amortization of debt issuance costs
included in interest expense 939 925
Other 1,118 1,484
Changes in other assets and liabilities:
Decrease in accounts receivable 7,063 4,688
Decrease (increase) in other current assets (523) 329
Payment of loan fees and costs - (238)
Decrease (increase) in other noncurrent assets (894) 130
Decrease in accounts payable (8,318) (5,563)
Increase (decrease) in accrued interest and liabilities 12,588 (1,421)
Increase (decrease) in other noncurrent liabilities 1,618 (202)
-------- --------
Net cash provided by (used in)
operating activities 908 (5,071)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (14,001) (24,272)
Proceeds from sale of oil and gas properties 14,800 21,692
-------- --------
Net cash provided by (used in)
investing activities 799 (2,580)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of bank debt 8,700 42,490
Payments of bank debt (8,287) (34,990)
Other noncurrent financing - (39)
-------- --------
Net cash provided by financing activities 413 7,461
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,120 (190)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,423 13,559
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 8,543 $ 13,369
======== ========
See notes to unaudited consolidated financial statements.
7
8
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Three Months and Nine Months Ended September 30, 1995 and 1994
1. The accompanying financial statements are unaudited; however, management
believes all material adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation have been made. These
financial statements and notes should be read in conjunction with the
financial statements and related notes included in Presidio Oil
Company's (the "Company" or "Presidio") annual report on Form 10-K for
the year ended December 31, 1994, and the discussion of the Company's
various severance plans for its key and other employees included in Item
2 of this report.
The Company's Senior Subordinated Gas Indexed Notes, Senior Gas Indexed
Notes and Senior Secured Notes (collectively the "Notes") are guaranteed
by all significant subsidiaries of the Company (the "Guarantors").
Separate financial statements of the Guarantors are not included herein
because the Guarantors have fully, unconditionally, jointly and
severally guaranteed the Company's obligations with respect to the Notes
and the Company (which is primarily a holding company and whose
operating income is generated by its subsidiaries) has no separate
operations of its own. The operations, assets, liabilities and equity
of the subsidiaries of the Company that are not Guarantors are
inconsequential.
2. The computation of loss per share excludes the weighted average number
of unallocated shares held by the Company's Employee Stock Ownership
Plan which totaled 1,217,000 shares and 1,277,000 shares for the quarter
and nine months ended September 30, 1995, respectively, and 1,473,000
shares and 1,528,000 shares for the quarter and nine months ended
September 30, 1994, respectively.
3. Included in the Consolidated Statements of Cash Flows is $8,201,000 and
$20,814,000 of interest paid, net of amounts capitalized, during the
nine months ended September 30, 1995 and 1994, respectively. As
discussed below, due to the Company's financial condition, it has not
paid interest on its Public Debt since March 15, 1995.
4. During the nine months ended September 30, 1995, the Company realized
net proceeds of $15 million as the result of the sale of certain oil and
gas properties. The majority of such proceeds were used to fund the
Company's cash flow deficit and capital expenditures.
5. The revenues and operating cash flows of the Company declined
significantly in the first nine months of 1995, making it unlikely that
the Company will be able to continue as a going concern in its current
financial structure. Because of the Company's deteriorating financial
condition and because of its failure to satisfy certain interest payment
obligations, Events of Default have occurred under the indentures
governing the Company's Senior Gas Indexed Notes Due 2002 (the "Senior
Gas Indexed Notes"), its 11.5% Senior Secured Notes Due 2000 (the
"Senior Secured Notes"), and its 9% Convertible Subordinated Debentures
Due 2015 (the "9% Debentures") (collectively the "Public Debt").
Moreover, to cure a previously disclosed collateral deficiency, the
indenture governing the Senior Secured Notes (the "Senior Secured Note
Indenture") required the Company to offer to purchase at par
approximately $7.3 million of Senior Secured Notes prior to June 22,
1995. The Company did not make such offer during the 30-day grace
period subsequent to June 22, 1995 as provided in the Senior Secured
Note Indenture which also resulted in an Event of Default.
8
9
Notes to Unaudited Consolidated Financial Statements
(Continued)
Although the Company is currently making all interest payments due on
its bank debt, the Company did not make a principal payment in the
amount of $1.2 million due on October 1, 1995, which caused an Event of
Default under the Company's bank credit agreement, as amended ("Credit
Agreement"). In addition, the Events of Default described above on the
Public Debt have caused an Event of Default under the Credit Agreement.
Therefore, the current portion of long-term debt on the Company's
September 30, 1995 balance sheet is comprised of the following which
includes all of the Public Debt and the Company's bank debt.
September 30, 1995
Current Portion of
Long-Term Debt
------------------
(in thousands)
Bank Debt $ 21,413
Senior Secured Notes 75,000
Gas Indexed Notes 100,000
9% Debentures 50,000
--------
Total current portion of long-term debt $246,413
========
6. The Company follows the full cost method of accounting for oil and
gas producing activities whereby all costs incurred in the
acquisition, exploration and development of oil and gas properties
are capitalized. Sales of oil and gas properties are recorded as an
adjustment of capitalized costs, with no gain or loss recognized.
Capitalized costs are subject to a ceiling limitation test based on
a computed value of the Company's present value of estimated future
net revenues from proved reserves using current prices (with
consideration of price changes only to the extent provided by
contractual arrangements), discounted at 10%, after adjusting for
tax effects at the end of each period. The calculation of the
ceiling limitation also assumes that the Company will generally
continue with its historical development program; and, for the
Company to do so, it will be required to complete the Asset Sale or
Restructuring, all as discussed in Item 2 of this report.
At September 30, 1995 the Company's average gas price declined to
$1.15 per thousand cubic feet ("MCF") of gas from $1.49 per MCF of
gas at December 31, 1994. Such decrease in gas prices caused the
Company's capitalized costs to exceed its full cost ceiling
limitation by approximately $27 million on such date. The excess
capitalized costs were not charged to the Company's earnings for the
quarter ended September 30, 1995 insofar as, on November 10, 1995,
the Company's average gas price increased to $1.34 per MCF which
resulted in the Company's full cost ceiling limitation being higher
than its capitalized costs. Nonetheless, it should be recognized
that such a reduction would have been a non-cash charge to earnings
and would be excluded in the making of calculations under the
covenants contained in the Company's Credit Agreement and the
indentures relating to the Senior Gas Indexed Notes, Senior Secured
Notes and 9% Debentures.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
CURRENT FINANCIAL CONDITION AND RECENT DEVELOPMENTS
Current Financial Condition. During 1994 and the first nine months of 1995,
the financial condition and operating cash flows of the Company were materially
and adversely affected by a significant industry-wide decline in the price of
natural gas. The Company's revenues and operating cash flows thus declined
significantly during such periods, making it unlikely that the Company will be
able to continue as a going concern in its current financial structure.
Because of the Company's deteriorating financial condition and because of its
failure to satisfy certain interest payment obligations, Events of Default have
occurred under the indentures governing the Company's Senior Gas Indexed Notes
Due 2002 (the "Senior Gas Indexed Notes"), its 11.5% Senior Secured Notes Due
2000 (the "Senior Secured Notes"), and its 9% Convertible Subordinated
Debentures Due 2015 (the "9% Debentures") (collectively the "Public Debt").
Moreover, to cure a previously disclosed collateral deficiency, the indenture
governing the Senior Secured Notes (the "Senior Secured Note Indenture")
required the Company to offer to purchase at par approximately $7.3 million of
Senior Secured Notes prior to June 22, 1995. The Company did not make such
offer during the 30-day grace period subsequent to June 22, 1995 as required by
the Senior Secured Note Indenture, resulting in an Event of Default. Although
the Company is currently making all interest payments due on its bank debt,
the Company did not make a principal payment of $1.2 million due on October 1,
1995, which caused an Event of Default under the Company's bank credit
agreement, as amended ("Credit Agreement"). In addition, the Events of Default
described above on the Public Debt have caused an Event of Default under the
Credit Agreement.
In July 1995, the Company established a data room which provided potential
buyers with information as to the Company's assets. Bids have been received
from a number of companies, and the Company and its financial advisors are
currently evaluating such bids. The Company anticipates that on November 15,
1995 it will select one of the bidders with whom it will pursue negotiations
for the sale of the Company's assets (the "Asset Sale"), with most of the
proceeds being used to satisfy the outstanding indebtedness of the Company.
Although a final decision to sell the Company will depend upon the outcome of
the negotiations relating to such Asset Sale, the Company anticipates that an
Asset Sale is most likely to occur; and, accordingly, it is not currently
negotiating with the holders of its indebtedness with respect to a
restructuring of the Company's debt obligations or examining other
alternatives that may be available to alleviate its current financial
difficulties, such as a transaction wherein the Company would retain all or
most of its oil, gas and related assets (collectively the "Restructuring").
Although the Company and its financial advisors continue to work toward solving
the Company's financial difficulties, no assurance can be given that the
Company will be able to successfully conclude an Asset Sale or a Restructuring;
and, assuming that the Company is successful in respect of concluding an Asset
Sale or Restructuring, no assurance can be given as to the value of the
Company's existing debt and equity securities that may be realized by the
holders of such securities subsequent to the conclusion of such a transaction.
If the Company is unsuccessful in its current efforts to solve its financial
difficulties, it is likely that the Company will incur the adverse consequences
described below under "Ability to Service Debt".
Ability to Service Debt. Because of its current financial condition and
operating cash flow deficit, the Company believes that, except in the context
of an Asset Sale or Restructuring, it will not make further interest payments
on the Public Debt. In addition, substantially all of the Company's oil and
gas reserves are pledged to secure the Company's bank debt and the Senior
Secured Notes, with the result that the
10
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Company is not able to sell such assets in order to fund the above-mentioned
interest payments. The failure to make interest payments has caused an Event
of Default under the Senior Secured Note Indenture, the Senior Gas Indexed
Note Indenture and the 9% Debenture Indenture.
As a result of the Event of Default with respect to the Senior Secured Notes,
the outstanding $75 million of Senior Secured Notes could be declared to be
immediately due and payable, and the trustee under the Senior Secured Note
Indenture would be entitled to exercise various remedies, including foreclosure
of a mortgage on a substantial portion of the Company's oil and gas properties.
As a result of the Events of Default with respect to the Senior Gas Indexed
Notes and the 9% Debentures, the outstanding $100 million of Senior Gas Indexed
Notes and $50 million of 9% Debentures could be declared immediately due and
payable.
In addition, the failure to pay interest on the Public Debt has constituted an
Event of Default under the Credit Agreement and thus the Company is prohibited
from borrowing additional funds thereunder. This Event of Default also could
lead to the $21.4 million outstanding under the Credit Agreement at November
10, 1995 being declared immediately due and payable, and the subsequent
foreclosure of a mortgage on substantially all of the Company's oil and gas
properties not pledged to secure the Senior Secured Notes. In addition to the
principal payment in the amount of $1.2 million that was due on October 1, 1995
(which the Company did not pay), scheduled quarterly commitment reductions of
$1.4 million begin January 1, 1996 and continue through July 1, 1999.
Finally, any of the Events of Default described herein could provide the
opportunity for creditors of the Company to initiate proceedings against the
Company under the United States Bankruptcy Code ("Code"). In addition, it may
be necessary to implement any Asset Sale or Restructuring through a proceeding
under the Code.
Collateral Value Requirement for the Senior Secured Notes. The Senior Secured
Notes are secured by a lien on certain proved oil and gas reserves (the
"Pledged Assets") pursuant to a pledged assets agency agreement (the "Pledged
Assets Agency Agreement"). The Pledged Assets Agency Agreement requires that,
as of various dates, the Security Value (as defined below) of the Pledged
Assets and the Security Value of the Pledged Assets that are proved developed
producing reserves (the "Pledged Producing Assets") must be equal to or greater
than certain specified percentages of the then outstanding amount of Senior
Secured Notes. For the purposes of this discussion, "Security Value" means the
aggregate present value (computed at a discount rate equal to 10% per annum) of
the future net revenues of proved oil and gas reserves, calculated in
accordance with the rules of the Securities and Exchange Commission.
On March 23, 1995, the Company calculated the Security Values of the Pledged
Assets and the Pledged Producing Assets as of the preceding December 31.
Because of the severe decline in gas prices during the second half of 1994, the
Security Values of both the Pledged Assets and the Pledged Producing Assets as
of December 31, 1994 were less than the required percentages, resulting in
deficiencies (the "Deficiencies") in respect of Pledged Assets and Pledged
Producing Assets of $4 million and $7.3 million, respectively.
The Company did not comply with the requirements in respect of curing the
Deficiencies by the dates set forth for such compliance; and, as a result, an
Event of Default under the Senior Secured Note Indenture has occurred and the
trustee under such indenture and the holders of Senior Secured Notes
11
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
have the remedies described above in respect of an Event of Default under the
Senior Secured Note Indenture. See "Ability to Service Debt" above.
Ability to Replace Reserves Produced and Maintain Production Levels. The
ability of the Company to maintain and/or increase its current level of oil and
gas production and to find and develop new proved reserves of oil and gas to
replace the reserves being produced in 1995 depends on the availability of
funds for capital expenditures. Due to the Company's current financial
condition and operating cash flow deficit, the Company has limited funds
available for drilling operations during 1995 (See "Capital
Expenditures/Property Sales" below). The Company's production and volumes of
proved oil and gas reserves are likely to continue to decline during the
remainder of 1995. Such a decline in production would increase the Company's
operating cash flow deficit, and a decline in reserve volumes could cause
further Deficiencies under the collateral requirement relating to the Senior
Secured Notes. See "Collateral Value Requirement for the Senior Secured Notes"
above.
CAPITAL EXPENDITURES/PROPERTY SALES
During the nine months ended September 30, 1995, the Company realized net cash
proceeds of $15 million as the result of the sale of certain oil and gas
properties. The majority of such proceeds were used to fund the Company's cash
flow deficit and capital expenditures during such periods.
The Company's capital expenditures for its oil and gas operations totaled
approximately $14.0 million during the nine months ended September 30, 1995, of
which $7.5 million was used in development and recompletion activities, $3.4
million was used in exploratory activities, and $3.1 million was used in various
other activities, including acquisitions of producing properties and undeveloped
acreage. The Company funded its capital expenditures during such period with
the proceeds of asset sales and with available cash due to the discontinuance of
interest payments on the Public Debt. Due to the current uncertainty as to its
financial condition and future trends in gas pricing, the Company has determined
to limit its capital expenditures, subject to the availability of funds (as to
which no assurance can be given), during the remainder of 1995 to those that are
required to maintain its producing oil and gas properties as well as certain
essential development and other drilling operations. Except for a requirement
under the Credit Agreement that the Company spend $5 million per year on the
Mortgaged Properties during the three-year period ending October 1, 1996, the
timing of most of the Company's capital expenditures is discretionary and there
are currently no material long-term commitments associated with the Company's
capital expenditure plans. The unavailability of funds for capital projects
could also materially and adversely impact the value of the Company's interest
in properties it owns jointly with others. Pursuant to the operating agreements
governing these joint ownership relationships, the Company could be forced to
contribute funds for capital projects in respect to these properties or suffer
"non-consent" penalties. Such penalties could materially and adversely affect
the value of the Company's ownership interest in any such properties.
RESULTS OF OPERATIONS
The Company had a net loss of $8,476,000 and $24,169,000 for the quarter and
nine months ended September 30, 1995, respectively, compared to a net loss of
$6,803,000 and $18,735,000 for the quarter and nine months ended September 30,
1994, respectively. The increased losses during 1995 are due primarily to a
decrease in the Company's revenues and cash flows during the 1995 periods as
compared to the 1994
12
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
periods. Such decreases are a result of lower gas prices and lower oil and gas
production and, for the three month period, lower oil prices. The decrease in
oil and gas production during the 1995 periods as compared to the 1994 periods
is the result of property sales during 1994 and 1995 and normal production
declines on the Company's properties, offset to some extent by increased
production resulting from the Company's 1995 capital expenditures.
The following table reflects the average prices received by the Company for oil
and gas and the amount of its oil and gas production for the three months and
nine months ended September 30, 1995 and 1994:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
Average Price:
Oil and condensate (per barrel) $14.57 $15.34 $15.36 $13.58
Gas (per thousand cubic feet) $1.09 $1.35 $1.18 $1.48
Production:
Oil and condensate (barrels) 207,000 270,000 661,000 863,000
Gas (thousand cubic feet) 3,429,000 4,160,000 11,531,000 12,668,000
Equivalent barrel (1) 779,000 963,000 2,583,000 2,974,000
(1) Oil and gas are converted to a common unit of measure on the basis of
six MCF of gas to one barrel of oil.
The reduced amount of depletion, depreciation and amortization during the 1995
periods as compared to the 1994 periods is primarily due to a decrease in
production (on an equivalent barrel basis). Lease operating expenses have
increased on a unit of production basis for the 1995 periods as compared to the
1994 periods due to the production decline on the Company's properties and the
sale of certain low operating cost properties. However, the lease operating
expenses for the 1995 third quarter are approximately equal to those during the
1994 third quarter due to a lower level of workover expense during the 1995
period.
The following table shows the costs associated with the Company's oil and gas
revenues per equivalent barrel of oil for the three months and nine months
ended September 30, 1995 and 1994:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
(per equivalent barrel)
Production Costs $3.89 $3.90 $3.92 $3.73
Depletion, Depreciation and
Amortization $4.37 $4.34 $4.31 $4.43
13
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company has significantly reduced general and administrative expenses for
the quarter ended September 30, 1995 as compared to the quarter ended September
30, 1994 due to the reduction in personnel that occurred during the quarter
ended June 30, 1995. The general and administrative expenses for the nine
months ended September 30, 1995 include a charge during the quarter ended June
30, 1995 of $900,000 relating to severance costs incurred in connection with
such reduction in personnel pursuant to the Company's severance plans.
Further severance costs may occur in future periods in respect of a reduction
in the Company's personnel from a further downsizing or an Asset Sale, as a
result of payments made under the Company's severance plans for its key and
other employees. One severance plan generally provides for a payment equal to
one-twelfth of the employee's annual base salary multiplied by the number of
years of continuous service with the Company plus two months' salary, and the
other severance plan generally provides for a payment equal to an employee's
annual base salary (including the Company's benefit plan contribution to such
employee for such year), as adjusted in the case of certain key employees by an
additional seven to eight months' salary and for certain other factors. Health
and medical payments are also provided under both plans for severed employees
for a period of at least six months.
The Company's interest expense has increased during the quarter and nine months
ended September 30, 1995 as compared to the comparable periods in 1994 as a
result of the 1995 periods having higher average levels of bank debt
outstanding and due to penalty interest accrued on the unpaid balance of
interest due on the Public Debt.
14
15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Indemnification Agreement, dated as of June 20, 1995,
together with a schedule identifying specific
agreements between the Company and each of the Company's
directors and Named Officers.
10.2 The Company's Severance Benefit Plan effective as of
July 1, 1995.
10.3 Key Employee Severance Agreement, dated as of July 25,
1995, together with a schedule identifying specific
agreements between the Company and Key Employees and
setting forth the material details in which those
agreements differ from the Key Employee Severance
Agreement filed.
10.4 Amendment to Key Employee Severance Agreements, dated
August 16, 1995 and effective as of July 25, 1995.
10.5 Amendments to Supplemental Executive Retirement
Agreement, dated October 26, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 13, 1995, a Form 8-K was filed dated September 13,
1995, which reports under Item 5 "Other Events" the interest
rate on the Company's Senior Subordinated Gas Indexed Notes Due
1999 and Senior Gas Indexed Notes Due 2002 to be 13.250% for
the period November 15, 1995 to February 14, 1996.
On September 21, 1995, a Form 8-K was filed dated September 15,
1995, which reports under Item 5 "Other Events" that the
Company did not pay the $2.25 million of interest that became
due on that date on its 9% Convertible Subordinated Debentures
Due 2015 (the "9% Debentures") which resulted in a Default
under the indenture (the "9% Debenture Indenture") governing
the 9% Debentures.
15
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PRESIDIO OIL COMPANY
-----------------------------------
Registrant
DATE: November 14, 1995 /s/ Robert L. Smith
----------------- -----------------------------------
Robert L. Smith
President and
Chief Operating Officer
DATE: November 14, 1995 /s/ Charles E. Brammeier
----------------- -----------------------------------
Charles E. Brammeier
Controller
(Principal Accounting Officer)
16
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.1 Indemnification Agreement, dated as of June 20, 1995, together with a schedule identifying specific agreements
between the Company and each of the Company's directors and Named Officers.
10.2 The Company's Severance Benefit Plan effective as of July 1, 1995.
10.3 Key Employee Severance Agreement, dated as of July 25, 1995, together with a schedule identifying specific
agreements between the Company and Key Employees and setting forth the material details in which those agreements
differ from the Key Employee Severance Agreement filed.
10.4 Amendment to Key Employee Severance Agreements, dated August 16, 1995 and effective as of July 25, 1995.
10.5 Amendments to Supplemental Executive Retirement Agreement, dated October 26, 1995.
27 Financial Data Schedule (Submitted to the SEC for its information).