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 JUNE 30, 1996, 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 August 12, 1996:
CLASS A COMMON STOCK: 25,318,085
CLASS B COMMON STOCK: 3,216,585
1
2
PRESIDIO OIL COMPANY AND SUBSIDIARIES
INDEX
Page
----
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended June 30, 1996 and 1995 . . . . . . . . . 4
Unaudited Consolidated Statements of Operations -
For the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 8
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
1996 1995
---------- ----------
(Unaudited)
(in thousands)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 8,065 $ 7,060
Accounts receivable:
Oil and gas sales 5,143 4,572
Joint interest owners and other 1,825 2,255
Other 1,715 1,280
-------- --------
Total current assets 16,748 15,167
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties using full cost accounting 519,802 515,227
Other 4,389 4,371
-------- --------
Total 524,191 519,598
Less accumulated depletion, depreciation and amortization 309,179 302,733
-------- --------
Net property, plant and equipment 215,012 216,865
-------- --------
OTHER ASSETS:
Deferred charges 8,984 8,761
Other 1,179 1,153
-------- --------
Total other assets 10,163 9,914
-------- --------
$241,923 $241,946
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Oil and gas sales $ 2,111 $ 2,139
Trade and other 2,536 5,137
Accrued interest 38,263 23,214
Other accrued liabilities 3,014 3,913
Current debt 246,413 246,413
-------- ---------
Total current liabilities 292,337 280,816
-------- --------
OTHER NONCURRENT LIABILITIES 10,746 11,125
-------- --------
STOCKHOLDERS' DEFICIT:
Class A Common stock, $.10 par value per share; 25,318,000 shares
outstanding at June 30, 1996 and December 31, 1995 2,532 2,532
Class B Common stock, $.10 par value per share; 3,217,000 shares
outstanding at June 30, 1996 and December 31, 1995 322 322
Additional paid-in capital 126,776 126,776
Retained deficit (190,790) (179,625)
-------- --------
Total stockholders' deficit (61,160) (49,995)
-------- --------
$241,923 $241,946
======== ========
See notes to unaudited consolidated financial statements.
3
4
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
Three Months Ended June 30,
-----------------------------
1996 1995
-------- --------
(in thousands, except
per share amounts)
Oil and gas revenues $ 9,021 $ 8,093
Less - direct costs:
Lease operating 2,253 2,933
Production taxes 511 448
Depletion, depreciation and amortization 3,132 3,739
-------- --------
3,125 973
General and administrative expense (1,041) (2,291)
Interest expense (8,159) (7,265)
Other 999 507
-------- --------
Net loss $ (5,076) $ (8,076)
======== ========
Loss per share of Class A and Class B Common Stock $ (.18) $ (.30)
======== ========
Weighted average number of common shares outstanding 28,535 27,274
======== ========
See notes to unaudited consolidated financial statements.
4
5
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
Six Months Ended June 30,
-----------------------------
1996 1995
-------- --------
(in thousands, except
per share amounts)
Oil and gas revenues $ 17,679 $ 16,937
Less - direct costs:
Lease operating 4,608 6,112
Production taxes 989 980
Depletion, depreciation and amortization 6,282 7,731
-------- --------
5,800 2,114
General and administrative expense (2,120) (3,768)
Interest expense (16,013) (14,422)
Other 1,168 383
-------- --------
Net loss $(11,165) $(15,693)
======== ========
Loss per share of Class A and Class B Common Stock $ (.39) $ (.58)
======== ========
Weighted average number of common shares outstanding 28,535 27,237
======== ========
See notes to unaudited consolidated financial statements.
5
6
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30,
---------------------------
1996 1995
-------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,165) $ (15,693)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion, depreciation and amortization 6,446 7,971
Amortization of debt issuance costs
included in interest expense 619 626
Other 475 653
Changes in other assets and liabilities:
Decrease (increase) in accounts receivable (141) 5,239
Decrease (increase) in other current assets (756) 55
Increase in other noncurrent assets (868) (551)
Decrease in accounts payable (2,629) (9,068)
Increase in accrued interest and other
accrued liabilities 14,150 5,467
Increase (decrease) in other noncurrent liabilities (533) 622
--------- ---------
Net cash provided by (used in)
operating activities 5,598 (4,679)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,593) (10,371)
Proceeds from sale of oil and gas properties - 14,947
--------- ---------
Net cash provided by (used in)
investing activities (4,593) 4,576
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of bank debt - 8,700
Payments of bank debt - (8,287)
--------- ---------
Net cash provided by financing activities - 413
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,005 310
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,060 6,423
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 8,065 $ 6,733
========= =========
See notes to unaudited consolidated financial statements.
6
7
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 30, 1996 and 1995
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, 1995.
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 accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. During 1994 and 1995,
the financial condition and operating cash flows of the Company were
materially and adversely affected by a significant decline in the price
that the Company received for its natural gas production. The
Company's revenues and operating cash flows thus declined significantly
during such periods, making it unlikely that the Company would be able
to continue as a going concern in its current financial structure.
Because of the Company's deteriorating financial condition, the Company
has failed to satisfy certain payment and other obligations under, and
events of default ("Events of Default") have occurred in respect of,
the Company's public debt and bank debt obligations.
On August 5, 1996, the Company entered into an acquisition agreement
with Tom Brown, Inc. ("Tom Brown") whereby Tom Brown would acquire the
Company for approximately $183 million (consisting of approximately $101
million in cash and 5 million shares of Tom Brown common stock valued at
$16.50 per share) (the "Exchange Consideration"). In connection with
such agreement, inasmuch as such consideration is not sufficient to pay
the full amount of all of the Company's indebtedness, the Company filed
for protection under chapter 11 of title 11 of the United States Code;
and, in connection therewith, filed a joint plan of reorganization (the
"Plan") and an accompanying disclosure statement which included specific
allocations of the Exchange Consideration among the Company's debt and
equity holders, and which, if approved by the Company's creditors and
its stockholders, would result in the acquisition of the Company by Tom
Brown. However, there can be no assurance that the Plan will be
approved.
See Item 2 for a further discussion of the Company's Financial
Condition, the Plan and Events of Default.
3. 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 1,261,000 shares and 1,298,000 shares for the
quarter and six months ended June 30, 1995, respectively.
4. Included in the Consolidated Statements of Cash Flows is $345,000 and
$7,934,000 of interest paid, net of amounts capitalized, during the six
months ended June 30, 1996 and 1995, respectively.
7
8
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 1995, the financial condition and
operating cash flows of the Company were materially and adversely affected by a
significant decline in the price that the Company received for its natural gas
production. The Company's revenues and operating cash flows thus declined
significantly during such periods, making it unlikely that the Company could
continue as a going concern in its current financial structure. Because of the
Company's deteriorating financial condition, the Company has failed to satisfy
certain payments and other obligations under, and Events of Default have
occurred in respect of, the Company's public debt and bank debt obligations.
See "Liquidity and Ability to Service Debt" and "Defaults" below.
Because of the Company's deteriorating financial condition, during the first
six months of 1995 the Company engaged in discussions with various third
parties and certain of its creditors in an effort to arrange a restructuring of
the Company's various debt obligations under which the Company would retain all
or most of its oil, gas and related assets. In June 1995, Tom Brown, Inc.
("Tom Brown") acquired approximately $56 million in principal amount of the
Company's Senior Gas Indexed Notes Due 2002 (the "Senior Gas Indexed Notes")
and reiterated a previously expressed interest in acquiring the Company or all
of its assets. In response to Tom Brown's expression of interest and after
consulting with certain of its significant creditors, the Company decided to
explore the possibility of selling the Company or all of its assets. In August
1995, the Company began soliciting bids from persons interested in acquiring
the Company or all of its assets. A data room was established which provided
potential buyers with information about the Company and its assets. Bids were
received from a number of companies that participated in the data room process.
The Company and its financial advisors evaluated those bids; and, on November
15, 1995, the Company selected Tom Brown as the bidder with which the Company
would pursue negotiations for a potential sale of the Company or all of its
assets. Tom Brown's November 15, 1995 bid contemplated the acquisition of the
Company for a purchase price of approximately $180 million (consisting of a
combination of cash and Tom Brown common stock).
Since late November of 1995, the Company has been in negotiations with Tom
Brown and certain of the Company's creditors regarding a proposed transaction
pursuant to which Tom Brown would acquire the Company. On August 5, 1996, the
Company entered into an acquisition agreement (the "Exchange Agreement") with
Tom Brown whereby Tom Brown would acquire the Company for approximately $183
million (consisting of approximately $101 million in cash and 5 million shares
of Tom Brown common stock valued at $16.50 per share) (the "Exchange
Consideration"). The Exchange Agreement may be terminated by Tom Brown at any
time (a) if the damages arising from breaches of representations, warranties
or covenants of Presidio contained in the Exchange Agreement should exceed $3
million, (b) if the average of the closing prices of the Tom Brown common stock
on the NASDAQ over a twenty day trading period preceding the fifth trading day
prior to the closing is more than 120% of $16.50, (c) if on or before August
20, 1996 the bankruptcy court fails to issue an order approving the provision
of the Exchange Agreement requiring Presidio to pay Tom Brown certain fees and
expenses (see the immediately following paragraph) in the event the Exchange
Agreement is terminated for certain events or if such order when issued fails
to become a final order on or before August 30, 1996, (d) if the confirmation
order relating to Presidio's bankruptcy in a form and substance reasonably
acceptable to Tom Brown has not been entered by the bankruptcy court on or
before November 15, 1996 or has not become a final order on or before December
13, 1996, or (e) in certain other circumstances. The Exchange Agreement may be
terminated by Presidio at any time (a) if the average of the closing sale
prices of the Tom Brown common stock on the NASDAQ during the twenty trading
day period preceding the fifth trading prior to
8
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
the closing is less than 80% of $16.50, (b) if Presidio has notified Tom Brown
that the Board of Directors of Presidio, in the exercise of their fiduciary
duties, has determined to withdraw their prior recommendation of the Exchange
to the Presidio securityholders or has determined not to consummate the
Exchange because Jefferies & Company, Inc. has failed to reconfirm its prior
fairness opinion, or (c) in certain other circumstances.
If the Exchange Agreement is terminated by either Tom Brown or Presidio because
(a) Presidio has notified Tom Brown that Presidio is prepared to enter into an
agreement to effect an alternative transaction, (b) Presidio has notified Tom
Brown that the Board of Directors of Presidio has determined to withdraw their
prior recommendation of the Exchange, or (c) Jefferies & Company, Inc. has
failed to reconfirm its prior fairness opinion, then Presidio is required to
pay Tom Brown a fee of $6,000,000 plus an amount, not to exceed $3,000,000, to
reimburse Tom Brown for its documented out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by the Exchange
Agreement. In addition, Presidio is required to reimburse Tom Brown for up to
$3,000,000 of its documented out-of-pocket costs and expenses incurred in
connection with the transactions contemplated by the Exchange Agreement, if Tom
Brown should terminate the Exchange Agreement because (a) damages arising from
breaches of representations, warranties, or covenants of Presidio contained in
the Exchange Agreement exceed $3 million or (b) on or before August 20, 1996,
the bankruptcy court failed to issue an order approving the provisions of the
Exchange Agreement requiring Presidio to pay Tom Brown the above described fees
and expenses or if such order when issued fails to become a final order on or
before August 30, 1996.
Inasmuch as the Exchange Consideration was not sufficient to pay the full amount
of all of the Company's indebtedness, on August 5, 1996, the Company filed for
protection under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"); and, in connection therewith, filed a joint plan of
reorganization (the "Plan") and an accompanying disclosure statement which
included specific allocations of the Exchange Consideration among the Company's
debt and equity holders, and which, if approved by the Company's creditors and
its stockholders, would result in the acquisition of the Company by Tom Brown.
The Plan proposes that the Exchange Consideration be allocated as follows:
Claim as of July 31, 1996
---------------------------
Class of Claim Principal Interest Allocation of Exchange Consideration (1)
- ----------------------------- ----------- ------------ ----------------------------------------------------
Banks $21,413,000 $ 317,020 $21,413,000 of cash plus payment of accrued interest
Senior Secured Notes $75,000,000 $ 12,729,362 $78,780,267 of cash
Senior Gas Indexed Notes $99,770,000 $ 21,006,301 4,152,893 shares of Tom Brown Common Stock (2)
Subordinated Debentures $50,000,000 $ 6,482,500 708,121 shares of Tom Brown Common Stock
Presidio Common Shareholders N/A N/A 142,424 shares of Tom Brown Common Stock and
$250,000 in cash
(1) Tom Brown Common Stock valued at $16.50 per share.
(2) Includes 2,325,620 shares of Tom Brown Common Stock that will not be
distributed due to Tom Brown's ownership of $56 million of principal
amount of the Senior Gas Indexed Notes.
The Company expects that no class of creditors of the Company other than
holders of the Public Debt (defined below) will be materially impaired in
connection with the Plan. The bankruptcy filing and the publicity attendant
thereto could adversely affect the business of the Company. While the Company
9
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
believes that any such adverse effects would be mitigated if the Plan is
confirmed, a protracted bankruptcy could have a material adverse effect on the
Company and its ability to implement the Plan or any other transaction or
restructuring.
The Plan is subject to the approval of the classes of creditor and equity
claimants set forth in the table above; and, for the Plan to be confirmed by the
bankruptcy court, it must be approved, at a minimum, by the number of holders of
at least one class of impaired creditors that represents both (i) at least 66
2/3% in value of the voting holders of such class and (ii) more than 50% of the
number of voting holders of such class, excluding in each case holders who are
considered to be "Insiders" under the Bankruptcy Code. The Plan does not
currently have the support of a sufficient number of the holders of any class of
creditors (other than the Company's banks ("Banks")) to approve the Plan and
there can be no assurance as to whether such support will be obtained.
If the Plan were rejected by one or more classes of claimants, it could
adversely affect or eliminate distributions under the Plan to the rejecting
class or classes and classes junior to such rejecting class or classes.
Distributions to the holders of Presidio common stock would be eliminated as a
result of a rejection of the Plan by holders of the Senior Gas Indexed Notes,
the Subordinated Debentures (defined below), or the Presidio common stock.
Distributions to the holders of the Subordinated Debentures would also be
eliminated as a result of a rejection of the Plan by either the holders of the
Senior Gas Indexed Notes or the Subordinated Debentures. Lastly, should the
holders of the Senior Gas Indexed Notes reject the Plan, the Plan provides that
the distribution to the holders of the Senior Gas Indexed Notes, will be
further reduced by 207,645 shares. If the holders of the Senior Gas Indexed
Notes reject the Plan, the Exchange Consideration otherwise allocable to the
holders of Presidio common stock and the Subordinated Debentures will be
reallocated first to the holders of the Senior Secured Notes (defined below) to
the extent of their claim, then to the Banks to the extent of their claim, then
to the Senior Gas Indexed Noteholders to the extent of their claim, and any
excess will be a reduction to the Exchange Consideration. If the Subordinated
Debenture holders reject the Plan, the Exchange Consideration otherwise
distributable to them will be reallocated to the Senior Gas Indexed Note claims
and Senior Secured Note claims ratably based upon the Exchange Consideration
otherwise distributable to them under the Plan. If the holders of Presidio
common stock reject the Plan, the Exchange Consideration otherwise
distributable to them will be reallocated to the holders of the Senior Secured
Note claims, Subordinated Debenture claims and Senior Gas Indexed Note claims
ratably, based upon the Exchange Consideration otherwise distributable to them
under the Plan.
Liquidity and Ability to Service Debt. As of July 31, 1996, the Company had
cash and cash equivalents of approximately $4.7 million. Additionally, the
Company has entered into cash collateral agreements with its bank lenders and
its Senior Secured Note holders which generally provide the Company with the
ability to use the net revenues generated from the properties which secure such
indebtedness to pay for the Company's operating expenses, general and
administrative expenses and the costs of the Plan. The Company believes that
such funds will be sufficient to fund its operations for the period necessary
to implement the Plan. Except in connection with the Plan, the Company does
not anticipate making any future payments on the 11.5% Senior Secured Notes Due
2000 (the "Senior Secured Notes"), the Senior Gas Indexed Notes or the 9%
Convertible Subordinated Debentures Due 2015 (the "Subordinated Debentures"),
collectively the Public Debt. However, the Company's available cash flow could
be reduced below anticipated levels as a result of risks and uncertainties
associated with the Company's operations as well as lower prices for oil and
gas. This could then necessitate the Company seeking Debtor-In-Possession
financing although there can be no assurances that such financing could be
obtained.
10
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Defaults. The Company has failed to satisfy its interest payment and certain
other obligations under the Senior Gas Indexed Notes, the Subordinated
Debentures and the Senior Secured Notes, resulting in Events of Default
thereunder.
In addition, Events of Default in respect of the Public Debt have resulted in
an Event of Default under the Company's bank credit agreement (the "Credit
Agreement"). The Company has also failed to make principal payments under the
Credit Agreement of $1.2 million due October 1, 1995 and $1.4 million due on
each of January 1, April 1, and July 1, 1996, resulting in further Events of
Default.
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.
As of December 31, 1995, the Security Values were $9.4 million in respect of
the Pledged Assets and $18.1 million in respect of the Pledged Producing
Assets, or substantially less than the required percentages in respect of the
Pledged Assets Agency Agreement.
The Company has not complied with the requirements for curing the Deficiencies
by the dates set forth for such compliance in the Senior Secured Note
Indenture. 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 have the remedies described above in respect of an Event
of Default under the Senior Secured Note Indenture. See "Liquidity and Ability
to Service Debt" and "Defaults" above.
Ability to Replace Reserves Produced and Maintain Production Levels. The
ability of the Company to maintain its current level of oil and gas production
and to find and develop new proved reserves of oil and gas to replace the
reserves produced depends on the availability of funds for capital
expenditures. Due to the Company's current financial condition, the Company
has limited funds available for drilling operations during 1996. In addition,
the Company's ability to use such funds is subject to restrictions contained in
the Exchange Agreement, and to the approval of the bankruptcy court. See
"Capital Expenditures" below. As a result, the Company's production and
volumes of proved oil and gas reserves are likely to continue to decline during
1996. Such a decline in production would adversely affect the Company's
short-term liquidity. A decline in reserve volumes could cause increased
Deficiencies under the collateral requirement relating to the Senior Secured
Notes and could adversely affect the value of the collateral securing the
Senior Secured Notes and the Company's bank debt. See "Liquidity and Ability
to Service Debt" and "Defaults" and "Collateral Value Requirement for the
Senior Secured Notes" above.
11
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
LONG-TERM DEBT
At August 6, 1996, the total debt of the Company was $246.4 million. Of such
amount, $21.4 million was outstanding under the Credit Agreement and was
secured by mortgages on a significant amount of the Company's oil and gas
properties (the "Mortgaged Properties") other than the Pledged Assets.
Borrowings under the Credit Agreement currently bear interest at a per annum
rate of LIBOR plus 2.5%. See "Liquidity and Ability to Service Debt" and
"Defaults".
The other long-term debt of the Company consists of $50 million of Subordinated
Debentures, $75 million of Senior Secured Notes, and $100 million of Senior Gas
Indexed Notes. The Senior Secured Notes bear interest at 11.5% per annum and
are secured by a mortgage on the Pledged Assets as described above. The Senior
Gas Indexed Notes are unsecured and currently bear interest at 13.25% per
annum. The Subordinated Debentures bear interest at 9% per annum, are
unsecured and are subordinated to the Company's bank debt, the Senior Secured
Notes and the Senior Gas Indexed Notes. As discussed above, the Company is
currently in default in respect of, and making no payments in respect of, the
Public Debt. See "Liquidity and Ability to Service Debt" and "Defaults."
CAPITAL EXPENDITURES
The Company's capital expenditures on its oil and gas operations totaled
approximately $4.6 million during the six months ended June 30, 1996. Due to
the current uncertainty as to its financial condition, the Company plans to
limit its capital expenditures, subject to the availability of funds (as to
which no assurance can be given), during the remainder of 1996 to those that
are required to maintain its producing oil and gas properties as well as
certain other drilling operations and activities. The Exchange Agreement
contains restrictions on the Company's ability to make significant capital
expenditures without Tom Brown's approval. 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 and 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 for the quarter and six months ended June 30, 1996
of $5,076,000 and $11,165,000, respectively, compared to a net loss of
$8,076,000 and $15,693,000 for the quarter and six months ended June 30, 1995.
Contributing to the 1996 losses was a decrease in oil and gas production in the
1996 periods as compared to the 1995 periods. The decrease in oil production
is the result of lower production rates in several significant fields and the
decrease in gas production is due to both declines in production rates and the
sale of certain producing properties. However, the Company's revenues for the
1996 periods are higher than those a year earlier due to a significant increase
in oil and gas prices.
12
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
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
six months ended June 30, 1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
1996 1995 1996 1995
-------- --------- -------- ----------
Average Price:
Oil and condensate (per barrel) $ 19.33 $ 16.45 $ 18.12 $ 15.72
Gas (per thousand cubic feet) $ 1.69 $ 1.19 $ 1.70 $ 1.21
Production:
Oil and condensate (barrels) 190,000 212,000 382,000 454,000
Gas (thousand cubic feet) 3,159,000 3,862,000 6,336,000 8,102,000
The reduced amount of expenses associated with lease operating and depletion,
depreciation and amortization during the 1996 periods as compared to the 1995
periods is due to a decrease in oil and gas production. The increase in
production taxes in the 1996 periods as compared to the 1995 periods is due to
the higher revenues in the 1996 periods caused by higher oil and gas prices.
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 six months ended
June 30, 1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(per equivalent barrel)
Production Costs $ 3.86 $ 3.95 $ 3.89 $ 3.93
Depletion, Depreciation and
Amortization $ 4.37 $ 4.37 $ 4.37 $ 4.29
The Company has significantly reduced its ongoing general and administrative
expenses during 1996 due to a reduction in personnel during 1995.
The Company's interest expense increased during 1996 as compared to 1995 due to
the interest accrued on the unpaid balance of interest due on the Public Debt.
13
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Exchange Agreement dated August 5, 1996 by and among
Presidio Oil Company, Presidio Exploration, Inc.,
Presidio West Virginia, Inc., Palisade Oil, Inc., and
Tom Brown, Inc.(1)
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 4, 1996, a Form 8-K was filed dated April 2, 1996,
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 May 15, 1996 to August 14, 1996.
On June 18, 1996, a Form 8-K was filed dated June 18, 1996,
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 13.600% for the
period August 15, 1996 to November 14, 1996.
________________
(1) Not included with Exhibit 2.1 are the following exhibits and schedules
thereto, copies of which will be furnished supplementally to the
Commission on request:
Exhibit A Oil and Gas Leases
Exhibit B Oil and Gas Wells
Exhibit D Form of Disclosure Statement
Exhibit E Form of Affiliate Letter
Schedule 4.19 Limitation on Acquisition and Expenditures
Schedule 4.22 Officers and Employees; Severance Plan and Agreements
Schedule 4.26 Letters of Credit
Schedule 5.5 Claims and Litigation
Schedule 5.8 Tax Matters
Schedule 5.9 Employee Benefit Plans
Schedule 5.11 Capital Structure
Schedule 5.12 Liabilities
Schedule 5.13 Absence of Certain Changes
Schedule 5.15 Labor Matters
Schedule 5.16 Accounts Receivable
Schedule 5.19 Accuracy of Oil and Gas Reserve Report
Schedule 5.20 Oil and Gas Operations
Schedule 5.21 Environmental Matters
Schedule 5.22 No Brokers
Schedule 5.23 Compliance with Laws
Schedule 5.24 Material Insurance Policies
Schedule 5.25 Oil and Gas Operating Agreements and Material Contracts
Schedule 6.7 Capital Structure of Tom Brown, Inc.
Schedule 6.8 Claims and Litigation
14
15
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: August 14, 1996 /s/ Robert L. Smith
------------------- ----------------------------------
Robert L. Smith
President and
Chief Operating Officer
DATE: August 14, 1996 /s/ Charles E. Brammeier
------------------- ----------------------------------
Charles E. Brammeier
Controller
(Principal Accounting Officer)
15
16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Exchange Agreement dated August 5, 1996 by and among Presidio
Oil Company, Presidio Exploration, Inc., Presidio West
Virginia, Inc., Palisade Oil, Inc., and Tom Brown, Inc.(1)
27 Financial Data Schedule (Submitted to the SEC for its
information).
________________
(1) Not included with Exhibit 2.1 are the following exhibits and schedules
thereto, copies of which will be furnished supplementally to the
Commission on request:
Exhibit A Oil and Gas Leases
Exhibit B Oil and Gas Wells
Exhibit D Form of Disclosure Statement
Exhibit E Form of Affiliate Letter
Schedule 4.19 Limitation on Acquisition and Expenditures
Schedule 4.22 Officers and Employees; Severance Plan and Agreements
Schedule 4.26 Letters of Credit
Schedule 5.5 Claims and Litigation
Schedule 5.8 Tax Matters
Schedule 5.9 Employee Benefit Plans
Schedule 5.11 Capital Structure
Schedule 5.12 Liabilities
Schedule 5.13 Absence of Certain Changes
Schedule 5.15 Labor Matters
Schedule 5.16 Accounts Receivable
Schedule 5.19 Accuracy of Oil and Gas Reserve Report
Schedule 5.20 Oil and Gas Operations
Schedule 5.21 Environmental Matters
Schedule 5.22 No Brokers
Schedule 5.23 Compliance with Laws
Schedule 5.24 Material Insurance Policies
Schedule 5.25 Oil and Gas Operating Agreements and Material Contracts
Schedule 6.7 Capital Structure of Tom Brown, Inc.
Schedule 6.8 Claims and Litigation