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
Commission File No 0-26484
DLB OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1358299
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
1601 NORTHWEST EXPRESSWAY, SUITE 700
OKLAHOMA CITY, OKLAHOMA 73118-1401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (405) 848-8808
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 report), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of Registrant's common stock,
$.001 par value, as of July 31, 1996 was 12,975,000.
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DLB OIL & GAS, INC.
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
June 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995 4
Statements of Consolidated Shareholders' Equity
As of June 30, 1996 (Unaudited) and
December 31, 1995 and 1994 5
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended
June 30, 1996 and June 30, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 21
2
3
PART I. FINANCIAL INFORMATION
Item 1.
DLB OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,962,000 $ 14,313,000
Marketable securities - cost which
approximates market value (Note 4) 3,680,000 --
Accounts receivable 6,741,000 4,850,000
Prepaid expenses 399,000 324,000
------------- -------------
Total current assets 14,782,000 19,487,000
------------- -------------
Property and equipment - at cost, based on the full cost method of accounting
for oil and natural gas properties (Note 5):
Oil and natural gas properties subject to amortization 98,352,000 62,275,000
Oil and natural gas properties not subject to amortization 13,972,000 10,037,000
Natural gas processing plants and gathering systems 1,173,000 3,094,000
Saltwater disposal system 1,119,000 1,119,000
Other property and equipment 1,101,000 948,000
------------- -------------
115,717,000 77,473,000
Accumulated depreciation, depletion and amortization (21,930,000) (18,812,000)
------------- -------------
93,787,000 58,661,000
------------- -------------
Other assets 50,000 59,000
------------- -------------
Total assets $ 108,619,000 $ 78,207,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,561,000 $ 3,853,000
Revenue and royalty distributions payable 460,000 1,527,000
Drilling advances and other liabilities 39,000 190,000
Accrued liabilities 168,000 193,000
------------- -------------
Total current liabilities 4,228,000 5,763,000
------------- -------------
Long-term debt 30,000,000 --
Deferred income tax liability (Note 6) 13,703,000 12,900,000
Shareholders' equity (Note 7):
Preferred stock, 5,000,000 shares authorized; no shares
issued and outstanding -- --
Common stock, 130,000,000 shares authorized; 13,000,000
shares issued; 12,975,000 and 13,000,000 outstanding
at June 30, 1996 and December 31, 1995, respectively 13,000 13,000
Additional paid in capital 57,910,000 57,910,000
Retained earnings 2,946,000 1,621,000
Treasury stock (25,000 shares at June 30, 1996, at cost) (181,000) --
------------- -------------
Total shareholders' equity 60,688,000 59,544,000
------------- -------------
Total liabilities and shareholders' equity $ 108,619,000 $ 78,207,000
============= =============
See accompanying notes to consolidated financial statements
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4
DLB OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
Revenues:
Oil and natural gas sales $ 5,515,000 $ 4,859,000 $ 9,996,000 $ 9,100,000
Natural gas gathering, processing
and transportation, net 313,000 1,124,000 390,000 1,787,000
Interest 79,000 24,000 263,000 50,000
Other 17,000 4,000 29,000 343,000
------------ ------------ ------------ ------------
5,924,000 6,011,000 10,678,000 11,280,000
Expenses:
Lease operating 1,590,000 1,291,000 2,801,000 2,529,000
Depreciation, depletion,
and amortization 2,031,000 1,789,000 3,825,000 3,420,000
General and administrative 738,000 317,000 1,465,000 646,000
Interest 251,000 222,000 251,000 401,000
Loss on sale of assets (Note 8) -- -- 208,000 --
------------ ------------ ------------ ------------
4,610,000 3,619,000 8,550,000 6,996,000
------------ ------------ ------------ ------------
Income before income taxes 1,314,000 2,392,000 2,128,000 4,284,000
Deferred income taxes (Note 6) 494,000 -- 803,000 --
Pro forma income taxes (Note 6) -- 957,000 -- 1,714,000
============ ============ ============ ============
Net income $ 820,000 $ 1,435,000 $ 1,325,000 $ 2,570,000
============ ============ ============ ============
Net income per common share $ 0.06 $ 0.14 $ 0.10 $ 0.26
============ ============ ============ ============
Weighted average common
shares outstanding 12,975,000 10,000,000 12,981,000 10,000,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements
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5
DLB OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------
JUNE 30, 1996 1995 1994
------------ ------------ ------------
(UNAUDITED)
Common stock - shares outstanding:
Balance, beginning of period 13,000,000 -- --
Issuance of stock in connection with the Merger -- 10,000,000 --
Sale of stock in connection with the public offering, net of costs -- 3,000,000 --
------------ ------------ ------------
Balance, end of period 13,000,000 13,000,000 --
============ ============ ============
Common stock - amount:
Balance, beginning of period $ 13,000 $ -- $ --
Issuance of stock in connection with the Merger -- 10,000 --
Sale of stock in connection with the public offering, net of costs -- 3,000 --
------------ ------------ ------------
Balance, end of period $ 13,000 $ 13,000 $ --
============ ============ ============
Additional paid in capital:
Balance, beginning of period $ 57,910,000 $ -- $ --
Issuance of stock in connection with the Merger -- 31,017,000 --
Sale of stock in connection with the public offering, net of costs -- 26,893,000 --
------------ ------------ ------------
Balance, end of period $ 57,910,000 $ 57,910,000 $ --
============ ============ ============
Retained earnings:
Balance, beginning of period $ 1,621,000 $ -- $ --
Post-public offering net income -- 1,621,000 --
Net income 1,325,000 -- --
------------ ------------ ------------
Balance, end of period $ 2,946,000 $ 1,621,000 $ --
============ ============ ============
Treasury stock:
Balance, beginning of period $ -- $ -- $ --
Repurchase of stock (Note 5) (181,000) -- --
------------ ------------ ------------
Balance, end of period $ (181,000) $ -- $ --
============ ============ ============
Total:
Balance, beginning of period $ 59,544,000 $ -- $ --
Issuance of stock in connection with the Merger -- 31,027,000 --
Sale of stock in connection with the public offering, net of costs -- 26,896,000 --
Post-public offering net income -- 1,621,000 --
Repurchase of stock (Note 5) (181,000) -- --
Net income 1,325,000 -- --
------------ ------------ ------------
Balance, end of period $ 60,688,000 $ 59,544,000 $ --
============ ============ ============
Combined shareholders' equity:
Balance, beginning of period $ -- $ 39,012,000 $ 30,164,000
Contributed capital -- 4,000 2,138,000
Distributions to stockholders -- (1,192,000) (3,196,000)
Pre-public offering net income (loss) -- (6,797,000) 9,906,000
Issuance of stock in connection with the Merger -- (31,027,000) --
------------ ------------ ------------
Balance, end of period $ -- $ -- $ 39,012,000
============ ============ ============
See accompanying notes to consolidated financial statements.
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DLB OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 1,325,000 $ 2,570,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion, and
amortization 3,825,000 3,420,000
Pro forma income taxes -- 1,714,000
Deferred income taxes 803,000 --
Loss on sale of assets 208,000 --
Increase in accounts receivable (1,891,000) (225,000)
Increase in prepaid expenses (75,000) (381,000)
Decrease in accounts payable, distributions payable
and accrued liabilities (1,384,000) (2,097,000)
Increase (decrease) in drilling advances and other liabilities (151,000) (226,000)
------------ ------------
Net cash provided by operating activities 2,660,000 4,775,000
------------ ------------
Cash flows from investing activities:
Expenditures for property and equipment (40,520,000) (7,035,000)
Purchase of investments and other assets (3,690,000) (307,000)
Proceeds from sales of assets 1,380,000 --
------------ ------------
Net cash used in investing activities (42,830,000) (7,342,000)
------------ ------------
Cash flows from financing activities:
Proceeds of long-term debt 30,000,000 3,000,000
Contributed capital -- 4,000
Distributions to shareholders -- (1,192,000)
Purchase of treasury stock (181,000) --
------------ ------------
Net cash provided by financing activities 29,819,000 1,812,000
------------ ------------
Net increase (decrease) in cash and cash equivalents: (10,351,000) (755,000)
Cash and cash equivalents beginning of year 14,313,000 3,059,000
------------ ------------
Cash and cash equivalents end of year $ 3,962,000 $ 2,304,000
============ ============
Supplemental cash flow information:
Cash payments for interest $ 251,000 $ 434,000
============ ============
See accompanying notes to consolidated financial statements
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7
DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
DLB Oil & Gas, Inc. (DLB or the Company) engages primarily in the
exploration for and development of crude oil and natural gas fields. The
Company focuses its efforts and is an active explorer in Oklahoma and
Kansas. The Company also engages to a lesser extent, in the gathering,
processing, transportation and marketing of hydrocarbons and conducts
secondary oil recovery activities.
The accompanying consolidated financial statements covering periods prior
to July 20, 1995, the date of the merger of Davidson Oil and Gas, Inc.
(Davidson) into DLB, include each of their accounts and their
proportionate share of a venture involved in the production of oil and
natural gas and in the gathering, processing and transporting of natural
gas. Due to the nature of a joint venture agreement between the Company
and Davidson, the Company and Davidson were considered to be under common
control prior to the merger.
The accompanying consolidated financial statements covering periods on or
after July 20, 1995, include the consolidated accounts of the Company and
its wholly owned subsidiaries, and its proportionate share of a venture
involved in the production of oil and natural gas and in the gathering,
processing and transporting of natural gas. (See Note 8 to Consolidated
Financial Statements.) All intercompany transactions and balances have
been eliminated in consolidation.
(2) INITIAL PUBLIC OFFERING
On July 25, 1995, the Company issued 3,000,000 shares of common stock
through a public offering at $10 per share. Net proceeds to the Company
from the offering, after selling and offering costs, were $26,896,000.
The Company used $11,231,000 of these proceeds to retire then existing
indebtedness under its revolving line of credit facilities.
7
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements and notes thereto have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules
and regulations. The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated
financial statements and notes included in DLB's 1995 annual report on
Form 10-K.
In the opinion of DLB's management, all adjustments (all of which are
normal and recurring) have been made which are necessary to fairly state
the consolidated financial position of the Company and its subsidiaries
as of June 30, 1996, and the results of their operations and their cash
flows for the three month periods ended June 30, 1996 and 1995.
(4) MARKETABLE SECURITIES
During the first six months of 1996, the Company acquired senior
unsecured notes with a face value of $11,644,000 in open market
transactions for $3,680,000. The notes were issued by an oil and gas
company that had previously filed for Chapter 11 reorganization.
(5) PROPERTY AND EQUIPMENT
PROPERTIES ACQUIRED
On May 31, 1996, the Company closed the purchase of certain Oklahoma oil
and natural gas properties of Amerada Hess Corporation ("Amerada Hess")
for approximately $33,300,000. The purchase price is subject to
post-closing price adjustments for assets-related revenues and costs and
is being accounted for under the purchase method of accounting. The
Company funded the purchase through existing cash funds and borrowings of
$30,000,000 from its existing credit facilities.
The acquired properties are located in Oklahoma (Mid-continent area),
which has been DLB's core area of focus for exploration and development
activities. The Company intends to use these properties to increase
exploration and development operations in this
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
core area. Management expects to rework and recomplete existing wells,
and pursue new infill and exploratory drilling locations. The
acquisition also included 15,100 miles of proprietary seismic data,
geologic and well data.
The acquired properties consist of 44 oil and natural gas fields, nine of
which the Company will operate, and 1,196 gross (111.8 net) wells. Total
estimated proved reserves as of January 1, 1996, net to the Company, are
7.2 Mmboe, which increases the company's total estimated proved reserves
as of that date to 16.6 Mmboe. Proved reserves attributable to the
acquired properties are divided approximately 43% oil and 57% natural
gas.
SIX MONTHS ENDED
JUNE 30, 1996
(PRO FORMA)
----------------
Revenues:
Oil and natural gas sales $14,823,000
Natural gas gathering, processing
and transportation, net 390,000
Interest 263,000
Other 29,000
-----------
15,505,000
Expenses:
Lease operating 4,519,000
Depreciation, depletion,
and amortization 4,983,000
General and administrative 1,465,000
Interest 940,000
Loss on sale of assets 208,000
-----------
12,115,000
-----------
Income before income taxes 3,390,000
Deferred income taxes (Note 6) 1,279,000
===========
Net income $ 2,111,000
===========
Net income per common share $ 0.16
===========
Weighted average common
shares outstanding 12,981,000
===========
See accompanying notes to consolidated financial statements
9
10
DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(6) INCOME TAXES
Prior to the merger and initial public offering, the Company and Davidson
filed separate income tax returns as Subchapter S corporations under the
provisions of the Internal Revenue Code. The Company's S election
terminated upon the merger and initial public offering. As a result of
the Company's termination of the S election, the Company recognized a
charge against operations in the amount of $11,500,000 for deferred
income taxes during 1995. The charge represented the tax effect of the
difference between the financial statement carrying values and the income
tax basis of the Company's assets and liabilities on the date the S
election was terminated.
Tax strategies implemented by the shareholders prior to the merger are
not reflective of the results that the Company would have achieved if the
Company had been directly subject to income taxes. Therefore, results of
the operations for the periods prior to the offering, reflect a pro forma
provision for income tax expense at a rate of approximately 40% (based
upon blended Federal and state rates) of income before taxes. Subsequent
to the offering the results of operation reflect a deferred provision for
income tax expense at a blended rate of approximately 37.7%.
(7) SHAREHOLDERS' EQUITY
Effective with the merger of the Company and Davidson, the capital
structure of the Company consisted of 130,000,000 authorized common
shares ($.001 par value) with 10,000,000 shares outstanding along with
5,000,000 authorized preferred shares with no preferred shares
outstanding. The former shareholders of DLB and Davidson hold 10,000,000
shares of the Company's common stock. For financial reporting purposes,
combined shareholder's equity at the date of the merger was converted
into the Company's common stock and additional paid-in-capital.
As detailed in Note 2, the Company issued 3,000,000 shares of common
stock through a public offering at $10 per share.
On February 8, 1996, the Company announced a common stock repurchase
plan. Under terms of the plan, up to $5,000,000 of common stock can be
repurchased from time to time. On February 7, 1996, approximately 25,000
shares were repurchased for $181,000. Repurchased stock is held as
treasury stock by the Company.
In connection with the public offering, the Company issued stock options
covering 1,625,000 shares of common stock to its employees. Options for
1,300,000 shares vest
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11
DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
and are exercisable at $10 per share in 20 equal quarterly installments
which commenced with the quarter ended October 31, 1995. The remaining
325,000 options vest in five equal annual installments commencing January
1, 1996 and are exercisable at $10 per share. As of June 30, 1996,
260,000 options have vested and are exercisable.
(8) SETTLEMENT OF CONTINGENCY
In February 1996, the Company settled claims that it had submitted to
arbitration against a joint venture partner alleging breach of contract
and tortuous conduct. The claims arose under the terms of the Carmen
Field Joint Venture Agreement dated May 26, 1993, between the Company and
Magic Circle Acquisition Corporation ("Magic Circle"). The Company
settled its claims by the agreement dated February 9, 1996. The
settlement agreement provided for mutual releases of all claims arising
out of the Carmen Field Joint Venture ("CFJV"), dissolution of the CFJV,
assignment to the Company of its interest in the CFJV oil and natural gas
properties, the payment of $3,349,000 to the Company, the transfer to the
Company of its share of a small gathering system in Stephens County,
Oklahoma, and the transfer to Magic Circle of gathering, processing and
compression facilities in Alfalfa and Woodward Counties, Oklahoma. The
Company recognized a net loss of $208,000, which included $212,000 of
legal and accounting expenses, related to the transfer of the gathering,
processing and compression facilities.
(9) SUBSEQUENT EVENTS
An interest owner in the Amerada Hess properties filed a lawsuit against
Amerada Hess and the Company for denying the interest owner's election of
preferential purchase rights on certain leases included in the Amerada
Hess properties. The interest owner is seeking performance of its
election of the preferential purchase rights from the Company. Amerada
Hess and the Company have asserted that the interest owner's election to
exercise its preferential rights was not made on a timely basis and is,
therefore, not valid.
If DLB is unsuccessful in defending its position on the claim asserted by
the interest owner, DLB would receive an additional $2.4 million from the
interest owner for the leases. The Company would also be required to
reimburse the interest owner for revenues received on the respective
leases, net of production costs. The Company does not anticipate that
this legal action would significantly impact its financial position,
liquidity, or results of operations.
At the present time, as the Company deems these claims invalid, the
Company has recognized the values of the oil and natural gas properties
for financial reporting purposes.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion is intended to assist in an understanding of the
Company's financial position as of June 30, 1996, and its results of operations
for the three month and the six month periods ended June 30, 1996 and June 30,
1995. The Consolidated Financial Statements and Notes included in this report
contain additional information and should be referred to in conjunction with
this discussion. It is presumed that the readers have read or have access to
DLB's 1995 annual report on Form 10-K.
The information in this document includes forward-looking statements that
are based on assumptions that in the future may prove to be inaccurate.
Those statements, and the Company's business and prospects, are subject to a
number of risks including the volatility of oil and gas prices, environmental
risks, operating hazards and risks, risks related to exploration and development
drilling, uncertainties about estimates of reserves, competition, government
regulation, and the ability of the Company to implement its business strategy.
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RESULTS OF OPERATIONS
The following table sets forth certain financial and production information of
the Company.
FINANCIAL DATA (in thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues
Oil $ 3,178 $ 3,652 $ 5,849 $ 6,570
Natural gas 2,337 1,207 4,147 2,530
-------- -------- -------- --------
5,515 4,859 9,996 9,100
Natural gas gathering,
processing & trans 313 1,124 390 1,787
Interest & other income 96 28 292 393
-------- -------- -------- --------
5,924 6,011 10,678 11,280
-------- -------- -------- --------
Expenses
Lease operating (1) 1,590 1,291 2,801 2,529
General & administrative 738 317 1,465 646
Loss on sale of assets -- -- 208 --
-------- -------- -------- --------
2,328 1,608 4,474 3,175
EBITDA (2) 3,596 4,403 6,204 8,105
Depreciation, depletion & amortization 2,031 1,789 3,825 3,420
Earnings before interest and taxes 1,565 2,614 2,379 4,685
Interest expense 251 222 251 401
Earnings before taxes 1,314 2,392 2,128 4,284
Income taxes
Pro forma -- 957 -- 1,714
Deferred 494 -- 803 --
-------- -------- -------- --------
Net income $ 820 $ 1,435 $ 1,325 $ 2,570
======== ======== ======== ========
PER SHARE DATA
Net income $ 0.06 $ 0.14 $ 0.10 $ 0.26
======== ======== ======== ========
Average shares outstanding (in thousands) 12,975 10,000 12,981 10,000
PRODUCTION DATA (in thousands except prices)
Oil (Mbbl) 153 193 296 372
Natural gas (Mmcf) 1,059 644 1,942 1,400
Barrel oil equivalent (MBOE) 330 300 620 605
Oil ($/Bbl) $ 20.82 $ 19.08 $ 19.77 $ 17.74
Gas ($/Mcf) 2.21 1.83 2.14 1.79
$/BOE 16.76 16.20 16.13 15.04
EXPENSE DATA ($/BOE)
Lease operating $ 4.83 $ 4.30 $ 4.52 $ 4.18
Depreciation, depletion and amortization (3) 5.68 5.43 5.72 5.19
General and administrative 2.24 1.06 2.36 1.07
- ----------------------------------------
(1) The components of lease operating expense may vary substantially
among wells depending on the methods of recovery employed and other
factors, but generally include production taxes, administrative
overhead, maintenance and repairs, labor and utilities.
(2) EBITDA is defined as earnings before interest, taxes, depreciation,
depletion and amortization.
(3) The depreciation, depletion and amortization ("DD&A") reflected on a
BOE basis excludes DD&A associated with gas plant, salt water disposal
system, and other non-oil and gas property and equipment.
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THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1995
Revenues. Total revenues for the three months ended June 30, 1996 were $5.9
million, a reduction of $0.1 million from the comparable period in 1995. The
$0.7 million increase in oil and gas sales revenue was slightly exceeded by the
$0.8 million decrease in revenue related to the dissolution of the CFJV. (See
Note 8 to the Consolidated Financial Statements). The dissolution resulted in
the sale of certain gas gathering and compression assets, which reduced gas
gathering, processing and transportation revenues to $0.3 million for the three
months ended June 30, 1996 from $1.1 million for the three months ended June
30, 1995. Production of oil and gas was 153 Mbbl and 1059 Mmcf, respectively,
in the three months ended June 30, 1996, as compared to 193 Mbbl and 644 Mmcf,
respectively, in the same period of 1995. The increase in oil and gas sales
revenues for the three months ended June 30, 1996, of $0.7 million was due to
an increase in production from the same period in 1995. The average price
received for oil increased to $20.82 per barrel in the second three months of
1996 from $19.08 in the three months ended June 30, 1995. The average price
received for natural gas increased to $2.21 per Mcf in the three months ended
June 30, 1996 from $1.83 per Mcf for the same period in 1995. Increases in gas
production exceeded decreases in oil production on a BOE basis, as production
on a BOE basis increased 10%.
Lease operating expense. Lease operating expenses increased to $1.6 million
for the three months ended June 30, 1996 from $1.3 million for the comparable
period in 1995. On a BOE basis, lease operating expense was $4.83 per BOE for
the three months ended June 30, 1996 as compared to $4.30 per BOE in the same
period in 1995 due to decreased production from existing wells without a
corresponding decrease in operating expenses. Management believes that lease
operating expenses will be at higher levels in the future as a result of the
Amerada Hess Acquisition. In the longer term, however, management anticipates
lower lease operating expense per BOE through the implementation of more
efficient operations and additional exploitation of the properties.
Depreciation, depletion and amortization expense. Depreciation, depletion and
amortization (DD&A) expense was $2.0 and $1.8 million for the three months
ended June 30, 1996 and 1995, respectively. The DD&A rate related to oil and
gas properties was $5.68 and $5.43 per BOE for the three months ended June 30,
1996 and 1995, respectively. The increase in DD&A per BOE resulted primarily
from increased level of capital expenditures for exploration, development,
waterfloods, property acquisitions, gas plant and gathering facilities and
other property and equipment in the three months ended June 30, 1996 and as
compared to 1995.
General and administrative expense. General and administrative expense
increased to $0.7 million for the three months ended June 30, 1996, from $0.3
million in the comparable period in 1995. This increase was primarily
attributable to staffing increases and additional corporate expenses to handle
higher levels of activity following the July 1995 initial public offering and
$33.3 million Amerada Hess Acquisition on May 31, 1996. The Company believes
its staffing level is sufficient to handle expected levels of activity through
1996 and further increases are not anticipated.
Net income. Net income decreased to $0.8 million for the three months ended
June 30, 1996 from $1.4 million for the three months ended June 30, 1995, as a
result of the items discussed above.
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SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
Revenues. Total revenues for the six months ended June 30, 1996 were $10.0
million, an increase of $0.9 million from the comparable period in 1995.
Production of oil and gas was 296 MBbl and 1,942 MMcf, respectively, in the
first half of 1996, as compared to 372 MBbl and 1,400 MMcf, respectively, in
the same period of 1995. The increase in oil and gas revenues was due
primarily to an increase in gas prices as production on a BOE basis increased
slightly to 620 MBOE from 605 MBOE. Gas volumes increased 39% to 1,942 MMcf
for the first six months of 1996 from 1,400 Mmcf for the comparable period in
1995. Increases in gas production offset decreases in oil production on BOE
basis. The average price received for oil increased to $19.77 per barrel in
the first half of 1996 from $17.74 per barrel in the comparable half in 1995.
The average price received for natural gas was $2.14 per Mcf for the six months
ended June 30, 1996 as compared to $1.79 per Mcf for the same period during
1995. A $1.4 million decrease in revenues from gathering, dehydration and
compression fees, was due to the dissolution of the CFJV (See Note 8 to the
Consolidated Financial Statements).
Lease operating expense. Lease operating expenses increased to $2.8 million
for the six months ended June 30, 1996, from $2.5 million in the comparable
period of 1995. On a BOE basis, lease operating expense was $4.52 per BOE for
the six months ended June 30, 1996 compared to $4.18 per BOE in the comparable
period of 1995. The increase per BOE was due to decreased production from
existing wells without a corresponding decrease in operating expenses.
Management believes that lease operating expenses will be at higher levels in
the future as a result of the Amerada Hess Acquisition. In the longer term,
however, management anticipates lower lease operating expense per BOE through
the implementation of more efficient operations and additional exploitation of
the properties.
Depreciation, depletion and amortization expense. DD&A expense for the first
six months of 1996 totaled $3.8 million compared with $3.4 million for the same
period in 1995. The DD&A rate increased $5.72 per BOE for the six months ended
June 30, 1996, from $5.19 per BOE for the comparable period of 1995. Included
in DD&A for the first six months of 1996 and 1995 was $0.2 million and $0.1
million, respectively, associated with salt water disposal and gas gathering
systems. The increase in DD&A per BOE resulted primarily from increased level
of capital expenditures for exploration, development, waterfloods, property
acquisitions, gas gathering facilities and other property and equipment in the
six months ended June 30, 1996 as compared to 1995.
General and administrative expense. General and administrative expense
increased to $1.5 million for the six months ended June 30, 1996, from $0.6
million for the comparable period in 1995. This increase was primarily
attributable to staffing increases and additional corporate expenses to handle
higher levels of acitity following the July 1995 initial public offering and
$33.3 million Amerada Hess Acquisition on May 31, 1996. The Company believes
its staffing level is sufficient to handle expected levels of activity through
1996 and further increases are not anticipated.
Interest expense. Interest expense decreased to $0.3 million for the six
months ended June 30, 1996 as compared to $0.4 million in the same period of
1995. As a result of the initial pubic offering all debt was retired until
April, 1996 the date of the first borrowings for the Amerada Hess properties
acquisition. This, along with lower interest rates in 1996, resulted in a
decrease in interest expense.
Net income. Due to the factors described above, net income decreased to $1.3
million for the six month period ended June 30, 1996 from $2.6 million in the
comparable period of 1995.
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CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
The following table presents comparative cash flows of the Company for the six
months ended June 30, 1996 and June 30, 1995.
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Net cash provided by operating activities $ 2,660 $ 4,775
Net cash used in investing activities (42,830) (7,342)
Net cash provided by financing activities 29,819 1,812
Net cash provided from operating activities decreased to $2.7 million for the
six months ended June 30, 1996 from $4.8 million from the same period of 1995.
This decrease of $2.1 million relates primarily to use of cash to decrease
current liabilities at June 30, 1996 as compared to December 31, 1995.
Net cash used in investing activities was $42.8 million for the first six
months of 1996, as compared to $7.3 million in the first six months of 1995.
The increase of $35.5 million is primarily attributable to the $33.3 million
Amerada Hess properties acquisition. (See Notes 4 and 5 to the Consolidated
Financial Statements.)
Net cash provided by financing activities was $29.8 million for the first six
months of 1996 as compared to $1.8 million in 1995. The increase of $28.0
million is primarily due to the $30.0 million of long term borrowing related to
the funding of the Amerada Hess properties acquisition.
As of June 30, 1996, the Company had cash balances of $4.0 million and working
capital of $10.6 million. The decrease in working capital of $3.1 million as
of June 30, 1996 from $13.7 million as of December 31, 1995, is a result of
capital expenditures made during the first six months of 1996.
Capital expenditures. The following table sets forth the Company's
expenditures for exploration, development, waterfloods and property
acquisition, gas plant and gathering facilities and other property and
equipment for the six months ended June 30, 1996 and 1995.
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Exploration costs $ 4,707 $ 2,610
Development costs 2,606 2,582
Waterflood costs 796 1,133
Property acquisition costs 31,902 24
Gas plant and gathering facilities 356 592
Other property and equipment 153 94
---------- ----------
$ 40,520 $ 7,035
========== ==========
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The Company intends to finance its capital expenditures with cash flows
provided by operations and borrowings under the credit facility. The Company
expects to spend a total of $60.0 million on capital expenditures in 1996. Of
this amount, $40.5 million had been expended as of June 30, 1996, which
includes $1.0 million related to the Osage Tribe of Indians Exploration and
Development Agreement and $31.9 million related to the properties acquired in
the Amerada Hess properties acquisition, which closed during the second quarter
of 1996. The remaining budget of $19.5 million will be used for 2-D and 3-D
seismic surveys, drilling activity and the acquisition of other mineral
interests and leasehold properties. The aggregate level of capital expenditures
in 1996 and the allocation thereof is highly dependent upon the Company's
success rate on exploration drilling and prevailing conditions in the oil and
gas industry. Accordingly, the actual level of capital expenditures may vary
materially from the above estimates.
Capital resources. Since DLB began operations in 1991, the Company's cash
requirements were met primarily through capital contributions from
shareholders, cash generated from operations and borrowings under its credit
facilities. Such sources were inadequate to fund the Company's desired level
of activities, and the Company undertook an initial public offering of its
common stock, which was closed in July 1995. Net proceeds from the offering
were approximately $26.9 million. Since its initial public offering, the
Company has used offering proceeds along with cash flows from operations for
cash requirements. As a result of the Amerada Hess acquisition, the Company
increased its borrowing base to $30.0 million and used the increase to
partially fund the acquisition. (See Note 4 to Consolidated Financial
Statements). In addition, the proved oil and gas reserves added by this
acquisition increased the Company's borrowing base under its credit facility to
provide another $20.0 million of borrowing capacity. The Company expects that
internal cash sources and borrowing capacity to be sufficient at least through
December 31, 1996 to meet its capital expenditure plans. Capital needs beyond
that period will depend substantially on the Company's success in employing
working capital in exploration and development activities and the level of
future activities as well as factors affecting the oil and gas industry
generally.
Liquidity. The ability of the Company to satisfy its obligations will depend
upon its future performance, which will be subject to prevailing economic
conditions and to financial and business conditions and other factors, many of
which are beyond its control, supplemented, if necessary, with existing cash
balances and borrowings under the credit facilities. The Company believes its
capital resources are adequate to fund the capital expenditure program through
at least the end of 1996.
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18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the disclosure in Note 9 to the Notes to
Consolidated Financial Statements regarding the Samson Resources Company,
et al. V. Amerada Hess Corporation and DLB Oil & Gas, Inc. (Case No.
CJ-96-38, D.Ct. Ellis Cnty, Okla.)
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of share holders of the Company was held on May 23,
1996. At the annual meeting, the shareholders voted on the following
matters: (i) the election of six directors; and (ii) a proposal to
ratify the selection of KPMG Peat Marwick, LLP as the Company's
independent auditors. The results of the votes were as follows:
Proposal No. I - Election of Directors
Name of Director For Against
Charles E. Davidson 12,118,858 62,779
Mike Liddell 12,118,858 62,779
Mark Liddell 12,118,858 62,779
Joel-Andre' Ornstein 12,118,858 62,779
David A. Rogath 12,118,858 62,779
Martin L. Solomon 12,118,858 62,779
Proposal No. II - Ratification of selection of KPMG Peat Marwick, LLP, as
the Company's independent auditors for the year ending December 31, 1996:
For Against Abstain
--- ------- -------
12,121,608 56,700 3,329
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 602 of Regulation S-K are as follows:
2.0 Agreement for Purchase and Sale dated April 16,
1996, between Amerada Hess Corporation and DLB Oil & Gas, Inc.
(the "Agreement for Purchase and Sale"). (3)
2.1 Letter agreement amending Agreement for Purchase
and Sale dated May 7, 1996.
2.2 Letter agreement amending Agreement for Purchase
and Sale dated May 31, 1996.
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
10.1 Lease of office space, Oklahoma City, Oklahoma (1)
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19
10.2 Credit Agreement dated December 28, 1995, between
Registrant and First Union National Bank of North Carolina (2)
10.3 Stock Option Agreement by and between Registrant
and Mike Liddell (1)
10.4 Stock Option Agreement by and between Registrant
and Mark Liddell (1)
10.5 Employment Agreement by and between Registrant and
Mike Liddell (1)
10.6 Employment Agreement by and between Registrant and
Mark Liddell (1)
10.7 DLB Oil & Gas Stock Option Plan (1)
10.8 DLB Oil & Gas Omnibus Equity Compensation Plan (1)
10.9 Shareholder's Agreement by and among Charles E.
Davidson, Mike Liddell and Mark Liddell dated May 25, 1995 (1)
10.10 Agreement for Dissolution of Joint Venture dated
February 9, 1996, between DLB Oil & Gas, Inc., Magic Circle
Acquisition Corporation and Magic Circle Energy Corporation,
Carmen Field Limited Partnership, and Carmen Field Joint
Venture (2)
10.11 First Amendment to the Credit Agreement dated June 30, 1996,
between Registrant and First Union National Bank of
North Carolina
27 Financial Data Schedule
_________________
(1) Previously filed as an exhibit to Registration
No. 33-92786 on Form S-1 and incorporated herein by
reference.
(2) Previously filed as an exhibit to Form 10-K for
the year ended December 31, 1995, and incorporated herein by
reference.
(3) Pursuant to Item 601(b)(2) of Regulation S-K, the
exhibits and schedules to Exhibit 2 are omitted. Exhibit 2
contains a list identifying the contents of its exhibits and
schedules, and registrant agrees to furnish supplemental
copies of such exhibits and schedules to the Securities and
Exchange Commission upon request.
Copies of the forgoing exhibits filed with this report or
incorporated by reference are available from the Company upon
written request and payment of a reasonable copying fee.
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20
(b) Registrant filed the following reports on Form 8-K's filed
the quarter ended June 30, 1996:
Form 8-K filed on April 22, 1996, disclosing an agreement to
acquire oil and gas properties from Amerada Hess Corporation.
Form 8-K filed on May 31, 1996 disclosing the acquisition of oil
and gas properties from Amerada Hess Corporation.
Form 8-K filed on June 3, 1996 for a press release filing related
to the acquisition of oil and gas properties from Amerada Hess
Corporation.
Form 8-K Amendment filed on August 12, 1996 disclosing pro forma
financial information related to acquisition of oil and gas
properties from Amerada Hess Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
DLB OIL & GAS, INC.
Date: August 13, 1996 /s/ MARK LIDDELL
------------------------------------------
Mark Liddell, President
Date: August 13, 1996 /s/ RONALD D. YOUTSEY
------------------------------------------
Ronald D. Youtsey, Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.0 Agreement for Purchase and Sale dated April 16,
1996, between Amerada Hess Corporation and DLB Oil & Gas, Inc.
(the "Agreement for Purchase and Sale"). (3)
2.1 Letter agreement amending Agreement for Purchase
and Sale dated May 7, 1996.
2.2 Letter agreement amending Agreement for Purchase
and Sale dated May 31, 1996.
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
10.1 Lease of office space, Oklahoma City, Oklahoma (1)
10.2 Credit Agreement dated December 28, 1995, between
Registrant and First Union National Bank of North Carolina (2)
10.3 Stock Option Agreement by and between Registrant
and Mike Liddell (1)
10.4 Stock Option Agreement by and between Registrant
and Mark Liddell (1)
10.5 Employment Agreement by and between Registrant and
Mike Liddell (1)
10.6 Employment Agreement by and between Registrant and
Mark Liddell (1)
10.7 DLB Oil & Gas Stock Option Plan (1)
10.8 DLB Oil & Gas Omnibus Equity Compensation Plan (1)
10.9 Shareholder's Agreement by and among Charles E.
Davidson, Mike Liddell and Mark Liddell dated May 25, 1995 (1)
10.10 Agreement for Dissolution of Joint Venture dated
February 9, 1996, between DLB Oil & Gas, Inc., Magic Circle
Acquisition Corporation and Magic Circle Energy Corporation,
Carmen Field Limited Partnership, and Carmen Field Joint
Venture (2)
10.11 First Amendment to the Credit Agreement dated June 30, 1996,
between Registrant and First Union National Bank of North Carolina
27 Financial Data Schedule
- ---------------
(1) Previously filed as an exhibit to Registration
No. 33-92786 on Form S-1 and incorporated herein by
reference.
(2) Previously filed as an exhibit to Form 10-K for
the year ended December 31, 1995, and incorporated herein by
reference.
(3) Pursuant to Item 601(b)(2) of Regulation S-K, the
exhibits and schedules to Exhibit 2 are omitted. Exhibit 2
contains a list identifying the contents of its exhibits and
schedules, and registrant agrees to furnish supplemental
copies of such exhibits and schedules to the Securities and
Exchange Commission upon request.
Copies of the foregoing exhibits filed with this report or
incorporated by reference are available from the Company upon
written request and payment of a reasonable copying fee.