1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- --- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
- ---
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 April 30, 1997 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
March 31, 1997 (Unaudited) and December 31, 1996 4
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended
March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended
March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
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DLB OIL & GAS, INC
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
FORMING A PART OF FORM 10-Q QUARTERLY REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION
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DLB OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
---------------- ----------------
1997 1996
---------------- ----------------
(UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $ 2,585,000 $ 4,060,000
Accounts receivable 13,424,000 8,998,000
Prepaid expenses 1,531,000 337,000
---------------- ----------------
Total current assets 17,540,000 13,395,000
---------------- ----------------
Property and equipment - at cost, based on the full cost method of
accounting for oil and natural gas properties:
Oil and natural gas properties subject to amortization 124,436,000 109,325,000
Oil and natural gas properties not subject to amortization 25,255,000 18,570,000
Natural gas processing plants and gathering systems 2,105,000 1,728,000
Saltwater disposal system 1,119,000 1,119,000
Drilling equipment 16,713,000 --
Other property and equipment 1,991,000 1,223,000
---------------- ----------------
171,619,000 131,965,000
Accumulated depreciation, depletion and amortization (30,391,000) (27,007,000)
---------------- ----------------
141,228,000 104,958,000
---------------- ----------------
Investments in Waggoner (Barbados) Ltd. 3,230,000 3,186,000
Other assets 16,305,000 7,902,000
---------------- ----------------
Total assets $ 178,303,000 $ 129,441,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 6,418,000 $ 8,119,000
Revenue and royalty distributions payable 3,322,000 3,125,000
Accrued liabilities 1,973,000 872,000
Notes payable 975,000 --
Drilling advances and other liabilities 292,000 42,000
---------------- ----------------
Total current liabilities 12,980,000 12,158,000
---------------- ----------------
Long term debt 78,579,000 37,200,000
Deferred income taxes 19,278,000 15,851,000
Shareholders' equity:
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 outstanding
at March 31, 1997 and December 31, 1996 13,000 13,000
Treasury stock (25,000 shares at March 31, 1997
and December 31, 1996, at cost) (181,000) (181,000)
Additional paid in capital 57,910,000 57,910,000
Retained earnings 9,724,000 6,490,000
---------------- ----------------
Total shareholders' equity 67,466,000 64,232,000
Commitments and contingencies
Total liabilities and shareholders' equity $ 178,303,000 $ 129,441,000
================ ================
See accompanying notes to consolidated financial statements.
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DLB OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
(UNAUDITED)
Revenues:
Oil and natural gas sales $ 12,136,000 $ 4,481,000
Contract drilling 2,413,000 --
Natural gas gathering, processing and transportation, net 399,000 77,000
Interest and other 55,000 196,000
------------ ------------
15,003,000 4,754,000
Expenses:
Lease operating 2,062,000 877,000
Gross production taxes 735,000 334,000
Contract drilling 1,619,000 --
Depreciation, depletion, and amortization 3,390,000 1,794,000
General and administrative 893,000 727,000
Interest 1,110,000 --
Loss on sale of assets -- 208,000
------------ ------------
9,809,000 3,940,000
------------ ------------
Income before income taxes 5,194,000 814,000
Income taxes 1,960,000 309,000
------------ ------------
Net income $ 3,234,000 $ 505,000
============ ============
Net income per common share $ 0.24 $ 0.04
============ ============
Weighted average common and common equivalent shares 13,463,000 12,987,500
============ ============
See accompanying notes to consolidated financial statements.
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DLB OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
--------------------------------
1997 1996
-------------- --------------
Cash flows from operating activities:
Net income $ 3,234,000 $ 505,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion, and
amortization 3,390,000 1,794,000
Deferred income taxes 1,960,000 309,000
Loss on sale of assets -- 208,000
(Increase) decrease in accounts receivable (1,625,000) 1,638,000
(Increase) decrease in prepaid expenses (997,000) 125,000
Decrease in accounts payable, distributions payable
and accrued liabilities (2,997,000) (2,082,000)
Increase in drilling advances and other liabilities 250,000 321,000
-------------- --------------
Net cash provided by operating activities 3,215,000 2,818,000
-------------- --------------
Cash flows from investing activities:
Expenditures for property and equipment (24,953,000) (5,303,000)
Purchase of investments and other assets (7,332,000) (3,683,000)
Proceeds from sales of assets -- 1,380,000
Purchase of Bonray Drilling Corporation net of cash acquired (12,824,000) --
-------------- --------------
Net cash used in investing activities (45,109,000) (7,606,000)
-------------- --------------
Cash flows from financing activities
Proceeds of long-term debt 96,465,000 --
Payments of long-term debt (54,900,000) --
Payments of debt issuance costs (1,146,000) --
Purchase of treasury stock -- (181,000)
-------------- --------------
Net cash provided by (used in) financing activities 40,419,000 (181,000)
-------------- --------------
Net decrease in cash and cash equivalents: (1,475,000) (4,969,000)
Cash and cash equivalents beginning of period 4,060,000 14,313,000
-------------- --------------
Cash and cash equivalents end of period $ 2,585,000 $ 9,344,000
============== ==============
Supplemental cash flow information:
Cash payments for interest $ 776,000 $ --
============== ==============
Supplemental schedule of noncash investing activities:
Property and equipment received from settlement of contingency $ -- $ 231,000
============== ==============
See accompanying notes to consolidated financial statements.
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, DESCRIPTION OF BUSINESS AND PRINCIPALS OF CONSOLIDATION
DLB Oil & Gas, Inc., ("DLB" or the "Company") is an independent energy
company engaged primarily in the exploration, development, production
and acquisition of oil and gas properties in the Mid-Continent region
and the coastal and shallow onshore regions of south Louisiana, two of
the most prolific oil and gas producing regions in the United States.
The Company's principal producing fields are presently concentrated in
Oklahoma. In addition, through its wholly owned subsidiaries, Bonray
Drilling Corporation ("Bonray"), which was acquired in February 1997,
and Gathering Energy Marketing Company, LLC ("GEMCO"), the Company is
engaged in the land contract drilling of oil and gas wells and in the
gathering, processing, transportation and marketing of hydrocarbons,
respectively.
The accompanying consolidated financial statements include the
consolidated accounts of the Company and its wholly owned
subsidiaries. The Company accounts for its investment in Waggoner
(Barbados) Ltd. using the equity method of accounting. All significant
intercompany transactions and balances have been eliminated in
consolidation.
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 1996 annual report on Form 10-K.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses during the reporting periods, to
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(2) ACQUISITIONS
AMERADA HESS PROPERTIES
On May 31, 1996, the Company acquired certain Oklahoma oil and natural
gas properties from Amerada Hess Corporation ("Amerada Hess") for
approximately $32,100,000, with $25,500,000 allocated to producing
properties and $6,600,000 allocated to undeveloped leasehold and to
nonproducing minerals. The Company funded the purchase through use of
cash funds and borrowings of $30,000,000 from its credit facilities.
Total estimated proved reserves attributable to the acquired Amerada
Hess properties as of May 31, 1996, net to the Company, were 6.8
Mmboe. Proved reserves attributable to such acquired properties were
divided approximately 43% oil and 57% natural gas. (The quantities of
proved reserves in this paragraph were prepared by the Company's
internal engineers and based on an independent reserve study prepared
as of January 1, 1996 by DeGolyer and MacNaughton and are unaudited.)
Results prior to May 31, 1996 are not included in DLB's consolidated
financial statements.
BONRAY DRILLING CORPORATION
On February 10, 1997, the Company purchased approximately 98% of the
outstanding common stock of Bonray Drilling Corporation ("Bonray")
through a tender offer. DLB paid $30.00 per share, or approximately
$12,700,000. As a result of the completed tender offer and subsequent
merger, Bonray Drilling Corporation became a subsidiary of DLB.
Bonray owns a total of 15 rigs, including six rigs capable of drilling
wells over 20,000 feet and nine rigs capable of drilling wells from
7,500 to 15,000 feet. Two of the six deep drilling rigs are presently
being remobilized. These rigs are expected to be in operation by the
second quarter of 1997. Ten rigs were in service or available for
service at the time of acquisition with three in stacked status.
This acquisition was accounted for under the rules of purchase
accounting. As a result, DLB's consolidated financial statements only
include the results of operations from February 10, 1997.
WEST COTE BLANCHE BAY FIELD
On March 11, 1997, the Company purchased Texaco Exploration and
Production, Inc.'s 50% interest in the shallow rights in the West Cote
Blanche Bay Field ("WCBB") located in Saint Mary's Parish, Louisiana.
The purchase includes the right to operate existing and future wells
completed above the Robb "C" (a geologic marker located at
approximately 10,500 feet) and the right to operate the related
production facilities which include oil and gas pipelines, salt water
disposal wells, compression facilities and related equipment. The
purchase price was $12,300,000. Proved reserves
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
attributable to the acquisition were estimated at approximately 12.2
Mmboe (million barrels of oil equivalent) as of January 1, 1997, and
are essentially 100% oil. (The quantities of proved reserves in this
paragraph were prepared by the Company's internal engineers and based
on an independent reserve study prepared as of January 1, 1997 by
Netherland, Sewell and Associates, Inc. and are unaudited.)
The remaining 50% working interest in the shallow rights to the WCBB
property is owned by WRT Energy. As part of the WRT Energy
reorganization plan, DLB expects to contribute the acquired interest
in WCBB (described above) to WRT Energy in exchange for 5.0 million
common shares in the reorganized WRT Energy. (See Note 3.)
Additionally, the Company purchased approximately $6,000,000 of
obligations of WRT Energy that relate to the West Cote Blanche Bay
Field properties. Such obligations are expected to be converted into
common shares of the new WRT Energy and are included in the equity
percentages disclosed in Note 3.
(3) INVESTMENT IN OTHER ASSETS
During 1996 and 1997, the Company acquired senior unsecured notes and
other credit obligations of WRT Energy Corporation ("WRT Energy"), an
oil and gas company operating under the provisions of Chapter 11 of
the United States Bankruptcy Code since February of 1996. These notes
and other credit obligations are being accounted for using the cost
method. At March 31, 1997, the Company's cost of these notes and other
credit obligations was approximately $15,159,000.
On November 29, 1996 as amended on January 20, 1997, and March 11,
1997, the Company and Wexford Management LLC ("Wexford"), an entity
affiliated with the Chairman of the board of directors of the Company,
filed a joint plan of reorganization with WRT Energy. No competing
reorganization plans were filed. This plan was confirmed on April 28,
1997 and will go into effect on June 28, 1997. Under the plan, a new
WRT Energy will be created with approximately 21.3 million shares of
common stock outstanding. The Company will exchange its WRT Energy
notes, the Company's interest in the West Cote Blanche Bay Field
acquired in March of 1997 (described in Note 2) and other assets for
an equity interest in the new WRT Energy. In addition, the Company and
Wexford have committed to funding a rights offering associated with
the reorganization plan of WRT Energy. The rights to purchase new
common stock of WRT Energy are being offered to all unsecured
creditors of WRT Energy. Pursuant to provisions of the plan, the
Company and Wexford have committed to purchase the rights not
exercised by other creditors. Based upon the notes and other credit
obligations, the Company's pro rata portion of the rights offering, as
contemplated by the plan, ranges from a minimum of $2,400,000 to a
maximum of $9,300,000. The Company would own approximately 9.9 million
to 11.8 million shares or between 46.2 % and 55.4 % of WRT Energy's
equity.
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(4) LONG-TERM DEBT
On March 5, 1997, the Company established a new revolving credit
facility with a group of financial institutions in the amount of
$85,000,000, with an underlying borrowing base of $80,000,000. This
facility was used to refinance indebtedness under the 1995 facility
with the remainder to be used for funding of acquisitions and general
corporate purposes. The maturity of the 1997 facility is March 2002.
Under the terms of the 1997 facility, the Company elects to be charged
at the bank's prime rate plus 1/2 of 1% plus the applicable margin or
the rate at which Eurodollar deposits for one, two, three, six or
twelve months are offered to the bank in the Interbank Eurodollar
market plus the applicable margin. Loans made under the 1997 facility
are payable in full on the maturity date.
The revolving loan agreement contains restrictive covenants requiring,
among other things, maintenance at specific levels of tangible net
worth, working capital, and specific financial ratios, as well as
limiting the payment of dividends.
(5) SHAREHOLDERS' EQUITY
On February 7, 1996, the Company adopted a common stock repurchase
plan. Under the terms of the plan, up to $5,000,000 of common stock
could have been repurchased from time to time. Pursuant to the plan,
25,000 shares were repurchased for $181,000. The Company holds
repurchased stock as treasury stock.
The repurchase plan expired August 5, 1996.
In 1995, the Company adopted a stock option plan ("the Plan") pursuant
to which the Company's Board of Directors may grant stock options to
officers and key employees. The Plan authorizes grants of options to
purchase up to 1,625,000 shares of authorized but unissued common
stock. Stock options are granted with an exercise price equal to the
stock's fair market value at the date of grant. All stock options have
ten year terms and vest ratably over a five year term.
On February 9, 1997, the Company approved 325,000 additional shares
available for granting to employees under the Plan.
(6) COMMITMENTS AND CONTINGENCIES
In 1996, the Company settled claims 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 ("CFJV") dated May 26, 1993, between the Company and
Magic Circle Acquisition Corporation ("Magic Circle"). The Company
settled its claims by agreement dated February 7, 1996. The settlement
agreement provided for mutual release of all claims arising out of the
CFJV, dissolution of the CFJV, distribution to the Company of its
interest in the CFJV oil and gas properties, the payment of $3,349,000
to the Company and transfer to the Company of its share of a gathering
system in Stephens County, Oklahoma, and
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DLB OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
transfer to Magic Circle gathering, processing and compression
facilities in Alfalfa and Woodward Counties, Oklahoma. As a result of
the settlement, the Company recognized a $208,000 loss, including
$212,000 of related legal fees.
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DLB OIL & GAS, INC
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
FORMING A PART OF FORM 10-Q QUARTERLY REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION
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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 March 31, 1997, and its results of
operations for the three month periods ended March 31, 1997 and 1996. 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
1996 annual report on Form 10-K.
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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
MARCH 31,
---------------------------
1997 1996
------------ ------------
(UNAUDITED)
Revenues
Oil $ 4,721 $ 2,671
Natural gas 7,415 1,810
------------ ------------
12,136 4,481
Contract drilling 2,413 --
Natural gas gathering, processing & trans. 399 77
Interest & other income 55 196
------------ ------------
15,003 4,754
------------ ------------
Expenses
Lease operating (1) 2,062 877
Gross production taxes 735 334
Contract drilling 1,619 --
General & administrative (2) 893 727
Loss on sale of assets -- 208
------------ ------------
5,309 2,146
EBITDA (3) 9,694 2,608
Depreciation, depletion & amortization (4) 3,390 1,794
Earnings before interest and taxes 6,304 814
Interest expense 1,110 --
Earnings before income taxes 5,194 814
Income taxes - deferred 1,960 309
------------ ------------
Net income $ 3,234 $ 505
============ ============
PER SHARE DATA
Net income $ 0.24 $ 0.04
============ ============
Weighted average common and common equivalent shares 13,463 12,988
PRODUCTION DATA (in thousands except prices)
Oil (Mbbl) 207 143
Natural gas (Mmcf) 2,166 883
Barrel oil equivalent (MBOE) 568 290
Oil ($/Bbl) $ 22.81 $ 18.68
Gas ($/Mcf) 3.42 2.05
$/BOE 21.37 15.45
EXPENSE DATA ($/BOE)
Lease operating $ 3.63 $ 3.02
Gross production taxes 1.29 1.15
Depreciation, depletion and amortization (4) 5.16 5.76
General and administrative (2) 1.31 2.50
_________________________
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(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 administrative overhead, maintenance and repairs
and labor and utilities.
(2) General and administrative expense relating to oil and gas operations
was $0.7 million and general and administrative expenses associated
with contract drilling operations was $0.2 million. (Only general and
administrative expenses relating to oil and gas operations was used in
the general and administrative expense per Boe calculation.)
(3) EBITDA is defined as earnings before interest, taxes, depreciation,
depletion and amortization. EBITDA is an analytical measure frequently
used by securities analysts and is presented to provide additional
information about the Company's ability to meet its future debt
service, capital expenditure and working capital requirements. EBITDA
should not be considered as a better measure of the Company's
operating performance than net income or as a better measure of
liquidity than cash flow from operations.
(4) DD&A related to oil and gas operations was $2.9 million and $1.7
million for the three months ended March 31, 1997 and 1996
respectively. DD&A related to contract drilling operations was $0.3
million with the remaining $0.1 million and $0.1 million for the three
months ended March 31, 1997 and 1996 respectively of DD&A related to
gas processing, gathering and disposal assets and other non-oil and
gas property equipment. (Only DD&A related to oil and gas operations
was used in the DD&A per Boe calculations.)
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THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1996
REVENUES - Total revenues for the three months ended March 31, 1997 were $15.0
million, an increase of $10.2 million from the comparable period in 1996. The
increase in revenues was primarily related to the inclusion of revenues from
the production of the Amerada Hess properties and operations of Bonray Drilling
Corporation in the first quarter of 1997, which were not included in the first
quarter of 1996. In addition, a 38% increase in product prices contributed to
increased revenues during the three months ended March 31, 1997 compared to the
same period in 1996. Revenues attributable to Bonray Drilling Corporation for
the period ended March 31, 1997 and subsequent to the acquisition on February
10, 1997 were $2.4 million.
Production of oil and gas was 207 Mbbl and 2,166 Mmcf, respectively, in the
three months ended March 31, 1997 as compared to 143 Mbbl and 883 Mmcf,
respectively in the same period of 1996. The increase in production and
increased product prices caused oil and gas sales revenues to increase $7.6
million to $12.1 million for the three months ended March 31, 1997 as compared
to $4.5 million during the same period in 1996. The average price received for
oil increased 22% to $22.81 per barrel in the three months ended March 31, 1997
from $18.68 for the three months ended March 31, 1996. The average price
received for natural gas increased 67% to $3.42 per Mcf in the three months
ended March 31, 1997 from $2.05 per Mcf for the same period of 1996.
LEASE OPERATING EXPENSE - Lease operating expense increased to $2.1 million for
the three months ended March 31, 1997 from $0.9 million for the same period of
1996. On a Boe basis, lease operating expenses were $3.63 per Boe for the three
months ended March 31, 1997 as compared to $3.02 per Boe in the comparable
period of 1996. This increase per Boe was primarily due to an increase in
workovers on DLB properties in the three months ended March 31, 1997 as
compared to the same period in 1996.
GROSS PRODUCTION TAXES - Gross production taxes increased 120% to $0.7 million
during the three months ended March 31, 1997 from $0.3 million in the same
period of 1996. This increase was due to increased oil and gas sales revenues.
CONTRACT DRILLING EXPENSE - Contract drilling expense was $1.6 million for the
three months ended March 31, 1997. This expense relates to the operation of the
drilling rigs acquired in the acquisition of Bonray Drilling Corporation in
February 1997. (See Note 2 to the consolidated financial statements.)
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE - Depreciation, depletion and
amortization (DD&A) expense was $3.4 million and $1.8 million for the three
months ended March 31, 1997 and 1996, respectively. The increase in DD&A is
primarily a result of the increased production due to the Amerada Hess
properties acquisition in May 1996. The DD&A rate per Boe related to oil and
gas properties decreased to $5.16 from $5.76 for the three months ended March
31, 1997 and 1996 respectively, resulting primarily from the increase in
reserves due to the Amerada Hess properties acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE - General and administrative expense
increased 23% to $0.9 million for the three months ended March 31, 1997 from
$0.7 million in the same period of 1996. The
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increase was primarily attributable to the $0.2 million of general and
administrative expenses in connection with drilling rig operations.
INTEREST EXPENSE - Interest expense for the three months ended March 31, 1997
was $1.1 million. There was no debt outstanding for three months ended March
31, 1996 compared to $53.6 million average debt outstanding for the three
months ended March 31, 1997. The average amount of debt outstanding increased
due to the acquisitions of the Amerada Hess properties, Bonray Drilling
Corporation, West Cote Blanche Bay and investments in obligations of WRT
Energy. (See Note 2 to the consolidated financial statements.)
NET LOSS ON SALE OF ASSETS - The Company recognized a net loss of $0.2 million
on the sale of assets for the three months ended March 31, 1996 as a result of
the dissolution of the CFJV and the related sale of gathering, processing and
compression facilities. (See Note 6 to the consolidated financial statements.)
INCOME BEFORE INCOME TAXES - Income before income taxes increased to $5.2
million for the three months ended March 31, 1997 from $0.8 million for the
same period of 1996 primarily due to the factors described above, including
increased oil and gas revenues due to the acquisition of the Amerada Hess
properties and increase product prices. This increase in revenues was partially
offset by increased lease operating expenses, depreciation and interest
expense.
Net income - Net income increased to $3.2 million for the three months ended
March 31, 1997 from $0.5 million the same period in 1996 as a result of the
items described above. The effective income tax rate remained constant at 38%.
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CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
The following table presents comparative cash flows of the Company for the
three months ended March 31, 1997 and 1996.
Three Months Ended March 31,
----------------------------
1997 1996
-------------- ------------
(in thousands)
Ne cash provided by operating activities $ 3,215 $ 2,818
Net cash used in investing activities (45,109) (7,606)
Net cash provided by (used in) financing activities 40,419 (181)
Net cash provided from operating activities increased $0.4 million to $3.2
million in the three months ended March 31, 1997 from $2.8 million in the same
period of 1996, relating primarily to an increase in net income partially
offset by other working capital components.
Net cash used in investing activities was $45.1 million for the three months
ended March 31, 1997, as compared to $7.6 million in the same period of 1996.
The increase of $37.5 million is primarily attributable to acquisitions of
Bonray Drilling Corporation and West Cote Blanche Bay field, investments in
senior unsecured notes of WRT Energy and expenditures for the exploration,
development and acquisitions of other property and equipment. (See Note 2 to
the consolidated financial statements.)
As of March 31, 1997, the Company had cash balances of $2.6 million and working
capital of $4.6 million. The increase in working capital of $3.4 million as of
March 31, 1997, from $1.2 million as of December 31, 1996, is a result of an
increase in accounts receivable.
Capital expenditures ~ The following table sets forth the Company's
expenditures for exploration, development, property acquisition, drilling
equipment, gas plant and gathering facilities and other property and equipment
for the three months ended March 31, 1997 and 1996.
Thee Months Ended March 31,
---------------------------
1997 1996
---------- ---------
Exploration costs $ 3,408 $3,957
Development costs 4,942 945
Property acquisition costs 13,446 34
Drilling equipment 15,359 --
Gas plant and gathering facilities 377 294
Other property and equipment 245 73
------- ------
$37,777 $5,303
======= ======
The Company intends to finance its capital expenditures with its cash flows
provided by operations and borrowings under the credit facility. The Company
expects to spend a total of $66.0 million on capital expenditures in 1997. It
is currently anticipated that up to $45.9 million of such amount will be used
as
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follows: (i) $19.3 million in connection with the WCBB Acquisition, consisting
of $12.3 million for the acquisition of an interest in the WCBB field and
certain related assets, $6.0 million for the purchase of certain claims held by
Texaco against WRT Energy and $1.0 million for plugging and abandonment
obligations; (ii) $12.7 million for the Bonray Acquisition; (iii) $3.8 million
for the workover and enhancement of certain rigs acquired in the Bonray
Acquisition (iv) from $2.4 million to $9.3 million will be used to purchase
shares of common stock of the new WRT Energy in a rights offering, pursuant to
the Company's commitment in the WRT Plan, if approved, (v) and $0.8 million for
the purchase of additional claims against WRT Energy. As of March 31, 1997, the
Company had expended approximately $35.3 million in connection with the
foregoing activities. Also included in the Company's budget is up to $27.0
million for oil and gas exploration activities of which $13.0 million is for
exploratory wells and $14.0 million is for development wells. The aggregate
level of capital expenditures in 1997 for drilling activities 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 as
well as the amount of common stock of WRT Energy that the Company is required
to purchase in a rights offering. Accordingly, the actual level of capital
expenditures and the allocation of such expenditures may vary materially from
the above estimates.
CAPITAL RESOURCES ~ Prior to the July 1995 equity offering, the Company's cash
requirements had been met primarily through capital contributions from
shareholders, cash generated from operations and borrowings under credit
facilities. Subsequently, the Company has relied on cash flows and primarily
borrowings under its credit facilities for additional capital resources.
On March 5, 1997, the Company established a new revolving credit facility with
a group of financial institutions, which, as amended, provides for aggregate
borrowings of up to $80.0 million (the "1997 Credit Facility"). Borrowings
under the 1997 Credit Facility were used to refinance indebtedness under a
prior credit facility and to fund the Texaco Acquisition.
Under the terms of the 1997 credit facility, the Company elects to be charged
at the bank's prime rate plus 50 basis points plus the applicable margin or the
rate at which Eurodollar deposits for one, two, three, six or twelve months are
offered to the bank in the Interbank Eurodollar market plus the applicable
margin. Loans made under the 1997 Credit Facility are payable in full on March
2002, the maturity date. The 1997 Credit Facility is secured by substantially
all of the Company's assets and contains various restrictive covenants. As of
March 31, 1997, outstanding borrowings under the 1997 credit facility were
$78.5 million.
LIQUIDITY - The Company intends to meet the remainder of its 1997 capital
requirements and its other obligations primarily from existing cash balances,
cash flow from operations and borrowings under the 1997 Credit Facility. The
Company's cash flow from operations will be dependent 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. In addition, as a result of borrowings under the 1997 Credit
Facility to fund the Texaco Acquisition, the Company has $1.5 million of
available borrowing capacity under such facility at March 31, 1997. Management
believes that additional financing will be required to fully implement its
proposed 1997 capital budget and has commenced discussions with the lenders
under the 1997 credit facility to increase the Company's borrowing capacity
thereunder to address it near-term liquidity requirements. The Company may also
seek additional capital through offerings of debt and/or equity securities.
There can be no assurance, however, that the lenders will increase the
borrowing limits under the 1997 credit facility or that such offerings can be
successfully completed. Should sufficient financing not be available from these
or other
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sources, implementation of the Company's 1997 capital program would be
delayed and, accordingly, the Company's growth strategy could be adversely
affected.
The Company does not intend to pay dividends on its common stock in the near
future. The Company will redeploy earnings generated as it continues its growth
strategies.
In future periods, the Company expects to recognize deferred income taxes of
approximately 37% to 39% of income before income taxes. The majority of the
Company's income tax expense is expected to be recognized as deferred income
tax expense due to the current tax treatment of oil and gas exploration costs.
The Company may from time to time enter into certain swap or hedge transactions
in an attempt to mitigate price volatility on production that is subject to
market sensitive pricing. To the extent the Company is unable to effect such
transactions, continued fluctuations in oil and gas prices could have an effect
on the Company's operating results. The Company has entered into futures
contracts to fix the sales price of certain of its oil and gas production
during 1997. The Company has entered into oil futures contracts for the months
of April through August, with volumes ranging from 50,000 to 53,000 barrels per
month, and prices ranging from $23.41 per barrel in April to $21.37 per barrel
in August. The Company has also entered into gas futures contracts for the
months of April through September, with volumes ranging from 250,000 to 680,000
MCF of gas per month and prices ranging from $2.42 per Mcf in April to $1.95
per Mcf in August. These futures contracts are designed to mitigate the effect
of anticipated lower product prices in the second quarter of 1997 as compared
to the first quarter of 1997.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED - In February
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, and restatement of prior-period earnings per share data is required. The
new standard will not apply to DLB's financial statements until the fourth
quarter of 1997. SFAS No. 128 revises the current calculation methods and
presentation of primary and fully diluted earnings per share. The company has
reviewed the requirements of SFAS No. 128, and has concluded that they will
increase DLB's historical primary earnings per share amounts to $0.25 per
share for the first quarter of 1997 and be consistent for the diluted earnings
per share amount ($0.24).
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by item 601 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").
(4)
2.1 Letter agreement amending Agreement for Purchase and
Sale dated May 7, 1996.(3)
2.2 Letter agreement amending Agreement for Purchase and
Sale dated May 31, 1996.(3)
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 (4)
10.12 Credit Agreement Dated as March 5, 1997 between
Registrant and Chase Manhattan Bank (5)
10.13 Second Amended Disclosure Statement Under 11 U.S.C.
Section 1125 in Support of Debtor and DLBW's Second
Amended Joint Plan of Reorganization Under Chapter
22 of the United States Bankruptcy Code (5)
10.14 Texaco Agreements (5)
10.15 First Amendment to Credit Agreement dated March 12,
1997, between the Registrant and Chase Manhattan
Bank (7)
21.0 Subsidiaries of the Company (1)
27.0 Financial Data Schedule (7)
-----------------
(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) Previously filed as an exhibit to Form 8-K on May 12,
1996, and incorporated herein by reference.
(4) Previously filed as an exhibit to Form 10-Q filed on
August 14, 1996.
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(5) Previously filed as an exhibit to Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference.
(6) Pursuant to Item 601(b)(2) of Regulation S-K, the
exhibits and schedules to Exhibit 2.0 are omitted.
Exhibit 2.0 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.
(7) Filed herein.
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.
(b) Registrant filed the following reports on Form 8-K's
filed the quarter ended March 31, 1997:
Form 8-K filed February 7, 1997, disclosing
Registrant's acquisition of Bonray Drilling.
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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 May 15, 1997 /s/ Mark Liddell
--------------- -------------------------
Mark Liddell, President
Date May 15, 1997 /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").
(4)
2.1 Letter agreement amending Agreement for Purchase and
Sale dated May 7, 1996.(3)
2.2 Letter agreement amending Agreement for Purchase and
Sale dated May 31, 1996.(3)
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 (4)
10.12 Credit Agreement Dated as March 5, 1997 between
Registrant and Chase Manhattan Bank (5)
10.13 Second Amended Disclosure Statement Under 11 U.S.C.
Section 1125 in Support of Debtor and DLBW's Second
Amended Joint Plan of Reorganization Under Chapter
22 of the United States Bankruptcy Code (5)
10.14 Texaco Agreements (5)
10.15 First Amendment to Credit Agreement dated March 12,
1997, between the Registrant and Chase Manhattan
Bank. (7)
21.0 Subsidiaries of the Company (1)
27.0 Financial Data Schedule (7)
-----------------
(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) Previously filed as an exhibit to Form 8-K on May 12,
1996, and incorporated herein by reference.
(4) Previously filed as an exhibit to Form 10-Q filed on
August 14, 1996.
25
(5) Previously filed as an exhibit to Form 10-K for the year
ended December 31, 1996 and incorporated herein by
reference.
(6) Pursuant to Item 601(b)(2) of Regulation S-K, the
exhibits and schedules to Exhibit 2.0 are omitted.
Exhibit 2.0 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.
(7) Filed herein
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.
(b) Registrant filed the following reports on Form 8-K's
filed the quarter ended March 31, 1997:
Form 8-K filed February 7, 1997, disclosing
Registrant's acquisition of Bonray Drilling.