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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
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Commission File Number : 001-14575
VISTA ENERGY RESOURCES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2766114
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
550 West Texas Avenue, Suite 700, Midland, Texas 79701
------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(915) 570-5045
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year,
if change 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 Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of November 1, 1998
Common stock, $.01 par value 16,312,337
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VISTA ENERGY RESOURCES, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 1998 (Unaudited) and December 31, 1997 (Audited) 3
Unaudited Consolidated Statement of Operations
for the Three and Nine Months Ended September 30, 1998 and 1997 4
Unaudited Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
PART II. OTHER INFORMATION 24
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 25
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA ENERGY RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30 DECEMBER 31
1998 1997
-------------- --------------
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and cash equivalents ............ $ 83,091 $ 527,129
Accounts receivable
Oil and gas sales ................. 876,534 1,113,302
Trade ............................. 120,212 136,633
Other ................................ 457,116 83,519
-------------- --------------
1,536,953 1,860,583
-------------- --------------
PROPERTY AND EQUIPMENT:
Oil and gas properties, based on
successful efforts accounting ........ 29,240,909 27,943,634
Other ................................ 428,213 373,258
-------------- --------------
29,669,122 28,316,892
-------------- --------------
Less accumulated depreciation,
depletion and amortization ............ (4,440,863) (3,446,126)
-------------- --------------
Property and equipment, net ......... 25,228,259 24,870,766
-------------- --------------
OTHER ASSETS ........................... 706,287 304,754
-------------- --------------
$ 27,471,499 $ 27,036,103
============== ==============
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses ............................. $ 1,456,326 $ 1,439,451
-------------- --------------
$ 1,456,326 1,439,451
-------------- --------------
LONG-TERM DEBT ......................... 18,900,000 17,900,000
COMMITMENTS AND CONTINGENCIES .......... -- --
OWNERS' EQUITY ......................... 7,115,173 7,696,652
-------------- --------------
$ 27,471,499 $ 27,036,103
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
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VISTA ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
(UNAUDITED) (UNAUDITED)
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUES:
Oil and gas sales .......... $ 1,927,397 $ 2,477,480 $ 5,984,676 $ 6,110,754
----------- ----------- ----------- -----------
Total
revenues ......... 1,927,397 2,477,480 5,984,676 6,110,754
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Lease operating ............ 838,347 1,039,620 2,777,877 2,711,880
Exploration costs .......... 25,458 3,226 25,458 61,826
Depreciation, depletion
and amortization ........ 267,575 574,604 1,229,601 1,506,796
General and
administrative .......... 563,976 257,766 1,184,641 733,406
Amortization of unit
option awards ........... 21,326 25,462 214,303 290,056
----------- ----------- ----------- -----------
Total costs and
expenses ......... 1,716,682 1,900,678 5,431,880 5,303,964
----------- ----------- ----------- -----------
Operating
income ........... 210,715 576,802 552,796 806,790
----------- ----------- ----------- -----------
Loss on sale of
property ................ (146,464) 0 (339,362) (7,247)
Interest expense ........... (356,162) (293,892) (1,070,123) (688,061)
Other income, net .......... 20,616 15,593 60,907 79,449
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE
TAXES ...................... (271,295) 298,503 (795,782) 190,931
----------- ----------- ----------- -----------
Pro forma benefit
(provision) for
taxes ................... 94,953 (104,476) 278,524 (66,826)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ............ $ (176,342) $ 194,027 $ (517,258) $ 124,105
=========== =========== =========== ===========
Earnings per common share: ... (.01) .02 (.05) .01
=========== =========== =========== ===========
Common Vista Shares .......... 11,903,506 11,903,506 11,903,506 11,903,506
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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VISTA ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
(UNAUDITED)
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before taxes ...................... $ (795,782) $ 190,931
Adjustments to reconcile net income
before taxes to cash provided by
operating activities
Depreciation, depletion and
amortization ................................... 1,229,601 1,506,796
Amortization of unit option awards ................ 214,303 290,056
Other assets ...................................... (444,426) (8,655)
Loss on sale of property .......................... 339,362 7,247
Changes in working capital
Decrease (increase) in accounts
receivable ..................................... 253,189 (394,490)
Decrease (increase) in other current assets........ (373,597) 52,017
Increase in accounts payable and
accrued expenses ............................... 16,875 577,940
------------ ------------
Net cash provided by operating
activities ................................. 439,525 2,221,842
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................. (2,427,927) (12,383,124)
Proceeds from sales of property and
equipment ......................................... 544,364 390,000
Net cash used in investing
activities ................................. (1,883,563) (11,993,124)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of borrowings ............................... -- (115,077)
Proceeds from issuance of debt ...................... 1,000,000 9,503,572
Payments of debt issuance cost ...................... 0 (37,500)
------------ ------------
Net cash provided by financing
activities ................................. 1,000,000 9,350,995
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................... (444,038) (420,287)
CASH AND CASH EQUIVALENTS:
Beginning of period ................................. 527,129 517,211
------------ ------------
End of period ....................................... $ 83,091 $ 96,924
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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VISTA ENERGY RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Organization
Vista Energy Resources, Inc. (the "Company") is a Delaware corporation
whose common stock is listed and traded on the American Stock Exchange. The
company was formed in May 1998 for the purpose of merging Vista Resources
Partners, L.P., a Texas limited partnership (the "Vista Partnership"), and
Midland Resources, Inc., a publicly traded Texas corporation ("Midland
Resources"). Such merger occurred on October 28, 1998. The Company is an oil and
gas exploration and production company with ownership interests in oil and gas
properties located principally in the Permian Basin of West Texas and
Southeastern New Mexico and the onshore Gulf Coast region of Texas.
Vista Resources I, Inc., a Texas corporation (the "General Partner"),
served as the sole general partner of the Vista Partnership. Vista Resources,
Inc., a Texas corporation and a wholly owned subsidiary of the Company (the
"Operator"), serves as the operator of Properties in which the Company or its
subsidiaries acquires or otherwise owns operating working interests.
On October 28, 1998, pursuant to the terms of an Exchange Agreement
dated June 15, 1998 (the "Exchange Agreement"), the Company acquired all of the
outstanding partnership interests of the Vista Partnership and all of the
outstanding shares of common stock of the General Partner in exchange for shares
of Common Stock of the Company (the "Conversion"). The Conversion and other
transactions contemplated by the Exchange Agreement were consummated immediately
prior to the closing of the merger (the "Merger") with Midland Resources. The
Conversion will be accounted for as a transfer of assets and liabilities between
affiliates under common control and will result in no change in carrying values
of these assets and liabilities.
The accompanying consolidated financial statements include the balances
and results of operations associated with the Company, the Vista Partnership and
its wholly owned subsidiary, Vista Resources, Inc., as of the periods so
indicated, but does not include any effect of Merger. All significant
intercompany transactions and balances have been eliminated in preparation of
the consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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Cash and Cash Equivalents
All highly liquid investments with original maturities of three months
or less are considered to be cash equivalents.
Accounts Receivable
Trade receivables represent billings to other working interest owners
for their share of costs on wells for which the Company serves as the operator.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its
oil and gas properties whereby costs of productive wells, developmental dry
holes, and productive leases are capitalized and amortized on a
unit-of-production basis over the respective properties' remaining proved
reserves. Amortization of capitalized costs of oil and gas properties is
provided on a prospect-by-prospect basis.
Leasehold costs are capitalized when incurred. Unproved oil and gas
properties with significant acquisition costs are periodically assessed and any
impairment in value is charged to exploration costs. The costs of unproved
properties which are not individually significant are assessed periodically in
the aggregate based on historical experience, and any impairment in value is
charged to exploration costs. The Company recorded $97,211 of such impairments
in 1997 and no impairments as of September 30, 1998. The costs of unproved
properties which are determined to be productive are transferred to proved oil
and gas properties.
Exploration costs, such as geological and geophysical expenses and
annual delay rentals, are charged to expense as incurred. Exploratory drilling
costs, if any, including the costs, if any, of stratigraphic test wells, are
initially capitalized but charged to expense if and when the well is determined
to be unsuccessful.
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that proved oil and gas properties be assessed for an impairment in
their carrying value whenever events or changes in circumstances indicate that
such carrying value may not be recoverable. SFAS No. 121 requires that this
assessment be performed by comparing the future net cash flows and net carrying
value of oil and gas properties. This assessment must generally be performed on
a property by property basis. No such impairment of the carrying value of oil
and gas properties was required in 1997.
Other Property and Equipment
Other property and equipment are comprised of furniture, fixtures and
automobiles. These items are amortized on a straight-line basis over their
estimated useful lives, which range from five to seven years.
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Other Assets
Other assets are primarily comprised of organization costs and deferred
debt issuance costs and are presented net of accumulated amortization in the
financial statements. Organization costs are being amortized on a straight-line
basis over five years. Debt issuance costs are amortized over the life of the
related debt agreements.
Revenue Recognition Policy
Revenues are recorded when products have been delivered and services
have been performed. The Company uses the sales method to account for gas
imbalances. Under this method, revenue is recognized based on the cash received
rather than the Company's proportionate share of gas produced. The Company's
imbalances at September 30, 1998 and December 31, 1997 were not significant.
Income Taxes
Prior to the Conversion, the results of operations of the Company were
included in the tax returns of its owners. As a result, tax strategies were
implemented that are not necessarily reflective of strategies the Company would
have implemented. In addition, the tax net operating losses generated by the
Company during the period from its inception to date of the Conversion will not
be available to the Company to offset future taxable income as such benefit
accrued to the owners.
In conjunction with the Conversion, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which provides for determining and recording deferred income tax assets or
liabilities based on temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities using enacted tax
rates. SFAS No. 109 requires that the net deferred tax liabilities of the
Company on the date of the Conversion be recognized as a component of income tax
expense. The Company is required to recognize approximately $930,000 in deferred
tax liabilities and income tax expense as of the date of the Conversion.
Upon the Conversion, the Company became taxable as a corporation. Pro
forma income tax information presented in the accompanying consolidated
statements of operations, reflects the income tax expense (benefit) and net
income (loss) as if all Partnership income had been subject to corporate federal
income tax, exclusive of the effects of recording the Company's net deferred tax
liabilities upon the Conversion.
Statement of Cash Flows
Cash paid for interest for the period ended September 30, 1998 and
December 31, 1997 was $864,394 and $702,251, respectively.
Interim Financial Information
In the opinion of the Company, the accompanying consolidated financial
statements as of and for the three and nine month periods ended September 30,
1998 and 1997, which have not been audited by independent public accountants,
contain all adjustments necessary to present fairly the Company's consolidated
financial position, the results of its operations and its cash flows for the
periods reported. The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions are eliminated. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Certain prior
amounts have been reclassified to conform to 1998 presentation. It is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and
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footnotes thereto included in Vista Energy Resources, Inc. Registration
Statement dated September 18, 1998 (SEC registration number 333-58495). The
results of operations for the three and nine months ended September 30, 1998 and
1997 are not necessarily indicative of the results to be expected for a full
year.
Other
Certain amounts in the prior periods' financial statements have been
reclassified to conform with the current year presentation.
3. SIGNIFICANT ACQUISITIONS OF OIL AND GAS PROPERTIES AND OTHER ASSETS:
1997 Acquisitions
In addition to acquiring various additional small working interests and
overriding royalty interests in properties already owned and operated by the
Company, the Company closed two significant producing property acquisitions in
1997. In May 1997, the Company acquired all of the interests of Coastal Oil and
Gas Corporation in three producing leases located in the Howard Glasscock Field,
Howard County, Texas, for a net purchase price of $1,110,920. The interests
acquired were attributable to leases in which the Company already owned
interests and which were operated by the Operator. Effective as of July 1, 1997,
the Company acquired substantially all of the producing oil and gas properties
(representing working interests ranging from 25% to 100% in approximately 44
wells located in West Texas, South Texas, East Texas and Southeastern New
Mexico) from E.G. Operating, a division of FGL, Inc., for a net purchase price
of $6,088,073. All of the Company's 1997 acquisitions were funded through a
combination of proceeds from long-term borrowings and cash on hand.
The 1997 acquisitions were accounted for utilizing the purchase method
of accounting. The accompanying consolidated statements of operations include
the results of operations from the acquired properties beginning on the dates
that the acquisitions were closed. The following table summarizes the unaudited
pro forma effect on the Company's consolidated statements of operations as if
the acquisitions consummated in 1997 had been closed on January 1, 1997. Future
results may differ substantially from pro forma due to changes in prices
received for oil and gas sold, production declines and other factors.
Therefore, the pro forma amounts should not be considered indicative of future
operations.
NINE MONTHS
ENDED
9/30/98
PRO FORMA
--------------
(UNAUDITED)
Total Revenues .................... $ 9,104,511
==============
Net Income ........................ $ (1,839,061)
==============
4. SALE OF OIL AND GAS PROPERTIES:
During 1998, the Company sold certain oil and gas properties for a
total net consideration of $544,364, which resulted in a book loss of $339,362.
During 1997, the Company sold certain oil and gas properties for a total net
consideration of $390,000, which resulted in a book loss of $87,678.
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5. MERGER PRO FORMA INFORMATION:
On October 28, 1998, the Merger discussed in Note 1 was consummated.
The following tables summarize the unaudited pro forma effects on the Company's
financial statements assuming that the Merger and the Conversion had been
consummated on September 30, 1998 for the balance sheet and as of January 1,
1998 for the income statement. The pro forma effects of the Merger and the
Conversion are based on assumptions set at the time of the filing of the
Company's registration statement and declared effective by the Securities and
Exchange Commission. These assumptions have not been updated to reflect certain
aspects of the transactions which were not known until or subsequent to the
occurrence of the transactions. The pro forma consolidated financial statements
should be read in conjunction with the related historical financial statements
included in the Company's registration statement. Future results may differ
substantially from pro forma results due to changes in these assumptions,
changes in oil and gas prices, production declines and other factors. Therefore,
pro forma statements cannot be considered indicative of future operations.
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VISTA ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
Pro Forma
Combined Pro Forma
Vista Midland Adjustments Combined
------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 83,091 37,404 -- 120,495
Accounts receivable 996,746 998,656 -- 1,995,402
Property held for sale -- -- -- --
Deferred tax asset -- 37,000 (37,000)(b) --
Other 457,116 42,014 (42,014)(a) 457,116
------------ ------------ ------------ ------------
1,536,953 1,115,074 (79,014) 2,573,013
------------ ------------ ------------ ------------
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts accounting 29,240,909 29,392,228 7,646,749(a) 66,279,886
Other 428,213 557,713 (409,582)(a) 576,344
------------ ------------ ------------ ------------
29,669,122 29,949,941 7,237,167 66,856,230
Less: Accum. depr., depletion and amortization (4,440,863) (16,950,287) 16,950,287(a) (4,440,863)
------------ ------------ ------------ ------------
Property and equipment, net 25,228,259 12,999,654 24,187,454 62,415,367
------------ ------------ ------------
OTHER ASSETS
Deferred tax asset -- 1,441,271 (1,441,271)(b) --
Goodwill, net -- 700,588 (700,588)(a) --
Contracts and leases, net -- 183,075 (183,075)(a) --
Note receivable -- -- -- --
Other 706,287 87,858 (87,858)(a) 706,287
------------ ------------ ------------ ------------
27,741,499 16,527,500 21,695,688 65,694,667
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 1,456,326 666,219 1,040,000(c) 3,162,545
Current maturities of long-term debt -- 900,000 (900,000)(d) --
------------ ------------ ------------ ------------
1,456,326 1,566,219 140,000 3,162,545
------------ ------------ ------------ ------------
LONG-TERM DEBT 18,900,000 8,770,974 900,000(d) 28,570,974
DEFERRED TAX LIABILITY -- -- 6,999,814(b) 7,566,462
-- -- 566,648(b) --
OTHER -- 205,116 960,000(e) 1,165,116
STOCKHOLDER'S EQUITY
Common Stock -- 4,470 157,992(a) 162,462
Additional paid-in capital -- 8,505,716 17,400,509(a) 25,632,756
-- -- (566,648)(b) (566,648)
Unearned Compensation -- (81,420) 81,420(a) --
Retained Earnings (deficit) -- (2,443,575) 2,443,575(a) --
Owner's Equity 7,115,173 -- (7,387,642)(a) (272,469)
------------ ------------ ------------ ------------
7,115,173 5,985,191 12,129,206 25,229,570
------------ ------------ ------------ ------------
27,471,499 16,527,500 21,695,668 65,694,667
============ ============ ============ ============
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VISTA ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 31, 1998
Pro Forma
Combined Pro Forma
Vista Midland Adjustments Combined
----------- ----------- ----------- -----------
REVENUES
Oil and gas sales 5,984,676 3,119,835 -- 9,104,511
----------- ----------- ----------- -----------
Total revenues 5,984,676 3,119,835 -- 9,104,511
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Lease operating 2,812,435 1,988,305 347,473(f) 5,148,213
Exploration costs 25,458 44,517 -- 69,975
Depreciation, depletion and amortization 1,229,601 1,027,447 866,308(g) 3,123,356
General and administrative, net 1,150,083 752,647 (347,473)(f) 1,555,257
Amortization of unit option awards 214,303 -- -- 214,303
Impairment of oil and gas properties
----------- ----------- ----------- -----------
Total costs and expenses 5,431,880 3,812,916 866,308 10,111,104
----------- ----------- ----------- -----------
Total operating income (loss) 552,796 (693,081) (866,308) (1,006,593)
----------- ----------- ----------- -----------
OTHER
Interest and other income 60,907 117,214 -- 178,121
Interest expense (1,070,123) (640,113) 97,698(h) (1,612,538)
Sale of Assets Gain (Loss) (339,362) (48,953) -- (388,315)
----------- ----------- ----------- -----------
Total other (1,348,578) (571,852) 97,698 (1,822,732)
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE TAXES (795,782) (1,264,933) (768,610) (2,829,325)
Benefit (provision) for taxes 278,524 430,078 281,662(e) 990,264
----------- ----------- ----------- -----------
NET INCOME (LOSS) (517,258) (834,855) (486,948) (1,839,061)
=========== =========== =========== ===========
BASIC NET LOSS PER SHARE (0.11)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 16,312,337
===========
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Pro Forma Entries:
(a) To adjust Midland's historical balances to reflect the fair market
value of the assets acquired, liabilities assumed, and the new
capital structure using the purchase method of accounting based on
the aggregate purchase consideration. All net working capital
balances were estimated to approximate fair market value at the
time of acquisition. The historical goodwill, contracts and
leases, and other assets balances were eliminated as it was
determined that these items did not provide any continuing value
to Vista. Unearned compensation was eliminated as it related to
the unamortized portion of Midland's stock-related compensation
expense that is not applicable to Vista.
(b) To record deferred taxes related to the differences between the
historical tax basis of assets acquired and liabilities assumed
and the fair market value allocated to the assets acquired and
liabilities assumed based on the aggregate purchase consideration.
(c) To record cash consideration for non-recurring merger expenses
related to the Warley Settlement Agreement and legal, accounting,
registration, and other costs directly related to the Midland
acquisition.
(d) To record all assumed debt as long-term under Vista's amended and
Restated Credit Agreement, dated August 15, 1997.
(e) To record the deferred tax liability and related provision for
income taxes to reflect the change in Vista's tax status from a
partnership to a corporation.
(f) To reclassify certain COPAS overhead charges to conform with the
financial statement presentation of Vista.
(g) To adjust depreciation, depletion and amortization expense for the
additional basis allocated to the oil and gas properties acquired
and accounted for using the successful efforts methods of
accounting.
(h) To adjust interest expense to be reflective of the weighted
average interest rate received under Vista's Amended and Restated
Credit Agreement, dated August 15, 1997. The applicable interest
rate under Vista's Amended and Restated Credit Agreement, dated
August 15, 1997, for both periods was 7.6%.
6. LONG-TERM DEBT:
As of September 30, 1998, $18,900,000 was outstanding under a
$50,000,000 revolving line of credit note (the "Note") with Union Bank of
California ("Union Bank") subject to a borrowing base which is redetermined on a
semi-annual basis beginning April 1, 1998. The Credit Agreement pursuant to
which the Note was originally issued was amended effective as of August 15, 1997
(as further amended from time to time, the "Credit Agreement"), to, among other
things, provide for an increase in the facility amount of the Credit Agreement
from $15,000,000 to $50,000,000. The borrowing base at September 30, 1998 was
$22,300,000. Borrowings under the Note are to be used for the acquisition and
development of oil and gas properties and for other Company purposes.
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The Company has two options with respect to interest rate elections on
borrowings under the Note. The Company may either elect an interest rate equal
to (i) Union Bank's reference rate plus 35 basis points ("Prime Basis") or (ii)
a Eurodollar rate (i.e., London Interbank Offered Rate) plus 175 basis points
(if amounts outstanding are 50% or less of the then current borrowing base), in
either case, as adjusted for Union Bank's Reserve Percentage under Regulation D
of the Board of Governors of the Federal Reserve System with respect to
Eurocurrency liabilities ("LIBOR Basis"). The LIBOR Basis option provides for
one-, two-, three-or six-months periods. At September 30, 1998 the Company had
the following amounts outstanding:
AMOUNT RATE ELECTION RATE TERM
- ------------------ ------------- ------- --------------------
$5,100,000........ LIBOR Basis 7.53125% 05/28/98 to 11/28/98
$7,900,000........ LIBOR Basis 7.46875% 08/20/98 to 02/20/99
$5,400,000........ LIBOR Basis 7.00000% 09/30/98 to 03/30/99
$500,000.......... Prime Basis 8.95000% 07/01/98 to 09/30/98
As of September 30,1998, the Company had accrued interest thereunder of
$205,729. As of December 31, 1997, the Company had accrued interest thereunder
of $345,758.
Unless otherwise extended by Union Bank, the Note converts to a
three-year fully amortizing term loan at March 31, 2000.
The obligations of the Company under the Credit Agreement and Note are
secured by a first lien deed of trust on the Company's interests in certain of
its Properties.
The Credit Agreement includes covenants which, among other things,
restrict the incurrence of additional indebtedness and the sale or acquisition
of oil and gas properties above certain levels without the consent of the
lender.
Effective as of December 23, 1997, the Company entered into an interest
rate swap accounted for as a hedge with any realized gains or losses
appropriately recorded as interest expense. (See Note 11 for further discussion
of hedge accounting.) with Union Bank. The swap consists of $10,000,000 notional
amount of indebtedness at a fixed swap rate of 6.021% three month LIBOR for the
partnership. The term of this swap ends on December 23, 1999.
7. EMPLOYEE STOCK OPTIONS:
Effective September 26, 1995, the Board of Directors of the General
Partner adopted the original Option Plan (the "Plan") for certain officers and
employees of the Partnership and the Operator. The Plan authorizes the grant of
options to acquire units of limited partnership interests in the Partnership
("Units"). Effective April 1, 1997, the Board of Directors of the General
Partner amended and restated the Plan in order to provide for additional options
to be added to the Plan (the "Amended Plan"). As of December 31, 1997, the
Amended Plan provided for future awards of options of up to 165,000 Units.
The Amended Plan provides for the issuance of 1,580,321 options in six
separate series with an initial exercise price of $1 (series A-D or "$1
options") and $2 (series E-F or "$2 options") which was to be increased 10% per
annum from the initial plan adoption date of September 26, 1995, for the $1
options and April 1, 1997, for the $2 options. Option A series, covering 550,358
units, was to vest at a rate of one-third of the options at
14
15
each of the dates of September 30, 1996, 1997 and 1998. Option B, C, D, and E
series were to vest on the dates that the Board determines that the current
value of partnership units had increased by a factor of 3, 4, 5, and 6,
respectively, or on the date that such per unit amounts of cash or other assets
have been or are authorized to be distributed to the partners. Option B, C, D,
and E series cover 152,877, 159,826, 167,260, and 350,000, respectively.
The following table summarizes Unit activity during 1995, 1996 and
1997,and 1998, under the Amended Plan:
WEIGHTED
NUMBER OF AVERAGE
UNITS EXERCISE PRICE EXERCISE PRICE
------------- ---------------- --------------
Outstanding at September 21, 1995........................... -- $ -- $ --
Granted.................................................. 1,030,321 $ 1.00 $ 1.01
-------------
Outstanding at January 1, 1996.............................. 1,030,321 $ 1.03 $ 1.01
Granted.................................................. -- $ -- $ --
-------------
Outstanding at January 1, 1997.............................. 1,030,321 $ 1.13 $ 1.08
Granted.................................................. 385,000 $ 2.00 $ 2.02
-------------
Outstanding at December 31, 1997............................ 1,415,321 $ 1.24 to $2.15 $ 1.49
=============
Exercisable at September 30, 1998........................... 550,358 $ 1.33 $ 1.29
=============
The following table summarized information about the Amended Plan at
December 31, 1997:
NUMBER OF UNITS REMAINING LIFE NUMBER OF UNITS
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISABLE
- ---------------- ------------ ------- -------------
$ 1.24 1,030,321 3.7 366,905
2.15 385,000 3.7 --
------------ -------------
1,415,321 3.7 366,905
============ =============
The Company accounts for the Units issued under the Amended Plan under
Accounting Principles Board Opinion No. 25. Based on an estimated fair value of
$2 per unit, the Company recorded a noncash charge for the expected value of the
vested $1 options in the amount of $214,303 and $290,056 for the periods ended
September 30, 1998 and 1997, respectfully. Estimated compensation expense is
recorded over the vesting period and will be adjusted prospectively as the
estimated fair value of options changes. Had compensation cost for the Amended
Plan been determined consistent with Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," the Company
would not have reported any compensation cost related to the Amended Plan for
any periods presented in the accompanying Consolidated Statements of Operations.
In connection with consummation of the Merger and the Conversion, the
subject options and the Amended Plan pursuant to which they were granted were
terminated.
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16
8. LEASE COMMITMENTS:
The Company leases 7,505 square feet of office space at 550 West Texas
Avenue, Suite 700 Midland, Texas from Fasken Center, Ltd. under an office lease
dated October 10, 1996 (as amended from time to time, the "Lease"). The Lease is
a typical office lease containing standard and customary lease provisions and
runs from January 1, 1997, through August 31, 2002. The rental payments due
under the Lease are as follows:
PERIOD AMOUNT
------------------------------------------------ ----------
January 1, 1997-- August 31, 1997................ $ --
September 1, 1997 -- August 31, 1998............. 50,523
September 1, 1998 -- August 31, 1999............. 50,523
September 1, 1999 -- August 31, 2000............. 55,538
September 1, 2000 -- August 31, 2001............. 55,537
September 1, 2001 -- August 31, 2002............. 55,537
---------
$ 267,658
=========
9. SIGNIFICANT CUSTOMERS:
Management does not believe that the loss of any one customer would
have a significant impact on the Company's results of operations.
10. PRICE RISK MANAGEMENT:
The Company periodically uses derivative financial instruments to
manage crude oil and natural gas price risk. These instruments qualify as hedges
under generally accepted accounting principles and are properly recorded as oil
and gas sales in the statements of operations. In order to qualify for hedge
accounting, each financial instrument must be initially designated as a hedge,
must appropriately reduce the price risk and must have correlation to the
commodity being hedged. If an instrument does not qualify as a hedge, then it is
accounted for as a speculative transaction, with any unrealized gains or losses
being reflected in the statement. It is the Company's policy not to engage in
speculative transactions of this nature. If a financial instrument designated as
a hedge is sold, extinguished or terminated before it matures, then the realized
gain or loss is deferred and amortized to oil and gas sales over the original
life of the financial instrument. The Partnership's realized gains and losses
attributable to its price risk management activities are as follows:
1998 1997
-------------- --------------
Realized
losses (gains)................... $ (514,758) $ 200,828
Set forth below is the contract amount and terms of all instruments
held for price risk management purposes at December 31, 1997 and 1996 (all
quantities are expressed in crude oil barrels ("Bbl") and all prices are
expressed in the calendar monthly average of daily NYMEX closing prices for
Light Sweet Crude Oil):
TYPE MONTHLY PUT CALL
TRADE DATE TRANSACTION VOLUME FLOOR PRICE CEILING PRICE TERM
- -------------------------------- ----------- ------ ----------- ------------- -----------------------------------
December 15, 1997............... Collar 10,000 $18.00 Bbl $ 19.805 Bbl April 1, 1998 to December 31, 1998
December 15, 1997............... Collar 10,000 $18.50 Bbl $ 19.280 Bbl April 1, 1998 to March 31, 1999
16
17
Set forth below is the contract amount and material terms of all NYMEX
natural gas hedging instruments held by the Company at September 30, 1998
(monthly volumes are expressed in MMBtus and prices are expressed in the monthly
NYMEX (Henry Hub) closing price for natural gas):
TRADE TYPE MONTHLY PUT CALL
DATE TRANSACTION VOLUME FLOOR PRICE CEILING PRICE TERM
- ------ ----------- ------- ----------- ------------- ------------------
4-5-98 Collar 80,000 $2.20 MMBtu $ 2.49 MMBtu 4-1-98 to 9-30-98
Set forth below is the contract amount and material terms of each
natural gas basis swap held by the Company at September 30, 1998 (monthly
volumes are expressed in MMBtus):
TRADE TYPE MONTHLY
DATE TRANSACTION VOLUME SWAP PRICE TERM
- ------ ----------- ------ --------------------------- -----------------
4-5-98 Basis swap 40,000 Houston Ship Channel (NYMEX 4-1-98 to 9-30-98
(Henry Hub) minus $0.0275
MMBtu)
4-5-98 Basis swap 40,000 Permian Basis (El Paso) 4-1-98 to 9-30-98
(NYMEX (Henry Hub) minus
$0.20 MMBtu)
11. SUBSEQUENT EVENTS:
As discussed in Note 1, on October 28, 1998 the Merger and Conversion
among Vista Resources Partners, L.P, Midland Resources, Inc. and Vista Energy
Resources, Inc. was closed. As a result of the Conversion, Vista Resources
Partners, L.P. became a wholly-owned subsidiary of the Company, and as a result
of the Merger Midland Resources also became a wholly-owned subsidiary of the
Company. The Conversion will be treated as a transfer of assets and liabilities
between affiliates under common control and will result in no change in carrying
values of these assets and liabilities.
Also, simultaneously with the closing of the Conversion and the Merger,
the Company entered into a Second Amended and Restated Credit Agreement dated
October 28, 1998 (Second Amended Credit Agreement) with its bank, Union Bank of
California, pursuant to which the Company's new borrowing base was established
at $32.0 million, Midland Resources was added as a co-Borrower under the Second
Amended Credit Agreement, and the Company and each of its subsidiaries became
guarantors to the note issued pursuant to the Second Amended Credit Agreement.
As a result of the closing of the Merger and the Conversion the Company had
outstanding indebtedness of $28.3 million under the Second Amended Credit
Agreement at October 28, 1998.
On November 9, 1998, the Company announced the execution of a letter of
intent to acquire interests in a group of producing oil and gas properties from
certain sellers, for a cash purchase price of up to $23,945,000 (assuming 100%
working interest is delivered by the seller and its working interest partners).
The closing of the proposed acquisition is subject to various conditions
including, without limitation, legal, title and environmental due diligence; the
execution of a definitive purchase and sale agreement; and approval of the
seller's board of directors. If a definitive purchase and sale agreement is
entered into, it is expected that the transaction will close on or about
December 15, 1998. No purchase and sale agreement has been executed as of the
date hereof.
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18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FORMATION OF VISTA
Vista Energy Resources, Inc. (the "Company") is a Delaware corporation
whose common stock is listed and traded on the American Stock Exchange. The
company was formed in May 1998 for the purpose of merging Vista Resources
Partners, L.P., a Texas limited partnership (the "Vista Partnership"), and
Midland Resources, Inc., a publicly traded Texas corporation ("Midland
Resources"). Such merger occurred on October 28, 1998. The Company is an oil and
gas exploration and production company with ownership interests in oil and gas
properties located principally in the Permian Basin of West Texas and
Southeastern New Mexico and the onshore Gulf Coast region of Texas.
In accordance with the provisions of Accounting Principles Board (APB)
No. 16 Business Combinations, the merger of the Vista Partnership and Midland
Resources was accounted for as a purchase by the Company (formerly the Vista
Partnership). As a result, the historical financial statements for the Company
are those of the Vista Partnership.
FINANCIAL PERFORMANCE
The Company reported a net loss of $176,000 and $517,000 on a pro
forma basis for the three and nine months ended September 30, 1998,
respectfully, as compared to a net gain of $194,000 and $124,100 for the same
periods in 1997. As discussed more fully in "Results of Operations" below, the
Company's financial performance for the three and nine months ended September
1998 was negatively impacted by the following items: (i) reduction in prices
received for oil and gas sales of 24% and 5%, respectively, from 1997; (ii)
increase in gross production costs due to the addition of properties acquired
from E.G. Operating Co. in the third quarter of 1997 (the "E.G.
Acquisition");and (iii) an increase in interest expense as a result of the
additional indebtedness incurred in respect of the E.G. Acquisition.
Net cash provided by operating activities was $439,525 for the nine
months ended September 30, 1998, as compared to net cash provided by operating
activities of $2,221,842 for the same period in 1997. This decrease was
primarily attributable to significantly lower commodity prices for oil and gas
and increased production costs and interest expense as a result of the
additional properties acquired and indebtedness incurred in respect of the E.G.
Acquisition.
The Company strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility to fund
future opportunities. The Company's total book capitalization at September 30,
1998 was $26.02 million, consisting of total long-term debt of $18.9 million and
owners' equity of $7.12 million. Debt as a percentage of total book
capitalization was 73% at September 30, 1998, which was essentially the same as
at September 30, 1997 and December 31, 1997.
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19
DRILLING RESULTS
During the first nine months of 1998, the Company has continued its
emphasis on development, exploration and production activities, with a primary
focus on the exploitation of its current portfolio of drilling locations. During
the first nine months of 1998, the Company participated in the drilling and
completion of 11 gross development wells and no gross exploration wells. Of the
total wells completed during the nine months ended September 30, 1998, 11 were
completed successfully which resulted in a 100% success rate. In addition to the
wells completed in the first nine months of 1998, the Company had one well in
progress at September 30, 1998.
ACQUISITION ACTIVITIES
Although various acquisition candidates were evaluated during the
first nine months of 1998, no material acquisitions were made during such time
period. The Merger and the Conversion were consummated on October 28, 1998. See
Notes 1 and 11 of Notes to Unaudited Consolidated Financial Statements of the
Company.
On November 9, 1998, the Company announced the execution of a letter of
intent to acquire interests in a group of producing oil and gas properties from
certain sellers, for a cash purchase price of up to $23,945,000 (assuming 100%
working interest is delivered by the seller and its working interest
partners).The closing of the proposed acquisition is subject to various
conditions including, without limitation, legal, title and environmental due
diligence; the execution of a definitive purchase and sale agreement; and
approval of the seller's board of directors. If a definitive purchase and sale
agreement is entered into, it is expected that the transaction will close on or
about December 15, 1998. No purchase and sale agreement has been executed as of
the date hereof.
19
20
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods presented:
Oil and Gas Production.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues ............................................... $1,927,397 $2,477,480 $5,984,676 $6,110,754
Costs and expenses:
Production costs ..................................... 838,347 1,039,620 2,777,877 2,711,880
Depletion ............................................ 267,575 574,604 1,229,601 1,506,796
Exploration costs .................................... 25,458 3,226 25,458 61,826
---------- ---------- ---------- ----------
1,131,380 1,617,450 4,032,936 4,280,502
---------- ---------- ---------- ----------
Operating profit (excluding general and administrative
expenses and income taxes)......................... $ 796,017 $ 860,030 $1,951,740 $1,830,252
========== ========== ========== ==========
Production:
Oil (Bbls) ........................................... 106,461 113,925 342,234 283,900
Gas (Mcf) ............................................ 223,356 253,719 701,346 517,648
Total (BOE) .................................. 143,687 156,212 459,125 370,175
Average Daily Production:
Oil (Bbls) ........................................... 1,157 1,238 1,254 1,040
Gas (Mcf) ............................................ 2,427 2,757 2,569 1,896
---------- ---------- ---------- ----------
Total (BOE) .................................. 1,562 1,698 1,682 1,356
Average Oil Price (Per Bbl) ............................ $ 11.50 $ 17.09 $ 13.50 $ 17.79
Average Gas Price (Per Mcf) ............................ $ 1.79 $ 2.09 $ 1.94 $ 2.05
Costs (Per BOE):
Lease operating expense .............................. $ 4.86 $ 5.41 $ 5.03 $ 6.05
Production taxes ..................................... $ .98 $ 1.25 $ 1.02 $ 1.27
---------- ---------- ---------- ----------
Total production costs ....................... $ 5.84 $ 6.66 $ 6.05 $ 7.32
Depletion ............................................ $ 1.86 $ 3.68 $ 2.68 $ 4.07
Oil and Gas Revenues. Revenues from oil and gas operations totaled $1.9
million and $6.0 million for the three and nine months ended September 30, 1998,
compared to $2.5 million and $6.1 million for the same periods in 1997,
representing a decrease of 24% and 2%, respectively. The decrease is primarily
attributable to increases in production due to the Company's successful
acquisition and exploitation activities in 1997, offset by significantly
decreased average prices being received for both oil and gas production. The
average oil prices received for the nine months ended September 30, 1998,
decreased 24% (from $17.79 to $13.50 for the nine months ended September 30,
1997 and 1998, respectively), while the average gas price received decreased 5%
(from $2.05 to $1.94 for the nine months ended September 30, 1997 and 1998,
respectively). The average oil prices received for the three months ended
September 30, 1998, decreased 33% (from $17.09 to $11.50 for the three months
ended September 30, 1997 and 1998, respectively), while the average gas price
received decreased 14% (from $2.09 to $1.79 for the three months ended September
30, 1997 and 1998, respectively).
Average daily oil production increased 21% from 1040 Bbls. for the
first nine months of 1997 to 1254 Bbls. for the same period of 1998, and average
daily gas production increased 35% from 1896 Mcf to 2569 Mcf for the same
period. Average daily production decreased 7% from 1238 Bbls. to 1157 Bbls. for
the three months ended September 30, 1997 and 1998, respectively, and average
gas production decreased 12% from 2757 Mcf to 2427 Mcf for the same period.
Hedging Activities. The oil and gas prices that the Company reports are
based on the actual prices received for the commodities adjusted for the results
of any of the Company's hedging activities. The Company periodically enters into
commodity derivative contracts (i.e., swaps and collars) in order to (i) reduce
the effect of the volatility of price changes on the commodities the Company
produces and sells, (ii) support the Company's annual capital budgeting and
expenditure plans, and (iii) lock in prices to protect the economics related to
certain capital projects. Set forth below is the contract amount and material
terms of all crude oil hedging instruments held by the Company at September 30,
1998 (monthly volumes are expressed in Bbls and all prices are expressed in the
calendar monthly average of daily NYMEX closing prices for Light Sweet Crude
Oil):
20
21
TRADE TYPE MONTHLY PUT CALL
DATE TRANSACTION VOLUME FLOOR PRICE CEILING PRICE TERM
- -------- ----------- ------- ----------- ------------- ---------------------
12-15-97 Collar 10,000 $18.00 Bbl $ 19.805 Bbl 4-1-98 to 12-31-98
12-15-97 Collar 10,000 $18.50 Bbl $ 19.280 Bbl 4-1-98 to 3-31-99
Set forth below is the contract amount and material terms of all NYMEX
natural gas hedging instruments held by the Company at September 30, 1998
(monthly volumes are expressed in MMBtus and prices are expressed in the monthly
NYMEX (Henry Hub) closing price for natural gas):
TRADE TYPE MONTHLY PUT CALL
DATE TRANSACTION VOLUME FLOOR PRICE CEILING PRICE TERM
- -------- ----------- ------- ----------- ------------- ---------------------
4-5-98 Collar 80,000 $2.20 MMBtu $ 2.49 MMBtu 4-1-98 to 9-30-98
Set forth below is the contract amount and material terms of each
natural gas basis swap held by the Company at September 30, 1998 (monthly
volumes are expressed in MMBtus):
TRADE TYPE MONTHLY
DATE TRANSACTION VOLUME SWAP PRICE TERM
- ----- ----------- ------- ----------------------------- ------------------
4-5-98 Basis swap 40,000 Houston Ship Channel (NYMEX 4-1-98 to 9-30-98
(Henry Hub) minus $0.0275
MMBtu)
4-5-98 Basis swap 40,000 Permian Basis (El Paso) 4-1-98 to 9-30-98
(NYMEX (Henry Hub) minus
$0.20 MMBtu)
Production Costs. Total production costs (inclusive of all lease
operating expenses and production taxes) per BOE decreased 17% to $5.03 during
the nine months ended September 30, 1998, as compared to production costs per
BOE of $6.05 during the same period of 1997. During the three months ended
September 30, 1998, production costs per BOE decreased 10% to $4.86 from $5.41
during the same period of 1997. These reductions are primarily due to the
Company's continued and concentrated efforts to evaluate and reduce all
operating costs, the addition of higher margin properties acquired by the
Company in the E.G. Acquisition, and the sale of certain high operating cost
properties during 1997.
Exploration Costs. Exploration costs (which include abandonments, dry
hole costs, and geological and geophysical costs) decreased to $25,458 during
the first nine months of 1998 from $61,826 during the same period in 1997
because the Company did not incur any dry hole costs or expired acreage costs in
the first nine months of 1998.
General and Administrative Expense. General and administrative expense
was $563,976 and $1,184,641 for the three and nine months ended September 30,
1998, respectively, as compared to $257,766 and $733,406 for the same periods
ended September 30, 1997, representing an increase of 119% and 57%,
respectively. Such increases were primarily due to the costs associated with the
hiring of additional employees in 1997 and 1998 as the Company's business has
grown.
Amortization of Unit Option Awards. The amortization of unit option
awards was $21,326 and $214,303 for the three and nine months ended September
30, 1998, respectively, as compared to $25,462 and $290,056 for the same periods
ended September 30, 1997. The Company estimates the compensation associated with
the option awards based on estimated fair value less exercise price. Estimated
compensation expense is recorded over the vesting period and will be adjusted
prospectively as the estimated fair value of the options changes. However, as a
result of the closing of the Merger and the Conversion the subject options and
the option plan pursuant to which they were granted were terminated.
21
22
Interest Expense. During the three months ended September 30, 1998,
interest expense increased $62,270 to $356,162 from $293,892 for the same period
of 1997. Interest expense for the nine months ended September 30, 1998,
increased to $1,070,123 as compared to $688,061 for the same period of 1997.
This increase is primarily due to additional borrowings made in connection with
each of the acquisitions made by the Company in 1997 (approximately $7.4
million) and to fund that portion of the Company's capital budget for drilling
and exploitation projects that was not funded from cash flow (approximately $1.9
million).
Depletion, Depreciation and Amortization Expense. Depletion expense per
BOE was $2.68 for the nine months ended September 30, 1998, as compared to $4.07
during the same periods of 1997. The decrease in depletion expense per BOE is
primarily related to substantially increased reserves at year end 1997.
Income Taxes. Since the Company's legal structure at September 30, 1998
was that of a limited partnership, it records no federal income taxes as these
taxes are the responsibility of the individual partners.
CAPITAL COMMITMENTS, CAPITAL RESOURCES AND LIQUIDITY
Capital Commitments. The Company's primary needs for cash are for
acquisitions, development and exploration of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations. The Company's cash expenditures during the first three quarters of
1998 for additions to oil and gas properties totaled $2,354,662. This amount
includes $1,121,622 for the acquisition of properties and $1,233,040 for
development and exploratory drilling.
The Company's 1998 capital expenditure drilling budget has been set at
$5.8 million. Pursuant to this budget $4.9 million has been allocated to
exploitation and development activities and $900,000 to exploration activities.
The Company does not budget for oil and gas property acquisitions as they are
made on a case by case basis as opportunities arise. The 1998 budget reflects
the Company's plans to drill approximately 17 oil and gas wells in 1998. The
Company currently expects to fund its 1998 capital expenditure budget primarily
with internally generated cash flow, borrowings under its bank credit facility
and proceeds from the sale of non-strategic assets.
Capital Resources. The Company's primary capital resources are net cash
provided by operating activities, borrowings under its bank credit facility and
proceeds from the sale of non-strategic assets.
Financing Activities. The Company had $18.9 million outstanding under
the Credit Facility at September 30, 1998, with a borrowing base thereunder of
$22.3 million, leaving unused availability of $3.9 million. The weighted average
interest rate for the nine months ended September 30, 1998 on the Company's
indebtedness was 7.67% as compared to 8.20% for the nine months ended September
30, 1997 (taking into account the effect of an interest rate swap). On August
15, 1997, the Company entered into the Credit Facility, which has a current
borrowing base of $22.3 million and an additional $1.0 million letter of credit
facility. The Company has two options with respect to interest rate elections on
borrowings under the Credit Facility. The Company may either elect an interest
rate equal to the bank's prime rate plus 35 basis points or LIBOR plus 175 basis
points (if amounts outstanding are greater than 50% of the then current
borrowing base) or 150 basis points (if amounts outstanding are 50% or less of
the then current borrowing base). The LIBOR-based option provides for one-,
two-, three- or six-month periods.
22
23
Liquidity. At September 30, 1998, the Company had cash of $83,091 on
hand compared to $527,129 at December 31, 1997. The Company's ratio of current
assets to current liabilities was 1.06 at September 30, 1998 and 1.29 at
December 31, 1997.
Year 2000 Compliance. The Company does not expect that the cost of
converting its computer system to Year 2000 compliance will be material to its
financial condition. The Company believes it will be able to achieve Year 2000
compliance by the end of 1998 for an amount less than $10,000, and it does not
currently anticipate any disruption in its operations as the result of any
failure by the Company to be in compliance. The Company is in the process of
surveying its business partners, including purchasers and suppliers, as well as
original equipment manufacturers and financial institutions to determine the
status of their Year 2000 compliance efforts. The Company will develop
contingency plans as it becomes apparent that certain of the Company's or third
party's critical or necessary systems are not Year 2000 compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the inability to ensure readiness of third parties, the
Year 2000 compliance issue could have a material adverse impact on the Company's
results of operations and financial condition. Year 2000 expenditures are being
funded through operating cash flow.
23
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISTA ENERGY RESOURCES, INC.
Date: November 16, 1998 By: /s/ C. RANDALL HILL
------------------------------------
C. Randall Hill,
Chairman, Chief Executive Officer,
and Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer)
24
25
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial Data Schedule