UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
----------- -----------
Commission File No. 1-12905
EEX CORPORATION
(Exact name of Registrant as specified in its charter)
Texas
(State or other jurisdiction of incorporation or organization)
75-2421863
(I.R.S. Employer Identification No.)
2500 CityWest Blvd., Suite 1400, Houston, Texas 77042
(Address of principal executive office) (Zip Code)
(713) 243-3100
(Registrant's telephone number, including Area Code)
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
twelve months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock of Registrant outstanding as
of August 4, 1998: 127,134,427
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
[CAPTION]
EEX CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------- ---------------
1998 1997 1998 1997
------- ------- ------- -------
(In thousands except per share amounts)
[S] [C] [C] [C] [C]
Revenues
Natural gas $ 32,319$ 46,313 $ 77,857 $103,651
Oil and condensate 21,743 24,292 37,852 49,364
Natural gas liquids 724 1,092 1,045 2,791
Cogeneration operations 3,500 2,872 5,964 5,475
Other 275 688 356 783
--------- ------- -------- ------
Total 58,561 75,257 123,074 162,064
--------- ------- -------- ------
Costs and Expenses
Production and operating 12,467 12,425 23,554 25,050
Exploration 13,932 20,023 26,255 40,021
Depreciation and amortization 24,032 38,164 55,644 73,749
Loss (gain)on sales of property,
plant & equipment (1,761) 4,266
Cogeneration operations 2,785 2,767 4,800 5,158
General, administrative and other 6,092 9,266 12,817 16,654
Taxes, other than income 3,498 4,342 7,391 8,954
--------- ------- ------- --------
Total 61,045 86,987 134,727 169,586
--------- ------- -------- --------
Operating (Loss) (2,484)(11,730) (11,653) (7,522)
Other (Expense) - Net (55) (50) (14) (71)
Interest Income 271 34 362 86
Interest and Other Financing Costs (4,799) (8,954) (10,024) (16,698)
--------- ------- -------- --------
(Loss) Before Income Taxes (7,067)(20,700) (21,329) (24,205)
Income Taxes (Benefit) 571 (7,171) 1,572 (8,475)
Minority Interest (2,768) (6,532)
--------- ------- -------- --------
Net (Loss) $(10,406)$(13,529)$(29,433)$(15,730)
========= ======== ======== =======
Basic and Diluted Net (Loss)
Per Share $ (.08) $ (.11) $(.23) $ (.13)
========= ======== ======== =======
Weighted Average Shares
Outstanding 126,641 126,641 126,641 126,641
======== ======== ======== ========
See accompanying Notes.
[CAPTION]
EEX CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Six Months Ended
June 30
---------------------------
1998 1997
-------- --------
(In thousands)
[S] [C] [C]
OPERATING ACTIVITIES
Net (loss) $(29,433) $(15,730)
Impairment of undeveloped leasehold 27,244
Dry hole cost 10,316 1,534
Depreciation and amortization 55,644 73,761
Deferred income tax (benefit) (10,354)
Loss on sales of property, plant and equipment 4,266
Other 302 (1,279)
Changes in current operating assets
and liabilities
Accounts receivable (1,058) 30,588
Other current assets (2,975) 11,218
Accounts payable (51,035) (24,440)
Other current liabilities (3,507) 457
--------- ---------
Net cash flows from(used in)
operating activities (17,480) 92,999
--------- ---------
INVESTING ACTIVITIES
Additions to property,
plant and equipment (96,134) (74,628)
Proceeds from disposition of
property, plant and equipment 236,481 2,212
Changes in property, plant
and equipment accruals 8,542 (10,868)
--------- ---------
Net cash flows from (used in)
investing activities 148,889 (83,284)
--------- ---------
FINANCING ACTIVITIES
Borrowings under bank revolving
credit agreement 138,000 40,000
Repayment of borrowings under bank
revolving credit agreement (155,000) (65,000)
Borrowings under short term
financing agreement 101,500 81,400
Repayments under short term
financing agreement (106,500) (76,400)
Redemption of minority interest in preferred
securities of subsidiary (100,000)
Change in temporary advances with
affiliated companies 15,764
Change in advances under leasing arrangements (697)
Payments of capital lease obligations (7,667) (2,551)
Issuance of common stock 2
--------- ---------
Net cash flows used in financing activities (129,667) (7,482)
--------- ---------
Net Increase in Cash and Cash Equivalents 1,742 2,233
Cash and Cash Equivalents at Beginning of Period 3,790 1,358
--------- ---------
Cash and Cash Equivalents at End of Period $ 5,532 $ 3,591
========= =========
See accompanying Notes.
[CAPTION]
EEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(June 30, 1998 Unaudited)
June 30 December 31
1998 1997
---------- -----------
(In thousands)
[S] [C] [C]
ASSETS
Current Assets
Cash and cash equivalents $ 5,532 $ 3,790
Accounts receivable - trade 58,983 57,925
Other 14,520 11,545
---------- ---------
Total current assets 79,035 73,260
---------- ---------
Property, Plant and Equipment (at cost)
Oil and gas properties
(successful efforts method) 1,226,490 1,882,097
Other 19,958 19,581
---------- ----------
Total 1,246,448 1,901,678
Less accumulated depreciation
and amortization 748,034 1,192,691
---------- ----------
Net property, plant and equipment 498,414 708,987
---------- ----------
Deferred Income Tax Benefit 20,238 20,238
---------- ----------
Other Assets 15,251 5,304
---------- ----------
Total $ 612,938 $ 807,789
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 66,123 $ 108,616
Short term borrowings 5,000
Current portion of capital
lease obligations 10,753 8,418
Other 6,524 10,031
---------- ----------
Total current liabilities 83,400 132,065
---------- ----------
Bank Revolving Credit Agreement 8,000 25,000
---------- ----------
Capital Lease Obligations 223,315 233,317
---------- ----------
Other Liabilities 52,372 42,744
---------- ----------
Minority Interest in Preferred
Securities of Subsidiary 100,000
---------- ----------
Common Shareholders' Equity
Common stock (400,000 shares authorized;
127,134 and 127,059 shares outstanding) 1,271 1,271
Paid in capital 571,363 570,493
Accumulated deficit (323,205) (293,772)
Unamortized restricted stock compensation (3,578) (2,877)
Treasury stock (452)
---------- ----------
Common shareholders' equity 245,851 274,663
---------- ----------
Total $ 612,938 $ 807,789
========== ==========
See accompanying Notes.
EEX CORPORATION
Notes to Condensed Consolidated Financial Statements
1. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair
presentation of the financial position, results of operations
and cash flows for the interim periods included herein have
been made. Certain items in prior periods have been
reclassified to be consistent with the current presentation.
2. Basic net income (loss) per share is based on the weighted
average number of common shares outstanding during the period.
Diluted net income (loss) per common share is based on the
weighted average number of common shares and all dilutive
potential common shares outstanding during the period.
3. In the second quarter of 1998, EEX redeemed at par value,
all of the outstanding preferred securities of a subsidiary.
4. EEX has been named a defendant in two lawsuits filed on
August 3, 1998, in Federal Court for the Northern and Southern
Districts of Texas. According to information in notices of
class action published by plaintiff's counsel, the suits are on
behalf of certain EEX shareholders and are based upon alleged
misrepresentations made prior to August 4, 1997, concerning the
value of the Company's assets and reserves. The notices name
Enserch Corporation, Texas Utilities Company, Degolyer &
MacNaughton and certain present and former officers and
directors of EEX as defendants. EEX has not been served in
either of the lawsuits. No assessment of the claims can be
made at this time. EEX intends to vigorously defend these
suits.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Certain statements in this report, including statements of EEX
Corporation's ("EEX" or the "Company") and management's
expectations, intentions, plans and beliefs, are "forward-
looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, that are subject
to certain events, risks and uncertainties that may be outside
EEX's control. See "Forward Looking Statements- Uncertainties
and Risks" below.
RESULTS OF OPERATIONS
EEX reported a second quarter 1998 net loss of $10 million
($.08 per share), versus a net loss of $14 million ($.11 per
share) for the same period in 1997. Second quarter 1998
results included non-recurring amounts for gains on asset
sales of $1.8 million and costs associated with the
disposition of properties in East Texas included in
depreciation and amortization of $1.5 million. Excluding these
non-recurring items, second quarter 1998 net loss was $11
million ($.08 per share). For the first six months of 1998,
EEX had a net loss of $29 million ($.23 per share), compared
to a net loss of $16 million ($.13 per share) in 1997.
Excluding non-recurring amounts for losses on asset sales
($4.3 million) and costs associated with the disposition of
properties in East Texas included in depreciation and
amortization ($6.7 million), net loss for the six months ended
June 30, 1998 was $18 million ($.15 per share).
In the following comparisons of results of operations, 1998
results have been adjusted to exclude the non-recurring items
described above.
QUARTERS ENDED JUNE 30, 1998 AND 1997 - Revenues for the
second quarter of 1998 were $59 million, a 22% decrease from
1997 primarily due to decreased production resulting from
sales of non-core properties. Natural gas revenues decreased
$14 million (30%) resulting from lower second quarter 1998
production ($16 million), partially offset by higher second
quarter 1998 prices ($1.6 million). The average natural gas
sales price per thousand cubic feet ("Mcf") was $2.24 in 1998
compared with $2.13 in 1997. Natural gas production for 1998
was 14.4 billion cubic feet ("Bcf"), down from 21.7 Bcf in
1997. Oil revenues decreased $2.5 million (10%), reflecting a
31% decrease in the average sales price per barrel to $13.07,
which was mostly offset by a 30% increase in production
primarily due to production from the Mudi field in Indonesia.
Crude oil production was 1,663 thousand barrels ("Mbbls") in
1998 compared to 1,282 MBbls in 1997. EEX net production from
the Mudi field for the second quarter of 1998 was 722 Mbbls.
Costs and expenses from recurring operations were $61 million
in 1998, compared to $87 million in 1997, a 29% decrease.
Operating expenses (production and operating, general and
administrative and taxes other than income) were $22 million
in 1998, 15% lower than 1997, resulting from asset sales and
the favorable impact from restructuring measures implemented
over the last year. Production and operating costs for 1998
included $2.8 million for oil production from the Mudi field.
Exploration expenses for 1998 decreased 30% from 1997 due to
curtailment of the onshore exploration program, change in
focus to offshore and international areas and impact of
the offshore exploration joint venture with Enterprise Oil Plc.
Exploration expense for the second quarter of 1998 includes
$7.6 million for dry holes in both offshore and international
drilling activities. Depreciation and amortization was $23
million in 1998, $16 million lower than 1997 due to lower
production volumes and the impairment to producing oil and gas
properties recognized in 1997.
Total interest and other financing costs, including minority
interest, were $7.6 million in 1998, a $1.4 million reduction
from 1997, due to the reduction in debt with proceeds of asset
sales.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 - Revenues for 1998
were $123 million, a 24% decrease from 1997 due to lower
production resulting from sales of non-core properties.
Natural gas revenues decreased $26 million (25%), resulting
from both lower production ($22 million) and sales prices
($3.6 million) The average natural gas sales price per Mcf was
$2.35 in 1998 compared with $2.46 in 1997. Natural gas
production for 1998 was 33.1 Bcf, down from 42.2 Bcf in 1997.
Oil revenues decreased $12 million (23%), reflecting a 27%
decrease in the average sales price per barrel to $14.29,
which was partially offset by a 9% increase in production
primarily from the Mudi field. Crude oil production for 1998
was 2,649 Mbbls compared to 2,429 Mbbls in 1997. Production
from the Mudi field was 810 Mbbls.
Costs and expenses from recurring operations were $124 million
in 1998, compared to $170 million in 1997. Operating expenses
(as defined above) were $44 million in 1998, 14% lower than
1997 for the reasons listed above. Production and operating
costs for 1998 included $3.7 millon for oil production from
the Mudi field. Exploration expenses for 1998 decreased 34%
from 1997 due to reasons described above. Exploration expense
for 1998 includes $10 million for dry holes. Depreciation and
amortization was $49 million in 1998, $25 million lower than
1997 due to lower production volumes and the impairment to
producing oil and gas properties recognized in 1997.
Total interest and other financing costs, including minority
interest, were $17 million, unchanged from 1997. A lower
overall debt level in 1998 was offset by the higher dividends
and fees associated with the preferred securities of a
subsidiary. These preferred securities were redeemed in the
second quarter of 1998.
HEDGING ACTIVITIES
A portion of the risk associated with fluctuations in the
price of natural gas and oil is managed through the use of
hedging techniques such as oil and gas swaps, collars and
futures agreements. EEX fixed the price on second quarter
1998 production volumes of 5.7 Bcf of natural gas (40% of
production) at an average price of $2.27 per Mcf and 228 MBbls
of oil (14% of production) at an average price of $17.09 per
Bbl. For the first six months of 1998, EEX fixed the price on
19 Bcf of natural gas (57% of production) at an average price
of $2.47 per Mcf and 964 MBbls of oil (36% of production) at
an average price of $19.01 per Bbl. In total oil and gas
price hedging activities decreased second quarter 1998
revenues by $.1 million, but increased second quarter 1997
revenues by $2.1 million. For the first six months of 1998 and
1997, oil and gas hedging activities increased revenues by
$5.8 million and $1.6 million, respectively. At June 30, 1998,
EEX had outstanding swaps, collars and futures agreements that
were entered into as hedges extending through December 31,
1999, to exchange payments on 2.2 Bcf of natural gas and 782
MBbls of oil. At June 30, 1998, there were $1.2 million of
net unrealized and unrecognized hedging losses based on the
difference between the strike price and the New York
Mercantile Exchange futures price for the applicable trading
month. In addition, there were $.4 million of realized losses
on hedging activities which were deferred and will be applied
as a decrease in revenues in the third quarter of 1998 in the
applicable month of physical sale of production.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
For the first six months of 1998, EEX generated sufficient
cash flows from asset sales to fund its capital requirements,
reduce financings by $30 million, redeem all of the $100
million of preferred securities of a subsidiary and provide
funds required by operations. Operating activities for the
first six months of 1998 required cash flows of $17 million,
compared to $93 million of cash flows provided from operations
in 1997. The requirement in 1998 was a result of changes in
current operating assets and liabilities.
The Company intends to continue to make substantial capital
expenditures for the exploration and development of its
properties, primarily in the Gulf of Mexico. At present, EEX
plans to finance its business plans through internally
generated cash flows, the sale of additional non-core assets,
borrowings under existing credit facilities, alliances with
contractors to assume early capital expenditure requirements
and/or offerings in public or private equity or debt markets.
Borrowings under EEX's credit facilities may also be used to
supplement temporary cash flow needs. EEX does not anticipate
paying cash dividends in the foreseeable future.
Capital Structure
In the second quarter of 1998, EEX redeemed, at par value, all
the outstanding preferred securities of a subsidiary. The
dividend rate on these preferred securities was based on LIBOR
plus a spread of 4% for the quarter ended March 31, 1998, 5%
for the quarter ended June 30, 1998 and was to increase by 1%
quarterly through December 31, 1998. At June 30, 1998, debt
represented 50% of total capitalization, as defined in loan
agreements, the same as the level at December 31, 1997.
YEAR 2000 ISSUE
EEX is continuing its efforts towards addressing the Year 2000
issue as it relates to any potential impact on the Company's
operations. Evaluations of the Company's internal systems,
primarily focused on the financial systems, have been
initiated and will be complete by the end of 1998. To date,
preliminary studies have yielded potential problem areas with
some
applications. Most of these applications which have potential
Year 2000 deficiencies are third party applications provided
by outside vendors, and in each case the deficiencies are
being addressed by the software vendor. Any in-house
applications developed by EEX will be modified before the end
of 1998 and reviewed by an independent entity with expertise
in this area. In all cases the cost of Year 2000 compliance
is considered immaterial.
During 1998 the Company will be conducting an independent
review of operational (field) systems which are the
responsibility of third party companies doing business with
EEX. This Year 2000 review will include any operational
system on which any EEX-sanctioned work is performed, and will
include both hardware and software subsystems. Any third
party companies doing business with EEX found not to be
adequately addressing the Year 2000 issue will be identified
in the review, along with the potential impact of non-
compliance by the vendor. As such, the Company at this time,
cannot adequately assess the extent to which further actions
will be required, and cannot at this time make any statements
as to whether or not this issue will have a material effect
upon future operations.
RECENT EVENTS
Sale of East Texas Properties
On April 24, 1998, EEX completed the previously announced sale
of East Texas producing oil and gas properties to Cross Timbers
Oil Company for $235 million. These properties represented
approximately 220 billion cubic feet of gas equivalent. As a
part of the sale, EEX retained a volumetric production payment
to satisfy an obligation existing under agreements with Encogen
One Partners, Ltd. The effective date of the sale was January
1, 1998.
Revenues, costs and expenses and sales volumes from January 1,
1998 through the closing date attributable to the East Texas
properties were:
Revenues Millions Sales Volume
Natural gas $17.3 8.2 Bcf
Oil, condensate and liquids 1.5 103 MBbls
Costs and Expenses
Production 1.6
Depreciation and amortization 15.2
Taxes, other than income 1.6
Second quarter 1998 amounts included above were: natural gas
revenues of $4.1 million (2.0 Bcf); oil and liquids revenue of
$.3 million (22 MBbls); and production, depreciation and
amortization and taxes, other than income of $.5 million, $3.6
million and $.4 million, respectively.
Exploration Activities
EEX has completed drilling, logging and evaluation of the
discovery well on the Llano prospect located on Garden Banks
Block 386 in the Gulf of Mexico. Analysis of the logs and
other data obtained indicates the presence of several
hydrocarbon-bearing sands in the Lower Pliocene and Miocene
aged sections. EEX plans to begin appraisal drilling on this
prospect in the second half of 1998, and has initiated
development planning studies.
EEX has two other deepwater prospects drilling and expects to
have an additional prospect drilling in the third quarter. The
Sheba prospect, located on Green Canyon Block 341, and the
Elvis prospect, located on Mississippi Canyon Block 580, are
currently drilling. The Gamera prospect, located in Atwater
Valley on Blocks 118, 119, 162 and 163, is expected begin
drilling during the third quarter.
In EEX's international operations, an exploratory well at the
Karang Anyar Prospect (located South of the Mudi Field) on the
Tuban Block in Indonesia encountered non-commercial
accumulations of natural gas and was plugged and abandoned.
EEX had a 50% interest in this non-operated well. EEX and
block operator, Santa Fe Energy Resources Java, have identified
another exploration prospect in the Tuban Block and are in the
process of finalizing offset owner support to allow the
drilling of this prospect in 1999. This prospect is located to
the southwest of the Mudi Field and if successful, could
utilize some portion of the Mudi Field facilities to achieve
early production.
Trade for Shallow Water Properties
On August 5, 1998, EEX announced it has agreed to trade
substantially all of its Permian Basin properties in West Texas
and Eastern New Mexico for the shallow water properties located
off the coast of Texas and Louisiana of Energen Resources
Corporation, the oil and gas subsidiary of Energen Corporation.
In addition to the shelf properties, EEX will receive $9.0
million in cash.
In addition to cash, EEX will receive interests in 24 producing
blocks and 30 exploratory blocks. Current average daily
production from the 24 producing blocks is approximately 21
million cubic feet equivalent and proved reserves approximate
38 billion cubic feet equivalent (Bcfe). Energen will be
receiving properties with an average daily production of
approximately three thousand barrels equivalent and proved
reserves of approximately 58 Bcfe. The transaction is expected
to close by September 30, 1998 and has an effective date of
January 1, 1998.
Legal Proceedings
EEX has been named a defendant in two lawsuits filed on August
3, 1998, in Federal Court for the Northern and Southern
Districts of Texas. According to information in notices of
class action published by plaintiff's counsel, the suits are
on behalf of certain EEX shareholders and are based upon
alleged misrepresentations made prior to August 4, 1997,
concerning the value of the Company's assets and reserves.
The notices name Enserch Corporation, Texas Utilities Company,
Degolyer & MacNaughton and certain present and former officers
and directors of EEX as defendants. EEX has not been served
in either of the lawsuits. No assessment of the claims can be
made at this time. EEX intends to vigorously defend these
suits.
Forward Looking Statements -Uncertainties and Risks
Certain statements in this report, including statements of
EEX's and management's expectations, intentions, plans and
beliefs, are "forward-looking statements," within the meaning
of Section 21E of the Securities Exchange Act of 1934, as
amended, that are subject to certain events, risks and
uncertainties that may be outside EEX's control. These forward-
looking statements include statements of management's plans and
objectives for EEX's future operations and statements of future
economic performance; information regarding drilling schedules,
expected or planned production, future production levels of
international and domestic fields, EEX's capital budget and
future capital requirements, EEX's meeting its future capital
needs, the level of future expenditures for environmental costs
and the outcome of regulatory and litigation matters; and the
assumptions described in this report underlying such forward-
looking statements. Actual results and developments could
differ materially from those expressed in or implied by such
statements due to a number of factors, including, without
limitation, those described in the context of such forward-
looking statements and the risk factors set forth below and
described from time to time in EEX's other documents and
reports filed with the Securities and Exchange Commission.
Exploration Risk. Exploration for oil and gas in the
deepwater Gulf of Mexico and unexplored frontier areas have
inherent and historically high risk. As described in this
report, EEX is focusing on exploration opportunities in
offshore and international areas which will increase associated
risk. Future reserve increases and production will be
dependent on EEX's success in these exploration efforts and no
assurances can be given of such success.
Estimating Reserves and Future Net Cash Flows. Uncertainties
are inherent in estimating quantities and values of reserves
and in projecting rates of production, net revenues and the
timing of development expenditures. The reserve data represent
estimates only of the recovery of hydrocarbons from underground
accumulations and are often different from the quantities
ultimately recovered. Any downward adjustment in reserve
estimates could adversely affect EEX.
Operational Risks and Hazards. EEX's operations are subject
to the risks and uncertainties associated with finding,
acquiring and developing oil and gas properties, and producing,
transporting and selling oil and gas. Operations may be
materially curtailed, delayed or canceled as a result of
numerous factors, such as accidents, weather conditions,
compliance with governmental requirements and shortages or
delays in the delivery of equipment. Drilling may involve
unprofitable efforts, not only with respect to dry wells, but
also with respect to wells that are productive but do not
produce sufficient net revenues to return a profit after
drilling, operating and other costs. Various field operating
hazards such as fires, explosions, blow-outs, equipment
failures, abnormally pressured formations and environmental
accidents may adversely affect production from successful
wells. EEX's ability to sell its oil and gas production is
dependent on the availability and capacity of gathering
systems, pipelines and other forms of transportation.
Offshore Risks. EEX's offshore Gulf of Mexico oil and gas
reserves include properties located in water depths of 20 to in
excess of 7,000 feet where operations are by their nature more
difficult than drilling operations conducted on land in
established producing areas. Deepwater drilling and operations
require the application of more advanced technologies that
involve a higher risk of mechanical failure and can result in
significantly higher drilling and operating costs.
Furthermore, offshore operations require a significant amount
of time between the time of discovery and the time the gas or
oil is actually marketed, increasing the market risk involved
with such operations.
Volatility of Oil and Gas Markets. EEX's operations are
highly dependent upon the prices of, and demand for, oil and
gas. These prices have been, and are likely to continue to be,
volatile. Prices are subject to fluctuations in response to a
variety of factors that are beyond the control of EEX, such as
worldwide economic and political conditions as they affect
actions of OPEC and Middle East and other producing countries,
and the price and availability of alternative fuels. EEX's
hedging activities with respect to some of its projected oil
and gas production, which are designed to protect against price
declines, may prevent EEX from realizing the benefits of price
increases above the levels of the hedges and protect it from
incurring the detriments of price decreases below the level of
hedges. Because the majority of EEX's reserve base is natural
gas on an energy equivalent basis, it is more sensitive to
fluctuations in the price of natural gas.
Capital Funding. EEX's access to public or private equity or
debt markets may be limited by general conditions in or volatility
of the markets. No assurances can be given that the Company will
be able to secure funds in these markets, or that such funds will
be obtained on terms favorable to the Company.
Government Regulation. EEX's business is subject to certain
federal, state and local laws and regulations relating to the
drilling for the production of oil and gas, as well as
environmental and safety matters. See "Business -Government
Regulation "in EEX's Annual Report on Form 10-K.
International Operations. EEX's interests in countries
outside the United States are subject to the various risks
inherent in foreign operations. These risks may include,
among other things, currency restrictions and exchange rate
fluctuations, loss of revenue, property and equipment as a
result of expropriation, nationalization, war, insurrection
and other political risks, risks of increases in taxes and
governmental royalties, renegotiations of contracts with
governmental entities, changes in laws and policies governing
operations of foreign-based companies and other uncertainties
arising out of foreign government sovereignty over the
Company's international operations. The Company's
international operations may also be adversely affected by
laws and policies of the United States affecting foreign
trade, taxation and investment. In addition, in the event of
a dispute arising from foreign operations, the Company may be
subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the
jurisdiction of the courts of the United States.
[CAPTION]
EEX CORPORATION
SUMMARY OF SELECTED OPERATING DATA FOR OIL & GAS PRODUCING ACTIVITIES
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------- ----------------
1998 1997 1998 1997
------ ------ ------ ------
[S] [C] [C] [C] [C]
Sales Volumes
Natural gas (MMcf) 14,396 21,725 33,144 42,151
Oil and condensate (MBbls) 1,663 1,282 2,649 2,429
Natural gas liquids (MBbls) 58 90 102 186
Total volumes (MMcfe) (a) 24,722 29,957 49,650 57,841
Average Sales Price
Natural gas (per Mcf) $ 2.24 $ 2.13 $ 2.35 $ 2.46
Oil and condensate (per Bbl) 13.07 18.95 14.29 20.32
Natural gas liquids (per Bbl) 12.48 12.13 10.25 15.01
Total product revenue
(per Mcfe) (a) 2.22 2.39 2.35 2.69
Cost and Expenses (per Mcfe) (a) (b)
Production and operating (c) $ .50 $ .41 $ .47 $ .43
Exploration .56 .67 .53 .69
Depreciation and amortization .97 1.27 1.12 1.28
General, administration and other .25 .24 .26 .25
Taxes, other than income .14 .14 .15 .15
Net Wells
Drilled 5 13 14 29
Productive 3 13 11 24
(a) Oil and natural gas liquids have been converted to Mcf
equivalents (Mcfe) on the basis of one barrel equals 6.0 Mcfe.
(b) Excludes unusual and non-recurring expenses.
(c) Excludes related production, severance and ad valorem taxes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
EEX has been named a defendant in two lawsuits filed on
August 3, 1998, in Federal Court for the Northern and
Southern Districts of Texas. According to information
in notices of class action published by plaintiff's
counsel, the suits are on behalf of certain EEX
shareholders and are based upon alleged
misrepresentations made prior to August 4, 1997,
concerning the value of the Company's assets and
reserves. The notices name Enserch Corporation, Texas
Utilities Company, Degolyer & MacNaughton and certain
present and former officers and directors of EEX as
defendants. EEX has not been served in either of the
lawsuits. No assessment of the claims can be made at
this time. EEX intends to vigorously defend these
suits.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held on May 12,
1998, the shareholders elected a board of directors of
five persons and approved the appointment of Ernst &
Young LLP as Independent Auditors for fiscal year 1998.
Listed below is the result of the vote.
Election of Director
-----------------------------------------
Withheld Abstentions and
Name For From Vote Broker Nonvotes
---------- ---------- ----------
F. S. Addy(1) 96,275,420 756,439 0
B. A. Bridgewater, Jr.(2) 96,234,543 797,316 0
Michael P. Mallardi(2) 96,303,430 728,429 0
Thomas M Hamilton(3) 96,180,710 851,149 0
Frederick M. Lowther(3) 96,307,436 724,423 0
________________________
(1)Term expiring 1999
(2)Term expiring 2000
(3)Term expiring 2001
Appointment of Ernst & Young LLP as
Independent Auditor
--------------------------------------------
Abstentions and
For Against Broker Nonvotes
---------- ------- --------
96,665,974 243,956 1,660
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT (27) - Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated April 24, 1998.
Items 2 and 7 concerning sale of East Texas
properties.
Current Report on Form 8-K dated June 22, 1998.
(News release dated June 22, 1998: (1) Completion
of sidetrack drilling operations at Llano and (2)
Deepwater and International drilling activities.)
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.
EEX CORPORATION
(Registrant)
Dated August 4, 1998 By /s/R. S. Langdon
-------------------------------------
R. S. Langdon
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
The above officer of
registrant has signed
this report as its duly
authorized representative
and as its principal
financial officer