UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Commission File No. 0-25386
FX ENERGY, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 87-0504461
- --------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
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(Address of principal executive offices and zip code)
(801) 486-5555
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(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 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. The number of shares
of $0.001 par value common stock outstanding as of May 10, 2002, was 17,628,235.
FX ENERGY, INC. AND SUBSIDIARIES
Form 10-Q for the three months ended March 31, 2002
TABLE OF CONTENTS
Item Page
- ---------- -------
Part I. Financial Information
1 Financial Statements
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations....................... 5
Consolidated Statements of Cash Flows....................... 6
Notes to the Consolidated Financial Statements.............. 7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
3 Quantitative and Qualitative Disclosures about Market Risk...... 14
Part II. Other Information
6 Exhibits and Reports on Form 8-K................................ 15
-- Signatures...................................................... 15
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FX ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2002 2001
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 1,962,200 $ 3,157,427
Accounts receivable:
Accrued oil sales................................................. 627,603 478,857
Joint interest and other receivables.............................. 47,891 49,075
Inventory........................................................... 87,225 87,260
Other current assets................................................ 45,901 95,004
--------------- ---------------
Total current assets.............................................. 2,770,820 3,867,623
--------------- ---------------
Property and equipment, at cost:
Oil and gas properties (successful efforts method):
Proved............................................................ 4,801,999 4,789,252
Unproved.......................................................... 655,523 655,523
Other property and equipment...................................... 3,614,015 3,587,433
--------------- ---------------
Gross property and equipment.................................... 9,071,537 9,032,208
Less accumulated depreciation, depletion and amortization......... (4,255,278) (4,090,293)
--------------- ---------------
Net property and equipment.................................... 4,816,259 4,941,915
--------------- ---------------
Other assets:
Certificates of deposit............................................. 356,500 356,500
Other............................................................... 2,789 2,789
--------------- ---------------
Total other assets................................................ 359,289 359,289
--------------- ---------------
Total assets.......................................................... $ 7,946,368 $ 9,168,827
=============== ===============
-- Continued --
The accompanying notes are an integral part of the consolidated financial statements.
3
FX ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
-- Continued --
March 31, December 31,
2002 2001
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 248,180 $ 492,306
Current portion of note payable..................................... 5,000,000 -
Accrued liabilities................................................. 2,708,409 2,816,561
--------------- ---------------
Total current liabilities......................................... 7,956,589 3,308,867
--------------- ---------------
Long-term debt:
Note payable (Note 2)............................................... - 4,906,916
--------------- ---------------
Total liabilities................................................. 7,956,589 8,215,783
--------------- ---------------
Stockholders' equity (deficit):
Common stock, $.001 par value, 100,000,000 shares
authorized, 17,913,575 issued as of
March 31, 2002 and December 31, 2001.............................. 17,914 17,914
Treasury stock, at cost, 285,340 shares............................. (909,815) (909,815)
Deferred compensation from stock option modifications............... -- (54,688)
Additional paid-in capital.......................................... 49,910,078 49,910,078
Accumulated deficit................................................. (49,028,398) (48,010,445)
--------------- ---------------
Total stockholders' equity (deficit).............................. (10,221) 953,044
--------------- ---------------
Total liabilities and stockholders' equity (deficit).................. $ 7,946,368 $ 9,168,827
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
4
FX ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended March 31,
------------------------------------
2002 2001
---------------- ---------------
Revenues:
Oil and gas sales.................................................. $ 445,809 $ 597,067
Oilfield services................................................... 4,353 43,538
---------------- ---------------
Total revenues.................................................... 450,162 640,605
---------------- ---------------
Operating costs and expenses:
Lease operating costs............................................... 352,542 305,693
Geological and geophysical costs.................................... 126,836 1,201,480
Exploratory dry hole costs.......................................... - 1,602
Oilfield services costs............................................. 112,442 115,830
Depreciation, depletion and amortization............................ 164,985 138,633
General and administrative costs (G&A).............................. 638,049 681,896
Amortization of deferred compensation (G&A)......................... 54,688 391,494
---------------- ---------------
Total operating costs and expenses................................ 1,449,542 2,836,628
---------------- ---------------
Operating loss........................................................ (999,380) (2,196,023)
---------------- ---------------
Other income (expense):
Interest and other income........................................... 104,953 52,384
Interest expense.................................................... (123,526) (13,260)
---------------- ---------------
Total other income................................................ (18,573) 39,124
---------------- ---------------
Net loss.............................................................. $ (1,017,953) $ (2,156,899)
================ ===============
Basic and diluted net loss per common share........................... $ (0.06) $ (0.12)
================ ===============
Basic and diluted weighted average number
of shares outstanding............................................ 17,628,235 17,680,235
================ ===============
The accompanying notes are an integral part of the consolidated financial statements.
5
FX ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended March 31,
------------------------------------
2002 2001
----------------- ------------------
Cash flows from operating activities:
Net loss........................................................... $ (1,017,953) $ (2,156,899)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, depletion and amortization....................... 164,985 138,633
Amortization of deferred compensation (G&A).................... 54,688 391,494
Exploratory dry hole costs..................................... -- 1,602
-------------- --------------
Net cash used before changes in working capital items.......... (798,280) (1,625,170)
-------------- --------------
Increase (decrease) from changes in working capital items:
Accounts receivable.............................................. (147,562) 63,208
Inventory........................................................ 35 1,106
Other current assets............................................. 49,103 23,598
Accounts payable and accrued liabilities......................... (259,194) 917,622
-------------- --------------
Net cash used in operating activities.......................... (1,155,898) (619,636)
-------------- --------------
Cash flows from investing activities:
Additions to oil and gas properties................................ (12,747) (101,950)
Additions to other property and equipment.......................... (26,582) (110,837)
Proceeds from maturing marketable debt securities.................. -- 1,281,993
-------------- --------------
Net cash provided by (used in) investing activities.............. (39,329) 1,069,206
-------------- --------------
Cash flows from financing activities:
Proceeds from notes payable........................................ -- 2,500,000
-------------- --------------
Net cash provided by financing activities........................ -- 2,500,000
-------------- --------------
Increase in cash and cash equivalents................................ (1,195,227) 2,949,570
Cash and cash equivalents at beginning of period..................... 3,157,427 1,079,038
-------------- --------------
Cash and cash equivalents at end of period........................... $ 1,962,200 $ 4,028,608
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
6
FX ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The interim financial data are unaudited; however, in the opinion of
the management of FX Energy, Inc. and subsidiaries ("FX Energy" or the
"Company"), the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. The interim financial statements should be read in conjunction
with FX Energy's annual report on Form 10-K for the year ended December 31,
2001, including the financial statements and notes thereto.
The consolidated financial statements include the accounts of FX Energy
and its wholly-owned subsidiaries and FX Energy's undivided interests in Poland.
All significant intercompany accounts and transactions have been eliminated in
consolidation. At March 31, 2002, FX Energy owned 100% of the voting stock of
all of its subsidiaries.
Note 2: Financing with Rolls Royce Power Ventures
On March 9, 2001, the Company signed a $5.0 million, 9.5% loan
agreement and gas purchase option agreement with Rolls Royce Power Ventures
("RRPV"). As collateral for the loan, the Company granted RRPV a lien on most of
the Company's Polish property interests. The loan was interest free for the
first year. In consideration for the loan, the Company granted RRPV an option to
purchase gas from the Company's properties in Poland, subject to availability,
exercisable on or before March 9, 2002. RRPV did not exercise the gas option and
it has expired. In accordance with the loan agreement, the entire principal
amount plus accrued interest is due on March 9, 2003, unless on or before such
date, RRPV elects to convert the loan to restricted common stock at $5.00 per
share, the market value of the Company's common stock at the time the terms with
RRPV were finalized. Accordingly, the entire balance of the RRPV note is shown
as a current liability in the March 31, 2002, balance sheet.
For financial reporting purposes, the Company imputed interest expense
on the loan for the first year at 9.5%, or $433,790, amortized ratably over the
one-year interest free period, and recorded an option premium of $433,790 for
the grant of the gas purchase option to RRPV, amortized ratably to other income
over the one-year option period. Beginning on March 10, 2002, the Company began
recording interest expense at 9.5% per annum.
Note 3: Net Loss Per Share
Basic earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing the net loss by the sum of the weighted average number
of common shares and the effect of dilutive unexercised stock options and
warrants and convertible preferred stock. Options and warrants to purchase
5,885,585 and 5,662,417 shares of common stock at prices ranging from $1.50 to
$10.25 per share with a weighted average of $4.87 per share and at $5.16 per
share were outstanding at March 31, 2002 and 2001, respectively. No options or
warrants were included in the computation of diluted net loss per share for the
periods ended March 31, 2002 and 2001, because the effect would have been
antidilutive.
7
Note 4: Reclassifications
Certain balances in the March 31, 2001, financial statements have been
reclassified to conform to the current year presentation. These changes had no
effect on the previously reported net income (loss), total assets, liabilities
or stockholders' equity.
Note 5: Income Taxes
FX Energy recognized no income tax benefit from the losses generated in
the first quarter of 2002 and the first quarter of 2001.
Note 6: Business Segment Information
FX Energy operates within two segments of the oil and gas industry: the
exploration and production segment ("E&P") and the oilfield services segment.
Identifiable net property and equipment are reported by business segment for
management reporting and reportable business segment disclosure purposes.
Current assets, other assets, current liabilities and long-term debt are not
allocated to business segments for management reporting or business segment
disclosure purposes. Reportable business segment information as of March 31,
2002, and for the three months ended March 31, 2002, follows:
Non-
Oilfield Segmented
E&P Services Items(1) Total
--------------- --------------- --------------- ---------------
Business segment information:
Revenues................................ $ 445,809 $ 4,353 $ -- $ 450,162
Net loss................................ (117,281) (183,806) (716,866) (1,017,953)
Identifiable net property and
equipment............................. 3,785,652 934,489 96,118 4,816,259
- --------------------
(1) Net loss reconciling items include $5,558 of corporate DD&A, $638,047 of
general and administrative expenses, $54,688 of amortization of deferred
compensation (G&A) and $18,573 of other income and expense. Identifiable
net property and equipment includes $96,118 of corporate office equipment,
hardware and software.
Reportable business segment information as of March 31, 2001, and for
the three months ended March 31, 2001, follows:
Non-
Oilfield Segmented
E&P Services Items (1) Total
--------------- --------------- --------------- ---------------
Business segment information:
Revenues................................ $ 584,681 $ 43,538 $ -- $ 628,219
Net loss................................ (970,102) (142,324) (1,044,473) (2,156,899)
Identifiable net property and
equipment............................. 6,619,046 1,107,277 119,477 7,845,800
- --------------------
(1) Net loss reconciling items include $10,208 of corporate DD&A, $681,896 of
general and administrative expenses, $391,493 of amortization of deferred
compensation (G&A) and $39,124 of other income and expense. Identifiable
net property and equipment includes $119,477 of corporate office equipment,
hardware and software.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations by Business Segment
We operate within two segments of the oil and gas industry: the
exploration and production segment, or E&P, and the oilfield services segment.
Depreciation, depletion and amortization costs, or DD&A, and general and
administrative costs, or G&A, directly associated with their respective segments
are detailed within the following discussion. Amortization of deferred
compensation (G&A), interest income, other income, and other costs that are not
allocated to individual operating segments for management or segment reporting
purposes, are discussed in their entirety following the segment discussion. A
comparison of the results of operations by business segment and the information
regarding nonsegmented items for three months ended March 31, 2002 and 2001,
follows.
Quarter Ended March 31, 2002, Compared to the Same Period of 2001
Exploration and Production Segment
FX Energy's oil and gas revenues are comprised of oil production in the
United States and gas production in Poland. A summary of the percentage change
in oil and gas revenues, average prices and production for first quarter of 2002
and 2001 from year to year is set forth on the following table:
Quarter Ended March 31,
------------------------------------------------------------
Oil Gas
----------------------------- -----------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Revenues.............................................. $ 354,000 $ 535,000 $ 92,000 $ 62,000
Percent change versus prior year's quarter.......... -34% 48%
Average price per (Bbl or Mcf(1)) .................... $ 16.96 $ 22.85 $ 1.58 $ 1.58
Percent change versus prior year's quarter.......... -26% --%
Production volumes (Bbls or Mcf)...................... 22,662 23,395 58,250 39,570
Percent change versus prior year's quarter.......... -3% 47%
- --------------------
(1) The contract price prior to adjusting for Btu content was $2.02 per Mcf.
Oil Revenues. Oil revenues were $354,000 during the first quarter of
2002, a decrease of $181,000 compared to $535,000 during the same period of
2001. During the first quarter of 2002, our oil revenues were negatively
affected by 26% lower average oil prices and 3% lower production rates
attributable to the natural production declines of our producing properties.
Gas Revenues. Gas revenues were $92,000 during the first quarter of
2002, compared to $62,000 in gas revenues during the same period of 2001. Gas
volumes in the first quarter of 2002 were 47% higher than the same period of
2001, as we recorded a full quarter of production during 2002 from the Kleka 11,
our first producing well in Poland, which began producing in late February 2001.
We are currently selling gas produced by the Kleka 11 to Polish Oil and Gas
Company, or POGC, under a five-year contract based on U.S. dollar pricing that
may be terminated by us with a 90-day written notice.
9
Lease Operating Costs. Lease operating costs were $353,000 during the
first quarter of 2002, an increase of $47,000 compared to the same period of
2001. Lease operating costs incurred during the first quarter of 2002 include a
full quarter of costs associated with the Kleka 11 well that began producing in
Poland during February 2001. Lease operating costs at the Kleka 11 well average
approximately $0.16 per Mcf. During the first quarter of 2002 in the United
States, lifting costs were $14.95 per barrel, an increase of $2.39 compared to
$12.56 during the same period of 2001. The increase was due primarily to
one-time workover expenses and higher third-party maintenance activities. We
expect that operating costs will trend lower during the balance of the year.
DD&A Expense - Exploration and Production. DD&A expense for producing
properties was $84,000 for the first quarter of 2002, an increase of 42%
compared to $59,000 during the same period of 2001. Essentially all of the
increase in DD&A is associated with the Kleka 11 well that began producing in
Poland during February 2001. In 2002, we recorded a full quarter of DD&A expense
in Poland.
Exploration Costs. Our exploration costs consist of geological and
geophysical costs and the costs of exploratory dry holes. Exploration costs were
$127,000 during the first quarter of 2002, compared to $1,203,000 during the
same period of 2001, a decrease of 90%. During the first quarter of 2001, we
incurred $1,031,000 of 3-D seismic costs on the Fences project area and $170,000
on other geological and geophysical activities in Poland. During the first
quarter of 2002, we incurred only seismic reprocessing and other related costs.
Limited available capital in 2002 has caused us to sharply curtail our
exploration activities in Poland. Subject to our ability to raise additional
equity or obtain further financing from industry partners, we expect that our
exploration activities in Poland will continue to be minimal in the near term.
Oilfield Services Segment
Oilfield Services Revenues. Oilfield services revenues were $4,000
during the first quarter of 2002, a decrease of $40,000 compared to $44,000 for
the first quarter of 2001. During most of the first quarters of 2002 and 2001,
our drilling rig was idle due to winter weather. Oilfield servicing revenues
were generated primarily by our well-servicing equipment during these periods.
Oilfield services revenues will continue to fluctuate from period to period
based on market demand, weather, the number of wells drilled, downtime for
equipment repairs, the degree of emphasis on utilizing our oilfield servicing
equipment on our company-owned properties and other factors.
Oilfield Services Costs. Oilfield services costs were $112,000 during
the first quarter of 2002, down slightly from the $116,000 incurred in the same
period of 2001. The bulk of the costs in both periods related to downtime
maintenance costs associated primarily with our drilling rig. Oilfield services
costs will also continue to fluctuate year to year based on revenues generated,
market demand, weather, the number of wells drilled, downtime for equipment
repairs, the degree of emphasis on utilizing our oilfield servicing equipment on
our company-owned properties and other factors.
DD&A Expense - Oilfield Services. DD&A expense for oilfield services
was $75,000 during the first quarter of 2002, an increase of $5,000 compared to
$70,000 during the same period of 2001. The year-to-year increase was primarily
due to 2001 capital additions being depreciated during the first quarter of
2002.
Nonsegmented Information
DD&A - Corporate. DD&A for corporate activities was $6,000 during the
first quarter of 2002, a decrease of $4,000 compared to the same period of 2000.
DD&A was lower primarily due to capital items being depreciated in the first
quarter of 2001 subsequently becoming fully depreciated prior to the first
quarter of 2002.
10
G&A Costs. G&A costs were $638,000 during the first quarter of 2002, a
decrease of 7% compared to the same period of 2001. During the first quarter of
2001, we incurred legal, travel and other costs related to the RRPV loan
agreement that were not repeated during the first quarter of 2002.
Amortization of Deferred Compensation (G&A). Amortization of deferred
compensation was $55,000 during the first quarter of 2002, compared to $391,000
during the same period of 2001. On April 5, 2001, we extended the term of
options to purchase 125,000 shares of the Company's common stock that were to
expire during 2001 for a period of two years, with a one-year vesting period. On
August 4, 2000, we extended the term of options and warrants to purchase 678,000
shares of our common stock that were to expire during 2000 for a period of two
years, with a one-year vesting period. In accordance with FIN 44 "Accounting for
Certain Transactions involving Stock Compensation," we incurred total noncash
deferred compensation costs of $1.8 million associated with the option
extensions, to be amortized over their respective one-year vesting periods from
the date of extension. All of the deferred compensation associated with these
transactions has now been amortized.
Interest and Other Income. Interest and other income was $105,000
during the first quarter of 2002, an increase of $53,000 compared to $52,000
during the same period of 2001. During the first quarter of 2002, we recorded
other income of $93,000 pertaining to amortizing an option premium resulting
from granting RRPV an option to purchase gas from our properties in Poland. The
other income related to the option premium during 2001 was $13,000. This
increase in other income was offset by a decrease of $27,000 in interest income,
due primarily to lower cash balances throughout the 2002 first quarter.
Interest Expense. Interest expense was $124,000 during the first
quarter of 2002, compared to $13,000 during the same period of 2001. All of the
interest expense in both periods is related to our arrangement with RRPV.
Interest expense from March 9, 2001, through March 8, 2002, consisted of
interest imputed at 9.5%. Beginning on March 9, 2002, we began accruing interest
payable on the RRPV note at 9.5% per annum.
Liquidity and Capital Resources
General. As of March 31, 2002, we had approximately $2.0 million of
cash and cash equivalents and negative working capital of approximately $5.2
million, coupled with a history of operating losses. These matters raise
substantial doubt about our ability to continue as a going concern. In addition,
we have a remaining commitment of $6.6 million, in addition to $2.7 million,
which was accrued at March 31, 2002, that must be spent by us in order to earn a
49.0% interest in our Fences project area.
To date, we have financed our operations principally through the sale
of equity securities, issuance of debt securities and agreements with industry
partners that funded our share of costs in certain exploratory activities in
order to earn an interest in our properties. As of the date of this report, we
do not have a commitment from a third party to provide any additional funding
for our ongoing operations. The continuation of our exploratory efforts in
Poland is dependent on raising additional capital. The availability of such
capital will affect the timing, pace, scope and amount of our future capital
expenditures. There can be no assurance that we will be able to obtain
additional financing, reduce expenses or successfully complete other steps to
continue as a going concern. If we are unable to obtain sufficient funds to
satisfy our future cash requirements, we may be forced to curtail operations,
dispose of assets or seek extended payment terms from our vendors. Such events
would materially and adversely affect our financial position and results of
operations.
11
Working Capital (current assets less current liabilities). Our working
capital was $(5,186,000) as of March 31, 2002, a decrease of $5,745,000 from
December 31, 2001, principally as a result of the reclassification in March 2002
of the entire balance of the RRPV note, along with interest accrued through
March 31, 2002, as a current liability on the balance sheet. In accordance with
the terms of our RRPV loan agreement, the entire principal amount of $5,000,000,
plus accrued interest, is due on March 9, 2003, unless on or before that date,
RRPV elects to convert the loan to restricted common stock at $5.00 per share,
the market value of the Company's common stock at the time the terms with RRPV
were finalized.
Our current liabilities also include $2.7 million of costs related to
our Fences project in Poland. In 2000, we agreed to spend $16.0 million of
exploration costs on this project area that is owned and operated by POGC, in
order to earn a 49.0% interest. After we complete our $16.0 million commitment,
POGC will begin bearing its 51.0% share of further costs. Currently, we are
finalizing the formation of Plotki Gaz SA (Plotki), a joint stock company
through which we and POGC will conduct our ongoing exploration activities on the
Fences project area under terms of the $16.0 million commitment.
As of March 31, 2002, we had paid cash expenditures of approximately
$6.7 million pertaining to our $16.0 million, and we had accrued $2.7 million of
costs incurred during 2001 on the Fences project area. Upon the formation of
Plotki, we anticipate assigning to an outside partner a portion of the project
interests we convey to Plotki, in consideration of the partner's assumption of
all, or a portion of, our remaining obligation to earn an interest in the Fences
project area, including payment of the $2.7 million accrued costs at December
31, 2001.
Operating Activities. Net cash used in operating activities before
working capital changes was $798,000 during the first quarter of 2002, a
decrease of $827,000 compared to $1,625,000 in net cash used during the same
period of 2001. This reduction in cash used is a direct reflection of our
curtailed exploration activities and lower geological and geophysical costs in
Poland. During the first quarter of 2002, $358,000 was used to fund changes in
working capital items, while during the first quarter of 2001, funds provided by
changes in working capital items were $1,005,000.
Investing Activities. We spent $39,000 in investing activities during
the first quarter of 2002, including $27,000 on upgrading our oilfield servicing
equipment and $12,000 on our proved properties in the United States. In 2001,
our investing activities provided net cash of $1,069,000 during the first
quarter. During that quarter, we incurred $16,000 of costs relating to our
Polish properties, spent $85,000 on upgrading our producing properties in the
United States, $109,000 on our oilfield servicing equipment, $3,000 on office
equipment, and received $1,282,000 from maturing marketable debt securities.
Financing Activities. We received no cash from financing activities
during the first quarter of 2002. Cash provided by financing activities was $2.5
million during the first quarter of 2001. During March 2001, we signed a $5.0
million loan agreement with RRPV. As of March 31, 2001, we had received $2.5
million under the arrangement with RRPV.
Risk Factors
We face a number of risks in our business, including, but not limited
to, the risk factors discussed in our annual report on Form 10-K for the year
ended December 31, 2001, and other Securities and Exchange Commission filings.
12
Other Items
On January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 141 "Business Combinations," SFAS No. 142 "Goodwill and
Other Intangible Assets," and SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." The adoption of these new standards did not have
a significant impact on our financial statements.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 is effective for us beginning January 1,
2003. The most significant impact of this standard to us will be a change in the
method of accruing for site restoration costs. Under SFAS No. 143, the fair
value of asset retirement obligations will be recorded as a liability when it is
incurred, which is typically at the time the asset is installed. Amounts
recorded for the related assets will be increased by the amount of these
obligations. Over time, the liabilities will be accreted for the change in their
present value and the initial capitalized costs will be depreciated over the
useful lives of the related assets. We are currently evaluating the impact of
adopting SFAS No. 143.
We have reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on our results
of operations or financial position. Based on that review, we believe that none
of these pronouncements will have a significant effect on current or future
earnings or operations.
Forward Looking Statements
This report contains statements about the future, sometimes referred to
as "forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. We intend that the forward-looking statements will be
covered by the safe harbor provisions for forward-looking statements contained
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Statements that describe our future strategic plans, goals
or objectives are also forward-looking statements.
Readers of this report are cautioned that any forward-looking
statements, including those regarding us or our management's current beliefs,
expectations, anticipations, estimations, projections, proposals, plans or
intentions, are not guarantees of future performance or results of events and
involve risks and uncertainties, such as the future results of drilling
individual wells and other exploration and development activities; future
variations in well performance as compared to initial test data; future events
that may result in the need for additional capital; the prices at which we may
be able to sell oil or gas; fluctuations in prevailing prices for oil and gas;
uncertainties of certain terms to be determined in the future relating to our
oil and gas interests, including exploitation fees, royalty rates and other
matters; future drilling and other exploration schedules and sequences for
various wells and other activities; uncertainties regarding future political,
economic, regulatory, fiscal, taxation and other policies in Poland; the cost of
additional capital that we may require and possible related restrictions on our
future operating or financing flexibility; our future ability to attract
strategic partners to share the costs of exploration, exploitation, development
and acquisition activities; and future plans and the financial and technical
resources of strategic partners.
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The forward-looking information is based on present circumstances and
on our predictions respecting events that have not occurred, that may not occur
or that may occur with different consequences from those now assumed or
anticipated. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including the
risk factors detailed in this report. The forward-looking statements included in
this report are made only as of the date of this report. We disclaim any
obligation to update any forward-looking statements whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Price Risk
Realized pricing for our oil production in the United States is
primarily driven by the prevailing worldwide price of oil, subject to gravity
and other adjustments for the actual oil sold. Historically, oil prices have
been volatile and unpredictable. Price volatility relating to our oil production
in the United States is expected to continue in the foreseeable future.
Our gas production in Poland is currently being sold to POGC under a
five-year contract based on U.S. dollar pricing that may be terminated by us
with a 90-day written notice. The limited volume and single source of our gas
production means we cannot assure uninterruptible production or production in
amounts that would be meaningful to industrial users, which may depress the
price we may be able to obtain. There is currently no competitive market for the
sale of gas in Poland. Accordingly, we expect that the prices we receive for the
gas we produce will be lower than would be the case in a competitive setting and
may be lower than prevailing western European prices, at least until a fully
competitive market develops in Poland.
We currently do not engage in any hedging activities or have any
derivative financial instruments to protect ourselves against market risks
associated with oil and gas price fluctuations, although we may elect to do so
if we achieve a significant amount of production in Poland.
Foreign Currency Risk
We have entered into various agreements in Poland, primarily in U.S.
dollars or the U.S. dollar equivalent of the Polish zloty. We conduct our
day-to-day business on this basis as well. The Polish zloty is subject to
exchange rate fluctuations that are beyond our control. We do not currently
engage in hedging transactions to protect ourselves against foreign currency
risks, nor do we intend to do so in the foreseeable future.
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
There are no exhibits included as part of this report.
(b) Reports on form 8-K
During the quarter ended March 31, 2002, FX Energy did not file any
reports on Form 8-K.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FX ENERGY, INC.
(Registrant)
Date: May 15, 2002 By /s/ David N. Pierce
--------------------------------
David N. Pierce, President,
Chief Executive Officer and
Principal Financial Officer
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