-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SA0uewOHXFBmSxOMNIzjydOvuv/c3WiDNqJqfwJB1QPbxzydQVTPdD3lrXL/0Bgg 1+MPJyQl+dtxVIveB5igyA== 0000950134-99-001390.txt : 19990302 0000950134-99-001390.hdr.sgml : 19990302 ACCESSION NUMBER: 0000950134-99-001390 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIGHAM EXPLORATION CO CENTRAL INDEX KEY: 0001034755 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752692967 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-22433 FILM NUMBER: 99554494 BUSINESS ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BUILDING TWO, SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 BUSINESS PHONE: 512-427-3300 MAIL ADDRESS: STREET 1: 6300 BRIDGE POINT PARKWAY STREET 2: BUILDING TWO, SUITE 500 CITY: AUSTIN STATE: TX ZIP: 78730 10-Q/A 1 AMENDMENT TO FORM 10-Q - QUARTER ENDED 6/30/1998 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A [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 Number 000-22433 BRIGHAM EXPLORATION COMPANY (Exact name of registrant as specified in its charter) DELAWARE 1311 75-2692967 (State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
6300 BRIDGE POINT PARKWAY BLDG. 2, SUITE 500 AUSTIN, TEXAS 78730 (512) 427-3300 (Name, address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) 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 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 . ---- ---- As of July 31, 1998, 12,253,574 shares of Common Stock, $.01 per share, were outstanding. ================================================================================ 2 Responding to an SEC comment, we have revised the estimate we use in our financial statements of the fair market value of the common stock underlying options granted March 4, 1997 pursuant to the 1997 Incentive Plan. We revised the value to $9.00 per share from the value of $8.00 per share that we previously used in our financial statements. Consequently, we are filing this amendment and three others today solely to reflect this change in estimate. See note 6 to the accompanying financial statements. 3 BRIGHAM EXPLORATION COMPANY INDEX
PAGE NUMBER ------- PART I. FINANCIAL INFORMATION: Item 1. Unaudited Condensed Consolidated Financial Statements a) Balance Sheets - December 31, 1997 and June 30, 1998 1 b) Statements of Operations - Three and six months ended June 30, 1997 and 1998 2 c) Statements of Cash Flows - Six months ended June 30, 1997 and 1998 3 d) Notes to Condensed Consolidated Financial Statements 4 - 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7 - 10 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 11 - 12
4 PART I. FINANCIAL INFORMATION: Item 1. Financial Statements BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, June 30, 1997 1998 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,701 $ 3,106 Accounts receivable 4,909 7,934 Prepaid expenses 280 217 --------- --------- Total current assets 6,890 11,257 --------- --------- Natural gas and oil properties, at cost, net 84,294 114,616 Other property and equipment, at cost, net 1,239 1,603 Drilling advances paid 78 603 Deferred loan fees -- 1,645 Other noncurrent assets 18 137 --------- --------- $ 92,519 $ 129,861 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,892 $ 7,837 Accrued drilling costs 2,406 5,206 Participant advances received 489 442 Other current liabilities 726 4,748 --------- --------- Total current liabilities 15,513 18,233 --------- --------- Notes payable 32,000 68,000 Deferred income tax liability 1,186 547 Other noncurrent liabilities 507 526 Stockholders' equity: Preferred stock, $.01 par value, 10 million shares authorized, none issued and outstanding -- -- Common stock, $.01 par value, 30 million shares authorized, 12,253,574 issued and outstanding 123 123 Additional paid-in capital 44,919 44,919 Unearned stock compensation (1,674) (1,173) Accumulated deficit (55) (1,314) --------- --------- Total stockholders' equity 43,313 42,555 --------- --------- $ 92,519 $ 129,861 ========= =========
See accompanying notes to the condensed consolidated financial statements. 1 5 BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Six Months Ended June 30, Ended June 30, -------------------- -------------------- 1997 1998 1997 1998 -------- -------- -------- -------- Revenues: Natural gas and oil sales $ 1,718 $ 3,987 $ 3,854 $ 7,130 Workstation revenue 160 133 324 247 -------- -------- -------- -------- 1,878 4,120 4,178 7,377 -------- -------- -------- -------- Costs and expenses: Lease operating 264 564 470 978 Production taxes 92 262 219 450 General and administrative 753 1,139 1,455 2,293 Depletion of natural gas and oil properties 710 1,520 1,397 2,790 Depreciation and amortization 64 92 172 175 Amortization of stock compensation 120 116 160 233 -------- -------- -------- -------- 2,003 3,693 3,873 6,919 -------- -------- -------- -------- Operating income (loss) (125) 427 305 458 -------- -------- -------- -------- Other income (expense): Interest income 63 40 81 77 Interest expense (156) (1,410) (372) (2,432) Interest expense - related party -- -- (174) -- -------- -------- -------- -------- (93) (1,370) (465) (2,355) -------- -------- -------- -------- Net loss before income taxes (218) (943) (160) (1,897) Income tax (expense) benefit 163 316 (4,797) 638 -------- -------- -------- -------- Net loss $ (55) $ (627) $ (4,957) $ (1,259) ======== ======== ======== ======== Net loss per share: Basic / Diluted $ (0.01) $ (0.05) $ (0.50) $ (0.10) Weighted average common shares outstanding: Basic / Diluted 10,840 12,254 9,890 12,254
See accompanying notes to the condensed consolidated financial statements. 2 6 BRIGHAM EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Six Months Ended Months Ended June 30, June 30, 1997 1998 ------------ ------------ Cash flows from operating activities: Net loss $ (4,957) $ (1,259) Adjustments to reconcile net loss to cash provided by operating activities: Depletion of natural gas and oil properties 1,397 2,790 Depreciation and amortization 172 175 Amortization of stock compensation 160 233 Amortization of deferred loan fees -- 266 Changes in deferred income tax liability 4,797 (639) Changes in working capital and other items (1,764) (3,258) ------------ ------------ Net cash used by operating activities (195) (1,692) ------------ ------------ Cash flows from investing activities: Additions to natural gas and oil properties (11,796) (30,044) Additions to other property and equipment (183) (315) Increase in drilling advances paid (126) (525) ------------ ------------ Net cash used by investing activities (12,105) (30,884) ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common stock 23,929 -- Increase in notes payable 5,250 70,800 Repayment of notes payable (13,250) (34,800) Principal payments on capital lease obligations (87) (108) Deferred loan fees -- (1,911) ------------ ------------ Net cash provided by financing activities 15,842 33,981 ------------ ------------ Net increase in cash and cash equivalents 3,542 1,405 Cash and cash equivalents, beginning of period 1,447 1,701 ------------ ------------ Cash and cash equivalents, end of period $ 4,989 $ 3,106 ============ ============
See accompanying notes to the condensed consolidated financial statements. 3 7 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND NATURE OF OPERATIONS Brigham Exploration Company (the "Company") is a Delaware corporation formed on February 25, 1997 for the purpose of exchanging its common stock for the common stock of Brigham, Inc. and the partnership interests of Brigham Oil & Gas, L.P. (the "Partnership"). Brigham, Inc. is a Texas corporation whose only asset is its ownership interest in the Partnership. The Partnership was formed in May 1992 to explore and develop onshore domestic natural gas and oil properties using 3-D seismic imaging and other advanced technologies. Since its inception, the Partnership has focused its exploration and development of natural gas and oil properties in West Texas, the Anadarko Basin and the onshore Gulf Coast. Pursuant to an exchange agreement dated February 26, 1997 (the "Exchange Agreement") and upon the initial filing on February 27, 1997 of a registration statement with the Securities and Exchange Commission for the public offering of common stock (the "Offering"), the shareholders of Brigham, Inc. transferred all of the outstanding stock of Brigham, Inc. to the Company in exchange for 3,859,821 shares of common stock of the Company. Pursuant to the Exchange Agreement, the Partnership's other general partner and the limited partners also transferred all of their partnership interests to the Company in exchange for 3,314,286 shares of common stock of the Company. Furthermore, the holders of the Partnership's subordinated convertible notes transferred these notes to the Company in exchange for 1,754,464 shares of common stock. These transactions are referred to as the "Exchange." In completing the Exchange, the Company issued 8,928,571 shares of common stock to the stockholders of Brigham, Inc., the partners of the Partnership and the holder of the Partnership's subordinated notes payable. As a result of the Exchange, the Company now owns all the partnership interests in the Partnership. In May 1997, the Company sold 3,325,000 shares of its common stock in the Offering at a price of $8.00 per share. With a portion of the proceeds from the Offering, the Company repaid the then outstanding borrowings ($13.3 million) under the Company's revolving credit facility. 2. BASIS OF PRESENTATION The unaudited condensed consolidated balance sheets at December 31, 1997 and June 30, 1998 reflect the consolidated accounts of the Company. The unaudited condensed consolidated statements of operations and of cash flows for the six months ended June 30, 1997 and 1998 include the results of operations and of cash flows of the Partnership for the period from January 1, 1997 to February 27, 1997 and of the Company for the period from February 25, 1997, the date of its inception, to June 30, 1997 and for the six months ended June 30, 1998. As the Exchange was the conversion of a partnership to a corporation, the Exchange was accounted for by the Company as a reorganization. The accompanying condensed consolidated financial statements are unaudited, and in the opinion of management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's 1997 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 4 8 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. NOTES PAYABLE In January 1998, the Company entered into a reserve based revolving credit facility (the "Credit Facility"). The Credit Facility provides for borrowings up to $75 million, all of which was immediately available for borrowing to fund capital expenditures, until January 31, 1999, at which time the borrowing availability will be redetermined by the lender based on the Company's proved reserve value at that time. The Company may elect, at its option, to have the borrowing availability redetermined based on the Company's proved reserve value at any time prior to January 31, 1999. Amounts outstanding under the Credit Facility bear interest at either the lender's Base Rate or LIBOR plus 2.25%, at the Company's option. The Company's obligations under the Credit Facility are secured by substantially all of the natural gas and oil properties of the Company. A portion of the funds borrowed under the Credit Facility were used to repay in full the debt outstanding under the Company's previous revolving credit facility. In connection with the origination of the Credit Facility, certain bank fees and other expenses totaling approximately $1.9 million were recorded as deferred costs and will be amortized over the life of the loan which matures January 26, 2001. 4. INCOME TAXES Prior to the consummation of the Exchange, the Partnership was not subject to federal income taxes. Income and losses were passed through to its partners on the basis of the allocation provisions established by the partnership agreement. Upon consummation of the Exchange, the Partnership's net income became subject to federal income taxes through its ownership by the Company. Also, in conjunction with the Exchange, the Company recorded a deferred income tax liability of $5 million to recognize the temporary differences between the financial statement and tax bases of the assets and liabilities of the Partnership at the Exchange date, February 27, 1997, given the provisions of enacted tax laws. Subsequent to this date, the Company elected to record a step-up in basis of its assets for tax purposes as a result of the Exchange. As a result of this election, the Company recorded a $3.8 million deferred income tax benefit in the fourth quarter of 1997, which resulted in a net $1.2 million non-cash deferred income tax charge for the year ended December 31, 1997. 5. EARNINGS PER SHARE Earnings per share have been calculated in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128. The implementation of this standard has resulted in the presentation of a basic EPS calculation in the consolidated financial statements as well as a diluted EPS calculation. Basic EPS is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares and common share equivalents outstanding, if dilutive, during each period. The number of common share equivalents outstanding is computed using the treasury stock method. Historical earnings per share for the six months ended June 30, 1997 is based on shares of common stock issued upon consummation of the Exchange (Note 1). At June 30, 1997 and 1998, options to purchase 644,097 and 935,987, respectively, shares of common stock were outstanding but were not included in the computation of diluted EPS due to the anti-dilutive effect they would have on EPS if converted. 6. EMPLOYEE STOCK OPTIONS The Company granted 644,097 stock options as of March 4, 1997. These options were granted under the Company's 1997 Incentive Plan. These options have an exercise price of $5.00 compared to an originally determined estimated fair market value of the Company's common stock at date of grant of $8.00. This grant resulted in non-cash compensation expense which is recognized over the appropriate vesting period. During 1999, the Company revised the fair market value of its common stock at the date these options were granted from $8.00 to $9.00. As a result, the Company has restated its financial statements to reflect the impact of this change in estimate. The impact of the restatement on the June 30, 1998 financial statements is presented below:
As Previously As Reported Restated -------- -------- For the three months ended June 30, 1998 Net loss $ (612) $ (627) Net loss per share: Basic/Diluted (0.05) (0.05) For the three months ended June 30, 1997 Net loss (31) (55) Net loss per share: Basic/Diluted (0.00) (0.01) For the six months ended June 30, 1998 Net loss (1,227) (1,259) Net loss per share: Basic/Diluted (0.10) (0.10) For the six months ended June 30, 1997 Net loss (4,926) (4,957) Net loss per share: Basic/Diluted (0.50) (0.50) As of June 30, 1998 Accumulated deficit (1,201) (1,314) Total stockholders' equity 42,334 42,555
5 9 BRIGHAM EXPLORATION COMPANY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. REPORTING COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." The new standard, which is effective for financial statements issued for periods ending after December 15, 1997, established standards for reporting, in addition to net income, comprehensive income and its components including, as applicable, foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. Upon adoption, the Company is also required to reclassify financial statements for earlier periods provided for comparative purposes. The Company adopted this standard in the first quarter of 1998. There is no difference between the Company's net income as reported and comprehensive income. 8. SEGMENT REPORTING In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which the Company adopted in the first quarter of 1998. The standard established requirements for reporting information about operating segments in interim financial reports issued to shareholders. It also established standards for related disclosures about products and services, geographic areas and major customers. Under SFAS No. 131, operating segments are to be determined consistent with management's organization and evaluation of financial information internally for making operating decisions and assessing performance. The disclosure provisions of this standard are not applicable for interim periods in the year of adoption. The adoption of this new standard is not expected to have a material impact on the Company's consolidated balance sheet or statement of operations. 9. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The new standard is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted. SFAS No. 133 requires that all derivatives be recognized on the balance sheet as either assets or liabilities and measured at fair value regardless of any hedge relationship that exists. The corresponding gains and losses should be reported based on the hedge relationship that exists. The adoption of this new standard is not expected to have a material impact on the Company's consolidated balance sheet or statement of operations. 6 10 BRIGHAM EXPLORATION COMPANY Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Comparison of three month periods ended June 30, 1997 and June 30, 1998 Natural gas and oil sales. Natural gas and oil sales increased 132% from $1.7 million in the second quarter of 1997 to $4 million in the second quarter of 1998. Of this net increase, $3.8 million was attributable to an increase in production, offset by $1.5 million attributable to a decrease in the average sales price for natural gas and oil. Production volumes for natural gas increased 462% from 215 MMcf in the second quarter of 1997 to 1,207 MMcf in the second quarter of 1998. The average price received for natural gas increased from $2.07 per Mcf in the second quarter of 1997 to $2.13 per Mcf in the second quarter of 1998. Production volumes for oil increased 83% from 64 MBbls in the second quarter of 1997 to 117 MBbls in the second quarter of 1998. The average price received for oil decreased 39% from $19.93 per Bbl in the second quarter of 1997 to $12.17 per Bbl in the second quarter of 1998. Natural gas and oil sales were increased by production from wells completed since the second quarter of 1997, partially offset by the natural decline of existing production, and from certain wells acquired from Ward Petroleum in Grady County, Oklahoma which were included in the Company's results of operations effective September 1, 1997. As a result of hedging activities, natural gas revenues increased $38,700 for the second quarter of 1998, compared to an increase in oil revenues of $34,192 for the second quarter of 1997. Lease operating expenses. Lease operating expense increased 114% from $264,000 for the second quarter of 1997 to $564,000 for the second quarter of 1998, while on a per unit of production basis, lease operating expenses for the same periods decreased 32% from $.44 per Mcfe to $.30 per Mcfe. The increase in lease operating expenses was primarily due to an increase in the number of producing wells in the second quarter of 1998 as compared with the same period in 1997. The decrease in the per unit rate was primarily due to an increase in natural gas production as a percentage of total equivalent production (36% and 63% for the second quarters of 1997 and 1998, respectively) since a typical natural gas well produces with lower average lease operating costs per unit of production than a typical oil well. Production taxes. Production taxes increased 185% from $92,000 ($.15 per Mcfe) for the second quarter of 1997 to $262,000 ($.14 per Mcfe) for the second quarter of 1998 as a direct result of increased production volumes. The effective average production tax rate increased from 5% of natural gas and oil sales revenues to 7% for the second quarters of 1997 and 1998, respectively, due to the increase in natural gas production as a percentage of total equivalent production as natural gas is typically burdened with higher production tax rates than oil production. General and administrative expenses. General and administrative expenses increased 51% from $753,000 for the second quarter of 1997 to $1.1 million for the second quarter of 1998. This increase was primarily attributable to the hiring of additional employees to support the Company's increased level of operational activities. Additionally, office rent, other office expenses and costs related to the administration of a public corporation increased for the second quarter of 1998 as compared to the same period for 1997. On a per unit of production basis, general and administrative expenses decreased 52% from $1.26 per Mcfe for the second quarter of 1997 to $.60 per Mcfe for the second quarter of 1998. Depletion of natural gas and oil properties. Depletion of natural gas and oil properties increased 114% from $710,000 ($1.19 per Mcfe) in the second quarter of 1997 to $1.5 million ($.80 per Mcfe) in the second quarter of 1998. Of this net increase, $1.6 million was due to the increase in production volumes which was offset by $748,000 due to a 33% decrease in the depletion rate. The depletion rate per unit of production decreased due to an increase in natural gas and oil reserves at lower average capital costs. 7 11 Interest expense. Net interest expense increased from $93,000 in the second quarter of 1997 to $1.4 million in the second quarter of 1998. This increase was due to a higher average outstanding debt balance in the second quarter of 1998 partially offset by a decreased effective interest rate. The weighted average outstanding debt balance increased from $6.2 million in the second quarter of 1997 to $59.6 million in the second quarter of 1998. The effective annual interest rate decreased 2% from 9.6% in the second quarter of 1997 to 9.4% in the second quarter of 1998. In May 1997, the Company received $23.9 million for the sale of shares of its common stock in a public offering. A portion of these proceeds were used to repay the $13.3 million in debt outstanding at that date. The increase in the average outstanding debt during the second quarter of 1998 compared to the same period for 1997 was due to increased capital expenditures related to the Company's exploration activities during the second quarter of 1998 and the repayment of debt which occurred in the May 1997. At June 30, 1998, the Company had $68 million in borrowings outstanding under the Credit Facility which had an annual interest rate of 8%. Interest expense increased an additional $159,000 in the second quarter of 1998 compared to the same period for 1997 due to the amortization of deferred loan fees totaling approximately $1.9 million incurred in connection with the establishment of the Credit Facility in January 1998. The amortization of these deferred loan fees will continue to be recognized in the amount of approximately $159,000 per quarter over the term of the Credit Facility which matures in January 2001. Comparison of six month periods ended June 30, 1997 and June 30, 1998 Natural gas and oil sales. Natural gas and oil sales increased 85% from $3.9 million in the first six months of 1997 to $7.1 million in the first six months of 1998. Of this increase, $6.6 million was attributable to an increase in production, offset by $3.4 million was attributable to a decrease in the average sales price for natural gas and oil. Production volumes for natural gas increased 326% from 457 MMcf in the first six months of 1997 to 1,947 MMcf in the first six months of 1998. The average price received for natural gas decreased 20% from $2.62 per Mcf in the first six months of 1997 to $2.10 per Mcf in the first six months of 1998. Production volumes for oil increased 82% from 127 MBbls in the first six months of 1997 to 232 MBbls in the first six months of 1998. The average price received for oil decreased 37% from $20.87 per Bbl in the first six months of 1997 to $13.15 per Bbl in the first six months of 1998. Natural gas and oil sales were increased by production from wells completed since the first six months of 1997 partially offset by the natural decline of existing production, and from certain wells acquired from Ward Petroleum in Grady County, Oklahoma which were included in the Company's results of operations effective September 1, 1997. As a result of hedging activities, natural gas revenues increased $38,700 for the first six months of 1998, compared to a decrease in oil revenues of $6,191 for the first six months of 1997. Lease operating expenses. Lease operating expense increased 108% from $470,000 in the first six months of 1997 to $978,000 in the first six months of 1998, while on a per unit of production basis, lease operating expenses for the same periods decreased 26% from $.39 per Mcfe to $.29 per Mcfe. The increase in lease operating expenses was primarily due to an increase in the number of producing wells for the first six months of 1998 as compared with the same period in 1997. The decrease in the per unit rate was primarily due to an increase in natural gas production as a percentage of total equivalent production (38% and 58% for the first six months of 1997 and 1998, respectively) since a typical natural gas well produces with lower average lease operating costs per unit of production than a typical oil well. Production taxes. Production taxes increased 106% from $219,000 ($.18 per Mcfe) for the first six months of 1997 to $450,000 ($.13 per Mcfe) for the first six months of 1998 as a direct result of increased production volumes. The effective average production tax rate remained unchanged at 6% of natural gas and oil sales revenues for the first six months of both 1997 and 1998. General and administrative expenses. General and administrative expenses increased 58% from $1.5 million in the first six months of 1997 to $2.3 million n the first six months of 1998. This increase was primarily attributable to the hiring of additional employees to support the Company's increased level of operational activities. Additionally, office rent, other office expenses and costs related to the administration of a public corporation increased for the first six months of 1998 as compared to the same period for 1997. On a per unit of production basis, general and 8 12 administrative expenses decreased 42% from $1.19 per Mcfe for the first six months of 1997 to $.69 per Mcfe for the first six months of 1998. Depletion of natural gas and oil properties. Depletion of natural gas and oil properties increased 100% from $1.4 million ($1.14 per Mcfe) in the first six months of 1997 to $2.8 ($.84 per Mcfe) in the first six months of 1998. Of this net increase, $2.4 million was due to the increase in production volumes which was offset by $1 million due to a 26% decrease in the depletion rate. The depletion rate per unit of production decreased due to an increase in natural gas and oil reserves at lower average capital costs. Interest expense. Net interest expense increased from $465,000 in the first six months of 1997 to $2.4 million in the first six months of 1998. This increase was primarily due to a higher average outstanding balance offset partially by a lower effective interest rate. The weighted average outstanding debt balance increased from $13.2 million in the first six months of 1997 to $51.3 million in the first six months of 1998. The effective interest rate increased 16% from 8.1% in the first six months of 1997 to 9.4% in the first six months of 1998. In May 1997, the Company received $23.9 million for the sale of shares of its common stock in a public offering. A portion of these proceeds were used to repay the $13.3 million in debt outstanding at that date. The increase in the average outstanding debt during the first six months of 1998 compared to the same period for 1997 was due to increased capital expenditures related to the Company's exploration activities during the first six months of 1998 and the repayment of debt which occurred in the first six months of 1997. The increase in the average outstanding debt balance was primarily a result of increased capital expenditures related to the Company's exploration activities. Interest expense increased an additional $266,000 for the first six months of 1998 compared to the same period for 1997 due to the amortization of deferred loan fees totaling approximately $1.9 million incurred in connection with the establishment of the Credit Facility in January 1998. The amortization of these deferred loan fees will continue to be recognized in the amount of approximately $159,000 per quarter over the term of the Credit Facility which matures in January 2001. Liquidity and Capital Resources The Company's primary sources of capital have been borrowings (revolving credit facility and private placement debt), working capital, the sale of interests in projects and sales of equity. During May 1997, as described in Note 1 to the Condensed Consolidated Financial Statements included herein, the Company completed an initial public offering of common stock of the Company that generated proceeds of approximately $24 million, net of offering costs, that were used to repay all outstanding debt ($13.3 million) under the Company's then existing revolving credit facility and to fund capital expenditures. In the first six months of 1998, cash flow used by operations was $1.7 million primarily as a result of the net effects of increased natural gas and oil revenues, net of production taxes, lease operating expenses and general and administrative expenses, and an increase in working capital components. Cash flow used in investing activities was $30.9 million in the first six months of 1998 primarily as a result of capital expenditures related to exploration activities. Cash flow provided by financing activities was $34 million, net of deferred loan fees of $1.9 million, in the first six months of 1998 primarily as a result of an increase in borrowings under the revolving credit facility to fund the difference between cash flow from operations and cash flow from investing activities. The Company anticipates filing on August 14, 1998 or shortly thereafter a registration statement with the SEC regarding the proposed issuance of $50 million of debt and equity securities to two affiliated institutional investors. The proposed financing transaction consists of the issuance of $40 million of senior subordinated notes (the "Notes") with warrants to purchase common stock and the sale of $10 million of common stock. Principal terms of the Notes include a five year term with no principal payments until maturity in 2003 and quarterly interest payments payable either in cash at an annual rate of 12% or, in limited circumstances, in the issuance of additional Notes at an annual rate of 13% for the first three years. The proceeds to be received by the Company from this proposed offering will be used to fund a portion the Company's planned capital expenditures and, in the interim, for the repayment of outstanding indebtedness. The current borrowing base of $75 million under the Company's credit agreement (the "Credit Facility") will be reduced to $65 million upon issuance of the Notes. On January 31, 1999, the Credit Facility borrowing base will be redetermined by the lender based on the Company's then proved reserve value. Principal outstanding under the Credit Facility is due at maturity on January 26, 2001 with interest due monthly. Borrowings under the facility currently bear interest at an annual rate of approximately 8.6%. The Company's obligations under the Credit Facility are secured by substantially all of the natural gas and oil properties of the Company. The terms of the Notes will permit the Company to borrow under the Credit Facility up to the lesser of $75 million or the Credit Facility borrowing base. The Company believes that through the foreseeable future it will be able to comply with the financial covenants contained in the Credit Facility. These covenants include a minimum interest coverage ratio that the Company's lender amended in May 1998 following a determination that the Company did not meet for the first quarter of 1998 and would not meet for the second quarter of 1998 the covenant as originally formulated. In connection with the proposed issuance of Notes, the Company's lender will further amend the Credit Facility covenants to accommodate the Notes. In the event that the Company in the future cannot meet a covenant, no assurance can be given that its lender will amend the covenant or waive compliance. 9 13 Forward Looking Information The Company may make forward looking statements, oral or written, including statements in this report, press releases and other filings with the SEC, relating to the Company's drilling plans, its potential drilling locations, capital expenditures, use of offering proceeds, the ability of expected sources of liquidity to support working capital and capital expenditure requirements and the Company's financial position, business strategy and other plans and objectives for future operations. Such statements involve risks and uncertainties, including those relating to the Company's dependence on exploratory drilling activities, the volatility of natural gas and oil prices, the risks associated with growth (including the risk of reduced availability of seismic gathering and drilling services in the face of growing demand), the substantial capital requirements of the Company's exploration and development projects, operating hazards and uninsured risks and other factors detailed in the Company's registration statement and other filings with the SEC. All subsequent oral and written forward looking statements attributable to the Company are expressly qualified in their entirety by these factors. The Company assumes no obligation to update these statements. 10 14 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto, duly authorized, in the City of Austin, State of Texas, on the 1st day of March, 1999. BRIGHAM EXPLORATION COMPANY By: /s/ BEN M. BRIGHAM -------------------------------------- Ben M. Brigham Chief Executive Officer, President and Chairman of the Board By: /s/ CRAIG M. FLEMING -------------------------------------- Craig M. Fleming Chief Financial Officer 11 15
SEQUENTIALLY EXHIBIT NUMBERED NO. INDEX TO EXHIBITS PAGE ------- ----------------- ------------ 27 Financial Data Schedule Tabbed by Exhibit No.
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 3,106 0 7,934 0 0 11,257 116,219 0 129,861 18,233 0 0 0 123 42,432 129,861 7,130 7,377 0 1,428 5,491 0 2,355 (1,897) (638) (1,259) 0 0 0 (1,259) (.10) (.10)
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