-----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, BG4lu6lW7kUal/DVVGp9XyzwMnTzaD6rITnkWU8hB7ORQXiDtBilKXDAiGWtbbYQ xM/SA59CQktKZ4xlln0fVQ== 0000899243-98-000922.txt : 19980514 0000899243-98-000922.hdr.sgml : 19980514 ACCESSION NUMBER: 0000899243-98-000922 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELLWETHER EXPLORATION CO CENTRAL INDEX KEY: 0000319459 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760437769 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09498 FILM NUMBER: 98617444 BUSINESS ADDRESS: STREET 1: 1331 LAMAR STREET 2: SUITE 1455 CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7136501025 MAIL ADDRESS: STREET 1: 1221 LAMAR STREET 2: STE 1600 CITY: HOUSTON STATE: TX ZIP: 77010-3039 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the ----- Securities Exchange Act of 1934 FOR THE QUARTER ENDED MARCH 31, 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 0-9498 BELLWETHER EXPLORATION COMPANY (Exact name of registrant as specified in its charter) Delaware 74-0437769 (State of incorporation) (IRS Employer Identification Number) 1331 Lamar, Suite 1455 Houston, Texas 77010-3039 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (713) 650-1025 NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------- --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $ 0.01 par value NASDAQ/NMS Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ - As of May 4, 1998, 14,136,820 shares of common stock of Bellwether Exploration Company were outstanding. 1 BELLWETHER EXPLORATION COMPANY INDEX
PART I. FINANCIAL INFORMATION Page # ITEM 1. Financial Statements Condensed Consolidated Balance Sheets: March 31, 1998 (Unaudited) and December 31, 1997........................................ 3 Condensed Consolidated Statements of Operations (Unaudited): Three months ended March 31, 1998 and March 31, 1997.................................... 5 Condensed Consolidated Statements of Cash Flows (Unaudited): Three months ended March 31, 1998 and March 31, 1997.................................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited)............................. 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 12 PART II. OTHER INFORMATION........................................................................... 16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) ASSETS ------
March 31, December 31, 1998 1997 ------------------- ------------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents....................................... $ 15,444 $ 2,699 Accounts receivable and accrued revenues........................ 14,384 18,293 Due from related parties........................................ 1,792 4,645 Prepaid expenses and other...................................... 2,475 3,240 ------------------- ------------------- Total current assets........................................... 34,095 28,877 ------------------- ------------------- PROPERTY AND EQUIPMENT, AT COST: Oil and gas properties (full cost method)....................... 260,084 250,227 Gas plant facilities............................................ 16,726 16,717 ------------------- ------------------- 276,810 266,944 Accumulated depreciation, depletion and amortization............ (95,838) (86,811) ------------------- ------------------- 180,972 180,133 ------------------- ------------------- OTHER ASSETS.................................................... 5,550 5,747 ------------------- ------------------- $220,617 $214,757 =================== ===================
See accompanying notes to condensed consolidated financial statements 3 BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share information) LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31, 1998 1997 -------------------- ------------------ (Unaudited) CURRENT LIABILITIES: Accounts payable and accrued liabilities....................... $ 19,744 $ 14,241 Due to related parties......................................... 611 672 Total current liabilities..................................... 20,355 14,913 -------------------- ------------------ LONG-TERM DEBT................................................. 100,000 100,000 DEFERRED INCOME TAXES.......................................... 6,543 7,106 OTHER LIABILITIES.............................................. 950 1,069 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued or outstanding at March 31, 1998 and December 31, 1997...................................................... -- -- Common stock, $0.01 par value, 30,000,000 shares authorized, 14,136,791 and 13,891,465 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively............ 141 139 Additional paid-in capital..................................... 79,960 78,470 Retained earnings.............................................. 12,668 13,060 Total stockholders' equity.................................. 92,769 91,669 -------------------- ------------------ $220,617 $214,757 ==================== ==================
See accompanying notes to condensed consolidated financial statements 4 BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share information)
Three Months Ended March 31, ---------------------------------------- 1998 1997 ---------------- ---------------- REVENUES: Oil and gas revenues................................... $19,424 $6,492 Gas plant operations, net.............................. 226 762 Interest and other income.............................. 187 41 ---------------- ---------------- 19,837 7,295 ---------------- ---------------- COST AND EXPENSES: Production expenses.................................... 6,133 1,310 Depreciation, depletion and amortization............... 8,738 2,478 General and administrative expenses.................... 2,611 895 Interest expense....................................... 2,979 309 ---------------- ---------------- 20,461 4,992 ---------------- ---------------- Income (loss) before income taxes....................... (624) 2,303 Provision for income taxes.............................. (232) 841 ---------------- ---------------- NET INCOME (LOSS)....................................... $ (392) $1,462 ================ ================ Net income (loss) per share............................. $ (.03) $ .16 ================ ================ Net income (loss) per share-diluted..................... $ (.03) $ .16 ================ ================ Weighted average common shares outstanding............................................ 14,049 9,156 ================ ================ Weighted average common shares outstanding-diluted...... 14,049 9,230 ================ ================
See accompanying notes to condensed consolidated financial statements 5 BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
Three Months Ended March 31, --------------------------------------- 1998 1997 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS)................................................. $ (392) $ 1,462 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization..................... 8,958 2,556 Deferred income taxes........................................ (563) 840 ---------------- ---------------- 8,003 4,858 Change in assets and liabilities: Accounts receivable and accrued revenue.......................... 3,911 905 Accounts payable and other liabilities........................... 5,503 (754) Due from (to) related parties.................................... 2,793 685 Other............................................................ 628 4 ---------------- ---------------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES.................. 20,838 5,698 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to properties.......................................... (9,874) (6,433) Proceeds from sales of properties................................ 289 21 ---------------- ---------------- Net cash flows used in investing activities...................... (9,585) (6,412) ---------------- ---------------- Cash flows from financing activities: Proceeds from borrowings......................................... --- 1,000 Exercise of stock options........................................ 1,492 46 ---------------- ---------------- Net cash flows provided by financing activities.................. 1,492 1,046 ---------------- ---------------- Net increase in cash and cash equivalents........................ 12,745 332 Cash and cash equivalents at beginning of period................. 2,699 450 ---------------- ---------------- Cash and cash equivalents at end of period........................ $15,444 $ 782 ================ ================
See accompanying notes to condensed consolidated financial statements 6 BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (UNAUDITED) (Amounts in thousands)
Three Months Ended March 31, -------------------------------------- 1998 1997 ----------------- ---------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest.................................................... $ 58 $ 253 Income taxes................................................ $ 864 $ ---
See accompanying notes to condensed consolidated financial statements 7 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all disclosures required by generally accepted accounting principles. However, in the opinion of management, these statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position at March 31, 1998 and the results of operations and changes in cash flows for the periods ended March 31, 1998 and 1997. These financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements in the December 31, 1997 Form 10-K of Bellwether Exploration Company ("the Company") that was filed with the Securities and Exchange Commission on March 27, 1998. Certain reclassifications of prior period statements have been made to conform with current reporting practices. In order to prepare these financial statements in conformity with generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reserve information. Actual results could differ from those estimates. 2. ACQUISITIONS On April 9 and 15, 1997, the Company closed acquisitions of oil and gas properties (the "Partnership Transactions"), totaling $145.2 million (inclusive of working capital acquired of $13.9 million), from certain partnerships and other entities managed or sponsored by Torch Energy Advisors Incorporated ("Torch"). The acquisitions were financed by the sale of 4.4 million shares of common stock, the sale of $100.0 million of 10-7/8% senior subordinated notes due in 2007 and borrowings under the Company's senior unsecured revolving credit facility. The following table presents the unaudited pro forma results of operations as if the Partnership Transactions had occurred on January 1, 1997. The Partnership Transactions were accounted for as purchases, and their results of operations are included in the Company's results of operations from the date of acquisition. The Company's pro forma results are based on assumptions and estimates and are not necessarily indicative of the Company's results of operations in the future or such results had the transaction occurred as of January 1, 1997 (in thousands, except earnings per share). 8 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)
(UNAUDITED) ----------------------------- THREE MONTHS ENDED MARCH 31, 1997 ----------------------------- Revenues.............................................................. $32,878 Expenses.............................................................. 23,874 -------------------- Income before income taxes............................................ 9,004 Income taxes.......................................................... 3,320 Net earnings.......................................................... $ 5,684 Net earnings per common share......................................... $ 0.41 ==================== Net earnings per common share-diluted................................. $ 0.41 ====================
3. LONG TERM DEBT In April 1997, the Company entered into a senior unsecured revolving credit facility ("Senior Credit Facility") in an amount up to $90.0 million, with an initial borrowing base of $90.0 million to be redetermined annually, and a maturity date of March 31, 2002. The Company may elect an interest rate based either on a margin plus LIBOR or the higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds Rate. For LIBOR borrowings, the interest rate will vary from LIBOR plus 0.875% to LIBOR plus 1.25% based upon the borrowing base usage. In connection with the acquisition of oil and gas properties, $33.3 million was drawn under this facility ($22 million of which was used to retire outstandings under the previous bank credit facility). As of March 31, 1998 the borrowing base was $75 million and there were no balances outstanding under the Senior Credit Facility. The Senior Credit Facility contains various covenants including certain required financial measurements for current ratio, consolidated tangible net worth and interest coverage ratio. In addition, the Senior Credit Facility includes certain limitations on restricted payments, dividends, incurrence of additional funded indebtedness and asset sales. In April 1997, the Company issued $100.0 million of 10-7/8% senior subordinated notes ("Notes") that mature April 1, 2007. Interest on the Notes is payable semi-annually on April 1 and October 1. The Notes are guaranteed by the Company's wholly-owned subsidiaries, Odyssey Petroleum Company, Black Hawk Oil Company and 1989-I TEAI Limited Partnership. The Notes contain certain covenants, including limitations on indebtedness, liens, dividends and other payment restrictions affecting restricted subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales and restrictions on mergers and consolidations or sales of assets. 4. NEW ACCOUNTING PRONOUNCEMENTS Effective December 1997, the Company retroactively adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 introduces the concept of basic earnings per share, which represents net income divided by the weighted average common shares outstanding without the dilutive effects of common stock equivalents (options, warrants, etc.). 9 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) Additionally, SFAS No. 128 replaces fully diluted EPS with diluted EPS. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company's dilutive securities include stock options and warrants. The assumed conversion of these securities is anti-dilutive for a period if the option or warrant exercise price exceeds the average market price for the periods. In accordance with SFAS No. 128, the Company retroactively restated all prior period EPS data (including interim EPS) included in these financial statements and footnotes. The impact of adopting SFAS 128 is immaterial. SFAS No. 128 also requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Diluted earnings per common share are not calculated below since the issuance or conversion of additional securities would have an anti-dilutive effect. SFAS NO. 128 RECONCILIATION (AMOUNTS IN THOUSANDS):
For the Three Months Ended For the Three Months Ended March 31, 1998 March 31, 1997 ------------------------------------------------ ------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount -------------- ------------- ------------ ----------- -------------- --------- EARNINGS (LOSS) PER COMMON SHARE: Income (loss) available to common stockholders................... $ (392) 14,049 $ (.03) $ 1,462 9,156 $ .16 ========= ======= EFFECT OF DILUTIVE SECURITIES: Options and Warrants............ $ --- --- $ --- 74 ---------- -------- --------- ------- EARNINGS (LOSS) PER COMMON SHARE-DILUTED: Income (loss) available to common stockholders and assumed conversions.................... $ (392) 14,049 $ (.03) $ 1,462 9,230 $ .16 ========== ======== ========= ========= ======= =======
10 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 5. NATURAL GAS AND CRUDE OIL HEDGING Commodity derivatives utilized as hedges include swap contracts. In order to qualify as a hedge, price movements in the underlying commodity derivative must be sufficiently correlated with the hedged commodity. Settlement of gains and losses on price swap contracts are realized monthly, generally based upon the difference between the contract price and the average closing New York Mercantile Exchange ("NYMEX") price and are reported as a component of oil and gas revenues and operating cash flows in the period realized. Gains and losses attributable to the termination of a swap contract are deferred on the balance sheet and recognized in revenue when the hedged crude oil and natural gas is sold. There were no such deferred gains or losses at March 31, 1998 or 1997. Oil and gas revenues increased $524,500 in the three months ended March 31, 1998 and $222,300 in the same period of 1997 as a result of such hedging activity. 11 BELLWETHER EXPLORATION COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL Condition and Results of Operations Liquidity and Capital Resources The Company's strategy is to maximize long-term shareholder value through aggressive growth in reserves and cash flow using advanced technologies, implementation of a low cost structure and maintenance of a capital structure supportive of growth. The Company intends to continue to acquire producing oil and gas properties through mergers or acquisitions and will increase its emphasis on growth through development and exploration activities. The funding of these activities has historically been provided by operating cash flows, bank financing, equity placements and sale of non-core assets. The Company invested $9.9 million in properties for the three months ended March 31, 1998 versus $6.4 million in 1997. Cash flows from operations before changes in assets and liabilities were $8.0 million for the three months ended March 31, 1998 compared to $4.9 million provided by operating activities in the same period of 1997. At March 31, 1998, the Company had $75 million of available debt capacity under the Senior Credit Facility. Partnership Transactions In April 1997, the Company purchased oil and gas properties and $13.9 million of working capital from affiliates of Torch for an adjusted purchase price at closing of $141.8 million, plus a contingent payment of $3.4 million, the amount of which was based on 1997 gas prices. The acquisitions were recorded effective April 1, 1997 and the operations of the Company include the Partnership Transactions from that date. The Partnership Transactions were financed with $34.1 million of the net of proceeds of a Common Stock offering, $97.0 million from the net proceeds of 10 7/8% Senior Subordinated Notes due 2007 (the "Offerings") and borrowings under the Senior Credit Facility. In addition, Torch was issued 150,000 shares of the Company's common stock and a warrant to purchase 100,000 shares at $9.90 for advisory services rendered in connection with the Partnership Transactions. The warrant and shares were valued at $1.5 million and recorded as a cost of the Partnership Transactions. Change in Fiscal Year Effective July 1, 1997 the Company changed its fiscal year to the calendar year. As a result, the Company reported a six month transition period ended December 31, 1997. Fiscal 1998 Capital Expenditures During fiscal 1998, the Company anticipates investing approximately $42.0 million, primarily for development and exploratory drilling activities and acquisitions. The Company believes its cash flow provided by operating activities and the proceeds from credit facilities will be sufficient to meet these projected capital investments (See Notes 2 and 3 of the Notes to Condensed Consolidated Financial Statements). The Company continues to seek acquisition opportunities and the consummation of such a transaction may directly impact anticipated capital expenditures. 12 BELLWETHER EXPLORATION COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Gas Balancing It is customary in the industry for various working interest partners to sell more or less than their entitled share of natural gas. The settlement or disposition of existing gas balancing positions is not anticipated to materially impact the financial condition of the Company. Derivative Financial Instruments The Company periodically uses derivative financial instruments to manage oil and gas price risk. At March 31, 1998, the Company has entered into contracts to hedge 31,000 MMBTU of natural gas per day for the months of April through October 1998 at an average NYMEX quoted price of $2.38 per MMBTU. In addition, the Company has sold calls on 1,000 barrels of oil per day for the months of July through December 1998 at a strike price of $18.50 for a premium of $1.00 per barrel. Results of Operations The following table sets forth certain operating information of the Company for the periods presented:
Three Months Ended March 31, ---------------------------------- 1998 1997 --------------- -------------- Production: Oil and condensate (MBBLs)...................... 572 78 Natural gas (MMCF).............................. 5,731 1,745 Average sales price: (1) Oil and condensate (per BBL).................... $12.62 $21.24 Natural gas (per MCF).......................... $ 2.04 $ 2.64 Average costs: Production expenses (per BOE)................... $ 4.01 $ 3.55 General and administrative expense (per BOE)(2)................................. $ 1.55 $ 1.86 Depreciation, depletion and amortization (per BOE)(3)................................. $ 5.42 $ 6.12
(1) Average sales prices exclude the effect of hedges, which increased revenues by $524,500 and $222,300 in 1998 and 1997, respectively. (2) Exclusive of general and administrative expenses allocated to gas plant and gas gathering facilities. (3) Excludes depreciation, depletion and amortization on gas plants and other assets of $466,000 and $227,000 in 1998 and 1997, respectively. 13 BELLWETHER EXPLORATION COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Revenues Oil and gas revenues for the three months ended March 31, 1998 were $19.4 million, as compared to $6.5 million for the respective period in 1997. The increase in revenues of 198% is attributable primarily to production from properties acquired in the Partnership Transactions. Partially offsetting the revenue increases were unfavorable price variances. Oil prices have declined 41% from $21.24 per barrel in the three months ended March 31, 1997 to $12.62 per barrel in the current period. Oil prices have rebounded somewhat since such time to a Nymex price on April 30, 1998 of $15.39 per barrel. Natural gas prices declined 23% from $2.64 per Mcf in the three months ended March 31, 1997 to $2.04 per Mcf for the three months ended March 31, 1998. Net gas plant operating profit was $226,000 in the three months ended March 31, 1998 and $762,000 in the same period of 1997. The Snyder gas plant was temporarily shut in 5 days in January for work attributable to a small accident in an adjacent plant and 3 days in February to tie in new equipment. In addition, throughput was lower than anticipated due to reduced production volumes from the North Unit SACROC. Tertiary recovery projects which have been expanded to increase such North Unit SACROC production are projected to increase the Snyder gas plant throughput by mid-1998. Expenses Production expenses for the three months ended March 31, 1998 totaled $6.1 million, or 369% over the $1.3 million for the three months ended March 31, 1997, due primarily to the effect of the Partnership Transactions. Depreciation, depletion and amortization was $8.7 million for the three months ended March 31, 1998. These amounts reflect a 248% increase over the $2.5 million recorded in the comparable period in 1997. Increases in oil and gas production of 314% and a 11% lower depletion rate per barrel of oil equivalent are attributable primarily to the acquisitions of the properties from the Partnership Transactions. General and administrative expenses totaled $2.6 million in the three months ended March 31, 1998 as compared to $0.9 million for the comparable period of fiscal 1997 reflecting higher management fees and fixed costs resulting from the increase in assets and cash flows. In addition, $.3 million of costs were incurred in March 1998 as a result of the Company closing its Dallas exploration office. Interest expense increased to $3.0 million for the three months ended March 31, 1998 from $0.3 million in the same period of 1997 due to debt incurred in financing of the Partnership Transactions. Income Taxes The provision for federal and state income taxes for the three months ended March 31, 1998 is based upon a 37% effective tax rate. 14 Net Income Net loss for the three months ended March 31, 1998 is approximately $.4 million as compared to net income of $1.5 million for the respective period of 1997. Year 2000 The Company's technical services provider, Torch, plans to upgrade all major financial and administrative systems to ensure that such systems are Year 2000 compliant. The Year 2000 problem results from data storage of date information truncating to two places, i.e. 1998 stored as 98. Currently all programs storing year information as such recognize the year 2000 as 00 (or 1900). Torch is approaching the Year 2000 project in three steps: 1) awareness and assessment, 2) conversion or implementation and 3) validation and testing. Management does not believe that costs incurred to address the Year 2000 issue with respect to its financial and administrative systems will have a material impact on the Company's future financial results or operations. At this time, the Company is uncertain as to the impact that the Year 2000 issue will have on its operational information systems and as to how the Company will be indirectly affected by the impact that the Year 2000 issue will have on the companies with which it conducts business. Forward Looking Statements This Form 10-Q contains "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included herein, including without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the notes to the financial statements regarding the Company's financial position, capital budget, intent to acquire oil and gas properties, estimated quantities and net present values of reserves, business strategy, plans and objectives of management of the Company for future operations, and the effect of gas balancing, are forward-looking statements. There can be no assurances that such forward looking statements will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") include the volatility of oil and gas prices, operating hazards, government regulations, exploration risks and other factors described in the Company's Form 10-K filed with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified by the Cautionary Statements. 15 BELLWETHER EXPLORATION COMPANY PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Proxy statement was sent to all shareholders of record on April 9, 1998 for the following matters which will be voted on at the Annual Meeting of Stockholders to be held on May 22, 1998: 1. To elect the nominees of the Board of Directors to serve until their successors are duly elected and qualified. 2. To consider and act upon a proposal to ratify the appointment of KPMG Peat Marwick LLP as the independent auditors of the Company for the period ending December 31, 1998. 3. To transact such other business as may properly come before the meeting or any adjournment(s) thereof. A copy of the Proxy Statement was filed with the Securities and Exchange Commission on April 24, 1998 and is incorporated herein by reference. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits The following exhibits are filed with this Form 10-Q and they are identified by the number indicated. 27 Financial Data Schedule b. Reports on Form 8-K. None. 16 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. BELLWETHER EXPLORATION COMPANY ------------------------------ (Registrant) Date: May 13, 1998 By: /s/ J. Darby Sere' -------------------- -------------------------------------- J. Darby Sere' Chairman and Chief Executive Officer Date: May 13, 1998 By: /s/ William C. Rankin ------------------- ----------------------------------- William C. Rankin Senior Vice President and Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 15,444 0 16,176 0 0 34,095 276,810 (95,838) 220,617 20,355 100,000 141 0 141 92,628 220,617 19,424 19,837 14,871 20,461 2,611 0 2,979 (624) (232) (392) 0 0 0 (392) $ (0.03) $ (0.03)
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