8-K 1 d8k.htm FORM 8-K Form 8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported):

 

May 6, 2004 (May 6, 2004)

 

 

Mission Resources Corporation

(Exact Name of Registrant as Specified in Charter)

 

 

Delaware   000-09498   76-0437769
(State or Other Jurisdiction
of Incorporation)		   (Commission File Number)   (IRS Employer
Identification No.)

 

1331 Lamar

Suite 1455

Houston, Texas 77010-3039

(Address and Zip Code of Principal Executive Offices)

 

(713) 495-3000

(Registrant’s telephone number, including area code)

 

Item 5. Other Events and Required Regulation FD Disclosure.

 

None.

 

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

 

  (a) Financial Statements of business acquired.

 

None.

 

  (b) Pro Forma Financial Information.

 

None.

 

  (c) Exhibits.

 

None.

 

Item 12. Results of Operations and Financial Condition.

 

On May 6, 2004, Mission Resources Corporation reported financial and operational results for the first quarter of 2004.

 

  • First quarter 2004 net income was $360,000 and discretionary cash flow was $11.4 million.

 

  • First quarter 2004 average daily production was 61.8 million cubic feet of gas equivalent (“Mmcfed”).

 

  • The current average daily production rate is approximately 67 Mmcfed.

 

  • Lease operating expenses declined 19% to $1.26 per Mcfe from first quarter 2003.

 

“Clearly our recent debt refinancing is a major achievement for us this year,” said Robert L. Cavnar, Chairman, President and Chief Executive Officer. “With our improved balance sheet and greater liquidity, we are investing in attractive drilling and development opportunities and, with the recent Jalmat acquisitions, we are positioned to grow our production rates after last year’s asset sales. Our strong cash flow this quarter was the result of increased commodity prices combined with our improved cost structure as compared to last year.”

 

Net Income: Net income for the three months ended March 31, 2004 was $360,000, or $0.01 per diluted share compared to net income of $10.6 million or $0.45 per diluted share for the three months ended March 31, 2003. First quarter 2004 net income included a $1.4 million ($0.9 million, net of taxes) non-cash gain related to extinguishment of debt. First quarter 2003 net

income included a $22.4 million ($14.5 million, net of taxes) non-cash gain related to extinguishment of debt and a $1.7 million loss, net of taxes, due to the cumulative effect of a change in accounting principle. Excluding these special items, Mission reflected a net loss of $0.5 million in the first quarter of 2004 and a net loss of $2.2 million in the first quarter of 2003. Weighted average shares of common stock outstanding - diluted increased 40% to 33.1 million shares for the first quarter of 2004 from 23.6 million shares for the first quarter of 2003.

 

Discretionary Cash Flow and Earnings before Interest, Taxes and Non-Cash Items: First quarter 2004 discretionary cash flow more than doubled to $11.4 million, versus first quarter of 2003 discretionary cash flow of $5.3 million. Earnings before interest, taxes, depreciation and other items (“adjusted EBITDA”) for the first quarter of 2004 increased 49% to $17.1 million compared to adjusted EBITDA of $11.5 million in the first quarter of 2003. Net cash provided by operating activities was $18.7 million and $5.5 million in the first quarters of 2004 and 2003, respectively. See the attached schedule for the reconciliation of net cash provided by operating activities to discretionary cash flow and of net income to adjusted EBITDA.

 

Production: Total production in the first quarter of 2004 was 3,216 million cubic feet (“Mmcf”) of natural gas and 401,000 barrels (“bbls”) of oil, or 5,622 million cubic feet of gas equivalent (“Mmcfe”), compared to 2,337 Mmcf of gas and 561,000 bbls of oil, or 5,703 Mmcfe in the first quarter of 2003. Reflecting the increased focus on natural gas, the company’s percentage of production from natural gas was 57% in the first quarter of 2004 versus 40% in the prior year’s first quarter.

 

Lease Operating Expenses: Total lease operating expenses (“LOE”) for the first quarter of 2004 declined significantly from first quarter 2003 levels due primarily to the sale of high-cost oil properties and the acquisition of lower cost natural gas properties. On a unit basis, LOE for the first quarter of 2004 declined 19% to $1.26 per Mcfe from $1.56 per Mcfe in the first quarter of the prior year.

 

Capital Structure: From December 2003 through the first quarter of 2004, Mission completed three equity for debt swaps that resulted in the repurchase of $40 million of its 10 7/8% senior subordinated notes due 2007 for 16.75 million shares of common stock. On April 8, 2004, Mission completed a private offering of $130 million of its 9 7/8% senior notes due 2011, and simultaneously entered into a new senior secured revolving credit facility (the “Credit Facility”) and a new $25 million second lien term loan (the “Term Loan”). The Credit Facility had an initial borrowing base of $50 million, of which $30 million was available for general corporate purposes and $20 million was available for the acquisition of oil and gas properties. The net proceeds of the offering together with $21.5 million advanced under the Credit Facility and $25 million borrowed under the Term Loan are being used to fully redeem the outstanding 10 7/8% senior subordinated notes and to repay indebtedness under prior credit facilities.

“With these recent financing activities we now have a substantially stronger balance sheet, appreciably lower interest expense and much greater financial flexibility,” said Richard W. Piacenti, Mission’s Executive Vice President and Chief Financial Officer.

 

Drilling and Operations Update: In 2004 Mission acquired an approximately 94.5% operated working interest in the Jalmat field located in the Permian Basin through two transactions. The first was completed in January for $26.6 million and the second in April for $3.6 million. The combined transactions added approximately 30.8 billion cubic feet equivalent of gas of net proved reserves. The field’s current net production rate is approximately 5.4 Mmcfed.

 

During the first quarter of 2004, Mission spent $6.7 million for development activity, $2.1 million for exploration and $2.0 million for seismic data, land and corporate assets toward its $34.0 million 2004 capital budget. To date, Mission has participated in the drilling of 25 development wells and two exploratory wells. Of the development wells, 21 are located in the Permian Basin, three are located onshore Gulf Coast and one is located in Oklahoma. Twelve of the development wells were successful and the remaining 13 are in-progress. One exploratory well, the #1 Barry located in DeWitt County, Texas, was successful while the Glassock #1, located in Colorado County, Texas, was not commercially successful. Development activities are currently ongoing in the Brahaney Unit in Yoakum County, Texas, the TXL North Unit in Ector County, Texas and in the Jalmat field in Lea County, New Mexico. We have also drilled a successful development well in the Reddell field in Evangeline Parish Louisiana, the #1 Coreil.

 

Outlook: Guidance on performance for the second quarter and full year of 2004 is as follows:

 

     Second Quarter 2004
    Full-Year 2004

Estimated Daily Production

    Daily Average
    Daily Average

Crude Oil (Barrels)

    4,400 – 4,700    4,300 – 4,600

Natural Gas (Mmcf)

    37 – 41    35 – 40

Total (Mmcfe)

    64 – 68    62 – 66

Operating expenses

    Per Mcfe
    Per Mcfe

Lease operating expense

    $1.18 - $1.28    $1.15 - $1.25

Taxes other than income

    $0.40 - $.50    $0.35 - $0.40

Depreciation, depletion and amortization

    $1.85 - $1.95    $1.85 - $1.95

General and administrative

    $0.47 - $0.52    $0.45 - $0.50

Cash interest expense *

    $4.3   - $4.8 million    $17    - $19 million

Income tax rate

    36.5%, all deferred    36.5%, all deferred
* Excludes non-cash interest expense of approximately $450,000 and $2.0 million for the second quarter of 2004 and the full-year 2004, respectively.

 

Current Hedging Program: Mission maintains an active hedging program, primarily utilizing no-cost collars, as an important element of its risk-mitigation strategy. Currently, Mission has hedged approximately 50% of rolling 12 months forward proved developed production and approximately 25% of rolling 12 to 24 months forward proved developed production. Since February 26, 2004, when Mission last provided an update on its hedging program, it has entered into five additional hedges. For the first quarter of 2005, Mission added an oil collar for 500 bbls per day with a floor price of $28.07 and ceiling price of $32.47. Four hedges were put in place for 2006 consisting of oil collars totaling 250 bbls per day with an average floor price of $26.26 and an average ceiling price of $30.58. See the attached schedule for a detailed list of all current hedges.

 

Conference Call Information: Mission will hold its quarterly conference call to discuss first quarter 2004 results on Thursday, May 6, 2004 at 10:00 a.m. Central Time. To participate, dial 877- 894-9681 a few minutes before the call begins. Please reference Mission Resources, conference ID 6682898. The call will also be broadcast live over the Internet from the Company’s website at www.mrcorp.com. A replay of the conference call will be available approximately two hours after the end of the call until Friday, May 21, 2004. To access the replay, dial (800) 642-1687 and reference conference ID 6682898.

 

About Mission Resources: Mission Resources Corporation is a Houston-based independent exploration and production company that drills for, acquires, develops and produces natural gas and crude oil primarily in the Permian Basin (in West Texas and Southeastern New Mexico), along the Texas and Louisiana Gulf Coast and in both the state and federal waters of the Gulf of Mexico.

This press release 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. These forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for future operations, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions and in projecting future rates of production, the timing of development expenditures and drilling of wells, and the operating hazards attendant to the oil and gas business. In particular, careful consideration should be given to cautionary statements made in the various reports the Company has filed with the Securities and Exchange Commission. Mission undertakes no duty to update or revise these forward-looking statements.

MISSION RESOURCES

STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

 

     Three Months Ended
March 31,
  
     2004
     2003
  

REVENUES:

                 

Oil revenues

    $ 11,044     $ 13,886  

Gas revenues

      17,752       11,851  

Gain on extinguishment of debt

      1,425       22,375  

Interest and other income (expense)

      (810 )     535  
    
 
       29,411       48,647  
    
 

COSTS AND EXPENSES:

                 

Lease operating expense

      7,106       8,890  

Taxes other than income

      1,694       2,693  

Transportation costs

      25       90  

Asset retirement obligation accretion expense

      271       345  

Depreciation, depletion and amortization

      10,664       9,022  

General and administrative expenses

      2,823       2,572  

Interest expense

      6,262       6,027  
    
 
       28,845       29,639  
    
 

INCOME BEFORE TAXES AND CHANGE IN ACCTG METHOD

      566       19,008  

Income tax expense

                 

Current

      95       75  

Deferred

      111       6,578  
    
 
       206       6,653  
    
 

INCOME BEFORE CHANGE IN ACCOUNTING METHOD

    $ 360     $ 12,355  
    
 

Cumulative effect of a change in accounting method, net of deferred tax

      —         (1,736 )

NET INCOME

    $ 360     $ 10,619  
    
 

Earnings per share before change in acctg method

    $ 0.01     $ 0.52  

Earnings per share before change in acctg method-diluted

    $ 0.01     $ 0.52  

Earnings per share

    $ 0.01     $ 0.45  

Earnings per share-diluted

    $ 0.01     $ 0.45  

Weighted avg. common shares outstanding

      31,611       23,586  

Weighted avg. common shares outstanding-diluted

      33,122       23,590  

Discretionary cash flow (1)

    $ 11,396     $ 5,316  

Adjusted EBITDA (2)

    $ 17,140     $ 11,529  

 

(1) Discretionary cash flows consists of net income excluding non-cash items. Non-cash items include depreciation depletion and amortization, gain (loss) due to hedge ineffectiveness (FAS 133), gain (loss) on interest rate swap, amortization of debt issue costs, amortization of bond premium, gain on extinguishment of debt, asset retirement accretion expense, receivable write-offs, cumulative effect of a change in accounting method, equity interest in earnings of White Shoal Pipeline and deferred taxes.

 

(2) Earnings before interest, taxes and non-cash items consist of earnings before interest expense, taxes, and non-cash items detailed in footnote (1).

MISSION RESOURCES

SUMMARY OPERATING INFORMATION

 

     Three Months Ended
March 31,
     2004
    2003

AVERAGE SALES PRICE, INCLUDING

              

THE EFFECT OF HEDGES:

              

Oil ($/Bbl)

    $ 27.54    $ 24.75

Gas ($/Mcf)

    $ 5.52    $ 5.07

Equivalent ($/Boe)

    $ 30.73    $ 27.06

Equivalent ($/Mcfe)

    $ 5.12    $ 4.51

AVERAGE SALES PRICE, EXCLUDING

              

THE EFFECT OF HEDGES:

              

Oil ($/Bbl)

    $ 34.25    $ 30.68

Gas ($/Mcf)

    $ 5.55    $ 6.26

Equivalent ($/Boe)

    $ 33.72    $ 33.49

Equivalent ($/Mcfe)

    $ 5.62    $ 5.58

AVERAGE DAILY PRODUCTION:

              

Oil (Bbls)

      4,407      6,233

Gas (Mcf)

      35,341      25,967

Equivalent (Boe)

      10,297      10,561

Equivalent (Mcfe)

      61,783      63,365

TOTAL PRODUCTION:

              

Oil (MBbls)

      401      561

Gas (MMcf)

      3,216      2,337

Equivalent (MBoe)

      937      951

Equivalent (MMcfe)

      5,622      5,703

OPERATING COSTS PER MCFE:

              

Lease operating expense

    $ 1.26    $ 1.56

Taxes other than income

    $ 0.30    $ 0.47

General and administrative expenses

    $ 0.50    $ 0.45

Depreciation, depletion, and amortization (1)

    $ 1.86    $ 1.56

 

(1) Depreciation of furniture and fixtures is excluded.

MISSION RESOURCES

CONDENSED BALANCE SHEETS

(Amounts in thousands)

 

    

March 31,

2004

    

December 31,

2003

  
    

ASSETS:

                 

Current assets

    $ 26,652     $ 44,378  

Property, plant and equipment, net

      326,979       302,128  

Leasehold, furniture and equipment, net

      2,261       2,340  

Other assets

      4,748       5,404  
    
 
     $ 360,640     $ 354,250  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Current liabilities

    $ 40,368     $ 31,177  

Term loan facility

      80,000       80,000  

Senior subordinated notes due 2007

      87,426       117,426  

Unamortized premium on senior subordinated notes

      734       1,070  

Deferred tax liability

      16,676       17,270  

Other long-term liabilities, excluding current portion

      1,630       210  

Asset retirement obligation, excluding current portion

      31,517       32,157  

Stockholders’ equity

      109,363       80,647  

Other comprehensive income (loss), net of taxes

      (7,074 )     (5,707 )
    
 
     $ 360,640     $ 354,250  
    
 

 

MISSION RESOURCES

CONDENSED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

 

    

Three Months

Ended March 31,

  
     2004
     2003
  

OPERATING ACTIVITIES:

                 

Net income

    $ 360     $ 10,619  

Adjustments to reconcile net income to net cash provided by operating activities

      11,036       (5,303 )

Net changes in operating assets and liabilities

      7,297       180  
    
 

Net cash provided by operating activities

      18,693       5,496  

INVESTING ACTIVITIES:

                 

Acquisition of oil and gas properties

      (27,090 )     (258 )

Capital expenditures

      (10,717 )     (6,275 )

Leasehold, furniture and equipment

      (104 )     (255 )

Proceeds from sales of properties

      2,119       3,564  
    
 

Net cash used in investing activities

      (35,792 )     (3,224 )

FINANCING ACTIVITIES:

                 

Proceeds from borrowings

      —         80,000  

Repurchase of notes

      —         (71,700 )

Credit facility costs

      (436 )     (3,912 )

Restricted cash held for investments

      24,877       —    
    
 

Net cash provided by financing activities

      24,441       4,388  
    
 

Net increase in cash and cash equivalents

      7,342       6,660  

Cash and cash equivalents at beginning of period

      2,234       11,347  
    
 

Cash and cash equivalents at end of period

    $ 9,576     $ 18,007  
    
 

MISSION RESOURCES

NON-GAAP DISCLOSURE RECONCILIATION

(Amounts in thousands)

 

    

Three Months

Ended March 31,

  
     2004
     2003
  

NET CASH PROVIDED BY OPERATING ACTIVITIES

    $ 18,693     $ 5,496  

Change in assets and liabilities

      (7,297 )     (180 )
    
 

DISCRETIONARY CASH FLOW *

    $ 11,396     $ 5,316  
    
 

NET INCOME

    $ 360     $ 10,619  

Interest expense (1)

      5,649       6,138  

Gain on interest rate swap (1)

      —         (520 )

Amort. of deferred financing costs and bond prem. (1)

      613       409  

Income tax expense (benefit)

      206       6,653  

Depreciation, depletion and amortization

      10,664       9,022  

Gain on extinguishment of debt

      (1,425 )     (22,375 )

Earnings - White Shoal Pipeline (2)

      (16 )     (290 )

Cumulative effect of a chg. in acct. method, net of tax

      —         1,736  

Asset retirement accretion expense

      271       345  

Receivable write-offs (2)

      395       —    

Loss (gain) due to hedge ineffectiveness (2)

      423       (208 )
    
 

ADJUSTED EBITDA *

    $ 17,140     $ 11,529  
    
 

NET INCOME

    $ 360     $ 10,619  

Gain on extinguishment of debt, net of tax

      (905 )     (14,544 )

Cumulative effect of a chg. in acct. method, net of tax

      —         1,736  
    
 

NET LOSS BEFORE GAIN AND CUMULATIVE CHANGE **

    $ (545 )   $ (2,189 )
    
 
(1) Included in interest expense
(2) Included in interest and other income (expense)
* NOTE - Management believes that adjusted earnings before interest, taxes and non-cash items and discretionary cash flow are relevant and useful information, which are commonly used by analysts, investors and other interested parties in the oil and gas industry. Accordingly, we are disclosing this information to permit a more comprehensive analysis of our operating performance and liquidity, and as an additional measure of Mission’s ability to meet its future requirements for debt service, capital expenditures and working capital. Adjusted earnings before interest, taxes and non-cash items and discretionary cash flow should not be considered in isolation or as a substitute for net income, cash flow provided by operating activities or other income or cash flow data prepared in accordance with generally accepted accounting principles (“GAAP”) or as a measure of our profitability or liquidity. Adjusted earnings before interest, taxes and non-cash items and discretionary cash flow exclude components that are significant in understanding and assessing our results of operations and cash flows. In addition, adjusted earnings before interest, taxes and non-cash items and discretionary cash flow are not terms defined by GAAP and, as a result, our measures of adjusted earnings before interest, taxes and non-cash items and discretionary cash flow might not be comparable to similarly titled measures used by other companies.
** NOTE - Management believes net loss before gain on extinguishment of debt and cumulative effect of a change in accounting method is relevant and useful information. We believe it gives a clearer picture of the Company’s performance excluding material non-recurring transactions. Accordingly, we are disclosing this information to permit a more comprehensive analysis of our operating perfomance. Net loss before gain on extinguishment of debt and cumulative effect of a change in accounting method should not be considered in isolation or as a substitute for net income prepared in accordance with GAAP.

HEDGING SCHEDULE

 

OIL

   

GAS

Second Quarter 2004

    Second Quarter 2004

2,500 bbl a day in a swap of $24.67

   

5,000 mmbtu a day in a collar of $3.70 to $4.08

    

5,000 mmbtu a day in a collar of $5.00 to $6.01

    

2,000 mmbtu a day in a collar of $4.50 to $5.10

    

2,000 mmbtu a day in a collar of $4.75 to $5.34

Third Quarter 2004

    Third Quarter 2004

2,500 bbl a day in a swap of $24.30

   

5,000 mmbtu a day in a collar of $3.70 to $4.04

    

5,000 mmbtu a day in a collar of $5.00 to $5.75

    

2,000 mmbtu a day in a collar of $4.50 to $5.10

    

2,000 mmbtu a day in a collar of $4.75 to $5.35

Fourth Quarter 2004

    Fourth Quarter 2004

2,500 bbl a day in a swap of $23.97

   

5,000 mmbtu a day in a collar of $3.85 to $4.23

    

5,000 mmbtu a day in a collar of $5.00 to $6.10

    

2,000 mmbtu a day in a collar of $4.50 to $5.45

    

2,000 mmbtu a day in a collar of $4.75 to $5.90

First Quarter 2005

    First Quarter 2005

1,000 bbl a day in a collar of $26.50 to $29.51

   

1,000 mmbtu a day in a collar of $4.25 to $6.32

500 bbl a day in a collar of $27.50 to $29.25

   

1,000 mmbtu a day in a collar of $4.75 to $6.60

500 bbl a day in a collar of $28.07 to $32.47

   

3,000 mmbtu a day in a collar of $4.75 to $7.25

Second Quarter 2005

    Second Quarter 2005

1,000 bbl a day in a collar of $26.00 to $28.86

   

1,000 mmbtu a day in a collar of $4.25 to $4.92

500 bbl a day in a collar of $27.00 to $28.65

   

1,000 mmbtu a day in a collar of $4.50 to $5.15

    

3,000 mmbtu a day in a collar of $4.50 to $5.62

Third Quarter 2005

    Third Quarter 2005

1,000 bbl a day in a collar of $26.00 to $27.81

   

1,000 mmbtu a day in a collar of $4.25 to $4.72

500 bbl a day in a collar of $26.50 to $28.08

   

1,000 mmbtu a day in a collar of $4.50 to $5.19

    

3,000 mmbtu a day in a collar of $4.50 to $5.62

Fourth Quarter 2005

    Fourth Quarter 2005

1,000 bbl a day in a collar of $26.00 to $27.09

   

1,000 mmbtu a day in a collar of $4.25 to $5.14

500 bbl a day in a collar of $26.00 to $27.80

   

1,000 mmbtu a day in a collar of $4.50 to $5.62

    

3,000 mmbtu a day in a collar of $4.50 to $6.01

First Quarter 2006

     

250 bbl a day in a collar of $26.46 to $30.90

     

Second Quarter 2006

     

250 bbl a day in a collar of $26.29 to $30.75

     

Third Quarter 2006

     

250 bbl a day in a collar of $26.24 to $30.51

     

Fourth Quarter 2006

     

250 bbl a day in a collar of $26.03 to $30.15

     

SIGNATURE

 

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 hereunto duly authorized.

 

   

MISSION RESOURCES CORPORATION

Date: May 6, 2004

  

By:

  

/s/ Richard W. Piacenti

   

Name:

  

Richard W. Piacenti

   

Title:

  

Executive Vice President and Chief Financial Officer