-----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, QoWSep3LLBbz3oANfUqrvo4MDQMqcvgvow4VTW+keI2ZOBQabD/wjo6RqAHcEpXP Nt6W91DoCN3Otz0Mfq4M5Q== /in/edgar/work/20000801/0000320321-00-000009/0000320321-00-000009.txt : 20000921 0000320321-00-000009.hdr.sgml : 20000921 ACCESSION NUMBER: 0000320321-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEAN ENERGY INC /TX/ CENTRAL INDEX KEY: 0000320321 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 741764876 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08094 FILM NUMBER: 683299 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STE 1600 CITY: HOUSTON STATE: TX ZIP: 77002-6714 BUSINESS PHONE: 7132656000 MAIL ADDRESS: STREET 1: 1001 FANNIN, SUITE 1600 CITY: HOUSTON STATE: TX ZIP: 77002-6714 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL ENERGY CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL PIPELINE CORP DATE OF NAME CHANGE: 19830815 10-Q 1 0001.txt SECOND QUARTER 2000 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 June 30, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-8094 Ocean Energy, Inc. (Exact name of registrant as specified in its charter) Texas 74-1764876 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1001 Fannin, Suite 1600, Houston, Texas 77002-6714 (Address of principal executive offices) (Zip code) (713) 265-6000 (Registrant's telephone number, including area code) None (Former name,former address and former fiscal year,if changed since last report) 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 July 26, 2000, 166,888,642 shares of Common Stock, par value $0.10 per share, were outstanding. ================================================================================ Ocean Energy, Inc. Index Page Number Part I. Financial Information Item 1. Unaudited Consolidated Financial Statements Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2000 and 1999.................... 1 Consolidated Balance Sheets - June 30, 2000 and December 31, 1999...................................... 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999............................... 3 Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2000 and 1999......... 4 Notes to Consolidated Financial Statements.................. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 14 Item 3. Quantitative and Qualitative Disclosures about Market Risks. 22 Part II. Other Information............................................... 22 Signatures................................................................ 23 (i) Item. 1 Unaudited Consolidated Financial Statements Ocean Energy, Inc. Consolidated Statements Of Operations (Amounts in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- --------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- ---------------- Revenues......................................................$ 236,429 $ 196,206 $ 482,497 $ 301,900 Costs of Operations: Operating expenses......................................... 57,890 65,446 114,710 110,606 Depreciation, depletion and amortization................... 72,952 89,509 153,032 148,117 Impairment of oil and gas properties....................... - - - 28,500 General and administrative................................. 5,950 8,507 15,072 13,083 --------------- --------------- --------------- ---------------- 136,792 163,462 282,814 300,306 --------------- --------------- --------------- ---------------- Operating Profit.............................................. 99,637 32,744 199,683 1,594 Other (Income) Expense: Interest expense........................................... 18,866 31,021 38,094 56,191 Merger and integration costs............................... - - 3,273 40,652 Interest income and other.................................. (93) 369 (832) (114) --------------- --------------- --------------- ---------------- Income (Loss) Before Income Taxes............................. 80,864 1,354 159,148 (95,135) Income Tax Expense (Benefit).................................. 35,371 (235) 70,677 (15,673) --------------- --------------- --------------- ---------------- Income (Loss) from Continuing Operations...................... 45,493 1,589 88,471 (79,462) Income from Discontinued Operations, Net of Income Taxes............................................... - 547 - 547 --------------- --------------- --------------- ---------------- Net Income (Loss)............................................. 45,493 2,136 88,471 (78,915) Preferred Stock Dividend...................................... 812 836 1,625 1,637 --------------- --------------- --------------- ---------------- Net Income (Loss) Available to Common Shareholders............$ 44,681 $ 1,300 $ 86,846 $ (80,552) =============== =============== =============== ================ Earnings (Loss) Per Common Share: Basic: Income (Loss) from Continuing Operations................. $ 0.27 $ 0.01 $ 0.52 $ (0.60) Income from Discontinued Operations...................... - - - - --------------- --------------- --------------- ---------------- Net Income (Loss)........................................ $ 0.27 $ 0.01 $ 0.52 $ (0.60) =============== =============== =============== ================ Diluted: Income (Loss) from Continuing Operations................. $ 0.26 $ 0.01 $ 0.50 $ (0.60) Income from Discontinued Operations...................... - - - - --------------- --------------- --------------- ---------------- Net Income (Loss)........................................ $ 0.26 $ 0.01 $ 0.50 $ (0.60) =============== =============== =============== ================ Weighted Average Number of Common Shares Basic.................................................... 167,217 166,441 167,022 134,991 =============== =============== =============== ================ Diluted.................................................. 177,484 168,371 176,057 134,991 =============== =============== =============== ================
See accompanying Notes to Consolidated Financial Statements. 1 Ocean Energy, Inc. Consolidated Balance Sheets (Amounts in Thousands, Except Share Data) (Unaudited)
June 30, December 31, 2000 1999 ----------------- ------------------ Assets Current Assets: Cash and cash equivalents.................................................... $ 84,839 $ 64,889 Accounts receivable, net..................................................... 198,344 170,034 Inventories.................................................................. 29,566 28,723 Prepaid expenses and other................................................... 23,791 26,304 ----------------- ------------------ Total Current Assets....................................................... 336,540 289,950 Property, Plant and Equipment, at cost, full cost method for oil and gas properties: Evaluated oil and gas properties............................................. 3,884,763 3,706,288 Unevaluated oil and gas properties excluded from amortization................ 521,007 507,197 Other........................................................................ 142,831 84,410 ----------------- ------------------ 4,548,601 4,297,895 Accumulated Depreciation, Depletion and Amortization............................ (2,339,617) (2,094,885) ----------------- ------------------ 2,208,984 2,203,010 Deferred Income Taxes........................................................... 177,518 233,406 Other Assets.................................................................... 54,000 56,777 ----------------- ------------------ Total Assets.................................................................... $ 2,777,042 $ 2,783,143 ================= ================== Liabilities And Shareholders' Equity Current Liabilities: Accounts and notes payable................................................... $ 280,105 $ 275,629 Accrued interest payable..................................................... 38,787 41,119 Accrued liabilities.......................................................... 23,576 51,542 Current maturities of long-term debt......................................... 8,023 13,651 ----------------- ------------------ Total Current Liabilities.................................................. 350,491 381,941 Long-Term Debt.................................................................. 1,257,268 1,333,410 Other Noncurrent Liabilities and Deferred Revenue............................... 138,683 120,097 Commitments and Contingencies................................................... Shareholders' Equity: Preferred stock, $1.00 par value; authorized 10,000,000 shares; issued 50,000 shares....................................................... 50 50 Common stock, $.10 par value; authorized 230,000,000 shares; issued 168,638,285 and 166,979,981 shares, respectively........................... 16,864 16,699 Additional paid-in capital................................................... 1,499,559 1,484,688 Accumulated deficit.......................................................... (460,372) (547,216) Less - treasury stock, at cost; 1,758,653 and 378,171 shares, respectively... (22,310) (3,114) Less - Other................................................................. (3,191) (3,412) ----------------- ------------------ Total Shareholders' Equity................................................. 1,030,600 947,695 ----------------- ------------------ Total Liabilities and Shareholders' Equity...................................... $ 2,777,042 $ 2,783,143 ================= ==================
See accompanying Notes to Consolidated Financial Statements. 2 Ocean Energy, Inc. Consolidated Statements Of Cash Flows (Amounts in Thousands) (Unaudited)
Six Months Ended June 30, --------------------------------------- 2000 1999 ----------------- ------------------ Operating Activities: Net income (loss)...................................................... $ 88,471 $ (78,915) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization............................. 153,032 148,117 Impairment of oil and gas properties................................. - 28,500 Deferred income taxes................................................ 56,003 (25,727) Noncash merger and integration costs................................. - 21,047 Other................................................................ 3,453 6,659 Changes in operating assets and liabilities, net of acquisitions: Decrease (increase) in accounts receivable......................... (28,310) 41,317 Decrease in inventories, prepaid expenses and other................ 148 16,718 Decrease in accounts and notes payable............................. (50,039) (94,117) Amortization of deferred revenue................................... (12,395) - Increase in accrued expenses and other............................. 2,614 41,795 ----------------- ------------------ Net Cash Provided by Operating Activities............................ 212,977 105,394 ----------------- ------------------ Investing Activities: Capital expenditures................................................... (251,348) (144,082) Capital expenditures of Discontinued Operations........................ - (2,171) Acquisition costs, net of cash acquired................................ (309) (2,327) Proceeds from sales of property, plant and equipment................... 92,655 109,442 ----------------- ------------------ Net Cash Used In Investing Activities................................ (159,002) (39,138) ----------------- ------------------ Financing Activities: Proceeds from debt..................................................... 672,583 823,189 Principal payments on debt ............................................ (698,540) (946,931) Proceeds from deferred revenue......................................... - 100,000 Proceeds from sales of common stock.................................... 11,518 311 Purchase of treasury stock............................................. (19,173) - Deferred debt issue costs.............................................. - (6,406) Other.................................................................. (413) (759) ----------------- ------------------ Net Cash Used In Financing Activities................................ (34,025) (30,596) ----------------- ------------------ Increase In Cash and Cash Equivalents.................................... 19,950 35,660 Cash and Cash Equivalents at Beginning of Period......................... 64,889 10,706 ----------------- ------------------ Cash and Cash Equivalents at End of Period............................... $ 84,839 $ 46,366 ================= ==================
See accompanying Notes to Consolidated Financial Statements. 3 Ocean Energy, Inc. Consolidated Statements Of Comprehensive Income (Amounts in Thousands) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- --------------------------------- 2000 1999 2000 1999 ----------------- --------------- ---------------- ---------------- Net income (loss).................................... $ 45,493 $ 2,136 $ 88,471 $ (78,915) Other comprehensive income, net of tax: Foreign currency translation adjustment........... - 9,741 - 10,720 ----------------- --------------- ---------------- ---------------- Comprehensive income (loss) ......................... $ 45,493 $ 11,877 $ 88,471 $ (68,195) ================= =============== ================ ================
See accompanying Notes to Consolidated Financial Statements. 4 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Note 1. Presentation of Financial Information The consolidated financial statements of Ocean Energy, Inc. ("Ocean", "OEI" or "the Company"), a Texas corporation, included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Although certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted, management believes that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation. On March 30, 1999, Ocean Energy, Inc. ("Old Ocean") was merged with and into Seagull Energy Corporation ("Seagull", the "Merger"). The resulting company was renamed Ocean Energy, Inc. The Merger was treated for accounting purposes as an acquisition of Seagull by Ocean with the assets and liabilities of Old Ocean being recorded based upon their historical costs and the assets and liabilities of Seagull being recorded at their estimated fair market values. As of December 31, 1999 a total purchase price of $642 million had been allocated to assets and liabilities. The Merger, completed through the issuance of common stock, increased property, plant and equipment by $1.3 billion, debt by $563 million, other liabilities by $200 million, and equity by $595 million through a non-cash transaction. The financial results presented here include those of Ocean Energy, Inc. on a stand alone-basis for the first quarter of 1999 and of the combined company thereafter. The accompanying consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1999. Property, Plant and Equipment - The Company capitalizes interest expense and certain employee-related costs that are directly attributable to oil and gas operations. For the three months ended June 30, 2000 and 1999, the Company capitalized interest expense in the amount of $11 million and $13 million, respectively, and certain employee-related costs in the amount of $11 million and $10 million, respectively. For the six months ended June 30, 2000 and 1999, the Company capitalized interest expense in the amount of $23 million and $20 million, respectively, and certain employee-related costs in the amount of $21 million and $15 million, respectively. During the first six months of 1999, the Company recognized impairments in the amount of $28.5 million, pre-tax, related primarily to the sale of the Canadian subsidiary on April 15, 1999. 5 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Earnings Per Share - The following table provides a reconciliation between basic and diluted earnings (loss) per share (stated in thousands except per share data):
Net Income (Loss) Weighted Average Earnings (Loss) Available to Common Common Shares Per Share Shareholders Outstanding Amount ------------------------ ---------------------- ------------------ Quarter Ended June 30, 2000: Basic................................... $ 44,681 167,217 $ 0.27 Effect of dilutive securities: Stock options...................... - 6,880 Convertible preferred stock........ 812 3,387 ------------------------ ---------------------- Diluted................................. $ 45,493 177,484 $ 0.26 ======================== ====================== Quarter Ended June 30, 1999: Basic................................... $ 1,300 166,441 $ 0.01 Effect of dilutive securities: Stock options...................... - 1,930 ------------------------ ---------------------- Diluted................................. $ 1,300 168,371 $ 0.01 ======================== ====================== Six Months Ended June 30, 2000: Basic.................................. $ 86,846 167,022 $ 0.52 Effect of dilutive securities: Stock options..................... - 5,648 Convertible preferred stock....... 1,625 3,387 ------------------------ ---------------------- Diluted................................ $ 88,471 176,057 $ 0.50 ======================== ====================== Six Months Ended June 30, 1999: Basic.................................. $ (80,552) 134,991 $ (0.60) Effect of dilutive securities.......... - - ------------------------ ---------------------- Diluted................................ $ (80,552) 134,991 $ (0.60) ======================== ======================
Weighted average options to purchase 7,661,000 shares of common stock at $12.19 to $36.54 per share and 6,890,000 shares of common stock at $14.88 to $36.54 per share were outstanding during the first six months and during the second quarter of 2000, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. These options expire at various dates through 2010. Weighted average options to purchase 17,597,000 shares of common stock for the six months ended June 30, 1999 at prices ranging from $2.11 to $36.54 per share were outstanding but were not included in the computation of diluted loss per share because such options would have an antidilutive effect on the computation of diluted loss per share. These options expire at various dates from 1999 to 2009. The preferred stock conversion was also excluded from the computation for the six months ended June 30, 1999 because of its antidilutive effect. Weighted average options to purchase 8,658,000 shares of common stock at $9.23 to $36.54 per share were outstanding during the second quarter of 1999 but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. These options expire at various dates through 2009. 6 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Treasury Stock - The Company follows the average cost method of accounting for treasury stock transactions. Discontinued Operations - During the first six months of 1999 the Company operated in Alaska through a division of the Company and a wholly-owned subsidiary (collectively referred to herein as "ENSTAR"). In July 1999 the Company committed to a plan to dispose of ENSTAR, and on November 1, 1999 the Company completed the sale. Prior to the sale the results of operations and net assets of ENSTAR were reflected as discontinued operations. Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, and in June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133. These statements establish standards of accounting for and disclosures of derivative instruments and hedging activities. These statements are effective for fiscal years beginning after June 15, 2000. While the Company has not yet completed its evaluation of the impact of these statements, the Company does not believe the statements will have a significant impact on its results of operations as it expects its current derivative activities would continue to qualify under hedge accounting. Note 2. Disposition of Assets Disposition of East Bay - On March 31, 2000, the Company completed the sale of its East Bay Complex receiving net proceeds of approximately $78 million. The properties consisted of South Pass 24, South Pass 27 and South Pass 30 Fields, located in the Mississippi Delta Region of the Gulf of Mexico. The East Bay Complex contributed revenues of $23 and $25 million for the first quarter of 2000 and the first six months of 1999, respectively, and had operating profit (loss) of $10 million and $(3) million, respectively. Proceeds from this sale were used to repay amounts outstanding under the Company's existing credit facilities. Disposition of Canadian Subsidiary - On April 15, 1999, the Company completed a sale of its Canadian oil and gas assets, realizing net proceeds of $68 million which were used to repay existing long-term debt. The Canadian assets disposed of contributed revenues of $7 million, and had operating loss of $21 million (including impairment) for the six months ended June 30, 1999. 7 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Note 3. Supplemental Disclosures of Cash Flow Information
Six Months Ended June 30, -------------------- ------ ---------------------- 2000 1999 -------------------- ---------------------- (amounts in thousands) Cash paid during the period for: Interest.................................................. $ 37,540 $ 57,584 Income taxes.............................................. $ 22,075 $ 6,244
Note 4. Financial Instruments From time to time, the Company has utilized and expects to continue to utilize hedging transactions with respect to a portion of its oil and natural gas production to achieve a more predictable cash flow as well as to reduce its exposure to price fluctuations. These transactions generally are swaps or price collars and are entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce the Company's exposure to declines in the market price of natural gas and crude oil. As a result, gains and losses on derivative financial instruments are generally offset by similar changes in the realized prices of natural gas and crude oil. Gains and losses from these financial instruments are recognized in revenues for the periods to which the derivative financial instruments relate. Oil and gas revenues have decreased by $52 million and $5 million for the six months ended June 30, 2000 and 1999, respectively, as a result of the derivative financial instruments and a prepaid crude oil sales contract. As of June 30, 2000 and based on NYMEX oil and gas strip prices at that date, the Company's derivative financial instruments were as follows:
Crude Oil Natural Gas ------------------------------------ ------------------------------------ Daily Daily Production Average Hedged Production Average Hedged Period (Bbl) Price (Mcf) Price - ------------------------------- --------------- ---------------- --------------- ----------------- Third Quarter, 2000............... 35,000 $ 22.80 115,000 $ 2.95 Fourth Quarter, 2000.............. 25,000 $ 21.93 115,000 $ 2.95 First Six Months, 2001............ 15,000 $ 21.53 - -
Note 5. Supplemental Guarantor Information Ocean Energy, Inc., a Louisiana corporation and wholly-owned subsidiary of the Company ("Ocean Louisiana"), has unconditionally guaranteed the full and prompt performance of the Company's obligations under certain of the notes and related indentures, including the payment of principal, premium (if any) and interest. None of the referenced indentures place significant 8 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) restrictions on a wholly-owned subsidiary's ability to make distributions to the parent. In order to provide meaningful financial data relating to the guarantor (i.e., Ocean Louisiana on an unconsolidated basis), the following condensed consolidating financial information has been provided following the policies set forth below: 1) The Company accounts for investments in subsidiaries on the cost basis. Earnings of subsidiaries are therefore not reflected in the related investment accounts. 2) Certain reclassifications were made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries and intercompany balances. 9 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Supplemental Condensed Consolidating Statements of Operations For the Three Months Ended June 30, 2000 and 1999 (Amounts in Thousands)
Unconsolidated -------------------------------------------------------------- Guarantor Non-Guarantor 2000 OEI Subsidiary Subsidiaries Consolidated OEI ------------------ -------------------- ------------------- ------------------ Revenues........................... $ - $ 66,563 $ 169,866 $ 236,429 Costs of Operations: Operating expenses.............. - 15,860 42,030 57,890 Depreciation, depletion and amortization.................. 1,582 13,579 57,791 72,952 General and administrative...... 5,950 - - 5,950 -------------------- ------------------- ------------------ ------------------ Operating Profit (Loss) ........... (7,532) 37,124 70,045 99,637 Interest Expense................... 18,644 - 222 18,866 Interest Income and Other.......... (550) 13 444 (93) ------------------ -------------------- ------------------- ------------------ Income (Loss) Before Taxes......... (25,626) 37,111 69,379 80,864 Income Tax Provision (Benefit) .... (9,354) 13,545 31,180 35,371 ------------------ -------------------- ------------------- ------------------ Net Income (Loss).................. $ (16,272) $ 23,566 $ 38,199 $ 45,493 ================== ==================== =================== ================== 1999 Revenues........................... $ - $ 65,550 $ 130,656 $ 196,206 Costs of Operations: Operating expenses.............. - 26,467 38,979 65,446 Depreciation, depletion and amortization.................. 1,061 27,002 61,446 89,509 General and administrative...... 4,363 4,144 - 8,507 ------------------ -------------------- ------------------- ------------------ Operating Profit (Loss)............ (5,424) 7,937 30,231 32,744 Interest Expense................... 30,487 649 (115) 31,021 Interest Income and Other.......... (1,543) 5,249 (3,337) 369 ------------------ -------------------- ------------------- ------------------ Income (Loss) Before Taxes......... (34,368) 2,039 33,683 1,354 Income Tax Provision (Benefit)..... 9,885 (30,185) 20,065 (235) ------------------ -------------------- ------------------- ------------------ Income (Loss) from Continuing Operations...................... (44,253) 32,224 13,618 1,589 Income from Discontinued Operations, net of income taxes. - - 547 547 ------------------ -------------------- ------------------- ------------------ Net Income (Loss).................. $ (44,253) $ 32,224 $ 14,165 $ 2,136 ================== ==================== =================== ==================
10 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Supplemental Condensed Consolidating Statements of Operations For the Six Months Ended June 30, 2000 and 1999 (Amounts in Thousands)
Unconsolidated -------------------------------------------------------------- Guarantor Non-Guarantor 2000 OEI Subsidiary Subsidiaries Consolidated OEI ------------------ -------------------- ------------------- ------------------ Revenues........................... $ - $ 158,985 $ 323,512 $ 482,497 Costs of Operations: Operating expenses.............. - 35,613 79,097 114,710 Depreciation, depletion and amortization.................. 3,165 36,051 113,816 153,032 General and administrative...... 15,072 - - 15,072 ------------------ -------------------- ------------------- ------------------ Operating Profit (Loss)............ (18,237) 87,321 130,599 199,683 Interest Expense................... 37,629 - 465 38,094 Merger and integration costs....... 3,273 - - 3,273 Interest Income and Other.......... (102) 27 (757) (832) ------------------ -------------------- ------------------- ------------------ Income (Loss) Before Taxes......... (59,037) 87,294 130,891 159,148 Income Tax Provision (Benefit) .... (21,549) 31,862 60,364 70,677 ------------------ -------------------- ------------------- ------------------ Net Income (Loss).................. $ (37,488) $ $ 55,432 $ 70,527 $ 88,471 ================== ==================== =================== ================== 1999 Revenues........................... $ - $ 114,350 $ 187,550 $ 301,900 Costs of Operations: Operating expenses.............. - 50,936 59,670 110,606 Depreciation, depletion and amorization................... 1,061 57,330 89,726 148,117 Impairment of oil and gas properties.................... - - 28,500 28,500 General and administrative...... 4,363 8,474 246 13,083 ------------------ -------------------- ------------------- ------------------ Operating Profit (Loss)............ (5,424) (2,390) 9,408 1,594 Interest Expense................... 44,971 13,126 (1,906) 56,191 Merger and integration costs....... - 40,652 - 40,652 Interest Income and Other.......... (1,544) 1,762 (332) (114) ------------------ -------------------- ------------------- ------------------ Income (Loss) Before Taxes......... (48,851) (57,930) 11,646 (95,135) Income Tax Provision (Benefit)..... (17,831) (21,144) 23,302 (15,673) ------------------ -------------------- ------------------- ------------------ Loss from Continuing Operations.... (31,020) (36,786) (11,656) (79,462) Income from Discontinued Operations, net of income taxes. - - 547 547 ----------------------------------------- ------------------- ------------------ Net Loss........................... $ (31,020) $ (36,786) $ (11,109) $ (78,915) ========================================= =================== ==================
11 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Supplemental Condensed Consolidating Balance Sheets At June 30, 2000 and December 31, 1999 (Amounts in Thousands)
Unconsolidated -------------------------------------------------- Guarantor Non-Guarantor Eliminating Consolidated June 30, 2000 OEI Subsidiary Subsidiaries Entries OEI -------------- --------------- --------------- --------------- --------------- Assets Current Assets................ $ 28,667 $ 68,744 $ 239,129 $ - $ 336,540 Intercompany Investments...... 2,472,465 (75,273) (75,118) (2,322,074) - Property, Plant and Equipment, Net........................ 21,330 539,659 1,647,995 - 2,208,984 Other Assets.................. 30,902 187,393 13,223 - 231,518 -------------- --------------- --------------- --------------- --------------- Total Assets.................. $ 2,553,364 $ 720,523 $ 1,825,229 $(2,322,074) $ 2,777,042 ============== =============== =============== =============== =============== Liabilities and Shareholders' Equity Current Liabilities........... $ 193,720 $ 106,583 $ 50,188 $ - $ 350,491 Long-Term Debt................ 1,248,399 - 8,869 - 1,257,268 Other Liabilities............. 115,526 11,390 11,767 - 138,683 Shareholders' Equity.......... 995,719 602,550 1,754,405 (2,322,074) 1,030,600 -------------- --------------- --------------- --------------- --------------- Total Liabilities and Shareholders' Equity....... $ 2,553,364 $ 720,523 $ 1,825,229 $(2,322,074) $ 2,777,042 ============== =============== =============== =============== =============== December 31, 1999 Assets Current Assets................ $ 3,266 $ 60,340 $ 226,344 $ - $ 289,950 Intercompany Investments...... 2,498,760 (167,761) (8,925) (2,322,074) - Property, Plant and Equipment, Net....................... 22,630 586,164 1,594,216 - 2,203,010 Other Assets.................. 72,943 187,393 29,847 - 290,183 -------------- --------------- --------------- --------------- --------------- Total Assets.................. $ 2,597,599 $ 666,136 $ 1,841,482 $(2,322,074) $ 2,783,143 ============== =============== =============== =============== =============== Liabilities and Shareholders' Equity Current Liabilities........... $ 131,041 $ 107,628 $ 143,272 $ - $ 381,941 Long-Term Debt................ 1,324,811 - 8,599 - 1,333,410 Other Liabilities............. 102,976 11,390 5,731 - 120,097 Shareholders' Equity.......... 1,038,771 547,118 1,683,880 (2,322,074) 947,695 -------------- --------------- --------------- --------------- --------------- Total Liabilities and Shareholders' Equity....... $ 2,597,599 $ 666,136 $ 1,841,482 $(2,322,074) $ 2,783,143 ============== =============== =============== =============== ===============
12 Ocean Energy, Inc. Notes to Consolidated Financial Statements (Unaudited) Supplemental Condensed Consolidating Statements of Cash Flows For the Six Months Ended June 30, 2000 and 1999 (Amounts in Thousands)
Unconsolidated ---------------------------------------------------------- Guarantor Non-Guarantor 2000 OEI Subsidiary Subsidiaries Consolidated OEI ------------------ ----------------- ----------------- ------------------ Cash Flows from Operating Activities: Net Income (Loss)............... $ (37,488) $ 55,432 $ 70,527 $ 88,471 Adjustments to reconcile net income (loss) to net cash from operating activitives......... 62,621 36,051 113,816 212,488 Changes in assets and liabilities (6,564) (9,448) (71,970) (87,982) ------------------ ----------------- ----------------- ------------------ Net Cash Provided by Operating Activities...................... 18,569 82,035 112,373 212,977 Cash Flows Provided by (Used in) Investing Activities............ 1,865 10,453 (171,320) (159,002) Cash Flows Provided by (Used In) Financing Activities............ (8,000) (92,488) 66,463 (34,025) ------------------ ----------------- ----------------- ------------------ Net Increase in Cash and Cash Equivalents..................... 12,434 - 7,516 19,950 Cash and Cash Equivalents: Beginning of Period............. 1,552 - 63,337 64,889 ------------------ ----------------- ----------------- ------------------ End of Period................... $ 13,986 $ - $ 70,853 $ 84,839 ================== ================= ================= ================== 1999 Cash Flows from Operating Activities: Net Loss........................ $ (31,020) $ (36,786) $ (11,109) $ (78,915) Adjustments to reconcile net loss to net cash from operating activities................... (15,446) 36,031 158,011 178,596 Changes in assets and liabilities (273,931) 374,464 (94,820) 5,713 ------------------ ----------------- ----------------- ------------------ Net Cash Provided by (Used in) Operating Activities............ (320,397) 373,709 52,082 105,394 Cash Flows Used in Investing Activities...................... (2,057) (10,339) (26,742) (39,138) Cash Flows Provided by (Used in) Financing Activities............ 330,680 (363,370) 2,094 (30,596) ------------------ ----------------- ----------------- ------------------ Net Increase in Cash and Cash Equivalents..................... 8,226 - 27,434 35,660 Cash and Cash Equivalents: Beginning of Period............. - - 10,706 10,706 ------------------ ----------------- ----------------- ------------------ End of Period................... $ 8,226 $ - $ 38,140 $ 46,366 ================== ================= ================= ==================
13 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations The following discussion is intended to assist in understanding the Company's financial position, results of operations and cash flows for each of the periods indicated. On March 30, 1999, Ocean Energy, Inc. ("Old Ocean") merged with and into Seagull Energy Corporation ("Seagull", "the Merger"). In conjunction with the Merger, Seagull amended its Articles of Incorporation to change its name to Ocean Energy, Inc. The merger was treated for accounting purposes as an acquisition of Seagull by Ocean. As such, the financial results presented here include those of Ocean Energy, Inc. on a stand-alone basis for the first quarter of 1999 and of the combined company thereafter. The Company's accompanying unaudited consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1999 contain detailed information that should be referred to in conjunction with the following discussion. Results Of Operations (Amounts in Thousands)
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- ------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- ------------- Oil and gas operations: Revenues: Natural gas............................ $ 106,602 $ 87,982 $ 199,987 $ 135,006 Oil and NGL............................ 129,827 108,224 282,510 166,894 -------------- -------------- -------------- ------------- 236,429 196,206 482,497 301,900 -------------- -------------- -------------- ------------- Operating expenses....................... 57,890 65,446 114,710 110,606 Depreciation, depletion and amortization. 71,369 87,129 149,867 144,300 Impairment of oil and gas properties..... - - - 28,500 -------------- -------------- -------------- ------------- Operating profit ....................... 107,170 43,631 217,920 18,494 Corporate................................... (7,533) (10,887) (18,237) (16,900) -------------- -------------- -------------- ------------- Total operating profit .................. $ 99,637 $ 32,744 $ 199,683 $ 1,594 ============== ============== ============== =============
With the Merger, the Company gained new operations in Egypt, Russia and Indonesia and expanded its operations in the U.S. and Cote d'Ivoire. In addition, the Company sold more than $700 million of non-core assets during 1999 and $92 million in the first half of 2000 as part of its debt reduction program. The Company's expanded operations, offset by property sales, combined with the continued escalation of world crude oil and natural gas prices which began during the second quarter of 1999 and has continued into 2000, resulted in a $181 million increase in revenues during the first six months of 2000 and a $40 million increase for the current quarter. During the first six months of 1999, the Company recorded impairments of oil and gas properties in the amount of $28.5 million related primarily to the sale of the Canadian subsidiary on April 15, 1999. These factors combined to improve total operating profit by $198 million for the first six months of 2000 and by $67 million for the second quarter of 2000 compared to the same periods of 1999. For the first quarter of 1999, prior to the Merger, Seagull on a stand-alone basis 14 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations recorded revenues of $57 million from its oil and gas operations and had production of 19,456 barrels of oil per day and 277 MMcf of gas per day. Revenues - Natural gas revenues increased $65 million, or 48%, to $200 million for the six months ended June 30, 2000, from $135 million for the six months ended June 30, 1999. Gas revenues increased $19 million, or 22%, to $107 million for the second quarter of 2000 as compared to $88 million for the second quarter of 1999. These increases are primarily due to higher average gas prices realized during the period, offset by the effects of property sales as discussed below. The average realized price for natural gas increased 52% to $2.75 per Mcf in the first six months of 2000 as compared to $1.81 in the first six months of 1999 and increased 61% to $3.06 for the second quarter of 2000 compared to $1.90 for the second quarter of 1999. Daily natural gas production for the first six months of 2000 was 399.6 MMcf as compared to 411.0 MMcf per day for the first six months of 1999. Daily production decreased 25% from 1999 volumes for the second quarter of 2000 to 382.4 MMcf due primarily to property sales. Oil revenues reached $283 million for the six months ended June 30, 2000, an increase of $116 million, or 69%, over revenues of $167 million for the six months ended June 30, 1999. For the second quarter of 2000, oil revenues increased $22 million, or 20%, to $130 million for 2000 compared to $108 million for the second quarter of 1999. These increases are the result of an increase in the average realized oil price during the period, offset by the effects of property sales as discussed below. The average realized price for oil increased 77% to $22.59 for the first six months of 2000 compared to $12.79 for the same period in 1999. The average realized oil price increased to $22.14 for the second quarter of 2000 compared to $15.03 for the second quarter of 1999. Daily oil production decreased slightly, to 68,703 Bbl for the first six months of 2000 as compared to 72,078 Bbl for the same period in 1999. For the second quarter of 2000, daily oil production decreased 19%, to 64,429 Bbl as compared to 79,145 Bbl for the second quarter of 1999 primarily due to property sales. During 1999 and the first quarter of 2000, the Company sold various non-core oil and gas assets as part of its debt reduction program as follows:
Net Daily Production Six Months Ending June 30, 1999 ------------------------------------------ Oil and NGL's Gas Asset Date of Sale (Bbl) (MMcf) - ---------------------------------------------- ---------------- ------------------- ------------------- Canadian subsidiary........................ April 1999 708 21 Arkoma Basin assets (acquired primarily in Merger)............................... August 1999 - 59 Gulf of Mexico assets...................... August 1999 2,517 6 East Bay assets............................ March 2000 8,685 19 ------------------- ------------------- Total reduction in daily production associated with property sales.......... 11,910 105 =================== ===================
Oil and gas revenues have been decreased by $52 million and $5 million for the six months ended June 30, 2000 and 1999, respectively, and have been decreased by $32 million for the three months ended June 30, 2000, as a result of derivative contracts and a prepaid crude oil sales 15 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations contract. There was no increase or decrease in oil and gas revenues as a result of derivative contracts during the second quarter of 1999. Operating Data
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ------------------------------ 2000 1999 2000 1999 ------------- -------------- -------------- --------------- Net Daily Natural Gas Production (MMcf): Domestic............................................. 344.2 465.0 359.2 358.9 Cote d'Ivoire........................................ 28.8 32.1 30.7 27.8 Other International.................................. 9.4 12.9 9.7 24.3 ------------- -------------- -------------- --------------- Total................................................ 382.4 510.0 399.6 411.0 ============= ============== ============== =============== Average Natural Gas Prices ($ per Mcf) (1): Domestic............................................. $ 3.36 $ 1.92 $ 2.88 $ 1.82 Cote d'Ivoire........................................ $ 2.47 $ 1.63 $ 2.23 $ 1.71 Other International.................................. $ 3.44 $ 1.81 $ 3.45 $ 1.61 Weighted Average..................................... $ 3.30 $ 1.90 $ 2.84 $ 1.80 Average Natural Gas Prices including Hedging Activities and Prepaid Crude Oil Sales Contract ($ per Mcf)......... $ 3.06 $ 1.90 $ 2.75 $ 1.81 Net Daily Oil and NGL Production (Bbl): Domestic............................................. 25,220 38,722 29,016 39,263 Equatorial Guinea.................................... 21,484 19,516 21,390 19,458 Cote d'Ivoire........................................ 4,011 4,975 4,286 4,734 Egypt ............................................... 9,022 11,495 9,231 5,779 Other International.................................. 4,692 4,437 4,780 2,844 ------------- -------------- -------------- --------------- Total................................................ 64,429 79,145 68,703 72,078 ============= ============== ============== =============== Average Oil and NGL Prices ($ per Bbl) (1): Domestic............................................. $ 26.81 $ 15.44 $ 27.39 $ 13.22 Equatorial Guinea.................................... $ 27.27 $ 14.84 $ 26.81 $ 13.07 Cote d'Ivoire........................................ $ 24.07 $ 18.75 $ 23.91 $ 14.57 Egypt................................................ $ 27.20 $ 15.48 $ 26.67 $ 15.48 Other International.................................. $ 16.49 $ 6.38 $ 17.46 $ 7.41 Weighted Average..................................... $ 26.09 $ 15.00 $ 26.20 $ 13.22 Average Oil and NGL Prices including Hedging Activities and Prepaid Crude Oil Sales Contract ($ per Bbl)........... $ 22.14 $ 15.03 $ 22.59 $ 12.79
(1) All price information excludes the results of hedging activities, unless otherwise stated. Operating Expenses - Total operating expenses remained relatively flat at $115 million for the six months ended June 30, 2000 compared to $111 million for the comparable 1999 period. Operating expenses per BOE were $4.66 per BOE for the first six months of 2000 compared to $4.35 per BOE for the comparable 1999 period. For the second quarter of 2000 total operating expenses decreased $7 million, or 11%, to $58 million compared to $65 million for the second quarter of 1999, while operating expenses per BOE were $4.97 per BOE for the second quarter of 16 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations 2000 compared to $4.38 per BOE for the second quarter of 1999.The increase in operating expenses per BOE is attributable to increases in production taxes and workover expenses. Depreciation, Depletion and Amortization Expense - Total depreciation, depletion and amortization (DD&A) expense for oil and gas operations increased $6 million to $150 million for the six months ended June 30, 2000 from $144 million for the same period in 1999. DD&A expense for oil and gas operations decreased $16 million to $71 million for the second quarter of 2000 compared to $87 million for the second quarter of 1999 primarily due to decreased production during the second quarter of 2000. DD&A expense per BOE related to oil and gas operations rose 7% to $6.09 per BOE for the six months ended June 30, 2000, from $5.67 per BOE for the comparable period in 1999. DD&A per BOE was $6.12 per BOE for the second quarter of 2000 as compared to $5.83 per BOE for the second quarter of 1999. The higher DD&A expense per BOE for both the first six months and the first quarter of 2000 is primarily attributable to the effects of the Merger and the geographic mix of production. General and Administrative Expenses - General and administrative expenses totaled $15 million for the six months ended June 30, 2000. This amount includes approximately $3 million in expense relating to compensation plans that are tied directly to the market price of the Company's common stock. General and administrative expenses totaled $13 million for the comparable 1999 period. General and administrative expense for the second quarter of 2000 decreased 33%, or $3 million, to $6 million, as compared to $9 million for the second quarter of 1999 as the Company has been able to realize cost savings related to personnel reduction, office consolidations and reduced combined expenses for professional fees and other expense items as a result of the Merger. Other Interest Expense - Interest expense decreased $18 million, or 32%, to $38 million for the six months ended June 30, 2000 from $56 million in the comparable 1999 period. Interest expense for the second quarter of 2000 decreased $12 million to $19 million from $31 million for 1999. These decreases are the result of the Company's debt reduction program undertaken subsequent to the Merger in 1999 and to the increase in the amount of interest capitalized during the first six months of 2000 ($23 million in 2000 as opposed to $20 million in 1999) due to the increase in the level of capital expenditures. Merger and Integration Costs - Merger and integration costs of $3 million relating primarily to severance costs were recorded in the first six months of 2000. Costs of $41 million were recorded in the first six months of 1999 and consisted primarily of Old Ocean's severance costs ($21 million), the write-off of certain costs relating to Old Ocean's information technology system ($14 million) and compensation expense related to the vesting of Old Ocean's restricted stock ($6 million). 17 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations Income Tax Expense (Benefit) - Income tax expense of $71 million was recognized for the six months ended June 30, 2000 compared to an income tax benefit of $16 million for the six months ended June 30, 1999. This change is primarily the result of three factors: (i) significant improvement in operating results; (ii) changes in the nature of deferred tax assets and liabilities due to the Merger and subsequent asset sales; and (iii) the relative significance of international operating results and taxes to the Company's total results. Liquidity And Capital Resources Liquidity - As a result of the Merger, the Company had nearly $2 billion in long-term debt as of March 31, 1999. One of management's goals has been the reduction of these high debt levels. Using proceeds primarily from asset sales, excess cash flows attributable to higher commodity prices and disciplined capital spending, long-term debt has been reduced to less than $1.3 billion at June 30, 2000. Concurrent with the closing of the Merger on March 30, 1999, the Company entered credit facilities (the "Credit Facilities") which combined the existing credit facilities of both Old Ocean and Seagull. As of June 30, 2000, the Credit Facilities consist of a $500 million five-year revolving facility and a renewable $200 million 364-day facility. The Credit Facilities bear interest, at the Company's option, at LIBOR or prime rates plus applicable margins ranging from zero to 1.7% or at a competitive bid. As of June 30, 2000, borrowings outstanding against the Credit Facilities totaled $225 million and Letters of Credit totaled $45 million, leaving $430 million of available credit. The Company's debt to total capitalization ratio has decreased to 55% at June 30, 2000, from 58% at December 31, 1999, and 66% at June 30, 1999. Effects of Leverage - The Company has outstanding indebtedness of approximately $1.3 billion as of June 30, 2000. The Company's level of indebtedness has several important effects on its future operations, including (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on its indebtedness and will not be available for other purposes, (ii) the covenants contained in the various indentures require the Company to meet certain financial tests, and contain other restrictions that limit the Company's ability to borrow additional funds or to dispose of assets and may affect the Company's flexibility in planning for, and reacting to, changes in its business, including possible acquisition activities and (iii) the Company's ability to obtain additional financing in the future for working capital, expenditures, acquisitions, general corporate or other purposes may be impaired. 18 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations Capital Expenditures (Amounts in Thousands)
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- ----------------------------------- 2000 1999 2000 1999 -------------- -------------- --------------- --------------- Oil and Gas Operations: Leasehold acquisitions............... $ 13,574 $ 8,672 $ 28,998 $ 12,571 Exploration costs................... 35,218 40,854 83,975 49,845 Development costs................... 75,291 40,194 132,264 76,213 -------------- -------------- --------------- --------------- 124,083 89,720 245,237 138,629 Corporate............................. 3,781 2,636 6,111 5,453 -------------- -------------- --------------- --------------- Total Continuing Operations........... 127,864 92,356 251,348 144,082 Discontinued Operations............ - 2,171 - 2,171 -------------- -------------- --------------- --------------- Total Capital Expenditures............ $ 127,864 $ 94,527 $ 251,348 $146,253 ============== ============== =============== ===============
During the first six months of 2000 the Company drilled 90 development wells, 77 of which were successful, and 32 exploratory wells, 17 of which were successful, for an overall success rate of 77% on total wells drilled. During the second quarter, the Company's Board of Directors approved a $50 million increase to the Company's capital expenditure budget for 2000 to approximately $550 million (excluding proved property acquisitions). Actual capital spending may vary from the capital expenditure budget. The Company will evaluate its level of capital spending throughout the year based upon drilling results, commodity prices, cash flows from operations and property acquisitions. The Company makes, and will continue to make, substantial capital expenditures for the acquisition, exploration, development, production and abandonment of its oil and natural gas reserves. The Company has historically funded its expenditures from cash flows from operating activities, bank borrowings, sales of equity and debt securities, sales of non-strategic oil and natural gas properties, sales of partial interests in exploration concessions and project finance borrowings. The Company intends to finance 2000 capital expenditures primarily with funds provided by operations. Update of Year 2000 Estimates On February 23, 2000, the Company filed a Current Report on Form 8-K containing the Company's current estimates of its operating statistics for the year ended December 31, 2000. The Company has revised its estimates of operating statistics for the year ended December 31, 2000 based on operating performance for the first half of 2000 and revised estimates for the second half of 2000. Annual production estimates have been reduced by approximately 5% due primarily to production delays in the Gulf of Mexico and Equatorial Guinea. The revised mid-points of annual production estimates ranges are 25 MMBbls of crude oil production and 156 Bcf of natural gas production for the year 2000. Operating costs per BOE have been increased by approximately 10% to $4.40 per BOE, primarily due to increased production taxes attributable to 19 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations higher commodity prices and increased workover expenses. The increase in workover expenses is complementary to the Company's $50 million increase in planned capital expenditures for 2000 in order to take advantage of new opportunities caused by higher commodity prices. The Company cautions that the revised 2000 estimates set forth above are given as of the date hereof only based on currently available information, and that the Company is not undertaking any obligations to update these estimates as conditions change or other information becomes available. Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and in June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133. These statements establish standards of accounting for and disclosures of derivative instruments and hedging activities. These statements are effective for fiscal years beginning after June 15, 2000. While the Company has not yet completed its evaluation of the impact of these statements, the Company does not believe the statements will have a significant impact on its results of operations as it expects that its current derivative activities would continue to qualify under hedge accounting. Environmental Compliance with applicable environmental and safety regulations by the Company has not required any significant capital expenditures or materially affected its business or earnings. The Company believes it is in substantial compliance with environmental and safety regulations and foresees no material expenditures in the future; however, the Company is unable to predict the impact that compliance with future regulations may have on capital expenditures, earnings and competitive position. Defined Terms Natural gas is stated herein in thousand cubic feet ("Mcf"), million cubic feet ("MMcf") or billion cubic feet ("Bcf"). Oil, condensate and natural gas liquids ("NGL") are stated in barrels ("Bbl"), thousand barrels ("MBbl") or million barrels ("MMBbl"). Oil, condensate and NGL are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. MMBOE, MBOE and BOE represent one million barrels, one thousand barrels and one barrel of oil equivalent, respectively, with six Mcf of gas converted to one barrel of liquid. Forward-Looking Statements May Prove Inaccurate This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private 20 Ocean Energy, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this document, including, without limitation, statements regarding the financial position, business strategy, production and reserve growth and other plans and objectives for the future operations of the Company are forward-looking statements. Although the Company believes that such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will in fact occur. Important factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements are subject to risks and uncertainties and include information concerning general economic conditions and possible or assumed future results of operations of the Company, estimates of oil and gas production and reserves, drilling plans, future cash flows, anticipated capital expenditures, the Company's realization of its deferred tax assets, the level of future expenditures for environmental costs, and management's strategies, plans and objectives as set forth herein. When used in this document, the words "believes," "expects," "anticipates," "intends" or similar expressions are intended to identify such forward-looking statements. The following important factors, in addition to those discussed elsewhere in this document could affect the future results of the energy industry in general and could cause those results to differ materially from those expressed in such forward-looking statements: - - Risks incident to the drilling and operation of oil and gas wells; - - Future production and development costs; - - The effect of existing and future laws and regulatory actions; - - The political and economic climate in the foreign jurisdictions in which the Company conducts oil and gas operations; - - The effect of changes in commodity prices, hedging activities and conditions in the capital markets; and - - Competition from others in the energy industry. 21 Ocean Energy, Inc. Item 3. Quantitative and Qualitative Disclosures About Market Risks. To mitigate a portion of its exposure to fluctuations in commodity prices, the Company has entered into various derivative financial instruments for its oil and natural gas production for the remainder of 2000 and for 2001. See Note 4 to the Company's Consolidated Financial Statements for a discussion of hedging activities during the first six months of 2000. To calculate the potential effect of the derivative financial instruments on revenues, the Company applies the average NYMEX oil and gas strip prices for the remainder of 2000 and for 2001 to the quantity of the Company's oil and gas production hedged as of June 30, 2000. Using this calculation, the estimated potential effect of the derivative financial instruments is an approximate $76 million net decrease in revenues for the remainder of the year 2000 and an approximate $13 million net decrease for 2001. Assuming a 10% decrease in oil and gas prices, the potential effect of the derivative financial instruments would be an approximate $44 million decrease in revenues for the remainder of 2000 and an approximate $6 million decrease for 2001. Assuming a 10% increase in oil and gas prices, the potential effect of the derivative financial instruments would be an approximate $102 million decrease in revenues for the remainder of 2000 and an approximate $20 million decrease for 2001. The Company also evaluated the potential effect that reasonably possible near term changes in interest rates may have on the Company's Credit Facilities. Debt outstanding under the Credit Facilities represents approximately 18% of the Company's total debt as of June 30, 2000 and is the only floating rate debt. Based upon the balances outstanding as of June 30, 2000 and assuming no changes in the amount of debt outstanding, the potential effect on annual interest expense of a 10% increase or decrease in interest rates is approximately $2 million. Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders of the Company held on May 10, 2000, the shareholders elected certain directors to serve until the 2003 Annual Meeting of Shareholders and ratified the appointment of KPMG LLP as independent auditors of the Company for the fiscal year ended December 31, 2000. Votes cast were as follows:
Broker For Against Non-Votes Abstained --------------- --------------- --------------- ------------- Election as a Director of the Company of: J. Evans Attwell....................... 133,474,303 - - 1,309,344 Barry J. Galt.......................... 133,014,688 - - 1,768,959 Elvis L. Mason......................... 133,072,707 - - 1,710,940 David K. Newbigging.................... 133,815,287 - - 968,360 Dee S. Osborne......................... 133,895,146 - - 888,501 Ratification of Selection of KPMG LLP as Independent Auditors For 2000....... 134,477,189 148,461 - 157,997
22 Ocean Energy, Inc. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
4.1 Amendment No. 4 to the Amended and Restated Rights Agreement, dated as of May 19, 2000, by and between the Company and Fleet National Bank (f/k/a BankBoston, N.A.) incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2000. * 27.1 Financial Data Schedule.
* Filed herewith. (b) Reports on Form 8-K: On May 22, 2000, the Company filed a Current Report on Form 8-K dated May 19, 2000 with respect to the Amendment and Restatement of the Company's Rights Agreement. The items reported in such Current Report were Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits). 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. Ocean Energy, Inc. By: /s/ William L. Transier William L. Transier Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 1, 2000 By: /s/Gordon L. McConnell Gordon L. McConnell Vice President and Controller (Principal Accounting Officer) Date: August 1, 2000 23 Ocean Energy, Inc. Exhibit Index
4.1 Amendment No. 4 to the Amended and Restated Rights Agreement, dated as of May 19, 2000, by and between the Company and Fleet National Bank (f/k/a BankBoston, N.A.) incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 22, 2000. * 27.1 Financial Data Schedule.
* Filed herewith. EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS Dec-31-2000 Jun-30-2000 84,839 0 198,344 0 29,566 336,540 4,548,601 2,339,617 2,777,042 350,491 1,257,268 0 50 16,864 1,013,686 2,777,042 482,497 482,497 0 267,742 2,441 0 38,094 159,148 70,677 88,471 0 0 0 88,471 0.52 0.50
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