-----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, QJHQ8jD2oru0TaCNqwxzzc6mnh+aCPKy9Vk/KvjdZ0NjMVxxUcJsLcD0ZJzIg4t/ Bc39smWsgJEYOQna05hAXg== 0000320321-97-000004.txt : 19970514 0000320321-97-000004.hdr.sgml : 19970514 ACCESSION NUMBER: 0000320321-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGULL ENERGY CORP CENTRAL INDEX KEY: 0000320321 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 741764876 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08094 FILM NUMBER: 97601399 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STE 1700 CITY: HOUSTON STATE: TX ZIP: 77002-6714 BUSINESS PHONE: 7139514700 MAIL ADDRESS: STREET 1: 1001 FANNIN, SUITE 1700 CITY: HOUSTON STATE: TX ZIP: 77002-6714 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL PIPELINE CORP DATE OF NAME CHANGE: 19830815 10-Q 1 FORM 10Q ================================================================================ 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, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-8094 Seagull Energy Corporation (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 1700, Houston, Texas 77002-6714 (Address of principal executive offices) (Zip code) (713) 951-4700 (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 May 8, 1997, 63,361,263 shares of Common Stock, par value $0.10 per share, were outstanding. ================================================================================ SEAGULL ENERGY CORPORATION AND SUBSIDIARIES INDEX
PAGE NUMBER Part I. Financial Information Item 1. Unaudited Consolidated Financial Statements Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996.......................................... 3 Consolidated Balance Sheets - March 31, 1997 and December 31, 1996.................................................. 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996.......................................... 5 Notes to Consolidated Financial Statements............................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 9 Part II. Other Information................................................ 14 Signatures................................................................. 15
-2- Item 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands Except Per Share Data) (Unaudited)
Three Months Ended March 31, ------------------------------------ 1997 1996 ---------------- --------------- Restated Revenues: Oil and gas operations.............................................. $125,004 $101,145 Alaska transmission and distribution................................ 34,569 35,430 ---------------- --------------- 159,573 136,575 Costs of Operations: Operations and maintenance.......................................... 42,871 34,335 Alaska transmission and distribution cost of gas sold............... 16,722 16,200 Exploration charges................................................. 8,953 6,730 Depreciation, depletion and amortization............................ 42,111 38,206 General and administrative.......................................... 2,310 3,729 ---------------- --------------- 112,967 99,200 ---------------- --------------- Operating Profit...................................................... 46,606 37,375 Other (Income) Expense: Interest expense.................................................... 10,410 11,446 Interest income and other........................................... (698) (1,155) ---------------- --------------- 9,712 10,291 ---------------- --------------- Income Before Income Taxes............................................ 36,894 27,084 Income Tax Expense.................................................... 19,640 8,772 ---------------- --------------- Net Income............................................................ $ 17,254 $ 18,312 ================ =============== Earnings Per Share.................................................... $ 0.27 $ 0.29 ================ =============== Weighted Average Number of Common Shares Outstanding.................................................. 64,088 62,972 ================ ===============
See accompanying Notes to Consolidated Financial Statements. -3- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands Except Share and Per Share Data) (Unaudited)
March 31, December 31, 1997 1996 -------------- ------------- ASSETS Current Assets: Cash and cash equivalents.................................................. $ 27,283 $ 15,284 Accounts receivable, net................................................... 135,949 193,659 Inventories................................................................ 15,486 12,285 Prepaid expenses and other................................................. 12,821 6,389 -------------- ------------- Total Current Assets..................................................... 191,539 227,617 Property, Plant and Equipment - at cost...................................... 2,099,143 2,049,356 Accumulated Depreciation, Depletion and Amortization......................... 844,353 804,715 -------------- ------------- 1,254,790 1,244,641 Other Assets................................................................. 43,939 42,805 -------------- ------------- Total Assets................................................................. $1,490,268 $1,515,063 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts and note payable.................................................. $ 141,633 $ 166,775 Accrued expenses........................................................... 41,122 57,368 Current maturities of long-term debt....................................... 7,227 7,227 -------------- ------------- Total Current Liabilities................................................ 189,982 231,370 Long-Term Debt............................................................... 564,936 573,455 Other Noncurrent Liabilities................................................. 59,904 65,428 Deferred Income Taxes........................................................ 43,250 31,021 Redeemable Bearer Shares..................................................... 15,978 16,059 Commitments and Contingencies................................................ - - Shareholders' Equity: Common Stock, $.10 par value; authorized 100,000,000 shares; issued 63,342,247 shares (1997) and 63,073,287 shares (1996).............................................. 6,334 6,307 Additional paid-in capital................................................. 485,521 483,118 Retained earnings.......................................................... 133,059 115,805 Foreign currency translation adjustment.................................... (1,145) 51 Less - note receivable from employee stock ownership plan............................................................ (4,284) (4,284) Less - 361,314 shares of Common Stock held in Treasury, at cost................................................. (3,267) (3,267) -------------- ------------- Total Shareholders' Equity............................................... 616,218 597,730 -------------- ------------- Total Liabilities and Shareholders' Equity................................... $1,490,268 $1,515,063 ============== =============
See accompanying Notes to Consolidated Financial Statements -4- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Three Months Ended March 31, ------------------------------------- 1997 1996 ---------------- --------------- OPERATING ACTIVITIES: Net income................................................................... $ 17,254 $ 18,312 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization................................. 42,111 38,206 Amortizationnof deferred financing costs................................. 606 876 Deferred income taxes.................................................... 12,494 4,762 Dry hole expense......................................................... 270 754 Other.................................................................... 378 (372) ---------------- --------------- 73,113 62,538 Changes in operating assets and liabilities, net of acquisitions: Decrease in short-term liquid investments.............................. - 5,010 Decrease (increase) in accounts receivable............................. 57,137 (8,034) Decrease (increase) in inventories, prepaid expenses and other.................................................... (10,925) 1,200 Increase (decrease) in accounts and note payable....................... (25,338) 8 Decrease in accrued expenses and other................................. (20,472) (8,589) ---------------- --------------- Net Cash Provided By Operating Activities............................. 73,515 52,133 INVESTING ACTIVITIES: Capital expenditures......................................................... (55,427) (25,916) Acquisitions, net of cash acquired........................................... (101) (877) Proceeds from sales of property, plant and equipment......................... 645 875 ---------------- --------------- Net Cash Used In Investing Activities................................. (54,883) (25,918) FINANCING ACTIVITIES: Proceeds from debt........................................................... 166,252 91,750 Principal payments on debt................................................... (174,147) (101,724) Proceeds from sales of common stock.......................................... 2,171 2,347 Other........................................................................ (855) (2,031) ---------------- --------------- Net Cash Used In Financing Activities................................. (6,579) (9,658) Effect of exchange rate changes on cash......................................... (54) 10 ---------------- --------------- Increase In Cash And Cash Equivalents................................. 11,999 16,567 Cash And Cash Equivalents At Beginning Of Period................................ 15,284 21,477 ---------------- --------------- Cash And Cash Equivalents At End Of Period...................................... $ 27,283 $ 38,044 ================ ===============
See accompanying Notes to Consolidated Financial Statements. -5- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Presentation of Financial Information Merger with Global Natural Resources Inc. -- On October 3, 1996, the shareholders of Seagull Energy Corporation and Subsidiaries (the "Company" or "Seagull") and Global Natural Resources Inc. ("Global") approved a merger of a wholly owned subsidiary of Seagull into Global (the "Global Merger"). Pursuant to the Global Merger, each share of Global common stock was converted into 0.88 shares of Seagull common stock with approximately 26.3 million shares issued to the shareholders of Global. The Global Merger was accounted for as a pooling of interests. Accordingly, the financial statements for 1996 have been restated to combine the results of Seagull and Global. In the opinion of management, the unaudited consolidated financial statements presented herein contain all adjustments necessary to present fairly the financial position of Seagull as of March 31, 1997, and the results of its operations and cash flows for the three months ended March 31, 1997 and 1996. All adjustments made are of a normal, recurring nature. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the full year. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. This statement establishes standards for computing and presenting earnings per share and requires, among other things, dual presentation of basic and diluted earnings per share on the face of the statement of operations. The statement is effective for financial statements for periods ending after December 15, 1997. The Company will adopt SFAS No. 128 by December 31, 1997 and does not expect the adoption to have a material impact on its calculation of earnings per share. The financial information presented herein should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Certain reclassifications have been made to the 1996 financial information to conform to the presentation used in 1997. Note 2. Supplemental Disclosures of Cash Flow Information Supplemental Disclosures of Cash Flow Information
Three Months Ended March 31, ----------------------------------------- (Amounts in Thousands) 1997 1996 ------------------ ------------------- Cash paid during the period for: Restated Interest, net of amount capitalized.......................................... $15,988 $17,054 Income taxes................................................................. $ 6,432 $ 5,767
-6- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 3. Commitments and Contingencies Royalty Litigation. Increasingly, royalty owners under oil and gas leases are challenging valuation methodology and post-production deductions used by producers. These cases have arisen because of the manner in which oil and gas producers such as Seagull have begun to provide services that had previously been provided by the interstate gas pipelines prior to the "unbundling" of gas services. For example, in 1996, Seagull was sued in Anne K. Barnaby, et al. v. Seagull Mid-South, Inc. This case is pending in state court of Latimer County, Oklahoma. In this case, the plaintiffs seek additional royalties based upon the deduction by Seagull of post-production costs, such as those related to gathering, compression, dehydration and treating. In addition, the plaintiffs have questioned the sales price used by Seagull as a basis for calculating royalty to the extent that sales were made to Seagull's gas marketing subsidiary. NorAm Litigation. Seagull also was sued in NorAm Gas Transmission Co., et al. v. Seagull Mid-South Inc. The case relates to Seagull's termination of a 1956 gas contract, which provided for the sale of gas by Seagull from certain wells in the Aetna Field in Arkansas for $0.16 per Mcf. NorAm Gas Transmission ("NorAm") has sought a declaratory judgment that the gas contract remains in effect with respect to these wells. Since the termination by Seagull of the gas contract, Seagull has been selling the gas in question on the spot market. Seagull believes that it has reasonable grounds for terminating the gas contract. The NorAm case is currently scheduled for trial in mid-1997 in District Court in Harris County, Texas. Seagull intends to vigorously defend this case and does not believe that this case will have a material adverse effect on its financial condition or results of operations. NorAm has also sought a declaratory judgment to the effect that certain additional wells in the Aetna Field (including any new wells) would be subject to the $0.16 per Mcf price (the "Additional Well Claim"). If NorAm were successful with the Additional Well Claim, Seagull's operations in the Aetna Field would be materially affected in an adverse manner. However, Seagull believes that there is little basis for this claim by NorAm and believes that it will not be required to pay any amounts in connection with the Additional Well Claim. Gulf Coast Vacuum Site. In 1993, the Environmental Protection Agency ("EPA") notified the Company that a subsidiary was a potentially responsible party ("PRP") at the Gulf Coast Vacuum Services Superfund Site (the "GCV Site") in Vermilion Parish, Louisiana. Based upon the Company's investigation of this claim, the Company believes that the basis for its alleged liability is a series of transactions between the Company's subsidiaries and the operator of the GCV Site that occurred during 1979 and 1980. While the EPA's cleanup cost estimate of the GCV Site is in the range of $17 million, the Company believes that its liability is unlikely to be material to its financial condition, results of operations or cash flows because of the large number of potentially responsible parties at the GCV Site and the relative amount of contamination, if any, that may have been caused at the GCV Site by the disposal of wastes by the Company during 1979 and 1980. Caddo Natural Gas Company Site. The Company was notified by the Louisiana Department of Environmental Quality on March 20, 1996, that one of the Company's wholly owned subsidiaries is a -7- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) PRP in a state Superfund site known as the Caddo Natural Gas Company Site. This site is reported to be contaminated with low levels of PCB, an additive used in lubricating oils prior to the 1980s. During the first quarter of 1997, the Company signed a settlement agreement whereby Seagull would pay a portion of the cleanup costs for the Caddo Natural Gas Company Site. Seagull's share of the cleanup costs is not expected to be material to its financial condition, results of operations or cash flows. Comstock Mill Site. On February 21, 1996, the United States Department of Interior Bureau of Land Management ("BLM") sent a letter to Houston Oil & Minerals Corporation ("HO&M"), a wholly owned subsidiary of Seagull, requesting HO&M to prepare and submit a plan for sampling and analyzing groundwater at a former mining operation located near Virginia City, Nevada (the "Comstock Mill Site"). The basis for the BLM's request was the alleged operation of the Comstock Mill Site by HO&M between 1978 and 1982. Pursuant to an indemnity provision in the stock purchase agreement by which Seagull acquired HO&M in 1988 (the "HO&M Purchase Agreement"), Seagull tendered the BLM's letter to Tenneco Inc. ("Tenneco") with a demand for indemnity and notified the BLM that Tenneco would respond to the BLM letter on behalf of HO&M. The BLM has also indicated that Tenneco and HO&M might be required to address cyanide contamination of groundwater at the Comstock Mill Site by separate action of the Nevada Division of Environmental Protection. Seagull believes that any liability associated with the Comstock Mill Site is the responsibility of Tenneco or its successors in liability pursuant to the HO&M Purchase Agreement. The Company is a party to other ongoing litigation in the normal course of business. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management believes that the effect on its financial condition, results of operations and cash flows, if any, will not be material. -8- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist in an understanding of the Company's financial position, results of operations and cash flows for each of the quarters ended March 31, 1997 and 1996. The Company's accompanying unaudited consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 contain detailed information that should be referred to in conjunction with the following discussion. RESULTS OF OPERATIONS CONSOLIDATED HIGHLIGHTS
(Amounts in Thousands Except Per Share Data) Three Months Ended March 31, ---------------------------------- 1997 1996 --------------- --------------- Revenues: Restated Oil and gas operations ............................................................. $125,004 $101,145 Alaska transmission and distribution................................................ 34,569 35,430 --------------- --------------- $159,573 $136,575 =============== =============== Operating profit: Oil and gas operations ............................................................. $ 39,079 $ 29,866 Alaska transmission and distribution................................................ 10,466 11,744 Corporate........................................................................... (2,939) (4,235) --------------- --------------- $ 46,606 $ 37,375 =============== =============== Net income............................................................................ $ 17,254 $ 18,312 Earnings per share.................................................................... $ 0.27 $ 0.29 Weighted average number of common shares outstanding.................................. 64,088 62,972 Net cash provided by operating activities before changes in operating assets and liabilities.................................................... $ 73,113 $ 62,538 Net cash provided by operating activities............................................. $ 73,515 $ 52,133
Revenues increased $23 million and operating profit improved $9.2 million from the first quarter of 1996 to the first quarter of 1997 primarily due to significant increases in domestic natural gas prices and Egyptian oil production. These increases were partially offset by lower production in the U.S. and Canada. Net earnings decreased slightly for the first quarter of 1997 over the same period in 1996 due to higher income taxes. -9- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES OIL AND GAS OPERATIONS
(Amounts in Thousands) Three Months Ended March 31, ------------------------------------------ 1997 1996 ------------------- ------------------ Restated Revenues: Natural gas................................................................ $ 85,500 $ 72,668 Oil and NGL................................................................ 30,823 16,885 Pipeline and marketing..................................................... 8,681 11,592 ------------------- ------------------ 125,004 101,145 ------------------- ------------------ E&P operating expense........................................................ 29,883 23,455 Pipeline and marketing expenses.............................................. 7,691 5,438 Exploration charges.......................................................... 8,953 6,730 Depreciation, depletion and amortization..................................... 39,398 35,656 ------------------- ------------------ Operating profit........................................................... $ 39,079 $ 29,866 =================== ==================
The operating profit of the Oil and Gas Operations ("O&G") segment for the first quarter of 1997 increased substantially as compared to the 1996 period principally due to the five-fold increase in oil production in Egypt combined with a 29% increase in domestic natural gas prices. With the purchase of two Egyptian concessions from units of Exxon Corporation (the "Esso Suez Acquisition") in September 1996, and the October 1996 merger with Global Natural Resources Inc., Seagull's operations gained both a significant international component and an increase in oil production as a percentage of the total production. Increases in Egyptian oil production accounted for just over $11 million of the total increase in revenue as Seagull realized contributions from the East Zeit concession, one of two concessions purchased in the Esso Suez Acquisition, and as additional production facilities became operational at the Company's Qarun concession. In addition, increases in oil prices in both Egypt and Tatarstan accounted for approximately $2 million of the Company's overall increase in revenues. The domestic natural gas price increase from $2.02 per Mcf for the first quarter of 1996 to $2.60 per Mcf for the first quarter of 1997 accounted for approximately $19 million of the overall increase in natural gas revenue. Additionally, the $0.78 per Mcf increase in Canadian natural gas prices accounted for approximately $4 million of the overall increase in revenue. Domestically, increases in oil prices from $16.76 per Bbl for 1996 to $20.75 per Bbl for 1997 also contributed nearly $3 million to the overall increase in revenues. These higher revenues were partially offset by lower production due to normal production declines from developed properties combined with the impact of substantially lower development expenditures in late 1994 and all of 1995 and Canadian royalties increasing in tandem with prices. The Company recorded as a reduction of revenues $7.5 million and $3.5 million of costs related to commodity hedging activities for the quarter ended March 31, 1997 and 1996, respectively. While substantially all commodity hedges for equity production were settled by March 31, 1997, the Company has commodity hedges in place as required by the monetary production payment (related to the 1995 sale of the Company's Section 29 tax credit-bearing properties) for approximately 12 MMcf per day through December 1998. -10- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Pipeline and marketing revenues decreased from $12.4 million in 1996 to $9.8 million in 1997 primarily because the volatility in natural gas markets during the first quarter of 1996 allowed significantly higher margins. EXPLORATION AND PRODUCTION OPERATING DATA (Amounts in thousands except per unit data)
Three Months Ended March 31, ------------------------------------------------------------------------------------------------ Revenues Net Daily Production Unit Price 1997 1996 1997 1996 1997 1996 ------------ ------------- ------------ ------------- ----------- ------------- Restated Restated Restated Gas Sales (1): Domestic............ $70,873 $60,567 302.6 329.5 2.60 2.02 Canada ............. 9,490 7,391 48.1 57.6 2.19 1.41 Cote d'Ivoire....... 823 693 4.8 4.4 1.90 1.72 Indonesia........... 4,294 4,017 13.7 13.5 3.49 3.28 Other ............. 20 - 0.2 - 1.01 - ------------ ------------ ------------ ------------- ----------- ------------- $85,500 $72,668 369.4 405.0 2.57 1.97 ============ ============= ============ ============= =========== ============= Oil and NGL Sales(2): Domestic............ $ 6,862 $ 7,186 3,674 4,712 20.75 16.76 Canada ............. 1,543 1,373 877 984 19.56 15.33 Egypt............... 13,978 2,088 7,861 1,231 19.76 18.64 Cote d'Ivoire....... 2,763 2,812 1,449 1,631 21.19 18.94 Tatarstan........... 5,183 3,205 3,413 2,707 16.87 13.01 Indonesia........... 466 212 259 124 20.02 18.76 Other ............. 28 9 15 9 19.40 13.55 ------------ ------------ ------------ ------------- ----------- ------------- $30,823 $16,885 17,548 11,398 19.52 16.28 ============ ============= ============ ============= =========== =============
(1) Net Daily Production in MMcf per day; Unit Price in $ per Mcf. (2) Net Daily Production in Bbl per day; Unit Price in $ per Bbl. E&P operating expenses per BOE increased by $0.93, from $3.27 in 1996 to $4.20 in 1997, as a result of (i) increased domestic production taxes as natural gas prices increased, (ii) increased domestic workover expenses, and (iii) higher average operating costs per BOE at the East Zeit concession as compared to the Company's other operations. Exploration charges increased for the 1997 quarter due to an increase in seismic activity in both domestic and international operations. The increase in E&P depreciation, depletion and amortization ("DD&A") expense from $4.90 per BOE for the first quarter of 1996 to $5.48 per BOE for the first quarter of 1997 combined with the increase in Egyptian production to produce a 10% increase in DD&A expense for the O&G segment. A change in the mix of the properties being produced domestically, a higher DD&A rate for the East Zeit concession as compared to the Company's other operations and an increase in leasehold amortization were the primary factors involved in the increase in the DD&A rate per equivalent unit of production. -11- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ALASKA TRANSMISSION AND DISTRIBUTION
(Amounts in Thousands Except Per Unit Data) Three Months Ended March 31, ---------------------------------------- 1997 1996 ----------------- ---------------- Revenues........................................................................ $34,569 $35,430 Cost of gas sold................................................................ 16,722 16,200 ----------------- ----------------- Gross margin.................................................................. 17,847 19,230 Operations and maintenance expense.............................................. 5,297 5,442 Depreciation, depletion and amortization........................................ 2,084 2,044 ----------------- ----------------- Operating profit.............................................................. $10,466 $11,744 ================= ================= OPERATING DATA: Degree days (1)............................................................... 3,720 4,353 Volumes (Bcf): Gas sold.................................................................... 8.8 10.4 Gas transported............................................................. 6.3 5.3 Combined.................................................................... 15.1 15.7 Margins (per Mcf): Gas sold.................................................................... $ 1.65 $ 1.61 Gas transported............................................................. $ 0.52 $ 0.48 Combined.................................................................... $ 1.18 $ 1.23
(1) A measure of weather severity calculated by subtracting the mean temperature for each day from 65 degrees Fahrenheit. More degree days equate to colder weather. Operating profit of the Alaska Transmission and Distribution segment for the quarter ended March 31, 1997 decreased $1.3 million, or approximately 11%, from that of the prior year quarter, primarily due to decreased volumes as a result of a 15% decrease in degree days resulting from warmer weather in the utility's service area. This segment's business is seasonal with approximately 65%-70% of its sales made in the first and fourth quarters of each year. -12- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES OTHER General and administrative expenses decreased quarter-to-quarter due primarily due to efficiencies being realized from the Global Merger and decreased expenses associated with compensation plans that are tied to the closing price of Seagull's common stock. Interest expense decreased in the first quarter of 1997 as a result of lower average interest rates on the Company's revolving credit facilities, partially offset by an increase in debt due to the financing of the Esso Suez Acquisition. Income tax expense increased substantially from $8.8 million in 1996 to $19.6 million in 1997 as a result of the 36% increase in income before income taxes and the higher effective tax rates relating to the Company's expanding international operations. LIQUIDITY AND CAPITAL RESOURCES CAPITAL EXPENDITURES
(Amounts in Thousands) Three Months Ended March 31, ---------------------------------- 1997 1996 --------------- --------------- Restated Exploration and production: Leasehold......................................................................... $ 833 $ 1,963 Exploration....................................................................... 21,837 8,666 Development....................................................................... 29,771 13,540 --------------- --------------- 52,441 24,169 Pipeline and marketing.............................................................. 37 10 --------------- --------------- Oil and gas operations.......................................................... 52,478 24,179 Alaska transmission and distribution................................................ 1,405 1,178 Corporate .......................................................................... 1,544 559 --------------- --------------- $55,427 $25,916 =============== ===============
As drilling activities increased substantially to meet the Company's objectives for 1997, E&P capital expenditures increased primarily in the Company's domestic, Egyptian and Ivorian areas of operations. Plans for 1997 call for capital expenditures of approximately $250 million, including about $235 million in E&P. Seagull anticipates spending approximately $10 million for lease acquisitions, $85 million for exploration and $140 million for development. Of this total, about $105 million is expected to be spent outside North America. The Company has two revolving credit facilities (the "Credit Facilities") with a maximum commitment of $650 million. The amount of senior indebtedness available to the Company under the provisions of the Credit Facilities is subject to a borrowing base (the "Borrowing Base") based upon the proved reserves of the Company's exploration and production segment and the financial performance of the Company's other business segments. The Borrowing Base is generally determined annually, but may be redetermined, at the option of either Seagull or the banks, one additional time each year, and may be redetermined upon the sale of certain assets included in the Borrowing Base. -13- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Currently, the available commitment under the Credit Facilities is subject to a $550 million Borrowing Base and is determined after considerationof outstanding borrowings under Seagull's other senior debt facilities. As of March 31, 1997, the Company had immediately available unused commitments of approximately $182 million. Management believes that the Company's internally generated funds and bank borrowing capabilities will be sufficient to finance current and forecasted operations. DEFINED TERMS Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl"). MMcfe and Mcfe represent the equivalent of one million and one thousand cubic feet of natural gas, respectively. 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. MBOE and BOE represent one thousand barrels of oil equivalent and one barrel of oil equivalent, respectively, with six Mcf of gas converted to one barrel of liquid. FORWARD LOOKING STATEMENTS Item 2 of this document includes 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. Although Seagull believes that its expectations are based upon reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements include political developments in foreign countries, federal and state regulatory developments, the timing and extent of changes in commodity prices, the timing and extent of success in discovering, developing and producing or acquiring oil and gas reserves and conditions of the capital and equity markets during the periods covered by the forward looking statements. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: * 27.1 Financial Data Schedule. (b) There were no reports on Form 8-K filed during the three months ended March 31, 1997. - --------------------------- * Filed herewith. -14- SEAGULL ENERGY CORPORATION AND SUBSIDIARIES 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. SEAGULL ENERGY CORPORATION By: /s/ William L. Transier William L. Transier Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 12, 1997 By: /s/ Gordon L. McConnell Gordon L. McConnell Vice President and Controller (Principal Accounting Officer) Date: May 12, 1997 -15- EXHIBIT INDEX EXHIBIT * 27.1 Financial Data Schedule. - --------------------------- * Filed herewith. EX-27 2 FDS -- 10-Q
5 1,000 3-mos Dec-31-1997 Mar-31-1997 27,283 0 135,949 0 15,486 191,539 2,099,143 844,353 1,490,268 189,982 564,936 0 0 6,334 609,884 1,490,268 159,573 159,573 16,722 112,967 (698) 0 10,410 36,894 19,640 17,254 0 0 0 17,254 0.27 0.27
-----END PRIVACY-ENHANCED MESSAGE-----