-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MC+B2Jtr44oOZc4sNeOySKGhIQZ2rWLtpKRbm93T/L1HnCMYZyfRswMn04XP6O2a meyJTaxZFBGZLXPkhKzBaA== 0000821189-94-000009.txt : 19940815 0000821189-94-000009.hdr.sgml : 19940815 ACCESSION NUMBER: 0000821189-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENRON OIL & GAS CO CENTRAL INDEX KEY: 0000821189 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 470684736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09743 FILM NUMBER: 94543568 BUSINESS ADDRESS: STREET 1: 1400 SMITH ST STREET 2: P.O. BOX 1188 CITY: HOUSTON STATE: TX ZIP: 77251 BUSINESS PHONE: 7138536161 10-Q 1 Enron Oil & Gas Company P. O. Box 1188 Houston, TX 7725101188 August 12, 1994 Securities and Exchange Commission Washington, D.C. Gentlemen: Pursuant to the requirements of the Securities and Exchange Act of 1934, we are transmitting herewith the attached Form 10-Q. Sincerely, /S/BEN B. BOYD Ben B. Boyd Vice President and Controller FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1994 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-9743 ENRON OIL & GAS COMPANY (Exact name of registrant as specified in its charter) Delaware 47-0684736 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1400 Smith Street, P.O. Box 1188 Houston, Texas 77251-1188 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (713)853-6161 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 . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 1994. Common Stock, $.01 Par Value 159,835,750 shares Class Number of Shares ENRON OIL & GAS COMPANY TABLE OF CONTENTS Page No. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Statements of Income - Three Months Ended June 30, 1994 and 1993 and Six Months Ended June 30, 1994 and 1993 3 Consolidated Balance Sheets - June 30, 1994 and December 31, 1993 4 Consolidated Statements of Cash Flow - Six Months Ended June 30, 1994 and 1993 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION ITEM 4. Results of Votes of Security Holders 16 ITEM 6. Exhibits and Reports on Form 8-K 16 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENRON OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 NET OPERATING REVENUES Natural Gas Associated Companies $ 66,353 $ 60,875 $141,361 $129,150 Trade 55,704 62,268 117,982 113,124 Crude Oil, Condensate and Natural Gas Liquids Associated Companies 10,487 10,008 18,012 22,957 Trade 8,111 5,746 14,066 8,975 Other 1,847 1,596 3,288 3,107 Total 142,502 140,493 294,709 277,313 OPERATING EXPENSES Lease and Well 16,367 14,032 31,366 27,790 Exploration 10,458 9,961 19,689 15,952 Dry Hole 5,471 548 8,094 3,270 Impairment of Unproved Oil & Gas Properties 6,304 4,320 10,500 8,481 Depreciation, Depletion and Amortization 62,177 58,666 127,017 118,446 General and Administrative 10,867 10,897 24,284 21,852 Taxes Other Than Income 4,724 10,545 14,688 20,379 Total 116,368 108,969 235,638 216,170 OPERATING INCOME 26,134 31,524 59,071 61,143 OTHER INCOME 12,327 586 20,631 2,360 INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 38,461 32,110 79,702 63,503 INTEREST EXPENSE Incurred 3,400 3,809 7,046 7,498 Capitalized (1,520) (1,297) (3,013) (2,548) Net Interest Expense 1,880 2,512 4,033 4,950 INCOME BEFORE INCOME TAXES 36,581 29,598 75,669 58,553 INCOME TAX PROVISION (BENEFIT) 2,369 (3,923) 11,199 (5,176) NET INCOME $ 34,212 $ 33,521 $ 64,470 $ 63,729 EARNINGS PER SHARE OF COMMON STOCK $ .21 $ .21 $ .40 $ .40 AVERAGE NUMBER OF COMMON SHARES (Note 9)159,859 160,000 159,850 160,000
The accompanying notes are an integral part of these consolidated financial statements. PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) ENRON OIL & GAS COMPANY CONSOLIDATED BALANCE SHEETS (In Thousands)
June 30, December 31, 1994 1993 (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 85,717 $ 103,129 Accounts Receivable Associated Companies 45,364 59,143 Trade 60,310 66,109 Inventories 16,593 14,082 Other 8,281 6,962 Total 216,265 249,425 OIL AND GAS PROPERTIES (Successful Efforts Method) 2,871,333 2,772,220 Less: Accumulated Depreciation, Depletion and Amortization (1,297,618) (1,226,175) Net Oil and Gas Properties 1,573,715 1,546,045 OTHER ASSETS 13,913 15,692 TOTAL ASSETS $1,803,893 $1,811,162 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable Associated Companies $ 22,126 $ 13,250 Trade 118,223 143,542 Accrued Taxes Payable 15,340 17,354 Dividends Payable 4,796 4,795 Current Maturities of Long-Term Debt - 30,000 Other 5,319 8,989 Total 165,804 217,930 LONG-TERM DEBT 176,000 153,000 OTHER LIABILITIES 8,400 9,477 DEFERRED INCOME TAXES 266,372 270,154 COMMITMENTS AND CONTINGENCIES (Note 8) DEFERRED REVENUE 206,034 227,528 SHAREHOLDERS' EQUITY Common Stock, $.01 Par, 160,000,000 Shares Authorized and Issued at June 30, 1994 and No Par, 80,000,000 Shares Authorized and Issued at December 31, 1993 201,600 200,800 Additional Paid In Capital 415,513 417,531 Cumulative Foreign Currency Translation Adjustment (12,800) (6,855) Retained Earnings 379,874 324,995 Common Stock Held in Treasury, 136,750 shares at June 30, 1994 and 80,000 shares at December 31, 1993 (2,904) (3,398) Total Shareholders' Equity 981,283 933,073 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,803,893 $1,811,162
The accompanying notes are an integral part of these consolidated financial statements. PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) ENRON OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Six Months Ended June 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Reconciliation of Net Income to Net Operating Cash Inflows: Net Income $ 64,470 $ 63,729 Items Not Requiring (Providing) Cash Depreciation, Depletion and Amortization 127,017 118,446 Impairment of Unproved Oil and Gas Properties 10,500 8,481 Deferred Income Taxes 1,486 (1,165) Other, Net 605 524 Exploration Expenses 19,689 15,952 Dry Hole Expenses 8,094 3,270 Gains on Sales of Oil and Gas Properties (18,948) (7) Other, Net 878 291 Changes in Components of Working Capital and Other Liabilities Accounts Receivable 19,577 (4,666) Inventories (3,025) (2,572) Accounts Payable (16,443) 1,105 Accrued Taxes Payable (2,014) 5,808 Other Liabilities (419) 2,693 Other, Net (4,989) (50,032) Changes in Components of Working Capital Associated with Investing Activities 13,021 32,594 NET OPERATING CASH INFLOWS 219,499 194,451 INVESTING CASH FLOWS Additions to Oil and Gas Properties (185,315) (169,392) Exploration Expenses (19,689) (15,952) Dry Hole Expenses (8,094) (3,270) Proceeds from Property Sales 31,311 490 Amortization of Deferred Revenue (21,494) (46,643) Changes in Components of Working Capital Associated with Investing Activities (13,021) (32,594) Other, Net (3,295) (3,225) NET INVESTING CASH OUTFLOWS (219,597) (270,586) FINANCING CASH FLOWS Issuance of Long-Term Debt 56,000 - Decrease in Long-Term Debt (63,000) - Dividends Paid (9,590) (9,600) Treasury Stock Purchased (2,233) (9,708) Proceeds from Sales of Treasury Stock 1,509 4,972 NET FINANCING CASH OUTFLOWS (17,314) (14,336) DECREASE IN CASH AND CASH EQUIVALENTS (17,412) (90,471) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 103,129 132,618 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 85,717 $ 42,147
The accompanying notes are an integral part of these consolidated financial statements. PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) ENRON OIL & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements included herein have been prepared by management of Enron Oil & Gas Company (the "Company") without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods. Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. Certain reclassifications have been made to the consolidated financial statements and notes for 1993 to conform with the current presentation. 2. Cash and Cash Equivalents at June 30, 1994 includes $75.2 million advanced to Enron Corp. under a revolving promissory note payable on demand, effective January 1, 1993, at a fixed interest rate of 7%, which note provides for the investment of funds temporarily surplus to the Company. 3. Income Tax Provision (Benefit) for the three-month periods ended June 30, 1994 and 1993 includes tax benefits of $7.1 million and $16.1 million, respectively, and for the six-month periods ended June 30, 1994 and 1993 includes tax benefits of $15.2 million and $30.0 million, respectively, all of which are related to tight gas sand federal income tax credit utilization. Income Tax Provision (Benefit) for the three and six-month periods ended June 30, 1994 also includes a $4.8 million deferred tax benefit resulting from a reduction in estimated composite state income tax rates and a $1.4 million current U.S. tax benefit arising from the discontinuance of operations in Malaysia. 4. Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating Revenues Natural Gas Net Operating Revenues are comprised of the following (in millions): Three Months Ended Six MonthsEnded June 30, June 30, 1994 1993 1994 1993 Wellhead Natural Gas Revenues Associated Companies (1)(2) $ 72.7 $ 88.3 $162.0 $164.2 Trade 41.1 39.2 89.3 75.1 Total $113.8 $127.5 $251.3 $239.3 Other Natural Gas Marketing Activities Gross Revenues from: Associated Companies $ 41.0 $ 25.6 $ 85.7 $ 60.4 Trade (3) 30.9 40.4 63.9 71.0 Total 71.9 66.0 149.6 131.4 Associated Cost from: Associated Companies (1)(4) 47.1 42.9 100.1 85.3 Trade 16.1 17.1 35.1 33.0 Total (5) 63.2 60.0 135.2 118.3 Net 8.7 6.0 14.4 13.1 Commodity Price Hedging (6) (.4) (10.4) (6.4) (10.1) Total $ 8.3 $ (4.4) $ 8.0 $ 3.0 PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) ENRON OIL & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Crude Oil, Condensate and Natural Gas Liquids, Net Operating Revenues are comprised of the following (in millions): Three Months Ended Six MonthsEnded June 30, June 30, 1994 1993 1994 1993 Wellhead Crude Oil, Condensate and Natural Gas Liquid Revenues Associated Companies $ 10.1 $ 10.0 $ 17.1 $ 22.9 Trade 8.1 5.8 14.1 9.0 Total $ 18.2 $ 15.8 $ 31.2 $ 31.9 Other Crude Oil Marketing Activities Commodity Price Hedging (6) $ .4 $ - $ .9 $ - (1) Wellhead Natural Gas Revenues include $33.5 million and $30.1 million for the three-month periods ended June 30, 1994 and 1993, respectively, and $73.0 million and $59.6 million for the six-month periods ended June 30, 1994 and 1993, respectively, associated with deliveries by Enron Oil & Gas Company to Enron Oil & Gas Marketing, Inc., a wholly-owned subsidiary, reflected as a cost in Other Natural Gas Marketing Activities - Associated Costs. (2) Includes $5.4 million and $14.8 million for the three-month periods ended June 30, 1994 and 1993, respectively, and $12.4 million and $30.3 million for the six-month periods ended June 30, 1994 and 1993, respectively, associated with the equivalent wellhead value of volumes delivered under the terms of a volumetric production payment agreement effective October 1, 1992, as amended, net of transportation. (3) Includes $10.8 million and $23.5 million for the three-month periods ended June 30, 1994 and 1993, respectively, and $21.5 million and $46.6 million for the six-month periods ended June 30, 1994 and 1993, respectively, associated with the amortization of deferred revenues under the terms of volumetric production payment and exchange agreements effective October 1, 1992, as amended. (4) Includes the effect of a price swap agreement with a third party which in effect fixes the price of certain purchases. (5) Includes $8.4 million and $21.3 million for the three-month periods ended June 30, 1994 and 1993, respectively, and $18.4 million and $41.3 million for the six-month periods ended June 30, 1994 and 1993, respectively, for volumes delivered under the terms of volumetric production payment and exchange agreements effective October 1, 1992, as amended, including equivalent wellhead value, any applicable transportation costs and exchange differentials. (6) Represents gain or loss associated with commodity futures transactions primarily with Enron Corp. affiliated companies based on NYMEX prices in effect on dates of execution, less customary transaction fees. These transactions serve as price hedges for a portion of wellhead sales. PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) ENRON OIL & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Gains on sales of certain oil and gas properties in the amount of $18.9 million and $7,000 are required to be removed from Net Income in connection with determining Net Operating Cash Inflows while the related proceeds are classified as investing cash flows for the six-month periods ended June 30, 1994 and 1993, respectively. However, current accounting guidelines will not permit the relevant federal income tax impact of these transactions to be reclassified to investing cash flows. The current federal income tax impact of these sales transactions was calculated by the Company to be $6.2 million and $.1 million for the six-month periods ended June 30, 1994 and 1993, respectively, which entered into the overall calculation of current federal income tax. The Company believes that this federal income tax impact should be considered in analyzing the elements of the cash flow statement. 6. In March 1994, the Company replaced an existing credit agreement with a Revolving Credit Agreement dated as of March 11, 1994, among the Company and the banks named therein (the "Credit Agreement"). The Credit Agreement provides for aggregate borrowings of up to $100 million, with provisions for increases, at the option of the Company, up to $300 million. Advances under the Credit Agreement bear interest, at the option of the Company, based on a base rate, an adjusted CD rate or an Eurodollar rate. Each advance under the Credit Agreement matures on a date selected by the Company at the time of the advance, but in no event after January 15, 1998. No advances have been drawn under the Credit Agreement through June 30, 1994. 7. In March 1994, a subsidiary of the Company received two advances aggregating $31 million under a credit agreement dated as of March 8, 1994, between the subsidiary and a financial institution. One of the advances is in the amount of $16 million, bears interest at a fixed rate of 4.52% and is due in 1998. The other advance is in the amount of $15 million, bears interest at a floating rate that resets quarterly equal to 84% of the London Interbank Bid Rate which is 1/8 of 1% less than the London Interbank Offered Rate and is due in 1998. Both advances are collateralized with a letter of credit issued by a bank on behalf of the subsidiary and guaranteed by the Company. The advances were used to partially repay a promissory note payable to a bank by the subsidiary. In May 1994, the subsidiary received a $25 million advance under a credit agreement dated May 27, 1994 between the subsidiary and a financial institution. The credit agreement provides for aggregate borrowings of up to $44 million and is due in 1999. The advances bear interest based on various interest rate options, as defined in the credit agreement (4.485% at June 30, 1994). The advance is guaranteed by the Company and was used to partially repay temporary advances from the Company to the subsidiary for exploration, development and production costs. In July 1994, the Company prepaid $25 million of loans payable due in April 1995 with proceeds from a promissory note payable to Enron Corp. which note is in the same amount and with essentially the same terms as the loan prepaid. The Enron Corp. promissory note and the remaining $25 million balance of loans payable due in April 1995 are classified as long-term because of the Company's intention and ability to replace such loans upon maturity with other long-term debt. PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Concluded) ENRON OIL & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. As reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1993, TransAmerican Natural Gas Corporation ("TransAmerican") has filed a petition against the Company and Enron Corp. alleging breach of contract, tortious interference with contract, misappropriation of trade secrets and violation of state antitrust laws. The petition, as amended, seeks actual damages of $100 million plus exemplary damages of $300 million. The Company has answered the petition and is actively defending the matter; in addition, the Company has filed counterclaims against TransAmerican and its sole shareholder, John R. Stanley, alleging fraud, negligent misrepresentation and breach of state antitrust laws. On April 6, 1994, Enron Corp. was granted summary judgment, wherein the court ordered that TransAmerican can take nothing on its claims against Enron Corp. Trial, which was set most recently for September 12, 1994 has been continued, and there is no current setting. Although no assurances can be given, the Company believes that the claims made by TransAmerican are totally without merit, that the ultimate resolution of the matter will not have a materially adverse effect on its financial condition or results of operations, and that such ultimate resolution could result in a recovery to the Company. 9. On May 3, 1994, the shareholders of the Company approved a resolution submitted by the Board of Directors that would, contingent upon the Board of Directors of the Company declaring, on or before May 3, 1995, a stock split of either two-for-one or three-for-two, amend the Restated Certificate of Incorporation of the Company to increase the total number of authorized shares of the common stock of the Company from 80 million to 160 million shares in the event of a two-for-one stock split or to 120 million shares in the event of a three-for-two stock split. Subsequently and also on May 3, 1994, the Board of Directors declared a two-for-one split of the Company's common stock to be effected as a non-taxable dividend of one share for each share outstanding. On June 14, 1994, the shareholders consented to a revised amendment to the Restated Certificate of Incorporation of the Company to change the common stock which, at the time, had no par value to a par value of $.01 per share. Such revised amendment was filed with the Secretary of State of Delaware on June 14, 1994. Shares were issued on June 15, 1994 to shareholders of record as of May 31, 1994. All per share amounts referenced herein are reflected on a post-split basis. 10. Significant items of other income are detailed below (in millions): Three Months Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 Gains on Sales of Oil and Gas Properties $ 12.9 $ - $ 18.9 $ - Interest Income 1.2 .7 2.6 1.9 Other, Net (1.8) (.1) (1.0) .5 Total $ 12.3 $ .6 $ 20.6 $ 2.4 11. In July and early August 1994, the Company completed the sale of other selected oil and gas properties similar to those sold during the first half of the year generating proceeds of approximately $49 million and gains of approximately $31 million before federal income taxes. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENRON OIL & GAS COMPANY The following review of operations for the three-month and six- month periods ended June 30, 1994 should be read in conjunction with the consolidated financial statements of the Company and Notes thereto. Results of Operations Three Months Ended June 30, 1994 vs. Three Months Ended June 30, 1993 In the second quarter of 1994, Enron Oil & Gas Company (the "Company") realized net income of $34.2 million compared to net income of $33.5 million for the same period in 1993. Net operating revenues for the second quarter of 1994 were $142.5 million as compared to $140.5 million for the same period a year ago. Volume and price statistics are as follows: 1994 1993 Wellhead Volumes Natural Gas (MMcf/d) (1)(3) 760 695 Crude Oil and Condensate (MBbl/d) (1) 12.3 9.5 Natural Gas Liquids (MBbl/d) (1) 0.6 0.5 Wellhead Average Prices Natural Gas ($/Mcf) (2)(4) $ 1.65 $ 2.02 Crude Oil and Condensate ($/Bbl) (2) 15.80 17.51 Natural Gas Liquids ($/Bbl) (2) 10.34 12.55 Other Natural Gas Marketing Volumes (MMcf/d) (1)(3) 334 277 Average Gross Revenue ($/Mcf) (2) $ 2.37 $ 2.61 Associated Costs ($/Mcf) (2)(5) 2.08 2.38 Margin ($/Mcf) (2) $ 0.29 $ 0.23 (1) Million cubic feet per day or thousand barrels per day, as applicable. (2) Dollars per thousand cubic feet or per barrel, as applicable. (3) Includes 48 MMcf per day and 103 MMcf per day for the three- month periods ended June 30, 1994 and 1993, respectively, delivered under the terms of volumetric production payment and exchange agreements effective October 1, 1992, as amended. (4) Includes an average equivalent wellhead value of $1.24/Mcf and $1.58/Mcf for the three-month periods ended June 30, 1994 and 1993, respectively, for the volumes described in note (3), net of transportation costs. (5) Including transportation and exchange differentials. Second quarter 1994 average wellhead natural gas prices were down approximately 18% from the same period in 1993 reducing net operating revenues by approximately $26 million. An increase of 9% in wellhead natural gas volumes over the second quarter of 1993 added approximately $12 million to net operating revenues. The Company curtailed United States wellhead natural gas delivered volumes by as much as 15% to 20% during portions of the second quarter of 1994 due to the significant reduction in related wellhead natural gas prices. Second quarter 1994 wellhead crude oil and condensate average prices declined 10% reducing net operating revenues by about $2 million. Wellhead crude oil and condensate volumes increased 29% adding approximately $4 million to net operating revenues compared to the same period a year ago. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENRON OIL & GAS COMPANY Other marketing activities associated with sales and purchases of natural gas, natural gas price swap transactions, other commodity price hedging of natural gas and crude oil and condensate prices utilizing NYMEX related commodity market transactions, and margins relating to the volumetric production payment added $9 million to net operating revenues during the second quarter of 1994, an increase of $13 million over the same period in 1993. This increase primarily results from decreased losses on natural gas commodity price hedging activities utilizing NYMEX related commodity market transactions. The average associated costs of natural gas marketing, price swap and volumetric production payment transactions, including, where appropriate, average wellhead value, transportation costs and exchange differentials, decreased $.30 per Mcf. The average price received for these transactions decreased by $.24 per Mcf over the same period a year ago. Volumes to supply these contracts increased approximately 21%. The impact of these other marketing activities, a substantial portion of which serve as hedges of commodity price risks for a portion of wellhead deliveries, are more than offset by increases or reductions in revenues associated with market responsive prices for wellhead deliveries. Since December 31, 1993, the Company has reduced the level of wellhead natural gas volumes for which it had previously locked in prices using various commodity price hedging mechanisms from about two-thirds to approximately one-half of its anticipated wellhead natural gas volumes for the year 1994. During the second quarter of 1994, operating expenses of $116 million were $7 million higher than the $109 million incurred in the second quarter of 1993. Lease and well expenses increased approximately $2 million to $16 million primarily reflecting increased international operations. Dry hole expenses increased $5 million from the same period last year due to an unsuccessful well drilled in the Gulf of Mexico during the second quarter of 1994. Impairment of unproved oil and gas properties increased $2 million over the same period a year ago primarily due to impairments associated with certain offshore leases. Depreciation, depletion and amortization ("DD&A") expense increased $4 million to $62 million reflecting an increase in production volumes partially offset by a decrease in the average DD&A rate from $.85 per thousand cubic feet equivalent ("Mcfe") in the second quarter of 1993 to $.82 per Mcfe in the second quarter of 1994. The DD&A rate decrease is primarily due to production from offshore Trinidad at an average DD&A rate significantly less than the North American operations average DD&A rate. Taxes other than income decreased $6 million primarily due to a $4 million reduction in estimated state franchise taxes and reductions in state severance taxes due to lower taxable United States wellhead volumes and average prices. The Company reduced its total per unit operating costs for lease and well expense, DD&A, general and administrative expense, interest expense, and taxes other than income by $.15 per Mcfe, averaging $1.26 per Mcfe during the second quarter of 1994 compared to $1.41 per Mcfe during the same period in 1993. This decrease is primarily attributable to reductions in taxes other than income and the average DD&A rate as noted above. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENRON OIL & GAS COMPANY Other income for the second quarter of 1994 includes $13 million in gains associated with the sale of selected oil and gas properties that for various reasons did not fit the overall future growth plans of the Company as compared to a $7,000 loss from sale of oil and gas properties recorded in the second quarter of 1993. Income tax provision (benefit) includes a provision of approximately $2 million for the second quarter of 1994 compared to a benefit of approximately $4 million for the comparable quarter in 1993. The difference results primarily from a reduction in the federal income tax benefits associated with tight gas sand federal income tax credits utilized in the second quarter of 1994 as compared to the second quarter of 1993 and an increase in income before income taxes during the second quarter of 1994 partially offset by a reduction in state income taxes and a deduction related to the discontinuance of operations in Malaysia. (See Note 3 to Consolidated Financial Statements). Federal income taxes are accrued using the estimated effective income tax rate method. Six Months Ended June 30, 1994 vs. Six Months Ended June 30, 1993 In the first half of 1994, the Company realized net income of $64.5 million compared to net income of $63.7 million for the same period in 1993. Net operating revenues were $294.7 million as compared to $277.3 million for the same period a year ago. Volume and price statistics are as follows: 1994 1993 Wellhead Volumes Natural Gas (MMcf/d) (1)(3) 779 700 Crude Oil and Condensate (MBbl/d) (1) 11.5 9.6 Natural Gas Liquids (MBbl/d) (1) 0.6 0.6 Wellhead Average Prices Natural Gas ($/Mcf) (2)(4) $ 1.78 $ 1.89 Crude Oil and Condensate ($/Bbl) (2) 14.42 17.53 Natural Gas Liquids ($/Bbl) (2) 9.28 12.45 Other Natural Gas Marketing Volumes (MMcf/d) (1)(3) 337 283 Average Gross Revenue ($/Mcf) (2) $ 2.45 $ 2.57 Associated Costs ($/Mcf) (2)(5) 2.21 2.31 Margin ($/Mcf)(2) $ 0.24 $ 0.26 (1) Million cubic feet per day or thousand barrels per day, as applicable. (2) Dollars per thousand cubic feet or per barrel, as applicable. (3) Includes 48 Mmcf per day and 103 MMcf per day for the six- month periods ended June 30, 1994 and 1993, respectively, delivered under the terms of volumetric production payment and exchange agreements effective October 1, 1992, as amended. (4) Includes an average equivalent wellhead value of $1.42/Mcf and $1.62/Mcf for the six-month periods ended June 30, 1994 and 1993, respectively, for the volumes described in note (3), net of transportation costs. (5) Including transportation and exchange differentials. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENRON OIL & GAS COMPANY Average wellhead natural gas volumes for the first six months of 1994 increased approximately 11% to 779 Mmcf per day primarily reflecting the effects of development activities in Trinidad. The increase in wellhead natural gas volumes added $27 million to net operating revenues. First half average wellhead natural gas prices were down approximately 6% to $1.78 per Mcf compared to the same period a year ago. The decrease in average wellhead natural gas prices received by the Company reduced net operating revenues by approximately $15 million. First half 1994 wellhead crude oil and condensate volumes were up approximately 20% from the same period in 1993 primarily reflecting development activities in Trinidad. The increase in volumes resulted in an approximate $6 million increase to net operating revenues. An 18% decrease in wellhead crude oil and condensate prices decreased net operating revenues by approximately $6 million. Other marketing activities associated with sales and purchases of natural gas, natural gas price swap transactions, other commodity price hedging of natural gas and crude oil and condensate prices utilizing NYMEX related commodity market transactions, and margins relating to the volumetric production payment added $9 million to net operating revenues during the first half of 1994. This increase of $6 million from the same period in 1993 primarily results from decreased losses on natural gas commodity price hedging activities utilizing NYMEX commodity market transactions. The average associated costs of natural gas marketing, price swap and volumetric production payment transactions, including, where appropriate, average wellhead value, transportation costs and exchange differentials, decreased $.10 per Mcf. The average price received for these transactions decreased $.12 per Mcf. Related other natural gas marketing volumes increased 19%. The impact of these other marketing activities, a substantial portion of which serve as hedges of commodity price risks for a portion of wellhead deliveries, are more than offset by increases or reductions in revenues associated with market responsive prices for wellhead deliveries. Since December 31, 1993, the Company has reduced the level of wellhead natural gas volumes for which it had previously locked in prices using various commodity price hedging mechanisms from about two-thirds to approximately one-half of its anticipated wellhead natural gas volumes for the year 1994. During the first half of 1994, operating expenses of $236 million were approximately $20 million higher than the $216 million incurred in the same period in 1993. Lease and well expenses increased approximately $4 million to $31 million primarily due to expanded international operations. Exploration expenses of $20 million increased $4 million from the previous year due to an increased emphasis on exploration activities. Dry hole expenses increased $5 million from 1993 primarily due to an unsuccessful well drilled in the Gulf of Mexico during the second quarter of 1994. Impairment of unproved oil and gas properties for the first half of 1994 increased $2 million from the comparable period a year ago primarily due to impairments associated with certain offshore leases. DD&A expense increased $9 million to $127 million reflecting an increase in production volumes partially offset by an average DD&A rate decrease from $.86 per Mcfe in the first half of 1993 to $.82 per Mcfe in the first half of 1994. The DD&A rate decrease is primarily due to production from offshore Trinidad at an average DD&A rate significantly less than the North American operations DD&A rate. Taxes other than income decreased approximately $6 million primarily due to a $4 million reduction in estimated state franchise taxes and reductions in state severance taxes due to lower taxable United States wellhead volumes and prices. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENRON OIL & GAS COMPANY The Company continued to reduce its per unit operating cost to $1.31 per Mcfe during the first half of 1994 compared to $1.40 per Mcf a year ago. The decrease was primarily due to per unit reductions in DD&A and taxes other than income as discussed above. Other income for the first half of 1994 of approximately $21 million reflects an increase of $18 million from the same period a year ago. The increase was due primarily to $19 million of gains on sales of selected oil and gas properties in 1994 that for various reasons did not fit the overall future growth plans of the Company as compared to $7,000 of gains recorded in 1993. In continuing its strategy of full utilization of assets to optimize profitability, cash flow and return on investments the Company expects to continue the sale of similar properties from time to time. Income tax provision (benefit) includes a provision of approximately $11 million for the first half of 1994 compared to a benefit of approximately $5 million for the comparable period in 1993. The difference results primarily from a $15 million reduction in the federal income tax benefits associated with tight gas sand federal income tax credits utilized in the first half of 1994 as compared to the first half of 1993 and an increase in income before income taxes during the first six months of 1994 partially offset by a reduction in state income taxes and a deduction related to the discontinuance of operations in Malaysia. (See Note 3 to Consolidated Financial Statements). Federal income taxes are accrued using the estimated effective income tax rate method. Capital Resources and Liquidity The Company's primary sources of cash during the six months ended June 30, 1994 were funds generated from operations, proceeds from the sale of certain oil and gas properties and the issuance of new debt. Primary cash outflows consisted of funds used in operations, exploration and development expenditures, repayment of debt and dividends paid to the Company's shareholders. Discretionary cash flow, a frequently used measure of performance for exploration and production companies, is derived by adjusting net income to eliminate the effects of depreciation, depletion and amortization, impairment of unproved oil and gas properties, deferred income taxes, property sales net of income tax, certain other miscellaneous non-cash amounts, except for amortization of deferred revenue, and exploration and dry hole expenses. The Company generated discretionary cash flow of $220 million during the first half of 1994, an increase of 5% over the $210 million generated for the same period in 1993, primarily reflecting an increase in net operating revenues. Net operating cash flow for the first half of 1994 of $219 million increased $25 million as compared to the first half of 1993 primarily due to the increase in discretionary cash flow discussed above and a decrease in working capital requirements. Based upon existing economic and market conditions, management believes net operating cash flow and available financing alternatives in 1994 will be sufficient to fund net investing and other cash requirements of the Company for the remainder of the year. PART I. FINANCIAL INFORMATION - (Concluded) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded) ENRON OIL & GAS COMPANY Exploration and development expenditures totaled $213 million during the first half of 1994 as compared to $189 million expended during the same period in 1993. The increase was attributable primarily to increased development drilling expenditures associated with operations outside of North America. The level of exploration and development expenditures will vary in future periods depending on energy market conditions and other related economic factors. The Company has significant flexibility with respect to financing alternatives and the ability to adjust its exploration and development expenditure budget as circumstances warrant. There are no material continuing commitments associated with expenditure plans. Other Events In July and early August 1994, the Company completed the sale of other selected oil and gas properties similar to those sold during the first half of the year generating proceeds of approximately $49 million and gains of approximately $31 million before federal income taxes. PART II. OTHER INFORMATION ENRON OIL & GAS COMPANY ITEM 4. Results of Votes of Security Holders The annual meeting of shareholders of Enron Oil & Gas Company was held on May 3, 1994. The matter voted upon, other than the election of directors and procedural items, was as follows: The shareholders of the Company approved by an affirmative vote of 76,732,439 shares and negative vote of 8,198 shares, with 12,494 shares abstaining, a resolution submitted by the Board of Directors that would, contingent upon the Board of Directors of the Company declaring, on or before May 3, 1995, a stock split of either two-for-one or three-for-two, amend the Restated Certificate of Incorporation of the Company to increase the total number of authorized shares of the common stock of the Company from 80 million to 160 million shares in the event of a two-for- one stock split or to 120 million shares in the event of a three- for-two stock split. Subsequently and also on May 3, 1994, the Board of Directors declared a two-for-one split of the Company's common stock to be effected as a non-taxable dividend of one share for each share outstanding. On June 14, 1994, shareholders representing 83.32% of the outstanding common shares consented to a revised amendment to the Restated Certificate of Incorporation of the Company to change the common stock which, at the time, had no par value to a par value of $.01 per share. Such revised amendment was filed with the Secretary of State of Delaware on June 14, 1994. Shares were issued on June 15, 1994 to shareholders of record as of May 31, 1994. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - There were no reports on Form 8-K filed for the quarterly period ended June 30, 1994. 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. ENRON OIL & GAS COMPANY (Registrant) Date: August 12, 1994 By /S/ W. C. WILSON W. C. Wilson Senior Vice President and Chief Financial Officer (PrincipalFinancial Officer) Date: August 12, 1994 By /S/ BEN B. BOYD Ben B. Boyd Vice President and Controller (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----