-----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, KF3vXllEe56Fc7Z8+lrwPADvhDkpxnJD3sHmPh6T+Fxx8je0arf7RWjSDVnR64Mt KlO+PkxP/6HswQqd2ZpUvg== 0000821189-94-000012.txt : 19941110 0000821189-94-000012.hdr.sgml : 19941110 ACCESSION NUMBER: 0000821189-94-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941109 SROS: NYSE 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: 94558315 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 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 September 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 4362 Houston, Texas 77210-4362 (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 October 31, 1994. Common Stock, $.01 Par Value 159,741,050 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 September 30, 1994 and 1993 and Nine Months Ended September 30, 1994 and 1993 3 Consolidated Balance Sheets - September 30, 1994 and December 31, 1993 4 Consolidated Statements of Cash Flow - Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K 17 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 Nine Months Ended September 30, September 30, 1994 1993 1994 1993 NET OPERATING REVENUES Natural Gas Associated Companies $ 57,382 $ 64,304 $198,743 $193,454 Trade 48,929 62,138 166,911 175,262 Crude Oil, Condensate and Natural Gas Liquids Associated Companies 13,130 8,541 31,142 31,498 Trade 7,424 4,209 21,490 13,184 Other 554 1,906 3,842 5,013 Total 127,419 141,098 422,128 418,411 OPERATING EXPENSES Lease and Well 13,416 15,541 44,782 43,331 Exploration 9,958 9,752 29,647 25,704 Dry Hole 2,709 2,066 10,803 5,336 Impairment of Unproved Oil & Gas Properties 6,864 4,378 17,364 12,859 Depreciation, Depletion and Amortization 54,628 64,197 181,645 182,643 General and Administrative 13,766 12,172 38,050 34,024 Taxes Other Than Income 7,322 6,090 22,010 26,469 Total 108,663 114,196 344,301 330,366 OPERATING INCOME 18,756 26,902 77,827 88,045 OTHER INCOME 33,819 12,737 54,450 15,097 INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 52,575 39,639 132,277 103,142 INTEREST EXPENSE Incurred Affiliate 275 - 275 - Other 3,306 3,784 10,352 11,282 Capitalized (1,503) (1,313) (4,516) (3,861) Net Interest Expense 2,078 2,471 6,111 7,421 INCOME BEFORE INCOME TAXES 50,497 37,168 126,166 95,721 INCOME TAX PROVISION (BENEFIT) 9,529 1,412 20,728 (3,764) NET INCOME $ 40,968 $ 35,756 $105,438 $ 99,485 EARNINGS PER SHARE OF COMMON STOCK $ .26 $ .22 $ .66 $ .62 AVERAGE NUMBER OF COMMON SHARES 159,777 160,000 159,826 160,000
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)
September 30, December 31, 1994 1993 (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 86,831 $ 103,129 Accounts Receivable Associated Companies 38,858 59,143 Trade 55,413 66,109 Inventories 17,903 14,082 Other 8,185 6,962 Total 207,190 249,425 OIL AND GAS PROPERTIES (Successful Efforts Method) 2,911,755 2,772,220 Less: Accumulated Depreciation, Depletion and Amortization (1,273,993) (1,226,175) Net Oil and Gas Properties 1,637,762 1,546,045 OTHER ASSETS 10,867 15,692 TOTAL ASSETS $1,855,819 $1,811,162 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable Associated Companies $ 8,798 $ 13,250 Trade 114,798 143,542 Accrued Taxes Payable 17,458 17,354 Dividends Payable 4,792 4,795 Current Maturities of Long-Term Debt - 30,000 Other 6,026 8,989 Total 151,872 217,930 LONG-TERM DEBT 183,862 153,000 OTHER LIABILITIES 13,510 9,477 DEFERRED INCOME TAXES 291,754 270,154 COMMITMENTS AND CONTINGENCIES (Note 8) DEFERRED REVENUE 195,109 227,528 SHAREHOLDERS' EQUITY Common Stock, $.01 Par, 160,000,000 Shares Authorized and Issued at September 30, 1994 and No Par, 80,000,000 Shares Authorized and Issued at December 31, 1993 201,600 200,800 Additional Paid In Capital 415,356 417,531 Cumulative Foreign Currency Translation Adjustment (8,146) (6,855) Retained Earnings 416,049 324,995 Common Stock Held in Treasury, 251,750 shares at September 30, 1994 and 80,000 shares at December 31, 1993 (5,147) (3,398) Total Shareholders' Equity 1,019,712 933,073 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,855,819 $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)
Nine Months Ended September 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Reconciliation of Net Income to Net Operating Cash Inflows: Net Income $ 105,438 $ 99,485 Items Not Requiring (Providing) Cash Depreciation, Depletion and Amortization 181,645 182,643 Impairment of Unproved Oil and Gas Properties 17,364 12,859 Deferred Income Taxes 25,846 55,718 Other, Net (3,241) 532 Exploration Expenses 29,647 25,704 Dry Hole Expenses 10,803 5,336 Gains on Sales of Oil and Gas Properties (52,212) (11,556) Other, Net 3,622 318 Changes in Components of Working Capital and Other Liabilities Accounts Receivable 30,978 4,772 Inventories (4,335) (2,618) Accounts Payable (33,196) 3,065 Accrued Taxes Payable 104 7,844 Other Liabilities 4,675 3,462 Other, Net (4,186) (51,270) Changes in Components of Working Capital Associated with Investing Activities 20,328 38,677 NET OPERATING CASH INFLOWS 333,280 374,971 INVESTING CASH FLOWS Additions to Oil and Gas Properties (313,329) (264,817) Exploration Expenses (29,647) (25,704) Dry Hole Expenses (10,803) (5,336) Proceeds from Property Sales 82,167 36,740 Amortization of Deferred Revenue (32,419) (70,351) Changes in Components of Working Capital Associated with Investing Activities (20,328) (38,677) Other, Net (708) (1,305) NET INVESTING CASH OUTFLOWS (325,067) (369,450) FINANCING CASH FLOWS Issuance of Long-Term Debt 81,000 - Repayments of Long-Term Debt (88,000) - Dividends Paid (14,387) (14,400) Treasury Stock Purchased (4,778) (13,114) Proceeds from Sales of Treasury Stock 1,654 6,214 NET FINANCING CASH OUTFLOWS (24,511) (21,300) DECREASE IN CASH AND CASH EQUIVALENTS (16,298) (15,779) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 103,129 132,618 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 86,831 $ 116,839
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 of Enron Oil & Gas Company and subsidiaries (the "Company") included herein have been prepared by management 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 September 30, 1994 includes $79.6 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 September 30, 1994 and 1993 includes tax benefits of $14.2 million and $21.4 million, respectively, and for the nine-month periods ended September 30, 1994 and 1993 includes tax benefits of $29.4 million and $51.4 million, respectively, all of which are related to tight gas sand federal income tax credit utilization. Income Tax Provision (Benefit) for the nine-month period ended September 30, 1994 also includes a $4.6 million deferred tax benefit resulting from a reduction in estimated composite state income tax rates and a $1.5 million current U.S. tax benefit arising from the discontinuance of operations in Malaysia. The three and nine-month periods ended September 30, 1993 include a predominantly one-time non-cash charge to income of $7.0 million primarily to adjust the accumulated deferred federal income tax liability for the increase in the corporate federal income tax rate from 34 percent to 35 percent. 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 Nine Months Ended September 30, September 30,__ 1994_ 1993_ 1994_ 1993__ Wellhead Natural Gas Revenues Associated Companies (1)(2) $ 56.2 $ 87.1 $218.3 $251.3 Trade 35.8 36.8 125.0 112.0 Total $ 92.0 $123.9 $343.3 $363.3 Other Natural Gas Marketing Activities Gross Revenues from: Associated Companies $ 38.5 $ 28.4 $124.2 $ 88.8 Trade (3) 26.8 40.8 90.8 111.8 Total 65.3 69.2 215.0 200.6 Associated Cost from: Associated Companies (1)(4) 41.4 46.3 141.6 131.5 Trade 13.7 15.2 48.8 48.3 Total (5) 55.1 61.5 190.4 179.8 Net 10.2 7.7 24.6 20.8 Commodity Price Hedging (6) 4.1 (5.2) (2.3) (15.4) Total $ 14.3 $ 2.5 $ 22.3 $ 5.4 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 Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Wellhead Crude Oil, Condensate and Natural Gas Liquid Revenues Associated Companies $ 12.9 $ 8.6 $ 30.0 $ 31.5 Trade 7.4 4.2 21.5 13.2 Total $ 20.3 $ 12.8 $ 51.5 $ 44.7 Other Crude Oil Marketing Activities Commodity Price Hedging (6) $ .3 $ - $ 1.1 $ - (1) Wellhead Natural Gas Revenues include $27.4 million and $33.1 million for the three-month periods ended September 30, 1994 and 1993, respectively, and $100.4 million and $92.7 million for the nine-month periods ended September 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 $5.0 million and $13.7 million for the three-month periods ended September 30, 1994 and 1993, respectively, and $17.4 million and $44.0 million for the nine-month periods ended September 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 $10.9 million and $23.7 million for the three-month periods ended September 30, 1994 and 1993, respectively, and $32.4 million and $70.4 million for the nine-month periods ended September 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 $7.9 million and $20.4 million for the three-month periods ended September 30, 1994 and 1993, respectively, and $26.2 million and $61.6 million for the nine-month periods ended September 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 $52.2 million and $11.6 million 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 nine-month periods ended September 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 $18.7 million and $9.0 million for the nine-month periods ended September 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 a 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 September 30, 1994. 7. In March 1994, a subsidiary 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 (4.515% at September 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. Significant items of other income are detailed below (in millions): Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Gains on Sales of Oil and Gas Properties $ 33.3 $ 11.5 $ 52.2 $ 11.6 Interest Income 1.6 2.0 4.2 3.9 Other, Net (1.1) (0.8) (2.0) (.4) Total $ 33.8 $ 12.7 $ 54.4 $ 15.1 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 nine- month periods ended September 30, 1994 should be read in conjunction with the consolidated financial statements of the Company and Notes thereto. Results of Operations Three Months Ended September 30, 1994 vs. Three Months Ended September 30, 1993 In the third quarter of 1994, Enron Oil & Gas Company (the "Company") realized net income of $41.0 million compared to net income of $35.8 million for the same period in 1993. Net operating revenues for the third quarter of 1994 were $127.4 million as compared to $141.1 million for the same period a year ago. Volume and price statistics are as follows: 1994 1993 Wellhead Volumes Natural Gas (MMcf/d) (1)(3) 672 703 Crude Oil and Condensate (MBbl/d) (1) 12.8 8.4 Natural Gas Liquids (MBbl/d) (1) 0.7 0.5 Wellhead Average Prices Natural Gas ($/Mcf) (2)(4) $ 1.49 $ 1.92 Crude Oil and Condensate ($/Bbl) (2) 16.70 15.94 Natural Gas Liquids ($/Bbl) (2) 9.68 10.38 Other Natural Gas Marketing Volumes (MMcf/d) (1)(3) 306 295 Average Gross Revenue ($/Mcf) (2) $ 2.32 $ 2.55 Associated Costs ($/Mcf) (2)(5) 1.96 2.27 Margin ($/Mcf) (2) $ 0.36 $ 0.28 (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 September 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 $1.13/Mcf and $1.44/Mcf for the three-month periods ended September 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 Third quarter 1994 average wellhead natural gas prices were down approximately 22% from the same period in 1993 reducing net operating revenues by approximately $27 million. A decrease of 4% in wellhead natural gas volumes from the third quarter of 1993 reduced net operating revenues by approximately $5 million. The Company voluntarily curtailed its United States wellhead natural gas delivered volumes by as much as 25% of maximum deliverability during portions of the third quarter of 1994 due to the significant reduction in related wellhead natural gas prices. The selective curtailment of deliveries from high cost and low margin properties limited the net income impact of the curtailments to approximately $4 million. The resulting volume reductions in the United States were mostly offset by the new natural gas deliveries from the Kiskadee field offshore Trinidad and increased natural gas deliveries in Canada. While quarter to quarter volumes in the United States were down as a result of the curtailments addressed above, strong drilling programs in the United States have resulted in a continued improvement in the Company's capacity to deliver natural gas during periods of stronger prices. Third quarter 1994 wellhead crude oil and condensate average prices increased 5% adding approximately $1 million to net operating revenues as compared to the third quarter of 1993. Wellhead crude oil and condensate volumes increased 52% adding approximately $6 million to net operating revenues compared to the same period a year ago primarily reflecting the new deliveries from offshore Trinidad and increases in United States deliveries. 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 $15 million to net operating revenues during the third quarter of 1994, an increase of $12 million over the same period in 1993. This increase primarily results from gains on natural gas commodity price hedging activities utilizing NYMEX- related commodity market transactions in the current period versus losses incurred during the third quarter a year ago. 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 $.31 per Mcf. The average price received for these transactions decreased by $.23 per Mcf over the same period a year ago. Volumes to supply these contracts increased approximately 4%. 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. Using these mechanisms, the Company has locked in prices for approximately one-half of its anticipated wellhead natural gas volumes for the remainder of the year. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENRON OIL & GAS COMPANY During the third quarter of 1994, operating expenses of $109 million were $5 million lower than the $114 million incurred in the third quarter of 1993. Lease and well expenses decreased approximately $2 million to $13 million primarily reflecting the reclassification in the third quarter of year-to-date amounts previously reported as other net operating revenues to net against related lease and well expenses. 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 decreased $10 million to $55 million reflecting a decrease in North American production volumes and a decrease in the average DD&A rate from $.92 per thousand cubic feet equivalent ("Mcfe") in the third quarter of 1993 to $.79 per Mcfe in the third 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 and a tempering of the North American rate as a result of the curtailment of production associated with higher cost reserves. General and administrative costs increased $2 million to $14 million due to the overall costs associated with expanded international and domestic operations. Taxes other than income increased from the comparable period in 1993 due to the recognition in 1993 of a $3 million reduction of franchise taxes resulting from a refund of prior year payments in the third quarter of 1993 essentially equal to the effects of the reductions in state severance taxes as a result of lower taxable United States wellhead volumes and prices in the third quarter of 1994. The Company continues to recognize benefits associated with severance tax exemptions related to the production of certain high cost gas reserves. 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 $.12 per Mcfe, averaging $1.32 per Mcfe during the third quarter of 1994 compared to $1.44 per Mcfe during the same period in 1993. This decrease is primarily attributable to reductions in the average DD&A rate as noted above. Other income for the third quarter of 1994 includes $33 million in gains associated with the sale of selected oil and gas properties as compared to $12 million in similar gains recorded in the third quarter of 1993. Income tax provision of approximately $10 million for the third quarter of 1994 increased $8 million over 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 third quarter of 1994 as compared to the third quarter of 1993 and an increase in income before income taxes during the third quarter of 1994. (See Note 3 to Consolidated Financial Statements). Federal income taxes are accrued using the estimated annual effective income tax rate. PART I. FINANCIAL INFORMATION - (Continued) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENRON OIL & GAS COMPANY Nine Months Ended September 30, 1994 vs. Nine Months Ended September 30, 1993 In the first nine months of 1994, the Company realized net income of $105.4 million compared to net income of $99.5 million for the same period in 1993. Net operating revenues were $422.1 million as compared to $418.4 million for the same period a year ago. Volume and price statistics are as follows: 1994 1993 Wellhead Volumes Natural Gas (MMcf/d) (1)(3) 743 701 Crude Oil and Condensate (MBbl/d) (1) 12.0 9.2 Natural Gas Liquids (MBbl/d) (1) 0.7 0.6 Wellhead Average Prices Natural Gas ($/Mcf) (2)(4) $ 1.69 $ 1.90 Crude Oil and Condensate ($/Bbl) (2) 15.24 17.05 Natural Gas Liquids ($/Bbl) (2) 9.43 11.83 Other Natural Gas Marketing Volumes (MMcf/d) (1)(3) 327 287 Average Gross Revenue ($/Mcf) (2) $ 2.41 $ 2.56 Associated Costs ($/Mcf) (2)(5) 2.13 2.29 Margin ($/Mcf)(2) $ 0.28 $ 0.27 (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 nine- month periods ended September 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 $1.32/Mcf and $1.56/Mcf for the nine-month periods ended September 30, 1994 and 1993, respectively, for the volumes described in note (3), net of transportation costs. (5)Including transportation and exchange differentials. Average wellhead natural gas volumes for the first nine months of 1994 increased approximately 6% to 743 MMcf per day primarily reflecting the effects of development activities in Trinidad partially offset by voluntary curtailments of production in the United States. The increase in wellhead natural gas volumes added $22 million to net operating revenues. The volume reductions in the United States resulting from voluntary curtailments were more than offset by the new natural gas deliveries from the Kiskadee field offshore Trinidad and increased deliveries in Canada. Average wellhead natural gas prices for the first nine months of 1994 were down approximately 11% to $1.69 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 $42 million. A 30% increase in wellhead crude oil and condensate volumes during the first nine months of 1994 added $13 million to net operating revenues compared to the same period in 1993 primarily reflecting development activities in Trinidad. An 11% decrease in wellhead crude oil and condensate prices decreased net operating revenues by approximately $6 million. 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 $23 million to net operating revenues during the first nine months of 1994. This increase of $18 million from the same period in 1993 primarily results from decreased losses on natural gas commodity price hedging activities utilizing NYMEX- related commodity market transactions and increased margins associated with natural gas marketing activities. 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 $.16 per Mcf. The average price received for these transactions decreased $.15 per Mcf. Related other natural gas marketing volumes increased 14%. 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. Using these mechanisms, the Company has locked in prices for approximately one-half of its anticipated wellhead natural gas volumes for the remainder of the year. During the first nine months of 1994, operating expenses of $344 million were approximately $14 million higher than the $330 million incurred in the same period in 1993. Lease and well expenses of $45 million were approximately $1 million higher than a year ago. Exploration expenses of $30 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 increased $5 million from the comparable period a year ago primarily due to impairments associated with certain offshore leases. DD&A expense decreased slightly from $183 million in the first nine months of 1993 to $182 million in the same period of 1994 reflecting a $.07/Mcfe decrease in the average DD&A rate to $.81 per Mcfe which was mostly offset by an increase in 1994 production volumes from offshore Trinidad and Canada. The 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. General and administrative expenses increased $4 million to $38 million primarily due to overall higher costs associated with expanded international and domestic operations. Taxes other than income decreased approximately $4 million from the same period a year ago primarily due to lower taxable United States wellhead volumes and prices. The Company continued to reduce its per unit operating cost as detailed in the discussion of third quarter results to $1.31 per Mcfe during the first nine months of 1994 compared to $1.42 per Mcfe a year ago. The decrease was primarily due to per unit reductions in DD&A and taxes other than income as discussed 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 first nine months of 1994 of approximately $54 million reflects an increase of $39 million from the same period a year ago. The increase was due primarily to $52 million of gains on sales of selected oil and gas properties in 1994 as compared to $12 million of gains recorded during the same period in 1993. In continuing its strategy of fully utilizing its assets in optimizing 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 $21 million for the first nine months of 1994 compared to a benefit of approximately $4 million for the comparable period in 1993. The difference results primarily from a $22 million reduction in the federal income tax benefits associated with tight gas sand federal income tax credits utilized in the first nine months of 1994 as compared to the first nine months of 1993. (See Note 3 to Consolidated Financial Statements). Federal income taxes are accrued using the estimated annual effective income tax rate. Capital Resources and Liquidity The Company's primary sources of cash during the nine months ended September 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 $338 million during the first nine months of 1994, a decrease of $42 million from the $380 million generated for the same period in 1993, primarily due to the inclusion, in 1993, of $50 million associated with a federal income tax refund resulting from the settlement of an audit of federal income taxes paid in prior years. PART I. FINANCIAL INFORMATION - (Concluded) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded) ENRON OIL & GAS COMPANY Net operating cash flow for the first nine months of 1994 of $333 million decreased $42 million as compared to the same period in 1993 primarily due to the decrease in discretionary cash flow discussed above. 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. Exploration and development expenditures totaled $354 million during the first nine months of 1994 as compared to $296 million expended during the same period in 1993. The increase was attributable primarily to increased development expenditures associated with operations outside of the United States and increased exploration expenditures in all areas, most significantly in the United States, partially offset by lower development drilling expenditures in the United States. 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. Proceeds from property sales generated $82 million in the first nine months of 1994 as compared to $37 million during the same period in 1993. The sales of these properties were made to maximize the economic value of the assets. In continuing its strategy of fully utilizing its assets in optimizing profitability, cash flow and return on investments the Company expects to continue the sale of similar assets from time to time. PART II. OTHER INFORMATION ENRON OIL & GAS COMPANY 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 September 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: November 8, 1994 By /S/ WALTER C. WILSON Walter C. Wilson Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 8, 1994 By /S/ BEN B. BOYD Ben B. Boyd Vice President and Controller (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----