-----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, UkcfIC1OEnnJ7eZwHq7FyU3KF1uYDXE3VWMDdODMimeKKDVkf8DHZBoGS1OkBvq7 b6W2L+UPoR/AykKdwlRsAw== /in/edgar/work/0000874992-00-000010/0000874992-00-000010.txt : 20001114 0000874992-00-000010.hdr.sgml : 20001114 ACCESSION NUMBER: 0000874992-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REMINGTON OIL & GAS CORP CENTRAL INDEX KEY: 0000874992 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 752369148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11516 FILM NUMBER: 759050 BUSINESS ADDRESS: STREET 1: 8201 PRESTON RD STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2148908000 MAIL ADDRESS: STREET 1: 8201 PRESTON RD STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75225-6211 FORMER COMPANY: FORMER CONFORMED NAME: BOX ENERGY CORP DATE OF NAME CHANGE: 19930328 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington DC 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 quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission file number 1-11516 REMINGTON OIL AND GAS CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2369148 (State or other jurisdiction of) (IRS employer identification no.) incorporation or organization) 8201 Preston Road, Suite 600, Dallas, Texas 75225-6211 (Address of principal executive offices) (Zip code) (214) 210-2650 (Registrant's telephone number, including area code) 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 --- --- There were 21,481,074 outstanding shares of Common Stock, $0.01 par value, on November 9, 2000. Remington Oil and Gas Corporation Table of Contents PART I, FINANCIAL INFORMATION 3 ITEM 1. FINANCIAL STATEMENTS 3 Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 PART II, OTHER INFORMATION 14 ITEM 1. LEGAL PROCEEDINGS 14 ITEM 2. CHANGES IN SECURITIES 14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14 ITEM 5. OTHER INFORMATION 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14 PART I, FINANCIAL INFORMATION Item 1. Financial Statements Remington Oil and Gas Corporation Condensed Consolidated Balance Sheets (In thousands, except share data) September 30, December 31, Assets 2000 1999 ------------- ------------ Current assets (Unaudited) Cash and cash equivalents $ 25,075 $ 4,356 Restricted cash and cash equivalents 2,592 11,042 Accounts receivable 10,889 6,421 Prepaid expenses and other current assets 2,262 2,054 ------------- ------------ Total current assets 40,818 23,873 ------------- ------------ Properties Oil and natural gas properties (successful- efforts method) 306,503 275,690 Other properties 2,696 2,862 Accumulated depreciation, depletion and amortization (195,602) (183,971) ------------- ------------ Total properties 113,597 94,581 ------------- ------------ Other assets Cash collateral for Phillips judgment 9,000 - Other assets 1,633 872 ------------- ------------ Total other assets 10,633 872 ------------- ------------ Total assets $ 165,048 $ 119,326 ============= ============ Liabilities and stockholders' equity Liabilities Current liabilities Accounts payable and accrued liabilities $ 17,702 $ 6,613 Phillips judgment - 18,894 Short-term notes payable and current portion of long-term notes payable 45 2,635 ------------- ------------ Total current liabilities 17,747 28,142 ------------- ------------ Other liabilities Phillips judgment 19,549 - Long-term accounts payable 3,021 1,598 Notes payable 27,428 27,526 8 1/4% Convertible subordinated notes payable due in 2002 5,950 5,950 ------------- ------------ Total other liabilities 55,948 35,074 ------------- ------------ Total Liabilities 73,695 63,216 ------------- ------------ Commitments and contingencies (Note 2) Minority interest in subsidiaries - 56 Stockholders' equity Preferred stock, $0.01 par value, 25,000,000 shares authorized, shares issued - none - - Common stock, $0.01 par value, 100,000,000 shares authorized, 21,515,433 shares issued and 21,481,074 shares outstanding in 2000, 21,491,170 shares issued and 21,285,195 shares outstanding in 1999 215 213 Additional paid-in capital 45,340 44,273 Retained earnings 45,798 11,568 ------------- ------------ Total stockholders' equity 91,353 56,054 ------------- ------------ Total liabilities and stockholders' equity $ 165,048 $ 119,326 ============= ============ See accompanying Notes to Condensed Consolidated Financial Statements. Remington Oil and Gas Corporation Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ -------------------- 2000 1999 2000 1999 -------- --------- --------- --------- Revenues Oil sales $ 8,657 $ 5,132 $ 24,348 $ 12,228 Gas sales 13,355 7,089 32,355 15,615 Other income 13,497 828 14,863 2,679 -------- --------- --------- --------- Total revenues 35,509 13,049 71,566 30,522 -------- --------- --------- --------- Costs and expenses Operating costs and expenses 2,143 1,866 7,118 5,418 Net Profits interest expense 213 605 1,271 1,295 Exploration expenses 344 803 1,553 5,958 Depreciation, depletion and amortization 5,465 6,056 14,664 16,316 General and administrative 1,190 1,684 3,888 4,693 Royalty settlement 2,200 - 5,416 - Interest and financing expense 1,250 988 3,413 3,516 -------- --------- --------- --------- Total costs and expenses 12,805 12,002 37,323 37,196 -------- --------- --------- --------- Income (loss) before taxes and minority interest 22,704 1,047 34,243 (6,674) -------- --------- --------- --------- Income tax expense - (305) - (300) Minority interest in income of subsidiaries - (21) (5) (1) -------- --------- --------- --------- Net income (loss) $ 22,704 $ 1,373 $ 34,248 $ (6,373) ======== ========= ========= ========= Basic income (loss) per share $ 1.06 $ 0.06 $ 1.60 $ (0.30) ======== ========= ========= ========= Diluted income (loss) per share $ 0.99 $ 0.06 $ 1.53 $ (0.30) ======== ========= ========= ========= Weighted average shares outstanding (Basic) 21,477 21,268 21,417 21,275 ======== ========= ========= ========= Weighted average shares outstanding (Diluted) 23,084 21,368 22,516 21,319 ======== ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements. Remington Oil and Gas Corporation Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2000 1999 --------- --------- Cash flow provided by operations Net income (loss) $ 34,248 $ (6,373) Adjustments to reconcile net income Depreciation, depletion and amortization 14,664 16,316 Amortization of deferred charges 210 712 Dry hole costs 736 4,699 Minority interest in income of subsidiaries (5) (1) Royalty settlement 3,216 - Stock issued to directors and employees for compensation 122 117 (Gain) on sale of properties (12,632) (195) Changes in working capital (Increase) in accounts receivable (4,475) (3,199) Decrease in prepaid expenses and other current assets 412 749 Increase in accounts payable and accrued liabilities 10,846 2,164 (Increase) in restricted cash (550) (2,042) --------- --------- Net cash flow provided by operations 46,792 12,947 --------- --------- Cash from investing activities Payments for capital expenditures (36,583) (19,504) Proceeds from property sales 15,212 274 --------- --------- Net cash (used in) investing activities (21,371) (19,230) --------- --------- Cash from financing activities Proceeds from note payable 1,790 30,628 Debt issuance costs for line of credit - (528) Payments on notes payable and long-term accounts payable (6,489) (37,093) Stock options exercised 15 - Dividends paid to minority stockholders of subsidiaries (18) (60) --------- --------- Net cash (used in) financing activities (4,702) (7,053) --------- --------- Net increase (decrease) in cash and cash equivalents 20,719 (13,336) Cash and cash equivalents at beginning of period 4,356 19,018 --------- --------- Cash and cash equivalents at end of period $ 25,075 $ 5,682 ========= ========= See accompanying Notes to Condensed Consolidated Financial Statements. Note 1. Accounting Policies and Basis of Presentation Remington Oil and Gas Corporation is an independent oil and gas exploration and production company incorporated in Delaware. Our oil and gas properties are located in three areas - offshore Gulf of Mexico, Mississippi/Alabama, and onshore Gulf Coast. We prepared these financial statements according to the instructions for Form 10-Q. Therefore, the financial statements do not include all disclosures required by generally accepted accounting principles. However, we have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Form 10-Q. The adjustments made are normal and recurring. The following notes describe only the material changes in accounting policies, account details or financial statement notes during the first nine months of 2000. Please read these financial statements and notes to the financial statements together with the audited financial statements and notes to financial statements in our 1999 Form 10-K. The income statements for the three and nine months ended September 30, 2000, cannot necessarily be used to project results for the full year. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." As amended, the statement is effective for all fiscal years beginning after June 15, 2000 (January 1, 2001 for us). SFAS No. 133 requires that derivatives be reported on the balance sheet at fair value. If the derivative is not designated as a hedging instrument, changes in fair value must be recognized in the income statement in the period of change. If the derivative is designated as a hedge and to the extent such hedge is determined to be effective, changes in fair value are either offset by the change in fair value of the asset or liability (if applicable) or reported as a component of other comprehensive income in the period of change, and subsequently recognized in the income statement when the offsetting hedged transaction occurs. The definition of derivatives has also been expanded to include contracts that require physical delivery of oil and gas if the contract allows for net cash settlement. Currently we do not utilize any derivative instruments that fall under the criteria defined in the accounting standard. Accordingly, we do not expect the adoption of SFAS No. 133 to have a material effect on our reported financial statements or disclosures. Note 2. Contingencies Phillips Petroleum Litigation Our litigation with Phillips Petroleum Company is a material contingency. We have included a complete discussion of this contingency in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the topic "Phillips Petroleum Litigation" on pages 9 and 10 of this Form 10-Q. Please read this discussion carefully. When the trial court in the Phillips case first rendered its decision in August of 1998, we recorded the judgment as a current liability based on the expectation that, despite the appeals filed in the case, the trial court's decision would stand, and that final disposition of the case would transpire within a reasonable period. Subsequent events have proven that our timing estimates were optimistic. After reviewing all circumstances of the Phillips litigation to date, management has determined that, in all likelihood, the appeals process will continue through all possible appellate actions in the State of Louisiana and possibly continue beyond that to the federal level. We believe that it is highly unlikely that these processes will be completed within one year. Accordingly, the liability styled "Phillips judgment" no longer falls within the accounting definition of a current liability because the liability will not require the use of current assets to extinguish. In reaching this conclusion, we rely on our legal counsel who have informed us that it may be a number of years before the judgment finally becomes payable. Accordingly, we have reclassified the Phillips judgment to a non-current liability. In order to afford consistent treatment to related matters, we have also reclassified to a non-current asset the $9.0 million cash deposit that is pledged as collateral for the suspensive appeal bond in the case. Minerals Management Service Issues During the first three quarters of 2000, we have settled with the Minerals Management Service on the TETCO issue and have reached an agreement in principle to settle the pipeline tariff issue and the exchange agreement issue. We have included a complete discussion of this contingency in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the topic "Minerals Management Service (MMS) Issues" on page 11 of this Form 10-Q. Please read this discussion carefully. Note 3. Income per Common Share The following table sets forth the calculation of basic and diluted income per common share:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 2000 1999 2000 1999 -------- -------- -------- --------- (In thousands except per share amounts) Net income (loss) available for basic income per share $ 22,704 $ 1,373 $ 34,248 $ (6,373) Interest expense on the Notes (net of tax) 80 - 240 - -------- -------- -------- --------- Net income (loss) available for diluted income per share $ 22,784 $ 1,373 $ 34,488 $ (6,373) ======== ======== ======== ========= Basic income (loss) per share $ 1.06 $ 0.06 $ 1.60 $ (0.30) ======== ======== ======== ========= Diluted income (loss) per share $ 0.99 $ 0.06 $ 1.53 $ (0.30) ======== ======== ======== ========= Weighted average Total common shares for basic income (loss) per share 21,477 21,268 21,417 21,275 Dilutive stock options outstanding (treasury stock method) 1,066 100 558 44 Shares assumed issued by conversion of the Notes 541 - 541 - -------- -------- -------- --------- Total common shares for diluted income (loss) per share 23,084 21,368 22,516 21,319 ======== ======== ======== ========= Potential increase to net income for diluted income per share Interest expense on Notes (net of tax) $ - $ 80 $ - $ 501 Potential issues of common stock for diluted income per share Weighted average stock options outstanding - 1,253 - 1,261 Weighted average warrant outstanding 200 300 200 300 Weighted average shares issued assuming conversion of Notes - 541 - 1,135 Note: Assumed conversion of the Notes was anti-dilutive for both periods im 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion will assist in the understanding our financial position and results of operations. The information below should be read in conjunction with the financial statements, the related notes to financial statements, and our Form 10-K for the year ended December 31, 1999. Our discussion contains both historical and forward-looking information. We assess the risks and uncertainties about our business, long-term strategy, and financial condition before we make any forward-looking statements, but we cannot guarantee that our assessment is accurate or that our goals and projections can or will be met. Statements concerning results of future exploration, exploitation, development, and acquisition expenditures, as well as revenue, expense, reserve levels, and the outcome of litigation, are forward-looking statements. We make assumptions about commodity prices, drilling results, production costs, administrative expenses, and interest costs that we believe are reasonable based on currently available information of known facts and trends. This discussion is primarily an update to the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 1999 Form 10-K which we recommend you read. Our long-term strategy is to increase shareholder value by economically increasing reserves, production, and cash flow on an annual basis. At the same time, we believe it is important to maintain a strong balance sheet by keeping our total debt at a manageable level. We will balance our capital expenditures, financed primarily by operating cash flow and bank debt, among exploration, development, and acquisitions. Liquidity and Capital Resources On September 30, 2000, our current assets exceeded our current liabilities by $23.1 million. From December 31, 1999, to September 30, 2000, our current assets increased by $16.9 million. The increase relates to an increase in cash from the sale of certain South Texas properties during the third quarter and an increase in accounts receivable because of increased production and prices. Cash flow from operations for the nine months ended September 30, 2000, before changes in working capital increased by $25.3 million, or 166%, compared to the prior year primarily because of increased oil and gas revenues. Gas sales increased by $16.7 million, or 107%, and oil sales increased by $12.1 million, or 99%. The increase in gas sales relates to increased production ($8.9 million) and gas prices ($7.8 million) and the increase in oil revenues relates primarily to higher oil prices. During the first nine months of 2000, we incurred capital expenditures totaling $36.6 million. The capital expenditures included drilling 10 successful exploration wells in the Gulf of Mexico and 5 successful wells in Mississippi and 12 in South Texas. During the remainder of 2000, we will continue to incur costs to build and install 2 platforms, complete 7 offshore wells and drill approximately 14 additional wells. For the remainder of the year, we forecast capital requirements of approximately $31.6 million for the drilling and completion of these wells and for fourth quarter geological and geophysical costs. We expect that our cash, cash flow from operations, and available bank line of credit will be adequate to fund the capital budget for the remainder of this year. In July 2000, we sold certain non-operated producing properties located in Nueces, Starr, and Victoria Counties, Texas, for approximately $17.1 million effective as of May 1, 2000. We recorded a $12.5 million gain from the sale. We will deploy the cash received from the sale of these properties to our operated projects in the Gulf of Mexico and new property acquisitions. Our current bank line of credit has a borrowing base of $35.0 million. The bank reviews the borrowing base semi-annually and may increase or decrease the borrowing base relative to a redetermined estimate of proved oil and gas reserves. Our oil and gas properties are pledged as collateral for the increased new line of credit. Additionally, we have agreed not to pay dividends. In September 2000, the bank agreed to extend the final maturity date from March 1, 2003, to March 1, 2004, and the availability date from October 1, 2000, to October 1, 2001. We cannot borrow additional funds after the availability date. In addition, on that date, the revolving credit loans convert to term loans, which must be amortized in equal quarterly principal payments through the final maturity date unless the agreement is amended. On September 30, 2000, we had $7.6 million of unused borrowing base available on the line of credit. Phillips Petroleum Litigation - Louisiana Action In 1977, Phillips Petroleum Company assigned its interest in South Pass 89, offshore Louisiana, to OKC Limited Partnership, predecessor to Remington Oil and Gas Corporation. The assignment was accomplished through a farmout agreement in which Phillips retained a 33% net profits interest. Phillips had obtained, through a predecessor corporation, the lease, which only granted rights to oil and gas from production, from the Minerals Management Service. Paragraph IV of the farmout states that Phillips' net profits shall be "thirty-three percent (33%) of one-fourth (1/4) of eight-eighths (8/8)" of production. Paragraph IV (a) states that Phillips "shall look exclusively to the oil, gas, condensate, and other hydrocarbons, ... produced from the subject lease for the satisfaction and realization of the net profits interest." Subparagraph IV (d) (4) states the net profits account shall be credited with "an amount equal to the proceeds of all judgments and claims collected on account of its ownership of the subject lease." Subparagraph IV (d) (5) states the net profits account shall be credited with "an amount equal to all monies and things of value received by or inuring to the benefit by virtue of its ownership interest in the subject lease" of Remington. The interpretation of Paragraph IV and its subparagraphs has been the primary subject of the current litigation between Phillips and us. Our claim, upheld by the trial court, is that Phillips can look only to actual production for satisfaction of the net profits interest according to the clear language of Paragraph IV. It is our position that Subparagraphs IV (d) (4) and (5) merely define types of production to be credited to the net profits account. Phillips claims that Subparagraph IV (a) which limits Phillips interest to oil and gas produced from the lease should be ignored and that Subparagraphs IV (d) (4) and (5) should stand alone which they claim would entitle Phillips to any amounts received by us regardless of whether they represent revenues from or associated with production from the lease. We believe that if Phillips, as drafter of the farmout agreement, intended Subparagraphs IV (d) (4) and (5) to be so controlling, no reference to production would have been necessary in the farmout. The litigation involves three issues related to the interpretation of Paragraph IV and its subparagraphs - the TETCO issue, the Pipeline Tariff issue, and the Overriding Royalty issue detailed below. TETCO - We entered into a gas purchase agreement with TETCO in 1982 dedicating our gas from South Pass 89 to TETCO for specified prices. In 1989, TETCO sued us in order to get a judicial blessing of their termination of this high priced gas contract. In November of 1990, we settled with TETCO and received $69.6 million to "settle all causes of action, claims and controversies between them pertaining to the Litigation." Furthermore, we agreed to a new contract price for gas sold to TETCO in exchange for its agreement to drop its legal challenges to the gas contract. TETCO also paid us an additional $5.4 million (over and above the $69.6 million) for past production which we credited to the net profits account. This payment has not been subject to any litigation. In May of 1991, we allocated $5.8 million of the $69.6 million as production to the net profits account. Phillips claims the remaining $63.8 million should have been credited to the net profits account. After a three week trial in 1997, the Louisiana trial court ruled that we should have credited $41.2 million to the net profits account as proceeds from production and thus owed an additional $9.3 million plus interest to Phillips. As part of its ruling, the trial court supported our claim that Phillips must only look to actual production for its net profits interest and that the remaining $28.4 million of the TETCO payment was for settlement of Remington's counterclaims against TETCO. Phillips appealed this ruling and on January 5, 2000, the Court of Appeal, Fourth Circuit, State of Louisiana, overturned the trial court and held that the full $69.6 million should be allocated to the net profits account based on Phillips' contention that all proceeds of all judgments and claims must be included regardless of whether they related to production or to the lease. The Court of Appeal granted our motion for rehearing on this matter, and oral argument is scheduled for November 15, 2000. Pipeline Tariff - The farmout agreement allows transportation costs to be charged to the net profits account. Initially, Marathon constructed and operated the oil pipeline from the South Pass complex to Venice, Louisiana, and charged us a tariff of $2.75 per barrel for transportation. This tariff was charged to the net profits account with no complaint from Phillips from inception of production in 1982 until 1989. In 1985, CKB Petroleum, Inc. purchased an interest in the pipeline and entered into a 20-year transportation agreement with us for $2.75 per barrel to transport all of our oil. All liabilities associated with the pipeline interest were assumed by CKB Petroleum, Inc. and Cloyce Box, individually. Before CKB Petroleum could purchase its interest, Phillips was given the right to purchase the interest under a preferential right clause of the pipeline operating agreement, but declined to do so. In the litigation, Phillips claimed that we should charge not what we paid to CKB Petroleum, Inc. for transportation but only a lesser amount which Phillips claimed was our "actual cost" of transportation. The trial court dismissed this claim. The appellate court reversed the trial court and awarded Phillips $7.3 million plus interest. In reaching its decision, the appellate court incorrectly contended that we owned the pipeline. In fact, we did not purchase the pipeline interest until December of 1998. The Court of Appeal granted our motion for rehearing on this issue, and oral argument is scheduled for November 15, 2000. Overriding Royalty - Phillips claims that in months when no net profits are achieved, its net profits interest reverts to an overriding royalty. We claim that once net profits are achieved, Phillips' net profits interest does not revert to an overriding royalty position until cumulative net profits are depleted. The trial court ruled in Phillips favor and awarded Phillips $1.6 million plus interest. We appealed this issue, but the appellate court upheld the trial court's ruling. We believe that both the trial court and the appellate court are wrong on this issue, and we will continue to appeal on this issue. The total judgment awarded by the trial court in 1998 including interest was $18.0 million. We recorded an $18.0 million charge to income in the third quarter of 1998 and continue to accrue interest on this liability each quarter. The present total liability is $19.5 million. The appellate court ruling of January 2000, if it stands, would change this liability to approximately $56.3 million including interest through September 30, 2000. The Court of Appeal has granted our motion for rehearing, and oral argument is scheduled for November 15, 2000. Because we believe that it is probable that the decision of the appellate court will not stand, we have not recorded any additional contingent liability in our financial statements. Statement of Financial Accounting Standards No. 5 entitled "Accounting for Contingencies" requires that when a loss contingency exists, it be accrued if it is reasonably estimable and it is probable that an unfavorable outcome will occur. In reaching our conclusion, we rely on our legal counsel who have informed us that in their opinion the appellate court incorrectly applied the law and made erroneous findings of fact in reversing the trial court's judgment. They have further advised us that in their opinion it is as likely as not that the Court of Appeal's errors will be corrected on rehearing or on appeal to the Louisiana Supreme Court. No matter the outcome on rehearing, we believe that it is likely that either one or both parties will appeal to the Louisiana Supreme Court. Such an appeal to the Supreme Court will be due as early as 30 days after the Court of Appeal rules. The Louisiana Supreme Court has 120 days to determine whether it will review the case. If the Supreme Court determines that it will take the case, it will, in all probability, be several months before the case is heard and a decision rendered. Once the Supreme Court announces its decision on the suit, various issues will be remanded to the trial court to determine how much, if any, we owe as a result of the decision. Since the issues are complex and involve interconnected transactions occurring as early as 1977, it may take several months or longer to resolve and determine the exact payment amount. When the litigation is concluded and the amount, if any, of our liability is finally determined, we intend to use a combination of cash, debt financing, and/or property sales to fulfill the amount of any judgment. We believe that there will be sufficient time from a final determination by the appellate court of last resort and the remand to the trial court to allow us to make provision for any required payment. Final resolution of this matter through the courts may take up to several years. Currently, we have $9 million in restricted cash set aside for this litigation. If the complete Court of Appeal opinion is upheld, the company would owe Phillips an estimated additional $47.3 million over the amount of restricted capital. Because of the uncertain nature of this contingent liability, both as to amount and timing as discussed above, we do not intend at this time to set aside any additional funds. This decision may be reevaluated as circumstances change. Phillips Petroleum Litigation - Collin County Texas Action In August of 1998, we terminated the TETCO gas contract and received $49.8 million. Phillips has claimed that this full $49.8 million payment should be credited to the net profits agreement. Litigation on this issue was initiated in Collin County, Texas, and subsequently stayed pending the resolution of all the appeals in Phillips Louisiana suit. If the trial court opinion stating that Phillips can only look to production for its net profits interest is upheld, we anticipate this case will be dismissed. If the Louisiana Court of Appeal opinion is upheld, we will have to litigate whether the entire amount of the buyout must be credited to the net profits interest. Liability on this claim would be $16.4 million plus statutory interest until the date of payment. The trial and appeals regarding this issue could take at least an additional two years to resolve once the current Louisiana litigation is concluded. Mineral Management Service (MMS) Issues MMS is the grantor of all leases in the federal waters offshore Louisiana. When production is established, MMS collects a 16.67% royalty from all hydrocarbons produced from the lease. After a routine audit of Remington's royalty payments, MMS issued orders to pay additional royalty on three separate claims regarding our South Pass 89 lease complex. The orders to pay involved the TETCO issue, the Pipeline Tariff issue and the Exchange Agreement issue as detailed below: TETCO - MMS initially claimed that the full 1990 TETCO payment of $69.6 million should be subject to royalty of 16.67%. This is identical to Phillips' demand that this $69.6 million payment should all have been allocated to their net profits account as detailed above. After a review of the facts, MMS concluded, as did the trial court in the Phillips litigation, that $41.2 million of the $69.6 million should have been allocated to production and thus royalty was due on that amount. This claim was settled for $4.8 million in additional royalties. Because of this agreement, we recorded a $3.2 million expense in the first quarter net of Phillips' net profits interest. In the settlement agreement, MMS agreed no royalty would be due on the $49.8 million termination payment received from TETCO by us in July of 1998, as it was not from production. Phillips, in the Collin County, Texas, action on the same matter, claims that this payment should be allocated to the net profits agreement as detailed above. Pipeline Tariff - MMS has claimed that since CKB Petroleum, Inc. was an affiliated entity of the company, we could not charge MMS our actual cost of $2.75 per barrel for transportation of their oil, but could only charge the operator's actual operating charges to CKB Petroleum. We documented to the MMS that $2.75 per barrel was the actual cost to us and our public shareholders, that costs to CKB Petroleum were significantly more than the operating charges from the pipeline operator, and that the $2.75 per barrel was approved by FERC. Exchange Agreement - MMS claimed underpayment of royalty since 1998 on certain oil sold from South Pass 89 complex through exchange agreements. This underpayment claim arises from a rule change by MMS in 1998. We began crediting MMS with the value of the exchanges in May of 1999 as set pursuant to their new rule. Phillips was paid net profits on these exchange agreements. We have agreed in principle with the MMS to settle these last two issues concurrently for a total payment by Remington of $2.2 million. The settlement is subject to final government approval. This $2.2 million is reflected as an expense in the third quarter of 2000. A related reduction of approximately $421,000 in the net profits expense partially offset this charge. Of the $2.2 million, we have allocated approximately $1.4 million as applicable to the exchange agreement issue and the remainder as applicable to the pipeline tariff issue. Results of Operations We recorded net income for the first nine months of 2000 of $34.2 million, or $1.60 per share before dilution and $1.53 per share after dilution, compared to a loss for the first nine months of 1999 of $6.4 million or $0.30 per share. For the three months ended September 30, 2000, we recorded net income of $22.7 million, or $1.06 per share before dilution and $0.99 per share after dilution, compared to a net income of $1.4 million or $0.06 per share for the same period in 1999. The increase in net income results from an increase in total gas production, an increase in the average price for both oil and gas, a gain on the sale of certain South Texas properties, and a reduction in dry hole cost. The following table reflects the increase or decrease in oil and gas sales revenue due to the changes in prices and volumes.
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 -------- ------- ------- ------- (In thousands, except prices) Oil production volume (Bbls) 311 290 924 908 Oil sales revenue $ 8,657 $ 5,132 $24,348 $12,228 Price per barrel $ 27.84 $ 17.70 $ 26.35 $ 13.47 Increase (decrease) in oil sales revenue due to: Change in prices $ 2,941 $11,695 Change in production volume 584 425 ------- ------- Total increase (decrease) in oil sales revenue $ 3,525 $12,120 ======= ======= Gas production volume (Mcf) 3,192 2,882 9,522 6,903 Gas sales revenue $13,355 $ 7,089 $32,355 $15,615 Price per Mcf $ 4.18 $ 2.46 $ 3.40 $ 2.26 Increase in gas sales revenue due to: Change in prices $ 4,957 $ 7,869 Change in production volume 1,309 8,871 ------- ------- Total increase in gas sales revenue $ 6,266 $16,740 ======= =======
Oil production increased slightly when compared to the same periods in 1999 because of increased production from Mississippi and Alabama partially offset by lower oil production from the Gulf of Mexico. Oil production from Mississippi and Alabama increased by 51,000 barrels, or 88%, during the third quarter of 2000 and by 136,000 barrels, or 82% for the first nine months of 2000. The average oil price increased by 57% during the third quarter of 2000 compared to the prior year third quarter and by 96% for the first nine months of 2000 compared to the same period in 1999. Gas production increased by 11% during the third quarter of 2000 compared to the third quarter of 1999 primarily from gas produced from the Gulf of Mexico. Total gas production for the first nine months of 2000 increased by 38% primarily from the Gulf of Mexico and South Texas. Gas production from the Gulf of Mexico increased by 237,000 Mcf, or 10%, during the third quarter of 2000 and by 1.6 Bcf, or 28% for the first nine months of 2000. The average gas price increased by 70% during the third quarter of 2000 compared to the third quarter of 1999 and by 50% during the first nine months of 2000 compared to 1999. Operating expenses increased during the three and nine months ended September 30, 2000, compared to the same period in 1999, primarily because of the increased number of producing properties and a $1.3 million workover on West Cameron block 170 charged to expense during the second quarter of 2000. Net profits expense for the third quarter of 2000 decreased because of additional charges for the portion of the MMS settlement allocated to South Pass block 89. Exploration expense decreased by $459,000 during the third quarter of 2000 and by $4.4 million during the first nine months of 2000 primarily because of lower dry hole costs in the current year. Depreciation, depletion, and amortization expense decreased by $591,000 during the third quarter of 2000 and by $1.7 million during the first nine months of 2000 compared to the same periods in the prior year primarily as a result of our lower finding costs per unit during the last three years. General and administrative expenses decreased during the third quarter by $494,000 compared to the third quarter of 1999. During the first nine months of 2000, general and administrative expenses decreased by $805,000 when compared to the first nine months of 1999. The decrease primarily relates to lower legal expense for both periods. During this year, we reached two separate accords with the Minerals Management Service concerning the underpayment of oil and gas royalties. The first agreement reached in May 2000, concerned additional royalties due on the settlement of a 1990 gas sales contract. Because of this agreement, we recorded an expense of $3.2 million in the first quarter of 2000. As to the second accord, we reached an agreement in principle in October 2000 to settle the issues concerning oil transportation charges and oil exchange contracts for $2.2 million. Interest and financing expense increased by $262,000 during the third quarter of 2000, compared to the third quarter of 1999 reflecting the recent increases in interest rates. During the first nine months of 2000, interest and financing expense decreased slightly because we recorded additional expense in 1999 when we accelerated the amortization of the offering costs on the 81/4% Convertible Subordinated Notes after we purchased approximately 85% of the outstanding notes in February 1999. Partially offsetting the decrease is an increase in interest and financing expense due to higher interest rates. Item 3. Quantitative and Qualitative Disclosures about Market Risk Our market risk sensitive instrument at September 30, 2000, is a revolving line of credit from a bank. At September 30, 2000, the unpaid principal balance under the line was $27.4 million. The interest rate on this debt is sensitive to market fluctuations, however, we do not believe that significant fluctuations in the market rate of interest have a material effect on our consolidated financial position, results of operations, or cash flow from operations. PART II, OTHER INFORMATION Item 1. Legal Proceedings Incorporated herein by reference is the discussion of litigation set forth in Part I, Item 1, Notes to the Financial Statements - Note 2. Contingencies of this Form 10-Q. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 2.0++ Agreement and Plan of Merger dated as of June 22, 1998, by and between Remington Oil and Gas Corporation and S-Sixteen Holding Company. 3.1* Certificate of Incorporation, as amended. 3.2### Certificate of Amendment of Certificate of Incorporation of Box Energy Corporation. 3.2.1++ Certificate of Amendment of Certificate of Incorporation of Remington Oil and Gas Corporation. 3.3+++ By-Laws as amended. 4.1* Form of Indenture Box Energy Corporation to United States Trust Company of New York, Trustee, dated December 1, 1992, 81/4% Convertible Subordinated Notes due December 1, 2002. 10.1* Farmout Agreement with Aminoil USA, Inc., effective May 1, 1977, dated May 9, 1977. 10.2* Transportation Agreement with CKB Petroleum, Inc. dated March 1, 1985, as amended on April 19, 1989. 10.3* Agreement of Compromise and Amendment to Farmout Agreement, dated July 3, 1989. 10.4** Pension Plan of Box Energy Corporation, effective April 16, 1992. 10.5# First Amendment to the Pension Plan of Box Energy Corporation dated December 16, 1993. 10.6## Second Amendment to the Pension Plan of Box Energy Corporation dated December 31, 1994. 10.7*** Amended and Restated Promissory Note between Box Energy Corporation and Box Brothers Holding Company. 10.8*** Amended and Restated Pledge Agreement between Box Energy Corporation and Box Brothers Holding Company. 10.9*** Agreement by and between Box Energy Corporation and James A. Watt. 10.10### Box Energy Corporation Severance Plan. 10.11+ Box Energy Corporation 1997 Stock Option Plan (as amended June 17, 1999). 10.12### Box Energy Corporation Non-Employee Director Stock Purchase Plan 10.13~ Form of Employment Agreement effective September 30, 1999, by and between Remington Oil and Gas Corporation and two executive officers. 10.14~ Form of Employment Agreement effective September 30, 1999, by and between Remington Oil and Gas Corporation and an executive officer. 10.15~~ Employment Agreement effective January 31, 2000, by and between Remington Oil and Gas Corporation and James A. Watt. 27.1 Financial Data Schedule. (b) No Forms 8-K were filed during the quarter ended June 30, 2000. - ------------ * Incorporated by reference to the Company's Registration Statement on Form S-2 (file number 33-52156) filed with the Commission and effective on December 1, 1992. ** Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1992, filed with the Commission and effective on or about March 30, 1993. # Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1993, filed with the Commission and effective on or about March 30, 1994. ## Incorporated by reference to the Company's Form 10-K (file number 0-19967) for the fiscal year ended December 31, 1994, filed with the Commission and effective on or about March 30, 1995. + Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended June 30, 1999, filed with the Commission and effective on or about August 13, 1999. *** Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended June 30, 1997, filed with the Commission and effective on or about August 12, 1997. ### Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1997, filed with the Commission and effective on or about March 30, 1998. ++ Incorporated by reference to the Company's Registration Statement on Form S-4 (file number 333-61513) filed with the Commission and effective on November 27, 1998. +++ Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1998, filed with the Commission and effective on or about March 30, 1999. ~ Incorporated by reference to the Company's Form 10-Q (file number 1-11516) for the fiscal quarter ended September 30, 1999, filed with the Commission and effective on or about November 12, 1999. ~~ Incorporated by reference to the Company's Form 10-K (file number 1-11516) for the fiscal year ended December 31, 1999, filed with the Commission and effective on or about March 30, 2000. 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. REMINGTON OIL AND GAS CORPORATION Date: November 10, 2000 By: /s/ James A. Watt ----------------- ------------------------------------- James A. Watt President and Chief Executive Officer Date: November 10, 2000 By: /s/ J. Burke Asher ----------------- ------------------------------------- J. Burke Asher Vice President/Finance EX-27 2 0002.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REMINGTON OIL AND GAS CORPORATION'S FORM 10-Q FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000874992 REMINGTON OIL AND GAS CORPORATION 1,000 3-MOS 9-MOS DEC-31-2000 DEC-31-2000 JUL-01-2000 JAN-01-2000 SEP-30-2000 SEP-30-2000 25,075 25,075 0 0 10,889 10,889 0 0 0 0 40,818 40,818 309,199 309,199 195,602 195,602 165,048 165,048 17,747 17,747 5,950 5,950 0 0 0 0 215 215 91,138 91,138 165,048 165,048 22,012 56,703 35,509 71,566 8,165 24,606 11,555 33,910 0 0 0 0 1,250 3,413 22,704 34,243 0 0 22,704 34,248 0 0 0 0 0 0 22,704 34,248 1.06 1.60 0.99 1.53
-----END PRIVACY-ENHANCED MESSAGE-----