-----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, PdiHLr9S4il9+n7+LjYQ8oRcit2LezE/+C5+io+xNDqU34hkEZNvq1oOyVMEo7S7 xQ7SlUC0S+CO3At4WNA2xQ== 0000930661-00-001218.txt : 20000515 0000930661-00-001218.hdr.sgml : 20000515 ACCESSION NUMBER: 0000930661-00-001218 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIVA PETROLEUM INC /TX/ CENTRAL INDEX KEY: 0000910659 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 751432205 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13440 FILM NUMBER: 627539 BUSINESS ADDRESS: STREET 1: 8235 DOUGLAS AVE STREET 2: STE 400 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2146913464 MAIL ADDRESS: STREET 1: 8235 DOUGLAS AVE STREET 2: STE 400 CITY: DALLAS STATE: TX ZIP: 75225 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 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 0-22258 AVIVA PETROLEUM INC. (Exact name of registrant as specified in its charter) Texas 75-1432205 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 8235 Douglas Avenue, 75225 Suite 400, Dallas, Texas (Zip Code) (Address of principal executive offices) (214) 691-3464 (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 --- --- Number of shares of Common Stock, no par value, outstanding at March 31, 2000, was 46,900,132 of which 25,483,690 shares of Common Stock were represented by Depositary Shares. Each Depositary Share represents five shares of Common Stock held by a Depositary. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. - ----------------------------- AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheet (in thousands, except number of shares) (unaudited)
March 31, December 31, 2000 1999 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 863 $ 846 Restricted cash 4 4 Accounts receivable 2,475 1,650 Inventories 735 724 Prepaid expenses and other 168 236 ------------ ------------ Total current assets 4,245 3,460 ------------ ------------ Property and equipment, at cost (note 3): Oil and gas properties and equipment (full cost method) 68,722 68,462 Other 584 584 ------------ ------------ 69,306 69,046 Less accumulated depreciation, depletion and amortization (65,304) (65,081) ------------ ------------ 4,002 3,965 Other assets 1,600 1,561 ------------ ------------ $ 9,847 $ 8,986 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long term debt (note 4) $ 14,495 $ 14,495 Accounts payable 2,843 3,081 Accrued liabilities 1,463 1,024 ------------ ----------- Total current liabilities 18,801 18,600 ------------ ----------- Gas balancing obligations and other 1,796 1,869 Stockholders' deficit: Common stock, no par value, authorized 348,500,000 shares; issued 46,900,132 shares 2,345 2,345 Additional paid-in capital 34,855 34,855 Accumulated deficit/*/ (47,950) (48,683) ------------ ----------- Total stockholders' deficit (10,750) (11,483) Commitments and contingencies (note 5) ------------ ----------- $ 9,847 $ 8,986 ============ =========== /*/ Accumulated deficit of $70,057 was eliminated at December 31, 1992 in connection with a quasi-reorganization.
See accompanying notes to condensed consolidated financial statements. 2 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Operations (in thousands, except per share data) (unaudited)
Three Months Ended March 31, 2000 1999 -------- -------- Oil and gas sales $ 2,541 $ 1,184 -------- -------- Expense: Production 810 900 Depreciation, depletion and amortization 235 336 General and administrative 301 359 Recovery of losses on accounts receivable (52) - -------- -------- Total expense 1,294 1,595 -------- -------- Other income (expense): Interest and other income (expense), net - 34 Interest expense (395) (291) -------- -------- Total other income (expense) (395) (257) -------- -------- Earnings (loss) before income taxes 852 (668) Income taxes 119 63 -------- -------- Net earnings (loss) $ 733 $ (731) ======== ======== Weighted average common shares outstanding 46,900 46,700 ======== ======== Basic and diluted net earnings (loss) per common share $ 0.02 $ (0.02) ======== ========
See accompanying notes to condensed consolidated financial statements. 3 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows (in thousands) (unaudited)
Three Months Ended March 31, 2000 1999 -------- -------- Net earnings (loss) $ 733 $ (731) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 235 336 Changes in working capital and other (693) 423 -------- -------- Net cash provided by operating activities 275 28 -------- -------- Cash flows from investing activities - property and equipment expenditures (260) (74) -------- -------- Cash flows from financing activities - principal payments on long term debt - (150) -------- -------- Effect of exchange rate changes on cash and cash equivalents 2 (15) -------- -------- Net increase (decrease) in cash and cash equivalents 17 (211) Cash and cash equivalents at beginning of the period 846 1,712 -------- -------- Cash and cash equivalents at end of the period $ 863 $ 1,501 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Deficit (in thousands, except number of shares) (unaudited)
Common Stock ---------------------- Additional Total Number Paid-in Accumulated Stockholders' of Shares Amount Capital Deficit Deficit ------------ -------- ---------- ------------ -------------- Balances at December 31, 1999 46,900,132 $ 2,345 $ 34,855 $ (48,683) $ (11,483) Net earnings - - - 733 733 ------------ -------- ---------- ------------ -------------- Balances at March 31, 2000 46,900,132 $ 2,345 $ 34,855 $ (47,950) $ (10,750) ============ ======== ========== ============ ==============
See accompanying notes to condensed consolidated financial statements. 5 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) 1. General The condensed consolidated financial statements of Aviva Petroleum Inc. and subsidiaries (the "Company" or "Aviva") included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company's prior audited yearly financial statements and the notes thereto, included in the Company's latest annual report on Form 10-K. In the opinion of the Company, all adjustments, consisting of normal recurring accruals, necessary to present fairly the information in the accompanying financial statements have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The Company's condensed consolidated financial statements have been presented on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in note 2 below, there is substantial doubt about the Company's ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 2. Liquidity During the last quarter of calendar year 1997 and throughout calendar year 1998, world oil prices declined dramatically. This decline in oil prices was particularly severe in Colombia. Colombian oil prices, during the 24- month period ended December 31, 1998, fell from a high of $22.71 per barrel in January 1997 to $7.50 per barrel in December 1998. Whereas the sale price for crude oil from the Santana contract averaged $19.82 per barrel in 1996 and $17.39 per barrel in 1997, the sale price averaged $10.31 per barrel during calendar year 1998 and $15.57 per barrel during calendar year 1999. Those price declines materially and adversely affected the results of operations and the financial position of the Company. During the years ended December 31, 1999, 1998 and 1997, the Company reported net losses of $0.4 million, $17.1 million and $22.5 million, respectively, and declining amounts of net cash provided by (used in) operating activities of $(0.5) million, $(0.05) million and $1.7 million, respectively. The Company's stockholders' deficit was approximately $10.8 million as of March 31, 2000. Although world oil prices recovered during the latter part of 1999, and the Company's Colombian oil price averaged $28.13 per barrel during the first quarter of 2000, the Company remains highly leveraged with $14.5 million in current debt as of March 31, 2000, pursuant to bank credit facilities formerly with ING (U.S.) Capital Corporation ("ING Capital") and the U.S. Overseas Private Investment Corporation ("OPIC"), as more fully described in note 4. On May 1, 2000, ING Capital and OPIC sold their entire interests in the bank credit facilities to Crosby Capital, L.L.C., a Texas limited liability company based in Houston, Texas. 6 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) The Company is not in compliance with various covenants under the credit facilities nor is it in compliance with the minimum escrow balance required thereunder. As a result, the new lenders have the right to accelerate payment on the debt and, therefore, the Company has classified all long- term debt as current in the March 31, 2000 condensed consolidated balance sheet. Furthermore, the Company was unable to pay the principal payment of $5.7 million due on April 30, 1999, and subsequent monthly principal payments of $281,250 (an aggregate of $8.8 million through March 31, 2000). The Company did pay $150,000 of principal during the second quarter of 1999 and all of the interest through June 30, 1999; however, interest due subsequent to this date in the amount of $1.3 million has not been paid. Assuming no change in its capital structure, the Company will not have the financial resources to pay the $9.9 million of principal and interest which is in arrears and future minimum monthly principal payments of $281,250 due through December 31, 2001. The Company's management had been in more or less continuous discussions with the Company's former lenders regarding a restructuring of its debt for more than two years. During that period, the Company attempted to negotiate several transactions and had engaged financial advisers to locate equity investors to participate in recapitalization and debt restructuring transactions. Except for the Garnet merger in October 1998, none of such proposals came to fruition, primarily because of the inability of equity participants, former lenders and the Company to agree on financial terms. Management of the Company is in discussions with the Company's new lenders concerning a restructuring of the Company. Such a restructuring may involve the sale of a substantial portion of the Company's oil and gas assets and a significant reduction of the Company's outstanding debt. While management is optimistic that a restructuring can be achieved that will provide the Company with the liquidity necessary to continue operations, there can be no assurance that this will be the case. Although management of the Company is pursuing the restructuring assiduously, its ability to effect such a restructuring is dependent upon the Company being able to reach an agreement with the new lenders, a matter that is beyond the control of the Company. The new lenders may not agree to a restructuring of the Company's debt or may insist on financial terms that are viewed by the Company's board of directors as inconsistent with continued operations. If the Company is unable to consummate a restructuring, then, in the absence of another business transaction, the Company cannot achieve compliance with or make payments required by the credit facilities. Accordingly, the new lenders could accelerate all amounts outstanding and attempt to realize upon the collateral securing the debt. As a result of this uncertainty, management believes there is substantial doubt about the Company's ability to continue as a going concern. 3. Property and Equipment Internal general and administrative costs directly associated with oil and gas property acquisition, exploration and development activities have been capitalized in accordance with the accounting policies of the Company. Such costs totaled $15,000 for the three months ended March 31, 2000 and $9,000 for the three months ended March 31, 1999. 7 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) Unevaluated oil and gas properties totaling $576,000 and $553,000 at March 31, 2000 and December 31, 1999, respectively, have been excluded from costs subject to depletion. The Company capitalized interest costs of $16,000 and $12,000 for the three-month periods ended March 31, 2000 and 1999, respectively, on these properties. 4. Long Term Debt On October 28, 1998, concurrently with the consummation of the merger with Garnet Resources Corporation ("Garnet Merger"), Neo Energy, Inc., an indirect subsidiary of the Company, and the Company entered into a Restated Credit Agreement with ING Capital. ING Capital, Chase and OPIC also entered into a Joint Finance and Intercreditor Agreement (the "Intercreditor Agreement") with the Company. ING Capital agreed to loan Neo Energy, Inc. an additional $800,000, bringing the total outstanding balance due ING Capital to $9,000,000. The outstanding balance due to Chase was paid down to $6,000,000 from the $6,350,000 balance owed by Garnet prior to the merger. The Chase loan was unconditionally guaranteed by OPIC. On September 1, 1999, the Chase loan was assigned and transferred to OPIC pursuant to this guarantee. The ING Capital loan and the OPIC loan (the "Bank Credit Facilities") are guaranteed by the Company and its material domestic subsidiaries. Both loans are also secured by the Company's consolidated interest in the Santana contract and related assets in Colombia, a first mortgage on the United States oil and gas properties of the Company and its subsidiaries, a lien on accounts receivable of the Company and its subsidiaries, and a pledge of the capital stock of the Company's subsidiaries. Borrowings under the ING Capital loan bear interest at the prime rate (as defined in the Restated Credit Agreement) plus 3% per annum. Borrowings under the OPIC loan bear interest at 10.27% per annum. Borrowings under the Bank Credit Facilities are payable as follows: $5,700,000 in April 1999, and thereafter $281,250 per month until final maturity on December 31, 2001. The terms of the Bank Credit Facilities, among other things, prohibit the Company from merging with another company or paying dividends, limit additional indebtedness, general and administrative expense, sales of assets and investments and require the maintenance of certain minimum financial ratios. As of March 31, 2000, the Company is not in compliance with various covenants under the Bank Credit Facilities. Moreover, the Company did not pay the $5,700,000 principal payment that was due April 30, 1999, and subsequent monthly principal payments of $281,250. As a result, the lenders have the right to accelerate payment on the debt and, therefore, the Company has classified all long- term debt as current in the March 31, 2000 condensed consolidated balance sheet. The Company is also required to maintain an escrow account pursuant to the Bank Credit Facilities. On March 31, 1999 and thereafter, the escrow account must contain the total of the following for the next succeeding three-month period: (i) the amount of the minimum monthly principal payments (as defined in the loan documents), plus (ii) the interest payments due on the combined loans, plus (iii) the amount of all fees due under the loan documents and under the Intercreditor Agreement. The Company is not in compliance with the requirements of the escrow account. 8 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) On May 1, 2000, ING Capital and OPIC sold their entire interests in the Bank Credit Facilities to Crosby Capital LLC. See note 2 for information regarding management's attempts to restructure the debt. 5. Commitments and Contingencies The Company is engaged in ongoing operations on the Santana contract in Colombia. The contract obligations have been met; however, the Company plans to recomplete certain existing wells and engage in various other projects. The Company's current share of the estimated future costs of these activities is approximately $0.6 million at March 31, 2000. Any substantial increase in the amount of the above referenced expenditures could adversely affect the Company's ability to meet these obligations. The Company expects to fund these activities using existing cash and cash provided from operations. Risks that could adversely affect funding of such activities include, among others, acceleration of payment of the Company's long term debt, delays in obtaining the required environmental approvals and permits, cost overruns, failure to produce the reserves as projected or a decline in the sales price of oil. Depending on the results of future exploration and development activities, substantial expenditures which have not been included in the Company's cash flow projections may be required. Failure to fund certain expenditures could result in the forfeiture of all or part of the Company's interest in this contract. On August 3, 1998, leftist Colombian guerrillas inflicted significant damage on the Company's oil processing and storage facilities at the Mary field, and to a lesser extent, at the Linda facilities. Since that time the Company has been subject to lesser attacks on its pipelines and equipment resulting in only minor interruptions of oil sales. The Colombian army guards the Company's operations; however, there can be no assurance that the Company's operations will not be the target of additional guerrilla attacks in the future. The damages resulting from the above referenced attacks were covered by insurance. There can be no assurance that such coverage will remain available or affordable. Under the terms of the contracts with Ecopetrol, a minimum of 25% of all revenues from oil sold to Ecopetrol is paid in Colombian pesos which may only be utilized in Colombia. To date, the Company has experienced no difficulty in repatriating the remaining 75% of such payments, which are payable in U.S. dollars. Activities of the Company with respect to the exploration, development and production of oil and natural gas are subject to stringent foreign, federal, state and local environmental laws and regulations, including but not limited to the Oil Pollution Act of 1990, the Outer Continental Shelf Lands Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act. Such laws and regulations have increased the cost of planning, designing, drilling, operating and abandoning wells. In most instances, the statutory and regulatory requirements relate to air and water pollution control procedures and the handling and disposal of drilling and production wastes. Although the Company believes that compliance with environmental laws and regulations will not have a material adverse effect on the Company's future operations or earnings, risks of substantial costs and liabilities are inherent in oil and gas operations and there can be no assurance that significant costs and liabilities, including civil or criminal penalties for violations of environmental laws and regulations, will not be incurred. Moreover, it is possible that other developments, such as 9 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) stricter environmental laws and regulations or claims for damages to property or persons resulting from the Company's operations, could result in substantial costs and liabilities. For additional discussions on the applicability of environmental laws and regulations and other risks that may affect the Company's operations, see the Company's latest annual report on Form 10-K. The Company is involved in certain litigation involving its oil and gas activities, but unrelated to environmental contamination issues. Management of the Company believes that these litigation matters will not have any material adverse effect on the Company's financial condition or results of operations. 10 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 6. Segment Information The following is a summary of segment information of the Company as of and for the three-month periods ended March 31, 2000 and 1999 (in thousands):
United States Colombia Total ------- --------- -------- 2000 ---- Oil and gas sales $ 397 $2,144 $ 2,541 ------ ------ ------- Expense: Production 262 548 810 Depreciation, depletion and amortization 39 196 235 General and administrative 290 11 301 Recovery of losses on accounts receivable (52) - (52) ------ ------ ------- 539 755 1,294 ------ ------ ------- Interest and other income (expense), net 11 (11) - Interest expense (114) (281) (395) ------ ------ ------- Earnings (loss) before income taxes (245) 1,097 852 Income taxes - 119 119 ------ ------ ------- Net earnings (loss) $ (245) $ 978 $ 733 ====== ====== ======= Total assets $2,217 $7,630 $ 9,847 ====== ====== ======= 1999 ---- Oil and gas sales $ 237 $ 947 $ 1,184 ------ ------ ------- Expense: Production 292 608 900 Depreciation, depletion and amortization 45 291 336 General and administrative 342 17 359 ------ ------ ------- 679 916 1,595 ------ ------ ------- Interest and other income (expense), net 132 (98) 34 Interest expense (80) (211) (291) ------ ------ ------- Loss before income taxes (390) (278) (668) Income taxes - 63 63 ------ ------ ------- Net loss $ (390) $ (341) $ (731) ====== ====== ======= Total assets $1,763 $8,856 $10,619 ====== ====== =======
11 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations. - -------------- Results of Operations - --------------------- Three Months Ended March 31, 2000 compared to Three Months Ended March 31, 1999 - -------------------------------------------------------------------------------
United States Colombia Oil Gas Oil Total ------- ------- ------- ------- (Thousands) Revenue - 1999 $ 168 $ 69 $ 947 $ 1,184 Volume variance (25) (57) (248) (330) Price variance 235 7 1,445 1,687 ------- ------- ------- ------- Revenue - 2000 $ 378 $ 19 $ 2,144 $ 2,541 ======= ======= ======= =======
Colombian oil volumes were 76,000 barrels in the first quarter of 2000, a decrease of 27,000 barrels as compared to the first quarter of 1999. Such decrease is due to normal production declines. U.S. oil volumes were 14,000 barrels in 2000, down approximately 2,000 barrels from 1999. Such decrease is due to normal production declines. U.S. gas volumes before gas balancing adjustments were 7,000 thousand cubic feet (MCF) in 2000, down 29,000 MCF from 1999. Such decrease is due to a significant decline in production from the Main Pass 41 field which may be approaching the end of its economic life. Colombian oil prices averaged $28.13 per barrel during the first quarter of 2000. The average price for the same period of 1999 was $9.18 per barrel. The Company's average U.S. oil price increased to $27.62 per barrel in 2000, up from $10.49 per barrel in 1999. In 2000 prices have been higher than in the first quarter of 1999 due to an increase in world oil prices. U.S. gas prices averaged $2.86 per MCF in 2000 compared to $1.91 per MCF in 1999. Operating costs decreased approximately 10%, or $90,000, primarily due to continuing cost reductions in Colombia achieved after the Company merged with Garnet Resources Corporation and took over operatorship of the Colombian properties. Depreciation, depletion and amortization decreased by 30%, or $101,000, primarily due to a decrease in the amount of oil produced. General and administrative expenses decreased $58,000 mainly due to a $36,000 decrease in legal and consulting fees and an $8,000 decrease in public ownership costs. Interest expense increased $104,000 in the first quarter of 2000, primarily as a result of higher interest rates. Income taxes were $56,000 higher in 2000 principally as a result of Colombian "remittance" tax calculated on higher levels of commercial income. New Accounting Pronouncements - ----------------------------- The Company is assessing the reporting and disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and will require the Company to recognize all derivatives on its balance sheet at fair value. If the derivative is a hedge, depending 12 on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged item through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company expects to adopt SFAS No. 133 in the first quarter of fiscal 2001 and does not anticipate that the adoption will have a material effect on the Company's results of operations or financial position. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation: An Interpretation of APB Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the application of Accounting Principals Board Opinion No. 25 (APB No. 25) regarding (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The provisions of Interpretation No. 44 affecting the Company are to be applied on a prospective basis effective July 1, 2000. Liquidity and Capital Resources - ------------------------------- During the last quarter of calendar year 1997 and throughout calendar year 1998, world oil prices declined dramatically. This decline in oil prices was particularly severe in Colombia. Colombian oil prices, during the 24-month period ended December 31, 1998, fell from a high of $22.71 per barrel in January 1997 to $7.50 per barrel in December 1998. Whereas the sale price for crude oil from the Santana contract averaged $19.82 per barrel in 1996 and $17.39 per barrel in 1997, the sale price averaged $10.31 per barrel during calendar year 1998 and $15.57 per barrel during calendar year 1999. Those price declines materially and adversely affected the results of operations and the financial position of the Company. During the years ended December 31, 1999, 1998 and 1997, the Company reported net losses of $0.4 million, $17.1 million and $22.5 million, respectively, and declining amounts of net cash provided by (used in) operating activities of $(0.5) million, $(0.05) million and $1.7 million, respectively. The Company's stockholders' deficit was approximately $10.8 million as of March 31, 2000. Although world oil prices recovered during the latter part of 1999, and the Company's Colombian oil price averaged $28.13 per barrel during the first quarter of 2000, the Company remains highly leveraged with $14.5 million in current debt as of March 31, 2000, pursuant to bank credit facilities formerly with ING (U.S.) Capital Corporation ("ING Capital") and the U.S. Overseas Private Investment Corporation ("OPIC"), as more fully described in note 4 to the condensed consolidated financial statements contained elsewhere herein. On May 1, 2000, ING Capital and OPIC sold their entire interests in the bank credit facilities to Crosby Capital, L.L.C., a Texas limited liability company based in Houston, Texas. The Company is not in compliance with various covenants under the credit facilities nor is it in compliance with the minimum escrow balance required thereunder. As a result, the new lenders have the right to accelerate payment on the debt and, therefore, the Company has classified all long-term debt as current in the March 31, 2000 condensed consolidated balance sheet. Furthermore, the Company was unable to pay the principal payment of $5.7 million due on April 30, 1999, and subsequent monthly principal payments of $281,250 (an aggregate of $8.8 million through March 31, 2000). The Company did pay $150,000 of principal during the second quarter of 1999 and all of the interest through June 30, 1999; however, interest due subsequent to this date in the amount of $1.3 million has not been paid. Assuming no change in its capital structure, the Company will not have the financial resources to pay the $9.9 million of principal and interest which is in arrears and future minimum monthly principal payments of $281,250 due through December 31, 2001. 13 The Company's management had been in more or less continuous discussions with the Company's former lenders regarding a restructuring of its debt for more than two years. During that period, the Company attempted to negotiate several transactions and had engaged financial advisers to locate equity investors to participate in recapitalization and debt restructuring transactions. Except for the Garnet merger in October 1998, none of such proposals came to fruition, primarily because of the inability of equity participants, former lenders and the Company to agree on financial terms. Management of the Company is in discussions with the Company's new lenders concerning a restructuring of the Company. Such a restructuring may involve the sale of a substantial portion of the Company's oil and gas assets and a significant reduction of the Company's outstanding debt. While management is optimistic that a restructuring can be achieved that will provide the Company with the liquidity necessary to continue operations, there can be no assurance that this will be the case. Although management of the Company is pursuing the restructuring assiduously, its ability to effect such a restructuring is dependent upon the Company being able to reach an agreement with the new lenders, a matter that is beyond the control of the Company. The new lenders may not agree to a restructuring of the Company's debt or may insist on financial terms that are viewed by the Company's board of directors as inconsistent with continued operations. If the Company is unable to consummate a restructuring, then, in the absence of another business transaction, the Company cannot achieve compliance with or make payments required by the credit facilities. Accordingly, the new lenders could accelerate all amounts outstanding and attempt to realize upon the collateral securing the debt. As a result of this uncertainty, management believes there is substantial doubt about the Company's ability to continue as a going concern. With the exception of historical information, the matters discussed in this quarterly report contain forward-looking statements that involve risks and uncertainties. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, among other things, general economic conditions, volatility of oil and gas prices, the impact of possible geopolitical occurrences world-wide and in Colombia, imprecision of reserve estimates, changes in laws and regulations, unforeseen engineering and mechanical or technological difficulties in drilling, working- over and operating wells during the periods covered by the forward-looking statements, as well as other factors described in the Company's annual report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- The Company is exposed to market risk from changes in interest rates on debt and changes in commodity prices. The Company's exposure to interest rate risk relates to variable rate loans that are benchmarked to LIBOR interest rates. The Company does not use derivative financial instruments to manage overall borrowing costs or reduce exposure to adverse fluctuations in interest rates. The impact on the Company's results of operations of a one-point interest rate change on the outstanding balance of the variable rate debt as of March 31, 2000 would be $145,000 per year. The Company produces and sells crude oil and natural gas. These commodities are sold based on market prices established with the buyers. The Company does not use financial instruments to hedge commodity prices. 14 PART II - OTHER INFORMATION Item 3. Defaults Upon Senior Securities - ---------------------------------------- The Company is in default with respect to its credit facilities. For more information see notes 2 and 4 to the condensed consolidated financial statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources, as set forth elsewhere herein. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) Exhibits - ----------- 27.1 Financial Data Schedule. b) Reports on Form 8-K - ---------------------- The Company did not file any Current Reports on Form 8-K during or subsequent to the end of the first quarter of 2000. 15 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. AVIVA PETROLEUM INC. Date: May 10, 2000 /s/ Ronald Suttill ------------------ Ronald Suttill President and Chief Executive Officer /s/ James L. Busby ------------------- James L. Busby Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 16 INDEX TO EXHIBITS Exhibit Number Description of Exhibit - ------- ---------------------- 27.1 Financial Data Schedule. 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET OF AVIVA PETROLEUM INC. AND SUBSIDIARIES AS OF MARCH 31, 2000 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 867 0 2,742 267 735 4,245 69,306 65,304 9,847 18,801 0 0 0 2,345 (13,095) 9,847 2,541 2,541 1,045 1,045 0 (52) 395 852 119 733 0 0 0 733 0.02 0.02
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