-----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, DhimY6QMCFRDw7f60jypuxSdfKQGJbWVfva8nYWCdAqG8+q3vb3El1GLmneSK2UZ 3vfKu8yiercbw8BZjGOAAw== /in/edgar/work/0000930661-00-002912/0000930661-00-002912.txt : 20001114 0000930661-00-002912.hdr.sgml : 20001114 ACCESSION NUMBER: 0000930661-00-002912 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: AVIVA PETROLEUM INC /TX/ CENTRAL INDEX KEY: 0000910659 STANDARD INDUSTRIAL CLASSIFICATION: [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: 762365 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 0001.txt FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 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 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 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 September 30, 2000, was 46,900,132 of which 25,486,690 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)
September 30, December 31, ASSETS 2000 1999 ------------- -------- Current assets: Cash and cash equivalents $ 760 $ 846 Restricted cash -- 4 Accounts receivable 1,031 1,650 Inventories 170 724 Prepaid expenses and other 69 236 -------- -------- Total current assets 2,030 3,460 -------- -------- Property and equipment, at cost (note 3): Oil and gas properties and equipment (full cost method) 25,869 68,462 Other 595 584 -------- -------- 26,464 69,046 Less accumulated depreciation, depletion and amortization (25,904) (65,081) -------- -------- 560 3,965 Other assets 1,607 1,561 -------- -------- $ 4,197 $ 8,986 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Liabilities not subject to compromise Current liabilities: Current portion of long term debt (note 4) $ -- $ 14,495 Accounts payable 1,192 3,081 Accrued liabilities 174 1,024 -------- -------- Total current liabilities 1,366 18,600 -------- -------- Gas balancing obligations and other 373 1,869 Liabilities subject to compromise (notes 4 and 8) 4,514 -- 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* (39,256) (48,683) -------- -------- Total stockholders' deficit (2,056) (11,483) Commitments and contingencies (notes 6 and 8) -------- -------- $ 4,197 $ 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 Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ----------- --------- --------- -------- Revenue: Oil and gas sales $ 741 $ 1,955 $ 5,054 $ 4,714 Service fees (note 2) 166 -- 221 -- -------- -------- -------- -------- Total revenue 907 1,955 5,275 4,714 -------- -------- -------- -------- Expense: Production 430 918 1,984 2,697 Depreciation, depletion and amortization 55 242 453 862 General and administrative 290 247 874 926 Reorganization fees (note 8) 35 -- 35 -- Provision for (recovery of) losses on accounts receivable (111) (13) (221) (105) Severance -- -- -- 62 -------- -------- -------- -------- Total expense 699 1,394 3,125 4,442 -------- -------- -------- -------- Other income (expense): Gain on transfer of partnership interests (note 2) -- -- 3,452 -- Interest and other income (expense), net (note 5) 11 122 113 299 Interest expense (66) (326) (749) (900) -------- -------- -------- -------- Total other income (expense) (55) (204) 2,816 (601) -------- -------- -------- -------- Earnings (loss) before income taxes and extraordinary item 153 357 4,966 (329) Income taxes 19 54 212 181 -------- -------- -------- -------- Earnings (loss) before extraordinary item 134 303 4,754 (510) Extraordinary item - gain (loss) on extinguishment of debt (note 2) (7) -- 4,673 -- -------- -------- -------- -------- Net earnings (loss) $ 127 $ 303 $ 9,427 $ (510) ======== ======== ======== ======== Weighted average common shares outstanding - basic and diluted 46,900 46,900 46,900 46,784 ======== ======== ======== ======== Basic and diluted earnings (loss) per common share: Before extraordinary item $ .00 $ .01 $ .10 $ (.01) Extraordinary item .00 -- .10 -- -------- -------- -------- -------- Net earnings (loss) $ .00 $ .01 $ .20 $ (.01) ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 3 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows (in thousands) (unaudited)
Nine Months Ended September 30, 2000 1999 -------- ------- Net earnings (loss) $ 9,427 $ (510) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities before reorganization items: Depreciation, depletion and amortization 453 862 Gain on transfer of partnership interests (3,452) - Gain on debt extinguishment (4,673) - Changes in working capital and other, net of effects of transfer of partnership interest (119) (1,713) ------- ------- Net cash provided by (used in) operating activities before reorganization items 1,636 (1,361) Net cash used by reorganization items - reorganization fees (35) - ------- ------- Net cash provided by (used in) operating activities 1,601 (1,361) ------- ------- Cash flows from investing activities: Cash balances surrendered in transfer of partnership interests (1,393) - Property and equipment expenditures (307) (140) Other - 38 ------- ------- Net cash used in investing activities (1,700) (102) ------- ------- Cash flows from financing activities - Principal payments on long term debt - (300) ------- ------- Effect of exchange rate changes on cash and cash equivalents 13 176 ------- ------- Net decrease in cash and cash equivalents (86) (1,587) Cash and cash equivalents at beginning of the period 846 1,712 ------- ------- Cash and cash equivalents at end of the period $ 760 $ 125 ======= =======
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 - - - 9,427 9,427 ------------- ------------ ------------ ------------- --------------- Balances at September 30, 2000 46,900,132 $ 2,345 $ 34,855 $ (39,256) $ (2,056) ============= ============ ============ ============= ===============
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 8 below, a significant subsidiary of the Company has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. While the condensed consolidated balance sheet reflects the segregation of liabilities subject to compromise under the bankruptcy, 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 this subsidiary, and the Company, be unable to continue as a going concern. 2. Debt Restructuring and Transfer of Partnership Interests On June 8, 2000, the Company entered into agreements with the Company's senior secured lender, Crosby Capital, LLC ("Crosby"), in order to restructure the Company's senior debt which, including unpaid interest, aggregated $16,103,064 as of May 31, 2000. Crosby acquired the debt from ING Capital and OPIC on May 1, 2000 (see note 4). Pursuant to the agreements, Crosby canceled $13,353,064 of such debt and transferred to the Company warrants for 1,500,000 shares of the Company's common stock in exchange for the general partner rights and an initial 77.5% partnership interest in Argosy Energy International ("Argosy"), a Utah limited partnership, which holds the Company's Colombian properties. Following the transaction, Aviva Overseas Inc. ("Aviva Overseas"), a wholly owned subsidiary of the Company, owns a 22.1196% limited partnership interest in Argosy. An additional 7.5% limited partnership interest will be transferred from Crosby to Aviva Overseas when Crosby has received in distributions from Argosy an amount equal to $3,500,000 plus interest at the prime rate plus 1% on the outstanding balance thereof. As of September 30, 2000, Crosby had received approximately $1.7 million in distributions from Argosy. In order to assist Crosby in maximizing the value of its interest in Argosy, Crosby entered into a Service Agreement with Aviva Overseas pursuant to which Aviva Overseas will provide certain services in administering the Colombian assets in exchange for a monthly fee. The fee is $71,000 6 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) per month for the period June 1, 2000 through March 31, 2001, $46,000 per month for the period April 1, 2001 through March 31, 2002, and $21,000 per month thereafter as long as the contract is in effect. The Service Agreement provides for a term of 22 months and will continue thereafter from month to month unless terminated by 30-day written notice by either party. Crosby retains its interest as senior secured lender in respect of the Company's remaining debt of $2,750,000, which continues to be guaranteed by the Company and its subsidiaries, including Aviva America, Inc., a wholly owned subsidiary, which owns working interests in oil and gas properties at Main Pass Block 41 and Breton Sound Block 31 fields, offshore Louisiana. Such remaining debt accrues interest at 10% per annum, compounded annually, and is due and payable on December 31, 2001. The remaining debt, however, may be converted by the Company, under certain circumstances, into a 15% net profits interest payable to Crosby in any new production at Breton Sound Block 31 field. The Company recognized a gain of $3,452,000 on the transfer of the partnership interests to Crosby, representing the excess of the fair value over the book value of the interests transferred. The Company recognized an extraordinary gain of $4,673,000 on the extinguishment of the debt. In connection with the above-referenced transaction, 1,000,000 shares of the Company's common stock which were held by Crosby prior to the transaction, were transferred to members of management and the Board of Directors of the Company, effective June 8, 2000. As of such date, the aggregate market value of the common stock transferred to members of management and the Board of Directors was approximately $25,000 based on the last sale price on the OTC Bulletin Board of a depositary share representing five shares of the Company's common stock. Additionally, 200,000 shares of the Company's common stock which were held by Crosby prior to the transaction were transferred to a consultant of the Company effective as of the same date. 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 $46,000 for the nine months ended September 30, 2000 and $31,000 for the nine months ended September 30, 1999. Unevaluated oil and gas properties totaling $271,000 and $553,000 at September 30, 2000 and December 31, 1999, respectively, have been excluded from costs subject to depletion. The Company capitalized interest costs of $37,000 and $36,000 for the nine-month periods ended September 30, 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 (U.S.) Capital Corporation ("ING Capital"). ING Capital, Chase Bank of Texas, N.A. ("Chase") and the U.S. Overseas Private Investment Corporation ("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. 7 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 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") were guaranteed by the Company and its material domestic subsidiaries. Both loans were 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 were subject to interest at the prime rate (as defined in the Restated Credit Agreement) plus 3% per annum. Borrowings under the OPIC loan were subject to interest at 10.27% per annum. Borrowings under the Bank Credit Facilities were 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, prohibited the Company from merging with another company or paying dividends, limited additional indebtedness, general and administrative expense, sales of assets and investments and required the maintenance of certain minimum financial ratios. The Company was also required to maintain an escrow account pursuant to the Bank Credit Facilities. As of March 31, 1999 and thereafter, the escrow account was to 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. On May 1, 2000, ING Capital and OPIC sold their entire interests in the Bank Credit Facilities to Crosby Capital LLC. As more fully described in note 2, this debt was restructured on June 8, 2000. The remaining balance of $2,750,000 is due on December 31, 2001, and accrues interest at 10% per annum, compounded annually. The remaining debt, however, may be converted by the Company, under certain circumstances, into a 15% net profits interest payable to Crosby in any new production at Breton Sound Block 31 field. The remaining debt has been included in liabilities subject to compromise because the conversion of such debt is anticipated as part of the bankruptcy. 8 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 5. Interest and Other Income (Expense) A summary of interest and other income (expense) follows (in thousands):
Nine Months Ended September 30, 2000 1999 ---------------- ---------------- Interest income $ 78 $ 70 Foreign currency exchange gain 4 234 Other, net 31 (5) ---------------- ---------------- $ 113 $ 299 ================ ================
6. Commitments and Contingencies The Company is engaged in ongoing operations on the Santana contract in Colombia. All contract obligations have been met; however, the Company plans to recomplete certain existing wells and engage in various other projects. The Company's share of the estimated future costs of these activities is approximately $150,000 at September 30, 2000. 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, 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. 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. On October 16, 2000, the Company issued a press release stating that the Trans-Andean pipeline, through which the Company's oil production is transported, had been rendered inoperable by attacks from leftist guerrillas operating in the southern provinces of Colombia. As a result, the Company's oil sales were suspended and its producing wells were being systematically shut-in as onsite storage capacity was filled. On October 23, 2000, production and sales resumed following the completion of repairs to the pipeline. The guerrilla attacks are part of wide-spread political unrest and fighting affecting the southern regions of Colombia following the approval of "Plan Colombia", a $7.5 billion plan to eradicate coca cultivation and stimulate a legitimate economy. As a result of the political unrest in this area, the Company cannot predict that the Trans-Andean pipeline will continue to be operational or if the Company's oil sales will again be interrupted. 9 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 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 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. 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) 7. Segment Information The following is a summary of segment information of the Company as of and for the nine-month periods ended September 30, 2000 and 1999 (in thousands):
United States Colombia Total ------------- ------------- ------------- 2000 ---- Revenue: Oil and gas sales $ 1,177 $ 3,877 $ 5,054 Service fees 221 - 221 ------------ ------------ ------------ 1,398 3,877 5,275 ------------ ------------ ------------ Expense: Production 853 1,131 1,984 Depreciation, depletion and amortization 94 359 453 General and administrative 825 49 874 Reorganization fees 35 - 35 Recovery of losses on accounts receivable (221) - (221) ------------ ------------ ------------ 1,586 1,539 3,125 ------------ ------------ ------------ Gain on transfer of partnership interests - 3,452 3,452 Interest and other income (expense), net (1) 114 113 Interest expense (185) (564) (749) ------------ ------------ ------------ Earnings (loss) before income taxes and extraordinary item (374) 5,340 4,966 Income taxes - 212 212 ------------ ------------ ------------ Earnings (loss) before extraordinary item (374) 5,128 4,754 Extraordinary item - gain on extinguishment of debt - 4,673 4,673 ------------ ------------ ------------ Net earnings (loss) $ (374) $ 9,801 $ 9,427 ============ ============ ============ Total assets $ 2,409 $ 1,788 $ 4,197 ============ ============ ============
11 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
United States Colombia Total ------------ ------------ ------------ 1999 ---- Oil and gas sales $ 773 $ 3,941 $ 4,714 ------------ ------------ ------------ Expense: Production 910 1,787 2,697 Depreciation, depletion and amortization 113 749 862 General and administrative 864 62 926 Recovery of losses on accounts receivable (105) - (105) Severance - 62 62 ------------ ------------ ------------ 1,782 2,660 4,442 ------------ ------------ ------------ Interest and other income (expense), net 133 166 299 Interest expense (240) (660) (900) ------------ ------------ ------------ Earnings (loss) before income taxes (1,116) 787 (329) Income taxes - 181 181 ------------ ------------ ------------ Net earnings (loss) $ (1,116) $ 606 $ (510) ============ ============ ============ Total assets $ 1,675 $ 6,774 $ 8,449 ============ ============ ============
8. Subsidiary's Filing of Petition for Reorganization under Chapter 11 On July 21, 2000, Aviva America, Inc. ("AAI"), a wholly-owned subsidiary of the Company, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. AAI is a Delaware corporation which holds the Company's interests in oil and gas properties located offshore Louisiana. The filing, in the Northern District of Texas, was initiated in order to achieve a comprehensive restructuring of AAI's debts. Under Chapter 11, certain claims against AAI in existence prior to the filing of the petition are stayed while AAI continues business operations as Debtor-in-possession. These claims are reflected in the September 30, 2000 balance sheet as "liabilities subject to compromise." Additional claims (liabilities subject to compromise) may arise subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination by the court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against AAI's assets ("secured claims") also are stayed, although the holder of such claims (Crosby Capital LLC) had the right to move the court for relief from the stay. Secured claims against AAI are secured by blanket liens on AAI's assets. A summary of liabilities subject to compromise at September 30, 2000, follows (in thousands): Long term debt (see note 4) $ 2,750 Gas imbalance payable 721 Accounts payable 533 Abandonment fund payable 414 Accrued liabilities 96 ------------- $ 4,514 ============= 12 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) On November 7, 2000, a portion of the above referenced liabilities subject to compromise aggregating $1,388,000 was extinguished in exchange for a cash payment of $225,000 and the assignment of non-cash assets with a net book value aggregating $331,000. The resulting gain of $832,000 will be recorded in the quarter ending December 31, 2000. The expenses related to the bankruptcy proceeding have been segregated on the condensed consolidated statement of operations under reorganization fees. Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations. - ------------- Results of Operations - --------------------- Three Months Ended September 30, 2000 compared to Three Months Ended September - ------------------------------------------------------------------------------ 30, 1999 - --------
United States Colombia Oil Gas Oil Total ------------- ------------- ------------- ------------- (Thousands) Revenue - 1999 $ 326 $ 20 $ 1,609 $ 1,955 Volume variance (97) (15) (1,369) (1,481) Price variance 128 22 117 267 ------------- ------------- ------------- ------------- Revenue - 2000 $ 357 $ 27 $ 357 $ 741 ============= ============= ============= =============
Colombian oil volumes were 13,000 barrels in the third quarter of 2000, a decrease of 74,000 barrels as compared to the third quarter of 1999. Such decrease is due to a 45,000 barrel decrease resulting from the transfer of partnership interests to Crosby and a 29,000 barrel decrease resulting from normal production declines. U.S. oil volumes were 12,000 barrels in 2000, down approximately 5,000 barrels from 1999. Such decrease is primarily due to downtime resulting from adverse weather and equipment failures. U.S. gas volumes before gas balancing adjustments were 6,000 thousand cubic feet (MCF) in 2000, slightly higher than 1999. Colombian oil prices averaged $27.63 per barrel during the third quarter of 2000. The average price for the same period of 1999 was $18.53 per barrel. The Company's average U.S. oil price increased to $30.26 per barrel in 2000, up from $19.42 per barrel in 1999. In 2000 prices have been higher than in the third quarter of 1999 due to an increase in world oil prices. U.S. gas prices averaged $4.43 per MCF in 2000 compared to $3.55 per MCF in 1999. Service fees of $166,000 for administering the Colombian assets were received pursuant to a Service Agreement with Crosby (see note 2 of the condensed consolidated financial statements included elsewhere herein). This amount is net of Aviva Overseas' 22.1196% share of the fee. Operating costs decreased approximately 53%, or $488,000, primarily as a result of the transfer of partnership interests to Crosby. 13 Depreciation, depletion and amortization ("DD&A") decreased by 77%, or $187,000, primarily due to the transfer of partnership interests to Crosby. General and administrative ("G&A") expense increased $43,000 mainly as a result of higher employee related costs and legal fees, partially offset by lower fees paid to consultants. Reorganization fees of $35,000 were recorded in the third quarter of 2000. These fees were related to the Aviva America, Inc. bankruptcy (see note 8 to the condensed consolidated financial statements included elsewhere herein). Interest and other income decreased $111,000 primarily due to a foreign currency exchange gain of $116,000 in 1999. During the third quarter of 2000, the Company had a foreign currency exchange loss of $6,000. Interest expense decreased $260,000, primarily as a result of the extinguishment of part of the Company's long term debt (see note 2 to the condensed consolidated financial statements included elsewhere herein). Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30, - -------------------------------------------------------------------------------- 1999 - ----
United States Colombia Oil Gas Oil Total ------------- ------------- ------------- ------------- (Thousands) Revenue - 1999 $ 661 $ 112 $ 3,941 $ 4,714 Volume variance (72) (81) (1,961) (2,114) Price variance 517 43 1,897 2,457 Other - (3) - (3) ------------- ------------- ------------- ------------- Revenue - 2000 $ 1,106 $ 71 $ 3,877 $ 5,054 ============= ============= ============= =============
Colombian oil volumes were 143,000 barrels in the first nine months of 2000, a decrease of 142,000 barrels as compared to the first nine months of 1999. Such decrease is due to a 63,000 barrel decrease resulting from the transfer of partnership interests to Crosby and a 79,000 barrel decrease resulting from production declines. U.S. oil volumes were 39,000 barrels in 2000, a decrease of 5,000 from 1999. Such decrease is primarily due to downtime resulting from adverse weather and equipment failures. U.S. gas volumes before gas balancing adjustments were 19,000 MCF in 2000, down 26,000 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 $27.06 per barrel during the first nine months of 2000. The average price for the same period of 1999 was $13.82 per barrel. The Company's average U.S. oil price increased to $28.38 per barrel in 2000, up from $15.09 per barrel in 1999. U.S. gas prices averaged $3.49 per MCF in 2000 compared to $2.00 per MCF in 1999. 14 Service fees of $221,000 for administering the Colombian assets were received pursuant to a Service Agreement with Crosby (see note 2 of the condensed consolidated financial statements included elsewhere herein). This amount is net of Aviva Overseas' 22.1196% share of the fee. Operating costs decreased approximately 26%, or $713,000, primarily as a result of the transfer of partnership interests to Crosby and due to lower Colombian pipeline transportation costs resulting from lower volumes of oil produced. DD&A decreased by 47%, or $409,000, primarily as a result of the transfer of partnership interests to Crosby. G&A expense decreased $52,000 mainly as a result of lower public ownership costs and lower fees paid to consultants, partially offset by higher employee related costs. Reorganization fees of $35,000 were recorded in the third quarter of 2000. These fees were related to the Aviva America, Inc. bankruptcy (see note 8 to the condensed consolidated financial statements included elsewhere herein). In connection with the restructuring of the Company's long term debt, the Company realized a $3,452,000 gain on the transfer of partnership interests in Argosy Energy International and a $4,673,000 extraordinary gain on the extinguishment of a portion of the debt. For a more detailed explanation of the transaction, see note 2 of the condensed consolidated financial statements included elsewhere herein. The Company incurred severance expense of $62,000 during the first nine months of 1999 related to cost cutting measures in Colombia following the merger with Garnet Resources Corporation. No such expenses were incurred during 2000. Interest and other income decreased $186,000 primarily due to a foreign currency exchange gain of $234,000 in 1999. During the first nine months of 2000, the foreign currency exchange gain was only $4,000. Interest expense decreased $151,000 in the first nine months of 2000, primarily as a result of the extinguishment of part of the Company's long term debt (see note 2 to the condensed consolidated financial statements included elsewhere herein). Income taxes were $31,000 higher in 2000 principally as a result of higher Colombian earnings. 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 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 will adopt SFAS No. 133, as amended, in the first quarter of fiscal 2001. The adoption will not have a material effect on the Company's results of operations or financial position. 15 Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents totaled $760,000 and $846,000 at September 30, 2000, and December 31, 1999, respectively. The decrease in cash and cash equivalents resulted primarily from the surrender of $1,393,000 of cash balances in the transfer of partnership interests in Argosy to Crosby, as described in note 2 of the condensed consolidated financial statements, and property additions of $307,000. Such decreases were partially offset by net cash provided by operating activities. Net cash provided by operating activities was $1,601,000 for the nine months ended September 30, 2000, compared to $(1,361,000) net cash used in operating activities for the same period in 1999. This improvement resulted primarily from significantly higher oil prices during the 2000 period. Although the Company surrendered significant partnership interests in Argosy in connection with the aforementioned transaction with Crosby, the Company was able to restructure its long term debt. As a result of the transaction, the Company's long term debt and accrued interest, which aggregated $16,103,064 at May 31, 2000, was reduced to $2,750,000. This remaining balance, due December 31, 2001, is convertible by the Company, under certain circumstances, into a 15% net profits interest payable to Crosby in any new production at Breton Sound Block 31 field. The Company's financial condition has improved as a result of the transaction with Crosby, however, the Company's liabilities continue to exceed the carrying amount of its consolidated assets. This is also the case for Aviva America, Inc. ("AAI"), a wholly owned subsidiary which holds the Company's interests in oil and gas properties located offshore Louisiana. Accordingly, on July 21, 2000, AAI filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing, in the Northern District of Texas, was initiated in order to achieve a comprehensive restructuring of AAI's debts. Management believes that a successful reorganization of AAI's debts will improve the liquidity of AAI and the Company through the reduction or dismissal of certain of AAI's debts. Management, however, cannot predict with any degree of certainty the amount of recorded liabilities that may be reduced or dismissed in connection with this proceeding or the overall impact that it may have on the Company. 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 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. 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a) Exhibits - ------------ *2.1 Loan, Settlement and Acquisition Agreement dated effective May 31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Company, Aviva Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation, Argosy Energy, Inc., and Argosy Energy International (filed as exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File No. 0-22258, and incorporated herein by reference). **27.1 Financial Data Schedule. __________________________________________ * Previously filed ** Filed herewith b) Reports on Form 8-K - ----------------------- The Company filed the following Current Reports on Form 8-K during and subsequent to the end of the third quarter. Date of 8-K/A Description of 8-K/A - ------------- -------------------- June 8, 2000 The registrant filed an amendment on August 18, 2000 to the registrant's report on Form 8-K dated June 8, 2000, to include the pro forma financial information required by Item 7 of Form 8-K. 17 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: November 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) 18 INDEX TO EXHIBITS Exhibit Number Description of Exhibit ------ ---------------------- *2.1 Loan, Settlement and Acquisition Agreement dated effective May 31, 2000, by and among Crosby Capital, LLC, Aviva Petroleum Inc., Aviva America, Inc., Aviva Operating Company, Aviva Overseas, Inc., Neo Energy, Inc., Garnet Resources Corporation, Argosy Energy, Inc., and Argosy Energy International (filed as exhibit 2.1 to the Company's Form 8-K dated June 8, 2000, File No. 0-22258, and incorporated herein by reference). **27.1 Financial Data Schedule. _________________________________________ * Previously filed ** Filed herewith 19 EX-27.1 2 0002.txt 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 SEPTEMBER 30, 2000 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 760 0 1,129 98 170 2,030 26,464 25,904 4,197 1,366 0 0 0 2,345 (4,401) 4,197 5,054 5,275 2,437 2,437 0 (221) 749 4,966 212 4,754 0 4,673 0 9,427 0.20 0.20
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