10-Q 1 d10q.txt 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, 2001 ------------------ 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, 2001, was 46,900,132 of which 27,717,775 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, 2001 2000 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 623 $ 820 Accounts receivable 359 237 Inventories 156 161 Prepaid expenses and other 159 187 ------------- ------------- Total current assets 1,297 1,405 ------------- ------------- Property and equipment, at cost (note 2): Oil and gas properties and equipment (full cost method) 16,457 16,414 Other 337 333 ------------- ------------- 16,794 16,747 Less accumulated depreciation, depletion and amortization (15,857) (15,791) ------------- ------------- 937 956 Other assets 1,011 950 ------------- ------------- $ 3,245 $ 3,311 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 645 $ 945 Accrued liabilities 117 115 ------------- ------------- Total current liabilities 762 1,060 ------------- ------------- Gas balancing obligations and other 378 375 Stockholders' equity: Common stock, no par value, authorized 348,500,000 shares; issued 46,900,132 shares 2,345 2,345 Additional paid-in capital 37,710 37,710 Accumulated deficit* (37,950) (38,179) ------------- ------------- Total stockholders' equity 2,105 1,876 Commitments and contingencies (note 3) ------------- ------------- $ 3,245 $ 3,311 ============= =============
* 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, 2001 2000 ------------ ------------- Revenue: Oil and gas sales $ 600 $ 2,541 Services fee 166 - ------------ ------------- Total revenue 766 2,541 ------------ ------------- Expense: Production 358 810 Depreciation, depletion and amortization 67 235 General and administrative 289 301 Recovery of losses on accounts receivable (25) (52) ------------ ------------- Total expense 689 1,294 ------------ ------------- Other income (expense): Interest and other income (expense), net 170 - Interest expense (1) (395) ------------ ------------- Total other income (expense) 169 (395) ------------ ------------- Earnings before income taxes 246 852 Income taxes 17 119 ------------ ------------- Net earnings $ 229 $ 733 ============ ============= Weighted average common shares outstanding 46,900 46,900 ============ ============= Basic and diluted net earnings per common share $ 0.00 $ 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, 2001 2000 ------------- ------------- Net earnings $ 229 $ 733 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 67 235 Changes in working capital and other (420) (693) ------------- ------------- Net cash provided by (used in) operating activities (124) 275 ------------- ------------- Cash flows from investing activities: Property and equipment expenditures (86) (260) Proceeds from sale of assets 4 - ------------- ------------- Net cash used in investing activities (82) (260) ------------- ------------- Cash flows from financing activities - - ------------- ------------- Effect of exchange rate changes on cash and cash equivalents 9 2 ------------- ------------- Net increase (decrease) in cash and cash equivalents (197) 17 Cash and cash equivalents at beginning of the period 820 846 ------------- ------------- Cash and cash equivalents at end of the period $ 623 $ 863 ============= =============
See accompanying notes to condensed consolidated financial statements. 4 AVIVA PETROLEUM INC. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders' Equity (in thousands, except number of shares) (unaudited)
Common Stock ------------------------------- Additional Total Number Paid-in Accumulated Stockholders' of Shares Amount Capital Deficit Equity -------------- ------------- ------------- -------------- ------------- Balances at December 31, 2000 46,900,132 $ 2,345 $ 37,710 $ (38,179) $ 1,876 Net earnings - - - 229 229 -------------- ------------- ------------- -------------- ------------- Balances at March 31, 2001 46,900,132 $ 2,345 $ 37,710 $ (37,950) $ 2,105 ============== ============= ============= ============== =============
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. 2. 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 $20,000 for the three months ended March 31, 2001 and $15,000 for the three months ended March 31, 2000. Unevaluated oil and gas properties totaling $273,000 and $272,000 at March 31, 2001 and December 31, 2000, respectively, have been excluded from costs subject to depletion. The Company capitalized interest costs of $16,000 for the three-month period ended March 31, 2000 on these properties. 3. 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 $0.3 million at March 31, 2001. 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, delays in obtaining any 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 a decrease in the Company's ownership interest in Argosy. 6 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 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 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. 7 AVIVA PETROLEUM INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) (continued) 4. Segment Information The following is a summary of segment information of the Company as of and for the three-month periods ended March 31, 2001 and 2000 (in thousands):
United States Colombia Total ------------ ------------ ------------ 2001 ---- Revenue: Oil and gas sales $ 286 $ 314 $ 600 Service fees 166 - 166 ------------ ------------ ------------ 452 314 766 ------------ ------------ ------------ Expense: Production 214 144 358 Depreciation, depletion and amortization 37 30 67 General and administrative 268 21 289 Recovery of losses on accounts receivable (25) - (25) ------------ ------------ ------------ 494 195 689 ------------ ------------ ------------ Interest and other income (expense), net 18 152 170 Interest expense (1) - (1) ------------ ------------ ------------ Earnings (loss) before income taxes (25) 271 246 Income taxes - (17) (17) ------------ ------------ ------------ Net earnings (loss) $ (25) $ 254 $ 229 ============ ============ ============ Total assets $ 1,705 $ 1,540 $ 3,245 ============ ============ ============ 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 ============ ============ ============
8 Item 2. Management's Discussion and Analysis of Financial Condition and ----------------------------------------------------------------------- Results of Operations. --------------------- Results of Operations --------------------- Three Months Ended March 31, 2001 compared to Three Months Ended March 31, 2000 -------------------------------------------------------------------------------
United States Colombia Oil Gas Oil Total ------------- ------------- ------------- ------------- (Thousands) Oil and gas sales - 2000 $ 378 $ 19 $ 2,144 $ 2,541 Volume variance (120) (9) (1,739) (1,868) Price variance (8) 26 (91) (73) ------------- ------------- ------------- ------------- Oil and gas sales - 2001 $ 250 $ 36 $ 314 $ 600 ============= ============= ============= =============
Colombian oil volumes were 14,000 barrels in the first quarter of 2001, a decrease of 62,000 barrels as compared to the first quarter of 2000. Such decrease is due to a 50,000 barrel decrease resulting from the transfer of partnership interests to Crosby Capital L.L.C. ("Crosby") and a 12,000 barrel decrease resulting from production declines. The transfer of partnership interests to Crosby on June 8, 2000, was part of an overall restructuring plan which eliminated all of the Company's long-term debt. U.S. oil volumes were 9,000 barrels in 2001, down approximately 5,000 barrels from 2000. Such decrease is due to the relinquishment of Main Pass 41 effective November 7, 2000. U.S. gas volumes were 5,000 thousand cubic feet (MCF) in 2001, down 2,000 MCF from 2000. Such decrease is due to the relinquishment of Main Pass 41 and normal production declines. Colombian oil prices averaged $21.83 per barrel during the first quarter of 2001. The average price for the same period of 2000 was $28.13 per barrel. The Company's average U.S. oil price decreased to $26.80 per barrel in 2001, down from $27.62 per barrel in 2000. In 2001 prices have been lower than in the first quarter of 2000 due to a decrease in world oil prices. U.S. gas prices averaged $6.77 per MCF in 2001 compared to $2.86 per MCF in 2000. Service fees of $166,000 for administering the Colombian assets were received in 2001 pursuant to a Service Agreement with Crosby. This amount is net of Aviva Overseas' 22.1196% share of the fee. Operating costs decreased approximately 56%, or $452,000, primarily as a result of the transfer of partnership interests to Crosby. Depreciation, depletion and amortization decreased by 71%, or $168,000, primarily as a result of the transfer of partnership interests to Crosby and a decrease in the amount of oil produced. Interest and other income increased $170,000 mainly due to a $119,000 gain on the settlement of a disputed payable. Interest expense decreased $394,000 in the first quarter of 2001, due to the extinguishment of the Company's long-term debt in 2000. Income taxes were $102,000 lower in 2001 principally as a result of the transfer of partnership interests to Crosby. 9 New Accounting Pronouncements ----------------------------- The Company has adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires 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 are either 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. As of January 1, 2001, the date of adoption, and as of March 31, 2001 and the three-month period then ended, the Company was not a party to any derivative financial instruments. Liquidity and Capital Resources ------------------------------- Cash and cash equivalents totaled $623,000 and $820,000 at March 31, 2001 and December 31, 2000, respectively. The decrease in cash and cash equivalents resulted primarily from net cash used in operating activities ($124,000) and property additions ($86,000). Net cash used in operating activities was $(124,000) in 2001, compared to $275,000 net cash provided by operating activities for 2000. This decrease resulted primarily from the transfer of partnership interests to Crosby, effective June 8, 2000, resulting in lower levels of net cash flow from operations. Additionally, production declines and lower oil prices received for the Company's Colombian oil production contributed to the decrease. The Company plans to recomplete certain existing wells and engage in various other projects in Colombia. The Company's current share of the estimated future costs of these development activities is approximately $0.3 million at March 31, 2001. 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, delays in obtaining any required environmental permits, failure to produce the reserves as projected or a decline in the sales price of oil. Any substantial increases in the amounts of these required expenditures could adversely affect the Company's ability to fund these activities. 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 a decrease in the Company's ownership interest in Argosy. The outcome of these matters cannot be projected with certainty. 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. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk ------------------------------------------------------------------- The Company is exposed to market risk from 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. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- a) Exhibits ----------- None 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 2001. 11 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 9, 2001 /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) 12 INDEX TO EXHIBITS Exhibit Number Description of Exhibit ------ ---------------------- None 13