-----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, LpFvYEWhX0jfsE16gngjfjcRu9FiOyJGxCWGg0CAUP1le5XvBiD0IBnIxtmXLsYC B+VPiXd3pvws5gJj0l7GTQ== 0000899243-98-001304.txt : 19980707 0000899243-98-001304.hdr.sgml : 19980707 ACCESSION NUMBER: 0000899243-98-001304 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980706 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE RESOURCES PLC CENTRAL INDEX KEY: 0000937568 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 333-19013 FILM NUMBER: 98660467 BUSINESS ADDRESS: STREET 1: KINGSWAY HOUSE 15-17 KING STREET STREET 2: 011-44-71-9309337 CITY: LONDON ENGLAND STATE: NY ZIP: 19107-3496 MAIL ADDRESS: STREET 1: JENKENS & GILCHRIST PC STREET 2: 1445 ROSS AVENUE SUITE 2900 CITY: DALLAS STATE: TX ZIP: 75202 10-Q/A 1 FORM 10-Q (AMENDED) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE XX SECURITIES EXCHANGE OF 1934 ---- For the quarterly period ended October 31, 1997 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 : 333-19013 Alliance Resources Plc (Exact name of registrant as specified in its charter) England and Wales 73-1405081 (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135 (Address of principal executive offices) (Zip Code) (918) 491-1100 (Registrant's telephone number, including area code) (Former name or former address, if changed since last report.) 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 Act of 1934 during the preceding 12 months (or for such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- As of July 2, 1998, there were 31,209,408 shares of the Registrant's single class of common stock issued and outstanding. This Form 10-Q/A amends and restates in its entirety Form 10-Q for the period ended, as previously filed by the Registrant. ALLIANCE RESOURCES PLC AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Condensed Balance Sheets as of October 31, 1997 and April 30, 1997 2 Consolidated Condensed Statements of Operations for the three months and six months ended October 4 31, 1997 and 1996 Consolidated Condensed Statement of Stockholders' Equity for the six months ended October 31, 1997 5 Consolidated Condensed Statements of Cash Flows for the six months ended October 31, 1997 and 1996 6 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION 18 Item 1. Legal Proceedings The information called for by Item 2. Changes in Securities, Item 3 Default Upon Senior Securities, Item 4. Submission of Matters to a Vote of Security Holders, Item 5. Other Information has been omitted as either inapplicable or because the answer thereto is negative. Item 6. Exhibit and Reports on Form 8-K 20 SIGNATURES
ITEM 1. FINANCIAL STATEMENTS ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
OCTOBER 31, 1997 APRIL 30, 1997 (UNAUDITED) (UNAUDITED) ---------------- -------------- ASSETS Current assets: Cash $ 2,376,080 $ 72,948 Accounts receivable - trade 2,651,767 2,119,406 Other current assets 280,109 54,176 ------------ ------------ Total current assets 5,307,956 2,246,530 ------------ ------------ Property, plant, and equipment, at cost: Oil and gas properties (using full cost method) 46,700,341 36,107,310 Other depreciable assets 1,197,180 855,512 ------------ ------------ 47,897,521 36,962,822 Less accumulated depreciation and depletion (17,251,691) (10,254,970) ------------ ------------ Net property, plant and equipment 30,645,830 26,707,852 ------------ ------------ Other assets: Deposits and other assets 146,791 282,920 Deferred loan costs, less accumulated amortization 1,802,758 1,620,185 ------------ ------------ Total other assets 1,949,549 1,903,105 ------------ ------------ TOTAL ASSETS $ 37,903,335 $ 30,857,487 ============ ============
See accompanying notes to consolidated condensed financial statements. 2 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED
OCTOBER 31, 1997 APRIL 30, 1997 (UNAUDITED) (UNAUDITED) ---------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 10,021,547 $ 11,428,872 Accrued expenses payable 446,488 437,736 Current portion long-term debt 325,000 - ------------ ------------ Total current liabilities 10,793,035 11,866,608 Other liabilities 710,208 810,783 Long-term debt, excluding current installments 20,241,762 18,095,497 Convertible subordinated unsecured loan notes 1,550,700 - ------------ ------------ Total liabilities 33,295,705 30,772,888 ------------ ------------ Stockholders' equity: Common stock-par value 40 pence; 46,000,000 shares authorized representing: LaTex Series A convertible preferred stock 1,180,110 issued and outstanding at April 30, 1997; aggregate liquidation preference $4,570,510 - 766,599 LaTex Series B convertible preferred stock 3,239,708 issued and outstanding at April 30, 1997; aggregate liquidation preference $5,245,370 - 2,104,515 Common stock issued and outstanding; 31,152,603 and 17,982,068 at October 31, 1997 and April 30, 1997, respectively 20,077,486 11,681,150 Additional paid-in capital 5,898,198 5,149,146 Accumulated deficit (21,368,054) (19,127,446) Treasury stock 1,008,500 common shares at cost at April 30, 1997 - (489,365) ------------ ------------ Total stockholders' equity (deficit) 4,607,630 84,599 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,903,335 $ 30,857,487 ============ ============
See accompanying notes to consolidated condensed financial statements. 3 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Six Months Ended Six Months Ended Three October 31, Months Ended October 31, Months Ended 1996 October 31, 1996 October 31, 1997 (Restated, 1997 (Restated, (Unaudited) Unaudited) (Unaudited) Unaudited) ------------------------------------------------------------- Revenue: Oil and gas revenue $ 3,248,700 $ 2,377,701 $ 5,976,036 $ 5,190,871 Crude oil and gas marketing - 90,227 - 209,385 ------------------------------------------------------------- Total operating income 3,248,700 2,467,928 5,976,036 5,400,256 ------------------------------------------------------------- Operating expenses: Lease operating expense 1,491,276 1,215,659 2,664,920 2,306,829 Cost of crude oil and gas marketing - 17,271 - 24,826 Depreciation, depletion, and amortization 777,907 699,656 1,430,396 1,456,534 Dry hole costs and abandonments - - - 3,446,795 Loss on commodity deriviatives 859,429 - 1,128,000 General and administrative expense 909,860 1,894,744 2,175,709 2,577,326 ------------------------------------------------------------- Total operating expenses 4,038,472 3,827,330 7,399,025 9,812,310 ------------------------------------------------------------- Net operating loss (789,772) (1,359,402) (1,422,989) (4,412,054) Other income (expense): Equity in losses and write offs of investments in affiliates - - - (4,096,381) Gain on sale of assets 165 - 18,496 - Interest expense (609,127) (732,151) (1,291,200) (1,713,585) Interest income 15,110 32,934 35,719 341,819 Miscellaneous income (expense) 79,051 - 404,204 (1,810,382) ------------------------------------------------------------- Net loss from continuing operations before income taxes (1,304,573) (2,058,619) (2,255,770) (11,690,583) Income tax expense - - - - ------------------------------------------------------------- Net loss (1,304,573) (2,058,619) (2,255,770) (11,690,583) Preferred stock dividends - (166,250) - (317,255) ------------------------------------------------------------- Net loss for common shareholders $ (1,304,573) $ (2,224,869) $ (2,255,770) $(12,007,838) ============================================================= Loss per share for common shareholders $ (0.04) $ (0.13) $ (0.07) $ (0.75) ============================================================= Weighted average number of shares outstanding 31,137,386 16,616,740 31,094,994 16,056,202 =============================================================
See accompanying notes to consolidated condensed financial statements. 4 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED OCTOBER 31, 1997
Common Stock Retained ------------------------- Additional Earnings Total Preferred Number of Par Paid-In (Accumulated Treasury Stockholders' Stock Shares Value Capital Deficit) Stock Equity ============ ============ ============ ============ ============= ============= ============== Balance at April 30, 1997 $ 2,871,114 17,982,068 $ 11,681,150 $ 5,149,146 $(19,127,446) $ (489,365) $ 84,599 Exchange of Preference Stock (2,871,114) 4,419,818 2,871,114 -- -- -- -- Cancellation of treasury stock -- (953,099) (619,132) 129,767 -- 489,365 -- Issued for LaTex acquisition -- 8,103,816 5,105,550 (1,066,211) -- -- 4,039,339 Acquisition of overriding royalty -- 1,343,750 872,900 1,498,400 -- -- 2,371,300 Issued for services -- 256,250 165,904 187,096 -- -- 353,000 Foreign exchange -- -- -- -- 15,162 -- 15,162 Net loss current period -- -- -- -- (2,255,770) -- (2,255,770) ------------ ----------- ------------ ------------ ------------ ------------ ------------ Balance October 31, 1997 $ -- 31,152,603 $ 20,077,486 $ 5,898,198 $(21,368,054) $ -- $ 4,607,630 ============ =========== ============ ============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements. 5 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Six Six Months Ended Months Ended October 31, 1997 October 31, 1996 (Unaudited) (Restated, Unaudited) ---------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,255,770) $(11,690,583) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation, amortization, and depletion 1,430,396 1,456,534 Amortization of Deferred Loan Costs 281,694 179,583 Gain on sale of assets (18,496) -- Equity in losses and write offs of investments in affiliates -- 4,096,381 Dry hole costs and abandonments -- 3,446,795 Employee bonus -- 528,125 Forgiveness of debt -- 385,391 Interest income -- (150,467) Miscellaneous expense -- 1,810,382 Changes in assets and liabilities, net of effects from acquisition: Accounts receivable (26,237) 535,300 Accounts receivable - related party -- 202,790 Accounts payable (1,613,144) 378,875 Accrued expenses payable 8,752 547,444 Other current assets (246,563) -- Deposits and other assets 1,264,129 (69,747) Other liabilities (1,349,972) 615,000 Inventories -- 64,091 ------------ ------------ Net cash (used in) provided by operating activities (2,525,211) 2,335,894 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,289,926) (365,002) Proceeds from sale of property and equipment 4,998,501 1,144,811 Effect of LaTex acquisition 192,819 -- Decrease in accounts and notes receivable -- 340,000 Advances to unconsolidated affiliates and notes receivable -- (326,394) ------------ ------------ Net cash provided by investing activities 2,901,394 793,415 ------------ ------------
See accompanying notes to consolidated condensed financial statements. 6 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Six Six Months Ended Months Ended October 31, 1997 October 31, 1996 (Unaudited) (Restated, Unaudited) ------------------ --------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Deferred loan and reorganization costs $ (428,391) $ (137,186) Payments on notes payable -- (3,150,416) Proceeds from notes payable 2,355,340 178,014 ----------- ----------- Net cash provided by (used for) financing activities 1,926,949 (3,109,588) ----------- ----------- Net increase in cash and cash equivalents 2,303,132 19,721 Cash and cash equivalents at beginning of period $ 72,948 $ -- ----------- ----------- Cash and cash equivalents at end of period $ 2,376,080 $ 19,721 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 730,850 $ 1,480,520 Income taxes -- 4,250 Supplemental schedules of noncash investing and financing activities: Common stock issued for services and bonus $ 203,000 $ 78,125 Preferred stock issued for litigation settlement -- 500,000 Common stock issued to pay debt of unconsolidated affiliate -- 60,520 Issuance of convertible loan notes 150,000 -- Ordinary shares due in settlement of advisory fees, as of October 31, 1997 150,000 -- Common stock issued on acquisition of LaTex 4,039,339 -- Common stock issued for overriding royalty 2,371,300 -- Convertible loan notes issued for overriding royalty 1,400,700 --
See accompanying notes to consolidatd condensed financial statements. 7 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- Alliance Resources PLC (the "Company" or "Alliance") is organized as a public limited company under the laws of England and Wales. Alliance is a London- based holding company of a group whose principal activities are the exploration, development, and production of oil and gas and the acquisition of producing oil and gas properties. Alliance was incorporated and registered under the laws of England and Wales on August 20, 1990. Alliance's corporate headquarters are at Kingsbury House, 15-17 King Street, London SW1Y 6QU, England, but its operations office is located at 4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135. Interim Reporting - ----------------- The interim consolidated condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Due to the seasonal nature of the business, the results of operations for the six months ended October 31, 1997 are not necessarily indicative of the results that may be expected for the year ended April 30, 1998. For further information , refer to Form 20-F for the year ended April 30, 1997 (which was filed in its final form with the Securities Exchange Commission on June 18, 1998). B. SIGNIFICANT EVENTS On May 1, 1997, Alliance, completed its acquisition of LaTex, whereby a newly formed wholly-owned subsidiary of Alliance merged with and into LaTex with LaTex being the surviving corporation for accounting purposes. In consideration the shareholders and warrant holders of LaTex received an aggregate of 21,448,787 shares of Alliance, par value (pounds)0.40 per share (the "New Alliance Shares") and warrants to purchase an additional 1,927,908 New Alliance Shares. As a result, after giving effect to a 40-to-1 reverse stock split of the Alliance ordinary shares, each shareholder of LaTex on May 1, 1997, received 0.85981 of a New Alliance Share for each share of the LaTex's common stock, 2.58201 New Alliance Shares for each share of the LaTex's Series A preferred stock then held, 6.17632 New Alliance Shares for each share of LaTex's Series B preferred stock then held, and a warrant to purchase 0.85981 of a New Alliance Share for each share of LaTex's Common Stock subject to warrants. 8 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The purchase price has been arrived at as follows: Value of 8,103,816 Alliance shares outstanding $4,039,339 Acquisition costs 871,000 ---------- $4,910,339 The value of the Alliance shares outstanding has been arrived at by using the share price of LaTex at the time of announcement of the acquisition adjusted by the exchange ratio. Transaction costs incurred by Alliance reduced the fair value of Alliance's monetary assets and liabilities at the date of the acquisition. The fair value of the assets and liabilities of the acquired business at the effective date of acquisition is as follows: Cash $ 1,460,555 Other current assets 480,045 Other assets 202,253 Oil and gas assets 5,268,929 Other fixed assets 253,386 Debt (85,420) Other liabilities and provisions (2,669,409) ----------- $ 4,910,339 ----------- In connection with the acquisition, Alliance issued to Bank of America 156,250 Alliance Shares and convertible subordinated unsecured loan notes of (pounds)93,519 convertible into 115,456 Alliance Shares to settle fees of $200,000 and $150,000 payable upon restructuring of LaTex's bank debt. Under the terms of the Alliance Merger Agreement effective May 1, 1997, LaTex disposed of its interest in its unconsolidated affiliates, Wexford and Imperial, and its interest in its wholly-owned subsidiaries LaTex Resources International, Inc. and Phoenix Metals, Inc. Alliance has also issued 1,343,750 Alliance Shares, convertible subordinated unsecured loan notes of (pounds)873,281 convertible into 1,087,125 Alliance Shares and 1,210,938 warrants to Bank of America in exchange for an overriding royalty interest in most of LaTex's properties held by Bank of America. 9 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The purchase price was allocated to oil and gas properties and has been arrived at as follows: Value of 1,343,750 ordinary shares and warrants issued $2,371,300 Value of convertible subordinated unsecured loan note issued 1,400,700 ---------- $3,772,000 The consolidated statements of operations include the results of operations of Alliance since the effective date of the Merger. The following is a statement of pro forma revenues, loss before income taxes, net loss, and net loss per share for the quarter ended July 31, 1996 based on the assumption that Alliance was acquired at the beginning of this period: Quarter ended July 31, 1996 ------------- Revenues $ 8,002,842 Loss before income tax $(12,369,583) Net loss $(12,369,583) Net loss per share $ (0.66) The relevant portion of the above pro forma figures covering Alliance was derived from the published interim results of Alliance for the six months to October 31, 1996. On September 15, 1997, Alliance issued 100,000 new Alliance shares in settlement of financial advisor fees and on November 5, 1997, Alliance issued 115,456 convertible loan notes to the bank in settlement of arrangement fees of $150,000 noted above which may, under certain circumstances, be converted into new Alliance shares. Because for corporate law purposes (but not financial accounting purposes) Alliance is the surviving corporation, all references to the "Company" both prior and subsequent to May 1, 1997 refer to Alliance and its subsidiaries unless otherwise indicated. Unless the context requires otherwise, all references to "LaTex" include LaTex Resources, Inc., and its consolidated subsidiaries. For financial, reserve, and associated information concerning Alliance prior to the Merger, reference should be made to the Company's Registration Statement on Form F-4 (which was filed in its final form with the Securities Exchange Commission on April 9, 1997 and which contains information regarding Alliance through January 31, 1997). 10 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS C. ACCOUNTING POLICY CHANGE During the nine months ended April 30, 1997, LaTex, in order to conform its accounting policies to that of Alliance, changed its method of accounting for oil and gas exploration and development activities from the "successful efforts" method to the "full cost" method (as described above). The financial statements for the LaTex entities for all prior periods have been restated to apply the new method retroactively. The effects of the accounting change on the nine months ended April 30, 1997 and the years ended July 31, 1996 and 1995 are as follows. 1997 1996 ----------- ----------- Increase (decrease) in: Net loss $(2,373,358) $1,099,593 =========== ========== Loss per common share $ (0.14) $ 0.07 =========== ========== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------- Results of Operations - --------------------- The following is a discussion of the results of operations of the Company for the three and six months ended October 31, 1997. As stated above for financial reporting purposes, all financial data (and, consequently, all oil and gas reserve information and all information associated with financial or reserve information) prior to the Merger have been restated to reflect LaTex as the predecessor company to Alliance. Therefore, the results for the three and six months ended October 31, 1997 represent the activities of the enlarged group (Alliance and LaTex groups combined) while the results for the three months ended October 31, 1996 represent the activities of the LaTex group alone. This discussion should be read in conjunction with the Company's unaudited Consolidated Condensed Financial Statements above. 11 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The factors which most significantly affect the Company's results of operations are (i) the sales prices of crude oil and natural gas, (ii) the level of total sales volumes, (iii) the level of lease operating expenses, and (iv) the level of and interest rates on borrowings. Total sales volumes and the level of borrowings are significantly impacted by the degree of success the Company experiences in its efforts to acquire oil and gas properties and its ability to maintain or increase production from its existing oil and gas properties through its development activities. The following table reflects certain historical operating data for the periods presented. Six Months Ended October 31 --------------------------- 1996 1997 ------ ----- Net Sales Volumes: Oil (Mbbls) 160 218 Natural Gas (Mmcf) 1,196 988 Oil Equivalent (MBOE) 359 382 Average Sales Prices: Oil (per Bbl) $18.03 (1) $16.63 (2) Natural Gas (per Mcf) $ 1.85 (1) $ 2.38 (2) Operating Expenses per BOE of Net Sales: Lease operating $ 5.54 $ 5.97 Severance tax $ 0.95 $ 1.00 Depreciation, depletion, and amortization $13.65 $ 3.74 General and administrative $ 7.17 $ 5.69 (1) After giving effect to the impact of the Company's commodity price hedging arrangements with the Bank. Without such hedging arrangements, the average sales prices for the six months ended October 31, 1996 would have been $20.26/bbl for oil and $2.26/mcf for gas. (2) On May 15, 1997, the commodity price hedging agreements were terminated with the Bank through a buyout, the cost of which was financed by a drawdown under the terms of the Alliance Credit Agreement. Hence, the table reflects actual realized prices for the three months ended October 31, 1997. Average sales prices received by the Company for oil and gas have historically fluctuated significantly from period to period. Fluctuations in oil prices during these periods reflect market uncertainties as well as concerns related to the global supply and demand for crude oil. Average gas prices received by the Company fluctuate generally with changes in the spot market for gas. Relatively modest changes in either oil or gas 12 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS significantly impact the Company's results of operations and cash flow and could significantly impact the Company's borrowing capacity. Three Months Ended October 31, 1997 compared to the Three Months Ended ---------------------------------------------------------------------- October 31, 1996 ---------------- Total revenues from the Company's operations for the quarter ended October 31, 1997 were $3,248,700 compared to $2,467,928 for the quarter ended October 31, 1996. Revenues increased over the comparable period a year earlier due principally to the beneficial effect of higher realized oil and gas prices (net of the impact of the commodity price hedges), and higher barrel of oil equivalent volumes, offset partially by the absence of marketing margins in the revenue category. The revenues in the 1997 period benefited from the lack of commodity price hedges and allowed the Company full exposure to market prices. Revenues in the 1996 period were adversely effected by the LaTex hedge program which effectively capped pricing at below market levels. Although sales volumes for the quarter ended October 31, 1997 were adversely affected by a decline in sales volumes from the LaTex properties, the inclusion of Alliance's sales volumes and the favorable impact of the remedial work program designed to restore production on the LaTex properties more than compensated for this decline. The Company concentrated its efforts immediately after the acquisition of LaTex on increasing production from eleven existing producing fields operated by LaTex in the states of Alabama, Mississippi, Oklahoma, Texas, and Louisiana. Workover operations on these fields commenced in early May 1997 and were comprised mainly of returning shut-in wells to production. Gross production from these eleven fields was increased from an average of 244 barrels of oil equivalent per day ("boepd") in April 1997 to an average of 865 boepd by the first half of August 1997. Most of the production increase came from remedial workover operations in the South Carlton field in Alabama. Gross production from this field alone increased from an average of 89 boepd in April 1997 to an average of 575 boepd in September 1997. Total operating expenses increased to $4,038,472 for the quarter ended October 31, 1997 compared to $3,827,330 for the same period in 1996. This increase was primarily due to the buy-out of the existing commodity price hedge ($1,128,000) on May 15, 1997. Lease operating expenses were relatively unchanged at $1,491,276 for the three-month period ended October 31, 1997 compared to $1,215,659 for the same period in 1996. The quarter ended October 31, 1997 was impacted by the remedial work program mentioned above and the inclusion of the Alliance properties partially offset by lower operating costs due to the sale of non-operated, non-strategic wells. Depreciation, depletion and amortization increased to $777,907 from $699,656 a year earlier as a result of higher sales volumes in the 1997 period. General and administrative expenses decreased from $1,894,744 during the quarter ended October 31, 1996 to $909,860 for the quarter ended October 31, 1997 primarily due to the employee stock award in the 1996 period noted above. 13 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS In addition to the decrease in the net operating loss to $789,772 for the quarter ended October 31, 1997 from $1,359,402 for the same period in 1996, there was also an improvement in other income/expense due to the lower interest charge in the 1997 period. In summary, due to the above factors, the net loss for the common shareholders for the quarter ended October 31, 1997 decreased to $1,304,573 ($0.04 per share) compared to a net loss of $2,224,869 ($0.12 per share) for the same period in 1996. Six Months Ended October 31, 1997 compared to the Six Months Ended ------------------------------------------------------------------ October 31, 1996 ---------------- Total revenues from the Company's operations for the six months ended October 31, 1997 were $5,976,036 compared to $5,400,256 for the six months ended October 31, 1996. Revenues increased over the comparable period a year earlier due principally to the beneficial effect of higher realized gas prices (net of the impact of the commodity price hedge) and higher oil volumes, offset partially by the absence of marketing margins in the revenue category. The revenues in the 1997 period benefited from the lack of commodity price hedges and allowed the Company full exposure to higher market prices. Revenues in the 1996 period were adversely affected by the LaTex hedge program which effectively capped pricing at below market levels. Although sales volumes for the six months ended October 31, 1997 were adversely affected by a decline in sales volumes from the LaTex properties, the inclusion of Alliance's sales volumes and the favorable impact of the remedial work program designed to restore production on the LaTex properties more than compensated for this decline. The Company continued concentrating its efforts to increase production from its existing producing fields. Gross production from company-operated fields was increased from an average of 160 barrels of oil equivalent per day ("boepd") in April 1997 to an average of 2300 boepd by October 1997. Total operating expenses decreased to $7,399,025 for the six months ended October 31, 1997 compared to $9,812,310 for the same period in 1996. This decrease was primarily due to write-offs of $3,446,795 in relation to the Company's Kazakhstan and Tunisia operations which were taken in the 1996 period offset by the buy-out of the existing commodity price hedge ($1,128,000). Lease operating expenses increased to $2,664,920 for the six month period ended October 31, 1997 compared to $2,306,829 for the same period in 1996. The six months ended October 31, 1997 was impacted by the remedial work program mentioned above and the inclusion of the Alliance properties partially offset by lower operating costs due to the sale of non-operated costs due to the sale of non-operated, non-strategic wells. Depreciation, depletion, and amortization decreased to $1,430,396 from $1,456,534 a year earlier. General and administrative expenses decreased from $2,577,326 during the six months ended October 31, 1996 14 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS primarily due to the employee stock award in the 1996 period noted above partially offset by the inclusion of the Alliance overhead as well as non- capitalized merger-related cost. In addition to the decrease in the net operating loss to $1,422,989 for the six months ended October 31, 1997 from $4,412,054 for the same period in 1996, there was also a significant improvement in other income/expense. This improvement was due to the write-offs in the 1996 period of $4,096,381 covering investments in Wexford Technology, Inc. and Imperial Petroleum, Inc. and miscellaneous expenses of $1,810,382 in connection with litigation arising out of the sale in July 1993 of LaTex's Panda subsidiary. In summary, due to the above factors, the net loss for the common shareholders for the six months ended October 31, 1997 decreased to $2,255,770 ($0.07 per share) compared to a net loss of $12,007,838 ($0.74 per share) for the same period in 1996. Capital Resources and Liquidity - ------------------------------- The Company's capital requirements relate primarily to the development of its oil and gas properties and undeveloped leasehold acreage, exploration activities, and the servicing of the Company's debt. In general, because the Company's oil and gas reserves are depleted by production, the success of its business strategy is dependent upon a continuous exploration and development program and the acquisition of additional reserves. Cash Flows and Liquidity. At October 31, 1997, Alliance has current assets ------------------------ of $5.308 million and current liabilities of $10.793 million, which resulted in a net current deficit of $5.485 million. Since the Merger, the net current deficit has been reduced from $9.620 million at year ended April 30, 1997 to its current position of $5.485 million. The $4.135 million improvement was primarily due to the increase in cash balances and a reduction in accounts payable. The current portion of long-term debt amounted to $0.325 million at October 31, 1997 compared to $0 at April 30, 1997. For the six months ended October 31, 1997, net cash used in the Company's operating activities was $2.525 million compared to cash provided of $2.336 million for the six months ended October 31, 1996. This deterioration in cash from operating activities is substantially due to the allocation of funds to improve the working capital deficit of the Company. Investing activities of the Company generated $2.901 million in net cash flow for the six months ended October 31, 1997 compared to $0.793 million for the six months ended October 31, 1996. The improvement was principally due to property sales of $4.999 million and the acquisition of cash balances of $1.461 million from Alliance arising from the Merger. Financing activities provided $1.927 million for the six months 15 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ended October 31, 1997 compared to a use of $3.110 million for the six months ended October 31, 1996. The improvement was due to the drawdown of additional funds under the Alliance Credit Agreement and the abatement of scheduled principal payments until October 31, 1998. Overall, cash and cash equivalents improved by $2.303 million in the six months ended October 31, 1997 compared to $0.020 million in the 1996 period. Capital Expenditures. The timing of most of the Company's capital -------------------- expenditures is discretionary. Currently, there are no material long-term commitments associated with the Company's capital expenditure plans. Consequently, the Company has a significant degree of flexibility to adjust the level of such expenditures as circumstances warrant. The Company primarily uses internally generated cash flow and proceeds from the sale of oil and gas properties to fund capital expenditures, other than significant acquisitions, and to fund its working capital deficit. If the Company's internally generated cash flows should be insufficient to meet its banking or other obligations, the Company may reduce the level of discretionary capital expenditures or increase the sale of non-strategic oil and gas properties in order to meet such obligations. The level of the Company's capital expenditures will vary in future periods depending on energy market conditions and other related economic factors. As a result, the Company will continue its current policy of funding capital expenditures with internally generated cash flow and the proceeds from oil and gas property divestitures. Financing Arrangements. Under the Alliance Credit Agreement, principal ---------------------- payments are suspended until October 31, 1998 on which date the first scheduled repayment of $325,000 is due. However, cash flows generated by Alliance and its subsidiaries in excess of amounts provided for in the business plan that formed the basis of negotiation with the Bank will be used to reduce outstanding principal indebtedness. The maturity date of the existing line of credit remains at March 31, 2000. Substantially all of the existing security for the outstanding indebtedness under the LaTex Credit Agreement, being the mortgages of all of LaTex's producing oil and gas properties and pledges of stock of the existing Borrowers and ENPRO, remains in place. As additional security, the Bank has received mortgages on substantially all of Alliance's producing oil and gas properties and pledges of the stock of Alliance's subsidiaries. Under the Alliance Credit Agreement, the borrowing base will be equal to the outstanding indebtedness under the LaTex Credit Agreement as of the date of the Merger. The borrowing base is to be redetermined annually as of December 31 and June 30 of each year. Borrowings under the Alliance Credit Agreement maintained from time to time as a "Base Rate Loan" bear interest, payable monthly, at a fluctuating rate equal to the 16 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS higher of (i) the rate of interest announced from time to time by the Bank as its "reference rate" plus 1% or (ii) the "Federal Funds Rate" (as defined in the Alliance Credit Agreement) plus 1 1/4%. Borrowings under the Alliance Credit Agreement maintained from time to time as a "LIBO Rate Loan" bear interest, payable on the last day of each applicable interest period (as defined in the Alliance Credit Agreement), at a fluctuating rate equal to the LIBO Rate (Reserve Adjusted) (as defined in the Alliance Credit Agreement) plus 2%. As at October 31, 1997, advances to Alliance under the Alliance Credit Agreement were maintained as LIBO Rate Loans that bore interest at the annual rate of 7.625%. As a condition to the Bank making the loans under the LaTex Credit Agreement, LaTex's subsidiary, LaTex Petroleum, entered into hedging agreements with the Bank designed to enable LaTex to (a) obtain agreed upon net realized prices for LaTex's oil and gas production (the "Oil and Gas Hedging Agreements") and (b) protect LaTex against fluctuations in interest rates with respect to the principal amounts of all loans under the LaTex Credit Agreement. Under the Alliance Credit Agreement, the Bank has made available to Alliance the amount of $2,500,000 to reduce or terminate the Oil and Gas Hedging Agreements. At October 31, 1997, the outstanding balance under the Alliance Credit Agreement was $20.567 million of which $0.325 million in included as the current portion on the balance sheet. The outstanding loan balance has increased $2.472 million since the Company's April 30, 1997 year-end as a result of the following items which have been added to the outstanding loan balance: $0.116 million of loan interest; $0.732 million related to unpaid product hedge payments as of April 30, 1997 (the hedge liability was provided for in the April 30, 1997 financial statements and has subsequently been reclassified to the bank debt). Other additions to the outstanding loan balance covered drawdowns in respect of the cost of the buyout of the commodity price hedges (noted above) of $1.128 million on May 15, 1997, merger-related legal costs of the Bank's attorneys of $0.110 million, and the $0.386 million cost of new commodity price hedges purchased on October 23, 1997 for the twelve months ended October 31, 1998. In connection with the Merger and the Alliance Credit Agreement, the Company, effective May 1, 1997 acquired an overriding royalty interest in all of LaTex's existing producing oil and gas properties, other than those located in the State of Oklahoma, the Perkins Field in Louisiana, and certain other minor value properties located in other states, from an affiliate of the Bank in exchange for 1,343,750 New Alliance Shares, convertible loan notes and warrants. Seasonality. The results of operations of the Company are somewhat ----------- seasonal due to fluctuations in the price for crude oil and natural gas. Recently, crude oil prices have been generally higher in the third calendar quarter, and natural gas prices have been generally higher in the first calendar quarter. Due to these seasonal fluctuations, results 17 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS of operations for individual quarterly periods may not be indicative of results which may be realized on an annual basis. Inflation and Prices. In recent years, inflation has not had a significant -------------------- impact on the operations or financial condition of the Company. The generally downward pressure on oil and gas prices during most of such periods has been accompanied by a corresponding downward pressure on costs incurred to acquire, develop, and operate oil and gas properties as well as the costs of drilling and completing wells on properties. Prices obtained for oil and gas production depend upon numerous factors that are beyond the control of the Company including the extent of domestic and foreign production, imports of foreign oil, market demand, domestic and world- wide economic and political conditions, and government regulations and tax laws. Prices for oil and gas have fluctuated significantly from 1995 through 1997. The following table sets forth the average price received by the Company for each of the last three years and the effects of the various hedging arrangement noted above.
Six Months Ended Oil Oil Gas Gas October 31 (excluding the (including the (excluding the (including the - ---------------- effects of hedging effects of hedging effects of hedging effects of hedging transactions) transactions) transactions) transactions) - ----------------------------------------------------------------------------------------------------- 1997 $16.63 $16.63 $2.38 $2.38 1996 $20.26 $18.03 $2.26 $1.85 1995 $12.34 $12.30 $1.50 $1.66
On October 23, 1997, the Company entered into new commodity price hedge agreements to protect against price declines which may be associated with the volatility in oil and natural gas spot prices. Unlike the previous hedging agreements entered into by LaTex, the new commodity price hedge agreements, while protecting the downside, also provide the Company with exposure to price increases beyond certain agreed price levels. The commodity price hedges have been achieved through the purchase of put options (floors) by the Company, and the associated premia cost was funded by additional drawdowns under the Alliance Credit Agreement. The commodity price hedges cover the year to October 31, 1998 and cover in excess of 90% of Alliance's current monthly sales volumes. The floors currently equate to approximately $18.50/bbl Nymex WTI contract and $2.20/mmbtu Nymex Natural Gas contract. PART II OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings ----------------- 18 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Contingencies - ------------- In addition to the litigation set forth in the Company's Registration Statement on Form F-4, the Company is a named defendant in lawsuits, is a party in governmental proceedings, and is subject to claims of third parties from time to time arising in the ordinary course of business. While the outcome to lawsuits or other proceedings and claims against the Company cannot be predicted with certainty, management does not expect these additional matters to have a material adverse effect on the financial position of the Company. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits SEC Exhibit No. Description of Exhibits ------- ----------------------- (27) Financial Data Schedule ----------------------- *27.1 Financial Data Schedule of Alliance Resources PLC *Filed Herewith. 19 ALLIANCE RESOURCES PLC NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 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. Alliance Resources PLC /s/ H.B.K. Williams ------------------- H.B.K Williams, Finance Director Date: July 2, 1998 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS APR-30-1998 APR-30-1997 AUG-01-1997 AUG-01-1996 OCT-31-1997 OCT-31-1996 2,376,080 72,948 0 0 2,651,767 2,119,406 0 0 0 0 5,307,956 2,246,530 47,897,521 36,962,822 (17,251,691) (10,254,970) 37,903,335 30,857,487 10,793,035 11,866,608 0 0 0 0 0 2,871,114 20,077,486 11,681,150 (15,469,856) (13,978,300) 37,903,335 30,857,487 3,248,700 2,377,701 3,248,700 2,467,928 1,491,276 1,215,659 4,038,472 4,038,472 (94,326) (32,934) 0 0 609,127 732,151 (1,304,573) (2,058,619) 0 0 (1,304,573) (2,058,619) 0 0 0 0 0 0 (1,304,573) (2,224,869) (0.04) (0.12) (0.04) (0.12)
-----END PRIVACY-ENHANCED MESSAGE-----