-----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, AioX8mCb4vdFotFej+7SV0kiU01sOjQg2TpSShINoIZ+G6TSD1Ife+g9EIP9L9oi h0/SawxhIaDZgzbdO4Y6OQ== 0000930661-98-002135.txt : 19981016 0000930661-98-002135.hdr.sgml : 19981016 ACCESSION NUMBER: 0000930661-98-002135 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19981015 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: 000-24691 FILM NUMBER: 98726228 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-A AMENDMENT NO. 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q AMENDMENT NO. 2 (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE XX SECURITIES EXCHANGE OF 1934 ---- For the quarterly period ended July 31, 1998 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) Registrant's telephone number, including area code (918) 491-1100 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 X No ----- ----- As of October 14, 1998, there were 31,209,408 shares of the Registrant's single class of common stock issued and outstanding. ALLIANCE RESOURCES PLC AND SUBSIDIARIES INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Page Consolidated Condensed Balance Sheets as of July 31, 1998 and April 30, 1998 2 Consolidated Condensed Statements of Operations for the three months ended July 31, 1998 and 1997 4 Consolidated Condensed Statement of Stockholders' Equity for the three months ended July 31, 1998 5 Consolidated Condensed Statements of Cash Flows for the three months ended January 31, 1998 and 1997 6 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 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 16 SIGNATURES 17
1 ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS JULY 31, 1998 APRIL 30, 1998 (UNAUDITED) (AUDITED) =============== ================ ASSETS Current assets: Cash $ 262,048 $ 408,439 Accounts receivable - trade 1,784,593 2,132,654 Other current assets 11,940 73,977 --------------- ---------------- Total current assets 2,058,581 2,615,070 --------------- ---------------- Property, plant, and equipment, at cost: Oil and gas properties (using full cost method) 42,858,264 43,200,388 Other depreciable assets 1,039,636 1,029,118 --------------- ---------------- 43,897,900 44,229,506 Less accumulated depreciation and depletion (14,930,756) (14,421,400) --------------- ---------------- Net property, plant and equipment 28,967,144 29,808,106 --------------- ---------------- Other assets: Other assets 144,989 144,989 Deferred acquisition costs 3,062,916 970,305 Deferred loan costs, less accumulated amortization 966,326 1,221,650 --------------- ---------------- Total other assets 4,174,231 2,336,944 --------------- ---------------- TOTAL ASSETS $ 35,199,956 $ 34,760,120 =============== ================
See accompanying notes to consolidated condensed financial statements. 2
ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED JULY 31, 1998 APRIL 30, 1998 (UNAUDITED) (AUDITED) --------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 8,926,597 $ 8,972,704 Accrued expenses payable 835,356 847,190 Current portion long-term debt 5,250,000 2,275,000 --------------- ---------------- Total current liabilities 15,011,953 12,094,894 Long-term Liabilities: Long-term debt 17,316,762 18,791,762 Other liabilities 3,568 139,626 Convertible subordinated unsecured loan notes 1,550,700 1,550,700 --------------- ---------------- Total liabilities 33,882,983 32,576,982 --------------- ---------------- Stockholders' equity: Common stock-par value 40 pence; 46,000,000 shares authorized representing: Common stock issued and outstanding; 31,209,408 at July 31, 1998 and April 30, 1998, respectively 20,114,634 20,114,634 Additional paid-in capital 5,911,050 5,911,050 --------------- ---------------- Accumulated deficit (24,708,711) (23,842,546) --------------- ---------------- Total stockholders' equity 1,316,973 2,183,138 --------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,189,956 $ 34,760,120 =============== ================
See accompanying notes to consolidated condensed financial statements. 3
ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS Three Three Months Ended Months Ended July 31, 1998 July 31, 1997 (Unaudited) (Unaudited) ------------------ ---------------- Revenue: Oil and gas revenue $ 1,917,966 $ 2,727,336 Total operating income 1,917,966 2,727,336 ------------------ ---------------- Operating expenses: Lease operating expense 969,355 1,173,644 Depreciation, depletion, and amortization 509,355 652,489 Loss on commodity derivatives - 268,571 General and administrative expense 750,262 1,265,849 ------------------ ---------------- Total operating expenses 2,228,972 3,360,553 Net operating loss (311,006) (633,217) Other income (expense): (Loss)\gain on sale of assets (9,184) 18,331 Interest expense (668,450) (682,073) Interest income 5,259 20,609 Miscellaneous income (expense) 132,394 325,153 ------------------ ---------------- Net loss from continuing operations before income taxes (850,987) (951,197) Income tax expense - - ------------------ ---------------- Net income (loss) (850,987) (951,197) Preferred stock dividends - - ------------------ ---------------- Net loss for common shareholders $ (850,987) $ (951,197) ================== ================ Loss per share for common shareholders $ (0.03) $ (0.03) ================== ================ Weighted average number of shares outstanding 31,209,408 31,052,603 ================== ================
See accompanying notes to consolidated condensed financial statements. 4 ALLIANCE RESOURCES PLC AND SUBSIDIARIES Consolidated Condensed Statements of Stockholders' Equity Three Months Ended July 31, 1998
Common Stock --------------------------- Additional Retained Earnings Total Number of Par Paid-In (Accumulated Stockholders' Shares Value Capital Deficit) Equity ============ ============= ============ =================== =============== Balance at April 30, 1998 31,209,408 $ 20,114,634 $ 5,911,050 $ (23,842,546) $ 2,183,138 Foreign exchange - - - (15,178) $ (15,178) Net loss current period - - - (850,987) $ (850,987) ----------- ------------ ----------- --------------- ------------- Balance July 31, 1998 31,209,408 $ 20,114,634 $ 5,911,050 $ (24,708,711) $ 1,316,973 =========== ============ =========== =============== =============
See accompanying notes to consolidated condensed financial statements. 5 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Three Three Months Ended Months Ended July 31, 1998 July 31, 1997 (Unaudited) (Unaudited) ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (850,987) $ (951,197) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 509,355 652,489 Amortization of deferred loan costs 255,324 140,847 (Loss)\gain on sale of assets 9,184 (18,331) Changes in assets and liabilities, net of effects from acquisition: Accounts receivable 348,061 544,454 Accounts payable (1,074,397) (1,631,751) Accrued expenses payable (11,834) 888 Other assets 62,037 168,205 Other liabilities (136,058) (1,578,180) ----------- ----------- Net cash (used in) provided by operating activities (889,315) (2,672,576) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (266,233) (638,835) Proceeds from sale of property and equipment 379,809 2,803,501 Effect of LaTex Acquisition - 192,819 Deferred acquisition costs (870,652) - ----------- ----------- NET CASH PROVIDED BY INVESTING ACTIVITIES (757,076) 2,357,485 ----------- -----------
See accompanying notes to consolidated condensed financial statements. 6 ALLIANCE RESOURCES PLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Three Three Months Ended Months Ended July 31, 1998 July 31, 1997 (Unaudited) (Unaudited) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Deferred loan and reorganization costs $ - $ (21,218) Proceeds from notes payable 1,500,000 1,969,660 ------------ ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,500,000 1,948,442 ------------ ----------- Net increase in cash and cash equivalents (146,391) 1,633,351 Cash and cash equivalents at beginning of period 408,439 72,948 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 262,048 1,706,299 ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest 400,554 221,239 Income taxes - - SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for services and bonus - 203,000 Issuance of convertible loan notes - 150,000 Ordinary shares due in settlement of advisory fees, - 150,000 as of July 31, 1997 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 three months ended July 31, 1998, are not necessarily indicative of the results that may be expected for the year ended April 30, 1999. B. SIGNIFICANT EVENTS On July 13, 1998, Alliance mailed a Proxy Statement to its U.S. shareholders notifying them of a proposed acquisition of Difco Limited ("Difco"), in exchange for at least 7,020,825 and as many as 28,083,300 ordinary shares of the Company, the acquisition by Difco of certain oil and gas interests in the East Irish Sea (the "U.K. Interests") from Burlington Resources (Irish Sea) Limited for a cash consideration of approximately $34.0 million (collectively, the "Acquisitions"). The Acquisitions were originally expected to be funded by the issuance of senior notes and related matters. Additional information relating to the Acquisitions can be obtained by reviewing the proxy statement mentioned earlier On July 30, 1998 the Company announced that the issue of $100 million of Senior Subordinated Notes due in 2008 (the "Notes") as part of the financing arrangements for the acquisition of the East Irish Sea Interests and related acquisition of Difco Limited had not been raised on acceptable terms and the Company was in discussions with Difco Limited in connection with the Acquisitions and was considering alternative methods of financing. 8 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements As of October 13, 1998 the Company continues in its attempts to complete the Acquisition and has notified the shareholders of recent developments with a revised proxy statement mailed on October 7, 1998. 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 months ended July 31, 1998. 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.
Three Months Ended July 31 ----------------------------- 1997 1998 ---- ---- Net Sales Volumes: Oil (Mbbls) 102 66 Natural Gas (Mmcf) 454 430 Oil Equivalent (MBOE) 180 139 Average Sales Prices: Oil (per Bbl) $16.32(1) $18.22(2) Natural Gas (per Mcf) $ 2.21(1) $ 1.67(2) Operating Expenses per BOE of Net Sales: Lease operating $ 5.66 $ 6.41 Severance tax $ 0.87 $ 0.54 Depreciation, depletion, and amortization $ 3.62 $ 3.65 General and administrative $ 7.03 $ 5.38
(1) 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 July 31, 1997. 9 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements (2) After giving effect to the impact of the Company's commodity price hedging arrangements. Without any hedging arrangements, the average sales prices for the quarter ended July 31, 1998 would have been $12.35\bbl for oil and $1.67\mcf for gas. 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 significantly impact the Company's results of operations and cash flow and could significantly impact the Company's borrowing capacity. Three Months Ended July 31, 1998 compared to the Three Months Ended July 31, 1997 Total revenues from the Company's operations for the quarter ended July 31, 1998 were $1,917,966 compared to $2,727,336 for the quarter ended July 31, 1997. Revenues decreased significantly over the comparable period a year earlier due principally to lower oil sales volumes and realized gas prices, property disposals and the depletion of producing reserves. Sales volumes for the quarter ended July 31, 1998 were adversely affected by the Company's decision to curtail oil sales in the South Carlton field in Alabama due to low posted oil prices and property disposals completed in the last quarter of 1997 contributed to the reduction in gas volumes. Net sales volumes decreased 23% from the same period in 1997. According to the independent reservoir engineering appraisal, net sales volumes should have declined by approximately 10% due to natural depletion. The remainder of the volume decrease is attributable to mechanical downtime and voluntary curtailment due to the pricing environment. Production from the South Carlton field increased 14% over the comparable period, although sales declined 62% due to the low posted oil price environment. Gas production declines are in line with the reservoir engineering forecasts. However, due to the successful efforts in the Bacon and Balls Branch fields, gas sales actually increased while production remained constant. Total operating expenses decreased to $2,228,972 for the quarter ended July 31, 1998 compared to $3,360,553 for the same period in 1997. This decrease was primarily due to remedial workover costs and expenses associated with sold non- operated, non-strategic wells incurred in the 1997 period. Lease operating expenses were significantly lower at $969,355 for the three month period ending July 31, 1998 compared to $1,173,644 for the same period in 1997. The quarter ended July 31, 1997 was impacted by the remedial work program mentioned above and the sold non-operated, non-strategic wells. Depreciation, depletion and amortization decreased to $509,355 from $652,489 a year earlier primarily as a result of lower volumes. General and administrative expenses decreased from $1,265,849 during the quarter ended July 31, 1997 to $750,262 for the 10 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements quarter ended July 31, 1998. The decrease is a result of continuing efforts by management to reduce corporate overhead expenses although the 1997 period was adversely affected by some costs associated with the LaTex/Alliance merger. A net operating loss of $311,006 was realized for the quarter ended July 31, 1998 compared to a net operating loss of $633,217 for the same period in 1997 In summary, due to the above factors, the net loss for the common shareholders for the quarter ended July 31, 1998 decreased to $850,987 ($0.03 per share) compared to a net loss of $951,197 ($0.03 per share) for the same period in 1997. 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 July 31, 1998, Alliance has current assets of $2.059 million and current liabilities of $15.012 million, which resulted in a net current deficit of $12.953 million. Since April 30, 1998, the net current deficit has increased from $9.480 million to its current position of $12.953 million. The $3.473 million increase is primarily due to a transfer of a portion of the credit facility from long term debt to current liabilities. The accounts payable at July 31, 1998 were virtually unchanged at $8.927 million compared to $8.973 at April 30, 1998. For the quarter ended July 31, 1998, net cash used in the Company's operating activities was $.889 million compared to cash used of $2.673 million for the quarter ended July 31, 1997. This improvement is substantially due to the allocation of funds to improve the working capital deficit of the Company in the quarter ended July 31, 1998. Investing activities of the Company used $.757 million in net cash flow for the quarter ended July 31, 1998 compared to $2.357 million generated for the quarter ended July 31, 1997. The deterioration was principally due to property sales of $2.424 million less than the 1997 period and the increase in deferred acquisition costs of .871 million. Financing activities provided $1.500 million for the quarter ended July 31, 1998 compared to cash provided of $1.948 million for the quarter ended July 31, 1997. Overall, cash and cash equivalents decreased by $.146 million in the quarter ended July 31, 1998 compared to an increase of $1.633 million in the 1997 period. 11 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements 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. 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 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 of July 31, 1998, all advances to Alliance under the Alliance 12 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements Credit Agreement were maintained as LIBO Rate Loans that bore interest at the annual rate of 7.5%. At July 31, 1998, the outstanding balance under the Alliance Credit Agreement was $22.567 million. The outstanding loan balance has increased $1.500 million since April 30, 1998 as a result of advances by the Bank to pay Difco Acquisition-related costs. Financial Condition. Management had planned to consummate the acquisition of a 20 per cent interest in certain undeveloped oil and gas properties in the East Irish Sea and Liverpool Bay areas ("the East Irish Sea Interests") which would have involved a satisfactory refinancing of the Group's borrowings. On July 30, 1998 the Board announced that financing for that transaction had not been raised and that resolutions to approve the acquisition were not put to shareholders. Management's plans in the event that the acquisition and refinancing did not proceed, were to seek other transactions of a similar nature, restructure the existing credit facility or seek alternative forms of financing and to take such steps as were necessary to allow the Group to meet its obligations as they fell due. It was envisioned that such steps might have included the continued reduction of the Group's overheads, deferral of elements of the recompletion program and realization of oil and gas properties. Since July 30, 1998, management has reduced the Group's overheads through selective redundancies and has held discussions with Bank of America regarding the existing credit facility but has primarily been evolving alternative financing plans to allow the acquisition of part of the East Irish Sea Interests. Such a plan has been formulated and it is anticipated that proposals will be put to shareholders on or before October 31, 1998. This will also include a restructuring of the existing credit facility. Management believe that the satisfactory completion of this transaction will provide the Group with financing which will allow it to meet its obligations as they fall due. Management is mindful of the Group's financial condition should this transaction not be consummated. The existing credit facility with Bank of America requires monthly repayments of $325,000 to commence on October 31, 1998 with the balance remaining outstanding on March 31, 2000 being repayable in full on that date. The Group's operating cash flow will not be sufficient to meet its obligations under the existing credit facility and given the passage of time and the concentration of management's efforts on achieving the acquisition outlined above, it may not be possible to take the necessary steps, which might include property dispositions, to allow the Group to meet its obligations in a timely manner. However, the pursuit by management of an alternative structure to acquire the East Irish Sea Interests has been undertaken with the full support of Bank of America, including the deferral of any property disposals pending final resolution of the acquisition of part of the East Irish Sea Interests. Bank of America has indicated to management that, 13 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements in the event that the proposed transaction is not consummated, it will work with the Group to achieve a mutually satisfactory refinancing. There is, however, no guarantee that a successful refinancing will be achieved in a timely manner if at all. The Directors believe that there is reasonable assurance that the Group will remain a going concern even if the proposed transaction is not consummated. 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 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 1998. 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. 14 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements
Three Months Oil Oil Gas Gas Ended July 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) - -------------------------------------------------------------------------------------------------- 1998 $12.35 $18.22 $1.67 $1.67 1997 $16.32 $16.32 $2.21 $2.21 1996 $22.04 $20.90 $2.60 $2.17
On October 23, 1997, the Company entered into new commodity price hedge agreements to protect against price declines which may be associated with the volatile environment of oil and natural gas spot pricing. Unlike the previous hedging agreements entered into by LaTex, the new commodity price hedge agreements, while protecting against oil and natural gas price declines, also provide the Company with exposure to price increases beyond certain agreed price levels. The commodity price hedges were executed through the purchase of put options by the Company, and the associated cost was funded by additional drawdowns under the Alliance Credit Agreement. 15 Alliance Resources PLC Notes to Consolidated Condensed Financial Statements PART II OTHER INFORMATION Item 1. Legal Proceedings Contingencies In addition to the litigation set forth in the Company's Annual Report on Form 10-K for the year ended April 30, 1998, 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. (b) Reports on Form 8-K None 16 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: October 15, 1998 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS APR-30-1999 APR-30-1998 MAY-01-1998 MAY-01-1997 JUL-31-1998 JUL-31-1997 262,048 1,706,299 0 0 1,784,593 2,081,075 0 0 0 0 2,058,581 3,935,554 43,897,900 49,337,337 (14,930,756) (16,483,552) 35,199,956 39,477,504 15,011,953 11,362,472 0 0 0 0 0 0 20,114,634 20,013,082 (18,797,611) (14,261,832) 35,199,956 39,477,504 1,917,966 2,727,336 1,917,966 2,727,336 969,355 1,173,644 2,228,972 3,360,553 (128,469) (364,093) 0 0 668,450 682,073 (850,987) (951,197) 0 0 (850,987) (951,197) 0 0 0 0 0 0 (850,987) (951,197) (0.03) (0.03) (0.03) (0.03)
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