-----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, A9NfdXTD7EtyDNBGHVG/vyC9dUkTeK/gH5ZZbr1MIpDyWcvfV5+1tqbgmAN9trhe HkaF9q5Za46gKeadsNBo5Q== 0000950134-96-006106.txt : 19961118 0000950134-96-006106.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950134-96-006106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DLB OIL & GAS INC CENTRAL INDEX KEY: 0000945982 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731358299 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26484 FILM NUMBER: 96662604 BUSINESS ADDRESS: STREET 1: 1601 NORTHWEST EXPRESSWAY STREET 2: STE 700 CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 BUSINESS PHONE: 4058488808 MAIL ADDRESS: STREET 1: 100 N BROADWAY STREET 2: 20TH FLOOR CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No 0-26484 DLB OIL & GAS, INC. (Exact name of registrant as specified in its charter) OKLAHOMA 73-1358299 (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 1601 NORTHWEST EXPRESSWAY, SUITE 700 OKLAHOMA CITY, OKLAHOMA 73118-1401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (405) 848-8808 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 report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of Registrant's common stock, $.001 par value, as of October 30, 1996 was 12,975,000. 2 DLB OIL & GAS, INC. TABLE OF CONTENTS FORM 10-Q QUARTERLY REPORT PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheets September 30, 1996 (Unaudited) and December 31, 1995 3 Consolidated Statements of Operations (Unaudited) For the Three Months Ended September 30, 1996 and 1995 and Nine Months Ended September 30, 1996 and 1995 4 Statements of Consolidated Shareholders' Equity As of September 30, 1996 (Unaudited) and December 31, 1995 5 Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 1996 and September 30, 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 23
2 3 PART I. FINANCIAL INFORMATION Item 1. DLB OIL & GAS, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 4,756,000 $ 14,313,000 Marketable securities (Note 4) 6,584,000 - Accounts receivable 7,410,000 4,850,000 Prepaid expenses 265,000 324,000 ------------- ------------- Total current assets 19,015,000 19,487,000 ------------- ------------- Property and equipment - at cost, based on the full cost method of accounting for oil and natural gas properties (Note 5): Oil and natural gas properties subject to amortization 108,369,000 62,275,000 Oil and natural gas properties not subject to amortization 9,058,000 10,037,000 Natural gas processing plants and gathering systems 1,213,000 3,094,000 Saltwater disposal system 1,119,000 1,119,000 Other property and equipment 1,176,000 948,000 ------------- ------------- 120,935,000 77,473,000 Accumulated depreciation, depletion and amortization (24,791,000) (18,812,000) ------------- ------------- 96,144,000 58,661,000 ------------- ------------- Other assets 44,000 59,000 ------------- ------------- Total assets $ 115,203,000 $ 78,207,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 5,476,000 $ 3,853,000 Revenue and royalty distributions payable 792,000 1,527,000 Drilling advances and other liabilities 406,000 190,000 Accrued liabilities 413,000 193,000 ------------- ------------- Total current liabilities 7,087,000 5,763,000 ------------- ------------- Long-term debt 32,000,000 - Deferred income tax liability (Note 6) 14,354,000 12,900,000 Shareholders' equity (Note 7): Preferred stock, 5,000,000 shares authorized; no shares issued and outstanding Common stock, 130,000,000 shares authorized; 13,000,000 shares issued; 12,975,000 and 13,000,000 outstanding at September 30, 1996 and December 31, 1995, respectively 13,000 13,000 Additional paid in capital 57,910,000 57,910,000 Retained earnings 4,020,000 1,621,000 Treasury stock (25,000 shares at September 30, 1996, at cost) (181,000) - ------------- ------------- Total shareholders' equity 61,762,000 59,544,000 ------------- ------------- Total liabilities and shareholders' equity $ 115,203,000 $ 78,207,000 ============= =============
See accompanying notes to consolidated financial statements 3 4 DLB OIL & GAS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Revenues: Oil and natural gas sales $ 7,734,000 $ 4,417,000 $ 17,730,000 $ 13,602,000 Natural gas gathering, processing and transportation, net 196,000 834,000 586,000 2,424,000 Interest 49,000 181,000 312,000 231,000 Other 10,000 43,000 39,000 414,000 ------------ ------------ ------------ ------------ 7,989,000 5,475,000 18,667,000 16,671,000 Expenses: Lease operating 2,324,000 1,143,000 5,125,000 3,587,000 Depreciation, depletion, and amortization 2,870,000 1,835,000 6,695,000 5,255,000 General and administrative 520,000 376,000 1,985,000 1,023,000 Interest 550,000 84,000 801,000 485,000 Loss on sale of assets (Note 8) - - 208,000 - ------------ ------------ ------------ ------------ 6,264,000 3,438,000 14,814,000 10,350,000 ------------ ------------ ------------ ------------ Income before income taxes 1,725,000 2,037,000 3,853,000 6,321,000 Deferred income taxes (Note 6) 651,000 12,110,000 1,454,000 12,110,000 ------------ ------------ ------------ ------------ Net income (loss) $ 1,074,000 $(10,073,000) $ 2,399,000 $ (5,789,000) ============ ============ ============ ============ Net income (loss) per common share $ 0.08 $ (0.84) $ 0.18 $ (0.54) ============ ============ ============ ============ Weighted average common shares outstanding 12,975,000 12,000,000 12,979,000 10,666,667 ============ ============ ============ ============
See accompanying notes to consolidated financial statements 4 5 DLB OIL & GAS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED NINE MONTHS ENDED ----------------- SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- (UNAUDITED) Common stock - shares outstanding: Balance, beginning of period 13,000,000 $ - Issuance of stock in connection with the Merger - 10,000,000 Sale of stock in connection with the public offering, net of costs - 3,000,000 --------------- --------------- Balance, end of period 13,000,000 13,000,000 =============== =============== Common stock - amount: Balance, beginning of period $ 13,000 $ - Issuance of stock in connection with the Merger - 10,000 Sale of stock in connection with the public offering, net of costs - 3,000 --------------- --------------- Balance, end of period $ 13,000 $ 13,000 =============== =============== Additional paid in capital: Balance, beginning of period $ 57,910,000 $ - Issuance of stock in connection with the Merger - 31,017,000 Sale of stock in connection with the public offering, net of costs - 26,893,000 --------------- --------------- Balance, end of period $ 57,910,000 $ 57,910,000 =============== =============== Retained earnings: Balance, beginning of period $ 1,621,000 $ - Post-public offering net income - 1,621,000 Net income 2,399,000 - --------------- --------------- Balance, end of period $ 4,020,000 $ 1,621,000 =============== =============== Treasury stock: Balance, beginning of period $ - $ - Repurchase of stock (Note 7) (181,000) - --------------- --------------- Balance, end of period $ (181,000) $ - =============== =============== Total: Balance, beginning of period $ 59,544,000 $ - Issuance of stock in connection with the Merger - 31,027,000 Sale of stock in connection with the public offering, net of costs - 26,896,000 Post-public offering net income - 1,621,000 Repurchase of stock (Note 7) (181,000) - Net income 2,399,000 - --------------- --------------- Balance, end of period $ 61,762,000 $ 59,544,000 =============== =============== Combined shareholders' equity: Balance, beginning of period $ - $ 39,012,000 Contributed capital - 4,000 Distributions to stockholders - (1,192,000) Pre-public offering net income (loss) - (6,797,000) Issuance of stock in connection with the Merger - (31,027,000) --------------- --------------- Balance, end of period $ - $ - =============== ===============
See accompanying notes to consolidated financial statements. 5 6 DLB OIL & GAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1996 1995 ------------- -------------- Cash flows from operating activities: Net income (loss) $ 2,399,000 $ (5,789,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 6,695,000 5,255,000 Deferred income taxes 1,454,000 12,110,000 Loss on sale of assets 208,000 - Increase in accounts receivable (2,560,000) (487,000) Increase (decrease) in prepaid expenses 59,000 (56,000) Increase (decrease) in accounts payable, distributions payable and accrued liabilities 1,108,000 (2,502,000) Increase in drilling advances and other liabilities 216,000 - ------------ ------------ Net cash provided by operating activities 9,579,000 8,531,000 ------------ ------------ Cash flows from investing activities: Expenditures for property and equipment (45,739,000) (10,846,000) Purchase of investments and other assets (6,596,000) - Proceeds from sales of assets 1,380,000 - ------------ ------------ Net cash used in investing activities (50,955,000) (10,846,000) ------------ ------------ Cash flows from financing activities: Proceeds of long-term debt 32,000,000 3,000,000 Payments of long-term debt - (11,231,000) Contributed capital - 4,000 Distributions to shareholders - (1,192,000) Proceeds from issuance of stock - 27,014,000 Purchase of treasury stock (181,000) - ------------ ------------ Net cash provided by financing activities 31,819,000 17,595,000 ------------ ------------ Net increase (decrease) in cash and cash equivalents: (9,557,000) 15,280,000 Cash and cash equivalents beginning of year 14,313,000 3,059,000 ------------ ------------ Cash and cash equivalents end of year $ 4,756,000 $ 18,339,000 ============ ============ Supplemental cash flow information: Cash payments for interest $ 643,000 $ 485,000 ============ ============
See accompanying notes to consolidated financial statements 6 7 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS DLB Oil & Gas, Inc. (DLB or the Company) engages primarily in the exploration for and development of crude oil and natural gas fields. The Company focuses its efforts and is an active explorer in Oklahoma and Kansas. The Company also engages to a lesser extent, in the gathering, processing, transportation and marketing of hydrocarbons and conducts secondary oil recovery activities. The accompanying consolidated financial statements covering periods prior to July 20, 1995, the date of the merger of Davidson Oil and Gas, Inc. (Davidson) into DLB, include each of their accounts and their proportionate share of a venture involved in the production of oil and natural gas and in the gathering, processing and transporting of natural gas. Due to the nature of a joint venture agreement between the Company and Davidson, the Company and Davidson were considered to be under common control prior to the merger. The accompanying consolidated financial statements covering periods on or after July 20, 1995, include the consolidated accounts of the Company and its wholly owned subsidiaries, and its proportionate share of a venture involved in the production of oil and natural gas and in the gathering, processing and transporting of natural gas. (See Note 8 to Consolidated Financial Statements). All intercompany transactions and balances have been eliminated in consolidation. (2) INITIAL PUBLIC OFFERING On July 25, 1995, the Company issued 3,000,000 shares of common stock through a public offering at $10 per share. Net proceeds to the Company from the offering, after selling and offering costs, were $26,896,000. The Company used $11,231,000 of these proceeds to retire then existing indebtedness under its revolving line of credit facilities. 7 8 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes included in DLB's 1995 annual report on Form 10-K. In the opinion of DLB's management, all adjustments (all of which are normal and recurring) have been made which are necessary to fairly state the consolidated financial position of the Company and its subsidiaries as of September 30, 1996, and the results of their operations and their cash flows for the three month and nine month periods ended September 30, 1996 and 1995. (4) MARKETABLE SECURITIES During the first nine months of 1996, the Company acquired senior unsecured notes with a face value of $19,519,000 in open market transactions for $6,584,000. The notes were issued by an oil and gas company that had previously filed for Chapter 11 reorganization. These notes are being carried at cost which approximates market value. (5) PROPERTY AND EQUIPMENT PROPERTIES ACQUIRED On May 31, 1996, the Company closed the purchase of certain Oklahoma oil and natural gas properties from Amerada Hess Corporation ("Amerada Hess") for approximately $33,300,000. The purchase price is subject to post-closing price adjustments for assets-related revenues and costs and is being accounted for under the purchase method of accounting. The Company funded the purchase through existing cash funds and borrowings of $30,000,000 from its existing credit facilities. 8 9 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) The acquired properties consist of 44 oil and natural gas fields, nine of which the Company will operate, and 1,196 gross (111.8 net) wells. Total estimated proved reserves as of January 1, 1996, net to the Company, are 7.2 Mmboe, which increases the company's total estimated proved reserves as of that date to 16.6 Mmboe. Proved reserves attributable to the acquired properties are divided approximately 43% oil and 57% natural gas. The following table for the nine months ended September 30, 1996, has been prepared under the assumption the purchase occurred on January 1, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 (PRO FORMA) ------------------ Revenues: Oil and natural gas sales $ 22,557,000 Natural gas gathering, processing and transportation, net 586,000 Interest 312,000 Other 39,000 --------------- 23,494,000 Expenses: Lease operating 6,843,000 Depreciation, depletion, and amortization 7,853,000 General and administrative 1,985,000 Interest 1,490,000 Loss on sale of assets 208,000 --------------- 18,379,000 --------------- Income before income taxes 5,115,000 Deferred income taxes (Note 6) 1,930,000 =============== Net income $ 3,185,000 =============== Net income per common share $ 0.25 =============== Weighted average common shares outstanding 12,979,000 ===============
See accompanying notes to consolidated financial statements 9 10 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) (6) INCOME TAXES Prior to the merger and initial public offering, the Company and Davidson filed separate income tax returns as Subchapter S corporations under the provisions of the Internal Revenue Code. The Company's S election terminated upon the merger and initial public offering. As a result of the Company's termination of the S election, the Company recognized a charge against operations in the amount of $11,500,000 for deferred income taxes during the third quarter of 1995. The charge represented the tax effect of the difference between the financial statement carrying values and the income tax basis of the Company's assets and liabilities on the date the S election was terminated. Tax strategies implemented by the shareholders prior to the merger are not reflective of the results that the Company would have achieved if the Company had been directly subject to income taxes. Subsequent to the offering, the results of operations reflect a deferred provision for income tax expense at a blended rate of approximately 37.7%. (7) SHAREHOLDERS' EQUITY Effective with the merger of the Company and Davidson, the capital structure of the Company consisted of 130,000,000 authorized common shares ($.001 par value) with 10,000,000 shares outstanding along with 5,000,000 authorized preferred shares with no preferred shares outstanding. The former shareholders of DLB and Davidson hold 10,000,000 shares of the Company's common stock. For financial reporting purposes, combined shareholder's equity at the date of the merger was converted into the Company's common stock and additional paid-in-capital. As detailed in Note 2, the Company issued 3,000,000 shares of common stock through a public offering at $10 per share. On February 7, 1996, the Company announced a common stock repurchase plan. Under the terms of the plan, up to $5,000,000 of common stock can be repurchased from time to time. On February 7, 1996, approximately 25,000 shares were repurchased for $181,000. Repurchased stock is held as treasury stock by the Company. The repurchase plan expired under its own terms on August 5, 1996. In connection with the public offering, the Company issued stock options covering 1,625,000 shares of common stock to its employees. Options for 1,300,000 shares vest and are exercisable at $10 per share in 20 equal quarterly installments which commenced with the quarter ended October 31, 1995. The remaining 325,000 options vest in five 10 11 DLB OIL & GAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) equal annual installments commencing January 1, 1996 and are exercisable at $10 per share. As of September 30, 1996, 325,000 options have vested and are exercisable. (8) SETTLEMENT OF CONTINGENCY In February 1996, the Company settled claims that had been submitted to arbitration against a joint venture partner alleging breach of contract and tortuous conduct. The claims arose under the terms of the Carmen Field Joint Venture Agreement dated May 26, 1993, between the Company and Magic Circle Acquisition Corporation ("Magic Circle"). The Company settled its claims by the agreement dated February 9, 1996. The settlement agreement provided for mutual releases of all claims arising out of the Carmen Field Joint Venture ("CFJV"), dissolution of the CFJV, assignment to the Company of its interest in the CFJV oil and natural gas properties, the payment of $3,349,000 to the Company, the transfer to the Company of its share of a small gathering system in Stephens County, Oklahoma, and the transfer to Magic Circle of gathering, processing and compression facilities in Alfalfa and Woodward Counties, Oklahoma. The Company recognized a net loss of $208,000, which included $212,000 of legal and accounting expenses, related to the transfer of the gathering, processing and compression facilities. (9) OTHER COMMITMENTS AND CONTINGENCIES An interest owner in the Amerada Hess properties filed a lawsuit against Amerada Hess and the Company for denying the interest owner's election of preferential purchase rights on certain leases included in the Amerada Hess properties. The interest owner is seeking performance of its election of the preferential purchase rights from the Company. Amerada Hess and the Company have asserted that the interest owner's election to exercise its preferential rights was not valid. If DLB is unsuccessful in defending its position on the claim asserted by the interest owner, DLB would receive an additional $1,765,000 from the interest owner for the leases. The Company would also be required to reimburse the interest owner for revenues received on the respective leases, net of production costs. The Company does not anticipate that this legal action would significantly impact its financial position, liquidity, or results of operations. At the present time, as the Company deems these claims invalid, the Company has recognized the results of the oil and natural gas properties in the accompanying financial statements. 11 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion is intended to assist in an understanding of the Company's financial position as of September 30, 1996, and its results of operations for the three month and nine month periods ended September 30, 1996 and September 30, 1995. The Consolidated Financial Statements and Notes included in this report contain additional information and should be referred to in conjunction with this discussion. It is presumed that the readers have read or have access to DLB's 1995 annual report on Form 10-K. The information in this report includes forward-looking statements, which are based on assumptions that in the future may prove to be inaccurate. The statements may relate to anticipated financial performance or expenditures, drilling or production activities, oil and gas reserve recoveries or similar future matters. The statements, and the Company's business and prospects, are subject to a number of risks including the volatility of oil and gas prices, environmental risks, operation hazards and risks, risks related to exploration and development drilling, uncertainties about estimates of reserves, competition, government regulation, and the ability of the Company to implement its business strategy. Further explanation of these risks is set forth under the heading "Risk Factors" in the Company's prospectus dated July 25, 1995, which section is incorporated within this report. 12 13 RESULTS OF OPERATIONS The following table sets forth certain financial and production information of the Company.
FINANCIAL DATA (in thousands) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Revenues Oil $ 3,827 $ 2,987 $ 9,676 $ 9,626 Natural gas 3,907 1,430 8,054 3,976 -------- -------- -------- -------- 7,734 4,417 17,730 13,602 Natural gas gathering, processing & trans 196 834 586 2,424 Interest & other income 59 224 351 645 -------- -------- -------- -------- 7,989 5,475 18,667 16,671 -------- -------- -------- -------- Expenses Lease operating (1) 2,324 1,143 5,125 3,587 General & administrative 520 376 1,985 1,023 Loss on sale of assets - - 208 - -------- -------- -------- -------- 2,844 1,519 7,318 4,610 EBITDA (2) 5,145 3,956 11,349 12,061 Depreciation, depletion & amortization 2,870 1,835 6,695 5,255 Earnings before interest and taxes 2,275 2,121 4,654 6,806 Interest expense 550 84 801 485 -------- -------- -------- -------- Earnings before taxes 1,725 2,037 3,853 6,321 Income taxes - deferred 651 12,110 1,454 12,110 -------- -------- -------- -------- Net income (loss) $ 1,074 $(10,073) $ 2,399 $ (5,789) ======== ======== ======== ======== PER SHARE DATA Net income (loss) $ 0.08 $ (0.84) $ 0.18 $ (0.54) ======== ======== ======== ======== Average shares outstanding (in thousands) 12,975 12,000 12,979 10,667 ======== ======== ======== ======== PRODUCTION DATA (in thousands except prices) Oil (Mbbl) 183 181 479 553 Natural gas (Mmcf) 1,663 847 3,606 2,244 Barrel oil equivalent (MBOE) 460 322 1,080 927 Oil ($/Bbl) $ 20.88 $ 16.50 $ 20.20 $ 17.41 Gas ($/Mcf) 2.35 1.69 2.23 1.77 $/BOE 16.79 13.72 16.42 14.67 EXPENSE DATA ($/BOE) Lease operating $ 5.05 $ 3.55 $ 4.74 $ 3.87 Depreciation, depletion and amortization (3) 5.91 5.18 5.80 5.19 General and administrative 1.13 1.17 1.84 1.10
- --------- (1) The components of lease operating expense may vary substantially among wells depending on the methods of recovery employed and other factors, but generally include production taxes, administrative overhead, maintenance and repairs, labor and utilities. (2) EBITDA is defined as earnings before interest, taxes, depreciation, depletion and amortization. (3) The depreciation, depletion and amortization ("DD&A") reflected on a BOE basis excludes DD&A associated with gas plant, salt water disposal system, and other non-oil and gas property and equipment. 13 14 THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1995 Revenues. Total revenues for the three months ended September 30, 1996 were $8.0 million, an increase of $2.5 million from the comparable period in 1995. The $3.3 million increase in oil and gas sales revenue was slightly offset by the $0.6 million decrease in revenue related to the dissolution of the CFJV. (See Note 8 to the Consolidated Financial Statements.) The dissolution resulted in the sale of certain gas gathering and compression assets, which reduced gas gathering, processing and transportation revenues to $0.2 million for the three months ended September 30, 1996 from $0.8 million for the three months ended September 30, 1995. The increase in oil and gas sales revenues for the three months ended September 30, 1996, of $3.3 million was primarily due to the acquisition of the Amerada Hess properties. Production of oil and gas was 183 Mbbl and 1,663 Mmcf, respectively, in the three months ended September 30, 1996, as compared to 181 Mbbl and 847 Mmcf, respectively, in the same period of 1995. On a BOE basis, production increased 43%. The average price received for oil increased to $20.88 per barrel for the three months ended September 30, 1996 from $16.50 in the three months ended September 30, 1995. The average price received for natural gas increased to $2.35 per Mcf in the three months ended September 30, 1996 from $1.69 per Mcf for the same period in 1995. Management anticipates continuing increases in revenue as a result of the Amerada Hess acquisition. Lease operating expense. Lease operating expenses increased to $2.3 million for the three months ended September 30, 1996 from $1.1 million for the comparable period in 1995 primarily due to an increase in lease operating expenses from the operation of the Amerada Hess properties. On a BOE basis, lease operating expense was $5.05 per BOE for the three months ended September 30, 1996 as compared to $3.55 per BOE in the same period in 1995. In the longer term, management anticipates lower lease operating expense per BOE through the implementation of more efficient operations and additional exploitation of the properties. Depreciation, depletion and amortization expense. Depreciation, depletion and amortization (DD&A) expense was $2.9 million and $1.8 million for the three months ended September 30, 1996 and 1995, respectively. The DD&A rate related to oil and gas properties was $5.91 and $5.18 per BOE for the three months ended September 30, 1996 and 1995, respectively. The increase in DD&A per BOE resulted primarily from an increased level of capital expenditures for property acquisitions as well as for exploration, development, waterfloods, gas plant and gathering facilities and other property and equipment in the three months ended September 30, 1996 as compared to 1995. General and administrative expense. General and administrative expense increased to $0.5 million for the three months ended September 30, 1996, from $0.4 million in the comparable period in 1995. This increase was primarily attributable to staffing increases and additional corporate expenses to handle higher levels of activity following the July 1995 initial public offering and $33.3 million acquisition of properties from Amerada Hess on May 31, 1996. 14 15 Interest expense. Interest expense increased to $0.6 million for the three months ended September 30, 1996 as compared to $0.1 million in the same period of 1995 as a result of an increase in the average debt balance outstanding. The average debt balance outstanding increased to $30.6 million for the three months ended September 30, 1996 from $3.8 million in the same period of 1995, due to the acquisition of the Amerada Hess properties. Income Taxes. Deferred income tax expense for the three months ended September 30, 1995 included a $11.5 million charge for a required change in tax status from a S Corporation (which is not taxed directly) to a C Corporation (which is taxed directly). (See Note 6 to the Consolidated Financial Statements.) Net income (loss). On a recurring basis, net income decreased 15% to $1.1 million for the three months ended September 30, 1996 from $1.3 million for the three months ended September 30, 1995 primarily as a result of a decrease in gas gathering, processing and transportation revenues due to the dissolution of the CFJV. The Company recognized a nonrecurring charge of $11.5 million for deferred income tax expense in the three months ended September 30, 1995. As a result of the nonrecurring item, net income increased to $1.1 million for the three month period ended September 30, 1996 from a loss of $10.1 million in the comparable period of 1995. 15 16 NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenues. Total revenues for the nine months ended September 30, 1996 were $18.7 million, an increase of $2.0 million from the comparable period in 1995. Production of oil and gas was 479 MBbl and 3,606 MMcf, respectively, for the nine months ended September 30, 1996, as compared to 553 MBbl and 2,244 MMcf, respectively, for the same period of 1995. The increase in oil and gas revenues was due to the acquisition of the Amerada Hess properties and an increase in product prices. Gas volumes increased to 3,606 MMcf for the first nine months of 1996 from 2,244 Mmcf for the comparable period in 1995. Increases in gas production offset decreases in oil production on a BOE basis. The average price received for oil increased to $20.20 per barrel in the first nine months of 1996 from $17.41 per barrel in the comparable period in 1995. The average price received for natural gas was $2.23 per Mcf for the nine months ended September 30, 1996 as compared to $1.77 per Mcf for the same period during 1995. A $1.8 million decrease in revenues from gathering, dehydration and compression fees, was primarily due to the dissolution of the CFJV. (See Note 8 to the Consolidated Financial Statements.) Management anticipates continuing increases in revenues as a result of the Amerada Hess acquisition. Lease operating expense. Lease operating expenses increased to $5.1 million for the nine months ended September 30, 1996, from $3.6 million in the comparable period of 1995 primarily due to an increase in lease operating expenses from the operation of the Amerada Hess properties. On a BOE basis, lease operating expense was $4.74 per BOE for the nine months ended September 30, 1996 compared to $3.87 per BOE in the comparable period of 1995. In the longer term, management anticipates lower lease operating expenses per BOE through the implementation of more efficient operations and additional exploitation of the properties. Depreciation, depletion and amortization expense. DD&A expense for the first nine months of 1996 totaled $6.7 million compared with $5.3 million for the same period in 1995. The DD&A rate increased to $5.80 per BOE for the nine months ended September 30, 1996, from $5.19 per BOE for the comparable period of 1995. The increase in DD&A per BOE resulted primarily from an increased level of capital expenditures for property acquisitions as well as for exploration, development, waterfloods, gas gathering facilities and other property and equipment in the nine months ended September 30, 1996 as compared to 1995. General and administrative expense. General and administrative expense increased to $2.0 million for the nine months ended September 30, 1996, from $1.0 million for the comparable period in 1995. This increase was primarily attributable to staffing increases and additional corporate expenses to handle higher levels of activity following the July 1995 initial public offering and $33.3 million acquisition of properties from Amerada Hess on May 31, 1996. 16 17 Interest expense. Interest expense increased to $0.8 million for the nine months ended September 30, 1996 as compared to $0.5 million for the same period of 1995 as a result of an increase in the average debt which was partially offset by a decrease in the average annualized interest rate. The average debt balance outstanding increased to $14.5 million for the nine months ended September 30, 1996 from $7.6 million in the same period of 1995, due to the acquisition of the Amerada Hess properties. The average annualized interest rate on debt outstanding was 7.4% for the nine months ending September 30, 1996 as compared to 8.6% for the same period in 1995. Income Taxes. Deferred income tax expense for the nine months ended September 30, 1995 included a $11.5 million charge for a required change in tax status from a S Corporation (which is not taxed directly) to a C Corporation (which is taxed directly). (See Note 6 to the Consolidated Financial Statements.) Net income (loss). On a recurring basis, net income decreased 34% to $2.5 million for the nine months ended September 30, 1996 from $3.8 million for the nine months ended September 30, 1995 primarily from a $1.8 million decrease in natural gas gathering, processing and transportation revenues. The Company incurred a nonrecurring charge of $11.5 million for deferred income tax expense in the nine months ended September 30, 1995. As a result of this item, net income increased to $2.4 million for the nine month period ended September 30, 1996 from a loss of $5.8 million in the comparable period of 1995. 17 18 CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY The following table presents comparative cash flows of the Company for the nine months ended September 30, 1996 and September 30, 1995.
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 1996 1995 ------------ ------------ (IN THOUSANDS) Net cash provided by operating activities $ 9,579 $ 8,531 Net cash used in investing activities (50,955) (10,846) Net cash provided by financing activities 31,819 17,595
Net cash provided from operating activities increased to $9.6 million for the nine months ended September 30, 1996 from $8.5 million from the same period of 1995. This increase of $1.1 million relates primarily to changes in components of working capital (accounts receivable and accounts payable increases associated with increased operations). Net cash used in investing activities was $51.0 million for the first nine months of 1996, as compared to $10.8 million in the first nine months of 1995. The increase of $40.2 million is primarily attributable to the $31.9 million Amerada Hess properties acquisition. (See Notes 4 and 5 to the Consolidated Financial Statements.) Net cash provided by financing activities was $31.8 million for the first nine months of 1996 as compared to $17.6 million in 1995. The increase of $14.2 million is due to the $30.0 million of long term borrowing related to the funding of the Amerada Hess properties acquisition. As of September 30, 1996, the Company had cash balances of $4.8 million and working capital of $11.9 million. The decrease in working capital of $7.2 million as of September 30, 1996 from $19.1 million as of December 31, 1995, is a result of capital expenditures made during the first nine months of 1996, as the Company has utilized the proceeds from the July, 1995 equity offering. Capital expenditures. The following table sets forth the Company's expenditures for exploration, development, waterfloods and property acquisition, gas plant and gathering facilities and other property and equipment for the nine months ended September 30, 1996 and 1995.
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1996 1995 ------------- ------------- (IN THOUSANDS) Exploration costs $ 7,727 $ 4,061 Development costs 3,437 5,240 Waterflood costs 819 627 Property acquisition costs 33,133 13 Gas plant and gathering facilities 396 745 Other property and equipment 227 160 ---------- ---------- $ 45,739 $ 10,846 ========== ==========
18 19 The Company finances its capital expenditures with cash flows provided by operations and borrowings under the credit facility. The Company expects to spend a total of $60.0 million on capital expenditures in 1996. Of this amount, $45.7 million had been expended as of September 30, 1996, which includes $1.0 million related to the Osage Tribe of Indians Exploration and Development Agreement, $31.9 million related to the Amerada Hess properties acquisition, and $12.8 million related to seismic surveys and other drilling activity. In addition, the Company has expended $6.6 million for senior unsecured notes issued by an unrelated oil and gas company. (See Note 4 to Consolidated Financial Statements.) The remaining budget of $7.7 million will be used for 2-D and 3-D seismic surveys, drilling activity and the acquisition of other mineral interests and leasehold properties. The aggregate level of capital expenditures in 1996 and the allocation thereof is highly dependent upon the Company's success rate on exploration drilling and prevailing conditions in the oil and gas industry. Accordingly, the actual level of capital expenditures may vary materially from the above estimates. DLB acquired the Amerada Hess properties on May 31, 1996, for $31.9 million, which represents the largest capital expenditure in 1996. The Company's operational plan to maximize these asset values commenced in August of 1996. Therefore, only a few months of activity related to this acquisition are reflected in results of operations for the nine months ended September 30, 1996. Management's plan should result in increased operational activity and cash flow. The Company also invested $6.6 million for senior unsecured notes that do not currently generate cash flow. Management believes the cash flow effect of this expenditure will begin to be reflected in 1997. Capital resources. From DLB's commencement of operations in 1991 until mid-1995, the Company's cash requirements were met primarily through capital contributions from shareholders, cash generated from operations and borrowings under its credit facilities. By mid-1995, these sources were inadequate to fund the Company's desired level of activities, and the Company undertook an initial public offering of its common stock, which was closed in July 1995. Net proceeds from the offering were $26.9 million. Since its initial public offering and prior to the Amerada Hess acquisition, the Company used offering proceeds along with cash flows from operations to fund its cash requirements. In anticipation of the acquisition of properties from Amerada Hess, the Company increased the borrowing base under its credit facility to $30.0 million from a borrowing base of $20.0 million and used the increased base to partially fund the acquisition. (See Note 5 to Consolidated Financial Statements.) In addition, the proved oil and gas reserves added by this acquisition increased the Company's borrowing base under its credit facility to provide another $20.0 million of borrowing capacity for a total of $50.0 million of borrowing capacity. The Company expects that internal cash sources and borrowing capacity to be sufficient to meet its capital expenditure plans. Ultimately, capital needs will depend substantially on the Company's success in employing working capital in exploration and development activities and the level of future activities as well as factors affecting the oil and gas industry generally. 19 20 Liquidity. The ability of the Company to satisfy its obligations will depend upon its future performance, which will be subject to prevailing economic conditions and to financial and business conditions and other factors, many of which are beyond its control, supplemented, if necessary, with existing cash balances and borrowings under the credit facilities. The Company believes its capital resources are adequate to fund the capital expenditure programs. 20 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the disclosure in Note 9 to the Notes to Consolidated Financial Statements regarding the Samson Resources Company, et al. v. Amerada Hess Corporation and DLB Oil & Gas, Inc. (Case No. CJ-96-38, D.Ct. Ellis Cnty, Okla.) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by item 601 of Regulation S-K are as follows: 2.0 Agreement for Purchase and Sale dated April 16, 1996, between Amerada Hess Corporation and DLB Oil & Gas, Inc. (the "Agreement for Purchase and Sale"). (3) 2.1 Letter agreement amending Agreement for Purchase and Sale dated May 7, 1996. 2.2 Letter agreement amending Agreement for Purchase and Sale dated May 31, 1996. 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Amended and Restated Bylaws (1) 10.1 Lease of office space, Oklahoma City, Oklahoma (1) 10.2 Credit Agreement dated December 28, 1995, between Registrant and First Union National Bank of North Carolina (2) 10.3 Stock Option Agreement by and between Registrant and Mike Liddell (1) 10.4 Stock Option Agreement by and between Registrant and Mark Liddell (1) 10.5 Employment Agreement by and between Registrant and Mike Liddell (1) 10.6 Employment Agreement by and between Registrant and Mark Liddell (1) 10.7 DLB Oil & Gas Stock Option Plan (1) 10.8 DLB Oil & Gas Omnibus Equity Compensation Plan (1) 10.9 Shareholder's Agreement by and among Charles E. Davidson, Mike Liddell and Mark Liddell dated May 25, 1995 (1) 10.10 Agreement for Dissolution of Joint Venture dated February 9, 1996, between DLB Oil & Gas, Inc., Magic Circle Acquisition Corporation and Magic Circle Energy Corporation, Carmen Field Limited Partnership, and Carmen Field Joint Venture (2) 10.11 First Amendment to the Credit Agreement dated September 30, 1996, between Registrant and First Union National Bank of North Carolina 27 Financial Data Schedule ----------------- (1) Previously filed as an exhibit to Registration No. 33-92786 on Form S-1 and incorporated herein by reference. (2) Previously filed as an exhibit to Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. 21 22 (3) Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying the contents of its exhibits and schedules, and registrant agrees to furnish supplemental copies of such exhibits and schedules to the Securities and Exchange Commission upon request. Copies of the foregoing exhibits filed with this report or incorporated by reference are available from the Company upon written request and payment of a reasonable copying fee. (b) Registrant filed the following reports on Form 8-K's filed the quarter ended September 30, 1996: Form 8-K Amendment filed on August 12, 1996 disclosing pro forma financial information related to acquisition of oil and gas properties from Amerada Hess Corporation and audited financial statements of the purchased properties. Form 8-K filed on August 14, 1996 disclosing the Company's second quarter activity and financial information. 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. DLB OIL & GAS, INC. Date: November 13, 1996 /s/ Mark Liddell ------------------------------------------ Mark Liddell, President Date: November 13, 1996 /s/ Ronald D. Youtsey ------------------------------------------ Ronald D. Youtsey, Chief Financial Officer 23 24 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.0 Agreement for Purchase and Sale dated April 16, 1996, between Amerada Hess Corporation and DLB Oil & Gas, Inc. (the "Agreement for Purchase and Sale"). (4) 2.1 Letter agreement amending Agreement for Purchase and Sale dated May 7, 1996. (3) 2.2 Letter agreement amending Agreement for Purchase and Sale dated May 31, 1996. (3) 3.1 Amended and Restated Certificate of Incorporation (3) 3.2 Amended and Restated Bylaws (1) 10.1 Lease of office space, Oklahoma City, Oklahoma (1) 10.2 Credit Agreement dated December 28, 1995, between Registrant and First Union National Bank of North Carolina (2) 10.3 Stock Option Agreement by and between Registrant and Mike Liddell (1) 10.4 Stock Option Agreement by and between Registrant and Mark Liddell (1) 10.5 Employment Agreement by and between Registrant and Mike Liddell (1) 10.6 Employment Agreement by and between Registrant and Mark Liddell (1) 10.7 DLB Oil & Gas Stock Option Plan (1) 10.8 DLB Oil & Gas Omnibus Equity Compensation Plan (1) 10.9 Shareholder's Agreement by and among Charles E. Davidson, Mike Liddell and Mark Liddell dated May 25, 1995 (1) 10.10 Agreement for Dissolution of Joint Venture dated February 9, 1996, between DLB Oil & Gas, Inc., Magic Circle Acquisition Corporation and Magic Circle Energy Corporation, Carmen Field Limited Partnership, and Carmen Field Joint Venture (2) 10.11 First Amendment to the Credit Agreement dated June 30, 1996, between Registrant and First Union National Bank of North Carolina (4) 27 Financial Data Schedule
----------------- (1) Previously filed as an exhibit to Registration No. 33-92786 on Form S-1 and incorporated herein by reference. (2) Previously filed as an exhibit to Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to Form 8-K on May 12, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to Form 10-Q filed on August 14, 1996 (5) Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying the contents of its exhibits and schedules, and registrant agrees to furnish supplemental copies of such exhibits and schedules to the Securities and Exchange Commission upon request. EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 4,756 6,584 7,410 0 0 19,015 120,935 24,791 115,203 7,087 0 0 0 13 61,749 115,203 17,730 18,667 5,333 5,333 6,695 0 801 3,853 1,454 2,399 0 0 0 2,399 .18 .18
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