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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 June 30, 2002
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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: 1-7940
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Goodrich Petroleum Corporation
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(Exact name of registrant as specified in its charter)
Delaware 76-0466193
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(State or other jurisdiction of (I.R.S. Employer ID. No.)
incorporation or organization)
815 Walker Street, Suite 1040, Houston, Texas 77002
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(Address of principal executive offices) (Zip Code)
(713) 780-9494
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year,
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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
At August 13, 2002, there were 17,914,325 shares of Goodrich Petroleum
Corporation common stock outstanding.
1
GOODRICH PETROLEUM CORPORATION
FORM 10-Q
June 30, 2002
INDEX
Page No.
--------
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements .........................................
Consolidated Balance Sheets
June 30, 2002 (Unaudited) and December 31, 2001 .................... 3-4
Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 2002 and 2001 ............................ 5
Three Months Ended June 30, 2002 and 2001 .......................... 6
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2002 and 2001 ............................ 7
Consolidated Statements of Stockholders' Equity (Unaudited)
Six Months Ended June 30, 2002 and 2001 ............................ 8
Notes to Consolidated Financial Statements ............................ 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 12-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 17-18
PART II - OTHER INFORMATION ........................................... 19-20
Item 1. Legal Proceedings ............................................
Item 2. Changes in Securities and Use of Proceeds ....................
Item 3. Defaults Upon Senior Securities ..............................
Item 4. Submission of Matters to a Vote of Security Holders ..........
Item 5. Other Information ............................................
Item 6. Exhibits and Reports on Form 8-K .............................
2
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2002 2001
------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................................... $ 511,326 $ 248,701
Accounts receivable
Trade and other, net of allowance ............................. 764,755 825,593
Accrued oil and gas revenue ................................... 1,853,394 3,456,210
Prepaid insurance and other. .................................... 796,759 139,452
Fair value of oil and gas derivatives ......................... -- 13,000
------------- ------------
Total current assets ....................................... 3,926,234 4,682,956
------------- ------------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts method) .............. 99,878,158 108,019,749
Furniture, fixtures and equipment ............................... 464,557 321,393
------------- -----------
100,342,715 108,341,142
Less accumulated depletion, depreciation and amortization ....... (36,123,079) (33,247,502)
------------- ------------
Net property and equipment .................................... 64,219,636 75,093,640
------------- ------------
OTHER ASSETS
Restricted cash ................................................. 2,039,000 2,039,000
Deferred taxes .................................................. 77,232 207,605
Other ........................................................... 250,171 220,730
------------- ------------
Total other assets ......................................... 2,366,403 2,467,335
------------- ------------
TOTAL ASSETS .......................................... $ 70,512,273 $ 82,243,931
============= ============
See notes to consolidated financial statements.
3
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
June 30, December 31,
2002 2001
------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ......................................................... $ 2,899,580 $ 2,398,437
Accrued liabilities ...................................................... 1,016,010 1,693,674
Fair value of oil and gas derivatives .................................... 481,653 --
Current portion other non-current liabilities ............................ 125,000 124,875
------------- -------------
Total current liabilities ...................................... 4,522,243 4,216,986
------------- -------------
LONG TERM DEBT ............................................................. 12,500,000 24,500,000
OTHER NON-CURRENT LIABILITIES
Production payment payable ............................................... 1,225,078 1,264,729
Accrued abandonment costs ................................................ 4,449,378 4,341,669
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par value
per share; issued and outstanding 791,968 and 791,968
shares (liquidation preference $10 per share,
aggregating to $7,919,680) ....................................... 791,968 791,968
Common stock; par value $0.20 per share:
Authorized 50,000,000 shares; issued and
outstanding 17,929,325 and 17,896,356 shares ..................... 3,582,864 3,579,271
Additional paid-in capital ............................................... 52,333,738 52,279,331
Accumulated deficit ...................................................... (8,579,921) (8,738,473)
Accumulated other comprehensive income ................................... (313,075) 8,450
-------------- -------------
Total stockholders' equity ..................................... 47,815,574 47,920,547
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 70,512,273 $ 82,243,931
============= =============
See notes to consolidated financial statements.
4
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Six Months Ended
June 30,
-----------------------------
2002 2001
------------- -------------
REVENUES
Oil and gas sales ........................................ $ 8,878,467 $ 16,351,194
Other .................................................... 129,239 83,967
------------- -------------
Total revenues ...................................... 9,007,706 16,435,161
------------- -------------
EXPENSES
Lease operating expense .................................. 4,025,818 3,077,637
Production taxes ......................................... 801,747 1,014,715
Depletion, depreciation and amortization ................. 2,851,174 3,157,585
Exploration .............................................. 760,420 2,716,456
Interest expense ......................................... 531,840 597,238
General and administrative ............................... 2,220,027 1,440,801
------------- -------------
Total costs and expenses ............................ 11,191,026 12,004,432
------------- -------------
GAIN ON SALE OF ASSETS. ..................................... 2,924,201 71,986
------------- -------------
INCOME BEFORE INCOME TAXES .................................. 740,881 4,502,715
Income taxes ............................................. 259,308 1,575,950
------------- -------------
NET INCOME ................................................. 481,573 2,926,765
Preferred stock dividends ................................ 323,021 2,693,275
------------- -------------
NET INCOME APPLICABLE TO COMMON STOCK ....................... 158,552 233,490
============= =============
BASIC INCOME PER AVERAGE COMMON SHARE. ...................... 01 01
============= =============
DILUTED INCOME PER AVERAGE COMMON SHARE ..................... 01 01
============= =============
AVERAGE COMMON SHARES OUTSTANDING - BASIC ................... 17,901,868 16,865,075
============= =============
AVERAGE COMMON SHARES OUTSTANDING - DILUTED ................. 20,272,839 19,805,422
============= =============
See notes to consolidated financial statements.
5
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
--------------------------
2002 2001
------------- -----------
REVENUES
Oil and gas sales .................................... $ 4,185,649 $ 6,999,949
Other ................................................ 122,375 336,548
------------ -----------
Total revenues .................................. 4,308,024 7,336,497
------------ -----------
EXPENSES
Lease operating expense .............................. 2,038,770 1,590,646
Production taxes ..................................... 402,158 459,636
Depletion, depreciation and amortization ............. 1,247,873 1,622,408
Exploration .......................................... 314,662 1,659,740
Interest expense ..................................... 215,423 226,715
General and administrative ........................... 1,377,284 816,150
------------ -----------
Total costs and expenses ........................ 5,596,170 6,375,295
------------ -----------
GAIN ON SALE OF ASSETS. ................................. 87,700 33,606
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES ....................... (1,200,446) 994,808
Income taxes ......................................... (420,156) 348,172
------------ -----------
NET INCOME (LOSS) ...................................... (780,290) 646,636
Preferred stock dividends ............................ 168,223 158,367
------------ -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK ............ (948,513) 488,269
============ ===========
BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE ............ (.05) 03
============ ===========
DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE .......... (.05) 02
============ ===========
AVERAGE COMMON SHARES OUTSTANDING - BASIC ............... 17,907,380 17,609,205
============ ===========
AVERAGE COMMON SHARES OUTSTANDING - DILUTED ............. 17,907,380 20,586,448
============ ===========
See notes to consolidated financial statements.
6
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
------------------------------
2002 2001
------------- -------------
OPERATING ACTIVITIES
Net income .............................................................. $ 481,573 $ 2,926,765
Adjustments to reconcile net income to cash provided by operating
activities:
Depletion, depreciation and amortization ........................... 2,851,174 3,157,585
Deferred income taxes .............................................. 259,308 1,540,950
Amortization of leasehold costs .................................... 223,035 493,827
Amortization of production payment discount ........................ 48,416 63,825
Amortization of deferred debt financing ............................ 72,090 39,750
Gain on sale of assets ............................................. (2,924,201) (71,986)
Capital expenditures charged to income ............................. -- 1,542,830
Other .............................................................. -- 28,201
Net change in:
Accounts receivable. ............................................... 1,663,654 (409,216)
Prepaid insurance and other ........................................ (714,643) 104,447
Accounts payable ................................................... 501,143 1,082,651
Accrued liabilities ................................................ (647,664) 264,548
Other liabilities .................................................. -- --
------------- -------------
Net cash provided by operating activities ..................... 1,813,885 10,764,177
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of assets .......................................... 12,902,985 451,986
Capital expenditures .................................................. (1,980,356) (18,309,302)
------------- ------------
Net cash provided by (used in) investing activities ........... 10,922,629 (17,857,316)
------------- ------------
FINANCING ACTIVITIES
Proceeds from public offering of common stock ......................... -- 15,000,000
Principal payments of bank borrowings ................................. (13,000,000) (13,690,000)
Proceeds from bank borrowings ......................................... 1,000,000 6,750,000
Payment of debt and equity financing costs ............................ -- (1,695,323)
Exercise of stock purchase warrants ................................... -- 134,824
Exercise of stock options ............................................. 28,000 11,563
Net change in restricted cash ......................................... -- (1,070,000)
Production payments ................................................... (178,868) (274,185)
Preferred stock dividends ............................................. (323,021) (316,734)
------------- -------------
Net cash provided by (used in) financing activities ........... (12,473,889) 4,850,145
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 262,625 (2,242,994)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................... 248,701 3,531,763
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................. $ 511,326 $ 1,288,769
============= =============
See notes to consolidated financial statements
7
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Other Comprehensive Income
Six Months Ended June 30, 2002 and 2001
(Unaudited)
Accumulated
Series A Series B Additional Other Total
Preferred Preferred Paid-In Accumulated Comprehensive Stockholders'
Stock Stock Common Stock Capital Deficit Income Equity
----------------- ------------------- --------------------- ----------- ------------- ------------ ------------
Balance at
December 31,
2000 ........... 791,968 $796,318 660,839 $ 660,839 13,318,920 $2,663,784 $39,348,013 $(10,859,388) $ -- $32,605,216
Net Income ..... -- -- -- -- -- -- -- 2,926,765 -- 2,926,765
Other
Comprehensive
Income(Loss);
Net of Tax
Cumulative
Effect of
Accounting
Change ........ -- -- -- -- -- -- -- -- (2,535,469) (2,535,469)
Net Derivative
Gain .......... -- -- -- -- -- -- -- -- 1,722,827 1,722,827
Reclassification
Adjustment .... -- -- -- -- -- -- -- -- 949,940 949,940
-----------
Total
Comprehensive
Income ....... 3,064,063
Issuance of
Common
Stock ........ -- -- -- -- 3,000,000 600,000 12,469,170 -- -- 13,069,170
Conversion of
Series B
Preferred Stock
to Common
Stock ........ -- -- (660,839) (660,839) 1,189,510 237,902 317,937 -- -- (105,000)
Preferred Stock
Dividends .... -- -- -- -- -- -- -- (316,734) -- (316,734)
Director Stock
Grant ........ -- -- -- -- 5,130 1,026 28,974 -- -- 30,000
Exercise of
Stock
Warrants ..... -- -- -- -- 151,450 30,290 74,534 -- -- 104,824
Exercise of
Stock
Options ...... -- -- -- -- 7,500 1,500 10,063 -- -- 11,563
------- -------- --------- --------- ---------- ---------- ----------- ------------ ----------- -----------
Balance at
June 30, 2001 .. 791,968 $791,968 -- $ -- 17,672,510 $3,534,502 $52,248,691 $ (8,249,357) $ 137,298 $48,463,102
======= ======== ========= ========= ========== ========== =========== ============ =========== ===========
Balance at
December 31,
2001 ........... 791,968 791,968 -- -- 17,896,356 3,579,271 52,279,331 (8,738,473) 8,450 47,920,547
Net Income ..... -- -- -- -- -- -- -- 481,573 -- 481,573
Other
Comprehensive
Income(Loss);
Net of Tax
Net Derivative
Gain (Loss) .. -- -- -- -- -- -- -- -- (106,889) (106,889)
Reclassification
Adjustment ... -- -- -- -- -- -- -- -- (214,636) (214,636)
--------
Total
Comprehensive
Income ....... 160,048
Preferred Stock
Dividends .... -- -- -- -- -- -- -- (323,021) -- (323,021)
Director Stock
Grant ........ -- -- -- -- 7,302 1,460 28,540 -- -- 30,000
Exercise of
Stock
Options ...... -- -- -- -- 10,667 2,133 25,867 -- -- 28,000
------- -------- --------- --------- ---------- ---------- ----------- ------------ ----------- -----------
Balance at
June 30,
2002 ........... 791,968 $791,968 -- $ -- 17,914,325 $3,582,864 $52,333,738 $ (8,579,921) $ (313,075) $47,815,574
======= ======== ========= ========= ========== ========== =========== ============ =========== ===========
8
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(Unaudited)
NOTE A - Basis of Presentation
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission; however, the Company
believes the disclosures which are made are adequate to make the information
presented not misleading. The financial statements and footnotes included in
this Form 10-Q should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 2001.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of June 30, 2002 and the results of its operations for the three and
six months ended June 30, 2002 and 2001.
The results of operations for the three and six month periods ended
June 30, 2002 are not necessarily indicative of the results to be expected for
the full year.
NOTE B - Sale of Oil and Gas Properties to Related Party
On March 12, 2002, the Company, in an effort to monetize a portion of the
value created in its Burrwood and West Delta fields and enhance its liquidity
position, completed the sale of a thirty percent (30%) working interest in the
existing production and shallow rights, and a fifteen percent (15%) working
interest in the deep rights below 10,600 feet, in its Burrwood and West Delta 83
fields for $12 million to Malloy Energy Company, LLC led by Patrick E.Malloy,
III and participated in by Sheldon Appel and Joe Austin, all members of the
Company's Board of Directors. The Company received net proceeds from the sale of
approximately $11.8 million after purchase price adjustments. The sale price was
determined by discounting the present value of the acquired interest in the
fields' proved, probable and possible reserves using prevailing oil and gas
prices. The Company has retained a sixty-five percent (65%) working interest in
the existing production and shallow rights, and a thirty-two and one-half
percent (32.5%)working interest in the deep rights after the close of the
transaction. In conjunction with the sale, Malloy Energy Company, LLC, provided
a $7.7 million line of credit. The $7.7 million line of credit, which will
reduce to $5.0 million on January 1, 2003, is subordinate to the Company's
senior facility and can be used for acquisitions, drilling, development, and
general corporate purposes until December 31, 2004. Malloy Energy Company, LLC,
retains the option, during the two-year period, to convert the amount
outstanding under the credit line, and/or provide cash on any unused credit up
to a maximum of $7.7 million in the first year, reduced to $5.0 million after
December 31, 2002, into working interests in any acquisition(s) the Company may
make in
9
Louisiana prior to January 1, 2005. The conversion of the credit line will be on
a pro-rata basis with the Company and may not exceed a maximum of $7.7 million
reduced to $5.0 million after December 31, 2002, or thirty percent (30%) of any
potential acquisition(s).
The Company recorded a gain of approximately $2.4 million in the first
quarter as a result of the sale. The Company used the proceeds to reduce
outstanding debt under its credit facility by approximately $12 million.
In addition, the Company sold other non-core oil and gas properties in the
six months ended June 30, 2002 for $1,058,000 and recorded a gain of
approximately $527,000.
NOTE C - Net Income/(Loss) Per Share
Net income (loss) was used as the numerator in computing basic and diluted
income per common share for the three and six months ended June 30, 2002 and
2001. The following table reconciles the weighted-average shares outstanding
used for these computations.
Three months Six months
ended June 30, ended June 30,
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Basic Method .......... 17,907,380 17,609,205 17,901,868 16,865,075
Dilutive Stock Warrants -- 2,697,317 2,302,745 2,745,993
Dilutive Stock Options -- 279,926 68,226 194,354
---------- ---------- ---------- ----------
Diluted Method ........ 17,907,380 20,586,448 20,272,839 19,805,422
========== ========== ========== ==========
The computation of earnings per share in the consolidated Statement of
Income for the three and six months ended June 30, 2001 and six months ended
June 30, 2002, did not consider convertible preferred stock convertible into
330,000 shares of common stock because the effects of the securities would have
been antidilutive. The computation of loss per share in the consolidated
Statements of Income for the three months ended June 30, 2002, did not consider
stock warrants convertible into 2,355,320 shares of common stock, convertible
preferred stock convertible into 330,013 shares of common stock and stock
options convertible into 63,396 shares of common stock because the effects of
these convertible securities would have been antidilutive.
NOTE D - Credit Facility
On November 9, 2001, the Company established a new credit facility with BNP
Paribas Bank, with an initial borrowing base of $25,000,000. The current
borrowing base, taking into effect the sale of a 30% interest in the Burrwood
and West Delta 83 fields, is $21,000,000 and will remain effective until the
next borrowing base redetermination scheduled to take place on or before
September 30, 2002. Interest on the credit facility will accrue at a rate
calculated at the option of the Company as either the BNP Paribas Bank base rate
plus 0.00% to 0.50%, or LIBOR plus 1.50% - 2.50% depending on borrowing base
utilization. Interest on LIBOR-Rate borrowings is due and payable on the last
day of its respective Interest Period. Interest on each Base-Rate borrowing is
due and payable on the last day of each quarter. The credit facility will mature
on November 8, 2004. The credit facility requires that the Company pay a
quarterly commitment fee equal to 0.375% per annum commitment fee each quarter
based on the Company's borrowing base utilization. Prior to maturity, no
payments are required so long as the maximum borrowing base amount exceeds the
amounts outstanding under the credit facility. The credit facility requires the
Company to monitor tangible net worth and maintain certain financial statement
ratios at certain levels. Substantially all the Company's assets are pledged to
secure the credit facility. At June 30, 2002, the Company had approximately
$8,500,000 available under its line of credit.
At June 30, 2002, the Company was not in compliance with the current ratio
covenant in its credit facility and secured a waiver from the requirement from
BNP Paribas Bank. As previously mentioned, the Company had $8,500,000 available
under its line of credit and expects to be in compliance with the covenant in
future periods.
NOTE E - New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations" ("SFAS No. 141") immediately upon release and
(SFAS) No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") on
January 1, 2002. SFAS No. 141 requires that all business combinations be
accounted for under the purchase method of accounting and that certain acquired
intangible assets in a business combination be recognized and reported as assets
apart from goodwill. SFAS No. 142 requires that amortization of goodwill be
replaced with periodic tests of the goodwill's impairment at least annually in
accordance with the provisions of SFAS No. 142 and that intangible assets other
than goodwill be amortized over
10
their useful lives. The Company does not have any identified intangible assets
nor any goodwill as of December 31, 2001 or June 30, 2002. The adoption of SFAS
No. 141 and 142 had no significant impact on the Company's financial statements.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144) addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. The Company adopted SFAS No.
144 on January 1, 2002. The adoption of SFAS No. 144 had no significant impact
on the Company's financial statements.
In addition, Statement of Financial Accounting Standard No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") has been issued.
SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The statement is effective on January 1,
2003. The Company has not yet determined what, if any, impact the adoption of
this statement may have on its financial statements.
In April 2002, SFAS No. 145, Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections was issued.
SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The various provisions of this pronouncement have
different effective dates. The Company does not expect the adoption of SFAS No.
145 to have any significant impact on the Company's financial statements.
On July 30, 2002, SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities was issued. SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2001. The Company has not yet determined what, if any, impact the adoption
of this statement may have on its financial statements.
NOTE F - Commitments and Contingencies
The U.S. Environmental Protection Agency ("EPA") has identified the Company
as a potentially responsible party ("PRP") for the cost of clean-up of
"hazardous substances" at an oil field waste disposal site in Vermilion Parish,
Louisiana. The Company has estimated that the remaining cost of long-term
clean-up of the site will be approximately $4.5 million with the Company's
percentage of responsibility to be approximately 3.05%. As of June 30, 2002, the
Company has paid approximately $321,000 in costs related to this matter and has
$122,500 accrued for the remaining liability. These costs have not been
discounted to their present value. The EPA and the PRPs will continue to
evaluate the site and revise estimates for the long-term clean-up of the site.
There can be no assurance that the cost of clean-up and the Company's percentage
responsibility will not be higher than currently estimated. In addition, under
the federal environmental laws, the liability costs for the clean-up of the site
is joint and several among all PRPs. Therefore, the ultimate cost of the
clean-up to the Company could be significantly higher than the amount presently
estimated or accrued for this liability.
11
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Changes in Results of Operations
Six months ended June 30, 2002 versus six months ended June 30, 2001
Total revenues for the six months ended June 30, 2002 amounted to
$9,008,000 and were $7,427,000 lower than the $16,435,000 for the six months
ended June 30, 2001 due to lower oil and gas revenues. Oil and gas sales were
$7,473,000 lower due to lower production volumes resulting primarily from the
sale of a thirty percent (30%) interest in the Burrwood and West Delta 83 Fields
and lower oil and gas prices. Oil and gas sales were reduced by $192,000 in the
six months ended June 30, 2002 compared to a reduction of $1,454,000 in the six
months ended June 30, 2001 as a result of settlement of the Company's
outstanding future contracts.
The following table reflects the production volumes and pricing information
for the periods presented.
Six months Six months
ended June 30, 2002 ended June 30, 2001
---------------------------- -----------------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
Gas (Mcf) .............. 1,220,085 $ 2.76 1,696,440 $ 5.43
Oil (Bbls) ............. 246,980 22.33 270,001 26.46
Lease operating expense was $4,026,000 for the six months ended June 30,
2002 versus $3,078,000 for the six months ended June 30, 2001 or $948,000 higher
due primarily to higher well insurance costs as well as increased salt water
disposal and compression expense in the current period and transition costs
associated with the Company assuming operations of its oil and gas properties
from a contract operator on June 1, 2002 partially offset by the sale of a
thirty percent (30%) working interest in the Burrwood and West Delta Fields on
March 12, 2002. Work was completed in the current period to alleviate the
compression and salt-water disposal problems. Production taxes amounted to
$802,000 for the six months ended June 30, 2002 compared to $1,014,000 for the
six months ended June 30, 2001 or $212,000 lower due primarily to lower oil and
gas sales in the current period. Depletion, depreciation and amortization was
$2,851,000 for the six months ended June 30, 2002 versus $3,158,000 for the six
months ended June 30, 2001 or $307,000 lower due primarily to lower production
volumes in the first six months of 2002 versus 2001.
Exploration expense for the six months ended June 30, 2002 was $760,000
versus $2,716,000 for the same period of 2001 or $1,956,000 lower due primarily
to dry hole and seismic expense of $0 and $119,000 for the six months ended
June 30, 2002 compared to $1,543,000 and $466,000, respectively, for the same
period in 2001.
Interest expense was $532,000 in the six months ended June 30, 2002
compared to $597,000 in the six months ended June 30, 2001 or $65,000 lower due
to the Company having a lower
12
effective interest rate and average debt outstanding for the six months ended
June 30, 2002 compared to the 2001 period.
General and administrative expenses amounted to $2,220,000 in the six
months ended June 30, 2002 versus $1,441,000 in the six months ended June 30,
2001 or $779,000 higher due primarily to legal costs attributable to pending
litigation against the operator and joint owner of the Company's Lafitte field.
The trial is currently scheduled to begin in September 2002.
Three months ended June 30, 2002 versus three months ended June 30, 2001
Total revenues for the three months ended June 30, 2002 amounted to
$4,308,000 and were $3,028,000 lower than the $7,336,000 for the three months
ended June 30, 2001 due to lower oil and gas revenues. Oil and gas sales were
$2,815,000 lower due to lower production volumes resulting primarily from the
sale of a thirty percent (30%) interest in the Burrwood and West Delta 83 Fields
and lower oil and gas prices in the three months ended June 30, 2002 compared to
the same period in 2001. Oil and gas sales were reduced by $186,000 in the three
months ended June 30, 2002 compared to a reduction of $241,000 in the three
months ended June 30, 2001 as a result of the settlement of the Company's
outstanding future contracts.
The following table reflects the production volumes and pricing information
for the periods presented.
Three months Three months
ended June 30, 2002 ended June 30, 2001
-------------------------- -----------------------------
Production Average Price Production Average Price
---------- -------------- ---------- -------------
Gas (Mcf) ..................... 487,903 $ 2.85 819,563 $ 4.03
Oil (Bbls) .................... 113,400 24.63 137,127 26.97
Lease operating expense was $2,039,000 for the three months ended June 30,
2002 versus $1,591,000 for the three months ended June 30, 2001 or $448,000
higher due primarily to higher well insurance costs as well as increased salt
water disposal and compression expense in the current period and transition
costs associated with the Company assuming operations of its oil and gas
properties from a contract operator on June 1, 2002 partially offset by the sale
of a thirty percent (30%) working interest in the Burrwood and West Delta Fields
on March 12, 2002. Work was completed in the current period to alleviate the
compression and salt-water disposal problems. Production taxes amounted to
$402,000 in the three months ended June 30, 2002 compared to $460,000 for the
three months ended June 30, 2001 or $58,000 lower due to lower oil and gas sales
in the 2002 period compared to the 2001 period. Depletion, depreciation and
amortization was $1,248,000 for the three months ended June 30, 2002 versus
$1,622,000 for the three months ended June 30, 2001 or $374,000 lower due to
lower oil and gas production volumes in the second quarter of 2002 versus 2001.
The Company incurred $315,000 of exploration expense in the second quarter
of 2002 compared to $1,660,000 in the second quarter of 2001 or $1,345,000 lower
primarily due to dry hole and seismic costs of $0 and $5,000 in the three months
ended June 30, 2002 versus $1,251,000 and $63,000 respectively, for the same
period in 2001.
13
Interest expense was $215,000 in the three months ended June 30, 2002
compared to $227,000 in the second quarter of 2001 due to higher average debt
outstanding for the quarter ended June 30, 2001.
General and administrative expenses amounted to $1,377,000 in the three
months ended June 30, 2002 versus $816,000 in the second quarter of 2001 or
$561,000 higher due primarily to legal costs attributable to pending litigation
against the operator and joint owner of the Company's Lafitte field. The trial
is currently scheduled to begin in September 2002.
Liquidity and Capital Resources
Net cash provided by operating activities was $1,814,000 in the six months
ended June 30, 2002 compared to $10,764,000 in the six months ended June 30,
2001 attributable to significantly higher oil and gas revenues in the 2001
period. The Company's accompanying Consolidated Statements of Cash Flows
identify major differences between net income and net cash provided by operating
activities for each of the periods presented.
Net cash provided by investing activities totaled $10,923,000 for the first
six months of 2002 compared to net cash used in investing activities of
$17,857,000 in 2001. The six months ended June 30, 2002 consists of proceeds
from the sale of oil and gas properties of $12,903,000 and capital expenditures
of $1,980,000. The six months ended June 30, 2001 reflects capital expenditures
paid totaling $18,309,000 and proceeds from the sales of oilfield equipment and
oil and gas properties of $380,000 and $72,000 respectively.
Net cash used in financing activities was $12,474,000 for the current
period as compared to net cash provided of $4,850,000 in 2001. The six months
ended June 30, 2002 consists of pay downs by the Company under its line of
credit of $13,000,000, proceeds from borrowings under the Company's line of
credit of $1,000,000, preferred stock dividends of $323,000, production payments
of $179,000 and the exercise of employee stock options of $28,000. The 2001
amounts consist of proceeds from the issuance of common stock of $15,000,000 and
pay downs by the Company under its line of credit of $13,690,000. The 2001
amount also includes proceeds from bank borrowings of $6,750,000, the payment of
debt financing and public offering costs of $1,695,000, changes in restricted
cash of $1,070,000, and production payments of $274,000. In addition, the 2001
amount includes preferred stock dividends of $317,000 and proceeds from the
exercise of stock warrants and employee stock options of $135,000 and $12,000;
respectively.
Sale of Oil and Gas Properties to Related Party
On March 12, 2002, the Company, in an effort to monetize a portion of the
value created in its Burrwood and West Delta fields and enhance its liquidity
position, completed the sale of a thirty percent (30%) working interest in the
existing production and shallow rights, and a fifteen percent (15%) working
interest in the deep rights below 10,600 feet, in its Burrwood and West Delta 83
fields for $12 million to Malloy Energy Company, LLC led by Patrick E. Malloy,
III and participated in by Sheldon Appel and Joe Austin, all members of the
Company's Board of
14
Directors. The Company received net proceeds from the sale of approximately
$11.8 million after purchase price adjustments. The sale price was determined by
discounting the present value of the acquired interest in the fields' proved,
probable and possible reserves using prevailing oil and gas prices. The Company
has retained a sixty-five percent (65%) working interest in the existing
production and shallow rights, and a thirty-two and one-half percent
(32.5%)working interest in the deep rights after the close of the transaction.
In conjunction with the sale, Malloy Energy Company, LLC, provided a $7.7
million line of credit. The $7.7 million line of credit, which will reduce to
$5.0 million on January 1, 2003, is subordinate to the Company's senior facility
and can be used for acquisitions, drilling, development, and general corporate
purposes until December 31, 2004. Malloy Energy Company, LLC, retains the
option, during the two-year period, to convert the amount outstanding under the
credit line, and/or provide cash on any unused credit up to a maximum of $7.7
million in the first year, reduced to $5.0 million after December 31, 2002, into
working interests in any acquisition(s) the Company may make in Louisiana prior
to January 1, 2005. The conversion of the credit line will be on a pro-rata
basis with the Company and may not exceed a maximum of $7.7 million reduced to
$5.0 million after December 31, 2002, or thirty percent (30%) of any potential
acquisition(s).
The Company recorded a gain of approximately $2.4 million in the first
quarter as a result of the sale. The Company used the proceeds to reduce
outstanding debt under its credit facility to $12.5 million.
In addition, the Company sold other non-core oil and gas properties in the
six months ended 2002 for $1,058,000 and recorded a gain of approximately
$527,000.
Credit Facility
On November 9, 2001, the Company established a new credit facility with BNP
Paribas Bank, with an initial borrowing base of $25,000,000. The current
borrowing base, taking into effect the sale of a 30% interest in the Burrwood
and West Delta 83 fields, is $21,000,000 and will remain effective until the
next borrowing base redetermination scheduled to take place on or before
September 30, 2002. Interest on the credit facility will accrue at a rate
calculated at the option of the Company as either the BNP Paribas Bank base rate
plus 0.00% to 0.50%, or LIBOR plus 1.50% - 2.50% depending on borrowing base
utilization. Interest on LIBOR-Rate borrowings is due and payable on the last
day of its respective Interest Period. Interest on each Base-Rate borrowing is
due and payable on the last day of each quarter. The credit facility will mature
on November 8, 2004. The credit facility requires that the Company pay a
quarterly commitment fee equal to 0.375% per annum commitment fee each quarter
based on the Company's borrowing base utilization. Prior to maturity, no
payments are required so long as the maximum borrowing base amount exceeds the
amounts outstanding under the credit facility. The credit facility requires the
Company to monitor tangible net worth and maintain certain financial statement
ratios at certain levels. Substantially all the Company's assets are pledged to
secure the credit facility. At June 30, 2002, the Company had approximately
$8,500,000 available under its line of credit.
At June 30, 2002, the Company was not in compliance with the current ratio
covenant in its credit facility and secured a waiver from the requirement from
BNP Paribas Bank. As previously mentioned, the Company had $8,500,000 available
under its line of credit and expects to be in compliance with the covenant in
future periods.
15
The Company had $1,980,000 in capital expenditures in the six months ended
June 30, 2002. The Company's budget for 2002 capital expenditures was set at the
beginning of the year at $15,000,000. The budget is under constant review during
the year and could change due to actual and estimated cash flow, commodity
prices, business opportunities, and other factors. The Company expects to fund
capital expenditures for the remainder of 2002 from operating cash flow, cash,
bank borrowings and borrowings under its line of credit with Malloy Energy
Company, LLC, if necessary.
Accounting Matters
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations" ("SFAS No. 141") immediately upon release and
(SFAS) No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") on
January 1, 2002. SFAS No. 141 requires that all business combinations be
accounted for under the purchase method of accounting and that certain acquired
intangible assets in a business combination be recognized and reported as assets
apart from goodwill. SFAS No. 142 requires that amortization of goodwill be
replaced with periodic tests of the goodwill's impairment at least annually in
accordance with the provisions of SFAS No. 142 and that intangible assets other
than goodwill be amortized over their useful lives. The Company does not have
any identified intangible assets nor any goodwill as of December 31, 2001 or
June 30, 2002. The adoption of SFAS No. 141 and 142 had no significant impact on
the Company's financial statements.
In addition, Statement of Financial Accounting Standard No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143") has been issued.
SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The statement is effective on January 1,
2003. The Company has not yet determined what, if any, impact the adoption of
this statement may have on its financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. SFAS No. 144 requires companies to separately
report discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount
16
or fair value less costs to sell. The Company adopted SFAS No. 144 on January 1,
2002. The adoption of SFAS No. 144 had no significant impact on the Company's
financial statements.
In April 2002, SFAS No. 145, Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections was issued.
SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The various provisions of this pronouncement have
different effective dates. The Company does not expect the adoption of SFAS No.
145 to have any significant impact on the Company's financial statements.
On July 30, 2002, SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities was issued. SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company has not yet determined what, if any, impact the adoption
of this statement may have on its financial statements.
Quantitative and Qualitative Disclosures About Market Risk
Debt and debt-related derivatives
The Company is exposed to interest rate risk on its long-term debt with
variable interest rates. Based on the overall interest rate exposure on variable
rate debt at June 30, 2002 a hypothetical 2% change in the interest rates would
increase interest expense by approximately $172,000 for the six months ended
June 30, 2002.
Hedging Activity
The Company engages in futures derivative contracts with certain of its
production. The Company enters into hedging activities in order to secure an
acceptable future price relating to a portion of future production. The primary
objective of the hedging activities is to protect against decreases in price
during the term of the hedge.
At June 30, 2002, the Company's open forward position on its outstanding
crude oil hedging contracts was as follows:
(a) 300 barrels of oil per day "swap" at $26.42 for July through November
2002; and
(b) 300 barrels of oil per day "swap" at $26.39 for July through November
2002;
The fair value of the crude oil hedging contracts in place at June 30,
2002 resulted in a liability of $3,000. A 10% increase or decrease in the
average NYMEX price of crude oil would have had no significant effect on this
liability.
As of June 30, 2002, the Company's open forward position on its outstanding
natural gas hedging contracts was as follows:
(a) 2000 MMBtu per day with a no cost collar of $2.50 to $3.18 per Mmbtu
through December 31, 2002;
(b) 1333 MMBtu per day with a no cost collar of $2.75 to $3.09 per Mmbtu
through December 31, 2002;
(c) 1,200 MMBtu per day "swap" at $2.87 for July through November 2002;
(d) 1,500 MMBtu per day "swap" at $2.89 for July through November 2002;
(e) 3,000 MMBtu per day "swap" at $3.50 for December 2002 through February
2003; and
(f) 3000 MMBtu per day with a no cost collar of $3.50 to $5.19 per Mmbtu
for January through December 31, 2003.
17
The fair value of the natural gas hedging contracts in place at June 30,
2002, resulted in a liability of $480,000. A 10% increase in the average NYMEX
price of natural gas would have increased this liability by $443,000 while a 10%
decrease would have reduced the liability by $443,000.
Price fluctuations and the volatile nature of markets
Despite the measures taken by the Company to attempt to control price
risk, the Company remains subject to price fluctuations for natural gas and oil
sold in the spot market. Prices received for natural gas sold on the spot market
are volatile due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil and gas prices could have a material adverse
effect on the Company's financial position, results of operations and quantities
of reserves recoverable on an economic basis.
Disclosure Regarding Forward-Looking Statement
Certain statements in this quarterly report on Form 10-Q regarding future
expectations and plans for future activities may be regarded as "forward looking
statements" within the meaning of Private Securities Litigation Reform Act of
1995. They are subject to various risks, such as financial market conditions,
operating hazards, drilling risks and the inherent uncertainties in interpreting
engineering data relating to underground accumulations of oil and gas, as well
as other risks discussed in detail in the Company's Annual Report on Form 10-K
and other filings with the Securities and Exchange Commission. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on May 18, 2002.
Set forth below is a brief description of each matter acted upon at the meeting
and the number of votes cast for, against or withheld, and abstaining or not
voting as to each matter.
Election of Class I Directors
FOR WITHHELD
---------- ---------
Sheldon Appel 14,713,294 105,782
Donald M. Campbell 10,239,149 4,579,927
Ratification of the appointment of KPMG LLP as the Company's independent
auditors for 2002
FOR AGAINST WITHHELD
---------- ------- --------
14,797,943 16,926 4,207
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(b) Reports on Form 8-K
None.
19
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.
GOODRICH PETROLEUM CORPORATION
(registrant)
August 14, 2002 /s/ Walter G. Goodrich
- ----------------------------------- ---------------------------------------
Date Walter G. Goodrich, President and
Chief Executive Officer
August 14, 2002 /s/ Lonnie J. Shaw
- ----------------------------------- ---------------------------------------
Date Lonnie J. Shaw, Principal Financial
Officer
20