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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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-19136 (COMMON STOCK)
NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1922764
(State or other jurisdiction (IRS Employer
of incorporation Identification No.)
or organization)
1400 ONE ENERGY SQUARE
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(Address of principal executive offices)
(214) 692-9211
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
11,190,650 shares of the registrant's Common Stock, $0.01 par value, were
outstanding on August 12, 2002.
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NATIONAL ENERGY GROUP, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 2001 and June
30, 2002 (Unaudited)........................................ 1
Consolidated Statements of Operations for the three months
and six months ended June 30, 2001 and 2002 (Unaudited)..... 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2002 (Unaudited).................... 3
Consolidated Statement of Stockholders' Equity (Deficit) for
the six months ended June 30, 2002 (Unaudited).............. 4
Notes to Consolidated Financial Statements (Unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................. 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2-3. None........................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. None........................................................ 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
i
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
2001 2002
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,090,361 $ 3,452,517
Accounts receivable -- affiliates......................... 1,187,458 694,949
Other..................................................... 187,202 303,559
------------- -------------
Total current assets.............................. 4,465,021 4,451,025
Investment in NEG Holding LLC............................... 97,654,106 102,677,948
Deferred tax asset.......................................... 30,589,443 28,235,655
------------- -------------
Total assets...................................... $ 132,708,570 $ 135,364,628
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 80,767 $ 27,090
Accrued interest on senior notes.......................... 2,711,023 2,663,085
------------- -------------
Total current liabilities......................... 2,791,790 2,690,175
Long term liabilities:
Credit facility........................................... 10,939,750 10,939,750
Senior notes.............................................. 148,637,000 148,637,000
Long-term interest payable on senior notes................ 42,893,815 42,295,268
Deferred gain on senior note redemption................... 9,850,794 8,831,747
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares -- 100,000,000 at December 31, 2001
and 15,000,000 at June 30, 2002; Issued and
outstanding shares -- 11,190,650 at December 31, 2001
and June 30, 2002.................................... 111,907 111,907
Additional paid-in capital................................ 123,020,121 123,020,121
Accumulated deficit....................................... (205,536,607) (201,161,340)
------------- -------------
Total stockholders' equity (deficit).............. (82,404,579) (78,029,312)
------------- -------------
Total liabilities and shareholders' equity
(deficit)....................................... $ 132,708,570 $ 135,364,628
============= =============
See accompanying notes.
1
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
2001 2002 2001 2002
----------- ----------- ------------ -----------
Revenues:
Oil and natural gas sales............. $12,076,563 $ -- $ 26,726,203 $ --
Accretion of Investment in NEG Holding
LLC................................ -- 8,011,234 -- 15,866,054
Management fee........................ -- 2,046,168 -- 4,034,552
----------- ----------- ------------ -----------
Total revenue................. 12,076,563 10,057,402 26,726,203 19,900,606
Cost and expenses:
Lease operating....................... 1,399,335 -- 2,817,012 --
Oil and natural gas production
taxes.............................. 629,560 -- 1,326,871 --
Depreciation, depletion, and
amortization....................... 2,387,935 -- 4,553,617 --
General and administrative............ 1,548,346 1,861,794 2,655,669 3,684,030
----------- ----------- ------------ -----------
Total costs and expenses...... 5,965,176 1,861,794 11,353,169 3,684,030
----------- ----------- ------------ -----------
Operating income........................ 6,111,387 8,195,608 15,373,034 16,216,576
Other income (expense):
Interest expense........................ (5,695,951) (4,745,308) (11,403,664) (9,499,826)
Interest income and other, net.......... (273,821) 6,698 (150,089) 12,305
----------- ----------- ------------ -----------
Income before reorganization items and
income taxes.......................... 141,615 3,456,998 3,819,281 6,729,055
Reorganization items:
Professional fees and other........... 587,393 -- 460,312 --
----------- ----------- ------------ -----------
Income before income taxes.............. 729,008 3,456,998 4,279,593 6,729,055
Income tax expense...................... -- 1,208,782 -- 2,353,788
----------- ----------- ------------ -----------
Income before extraordinary item........ 729,008 2,248,216 4,279,593 4,375,267
Extraordinary loss on discharge of
indebtedness.......................... -- -- (11,457) --
----------- ----------- ------------ -----------
Net income.............................. $ 729,008 $ 2,248,216 $ 4,268,136 $ 4,375,267
=========== =========== ============ ===========
Earnings per common share:
Income before extraordinary item...... $ .07 $ .20 $ .38 $ .39
Loss on discharge of indebtedness..... -- -- (.00) --
----------- ----------- ------------ -----------
Net income per common share........... $ .07 $ .20 $ .38 $ .39
=========== =========== ============ ===========
Weighted average number of common shares
outstanding........................... 11,190,650 11,190,650 11,190,650 11,190,650
=========== =========== ============ ===========
See accompanying notes.
2
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------
2001 2002
------------ ------------
Operating Activities:
Net income................................................ $ 4,268,136 $ 4,375,267
Adjustments to reconcile net income to net cash provided
by operating activities:
Accretion of Investment in NEG Holding LLC............. -- (15,866,054)
Deferred gain amortization............................. -- (1,019,046)
Deferred income tax expense............................ -- 2,353,788
Depreciation, depletion, and amortization.............. 4,553,617 --
Change in fair value of derivative contract............ 462,849 --
Changes in operating assets and liabilities:
Accounts receivable.................................. 1,444,428 492,509
Oil and natural gas derivative deposit............... (500,000) --
Other current assets................................. 177,704 (116,358)
Accounts payable and accrued liabilities............. 928,339 (700,162)
------------ ------------
Net cash provided by (used in) operating
activities...................................... 11,335,073 (10,480,056)
------------ ------------
Investing Activities:
Oil and natural gas acquisition, exploration, and
development expenditures............................... (22,508,320) --
Purchases of other property and equipment................. (29,056) --
Proceeds from sales of oil and natural gas properties..... 698,192 --
Guaranteed payment from NEG Holding LLC................... -- 10,842,212
------------ ------------
Net cash provided by (used in) investing
activities...................................... (21,839,184) 10,842,212
------------ ------------
Financing Activities-Repayment of credit facility........... (25,000,000) --
------------ ------------
Increase (decrease) in cash and cash equivalents............ (35,504,111) 362,156
Cash and cash equivalents and beginning of period........... 43,327,755 3,090,361
------------ ------------
Cash and cash equivalents at end of period.................. $ 7,823,644 $ 3,452,517
============ ============
Supplemental cash flow information
Interest paid in cash..................................... $ 9,085,417 $ 11,165,162
============ ============
See accompanying notes.
3
NATIONAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
COMMON STOCK TOTAL
--------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY (DEFICIT)
---------- -------- --------------- ------------- ----------------
Balance at December 31, 2001... 11,190,650 $111,907 $123,020,121 $(205,536,607) $(82,404,579)
Net income (including other
comprehensive income)..... -- -- -- 4,375,267 4,375,267
---------- -------- ------------ ------------- ------------
Balance at June 30, 2002....... 11,190,650 $111,907 $123,020,121 $(201,161,340) $(78,029,312)
========== ======== ============ ============= ============
See accompanying notes.
4
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2002
1. SETTLEMENT OF BANKRUPTCY CASE AND FORMATION OF LIMITED LIABILITY COMPANY
National Energy Group, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on November 20, 1990. Effective June 11, 1991, Big
Piney Oil and Gas Company and VP Oil, Inc. merged with and into the Company. On
August 29, 1996, Alexander Energy Corporation was merged with and into a
wholly-owned subsidiary of the Company, which subsidiary was merged with and
into the Company on December 31, 1996.
On February 11, 1999, the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division ("Bankruptcy Court") entered an involuntary
petition placing the Company under protection of the Bankruptcy Court pursuant
to Title 11, Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Proceeding"). On July 24, 2000, the Bankruptcy Court entered a subsequent order
confirming a Plan of Reorganization (the "Plan of Reorganization") jointly
proposed by the Company and the official committee of unsecured creditors, which
Plan of Reorganization became effective on August 4, 2000. The Bankruptcy Court
issued a final decree closing the case effective December 13, 2001. Accordingly,
the Company has effectively settled all matters relating to the Bankruptcy
Proceeding.
As mandated by the Plan of Reorganization and the Bankruptcy Court, NEG
Holding LLC ("Holding LLC"), a Delaware limited liability company, was formed in
August 2000. In exchange for an initial 50% membership interest in Holding LLC,
on September 12, 2001, but effective as of May 1, 2001, the Company contributed
to Holding LLC all of its operating assets and oil and natural gas properties
excluding cash of $4.3 million ("LLC Contribution"). In exchange for its initial
50% membership interest in Holding LLC, Gascon Partners, an affiliate of the
Company's largest stockholder ("Gascon"), contributed its sole membership
interest in Shana National LLC, an oil and natural gas producing company, and
cash, including a $10.9 million Revolving Note issued to Arnos Corp., an
affiliate of the Company's largest stockholder ("Arnos"), evidencing the
borrowings under the Company's revolving credit facility. In connection with the
foregoing, Holding LLC initially owns 100% of the membership interest in NEG
Operating LLC ("Operating LLC"), a Delaware limited liability company. All of
the oil and natural gas assets contributed by the Company and all of the oil and
natural gas assets associated with Gascon's contribution to Holding LLC were
transferred from Holding LLC to Operating LLC on September 12, 2001, but
effective as of May 1, 2001. Therefore, the Company is effectively a holding
company owning a 50% membership interest in NEG Holding LLC and whose employees
undertake the management and operation of the oil and natural gas activities
contributed by NEG Holding LLC to NEG Operating LLC.
The assets contributed by the Company to Holding LLC were current assets of
$11.5 million, net oil and natural gas assets of $85.0 million and other assets
of $4.8 million. The liabilities assumed by Holding LLC were current liabilities
of $4.2 million, intercompany payable to Gascon of $4.8 million and long-term
liabilities of $1.0 million.
The Holding LLC Operating Agreement entered into on September 12, 2001,
contains a provision that allows Gascon at any time, in its sole discretion, to
redeem the Company's membership interest in Holding LLC at a price equal to the
fair market value of such interest determined as if Holding LLC had sold all of
its assets for fair market value and liquidated. Since all of the Company's
operating assets and oil and natural gas properties have been contributed to
Holding LLC, as noted above, following such a redemption, the Company's
principal assets would consist solely of its cash balances. In the event that
such redemption right is exercised by Gascon, the Company may be obligated to
use the proceeds that it would receive for its redeemed membership interest to
pay outstanding indebtedness and operating expenses before the distribution of
any portion of such proceeds to the Company's shareholders. Following the
payment of the Company's indebtedness (currently held by entities owned or
controlled by Carl C. Icahn) and its operating expenses,
5
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
there is a substantial risk that there will be no proceeds remaining for
distribution to the Company's shareholders.
As a result of the foregoing transactions and as mandated by the Plan of
Reorganization, the Company is a holding company of which (i) the principal
assets are its remaining cash balances, accounts receivable from affiliates,
deferred tax asset, and its initial 50% membership interest in Holding LLC, and
(ii) the principal liabilities are the $10.9 million outstanding under its
existing $25 million revolving credit facility with Arnos and its 10 3/4% senior
notes and long-term interest payable on senior notes. None of the Company's
employees have been transferred to Holding LLC or Operating LLC.
As a result of the terms and conditions of the various agreements related
to the repayment of the Company's indebtedness to Arnos and repayment of the
priority distribution amounts and the guaranteed payments (plus accrued interest
thereon) to Gascon, there is a substantial risk that there will be no amounts
remaining for distribution to the Company's shareholders.
The Company remains highly leveraged after confirmation of the Plan of
Reorganization.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position, results of operations and cash flows for
the periods indicated. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from these
estimates. The Company's quarterly financial data should be read in conjunction
with the consolidated financial statements of the Company for the year ended
December 31, 2001 (including the notes thereto), set forth in the Company's
Annual Report on Form 10-K.
The results of operations for the six months ended June 30, 2002, are not
necessarily indicative of the results expected for the full year. Certain prior
year amounts have been reclassified to correspond with the current presentation.
The Company's contribution of all its operating assets and oil and gas
properties occurred on September 12, 2001. For tax and valuation purposes the
effective date is as of May 1, 2001, however, solely for financial reporting
purposes the transaction is as of September 1, 2001. Operations from September
1, 2001 to September 12, 2001 were not significant. Management fees and
guaranteed payments accruing from May 1, 2001 through September 1, 2001
aggregating $7,465,694 were paid by Holding LLC and recorded as an increase to
additional paid-in capital.
The Company capitalized internal general and administrative costs that
could be directly identified with acquisition, exploration and development
activities. Such capitalized costs included salary and related benefits of
individuals directly involved in the Company's acquisition, exploration and
development activities based on the percentage of their time devoted to such
activities. These costs totaled approximately $165,000 and $330,000 for the
three and six months ended June 30, 2001. Effective with the transfer of the
Company's oil and gas assets to Holding LLC, the Company no longer capitalizes
general and administrative costs.
Overhead reimbursements received from joint interest partners which were
included as a reduction of general and administrative expense totaled
approximately $106,000 and $217,000, for the three and six months
6
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended June 30, 2001. Effective with the transfer of the Company's oil and gas
assets to Holding LLC, the Company no longer receives overhead reimbursements
from joint interest partners.
3. MANAGEMENT AGREEMENT
The management and operation of Operating LLC is being undertaken by the
Company pursuant to a Management Agreement (the "Management Agreement") which
the Company has entered into with Operating LLC. However, neither the Company's
officers nor directors will control the strategic direction of Operating LLC's
oil and natural gas business including oil and natural gas drilling and capital
investments, which shall be controlled by the managing member of Holding LLC
(currently Gascon). The Management Agreement provides that the Company will
manage Operating LLC's oil and natural gas assets and business until the earlier
of November 1, 2006, or such time as Operating LLC no longer owns any of the
managed oil and natural gas properties. The Company's employees will conduct the
day-to-day operations of Operating LLC's oil and natural gas properties, and all
costs and expenses incurred in the operation of the oil and natural gas
properties shall be borne by Operating LLC; although the Management Agreement
provides that the salary of the Company's Chief Executive Officer shall be 70%
attributable to the managed oil and natural gas properties, and the salaries of
each of the General Counsel and Chief Financial Officer shall be 20%
attributable to the managed oil and natural gas properties. In exchange for the
Company's management services, Operating LLC shall pay the Company a management
fee equal to 115% of the actual direct and indirect administrative and
reasonable overhead costs incurred by the Company in operating the oil and
natural gas properties, which either the Company or Operating LLC may seek to
change within the range of 110%-115% as such change is warranted; however, the
parties have agreed to consult with each other to ensure that such
administrative and reasonable overhead costs attributable to the managed
properties are properly reflected in the management fee paid to the Company. In
addition, Operating LLC has agreed to indemnify the Company to the extent it
incurs any liabilities in connection with its operation of the assets and
properties of Operating LLC, except to the extent of its gross negligence, or
misconduct. The Company recorded $2.0 million and $4.0 million as a management
fee for the three and six month period ended June 30, 2002.
4. COVENANT VIOLATION
On December 15, 2001, the maturity date of the credit facility with Arnos
was extended to December 31, 2003, and the Company was given a waiver of
compliance with any and all covenant violations through December 31, 2003. The
Company was not in compliance with the minimum interest coverage ratio at June
30, 2002, however, there is no covenant violation due to the covenant waiver
received by the Company through December 31, 2003. Arnos continues to be the
holder of the credit facility, however, the $10.9 million note currently
outstanding under the credit facility was contributed to Holding LLC as part of
Gascon's contribution on September 12, 2001. The Company anticipates repayment
of this amount through a priority distribution from Holding LLC.
5. SENIOR NOTE REDEMPTION
In August 2001, the Company redeemed both $16.4 million of principal
outstanding under the senior note obligations and $4.8 million of long-term
interest payable on senior notes for $10.5 million. The Company paid two Arnos
affiliates approximately $.4 million in current interest on the redeemed senior
note obligations at the date of redemption related to interest owed from the
last semi-annual interest payment date of May 1, 2001 to the date of redemption.
As this was a partial redemption of the senior notes, it has been accounted for
as a modification of terms that changes the amounts of future cash payments.
Accordingly, the excess of redeemed principal and interest over the redemption
payment of $10.5 million will be amortized as a reduction to interest expense
over the remaining life of the bonds. In connection with this transaction, the
Company borrowed $10.9 million under its existing credit facility with Arnos.
7
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENT IN NEG HOLDING LLC
As explained below, the Company's investment in NEG Holding LLC is recorded
as a preferred investment. The initial investment was recorded at historical
carrying value of the net assets contributed with no gain or loss recognized on
the transfer.
The following is a summary balance sheet of NEG Holding LLC as of June 30,
2002.
Current assets......................................... $ 96,406,825
Net oil and natural gas properties..................... 120,153,274
Net other property and equipment....................... 553,830
Other long-term assets................................. 14,353
------------
Total assets........................................... $217,128,282
============
Current liabilities.................................... $ 6,587,739
Long-term liabilities.................................. 2,188,372
Members' equity........................................ 208,352,171
------------
Total liabilities and members' equity.................. $217,128,282
============
The following is a summary income statement for NEG Holding LLC for the six
months ended June 30, 2002.
Total revenues........................................ $ 17,120,022
Total cost and expenses............................... (14,627,278)
------------
Operating income...................................... 2,492,744
Interest income and other............................. 9,133,028
------------
Net income............................................ $ 11,625,772
============
For the six month period ended June 30, 2002, NEG Holding LLC generated
cash flows of $13.9 million from operating activities, used $18.1 million in
investing activities and had no cash flows from financing activities.
Under the Holding LLC Operating Agreement, the Company is to receive
guaranteed payments in addition to a priority distribution amount of $202.2
million before Gascon receives any monies. The priority distribution is to be
made on or before November 1, 2006. Guaranteed payments are to be paid, on a
semi annual basis, based on 10.75% of the outstanding priority distribution
amount. After the payments to the Company, Gascon is to receive distributions
equivalent to the priority distribution amount and guaranteed payments plus
other amounts as defined. Following the above distributions to the Company and
Gascon, additional distributions, if any, are to be made in accordance with
their respective capital accounts. The order of distributions is listed below.
Because of the substantial uncertainty that the Company will receive any
distributions above the priority and guaranteed payment amounts, the Company
will account for its investment in Holding LLC as a preferred investment whereby
guaranteed payment amounts received and receipts of the priority distribution
amount are recorded as reductions in the investment, and income is recognized
from accretion of the investment up to the priority distribution amount
including the guaranteed payments (based on the interest method) and the
residual interest attributable to Holding LLC will be valued at zero.
This method of accounting results in the recognition of income to November
1, 2006 equivalent to the difference between the original contribution amount of
$91.4 million and the priority distribution amount of $202.2 million. As a
result, the investment will accrete (increase) towards the priority distribution
amount. The residual interest attributable to the Company's investment in
Holding LLC has been valued at zero because of the substantial uncertainty that
the Company will receive any future distributions in excess of the priority
distribution and the guaranteed payments.
8
NATIONAL ENERGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Holding LLC Operating Agreement requires that (provided full payment of
all outstanding guaranteed payments has been made) distributions shall be made
to both the Company and Gascon as follows:
- First and through November 1, 2006, to the Company in an amount equal to
the Company's initial priority amount of $202.2 million minus any
distributions previously made to the Company.
- Second, to Gascon in an amount equal to the excess of (a) the sum of (i)
the Company's initial priority amount of $202.2 million, (ii) any
additional capital contributions made by Gascon, (iii) the aggregate sum
of all Guaranteed Payments, and (iv) an amount equal to the Accrued
Gascon Amount (which, under the Holding LLC Operating Agreement, means an
amount equal to the aggregate of interest that would be computed annually
if interest were imposed at a rate equal to the prime rate plus 1/2% as
of the close of each fiscal year on the excess of (a) the sum of (i) the
cumulative Guaranteed Payments and (ii) the aggregate of any Accrued
Gascon Amount computed in prior years, over (b) the cumulative
distributions by Holding LLC to Gascon), over (b) distributions
previously made to Gascon pursuant to this provision in the Holding LLC
Operating Agreement.
- Third, to the Company and Gascon in accordance with their then respective
Capital Accounts.
7. INCOME TAXES
At December 31, 2001, the Company estimates that it had net operating loss
carryforwards available for federal income tax purposes of approximately $129.3
million which begin expiring in 2002. Utilization of approximately $27.6 million
of the net operating loss carryforwards is subject to various limitations
because of previous changes in control of ownership (as defined in the Internal
Revenue Code) of the Company and Alexander Energy. Additional net operating loss
limitations may be imposed as a result of subsequent changes in stock ownership
of the Company. The Company recorded a deferred tax asset of $30.6 million and
$28.2 million as of December 31, 2001 and June 30, 2002, respectively, based
upon the projected allocations of taxable income by Holding LLC. Ultimate
realization of the deferred tax asset is dependent upon, among other factors,
the Company's ability to generate sufficient taxable income within the
carryforward periods and is subject to change depending on the tax laws in
effect in the years in which the carryforwards are used. As a result of the
recognition of expected future income tax benefits, subsequent periods will
reflect a full effective tax rate provision.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements and "Selected Financial Data" and respective notes thereto,
included elsewhere herein. The information below should not be construed to
imply that the results discussed herein will necessarily continue into the
future or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion only represents the best
present assessment by management of the Company.
On February 11, 1999, the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division ("Bankruptcy Court") entered an involuntary
petition placing the Company under protection of the Bankruptcy Court pursuant
to Title 11, Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Proceeding"). On July 24, 2000 the Bankruptcy Court entered a subsequent order
confirming a Plan of Reorganization (the "Plan of Reorganization") jointly
proposed by the Company and the official committee of unsecured creditors, which
Plan of Reorganization became effective on August 4, 2000. The Bankruptcy Court
issued a Final Decree closing the case effective December 13, 2001. Accordingly,
the Company has effectively settled all matters relating to the Bankruptcy
Proceeding.
As mandated by the Plan of Reorganization and the Bankruptcy Court, NEG
Holding LLC ("Holding LLC"), a Delaware limited liability company, was formed in
August 2000. In exchange for an initial 50% membership interest in Holding LLC,
on September 12, 2001, but effective as of May 1, 2001, the Company contributed
to Holding LLC all of its operating assets and oil and natural gas properties
excluding cash of $4.3 million. In exchange for its initial 50% membership
interest in Holding LLC, Gascon Partners, an entity owned or controlled by Carl
C. Icahn, the Company's largest stockholder ("Gascon"), contributed its sole
membership interest in Shana National LLC, an oil and natural gas producing
company, and cash, including a $10.9 million Revolving Note issued to Arnos
Corp., an entity owned or controlled by Carl C. Icahn, the Company's largest
stockholder ("Arnos"), evidencing the borrowings under the Company's revolving
credit facility. In connection with the foregoing, Holding LLC initially owns
100% of the membership interest in NEG Operating LLC ("Operating LLC"), a
Delaware limited liability company. All of the oil and natural gas assets
contributed by the Company and all of the oil and natural gas assets associated
with Gascon's contribution to Holding LLC were transferred from Holding LLC to
Operating LLC on September 12, 2001, but effective as of May 1, 2001.
Pursuant to the Holding LLC Operating Agreement, the Company is to receive
guaranteed payments, in addition to a priority distribution amount of $202.2
million before Gascon receives any monies. It is anticipated that the priority
distribution amount of $202.2 million will be used by the Company to pay off the
Company's indebtedness (currently held by entities owned or controlled by Carl
C. Icahn). The priority distribution is to be made on or before November 1,
2006. Guaranteed payments are to be paid on a semi annual basis, based on 10.75%
of the outstanding priority distribution amount. After the payments to the
Company, Gascon is to receive distributions equivalent to the priority
distribution amount and guaranteed payments plus other amounts as defined in the
NEG Holding LLC Operating Agreement referred herein. Following the above
distributions to the Company and Gascon, additional distributions, if any, are
to be made in accordance with their respective capital accounts. Because of the
substantial uncertainty that the Company will receive any distributions above
the priority and guaranteed payment amounts, the Company accounts for its
investment in Holding LLC as a preferred investment whereby guaranteed payment
amounts received and receipts of the priority distribution amount are recorded
as reductions in the investment and income is recognized from accretion of the
investment up to the priority distribution amount, including the guaranteed
payments (based on the interest method), and the residual interest attributable
to Holding LLC will be valued at zero. Cash receipts, if any, from the residual
interest will be reported in income as earned.
The Holding LLC Operating Agreement entered into on September 12, 2001,
contains a provision that allows Gascon at any time, in its sole discretion, to
redeem the Company's membership interest in Holding LLC at a price equal to the
fair market value of such interest determined as if Holding LLC had sold all of
its assets for fair market value and liquidated. Since all of the Company's
operating assets and oil and natural gas properties have been contributed to
Holding LLC, as noted above, following such a redemption, the Company's
principal assets would consist solely of its cash balances. In the event that
such redemption right is
10
exercised by Gascon, the Company may be obligated to use the proceeds that it
would receive for its redeemed membership interest to pay outstanding
indebtedness and operating expenses before the distribution of any portion of
such proceeds to the Company's shareholders. Following the payment of the
Company's indebtedness (currently held by entities owned or controlled by Carl
C. Icahn) and its operating expenses, there is a substantial risk that there
will be no proceeds remaining for distribution to the Company's shareholders. It
is the present intention of Holding LLC to continue to conduct oil and natural
gas drilling and development activities in the ordinary course of business and
to seek additional reserves.
The management and operation of Operating LLC is being undertaken by the
Company pursuant to a Management Agreement (the "Management Agreement") which
the Company has entered into with Operating LLC. However, neither the Company's
officers nor directors will control the strategic direction of Operating LLC's
oil and natural gas business, including oil and natural gas drilling and capital
investments, which shall be controlled by the managing member of Holding LLC
(currently Gascon). The Management Agreement provides that the Company will
manage Operating LLC's oil and natural gas assets and business until the earlier
of November 1, 2006, or such time as Operating LLC no longer owns any of the
managed oil and natural gas properties. The Company's employees will conduct the
day-to-day operations of Operating LLC's oil and natural gas properties, and all
costs and expenses incurred in the operation of the oil and natural gas
properties shall be borne by Operating LLC; although the Management Agreement
provides that the salary of the Company's Chief Executive Officer shall be 70%
attributable to the managed oil and natural gas properties, and the salaries of
each of the General Counsel and Chief Financial Officer shall be 20%
attributable to the managed oil and natural gas properties. In exchange for the
Company's management services, Operating LLC shall pay the Company a management
fee equal to 115% of the actual direct and indirect administrative and
reasonable overhead costs incurred by the Company in operating the oil and
natural gas properties, which either the Company or Operating LLC may seek to
change within the range of 110%-115% as such change is warranted; however, the
parties have agreed to consult with each other to ensure that such
administrative and reasonable overhead costs attributable to the managed
properties are properly reflected in the management fee paid to the Company. In
addition, Operating LLC has agreed to indemnify the Company to the extent it
incurs any liabilities in connection with its operation of the assets and
properties of Operating LLC, except to the extent of its gross negligence, or
misconduct. The Company recorded $2.0 million and $4.0 million as a management
fee for the three and six month period ended June 30, 2002.
As a result of the foregoing transactions and as mandated by the Plan of
Reorganization, the Company is a holding company of which (i) the principal
assets are its remaining cash balances, accounts receivable from affiliates,
deferred tax asset and its initial 50% membership interest in Holding LLC, and
(ii) the principal liabilities are the $10.9 million outstanding under its
existing $25 million revolving credit facility with Arnos and its 10 3/4% senior
notes and long-term interest payable on senior notes. None of the Company's
employees have been transferred to Holding LLC or Operating LLC.
As a result of the terms and conditions of the various agreements related
to the repayment of the Company's indebtedness to Arnos and repayment of the
priority distribution amounts and the guaranteed payments (plus accrued interest
thereon) to Gascon, there is a substantial risk that there will be no amounts
remaining for distribution to the Company's shareholders.
In August 2001, the Company redeemed both $16.4 million of principal
outstanding under the senior note obligations and $4.8 million of long-term
interest payable on senior notes for $10.5 million. The Company paid two Arnos
affiliates approximately $.4 million in current interest on the redeemed senior
note obligations at the date of redemption related to interest owed from the
last semi-annual interest payment date of May 1, 2001 to the date of redemption.
As this was a partial redemption of the senior notes, it has been accounted for
as a modification of terms that changes the amounts of future cash payments.
Accordingly, the excess of redeemed principal and interest over the redemption
payment of $10.5 million will be amortized as a reduction to interest expense
over the remaining life of the bonds. In connection with this transaction, the
Company borrowed $10.9 million under its existing credit facility with Arnos.
Although the Company is highly leveraged following confirmation of the Plan
of Reorganization, the Company expects that availability under its existing
credit facility, expected cash flows from guaranteed
11
payments, priority distributions and management fees will be sufficient to fund
its operations and debt service. However, no assurances can be given that
Holding LLC will generate sufficient cash flows to make these payments and in
that event, the Company would not be able to meet its obligations.
RESULTS OF OPERATIONS
On September 12, 2001 the Company contributed all its operating assets and
oil and gas properties excluding cash of $4.3 million to Holding LLC in exchange
for an initial 50% membership interest ("LLC Contribution"). For tax and
valuation purposes the effective date is May 1, 2001, however, for financial
reporting purposes the transaction is as of September 1, 2001. Operations from
September 1, 2001 to September 12, 2001 were not significant. During 2002, the
Company only recognized income from accretion of the preferred investment and
management fees compared to oil and natural gas operations recorded in 2001. In
the future, the Company will only recognize income from accretion of the
preferred investment and management fees.
Overview of Production, Sales and Unit Economics
The following table sets forth certain information regarding the production
volumes, oil and natural gas sales, average sales prices, and unit economics per
Mcfe for revenues and expenses related to the Company's oil and natural gas
production for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2001 2002 2001 2002
------- ----- ------- -----
Net production:
Oil (Mbbls).................................... 170 -- 437 --
Natural gas (Mmcf)............................. 1,654 -- 3,711 --
Natural gas equivalent (Mmcfe)................. 2,671 -- 6,333 --
Oil and natural gas sales (in thousands):
Oil............................................ $ 4,579 $ -- $11,931 $ --
Natural gas.................................... 7,498 -- 11,117 --
------- ----- ------- -----
Total.................................. $12,077 $ $23,048 $ --
======= ===== ======= =====
Average sales price:
Oil (per Bbl).................................. $ 26.94 -- $ 27.30 $ --
Natural gas (per Mcf).......................... 4.53 -- 3.00 --
Unit economics (per Mcfe):
Average sales price............................ $ 4.52 $ -- $ 3.64 $ --
Lease operating expenses....................... .52 -- .44 --
Oil and natural gas production taxes........... .24 -- .24 --
Depletion rate................................. .85 -- .86 --
General and administrative..................... .58 -- .35 --
Three Months Ended June 30, 2001, Compared with Three Months Ended June 30,
2002
Revenues. Total revenues decreased $2.0 million (16.5%) from $12.1 million
for the second quarter of 2001 to $10.1 million for the second quarter of 2002.
Total revenues declined due to the LLC Contribution.
The Company produced 170 Mbbls of oil and 1,654 Mmcf of natural gas during
the second quarter of 2001. The Company had no oil and natural gas production
during the second quarter of 2002 due to the LLC Contribution.
Costs and Expenses. Due to the LLC Contribution, the Company did not
record any lease operating expenses during the three months ended June 30, 2002
compared to $1.4 million for the same period in 2001.
12
Due to the LLC Contribution, the Company did not record any oil and natural
gas production taxes during the three months ended June 30, 2002 compared to $.6
million for the same period in 2001.
Due to the LLC Contribution, the Company did not record any depreciation,
depletion and amortization during the three months ended June 30, 2002 compared
to $2.4 million for the same period in 2001.
General and administrative costs increased $.4 million (26.7%) from $1.5
million for the three months ended June 30, 2001 to $1.9 million for the same
period in 2002. The increase is the result of the LLC Contribution and the
resulting change in the Company's recording of general and administrative costs.
Effective September 1, 2001 the Company no longer offsets general and
administrative costs by field employee costs or lease management income, but is
reimbursed a management fee for these and other costs at 115% of general and
administrative costs as defined in the Management Agreement. As discussed in
Note 2 to the Consolidated Financial Statements, the Company capitalized
internal general and administrative costs prior to September 1, 2001 that were
directly identified with acquisition, exploration and development activities.
These capitalized general and administrative costs totaled $.2 million for the
three months ended June 30, 2001.
Other Income and Expenses. The $1.0 million decrease in interest expense
from $5.7 million for the three months ended June 30, 2001 to $4.7 million for
the same period in 2002 was due primarily to the senior note redemption
discussed below. In August 2001, the Company redeemed both $16.4 million of
principal outstanding under the senior note obligations and $4.8 million of
long-term interest payable on senior notes for $10.5 million. This redemption
reduced interest expense approximately $.6 million for the three months ended
June 30, 2002. (See Note 1 to the Consolidated Financial Statements). The
weighted average interest rate for the three months ended June 30, 2001 was
10.75% compared to 9.44% for the same period in 2002.
Reorganization Items. The Company incurred $.6 million for professional
fees and other expenses associated with the Bankruptcy Proceeding for the three
months ended June 30, 2001.
Income Taxes. At December 31, 2001, the Company estimates that it had net
operating loss carryforwards available for federal income tax purposes of
approximately $129.3 million which begin expiring in 2002. Utilization of
approximately $27.6 million of the net operating loss carryforwards is subject
to various limitations because of previous changes in control of ownership (as
defined in the Internal Revenue Code) of the Company and Alexander Energy.
Additional net operating loss limitations may be imposed as a result of
subsequent changes in stock ownership of the Company. The Company recorded a
deferred tax asset of $30.6 million and $28.2 million as of December 31, 2001
and June 30, 2002, respectively, based upon the projected allocations of taxable
income by Holding LLC. Ultimate realization of the deferred tax asset is
dependent upon, among other factors, the Company's ability to generate
sufficient taxable income within the carryforward periods and is subject to
change depending on the tax laws in effect in the years in which the
carryforwards are used. As a result of the recognition of expected future income
tax benefits, subsequent periods will reflect a full effective tax rate
provision. The Company recorded deferred income tax expense of $1.2 million for
the three months ended June 30, 2002.
Net Income. Net income of $.7 million was recognized for the three months
ended June 30, 2001, compared with net income of $2.2 million for the comparable
2002 period.
Six Months Ended June 30, 2001, Compared with Six Months Ended June 30, 2002
Revenues. Total revenues decreased $6.8 million (25.5%) from $26.7 million
for the six months ended June 30, 2001 to $19.9 million for the same period in
2002. Total revenues declined due to the LLC Contribution.
The Company produced 437 Mbbls of oil and 3,711 Mmcf of natural gas during
the six months ended June 30, 2001. The Company had no oil and natural gas
production during the same period in 2002 due to the LLC Contribution.
Costs and Expenses. Due to the LLC Contribution, the Company did not
record any lease operating expenses during the six months ended June 30, 2002
compared to $2.8 million for the same period in 2001.
13
Due to the LLC Contribution, the Company did not record any oil and natural
gas production taxes during the six months ended June 30, 2002 compared to $1.3
million for the same period in 2001.
Due to the LLC Contribution, the Company did not record any depreciation,
depletion and amortization during the six months ended June 30, 2002 compared to
$4.6 million for the same period in 2001.
General and administrative costs increased $1.0 million (37.0%) from $2.7
million for the six months ended June 30, 2001 to $3.7 million for the same
period in 2002. The increase is the result of the LLC Contribution and the
resulting change in the Company's recording of general and administrative costs.
Effective September 1, 2001 the Company no longer offsets general and
administrative costs by field employee costs or lease management income, but is
reimbursed a management fee for these and other costs at 115% of general and
administrative costs as defined in the Management Agreement. As discussed in
Note 2 to the Consolidated Financial Statements, the Company capitalized
internal general and administrative costs prior to September 1, 2001 that were
directly identified with acquisition, exploration and development activities.
These capitalized general and administrative costs totaled $.3 million for the
six months ended June 30, 2001.
Other Income and Expenses. The $1.9 million decrease in interest expense
from $11.4 million for the six months ended June 30, 2001 to $9.5 million for
the same period in 2002 was due primarily to the senior note redemption
discussed below. In August 2001, the Company redeemed both $16.4 million of
principal outstanding under the senior note obligations and $4.8 million of
long-term interest payable on senior notes for $10.5 million. This redemption
reduced interest expense approximately $1.1 million for the six months ended
June 30, 2002. (See Note 1 to the Consolidated Financial Statements). The
weighted average interest rate for the six months ended June 30, 2001 was 10.75%
compared to 9.45% for the same period in 2002.
Reorganization Items. The Company incurred $.5 million for professional
fees and other expenses associated with the Bankruptcy Proceeding for the six
months ended June 30, 2001.
Income Taxes. At December 31, 2001, the Company estimates that it had net
operating loss carryforwards available for federal income tax purposes of
approximately $129.3 million which begin expiring in 2002. Utilization of
approximately $27.6 million of the net operating loss carryforwards is subject
to various limitations because of previous changes in control of ownership (as
defined in the Internal Revenue Code) of the Company and Alexander Energy.
Additional net operating loss limitations may be imposed as a result of
subsequent changes in stock ownership of the Company. The Company recorded a
deferred tax asset of $30.6 million and $28.2 million as of December 31, 2001
and June 30, 2002, respectively, based upon the projected allocations of taxable
income by Holding LLC. Ultimate realization of the deferred tax asset is
dependent upon, among other factors, the Company's ability to generate
sufficient taxable income within the carryforward periods and is subject to
change depending on the tax laws in effect in the years in which the
carryforwards are used. As a result of the recognition of expected future income
tax benefits, subsequent periods will reflect a full effective tax rate
provision. The Company recorded deferred income tax expense of $2.4 million for
the six months ended June 30, 2002.
Net Income. Net income of $4.3 million was recognized for the six months
ended June 30, 2001, compared with net income of $4.4 million for the comparable
2002 period.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended June 30, 2001, Compared with Six Months Ended June 30, 2002
Net cash provided by operating activities was $11.4 million for 2001,
compared to net cash used in operating activities of $10.5 million for 2002. The
decrease in cash flows from operating activities is primarily due to the LLC
Contribution.
Net cash used in investing activities was $21.8 million for 2001 compared
to net cash provided by investing activities of $10.8 million for 2002. The cash
used in investing activities for 2001 included $22.5 million of expenditures
related to drilling, workovers, recompletions and other production enhancement
activities. The cash provided by investing activities for 2002 consisted of the
$10.8 guaranteed payment from NEG Holding LLC.
14
Net cash used in financing activities in 2001 consisted of repayment of the
outstanding borrowings of $25 million under the credit facility. There was no
cash used in financing activities in 2002.
FUTURE CAPITAL AND FINANCING REQUIREMENTS
The Company currently has $10.9 million outstanding under its existing $25
million credit facility with Arnos. Arnos continues to be the holder of the
credit facility; however, the $10.9 million note currently outstanding under the
credit facility was contributed to Holding LLC as part of Gascon's contribution
to Holding LLC on September 12, 2001. The Company anticipates repayment of this
amount through the priority distribution from Holding LLC. In December 2001, the
maturity date of the credit facility was extended to December 31, 2003 and the
Company was given a waiver of compliance with respect to any and all covenant
violations. The Company was not in compliance with the minimum interest coverage
ratio at June 30, 2002, however, there was no covenant violation due to the
covenant waiver received by the Company through December 31, 2003.
Although the Company is highly leveraged following confirmation of the Plan
of Reorganization, the Company expects that availability under its existing
credit facility, expected cash flows from guaranteed payments, priority
distributions and management fees will be sufficient to fund its operations and
debt service. However, no assurances can be given that Holding LLC will generate
sufficient cash flows to make these payments and in that event, the Company
would not be able to meet its obligations.
In August 2001, the Company redeemed both $16.4 million of principal
outstanding under the senior note obligations, and $4.8 million of long-term
interest payable on senior notes for $10.5 million. The Company paid two Arnos
affiliates approximately $.4 million in current interest on the redeemed senior
note obligations at the date of redemption related to interest owed from the
semi-annual interest payment date of May 1, 2001 to the date of redemption. As
this was a partial redemption of the senior notes, it was accounted for as a
modification of terms that changes the amounts of future cash payments.
Accordingly, the excess of redeemed principal and interest over the redemption
payment of $10.5 million will be amortized as a reduction to interest expense
over the remaining life of the senior note obligations. In connection with this
transaction, the Company borrowed $10.9 million under its existing credit
facility with Arnos.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations" ("SFAS No. 143") which establishes requirements for the accounting
of removal-type costs associated with asset retirements. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. The Company does not believe there will be a material
impact upon adoption.
INFLATION
Although certain of the Company's costs and expenses are affected by the
level of inflation, inflation did not have a significant effect on the Company's
results of operations during the three months ended June 30, 2001 and 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the past, the Company utilized various derivative instruments,
principally to control risk related to future oil and natural gas prices. While
the use of derivative contracts can limit the downside risk of adverse price
movements, it may also limit future gains from favorable movements. The Company
addressed market risk by selecting instruments whose value fluctuations
correlated strongly with the underlying commodity. Credit risk related to
derivative activities was managed by requiring minimum credit standards for
counterparties, periodic settlements, and market to market valuations.
No derivative assets, or liabilities have been recorded by the Company as
all of the derivatives entered into by the Company were contributed to Holding
LLC in September 2001. (Note 1)
15
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than acting pursuant to the Management Agreement as it relates to the
management and operations of the oil and natural gas properties owned by
Operating LLC, the Company is not a party to any material pending legal
proceedings. With respect to certain claims of the Company against Enron Corp.
relating to the oil and natural gas properties contributed to Holding LLC, a
representative of the Company has been appointed to the official committee of
unsecured creditors in the Enron bankruptcy proceeding.
The Company's Joint Plan became effective August 4, 2000 and the Bankruptcy
Court issued a final decree effective December 13, 2001 closing the case.
ITEM 2-3. NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 6, 2002, an annual meeting of the shareholders of the Company was
held.
At the meeting three proposals were voted upon and the following sets forth
the number of votes that were cast for and against the proposals and the number
of abstentions and broker no votes on the proposals:
(i) Proposal to elect five nominees as directors of the Company to
serve until the next annual meeting of shareholders:
NAME OF DIRECTOR
BOB G. ROBERT H. MARTIN L. ROBERT J. JACK G.
ALEXANDER KITE HIRSCH MITCHELL WASSERMAN
---------- ---------- ---------- ---------- ----------
For...................... 10,390,817 10,389,481 10,382,936 10,382,951 10,381,391
Against.................. 256,845 258,181 264,726 264,711 266,271
Abstain.................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
10,647,662 10,647,662 10,647,662 10,647,662 10,647,662
========== ========== ========== ========== ==========
(ii) Proposal to amend the Company's Certificate of Incorporation to
effect a reduction in the aggregate number of shares of common stock the
Company is authorized to issue from 100,000,000 shares to 15,000,000.
For..................................................... 10,565,777
Against................................................. 67,658
Abstain................................................. 14,227
Broker no Votes......................................... --
----------
10,647,662
==========
(iii) Proposal to ratify the selection of KPMG LLP as the Company's
independent auditors for the current fiscal year ended December 31, 2002.
For..................................................... 10,610,575
Against................................................. 24,166
Abstain................................................. 12,921
Broker no Votes......................................... --
----------
10,647,662
==========
16
ITEM 5. NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The list of exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Index to Exhibits.
(b) Reports on Form 8-K
The Company filed an 8-K on June 14, 2002 to disclose an amendment to the
Company's Certificate of Incorporation to effect a reduction in the aggregate
number of shares of common stock the Company is authorized to issue from
100,000,000 shares to 15,000,000.
17
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.
NATIONAL ENERGY GROUP, INC
By: /s/ BOB G. ALEXANDER President and Chief Executive August 14, 2002
------------------------------------------------- Officer
Bob G. Alexander
By: /s/ RANDALL D. COOLEY Vice President and Chief August 14, 2002
------------------------------------------------- Accounting Officer
Randall D. Cooley
18
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of National Energy Group, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Bob G.
Alexander, Chief Executive Officer of the Company, and I, Randall D. Cooley,
Chief Accounting Officer, certify, pursuant to 18 U.S.C. sec. 1350, as adopted
pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ BOB G. ALEXANDER
------------------------------------
Bob G. Alexander
Chief Executive Officer
/s/ RANDALL D. COOLEY
------------------------------------
Randall D. Cooley
Chief Accounting Officer
19
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code for National Energy Group, Inc. and
Boomer Marketing Corporation dated May 12, 2000(1)
2.3 -- Order of Bankruptcy Court Confirming Joint Plan of
Reorganization and Fixing Deadlines for Filing
Administrative Claims, Fee Claims and Rejections
Claims(2)
3.1 -- Restated Certificate of Incorporation filed with the
Secretary of the State of Delaware on October 16, 2000(3)
3.2 -- By-laws of the Company(4)
4.1 -- Indenture dated as of November 1, 1996, among the
Company, National Energy Group of Oklahoma, Inc.,
formerly NEG-OK, and BankOne, Columbus, N.A.(5)
4.2 -- Indenture dated August 21, 1997, among the Company and
Bank One, N.A.(6)
4.3 -- Instrument of Resignation, Appointment and Acceptance,
dated October 23, 1998, between the Company, Bank One,
Texas, N.A. and Norwest Bank Minnesota, N.A.(7)
10.5 -- Restated Loan Agreement dated August 29, 1996 among Bank
One and Credit Lyonnais New York Branch ("Credit
Lyonnais") and the Company, NEG-OK and Boomer Marketing
Corporation ("Boomer")(8)
10.6 -- $50,000,000 Revolving Note dated August 29, 1996 payable
to Bank One(8)
10.7 -- $50,000,000 Revolving Note dated August 29, 1996 payable
to Credit Lyonnais(8)
10.8 -- Assignment of $50,000,000 Revolving Note to Arnos Corp.
from Bank One, Texas, N.A.(9)
10.9 -- Assignment of $50,000,000 Revolving Note to Arnos Corp.
from Credit Lyonnais New York Branch(9)
10.10 -- Unlimited Guaranty of NEG-OK dated August 29, 1996 for
the benefit of Bank One(8)
10.11 -- Unlimited Guaranty of NEG-OK, dated August 29, 1996 for
the benefit of Credit Lyonnais(8)
10.12 -- Unlimited Guaranty of Boomer dated August 29, 1996 for
the benefit of Bank One(8)
10.13 -- Unlimited Guaranty of Boomer dated August 29, 1996 for
the benefit of Credit Lyonnais(8)
10.14 -- First Amendment to Restated Loan Agreement dated October
31, 1996 among Bank One and Credit Lyonnais and the
Company, Guarantor and Boomer(10)
10.15 -- Second Amendment to Restated Loan Agreement dated October
31, 1996, among Bank One and Credit Lyonnais and the
Company, Guarantor and Boomer(11)
10.16 -- Third Amendment to Restated Loan Agreement dated October
31, 1996, among Bank One and Credit Lyonnais and the
Company, Guarantor and Boomer(11)
10.17 -- Fourth Amendment to Restated Loan Agreement dated October
31, 1996, among Bank One and Credit Lyonnais and the
Company, Guarantor and Boomer(11)
10.18 -- Multi-State Assignment Agreement dated December 22, 1998
between Bank One, Texas, N.A., Credit Lyonnais New York
Branch and Arnos Corp.(12)
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.19 -- Multi-State Assignment Agreement, LaFourche Parish,
Louisiana, dated December 22, 1998, between Bank One,
Texas, N.A., Credit Lyonnais New York Branch and Arnos
Corp.(9)
10.20 -- Multi-State Assignment Agreement, Iberville Parish,
Louisiana, dated December 22, 1998, between Bank One,
Texas, N.A., Credit Lyonnais New York Branch and Arnos
Corp.(9)
10.21 -- Oklahoma Assignment Agreement, dated December 22, 1998,
between Bank One, Texas, N.A., Credit Lyonnais New York
Branch and Arnos Corp.(9)
10.29 -- Fifth Amendment to Restated Loan Agreement dated August
1, 2001, among the Company and Arnos Corp.(13)
10.30 -- Debt Purchase Agreement dated August 1, 2001 between the
Company and High River Limited Partnership.(13)
10.31 -- Debt Purchase Agreement dated August 1, 2001 between the
Company and High Coast Limited Partnership.(13)
10.32 -- NEG Holding LLC Operating Agreement dated May 1, 2001
between the Company and Gascon Partners.(14)
10.33 -- NEG Operating LLC Operating Agreement dated May 1, 2001
executed by NEG Holding LLC.(14)
10.34 -- Shana National LLC Amended and Restated Operating
Agreement dated September 12, 2001 executed by NEG
Operating LLC.(14)
10.35 -- Management Agreement dated September 12, 2001 between the
Company and NEG Operating LLC.(14)
10.36 -- Master Conveyance dated September 12, 2001 executed by
the Company in favor of NEG Holding LLC.(14)
10.37 -- Master Conveyance dated September 12, 2001 executed by
Gascon Partners in favor of NEG Holding LLC.(14)
10.38 -- Master Conveyance dated September 12, 2001 executed by
NEG Holding LLC in favor of NEG Operating LLC.(14)
10.39 -- Master Conveyance dated September 12, 2001 executed by
Shana Petroleum Company in favor of Gascon Partners.(14)
10.40 -- Master Conveyance dated September 12, 2001 executed by
Shana Petroleum Company in favor of Shana National
LLC.(14)
10.41 -- Final Decree of Bankruptcy Court (15)
- ---------------
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 33-38331), dated April 23, 1991.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Form S-4 (No. 333-38075), filed
October 16, 1997.
(7) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(8) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 29, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(12) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(13) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended June 30, 2001.
(14) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 30, 2001.
(15) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.