Forcenergy Announces 1997 Results.
Production Increase of 89%
Reserve Replacement Ratio of 235%
Cash Flow Increase of 101%
Revenue Increase of 104%
Forcenergy Inc (NYSE:FEN) reported record recurring net income of $28.0 million, or $1.15 per share-diluted for the year ended December 31, 1997, exclusive of a non-cash impairment of oil and gas assets, compared with net income of $11.3 million, or $.57 per share-diluted for the 1996 year. Net income for the fourth quarter of 1997 was $9.1 million, or $.35 per share-diluted, exclusive of the impairment provision, compared to earnings of $5.1 million, or $.23 per share-diluted for the 1996 quarter. Recognized in the fourth quarter of 1997 was a $162.8 million after-tax non-cash impairment of oil and gas assets under the full cost accounting rules mandated by the Securities and Exchange Commission. The net loss for 1997, inclusive of the impairment provision, was $134.8 million, or $5.51 per share-diluted for the year, and $153.7 million, or $5.90 per share-diluted for the fourth quarter. Weighted average shares outstanding, on a diluted basis, increased to 24,436,370 for the year ended December 31, 1997 compared to 19,672,361 shares outstanding for the year ended December 31, 1996. Weighted average shares outstanding for the fourth quarter 1997 increased to 26,048,860 compared with 22,280,477 average shares outstanding in the fourth quarter of 1996.
Revenues for the year 1997 were a record $284.1 million, an increase of 104% over the prior year. Revenues for the fourth quarter of 1997 were $85.5 million, an increase of 92% over the 1996 quarter. Discretionary cash flow for 1997 increased to $155.5 million, or $6.35 per share-diluted for the year, and $46.6 million, or $1.79 per share-diluted for the fourth quarter, increases of 101% and 79% over the $77.3 million, or $3.95 per share, and $26.0 million, or $1.17 per share, respectively, reported for the comparable 1996 periods.
Included in the fourth quarter 1997 results and results for the year was a $162.8 million ($200 million pre-tax) non-cash impairment of oil and gas assets under the "ceiling test" provisions of the full cost accounting rules for oil and gas companies. Under these rules mandated by the Securities and Exchange Commission, to the extent the carrying cost of the Company's oil and gas assets associated with its proved reserve base exceeds the discounted present value of its proved reserves, that difference must be recognized as an additional charge to depletion/depreciation expense in that quarter. Because of the steep decline in oil and gas prices at year-end 1997, the Company's capitalized cost exceeded the discounted present value of its proven reserves resulting in the impairment. The pre-tax impairment can be attributed to the following: (1) $90 million attributable to the general reduction in present value caused by the year end decline in commodity prices; (2) $70 million related to the Company's investment in Alaska due to the decline in oil prices; (3) an approximate $30 million impairment of the Company's various international investments, principally related to unsuccessful exploration efforts in Gabon, Africa; and (4) the writedown of approximately $10 million in recorded cost associated with the recognition of deferred taxes on various corporate acquisitions consummated in the last three years. Impairment of the investment in Alaska was caused primarily by prices declining in the Cook Inlet area to a greater degree than in the Gulf of Mexico and lower 48 states, thereby artificially reducing the economic life of the properties which then resulted in an approximate 11 million barrel negative revision to proven reserves.
Numerous operating improvements were realized during 1997. Production for the full year increased to a record average of 22,500 barrels of oil and 158,200 MCF of natural gas per day. Fourth quarter production averaged 24,800 barrels and 184,300 MCF per day. On an equivalent basis, these averages represent increases of 89% and 76% over those for the comparable 1996 periods. The average cost per barrel equivalent for the Company's onshore and Gulf of Mexico production was reduced 11% in 1997, to an average rate of $3.63 per barrel, through increased production and operating improvements. The addition of the higher-cost, non-operated Cook Inlet production at the beginning of 1997 increased the company's overall 1997 operating expense to $4.33 per barrel equivalent, a 6% increase over the 1996 average.
The Company attained a 235% overall reserve replacement rate in 1997, 134% through acquisitions and 101% from drilling and revisions. This was the seventh year in a row that the Company has achieved more than 100% reserve replacement. Total proved reserves, on a barrel equivalent basis, increased approximately 25%, despite the 11 million-barrel downward revision in the Cook Inlet, Alaska reserves that resulted from the previously mentioned price-related artificial reduction in the estimated economic life of the fields. Each of the Company's operating divisions showed significant growth in reserve volume; the Gulf of Mexico increased 31.5%, onshore 51.5% and in Alaska 33.4%, absent the negative price-related revision. Despite the strong volume growth, the present value of proven reserves for each division declined by 38%, 17% and 69%, respectively, due to the decline in commodity prices.
Finding and development cost from all sources for 1997 was $11.69 per equivalent barrel. These costs were higher than normal due to: (1) a significant investment in unproved lease and seismic costs related to exploratory prospects to be drilled in the Gulf of Mexico, Alaska and Gabon in future years; (2) the downward revisions in the Alaskan reserves; (3) the effect of the unsuccessful international drilling costs in Gabon, and (4) the exponential increase in drilling rig and other service costs experienced in the Gulf of Mexico. Excluding the effects of the negative revision to the Alaskan reserves, the finding and development cost for 1997, from all sources, was $9.26 per equivalent barrel. Domestic finding and development cost from all sources for 1997, excluding the Alaskan price-related revisions, was $8.87 per equivalent barrel.
Stig Wennerstrom, President and Chief Executive Officer, commented, "Forcenergy had another successful year for reserve replacement, production and cash flow growth. The company's finding and development costs for 1997, however, did not measure up to our expectations. The 1997 finding and development costs were under upward pressure all year because of the higher drilling and service costs in the Gulf of Mexico and then were significantly and adversely impacted by the required year end price-related reduction in Alaskan oil reserves. We remain fully committed to the Cook Inlet area. We are proceeding on all current exploration and development projects as well as undertaking significant new 3-D seismic surveys and other actions which are continuing our exploitation of the existing asset base as well as preparing the Company for future exploration. Our belief that efforts focused in the Cook Inlet will result in substantial reserve additions has not changed. In fact, as a result of our 3-D seismic studies, further geologic work and formation of a viable development scheme, we recognized approximately nine million barrels of net proven reserves at our Redoubt Shoal prospect in 1997. Another goal in Alaska is to reduce operating costs on a per unit basis, which we have already been successful in doing on our operated properties.
Mr. Wennerstrom continued, "In the Gulf of Mexico we are addressing increased finding and development costs through a diligent review of all cost components and a drilling program that will emphasize lower-costs. Overall drilling costs should be reduced significantly by switching the majority of our 1998 projects to platform drilling rigs; available at approximately one-half the day-rate cost of jack-up rigs. We will continue to exploit our large Gulf of Mexico asset base through a balanced program of development, exploitation and exploration projects.
"Internationally, we drilled two non-commercial wells offshore Gabon, West Africa. However, we are encouraged by recent near-by discoveries and anxiously await the geophysical evaluation of a large-scale proprietary 3-D seismic survey that was acquired in late 1997 over a portion of our 50% owned Gryphon Marin concession. In Australia, we made a small discovery during 1997 and will participate in development opportunities and several exploratory prospects with significant reserve potential. Our international strategy of exposing a small portion of each year's capital budget to high-risk, high-reward projects will not change."
Forcenergy is an independent oil and gas company engaged in the exploration, acquisition, development, exploitation and production of oil and natural gas. -0-
Certain statements in this news release regarding future expectations and plans for future activities may be regarded as "forward looking statements" within the meaning of the Securities Litigation Reform Act. 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 accumulation of oil and natural gas, as well as other risks discussed in detail in the Company's SEC filings, including the Annual Report and Form 10-K for the year ended December 31, 1996. Actual results may vary materially.
(tables to follow) -0-
Summary Financial and Operating Information Three Months Ended Year Ended December 31, December 31, 1997 1996 % Change 1997 1996 % Change FINANCIAL SUMMARY (in thousands, except per share data) Revenues $ 85,524 $ 44,589 92% $ 284,185 $ 139,381 104% Net Income (Loss) (153,703)(1) 5,107 N/M (134,818)(1) 11,278 N/M Net Income (Loss) per share-diluted ($ 5.90) .23 N/M (5.51) .57 N/M Diluted weighted average common shares 26,049 22,280 17% 24,436 19,672 24% SUMMARY OPERATING DATA (in thousands, except pricing data) Production: Liquids (Mbbls) 2,285 1,167 96% 8,210 4,006 105% Natural Gas (MMcf) 16,951 10,455 62% 57,737 32,738 76% Total MBOE 5,110 2,910 76% 17,833 9,462 89% Average realized sales prices: Liquids (per Bbl) $ 16.62 $ 17.59 (6)% $ 17.34 $ 16.93 2% Natural Gas (per Mcf) 2.76 2.27 22% 2.41 2.16 12% (1) Includes a $162.8 million (after-tax) impairment provision pursuant to the ceiling-test requirements under full cost accounting guidelines. RESERVE RECONCILIATION Oil Gas Equivalent Reserve (MBBL) (MMCF) (MBOE) Replacement January 1, 1997 54,659 256,913 97,478 Acquisitions 12,444 69,044 23,951 134% Drilling (215) 110,281 18,165 102% Revisions (381) 736 (258) (1)% Production (8,210) (57,736) (17,833) January 1, 1998 58,297 379,238 121,503 25% RESERVE REPLACEMENT -- BY REGION (MBOE) _________________________________________________ Gulf of Mexico Onshore Alaska Total Acquisition 8,180 14,425 1,346 23,951 Drilling 18,165 -- -- 18,165 Revisions 2,478 (693) (2,043)(1) (258) 28,823 13,732 (697) 41,858 (1) Reflects the approximate 11 million-barrel negative revision offset by the addition of approximately 9 million barrels related to the Redoubt Shoal Prospect. FORCENERGY INC STATEMENTS OF OPERATIONS For the Year Ended December 31, 1997 1996 (in thousands, except per share amounts) Revenues: Oil and gas sales $ 281,690 $ 138,698 Other 2,495 683 284,185 139,381 Expenses: Lease operating 77,174 38,786 Depletion, depreciation and amortization 113,347 58,464 Impairment 200,000 -- Production taxes 4,791 3,454 General and administrative 15,244 7,971 410,556 108,675 Income from operations (126,371) 30,706 Interest and other income (loss) 3,354 650 Interest expense, net of amounts capitalized (32,422) (13,367) Income (loss) before income taxes (155,439) 17,989 Income tax (provision) benefit 20,621 (6,711) Net income (loss) $(134,818) $ 11,278 Net income (loss) per share: Basic $ (5.83) $ .60 Diluted $ (5.51) $ .57 Weighted average shares outstanding: Basic 23,142 18,934 Diluted 24,436 19,672 FORCENERGY INC STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997 1996 (in thousands) Cash flows from operating activities: Net income (loss) $(134,818) $ 11,278 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in earnings of affiliate (1,510) -- Depletion, depreciation and amortization 113,347 58,464 Impairment 200,000 -- Deferred income taxes (20,621) 6,612 Deferred interest -- 2,107 Other 1,287 (210) (Decrease) increase in accounts receivable 496 (14,091) Increase in other current assets (18,597) (3,674) (Decrease) increase in accounts payable 18,900 (4,859) Increase in other accrued liabilities 6,212 8,547 299,514 53,950 Net cash provided by operating activities 164,696 65,228 Cash flows from investing activities: Acquisitions of oil and gas properties (119,503) (152,478) Capital expenditures (274,304) (130,269) Dividends received from affiliate 900 -- Sale of surety bonds 4,426 2,151 Proceeds from sale of assets -- 1,072 Increase in other assets 457 (340) Net cash used in investing activities (388,024) (279,864) Cash flows from financing activities: Borrowings under senior credit facility 287,144 5,877 Repayments under senior credit facility (253,512) Issuance of long-term debt, net 193,414 169,114 Issuance of common stock, net 2,661 46,318 Net cash provided by financing activities 229,707 221,309 Net increase in cash 6,379 6,673 Cash at beginning of period 9,669 2,996 Cash at end of period $ 16,048 $ 9,669 FORCENERGY INC BALANCE SHEETS December 31, 1997 1996 (in thousands) ASSETS: Current Assets: Cash $ 16,048 $ 9,669 Accounts receivable, net 43,502 29,416 Other current assets 30,231 10,673 Total current assets 89,781 49,758 Investment in surety bonds, at cost -- 3,926 Property, plant and equipment, at cost, full cost method, net of accumulated depletion, depreciation and amortization 713,983 523,711 Other assets 20,466 8,530 $ 824,230 $ 585,925 LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 32,666 $ 8,643 Other accrued liabilities 70,009 34,370 Total current liabilities 102,675 43,013 Long-term debt 506,564 272,932 Deferred income taxes -- 21,044 Stockholders' Equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued or outstanding -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 25,504,617 and 22,578,118 issued and outstanding at December 31, 1997 and 1996, respectively 256 226 Capital in excess of par value 346,875 246,032 Retained earnings (deficit) (132,140) 2,678 Total stockholders' equity 214,991 248,936 $ 824,230 $ 585,925
CONTACT: Forcenergy Inc
J. Russell Porter
E. Joseph Grady
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|Date:||Mar 2, 1998|
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