Record Revenues, Production, Cash Flow and Reserves;
Non-cash Ceiling Writedown Results in Loss
EDISON, N.J., March 27 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced financial and operating results for the fourth quarter and year
ended December 31, 1997.
Financial Highlights
($ thousands except per share)
3 mos. 1997 3 mos. 1996
Revenue $ 39,591 $ 28,946
Net Income (Loss) $(106,748)(A) $ 5,066
Earnings (Loss) per Share (Basic) $ (3.63)(A) $ 0.22
EBITDA (B) $ 25,698 $ 23,092
12 mos. 1997 12 mos. 1996
Revenue $ 143,689 $ 108,374
Net Income (Loss) $ (92,083)(A) $ 19,872
Earnings (Loss) per Share (Basic) $ (3.19)(A) $ 0.86
EBITDA(B) $ 97,670 $ 88,856
(A) Includes a $107.3 million non-cash ceiling writedown of oil and gas
assets. On a per-share basis, this equates to a $3.65 loss for the
quarter and a $3.72 loss for the full year.
(B) Earnings before interest, income taxes, depreciation, depletion,
amortization and other income from continuing operations. EBITDA for
1996 includes $7.1 million and $32.8 million for the quarter and full
year, respectively, attributable to the premium revenue from the
Tennessee Gas contract which was terminated effective January 1, 1997.
EBITDA is not a measure of financial performance or liquidity under
generally accepted accounting principles and should not be considered
in isolation.
Commenting on the Company's performance during the year, KCS Energy
President and Chief Executive Officer James W. Christmas said, "I am pleased
to say that despite the fact that 1997 was a challenging year for KCS and for
our industry in general, we were able to achieve our principal long-term
objectives of increasing reserves, production and cash flow (excluding the
Tennessee Gas contract premium) by at least 20% annually. KCS increased its
reserves 24%, its production 81% and its adjusted EBITDA 74%, more than
replacing the premium from the now-terminated take-or-pay contract with
Tennessee Gas Pipeline Company, which last year contributed a premium of
$32.8 million to EBITDA. Even without adjusting 1996 EBITDA to exclude this
premium for comparison purposes, EBITDA still increased 10% in 1997. In
addition, during 1997 we sold our intrastate pipeline and third-party
marketing operations realizing a net gain of $5.4 million, completing our
transition to a pure exploration and production company.
"While our principal growth objectives were achieved in 1997, we were
disappointed that due to delays in receipt of necessary specialty equipment,
our sour gas processing facilities were not completed until December, severely
limiting our ability to capitalize on the Manderson Field potential in 1997.
In addition, as a result of the precipitous decline in oil and gas prices late
in the year, earnings were reduced by $107.3 million (net of tax), from a non-
cash ceiling writedown of our oil and gas assets."
Record Oil and Gas Production and Proved Reserves
Oil and gas production in 1997 increased 81% to 54.6 Bcfe, compared to
30.1 Bcfe last year. Gas production increased 71% to 43.7 Bcf, compared to
25.6 Bcf in 1996 while oil and liquids production increased 141% to 1,824,000
barrels, compared to 758,000 barrels in 1996. This was our tenth consecutive
year of double-digit production growth. In fact, from 1992 through 1997,
production has increased at a compound annual growth rate of 65%. While the
Medallion acquisition was the primary reason for the 1997 growth, KCS also
added production from new drilling activities and from volumetric production
payment transactions. According to Mr. Christmas, "While lower oil prices
will impact the timing and nature of development of some of our major
prospects, we expect oil and gas production to increase at least 40% in 1998."
Despite the significantly lower oil prices at year end, which impacts the
economic recovery of reserves, the Company replaced 255% of its record
production. Proved oil and gas reserves at December 31, 1997 increased 24% to
a record 440.5 Bcfe, compared to 355.8 Bcfe at year-end 1996. Year-end 1997's
reserves consist of 326.2 Bcf of gas and 19.1 million barrels of oil and
condensate.
Increased Cash Flow; Year and Fourth Quarter Affected by Ceiling Writedown
Reflecting the growth in oil and gas production, EBITDA from continuing
operations increased 10% to $97.7 million, compared to $88.9 million in 1996.
Excluding the effect of the Tennessee Gas contract from 1996 results, which
better illustrates the year's progress, revenue was up 90% and EBITDA rose
74%. However, the combination of numerous factors, including substantially
lower oil and gas prices at year end and termination of the Tennessee Gas
contract resulted in a non-cash ceiling writedown of oil and gas assets,
creating a net loss of $92.1 million, or $3.19 per share, in 1997, compared to
net income of $19.9 million, or $0.86 per share, in 1996. Commenting on the
results, Mr. Christmas said, "Excluding the non-cash ceiling writedown, 1997
net income was $15.3 million, or $0.53 per share, on total revenue of
$143.7 million. This compares to $19.9 million, or $0.86 per share, on total
revenue of $108.4 million in 1996, which included $32.8 million of premium
revenue attributable to the now-terminated Tennessee Gas contract.
EBITDA for the quarter was $25.7 million, compared to $23.1 million
($16.0 million excluding the Tennessee Gas contract premium) last year. While
production for the quarter was up 70% from last year to 13.5 Bcfe, the non-
cash ceiling writedown discussed above, combined with the loss of the
Tennessee Gas contract revenue and higher interest costs offset the benefits
of the increased production, resulting in a loss for the fourth quarter.
Outlook
"As we approach our tenth anniversary, KCS finds itself in a very
favorable position. Our portfolio of properties is well balanced and
diversified in three operating regions, with a multi-year inventory of
development drilling locations and a number of high-potential exploration
prospects. The sour-gas treatment facility is operating successfully in the
Manderson Field in Wyoming's Big Horn Basin, making it possible to begin to
exploit that field's potential. Since the beginning of 1998, we have
completed several additional VPP transactions that will begin to increase
production in the second quarter and have recently put on line our Franklin
Deep well and an additional well in the Langham Creek Area in Harris County,
Texas. We have also completed a 32-square-mile 3-D seismic shoot over the
Langham Creek Area which is currently being processed. We believe that this
will help us in continuing to exploit this area, which is already one of our
major properties and we believe has the potential for significant additional
development drilling and a deeper high-potential exploratory project,"
Mr. Christmas said.
"While the decline in gas and especially oil prices late in 1997 and early
1998 has impacted short-term development plans and cash flow estimates for KCS
and the industry in general, we believe it has also provided additional
opportunities for companies positioned to capitalize on them. With
significant cash flow and additional capital availability, KCS is well
positioned. In addition, with more than 75% of our production in natural gas
where prices are attractive and likely to get stronger, we are in a good
position even if the rebound in oil prices takes longer to materialize, as
many believe it will. Lower oil prices do, however, impact the timing of
development of several of our properties, most notably the Manderson Field;
but with our significant acreage position in the area either held by
production or under long-term leases, we are able to defer development until
oil prices rebound, which we believe should occur in the latter part of 1998.
We expect continuing production increases, particularly of natural gas, to
enable us to continue to achieve our long-term growth objectives,"
Mr. Christmas said.
1998 Capital Budget Set at $160 Million
The Company has set an initial $160 million capital expenditure budget for
1998. Approximately $75 million have been allocated for development
drilling, $20 million for exploration and $65 million for property
acquisitions, primarily through the Company's volumetric production payment
program.
KCS is an independent energy company engaged in the acquisition,
exploration, development and production of natural gas and crude oil with
operations in the Rocky Mountains, Mid-Continent and Gulf Coast regions. The
Company also owns oil and gas property interests in the Gulf of Mexico and
Michigan's Niagaran Reef trend.
To receive KCS' latest news and other corporate developments via fax at no
cost, please call 1-800-PRO-INFO. Use company code KCS.
This press release contains forward-looking statements that involve a
number of risks and uncertainties. Among the important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements are delays and difficulties in developing currently
owned properties, the failure of exploratory drilling to result in commercial
wells, delays due to the limited availability of drilling equipment and
personnel, fluctuations in oil and gas prices, general economic conditions and
the risk factors detailed from time to time in the Company's periodic reports
and registration statements filed with the Securities and Exchange Commission.
KCS Energy, Inc.
Condensed Income Statements
Three Months Ended Twelve Months Ended
(Amounts in Thousands December 31, December 31,
Except Per Share Data) 1997 1996 1997 1996
Oil and gas revenue * $37,441 $28,964 $137,837 $108,015
Other revenue, net 2,150 (18) 5,852 359
Total revenue 39,591 28,946 143,689 108,374
Operating costs and expenses
Lease operating
expenses 8,923 2,585 29,393 9,167
Production taxes 1,519 855 5,873 2,526
General and
administrative 3,451 2,414 10,753 7,825
Depreciation, depletion
and amortization 18,068 12,332 60,554 45,460
Writedown of oil and
gas properties 165,149 -- 165,149 --
Total operating costs
and expenses 197,110 18,186 271,722 64,978
Operating income
(loss) (157,519) 10,760 (128,033) 43,396
Interest and other
income, net 88 266 476 5,086
Interest expense (6,737) (2,892) (21,883) (14,085)
Income (loss) before
income taxes (164,168) 8,134 (149,440) 34,397
Federal and state
income taxes
(benefit) (57,507) 3,197 (52,055) 12,680
Net income (loss) from
continuing
operations (106,661) 4,937 (97,385) 21,717
Net income (loss)
from discontinued
operations
Net income (loss)
from operations -- 129 (72) (1,845)
Net gain (loss) on
disposition (87) -- 5,374 --
Net income (loss) $(106,748) $5,066 $(92,083) $19,872
Basic earnings (loss)
per share of common stock
Continuing
operations $(3.63) $0.21 $(3.37) $0.94
Discontinued
operations -- 0.01 0.18 (0.08)
Total $(3.63) $0.22 $(3.19) $0.86
Weighted average shares of
common stock
outstanding 29,407 23,175 28,856 23,114
* TGT contract premium
in oil and gas revenue $-- $7,140 $-- $32,829
KCS Energy, Inc.
Condensed Balance Sheets
December 31, December 31,
(Thousands of Dollars) 1997 1996
Assets
Cash $4,802 $5,100
Other current assets 46,867 38,699
Net assets of discontinued operations -- 26,658
Property, plant and equipment, net 426,333 430,353
Investments and other assets 24,412 11,010
Total assets $502,414 $511,820
Liabilities and stockholders' equity
Current liabilities $64,024 $39,702
Deferred credits and other liabilities 875 36,149
Long-term debt 292,445 310,347
Stockholders' equity 145,070 125,622
Total liabilities and stockholders' equity $502,414 $511,820
Condensed Statements of Cash Flow
Twelve Months Ended
December 31,
1997 1996
Net income (loss) $(92,083) $19,872
DD&A 60,554 46,611
Writedown of oil and gas properties 165,149 --
Gain on sale of discontinued operations (5,374) --
Other (50,640) 9,365
Total 77,606 75,848
Net changes in assets and liabilities 22,615 45,500
Net cash provided by operating activities 100,221 121,348
Cash flow from investing activities:
Investment in oil and gas properties (211,228) (267,133)
Proceeds from sale of pipeline assets 27,907 --
Proceeds from sale of oil and gas properties 4,940 16,634
Investment in other property, plant and
equipment (15,341) (10,085)
Net cash used in investing activities (193,722) (260,584)
Cash flow from financing activities 93,203 138,490
(Decrease) in cash
and cash equivalents $(298) $(746)
EBITDA (from continuing operations)* $97,670 $88,856
EBITDA without TGT premium* $97,670 $56,027
* Earnings before interest, taxes, DD&A, and other income. EBITDA is not
a measure of financial performance or liquidity under generally
accepted accounting principles and should not be considered in
isolation.
KCS Energy, Inc.
Supplemental Data
Three Months Ended Twelve Months Ended
December 31, December 31,
1997 1996 1997 1996
Production data:
Oil (Mbbl) 401 211 1,696 758
Liquids (Mbbl) 27 -- 128 --
Natural gas (MMcf) 10,894 6,659 43,700 25,581
Total production (MMcfe) 13,464 7,925 54,644 30,129
Other data:
Average sales prices
Oil (per bbl) $17.45 $22.66 $18.57 $20.69
Liquids (per bbl) 10.91 -- 11.02 --
Natural gas (per Mcf):
Tennessee Gas Contract -- 8.48 -- 8.40
Other 2.77 3.27 2.40 2.35
Average 2.77 3.62 2.40 3.61
SOURCE KCS Energy, Inc.
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CONTACT:
Kathryn M. Kinnamon, VP & Treasurer, of KCS
Energy, Inc., 732-632-1770; or Marianne Stewart, General Info,
212-661-8030, Beth Lewis, Analyst, 617-342-7003, or Claudine
Cornelis, Media, 212-661-8030, all of The Financial Relations
Board
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