EDISON, N.J., March 31 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced financial and operating results for the fourth quarter and year
ended December 31, 1998.
FINANCIAL HIGHLIGHTS
($thousands, except per share data)
3 months 1998(A) 3 months 1997(B)
Revenue $32,203 $39,591
Net Loss $(253,922) $(106,748)
Loss Per Share $(8.68) $(3.63)
12 months 1998(C) 12 months 1997(B)
Revenue $129,452 $143,689
Net Loss $(296,520) $(92,083)
Loss Per Share $(10.08) $(3.19)
(A) Includes a $137.0 million after tax non-cash ceiling writedown of oil
and gas assets and a $113.9 million reduction to zero in the book value of net
deferred tax assets. Together these charges accounted for $250.9 million, or
$8.58 per share.
(B) Includes a $107.3 million after tax 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.
(C) Includes $174.5 million after tax non-cash ceiling writedowns of oil
and gas assets and a $113.9 million reduction to zero in the book value of net
deferred tax assets. Together these charges accounted for $288.4 million, or
$9.80 per share.
Commenting on the Company's performance during the year, KCS Energy
President and Chief Executive Officer James W. Christmas said, "Although total
oil and gas production during 1998 increased 11% to 60.5 billion cubic feet
equivalent (Bcfe) compared to 54.6 Bcfe in 1997, the combination of very low
prevailing prices for natural gas and crude oil and disappointing performance
in the Rocky Mountain Region resulted in KCS incurring significant losses."
Net loss for the year ended December 31, 1998 was $296.5 million, or $10.08
per share, compared to a loss of $92.1 million, or $3.19 per share, in 1997.
Ceiling test writedowns in 1998 were $268.5 million pretax ($174.5 million
after tax) compared to $165.1 million pretax ($107.3 million after tax) in
1997. Additionally, the Company recorded a non-cash valuation allowance of
$113.9 million to reduce to zero the book value of net deferred tax assets.
Excluding the effect of the non-cash asset writedowns, KCS' net loss for the
year was $8.1 million, or $0.28 per share, compared to income from continuing
operations of $9.9 million, or $0.35 per share, in 1997. Earnings before
interest, income taxes, depreciation, depletion and amortization (EBITDA) and
cash flow from operations decreased to $83.7 million and $53.1 million,
respectively, as significantly lower average realized commodity prices and
higher interest costs more than offset the benefits of the 11% increase in
production.
As a result of the non-cash writedowns, the Company had negative
stockholders' equity of $154.2 million as of December 31, 1998, and has
violated certain covenants in its revolving credit agreements. While the
default continues, the Company cannot borrow under the credit facilities. The
lenders have not declared the principal balance due and payable, but have the
right to do so at any time. The Company has requested a waiver of the
defaults from the banks. However, there can be no assurance that a waiver
will be granted or for what period of time. As a result, the Company's
independent auditors have issued a modified report indicating there is
substantial doubt with respect to the Company's ability to continue as a going
concern. While the Company believes that its cash flow from operations and
the proceeds from asset sales should be sufficient to meet its short-term
interest and operating requirements, given the limited capital resources,
there can be no assurance that it can continue to maintain its current level
of production or replace reserves.
1999-2000 Initiatives Emphasize Cost Reduction and Capital Generation
According to Mr. Christmas, "The remainder of 1999 and 2000 will be a
challenging period for KCS. The Company's focus will be on improving its
financial situation through a combination of cost-reduction and
capital-generation initiatives, specifically: (1) Reducing 1999 capital
expenditures from an original plan of $90 million; (2) Continuing property
sales expected to raise cash proceeds of approximately $25 million in 1999;
(3) Implementing a salary freeze for senior management for 1999; (4)
Suspending the payment of dividends to shareholders; (5) Reducing the Rocky
Mountain Region's workforce by 60%, most of which has been completed, and (6)
Closing the Company's New Jersey corporate office effective May 1, 1999 and
transferring the functions to the Houston facility. As a result, our Chief
Financial Officer Paul Samett will be leaving the Company, and our Vice
President and Treasurer Kathryn M. Kinnamon will be acting CFO. Further, KCS
has engaged a financial advisor to explore strategic alternatives for
financing future activities, and is considering the formation of partnerships
to fund its successful VPP Program."
Record Oil and Gas Production
Total oil and gas production during 1998 increased 11% to 60.5 Bcfe,
compared to 54.6 Bcfe in 1997. Gas production increased 15% to 50.1 Bcf,
while oil and liquids production decreased 4% to 1,746 Mbbls. This was the
Company's eleventh consecutive year of double-digit production growth. From
1992 through 1998, production increased at a compound annual growth rate of
55%. Gas production for the fourth quarter increased 26% from last year's
comparable period to average 149 million cubic feet (MMcf) per day, while oil
and liquids production decreased 10% to average 4,167 barrels per day.
Continued success of the VPP Program as well as successful drilling programs
in the Mid-Continent Region helped to fuel the continuing production growth.
1998-1999 Drilling Activity
In the Mid-Continent Region, where estimated proved reserves of 135 Bcfe
represent approximately 44% of the Company's reserves, KCS participated in
drilling 41 gross (19.8 net) development wells and 8 gross (4.8 net)
exploratory wells with completion rates of 78% and 50%, respectively. "This
region provides a solid base of production replacement for KCS and we plan to
continue to exploit areas that require additional wells for adequate reserve
drainage and to drill low-risk exploration wells," according to KCS Chief
Operating Officer William N. Hahne. The Company plans to drill as many as 30
to 50 locations in this region in 1999.
In KCS' Onshore Gulf Coast Region, the Company drilled 5 gross (2.9 net)
development wells and 5 gross (2.3 net) exploratory wells, achieving 80% and
40% success rates, respectively. This region includes properties in south
Texas, coastal Louisiana and the Mississippi Salt Basin. The Company has
recently increased technical staff and acquired additional prospects and
believes this region should provide the key areas for future growth in the
drilling of higher-potential exploration wells. Estimated proved reserves in
the region totaled 72 Bcfe, or approximately 23% of the Company's reserves.
The Company's Gulf of Mexico Region, where proved reserves of 53 Bcfe
represent approximately 17% of KCS' reserves, includes assets acquired through
its 1995 Medallion acquisition, proved reserves acquired through VPP
transactions and properties acquired originally through VPP transactions and
converted to overriding royalty interests. During 1998, the Company invested
$73.5 million in nine separate transactions and acquired 43 Bcfe of reserves.
KCS plans to pursue the financing of future VPP acquisitions through joint
ventures, which would enable the Company to expand the scope of the program
while reducing capital commitments. Since the program's inception in 1994,
KCS has invested $195.8 million and has acquired proved reserves of 115.3
Bcfe, at an average net acquisition cost of $1.70 per Mcfe without the burden
of development and lease operating expenses. Through year-end 1998, KCS has
recovered $128.6 million from the sale of oil and gas received under its VPP
Program.
In the Rocky Mountain Region, the Company's operations are focused
primarily in the Big Horn Basin in Wyoming, including the Manderson Field.
Estimated proved reserves in the region total 50 Bcfe as of year-end 1998.
KCS drilled 9 gross (9 net) development wells and 6 gross (4.8 net)
exploration wells in 1998. Production increases in the region have been less
than expected. The original concept of the work in the Manderson Field was to
redevelop an oil formation which had been partially depleted in the 1950s.
Initial drilling success in the north end of the field yielded production much
above that expected and set into motion a development plan anticipating
similar results elsewhere in the field. Unfortunately, the dolomite reservoir
proved to be more complex and stratigraphic than anticipated.
The early results have not been replicated with further drilling. Less
prolific wells combined with lower oil prices have adversely affected the
Company's balance sheet and reserves. "In 1999 we plan only limited capital
expenditures in this area. We do believe that our enhanced technical
understanding of these formations will allow us to add value to our acreage
holdings adjacent to the Manderson Field and in the Big Horn Basin," Mr. Hahne
said.
Reserve Additions Offset by Downward Revisions
The Company added 101 Bcfe of new reserves through its drilling and
acquisition program: 58 Bcfe were added to the Company's working interest
program replacing 144% of working interest production and 43 Bcfe were added
from the ongoing VPP Program. These reserve additions were offset by downward
reserve revisions of approximately 124 Bcfe due to pricing and performance of
the Rocky Mountain properties, 25 Bcfe due to reduced oil and gas prices in
other operating regions and 12 Bcfe of other revisions. At year end, reserves
were 310 Bcfe, compared to 440.5 Bcfe at year-end 1997, of which 80% are
proved developed.
Writedown of Oil and Gas Properties
In accordance with the full cost accounting method and procedures
prescribed by the Securities and Exchange Commission, capitalized oil and gas
property costs are limited to the present value of future net revenues from
estimated production of proved oil and gas reserves at current prices,
discounted at 10%, plus the lower of cost or fair value of unproved properties
("SEC PV10 value"). To the extent that the capitalized costs exceed the
estimated SEC PV10 value at the end of any fiscal quarter, such excess costs
are written down with a corresponding charge to income. In 1998, the Company
recorded non-cash ceiling writedowns of its oil and gas properties due mainly
to severely depressed natural gas and oil commodity prices and the performance
in the Rocky Mountain Region. "Price declines in 1998 have continued into the
first quarter of 1999, during which natural gas prices fell to $1.67 per Mcf,
and we determined the best course of action for KCS would be to recognize this
currently. The Company therefore recorded a 1998 writedown totaling $268.5
million pretax, including approximately $65 million for price declines
subsequent to December 31, 1998," Mr. Christmas said.
Cost-reduction and Capital-generation Initiatives Drive 1999 Outlook
"Two years of reduced energy prices and increased interest expense pose
significant challenges which we believe are being successfully addressed with
the combination of stringent and comprehensive cost-reduction and
capital-generation initiatives. The goals of the initiatives are to reduce
the number of areas in which we operate, to focus our technical and managerial
efforts on properties that have significant value and additional potential, to
reduce our operating and administrative costs per Mcfe, and to raise cash
which can be used to reduce debt and fund additional development. We are
allocating our capital resources to the core areas with the best historical
economic results, including investment in the Mid-Continent, Onshore Gulf
Coast and VPP programs, where we have a significant inventory of quality
prospects. Since the opportunities in the VPP Program are far greater than
our available capital would allow us to pursue, we are exploring establishment
of a partnership which could enable us to expand the scope of the program
significantly while at the same time reducing our direct capital commitment,"
Mr. Christmas concluded.
KCS is an independent energy company engaged in the acquisition,
exploration, development and production of natural gas and crude oil with
operations in the Mid-Continent, Onshore Gulf Coast, Gulf of Mexico and Rocky
Mountains regions. For more information on KCS Energy, Inc., please visit the
Company's web site at http://www.kcsenergy.com.
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) 1998 1997 1998 1997
Oil and gas revenue $31,182 $37,441 $123,491 $137,837
Other revenue, net 1,021 2,150 5,961 5,852
Total revenue 32,203 39,591 129,452 143,689
Operating costs and expenses
Lease operating expenses 7,441 8,923 30,434 29,393
Production taxes 977 1,519 3,996 5,873
General and
administrative 2,862 3,451 11,327 10,753
Depreciation, depletion and
amortization 15,946 18,068 59,888 60,554
Writedown of oil and gas
properties 210,837 165,149 268,468 165,149
Total operating costs and
expenses 238,063 197,110 374,113 271,722
Operating income (loss) (205,860) (157,519) (244,661) (128,033)
Interest and other income
(expense), net (190) 88 (73) 476
Interest expense (9,198) (6,737) (35,787) (21,883)
Loss before income taxes (215,248) (164,168) (280,521) (149,440)
Federal and state income
taxes (benefit) 38,674 (57,507) 15,999 (52,055)
Net loss from continuing
operations (253,922) (106,661) (296,520) (97,385)
Net income (loss) from
discontinued operations
Net loss from operations -- -- -- (72)
Net gain (loss) on disposition -- (87) -- 5,374
Net loss $(253,922)(a)$(106,748)(b)$(296,520)(c) $(92,083)(b)
Basic and Diluted earnings (loss)
per share of common stock
Continuing operations $(8.68)(a) $(3.63)(b) $(10.08)(c) $(3.37)(b)
Discontinued
operations -- -- -- 0.18
$(8.68)(a) $(3.63)(b) $(10.08)(c) $(3.19)(b)
Weighted average shares of
common stock outstanding 29,255 29,407 29,428 28,856
(a) Includes a $137.0 million after tax non-cash ceiling writedown of oil
and gas assets and a $113.9 million reduction to zero in the book
value of net deferred tax assets. Together these charges accounted
for $250.9 million or $8.58 per share.
(b) Includes a $107.3 million after tax 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.
(c) Includes $174.5 million after tax non-cash ceiling writedowns of oil
and gas assets and a $113.9 million reduction to zero in the book
value of net deferred tax assets. Together, these charges accounted
for $288.4 million, or $9.80 per share.
KCS Energy, Inc.
Condensed Balance Sheets
December 31, December 31,
1998 1997
(Thousands of Dollars)
Assets
Cash $876 $4,802
Other current assets 42,198 46,867
Property, plant and equipment, net 256,492 426,333
Other assets 9,312 24,412
Total assets $308,878 $502,414
Liabilities and stockholders (deficit) equity
Current liabilities $49,851 $64,024
Short-term debt 135,700 --
Deferred credits and other liabilities 2,896 875
Long-term debt 274,635 292,445
Stockholders' (deficit) equity (154,204) 145,070
Total liabilities and stockholders'
(deficit) equity $308,878 $502,414
Condensed Statements of Cash Flow
Twelve Months Ended
December 31,
1998 1997
Net loss $(296,520) $(92,083)
DD&A 59,888 60,554
Writedown of oil and gas properties 268,468 165,149
Gain on sale of discontinued operations -- (5,374)
Other 21,243 (50,640)
53,079 77,606
Net changes in assets and liabilities (9,047) 22,615
Net cash provided by operating activities 44,032 100,221
Cash flow from investing activities:
Investment in oil and gas properties (163,396) (211,228)
Proceeds from sale of pipeline assets -- 27,907
Proceeds from sale of oil and gas properties 6,962 4,940
Investment in other property, plant
and equipment (2,082) (15,341)
Net cash used in investing activities (158,516) (193,722)
Cash flow from financing activities 110,558 93,203
Decrease in cash and cash equivalents $(3,926) $(298)
EBITDA (from continuing operations)* $83,695 $97,670
* 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,
1998 1997 1998 1997
Production data:
Natural gas (MMcf) 13,705 10,894 50,071 43,700
Oil (Mbbl) 365 401 1,650 1,696
Liquids (Mbbl) 18 27 96 128
Total production
(MMcfe) 16,006 13,464 60,549 54,644
Other data:
Average sales prices
Natural gas
(per Mcf): $1.98 $2.77 $2.08 $2.40
Oil (per bbl) 10.71 17.45 11.41 18.57
Liquids (per bbl) 8.26 10.91 7.93 11.02
SOURCE KCS Energy, Inc.
 back to top
Related links:
http://www.kcsenergy.com
CONTACT:
Kathryn M. Kinnamon, VP & Treasurer of KCS
Energy, Inc., 732-632-1770, General Info, Marianne Stewart,
212-661-8030, or Analysts, Beth Lewis, 617-342-7003, or Media,
Claudine Cornelis, 212-661-8030, all of The Financial Relations
Board
NOTE TO EDITORS: To receive KCS' latest news and other corporate
developments via fax at no cost, please call 1-800-PRO-INFO. Use
company code KCS. See also http://www.frbinc.com
|
