HOUSTON, May 17 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced financial and operating results for the first quarter ended March
31, 1999.

                             Financial Highlights
                        ($ thousands except per share)

                                       3 mos. 1999    3 mos. 1998
    Revenue                                $33,005        $31,309
    Net Loss                               $(1,918)         $(140)
    Loss Per Share                         $(0.07)        $(0.00)

    KCS Energy reported operating income of $7.9 million for the first quarter
of 1999, compared to $7.6 million for the comparable 1998 period.  The net
loss for the quarter was $1.9 million, or $0.07 per share, compared to a net
loss of $0.1 million, or $0.00 per share, for the same period in 1998.  EBITDA
(earnings before interest, taxes and DD&A) was $22.1 million for the first
quarter of 1999, compared to $20.5 million in the same period last year, while
cash flow before changes in working capital was $12.8 million, or $0.44 per
share.  Total revenue for the quarter was $33.0 million, a 5% increase
compared to $31.3 million for the 1998 quarter, as increased production and
hedging gains more than offset the dramatic decrease in commodity prices.
    Commenting on the Company's first quarter 1999 performance, KCS President
and Chief Executive Officer James W. Christmas said, "Production increased 25%
to 17.1 billion cubic feet equivalent (Bcfe), compared to 13.7 Bcfe in the
1998 first quarter.  Approximately 2.0 Bcf of the increase is due to makeup
volumes under the Company's Volumetric Production Payment (VPP) Program, which
were not delivered as scheduled in August-October 1998 on account of weather
conditions."  Without the makeup of VPP volumes, production would have been
approximately 170 MMcfe per day.  All significant VPP makeup volumes have now
been received and KCS expects volumes for the remainder of 1999 to decline
gradually (from levels without makeup volumes) as the Company reduces capital
investments and divests noncore properties to allow additional debt paydown.
    Oil and gas prices continued the precipitous decline that began in late
1997.  Average gas sales prices for the quarter declined 19% to $1.71 per Mcf
from $2.11 in last year's quarter and average oil prices declined 25% to $9.94
per barrel of oil from $13.23 last year.  Hedging gains on gas production for
the quarter added $3.3 million, or $0.22 per Mcf.

    Forbearance Agreements
    KCS is currently negotiating forbearance agreements with respect to each
of its bank credit facilities.  Under the proposed forbearance agreements,
which would expire on June 30, 1999, the lenders would defer redetermination
of the borrowing base until July 1, 1999 and would refrain from exercising
their rights and remedies as a result of the existing defaults until
June 30, 1999.  The proposed forbearance agreements would require minimum
monthly principal payments and require additional payments of principal based
on operating cash flow and upon the sale of any of the Company's oil and gas
properties between the time the agreements are entered into and June 30, 1999.
There can be no assurance that these proposed forbearance arrangements will be
entered into and even if they are, upon termination of the forbearance
agreements, the defaults under the credit agreements shall automatically
become events of default.  The lenders will be able to exercise their rights
under the credit agreements, including declaring the principal balances
immediately due and payable.  If this should occur, the Company would be
unable to pay the amount due in cash, although the Company believes the
lenders are fully secured; and the holders of the Company's senior notes and
senior subordinated notes would have the right to declare the principal amount
of the notes ($275 million) immediately due and payable.  The lenders have
also indicated their intention at some time in the near future to reduce the
borrowing base under the revolving bank credit facilities.  Any reduction in
the borrowing base would necessitate additional repayment of principal, and
these payments would have a negative impact on cash availability.  As a result
of these factors, there is substantial doubt about the Company's ability to
continue as a going concern.

    Cost-Reduction Initiatives in Place
    "Our focus on cost-reduction initiatives is beginning to be seen in the
financials," Mr. Christmas said.  "Lease operating costs declined $460,000
from the fourth quarter, or approximately 6%.  General and administrative
costs declined 12% from the fourth quarter prior to nonrecurring charges of
approximately $700,000 primarily related to office closing charges.  Absent
these one-time expenses, general and administrative expenses were modestly
lower compared to last year," he said.  To improve its financial situation
through 1999, the Company has reduced planned capital expenditures; planned
property sales which are expected to raise cash proceeds of $25 million;
significantly reduced its Rocky Mountains workforce; closed its New Jersey
corporate office and transferred all functions to its Houston, Texas,
facility; suspended the dividend; and frozen senior management salaries for
1999.  Additionally, the Company has engaged a financial advisor to explore
strategic alternatives for financing its future activities.  Also, the Company
intends to form partnerships with third-party investors to fund a large
portion of the VPP program.

    Update on Operations
    Total crude oil and natural gas production in the first quarter, including
the VPP makeup volumes, increased approximately 7% over fourth quarter
production to 17.1 Bcfe, or 190 MMcfe per day.  Gas production accounted for
86% of equivalent volumes.  For the first quarter in 1998, the Company
produced 13.7 Bcfe, or 151 MMcfe per day.
    "As part of its cost-reduction initiatives, the Company significantly
reduced its capital program in the first quarter to $9.2 million, with eight
wells drilled during the quarter.  We have a clear vision of our future
operational strategy," stated William N. Hahne, Senior Vice President and
Chief Operating Officer.  "Even though we are operating under a reduced
capital budget, we are continuing to search out and find exciting
opportunities to expand our investments in the core areas of the Mid-Continent
and Onshore Gulf Coast regions.  We expect to see an increased level of
drilling as well as meaningful divestiture activity during the next two
quarters."
    The most significant new discovery was the Edwards 2-19 well drilled in an
overturned Springer Play in Kiowa County, Okla.  This well, in which KCS has a
25% working interest, tested two individual zones, each at rates in excess of
4 MMcf per day and will be commingled and placed on production within the next
few weeks.  An offset location is drilling and additional locations have been
identified.
    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.
    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
    (Amounts in Thousands                                   March 31,
    Except Per Share Data)                              1999           1998

    Oil and gas revenue                              $32,342        $29,706
    Other revenue, net                                   663          1,603
      Total revenue                                   33,005         31,309

    Operating costs and expenses
      Lease operating expenses                         6,981          7,276
      Production taxes                                   765          1,050
      General and administrative expenses              3,208          2,599
      Depreciation, depletion and amortization        14,105         12,828
    Total operating costs and expenses                25,059         23,753

    Operating income                                   7,946          7,556

    Interest and other income, net                        41             98
    Interest expense                                  (9,905)        (7,877)
    Loss before income taxes                          (1,918)          (223)
    Federal and state income taxes (benefit)              --            (83)
    Net loss                                         $(1,918)         $(140)

    Basic and diluted (loss) per share of
      common stock                                   $(0.07)        $(0.00)

    Weighted average shares of
      common stock outstanding                        29,258         29,441


                             Condensed Balance Sheets

                                                     March 31,   December 31,
    (Thousands of Dollars)                             1999          1998

    Assets
    Cash                                              $6,992           $876
    Other current assets                              32,756         42,198
    Property, plant and equipment, net               251,127        256,492
    Investments and other assets                       8,723          9,312
      Total assets                                  $299,598       $308,878

    Liabilities and stockholders' deficit
    Accounts payable and accrued liabilities         $28,093        $49,851
    Short-term debt                                  150,000        135,700
    Long-term debt                                   274,657        274,635
    Deferred credits and other liabilities             2,957          2,896
    Stockholders' deficit                           (156,109)      (154,204)
      Total liabilities and stockholders' deficit   $299,598       $308,878


                        Condensed Statements of Cash Flow

                                                        Three Months Ended
                                                             March 31,
                                                        1999           1998

    Net loss                                         $(1,918)         $(140)
    DD&A                                              14,105         12,828
    Other non-cash charges                               593            572
                                                      12,780         13,260
    Net changes in assets and liabilities            (11,228)       (14,185)
    Net cash provided by (used in)
      operating activities                             1,552           (925)

    Cash flow from investing activities:
    Investment in oil and gas properties              (9,228)       (61,577)
    Proceeds from sale of oil and gas properties         441          4,699
    Other capital expenditures, net                       (6)        (1,043)
    Net cash used in investing activities             (8,793)       (57,921)

    Cash flow from financing activities:
    Net increase in debt                              14,300         62,100
    Other financing activities                          (943)        (4,130)
    Cash flow provided by financing activities        13,357         57,970
    Increase (decrease) in cash and cash equivalents  $6,116          $(876)

    EBITDA *                                         $22,090        $20,482

    *  Earnings before interest, taxes and DD&A.  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
                                                             March 31,
                                                        1999           1998

    Production data:
      Oil (Mbbl)                                         362            368
      Liquids (Mbbl)                                      25             21
      Natural gas (MMcf)                              14,742         11,325

    Total production (MMcfe)                          17,064         13,659

    Other data:
    Average sales prices
      Oil (per bbl)                                    $9.94         $13.23
      Liquids (per bbl)                                $8.78          $8.95
      Gas (per Mcf)                                    $1.71          $2.11

Link to this page: