HOUSTON, Aug. 14 /PRNewswire-FirstCall/ -- KCS Energy, Inc. (NYSE: KCS)
today announced financial and operating results for the second quarter and six
months ended June 30, 2002.
Commenting on the second quarter's results, KCS President and Chief
Executive Officer James W. Christmas said, "The second quarter financial
results were in line with expectations, and we made significant progress in
achieving our primary goal of reducing debt. We previously announced that in
order to enable the Company to both meet its senior note maturity obligation
in January and to reduce debt, we would sell $25 to $50 million of non-core
oil and gas properties during the year. We also reported that we would
curtail our capital expenditure program. We continued to make real progress
in these areas and on several other fronts during the second quarter. To
date, we have realized net proceeds of $24.7 million from the sale of a
package of minor value properties. We have also signed an agreement to sell
our Montana properties for $8.1 million. In addition to asset sales, we cut
our capital expenditures for the quarter nearly in half to $8 million, and on
a year to date basis by 55% from last year. As expected, these actions, while
allowing KCS to reduce debt, are resulting in somewhat lower production as the
loss of production from the assets sold and the natural decline of production
from existing properties are not fully offset by our drastically reduced
capital spending program. As a result, production for the quarter was 9.6
bcfe, or 105.0 mmcfepd, of which 2.8 bcfe or 30.9 mmcfepd was delivered under
the production payment the Company sold last year.
"KCS also continued to make real progress in reducing cash expenses, which
bodes well for the future. In total, cash expenses were down 10% for the
quarter and 24% on a year to date basis, with meaningful decreases in every
area. In addition, while the capital expenditure program was curtailed, the
Company has continued to develop a significant inventory of drilling prospects
to be exploited in the future. However, before these can be fully developed,
the Company must be in a position to meet the January maturity of the
remaining Senior Notes. While part of this will be met with proceeds from
additional asset sales, the majority is expected to come from proceeds of a
financing the Company is negotiating. In the meantime, we will continue a
curtailed capital expenditure program." In the event the Senior Notes are not
paid when they mature, the Senior Subordinated Notes would be subject to
acceleration.
Financial Highlights
($ thousands except per share)
3 mos. 2002 3 mos. 2001
Revenue $30,277 $ 49,038
Operating Income $ 6,980 $ 22,941
Income Before Income Taxes $ 2,153 $ 18,519
Net Income (Loss) $(13,172) $ 19,228
Diluted Earnings Per Share $ (0.38) $0.48
6 mos. 2002 6 mos. 2001
Revenue $59,101 $ 121,747
Operating Income $10,326 $67,038
Income Before Income Taxes $739 $53,268
Net Income (Loss) $(13,990) $60,208
Diluted Earnings Per Share $(0.41) $1.62
Total revenue decreased to $30.3 million for the three months ended June
30, 2002 compared to $49.0 million for the same period a year ago due to a 19%
decline in average realized prices and the decline in production. Other
revenue was down $1.0 million, largely due to $0.8 million of gains in the
prior year three-month period on derivative instruments that were not
designated as hedges. Cash operating expenses (lease operating, production
taxes and general and administrative expenses) were $10.3 million for the
three months ended June 30, 2002 compared to $12.0 million for the same period
in 2001. Income before income taxes was $2.2 million for the three months
ended June 30, 2002 compared to $18.5 million for the same period in 2001.
However, at June 30, 2002, the Company increased its deferred income tax
valuation allowance by $15.9 million, thereby reducing to zero the carrying
amount of net deferred tax assets with a corresponding non-cash charge to
income tax expense. This resulted in a net loss of $13.2 million for the three
months ended June 30, 2002 compared to net income of $19.2 million.
For the six months ended June 30, 2002, total revenue was $59.1 million
compared to $121.7 million for the same period in 2001. Oil and gas revenue
decreased $45.1 million due to a 30% decline in average realized oil and gas
prices and a decline in production for the reasons discussed above. Other
revenue was down $17.6 million primarily due to non-recurring sales of
emission credits and non-cash gains on derivative instruments in 2001 and
lower net revenue from marketing and transportation activities. Cash operating
expenses were reduced nearly 25% to $20.3 million compared to $26.9 million.
Interest expense was $9.7 million in the 2002 six-month period compared to
$12.2 million primarily as a result of reduced levels of debt. The 2001 six-
month period also included $2.6 million of reorganization expenses. Income
before income taxes for the six months ended June 30, 2002 was $0.7 million
compared to $53.3 million for the six months ended June 30, 2001. As a result
of the increase in the deferred income tax valuation allowance discussed
above, income tax expense for the six months ended June 30, 2002 was
$14.7 million compared to an income tax benefit of $6.9 million in 2001. This
resulted in a net loss for the six months ended June 30, 2002 of $14.0 million
compared to net income of $60.2 million.
Operating Highlights
Continuing its efforts to reduce debt and focus on core areas, the Company
has signed a Purchase and Sale Agreement to sell its non-operated interest in
the Battle Creek Field in central Montana for $8.1 million. KCS' interest in
this field, which as of January 1, 2002, had estimated reserves of 5.3 bcfe,
is producing approximately 2.1 mmcfepd. Closing is expected in September,
subject to satisfactory completion of the buyer's due diligence. The Company
is continuing to market additional non-core properties for possible sale in
2002.
Consistent with previous guidance and in order to conserve cash, the
Company significantly reduced its capital expenditure program in the second
quarter. During the second quarter, 12 wells were drilled, of which 7 were
successful. Significant wells include:
-- Development of the Simsboro Field in north Louisiana continued with the
drilling and completion of the Napper #2 and Ludley #1 wells. The
Napper #2 (60% WI) tested two pay intervals at a combined rate of 7,316
mcfpd and 35 bcpd. There are three additional pay intervals not yet
tested in the well. The Ludley #1 (13% WI) tested at a rate of
119 bopd and 1,050 mcfpd. The Company expects additional drilling in
the Simboro Field in 2003.
-- The drilling and completion of the Eugene Island 251 C-2 well and the
completion of the previously drilled Eugene Island 251 C-1. The C-1
well tested at 9,849 mcfpd and 288 bcpd while the C-2 well tested at
4,165 mcfpd and 125 bcpd. KCS has an 8% WI in these wells. First
production began in August.
-- The High Island 72 #1 wildcat well was drilled and completed. The
well, located in 35 feet of water encountered 38 feet of apparent gas
pay in two sands. KCS owns a 21.2% WI in this well. First production
is expected late in the third quarter. This discovery is the first of
seven prospects in an offshore program in which the Company has the
right to participate.
-- The Pilkinton 5 #1 well in the Elm Grove Field of north Louisiana (KCS
WI 100%) was completed in the Cotton Valley Davis Zone in June at an
initial rate of 1,500 mcfpd. Ultimately, this zone will be commingled
with other productive zones in the well bore to increase the production
rate. The Womack 11 #1 well (KCS WI=33%) recently tested at a rate of
1,900 mcfepd from a Hosston zone. The Company believes that positive
results from these wells have confirmed the need for increased density
drilling in the field and anticipates extensive additional drilling in
this field in 2002 and 2003.
The Company has also completed two minor acquisitions, purchasing 2.9 bcfe
of proved reserves for $3.2 million. One of the acquisitions is in Latimer
County, Oklahoma and includes 1-4 potential drilling locations. The other
acquisition is located in Fort Bend and Live Oak Counties in south Texas and
includes operatorship and 3 to 4 additional drilling opportunities. These
acquisitions will add approximately 1,700 mcfepd of net production in the
third quarter.
The Company's production volumes averaged 105.0 mmcfepd for the second
quarter. Production volumes were lower than the first quarter for the
following reasons: 1) the sale of non-core property package in early June
when approximately 12 mmcfepd was sold; 2) scheduled VPP delivery reductions
of approximately 2.7 mmcfepd; 3) scattered curtailments; and 4) normal
production declines associated with the reduced capital spending program. The
Company anticipates recent drilling results and acquisitions will stabilize
production volumes at the current level of approximately 95-100 mmcfepd.
Outlook
Based on the recent property divestitures agreements and second quarter
results, the outlook for 2002 is amended as follows (these projections do not
include any additional divestitures):
Previous Forecast Current Forecast
Production (BCFE)
WI 36-40 34-37
VPP 2-3 2-3
Total 38-43 36-40
Production Payment (11.2) (11.2)
LOE ($MM) 22-25 22-25
Net G&A ($MM) 8-9 8-9
Interest Expense ($MM) 17-19 17-19
Property Sales ($MM) 27-50 34-50
Capital Expenditures ($MM) 40-55 45-50
As of June 30 the Company had hedges covering 0.9 bcf at $3.70 for the
third quarter and 0.9 bcf at $3.95 for the fourth quarter of 2002. The
Company also currently has hedges in place at $26.50 per barrel for
46,000 barrels of oil for the October through December 2002 period. All of
KCS' hedges are NYMEX based and not adjusted for geographic location.
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 and Gulf Coast regions. For more information
on KCS Energy, Inc., please visit the Company's web site at
http://www.kcsenergy.com .
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 .
The following abbreviations are utilized herein:
WI - Working Interest
mcf - thousand cubic feet of natural gas
bcf - billion cubic feet of natural gas
bcfe - billion cubic feet of natural gas equivalent
mcfpd - thousand cubic feet of natural gas per day
mmcfepd - million cubic feet of natural gas equivalent per day
bcpd - barrels of condensate per day
bopd - barrels of oil per day
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 Six Months Ended
(Amounts in Thousands June 30, June 30,
Except Per Share Data) 2002 2001 2002 2001
Oil and gas revenue $30,808 $48,561 $60,165 $105,234
Other revenue, net (531) 477 (1,064) 16,513
Total revenue 30,277 49,038 59,101 121,747
Operating costs and expenses
Lease operating expenses 6,873 7,730 13,409 16,953
Production taxes 1,632 2,002 2,955 5,066
General and administrative
expenses 1,763 2,232 3,890 4,914
Stock compensation 194 226 510 297
Depreciation, depletion
and amortization 12,835 13,907 28,011 27,479
Total operating costs and
expenses 23,297 26,097 48,775 54,709
Operating income 6,980 22,941 10,326 67,038
Interest and other income, net 9 629 79 1,018
Interest expense (4,836) (4,871) (9,666) (12,196)
Income before reorganization
items and income taxes 2,153 18,699 739 55,860
Reorganization items - (180) - (2,592)
Income before income taxes 2,153 18,519 739 53,268
Federal and state income
(taxes) benefit (15,325) 709 (14,729) 6,940
Net income (loss) (13,172) 19,228 (13,990) 60,208
Dividends and accretion of
issuance costs on preferred
stock (372) (330) (625) (493)
Income (loss) available to
common stockholders $(13,544) $18,898 $(14,615) $59,715
Earnings per share of common
stock:
Basic $(0.38) $0.63 $(0.41) $2.01
Diluted $(0.38) $0.48 $(0.41) $1.62
Average shares outstanding
for computation of earnings
per share
Basic 35,674 29,910 35,332 29,729
Diluted 35,674 40,211 35,332 37,147
KCS Energy, Inc.
Condensed Balance Sheets
June 30, December 31,
(Dollars in Thousands) 2002 2001
Assets
Cash $13,565 $22,927
Other current assets 28,324 27,060
Property, plant and equipment, net 249,636 278,677
Deferred taxes and other assets - 15,920
Other assets 1,943 2,142
Total assets $293,468 $346,726
Liabilities and stockholders'
(deficit) equity
Accounts payable and accrued liabilities $34,915 $43,951
Accrued interest 8,248 9,089
Senior notes (current) 61,274 -
Deferred revenue and other liabilities 88,214 112,757
Long-term debt 135,800 204,800
Convertible preferred stock 13,316 15,589
Stockholders' (deficit) equity (48,299) (39,460)
Total liabilities and stockholders'
(deficit) equity $293,468 $346,726
Condensed Statements of Cash Flow
Six Months Ended
June 30,
2002 2001
Net income (loss) $(13,990) $60,208
DD&A 28,011 27,479
Amortization of deferred revenue (24,343) (30,277)
Deferred income taxes 14,729 -
Other non-cash charges and credits, net 2,648 (2,859)
Reorganization items - 2,592
7,055 57,143
Proceeds from Production Payment sold - 175,399
Change in accrued interest payable (841) (49,108)
Other operating activities, net (6,289) (17,814)
Net cash (used in) provided by
operating activities before
reorganization items (75) 165,620
Reorganization items - (2,592)
Net cash (used in) provided by
operating activities (75) 163,028
Cash flow from investing activities:
Investment in oil and gas properties, net (26,201) (52,530)
Proceeds from oil and gas properties 24,674 -
Other capital expenditures (34) (1,029)
Net cash used in investing activities (1,561) (53,559)
Cash flow from financing activities:
Proceeds from borrowings 10,800 -
Repayments of debt (18,526) (146,905)
Issuance of convertible preferred
stock, net - 28,444
Other financing activities - 75
Cash flow used in financing activities (7,726) (118,386)
Decrease in cash and cash equivalents $(9,362) $(8,917)
KCS Energy, Inc.
Supplemental Data
Three Months Ended
June 30,
2002 2001
Production data: *
Natural gas (Mmcf) 7,576 9,788
Oil (Mbbl) 260 315
Liquids (Mbbl) 71 94
Summary (Mmcfe):
Working Interest 8,912 10,972
VPP 646 1,272
Total 9,558 12,244
Average realized prices *
Gas (per Mcf) $3.27 $4.14
Oil (per bbl) $20.45 $21.20
Liquids (per bbl) $10.10 $14.47
Total (per Mcfe) $3.22 $3.97
* Includes 2,809 MMcfe and 6,043 Mmcfe, respectively, for the three and
six months ended June 30, 2002 compared to 4,300 Mmcfe and 7,542 Mmcfe
for the three and six months ended June 30, 2001, respectively,
dedicated to the Production Payment sold in February 2001.
Six Months Ended
June 30,
2002 2001
Production data: *
Natural gas (Mmcf) 15,888 19,336
Oil (Mbbl) 528 646
Liquids (Mbbl) 142 177
Summary (Mmcfe):
Working Interest 18,382 21,841
VPP 1,525 2,433
Total 19,907 24,274
Average realized prices *
Gas (per Mcf) $3.07 $4.55
Oil (per bbl) $19.05 $22.39
Liquids (per bbl) $9.56 $16.03
Total (per Mcfe) $3.02 $4.34
* Includes 2,809 MMcfe and 6,043 Mmcfe, respectively, for the three and
six months ended June 30, 2002 compared to 4,300 Mmcfe and 7,542 Mmcfe
for the three and six months ended June 30, 2001, respectively,
dedicated to the Production Payment sold in February 2001.
SOURCE KCS Energy, Inc.
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Related links:
http://www.frbinc.com
http://www.kcsenergy.com
CONTACT:
James W. Christmas, President and CEO of KCS
Energy, +1-713-877-8006; or General Info, Marilynn Meek,
+1-212-445-8451, Analyst Info, Peter Seltzberg, +1-212-445-8457,
or Media, Judith Sylk-Siegel, +1-212- 445-8431, all of The
Financial Relations Board
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