Second Consecutive Quarter of Record Results Third Quarter Drilling Success
Will Enhance Fourth Quarter Results
HOUSTON, Nov. 3 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced financial and operating results for the third quarter and nine
months ended September 30, 2000.
Commenting on the Company's performance, KCS President and Chief Executive
Officer James W. Christmas said, "We are pleased to report that for the second
straight quarter the Company has achieved the highest net income and cash flow
in its history. Strong market prices for the Company's natural gas and oil
production, the results of our cost-reduction and property rationalization
programs and a successful drilling program were all contributing factors to
our record performance. We have continued to implement a meaningful capital
expenditure program while also reducing bank debt and increasing cash. For
the nine months ended September 30, 2000, we carried out a $53 million capital
expenditure program, paid down over $22 million of bank debt bringing total
debt repayments since April 1999 to nearly $66 million and increased cash
balances by $15.7 million to $26.3 million. With the success of our drilling
program and the current market prices for oil and natural gas, we expect
higher production, earnings and cash flow in the fourth quarter."
Financial Highlights
($ Thousands Except Per Share)
3 mos. 2000 3 mos. 1999
Revenue $46,198 $ 35,605
Operating Income $24,802 $ 14,678
Income Before
Reorganization Items $18,189 $4,756
Net Income $16,874 $4,756
Earnings Per Share $0.58 $0.16
9 mos. 2000 9 mos. 1999
Revenue $126,829 $101,965
Operating Income $61,555 $32,658
Income Before
Reorganization Items $41,740 $3,057
Net Income $31,064 $3,057
Earnings Per Share $1.06 $0.10
Income before reorganization items for the quarter ended September 30,
2000 increased 282% to $18.2 million compared to $4.8 million in the prior
year's third quarter. After deducting $1.3 million of reorganization items,
net income for the quarter was a record $16.9 million, or $0.58 per share,
compared to $4.8 million, or $0.16 per share, for the quarter ended September
30, 1999. EBITDAR (earnings before interest, taxes, DD&A and reorganization
items) for the current quarter was $36.6 million, also a record, increasing
39% compared to $26.3 million for the same period a year ago. These record
results reflect higher oil and gas prices, combined with significantly lower
lease operating expenses and lower interest expense, partially offset by lower
production from the Company's Volumetric Production Payment ("VPP") program.
While KCS's working interest production increased slightly during the current
year three-month period, total production decreased 12% to 11.8 Bcfe,
primarily due to the expiration of certain VPPs. VPP production accounted for
19% of production in the current year quarter compared with 34% in the prior
year three-month period.
In the third quarter of 2000, KCS revenues were reduced by $2.7 million,
or $0.23 per Mcfe, as a result of hedging. This was primarily associated with
fixed price hedges on 9,600 million BTU (MMBTU) per day at $2.055 which were
put in place several years ago by the predecessor owner of Medallion
Resources. During the second quarter, the Company put in place several cost
free collars covering a total of 33,000 MMBTU per day for the period July 1,
2000 through March 31, 2001. These collars ensure that KCS will receive a
minimum floor price for the hedged production in return for accepting certain
price ceilings. Under the terms of these collars, the floors range from $2.70
per MMBTU to $3.53 per MMBTU and the price ceilings range from $4.00 per MMBTU
to a maximum of $5.50 per MMBTU. Additionally, in September 2000, the
Company entered into a contract hedging 30,000 MMBTU per month at $5.04 per
MMBTU from October 1, 2000 through March 31, 2001. Pursuant to the terms of
this hedge, the counter party has the right to extend the hedge for an
additional six-month period beginning April 1, 2001 for the same volume and
price.
For the nine months ended September 30, 2000, income before reorganization
items increased nearly 13 fold to $41.7 million compared to $3.1 million in
the prior year nine-month period. After deducting $10.7 million of
reorganization items ($6.1 million of which was the non-cash write-off of
deferred debt issuance costs), net income for the nine months ended September
30, 2000 was $31.1 million, or $1.06 per share, compared to $3.1 million, or
$0.10 per share in the prior year nine-month period. EBITDAR increased 37% to
$98.8 million for the first nine months of 2000 compared to $72.1 million for
the same period last year and has already exceeded EBITDAR for the full year
1999.
Improved oil and gas prices, in addition to their favorable impact on
current earnings and cash flow, have also had a very beneficial impact on the
value of the Company's oil and gas reserves. At June 30, 2000, the SEC PV-10
of oil and gas reserves was $526 million, compared to $293 million at December
31, 1999.
Third Quarter Drilling Success
"In the third quarter, KCS utilized a portion of its increased cash flow
to accelerate its drilling program," noted William N. Hahne, KCS Senior Vice
President and Chief Operating Officer. "During this period, we drilled 30
wells of which 87 percent were successful. In addition to the high success
ratio, we also had excellent results on some higher impact projects."
In the Mid-Continent region 19 wells were drilled, mostly in the Permian
Basin and North Louisiana. In the Permian Basin, KCS has continued
development of the West Shugart Field with the drilling of three (3) wells
since the beginning of the year. In the third quarter, the West Shugart 19-8
(100% KCS working interest (WI)) was placed on production at a rate of 169
barrels of oil per day (BOPD) and 200 thousand cubic feet per day (MCFPD).
Since the third quarter, the West Shugart #24-1 was logged, extending the
field limits. The #24-1 well tested at 430 BOPD and 110 MCFPD (KCS WI = 75%)
and will be allowable limited to 230 BOPD. The West Shugart Field, which was
discovered in late 1998, has produced a cumulative of approximately 500,000
barrels of oil and 500,000 Mcf of gas and is currently producing at over 1,550
BOPD and 2,100 MCFPD.
The Company accelerated its drilling program at the Sawyer Canyon Field in
Sutton County, Texas at mid-year to take advantage of attractive economics
from low risk infill locations. In the third quarter KCS drilled seven (7)
wells and anticipates drilling another 13 locations prior to year-end. These
wells are producing at a combined rate of 2,660 MCFPD (KCS average
WI = 97.7%). New wells are being completed at an average of one per week.
In early October, KCS began oil and gas production from a number of new
field extension wells in North Louisiana. The Company continued development
of the Mt. Lebanon Prospect Area (officially West Arcadia Field) in Bienville
Parish with the drilling of the L. A. Minerals #1 (37.5% KCS WI) which is
producing at 7,100 MCFPD and 60 barrels of condensate per day (BCPD), the
Lathan Heirs #1 (23% KCS WI) which tested at 2,740 MCFPD and 28 BCPD and the
Sutton Hunter #1 (31.4% KCS WI) which is awaiting completion. One additional
well is drilling and another is planned this year to further define the extent
of the reservoir. Additional drilling was also completed in the Elm Grove
Field as the McDade #3 Alt well (100% KCS WI) tested at 1,700 MCFPD from a
Lower Cotton Valley sandstone interval.
In the Gulf Coast, the Company participated in drilling 11 new wells. The
North Padre Island S/L 924-S #1 was completed in the lower of two pay
intervals and placed on production at 3,100 MCFPD and 20 BOPD (100% KCS WI).
Additionally, the Kathleen Jackson #1 was drilled in the Austin field, Goliad
County, Texas. This (100% KCS WI) well found two pay sands and was tested in
the lower sand at a rate of 2,800 MCFPD and 32 BCPD. The well was
subsequently perforated in the upper sand and is currently producing naturally
at a rate of 5,900 MCFPD and 29 BCPD. These two sands will be downhole
commingled later this year and KCS anticipates additional drilling in the
field in early 2001.
In South Louisiana, KCS participated in the drilling of the Mayronne #2
well in South Bayou DeFleur Field, Jefferson Parish, Louisiana with a 40% WI.
The well found three Miocene aged sands and tested at a rate of 2,849 MCFPD
and 10 BCPD from the lowermost zone.
As expected, production volumes declined from second quarter to third
quarter, primarily as a result of a portion of scheduled VPP production being
deferred by the operator into 2001. The Company anticipates increasing
production rates in the fourth quarter by 5% to 10% as recent drilling
successes are brought on line and VPP scheduled deliveries increase slightly.
In addition, the Michigan Hartland amine plant has been completed and
production from 4 wells (100% KCS WI) in Livingston County, Michigan should be
initiated late in the fourth quarter.
"We have purposely limited VPP investments in 1999 and 2000 to reduce the
outstanding bank debt", explained Mr. Hahne. "The result has been a reduction
in VPP production over this period. At the same time, we have focused the
capital into the highest return opportunities available, which we believe are
drill wells. The third quarter results reinforce this commitment."
Chapter 11 Cases
As previously announced, KCS is currently in default under its bank credit
facilities and its senior and senior subordinated notes. On January 5, 2000,
three holders of senior notes filed an involuntary petition for relief against
KCS Energy, Inc. (the parent company only) under Chapter 11 of the Bankruptcy
Code in the U. S. Bankruptcy Court in Wilmington, Delaware (the "Bankruptcy
Court"). On January 18, the Bankruptcy Court entered an order for relief
under Chapter 11 of the Bankruptcy Code with respect to KCS Energy, Inc. Also
on January 18, 2000, each of KCS Energy Inc.'s subsidiaries filed voluntary
petitions under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court.
On April 20, 2000, KCS reported that the restructuring agreement entered
into in December 1999 with holders of more than two-thirds in amount of the
senior subordinated notes and holders of a majority in amount of the senior
notes was terminated by the noteholders because a joint plan of reorganization
was not confirmed by the date specified in the agreement. On May 4, 2000, the
Company's exclusive period for filing a plan of reorganization was terminated
by the Bankruptcy Court. Since then, both the statutory unsecured creditors'
committee in the Company's Chapter 11 cases and the Company have filed
proposed plans of reorganization with the Bankruptcy Court. On October 25,
2000, the Bankruptcy Court entered orders approving the disclosure statements
describing the two plans. Beginning on November 3, 2000, the Company's
disclosure statement and the creditors' committee disclosure statement, along
with ballots and voting instructions will be mailed to impaired creditors and
stockholders. The Bankruptcy Court has scheduled January 30, 2001 for the
commencement of the Confirmation Hearing on both plans. The Confirmation
Hearing shall also consider confirmation of any plan filed by a party in
interest on or before December 15, 2000 that provides for each class of claims
or interests to be unimpaired under section 1124 of the Bankruptcy Code
thereby not requiring the solicitation of votes to accept or reject such plan
from any class of claims or interests. If any such plan is filed, notice of
filing and the deadline for objections to confirmation will be served on the
parties entitled to such notice. The Company is continuing discussions with
the creditors committee and with holders of its senior and senior subordinated
notes and others with the goal of achieving a consensual plan that will enable
a timely conclusion of the Chapter 11 cases.
KCS is an independent energy company engaged in the acquisition,
exploration and production of natural gas and crude oil with operations in the
Mid-Continent and Gulf Coast regions. The Company also purchases reserves
(priority rights to future delivery of oil and gas) through its Volumetric
Production Payment program. 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 .
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 Nine Months Ended
(Amounts in Thousands September 30, September 30,
Except Per Share Data) 2000 1999 2000 1999
Oil and gas revenue $ 46,005 $ 33,230 $ 125,048 $ 96,906
Other revenue, net 193 2,375 1,781 5,059
Total revenue 46,198 35,605 126,829 101,965
Operating costs and
expenses
Lease operating
expenses 6,213 6,900 18,373 20,525
Production taxes 1,580 910 4,326 2,487
General and
administrative
expenses 1,939 1,683 5,755 7,313
Depreciation,
depletion and
amortization 11,664 11,434 36,820 38,982
Total operating costs
and expenses 21,396 20,927 65,274 69,307
Operating income 24,802 14,678 61,555 32,658
Interest and other
income, net 85 223 437 445
Interest expense
(contractual interest
for the 2000 periods
was $9,030 and
$27,380
respectively) (6,698) (10,145) (20,252) (30,046)
Income before
reorganization items
and income taxes 18,189 4,756 41,740 3,057
Reorganization items (1,315) - (10,676) -
Income before income
taxes 16,874 4,756 31,064 3,057
Federal and state
income taxes - - - -
Net income $ 16,874 $ 4,756 $ 31,064 $ 3,057
Basic and diluted
income per share
of common stock $ 0.58 $ 0.16 $ 1.06 $ 0.10
Weighted average
shares of common
stock outstanding
(diluted) 29,326 29,273 29,302 29,295
KCS Energy, Inc.
Condensed Balance Sheets
September 30, December 31,
(Thousands of Dollars) 2000 1999
Assets
Cash $ 26,289 $ 10,584
Other current assets 38,283 29,512
Property, plant and equipment, net 252,695 236,967
Deferred charges and other assets 1,682 7,869
Total assets $ 318,949 $ 284,932
Liabilities and stockholders' deficit
Accounts payable and accrued liabilities $ 35,746 $ 24,602
Accrued interest on public debt - 26,444
Short-term debt 84,408 381,819
Deferred credits and other liabilities 1,762 1,910
Liabilities subject to compromise:
Trade payables 1,993 -
Public debt 275,000 -
Accrued interest on public debt 38,819 -
Stockholders' (deficit) equity (118,779) (149,843)
Total liabilities and stockholders'
deficit $ 318,949 $ 284,932
Condensed Statements of Cash Flow
Nine Months Ended
September 30,
2000 1999
Net income $31,064 $3,057
DD&A 36,820 38,982
Other non-cash charges and credits, net 1,665 2,024
Reorganization items 10,676 -
80,225 44,063
Net changes in assets and liabilities 16,357 992
Net cash provided by operating activities
before reorganization items 96,582 45,055
Reorganization items (net of non-cash items) (4,544) -
Net cash provided by operating activities 92,038 45,055
Cash flow from investing activities:
Investment in oil and gas properties (52,978) (31,077)
Proceeds from sale of oil and gas properties 629 25,297
Other capital expenditures, net (199) 1,039
Net cash used in investing activities (52,548) (4,741)
Cash flow from financing activities:
Net increase (decrease) in debt (22,460) (18,689)
Other financing activities (1,325) (1,606)
Cash flow provided by (used by) financing
activities (23,785) (20,295)
Increase in cash and cash equivalents $15,705 $20,019
EBITDAR* $98,812 $72,085
*Earnings before interest, taxes, DD&A, and reorganization items. EBITDAR
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Production data:
Natural gas (MMcf) 9,164 11,387 30,233 38,889
Oil (Mbbl) 324 299 997 967
Liquids (Mbbl) 107 33 189 85
Summary (MMcfe):
Working Interest 9,524 8,839 28,541 26,889
VPP 2,237 4,544 8,815 18,313
Total 11,761 13,383 37,356 45,202
Other data:
Average sales prices
Gas (per Mcf) $3.85 $2.39 $3.17 $1.97
Oil (per bbl) $29.27 $18.80 $26.94 $15.43
Liquids (per bbl) $11.13 $10.60 $12.58 $7.19
Total (per Mcfe) $3.91 $2.48 $3.35 $2.04
SOURCE KCS Energy, Inc.
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Related links:
http://www.kcsenergy.com
CONTACT:
James W. Christmas, President and CEO of KCS
Energy, Inc., 713-877-8006; or General Info., Marilynn Meek, or
Media, Dave Closs of The Financial Relations Board, 212-661-8030
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