HOUSTON, Nov. 14 /PRNewswire-FirstCall/ -- KCS Energy, Inc. (NYSE: KCS)
today announced financial and operating results for the third quarter and nine
months ended September 30, 2002.
Financial Highlights
($ thousands except per share)
3 mos. 2002 3 mos. 2001
Revenue $30,472 $ 39,466
Operating Income $ 7,666 $ 13,334
Net Income $ 3,649 $8,999
Diluted Earnings Per Share $0.09 $0.22
9 mos. 2002 9 mos. 2001
Revenue $89,573 $ 161,213
Operating Income $17,992 $80,372
Income Before Income Taxes $3,792 $61,558
Net Income (Loss) $(10,341) $69,207
Diluted Earnings (Loss) Per Share $(0.31) $1.81
Commenting on the third quarter's results, KCS President and Chief
Executive Officer James W. Christmas said, "Excellent drilling results coupled
with solid albeit somewhat lower natural gas prices and lower operating costs
resulted in net income for the quarter of $3.6 million, our best quarter this
year.
"We are also pleased to report that the Company has entered into a non-
binding letter of intent with a third party lender with respect to a $60
million senior credit facility, the proceeds of which will be used to redeem
the remaining amount outstanding on the Company's Senior Notes due January 15,
2003. Closing on this facility is expected by year-end and is subject to the
lender's due diligence, the negotiation of definitive agreements, and the
closing of an amended or replacement revolving bank credit facility.
"As previously stated, one of our primary goals for 2002 was to further
reduce debt and put the Company in position to meet the Senior Note
obligations. In order to accomplish this, we reported that we would sell
certain non-core oil and properties and reduce the 2002 capital spending
program. To date, KCS has realized net proceeds of $30.9 million from the sale
of non-core properties and cut capital expenditures over 45% compared to last
year. The Company also has reduced its obligations under the 2001 Production
Payment by approximately $40 million, and repaid $14.5 million of debt. We've
also continued to reduce cash expenses and to develop a significant inventory
of drilling prospects to be exploited in the future. We look forward to
completing the proposed financing and moving forward to build value through a
combination of reserve additions and further debt reduction."
If for some reason the financing is not completed in sufficient time to
redeem the Senior Notes as scheduled, and an extension of the maturity is not
obtained, the Senior Subordinated Notes would be subject to acceleration. In
such an event, the Company would not have sufficient resources to pay the
outstanding Senior Notes and Senior Subordinated Notes and this would put into
doubt the Company's ability to continue as a going concern.
Total revenue decreased to $30.5 million for the three months ended
September 30, 2002 compared to $39.5 million for the same period last year due
to a 17% decline in production and a 6% reduction in average realized prices.
The production declines were the result of the non-core property sales and the
natural decline of production from existing properties, which were not fully
offset by the reduced capital spending program. Cash operating expenses (lease
operating, production taxes, and general and administrative expenses) were
$9.7 million for the three months ended September 30, 2002 compared to
$10.6 million for the same period in 2001. As a result, net income for the
three months ended September 30, 2002 was $3.6 million compared to
$9.0 million for the comparable period last year.
For the nine months ended September 30, 2002, total revenue was
$89.6 million compared to $161.2 million for the same period in 2001. Oil and
gas revenue decreased $53.4 million due to a 23% decline in average realized
oil and gas prices and a decline in production for the reasons discussed
above. Other revenue was down $18.2 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 by 20% to $30.0 million, compared to
$37.5 million in the prior year. Interest expense was $14.3 million in the
2002 nine-month period, compared to $17.1 million in the prior year, primarily
as a result of reduced levels of debt. The 2001 nine-month period also
included $2.9 million of reorganization expenses. Income before income taxes
for the nine months ended September 30, 2002 was $3.8 million, compared to
$61.6 million for the nine months ended September 30, 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 for the nine months ended September 30, 2002 of $10.3
million, compared to net income of $69.2 million.
Operating Highlights
KCS participated in a number of key wells in the third quarter, including:
-- The Cooley #12 well in the West Mission Valley Field, Goliad County,
Texas was drilled and completed testing 2,500 mcfpd from two Wilcox
intervals (KCS WI = 50%). Additional offset locations exist in this
field.
-- The Weyerhauser 2-22 well in the Talihina Field, Latimer County,
Oklahoma was drilled as a discovery in the Upper Jackfork formation.
The well found over 200 feet of pay and tested at a rate of 4,900 mcfpd
(KCS WI = 32%). The well is currently shut in waiting on pipeline
connection. Offset wells will be evaluated after production
information is obtained. KCS holds a 47% WI in additional wells which
may be drilled in the section.
-- The Lawrence 2-14 well (KCS WI = 14%) extended the productive area of
the Bullard formation. This well is located in Latimer County,
Oklahoma and is producing at a rate of 2,000 mcfpd. A further step out
location has been staked.
-- The McLaughlin #1 well (KCS WI = 21%) in the South Drew Field, Ouachita
Parish, Louisiana was drilled as a Cotton Valley completion and tested
at 1,640 mcfpd and 40 bcpd. The well is currently on line, restricted
by pipeline capacity to 950 mcfpd. Additional drilling opportunities
exist in the South Drew Field.
-- The Roos #9 well was drilled in the Elm Grove Field in north Louisiana
and logged pay in the Upper and Lower Cotton Valley zones, as well as
additional Hosston sands. The well has been tested in the Lower Cotton
Valley at 670 mcfpd and in the Upper Cotton Valley zone at 2,650 mcfpd.
The two zones will be commingled and sales commenced in the fourth
quarter. Based on the log results, a twin well and one offset well
were drilled and completed in shallower Hosston sands and are currently
on line at a combined rate of 2,000 mcfpd. KCS has a 100% WI in the
Elm Grove Field and has numerous other locations to drill.
Commenting on the drilling results, William N. Hahne, Executive Vice
President & Chief Operating Officer said, "Even though we were capital
restricted in the third quarter, the Company had excellent drilling results
which positions us for exciting follow up potential in each area." For the
quarter, the Company participated in ten wells, eight of which were
productive.
The Company's production volumes were better than earlier expectations for
the third quarter at an average production rate of 101.7 mmcfepd. Production
volumes in the second quarter were 105.0 mmcfepd. Previously announced
property sales reduced volumes by approximately 8.0 mmcfepd, offset by
increases in production from recent discoveries.
The previously announced divestiture of the Battle Creek Field in Montana
was finalized in the third quarter. During the quarter, the Company purchased
an additional 10.4% working interest in the recent Pine Grove discovery in
Mississippi. The Company also embarked on a process to reduce G & A costs by
approximately 20% in 2003.
Outlook
Based on the recent property divestitures and third quarter results, the
outlook for 2002 is amended as follows (these projections do not include any
additional divestitures):
Previous Current
Forecast Forecast
Production (BCFE)
WI 34-37 35-36
VPP 2-3 2.5
Total 36-40 37.5-38.5
Production Payment (11.2) (11.2)
LOE ($MM) 22-25 24-25
Net G&A ($MM) 8-9 8.5-9.0
Interest Expense ($MM) 17-19 19
Capital Expenditures ($MM) 45-50 44-47
As of September 30 the Company had hedges covering 1.5 bcf at an average
$3.85 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 the failure to obtain a new $60 million credit
facility and amend or replace the existing bank credit facility, or obtain an
extension of the maturity of the Senior Note obligations before the Senior
Note obligations come due, 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) 2002 2001 2002 2001
Oil and gas revenue $30,391 $38,747 $90,556 $143,981
Other revenue, net 81 719 (983) 17,232
Total revenue 30,472 39,466 89,573 161,213
Operating costs and expenses
Lease operating expenses 5,930 6,806 19,339 23,759
Production taxes 1,458 1,563 4,413 6,629
General and administrative
expenses 2,363 2,207 6,253 7,121
Stock compensation 156 224 666 521
Depreciation, depletion
and amortization 12,899 15,332 40,910 42,811
Total operating costs and
expenses 22,806 26,132 71,581 80,841
Operating income 7,666 13,334 17,992 80,372
Interest and other income, net 42 192 121 1,210
Interest expense (4,655) (4,880) (14,321) (17,076)
Income before reorganization
items and income taxes 3,053 8,646 3,792 64,506
Reorganization items - (356) - (2,948)
Income before income taxes 3,053 8,290 3,792 61,558
Federal and state income
(taxes) benefit 596 709 (14,133) 7,649
Net income (loss) 3,649 8,999 (10,341) 69,207
Dividends and accretion of
issuance costs on preferred
stock (214) (248) (839) (741)
Income (loss) available to
common stockholders $3,435 $8,751 $(11,180) $68,466
Earnings per share of common
stock:
Basic $0.09 $0.27 $(0.31) $2.23
Diluted $0.09 $0.22 $(0.31) $1.81
Average shares outstanding
for computation of earnings
per share
Basic 36,247 32,636 35,634 30,711
Diluted 40,881 40,188 35,634 38,248
KCS Energy, Inc.
Condensed Balance Sheets
September 30, December 31,
(Dollars in Thousands) 2002 2001
Assets
Cash $10,396 $22,927
Other current assets 24,120 27,060
Property, plant and equipment, net 245,149 278,677
Deferred taxes - 15,920
Other assets 1,818 2,142
Total assets $281,483 $346,726
Liabilities and stockholders'
(deficit) equity
Accounts payable and accrued liabilities $35,760 $43,951
Accrued interest 3,830 9,089
Senior notes (current) 61,274 -
Bank credit facility (current) 8,800 -
Deferred revenue and other liabilities 78,019 112,757
Long-term debt 125,000 204,800
Convertible preferred stock 12,849 15,589
Stockholders' (deficit) equity (44,049) (39,460)
Total liabilities and stockholders'
(deficit) equity $281,483 $346,726
Condensed Statements of Cash Flow
Nine Months Ended
September 30,
2002 2001
Net income (loss) $(10,341) $69,207
DD&A 40,910 42,811
Amortization of deferred revenue (35,138) (47,152)
Deferred income taxes 14,133 (7,649)
Other non-cash charges and credits, net 4,272 6,192
Reorganization items - 2,948
13,836 66,357
Proceeds from Production Payment sold,
net - 175,399
Change in accrued interest payable (5,260) (54,076)
Other operating activities, net (4,495) (10,538)
Net cash provided by operating
activities before reorganization items 4,081 177,142
Reorganization items - (2,948)
Net cash provided by operating
activities 4,081 174,194
Cash flow from investing activities:
Investment in oil and gas properties (36,377) (71,724)
Proceeds from sales of oil and gas
properties 29,413 2,128
Other capital expenditures 78 (1,199)
Net cash used in investing activities (6,886) (70,795)
Cash flow from financing activities:
Proceeds from borrowings 8,800 -
Repayments of debt (18,526) (146,905)
Issuance of convertible preferred stock, net - 28,413
Other financing activities - 256
Cash flow used in financing activities (9,726) (118,236)
Decrease in cash and cash equivalents $(12,531) $(14,837)
KCS Energy, Inc.
Supplemental Data
Three Months Ended
September 30,
2002 2001
Production data: *
Natural gas (MMcf) 7,382 8,956
Oil (Mbbl) 248 288
Liquids (Mbbl) 79 98
Summary (MMcfe):
Working Interest 8,716 10,167
VPP 628 1,105
Total 9,344 11,272
Average price *
Gas (per Mcf) $3.26 $3.49
Oil (per bbl) $22.35 $21.77
Liquids (per bbl) $9.57 $12.46
Total (per Mcfe) $3.25 $3.44
* Includes 2,671 MMcfe and 8,715 MMcfe, respectively, for the three and
nine months ended September 30, 2002 compared to 4,210 MMcfe and 11,752
MMcfe for the three and nine months ended September 30, 2001,
respectively, dedicated to the Production Payment sold in February 2001.
KCS Energy, Inc.
Supplemental Data
Nine Months Ended
September 30,
2002 2001
Production data: *
Natural gas (MMcf) 23,270 28,292
Oil (Mbbl) 776 934
Liquids (Mbbl) 221 275
Summary (MMcfe):
Working Interest 27,098 32,008
VPP 2,153 3,538
Total 29,251 35,546
Average price *
Gas (per Mcf) $3.13 $4.21
Oil (per bbl) $20.12 $22.20
Liquids (per bbl) $9.55 $14.76
Total (per Mcfe) $3.10 $4.05
* Includes 2,671 MMcfe and 8,715 MMcfe, respectively, for the three and
nine months ended September 30, 2002 compared to 4,210 MMcfe and 11,752
MMcfe for the three and nine months ended September 30, 2001,
respectively, dedicated to the Production Payment sold in February 2001.
SOURCE KCS Energy, Inc.
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CONTACT:
James W. Christmas, President and CEO of KCS
Energy, Inc., +1-713-877-8006; General Info, Marilynn Meek,
+1-212-445-8451, Analyst Info, Peter Seltzberg, +1-212-445-8457,
or Media Info, Suzie Pileggi, +1-212-445-8170, all of FRB Weber
Shandwick
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