EDISON, N.J., Nov. 6 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced financial and operating results for the third quarter ended
September 30, 1997. Commenting on the Company's performance, KCS President
and Chief Executive Officer James W. Christmas said, "We had hoped to be able
to bring on a portion of our shut-in oil and gas production from the Manderson
Field during the quarter, but delays in obtaining certain acid gas disposal
equipment associated with our sour gas treatment plant continued to constrain
the field's production. While obviously frustrated, we believe these delays
are largely attributable to general conditions in the oil and gas industry,
which is currently suffering from a shortage of equipment, qualified personnel
and supporting services. These factors have also caused delays in bringing on
stream new production in the Gulf of Mexico, where we had hoped to begin
receiving substantial additional gas and oil deliveries under our volumetric
production payment ("VPP") program. These delays resulted in production and
revenue for the quarter being lower than our original expectations."
According to Mr. Christmas, "All the necessary acid gas injection
equipment is now on site and being tested and we expect to begin processing
sour gas in the Manderson Field as early as next week. Despite the delays
experienced at the Manderson Field and in our VPP program deliveries, overall
oil and gas production, revenue and EBITDA during the third quarter were
higher than last year's corresponding amounts and helped mitigate the impact
of the termination of the above-market price, take-or-pay contract with
Tennessee Gas Pipeline Company ("TGT")."
Revenue for the third quarter of 1997 grew 21.6% to $31.7 million while
EBITDA was up 4.1% to $21.7 million. "When one excludes the benefits of the
TGT contract from last year's results, the increases are even more significant
and indicative of the progress we've made over the past 12 months." said Mr.
Christmas. Excluding the $8.2 million premium associated with the TGT
contract in last year's quarter, the increase in revenue for the quarter was
77% and the increase in EBITDA was 71%, compared to last year's pro forma
results. The loss of the TGT contract premium, lower gas and oil prices and
higher financing costs, however, combined to reduce earnings from continuing
operations for the quarter to $1.6 million, or $0.05 per share, compared to
$5.3 million, or $0.22 per share, last year.
For the nine-month period, overall net income was $14.7 million, or $0.50
per share, compared to $14.8 million, or $0.62 per share. Reflecting the loss
of $25.7 million in TGT contract premium and higher financing costs, net
income from continuing operations for the nine-month period was $9.3 million,
or $0.32 per share, compared to $16.8 million, or $0.70 per share, for the
same period last year. For the nine-month period, the exclusion of the TGT
contract premium from last year's performance would have resulted in a 94%
increase in revenue and a 80% increase in EBITDA in 1997, compared to year-ago
pro forma results.
KCS Energy, Inc.
Financial Highlights
($ thousands except per share)
3 mos. 1997 3 mos. 1996 Change
Revenue $ 31,668 $ 26,046 21.6%
Net Income:
Continuing Operations $ 1,579 $ 5,283 (70.1)%
Discontinued Operations -- (1,319)
Total Net Income $ 1,579 $ 3,964 (60.2)%
Earnings per Share:
Continuing Operations $ 0.05 $ 0.22 (77.3)%
Discontinued Operations 0.00 (0.05)
Total Earnings
per Share $ 0.05 $ 0.17 (70.6)%
EBITDA* $ 21,665 $ 20,821 4.1%
9 mos. 1997 9 mos. 1996 Change
Revenue $ 104,098 $ 79,428 31.1%
Net Income:
Continuing Operations $ 9,276 $ 16,780 (44.7)%
Discontinued Operations 5,389 (1,974)
Total Net Income $ 14,665 $ 14,806 (0.9)%
Earnings per Share:
Continuing Operations $ 0.32 $ 0.70 (54.3)%
Discontinued Operations 0.18 (0.08)
Total Earnings
per Share $ 0.50 $ 0.62 (19.4)%
EBITDA* $ 71,972 $ 65,764 9.4%
*Earnings before interest, taxes and DD&A (from continuing operations)
Quarterly Gas Production Up 73%; Oil Production Up 123%; Total Production
Up 81%
"The quarter was aided by higher oil and gas production," said
Mr. Christmas. Natural gas production for the quarter increased 73% to
10.7 Bcf, compared to 6.2 Bcf last year, and oil and liquids production
increased 123% to 443,000 barrels, compared to 199,000 barrels last year.
Overall, oil and gas production for the quarter increased 81% to 13.3 Bcfe,
compared to 7.4 Bcfe in the same quarter of 1996.
For the nine-month period ended September 30, 1997, gas production
increased 73% to 32.8 Bcf while oil and liquids production increased 155% to
1,396,000 barrels. Total production increased 85% to 41.2 Bcfe. "Both the
increases for the quarter and nine-month period were largely due to production
from the Company's properties in the Mid-Continent region which were acquired
late last year. In addition, production from wells completed during the first
nine months of 1997 contributed to the increase," said Mr. Christmas.
Average Realized Gas Prices Declined Principally Due to Termination of TGT
Contract
The major factor contributing to the decline in earnings was lower average
realized natural gas prices. Reflecting the termination of the TGT contract,
average realized gas prices for the 1997 quarter decreased 39% to $2.17 per
Mcf, compared to $3.54 per Mcf in 1996's quarter. Excluding the TGT contract
premium, average realized gas prices in 1996's quarter were $2.23 per Mcf.
Average realized oil prices also decreased 17% to $17.46 per barrel, compared
to $21.00 per barrel in the same period last year.
For the nine-month period, average realized gas prices excluding the TGT
contract premium were essentially the same each year, but were 37% lower at
$2.28 per Mcf, compared to $3.61 per Mcf including the TGT contract premium.
Average realized oil prices declined 4% to $18.92 per barrel, compared to
$19.72 per barrel in the same period last year.
Manderson Field Update
Equipment delays and manufacturing problems have to date precluded the
completion of our acid gas injection system, a key component necessary for the
disposal of the waste hydrogen sulfide gas from the Company's sour gas
treatment facility. "While these delays have gone beyond our expectations, we
remain committed to making the Manderson Field a first class operation,
equipped to effectively and safely process the large volumes of sour gas. We
believe that the delays experienced, while frustrating, are insignificant
considering our overall plans for this field," said Mr. Christmas.
"All of the components of the acid gas injection system have arrived at
the site and are being assembled. We hope to begin startup operations by this
weekend and to be processing sour gas and injecting acid gas as early as next
week," said Mr. Christmas. Once fully operational, the Company's treatment
plant will have the capacity to treat up to 28,000 Mcf of sour gas (20%
hydrogen sulfide content level) per day to pipeline specifications. Assuming
a steady-state 2 Mcf to 1 bbl gas/oil ratio, the plant's capacity, assuming
treatment to pipeline specifications, would permit oil production from the
Manderson Field at up to 14,000 bbls of oil per day. There can be no
assurance that the Company will be able to produce oil and gas from the
Manderson Field at rates sufficient to fully utilize such capacities. The
plant's sour gas handling capacity would be substantially higher if the
Company elected to treat its 20% sour gas to a 3% hydrogen sulfide content
level and then transport the 3% sour gas to an existing gas treatment facility
owned by a third party. The facility is currently undergoing modifications
to safely handle such sour gas.
"Once the gas treatment plant goes into operation, we will begin the
process of completing and stimulating and, in some cases, remediating, the 54
wells drilled to date in the field. We expect to have 50 wells on line by
year end, but most will not have been stimulated by then. We currently plan
to stimulate two to three wells per week throughout the remainder of 1997,"
said Mr. Christmas. The Company currently has two drilling rigs and
eight completion rigs in the field and plans to have drilled at least 70 wells
by year-end 1997. In 1998, the Company plans to drill an additional 70 to 100
wells in the field.
"Since we first acquired an interest in the Manderson Field in late 1995,
we have increased our holdings in the field from approximately 7,500 acres to
more than 61,000 acres. We believe that there are as many as seven productive
formations located on our holdings in the greater Manderson Field and that,
combined, these formations have significant potential for KCS," said Mr.
Christmas.
Record Growth in VPP Program
"Our volumetric production payment program continues to exceed our
expectations. During the third quarter of 1997 alone, we invested $36 million
to acquire proved reserves of 20,150 MMcf of natural gas and 150 Mbbl, all
without the burden of development or lease operating expenses." The Company
uses this program to augment its working interest ownership of properties and
has been successful in adding oil and gas reserves at attractive rates of
return and increasing its exposure to acquisition and development
opportunities. Through September 30, 1997, the Company had invested
$124 million under the VPP program, and had acquired proved reserves of 71,596
MMcf of natural gas and 1,515 Mbbl of oil. This represents an average net
acquisition cost of $1.54 per Mcfe, without the burden of development and
lease operating expenses. As of September 30, 1997, the Company had already
recovered $74 million from the sale of oil and gas received under its VPP
program. Scheduled for delivery after September 30, 1997 are 42,303 MMcf of
gas and 1,001 Mbbl of oil with an unrecovered cost of approximately $1.26 per
Mcfe (including $10.6 million of future commitments). Deliveries currently
scheduled for 1998 are 21,616 MMcf and 367 Mbbl, an increase of more than 80%
from estimated 1997 levels.
Exploration Program Update
"We are currently in the process of completing three exploratory
prospects, including the Franklin Deep in south Louisiana, Langham Creek Deep
in Harris County, Texas and Wild Horse Butte in Wyoming," said Mr. Christmas.
"During 1997, we have assembled a strong inventory of prospects in the onshore
Gulf Coast regions of Texas and Louisiana and in the Rocky Mountain and Mid-
Continent regions where we believe significant exploratory opportunities
exist. We are currently conducting several 3-D seismic surveys and hope to
spud several additional promising prospects early in 1998."
Outlook
"With the progress we have made in the Manderson Field, our multi-
year inventory of development drilling opportunities, our expanded VPP
program, several exploration projects nearing completion and currently strong
oil and gas prices, we are very enthusiastic as we move toward 1998," said Mr.
Christmas.
KCS is an independent energy company engaged in the acquisition,
exploration, development and production of natural gas and crude oil with
operations in the Rocky Mountains, Mid-Continent and Gulf Coast regions. The
Company also owns oil and gas property interests in the Gulf of Mexico and
Michigan's Niagaran Reef trend. 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 the
Manderson Field in Wyoming, 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.
To receive KCS' latest news and other corporate developments via fax at no
cost, please call 1-800-PRO-INFO. Use company code KCS. Or visit The
Financial Relations Board's web site at http://www.frbinc.com.
KCS Energy, Inc.
Condensed Income Statements
Three Months Ended Nine Months Ended
(Amounts in Thousands September 30, September 30,
Except Per Share Data) 1997 1996 1997 1996
Oil and gas revenue * $30,573 $25,978 $100,396 $79,051
Other revenue, net 1,095 68 3,702 377
Total revenue 31,668 26,046 104,098 79,428
Operating costs and expenses
Lease operating expenses 6,771 3,009 20,470 6,582
Production taxes 1,268 554 4,354 1,671
General and administrative 1,964 1,662 7,302 5,411
Depreciation, depletion
and amortization 13,921 10,741 42,486 33,128
Total operating costs
and expenses 23,924 15,966 74,612 46,792
Operating income 7,744 10,080 29,486 32,636
Interest and other income, net 158 1,610 388 4,820
Interest expense (5,348) (3,471) (15,146) (11,193)
Income before income taxes 2,554 8,219 14,728 26,263
Federal and state income taxes 975 2,936 5,452 9,483
Net income from continuing
operations 1,579 5,283 9,276 16,780
Net income / (loss) from
discontinued operations
Net loss from operations -- (1,319) (72) (1,974)
Net gain on disposition -- -- 5,461 --
Net income $ 1,579 $ 3,964 $14,665 $14,806
Earnings per share of common
stock and common stock equivalents
Continuing operations $ 0.05 $ 0.22 $ 0.32 $ 0.70
Discontinued operations -- (0.05) 0.18 (0.08)
Total earnings per share $ 0.05 $ 0.17 $ 0.50 $ 0.62
Average shares of common
stock and common stock
equivalents outstanding 30,294 23,971 29,449 23,773
* TGT contract premium in
oil and gas revenue $ -- $ 8,180 $ -- $25,689
KCS Energy, Inc.
Condensed Balance Sheets
September 30, December 31,
(Thousands of Dollars) 1997 1996
Assets
Cash $3,858 $5,100
Other current assets 41,645 38,699
Net assets of discontinued operations 5,110 26,658
Property, plant and equipment, net 555,406 430,353
Investments and other assets 8,024 11,010
Total assets $614,043 $511,820
Liabilities and stockholders' equity
Current liabilities $42,906 $39,702
Deferred credits and other liabilities 43,424 36,149
Long-term debt 275,723 310,347
Stockholders' equity 251,990 125,622
Total liabilities and
stockholders' equity $614,043 $511,820
Condensed Statements of Cash Flow
Nine Months Ended
September 30,
1997 1996
Net income $14,665 $14,806
DD&A 42,486 33,933
Gain on sale of discontinued operations (5,461) --
Other 5,901 5,443
57,591 54,182
Net changes in assets and liabilities 4,304 50,945
Net cash provided by operating activities 61,895 105,127
Cash flow from investing activities:
Investment in oil and gas properties (169,773) (50,552)
Proceeds from sale of pipeline assets 27,907 --
Proceeds from sale of oil
and gas properties 3,800 16,384
Investment in other property,
plant and equipment (2,111) (2,183)
Net cash used in investing activities (140,177) (36,351)
Cash flow from financing activities 77,040 (21,025)
Increase (decrease) in cash
and cash equivalents $(1,242) $47,751
EBITDA * $71,972 $65,764
EBITDA without TGT premium* $71,972 $40,075
* 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Production data:
Oil (Mbbl) 413 199 1,295 547
Liquids (Mbbl) 30 -- 101 --
Natural gas (MMcf) 10,647 6,163 32,806 18,922
Total production (MMcfe) 13,308 7,356 41,180 22,204
Other data:
Average sales prices
Oil (per bbl) $17.46 $21.00 $18.92 $19.72
Liquids (per bbl) 9.39 -- 11.05 --
Natural gas (per Mcf):
Tennessee Gas Contract -- 8.53 -- 8.38
Other 2.17 2.23 2.28 2.29
Average 2.17 3.54 2.28 3.61
SOURCE KCS Energy, Inc.
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CONTACT:
Henry A. Jurand, SVP & CFO of KCS Energy,
732-632-1770; or For General Info: Marianne Stewart, For Analyst
Info: Christina Howard, or For Media Info: Judith Sylk-Siegel,
all of The Financial Relations Board, 212-661-8030
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