Oil and Gas Production up 84%; Sour Gas Processing Commences in Manderson
Field; Recent Drilling Activity Increases Manderson Field Reserve Potential
EDISON, N.J., Aug. 6 /PRNewswire/ -- KCS Energy, Inc. (NYSE: KCS) today
announced financial and operating results for the second quarter ended June
30, 1997. The Company also reported that the multiple producing horizons in
its core holdings in the Manderson Field, located in the Big Horn Basin in
north central Wyoming, could potentially add more than 80 million barrels of
oil and 1.0 trillion cubic feet (Tcf) of gas to its reserves. KCS acquired
its initial working interests in the Manderson Field late in 1995 and began
development in 1996.
Commenting on the Company's second quarter 1997 performance, KCS President
and Chief Executive Officer, James W. Christmas, said, "We were pleased to be
able to offset the impact of the January 1, 1997 termination of the above-
market price, take-or-pay contract with Tennessee Gas Pipeline Company ('TGT')
and lower gas and oil prices during much of the quarter. Both earnings before
interest, income taxes and depreciation, depletion and amortization ('EBITDA')
and operating cash flow before working capital changes increased for the
second quarter 1997, compared to the same period last year." For the quarter,
EBITDA was up 1.0% to $21.9 million and operating cash flow before working
capital changes was up 10.4% to $17.6 million.
"Our growth is especially significant when you compare KCS' 1997
performance with 1996 results without the benefit of the TGT contract
premium," said Mr. Christmas. Excluding the $8.4 million premium associated
with the TGT contract in the 1996 quarter, the increase in EBITDA for the 1997
quarter was 65% and the increase in operating cash flow before working capital
changes was 79%, compared to last year's pro forma results. However, the loss
of the TGT contract premium combined with lower gas and oil prices and higher
financing costs reduced earnings from continuing operations for the quarter to
$2.3 million, or $0.08 per share.
For the six-month period, total net income was $13.1 million, or $0.45 per
share, compared to $10.8 million, or $0.46 per share, in the comparable 1996
period. Reflecting the loss of $16.9 million in TGT contract premium and
higher financing costs, net income from continuing operations for the six-
month period was $7.7 million, or $0.27 per share, compared to $11.5 million,
or $0.49 per share, for the same period last year. For the six-month period,
the exclusion of the TGT contract premium from last year's performance results
in an 80% increase in EBITDA and a 75% increase in operating cash flow before
working capital changes, compared to year-ago pro forma results.
Financial Highlights
($ thousands except per share)
3 mos. 1997 3 mos. 1996 Change
Revenue $ 32,551 $ 26,098 24.7%
Net Income:
Continuing Operations $ 2,292 $ 5,524 (58.5)%
Discontinued Operations - (537) NM
Total Net Income $ 2,292 $ 4,987 (54.0)%
Earnings per Share:
Continuing Operations $ 0.08 $ 0.23 (65.2)%
Discontinued Operations - (0.02) NM
Total Earnings per
Share $ 0.08 $ 0.21 (61.9)%
Average Shares and
Equivalents 29,970 23,790 26.0%
EBITDA* $ 21,939 $ 21,731 1.0%
6 mos. 1997 6 mos. 1996 Change
Revenue $ 72,430 $ 53,382 35.7%
Net Income:
Continuing Operations $ 7,697 $ 11,497 (33.1)%
Discontinued Operations 5,389 (655) NM
Total Net Income $ 13,086 $ 10,842 20.7%
Earnings per Share:
Continuing Operations $ 0.27 $ 0.49 (44.9)%
Discontinued Operations 0.18 (0.03) NM
Total Earnings per
Share $ 0.45 $ 0.46 (2.2)%
Average Shares and
Equivalents 29,021 23,683 22.5%
EBITDA* $ 50,307 $ 44,943 11.9%
* Earnings before interest, taxes and DD&A (from continuing operations)
Quarterly Gas Production Up 73%; Oil and Liquids Up 141%;
Total Production Up 84%
"Key to our growth in cash flow was higher oil and gas production," Mr.
Christmas said. The Company's gas production for the second quarter increased
73% to 10.9 Bcf, compared to 6.3 Bcf last year. Oil and liquids production
increased 141% to 455,000 barrels, compared to 189,000 barrels last year.
Overall, oil and gas production for the second quarter increased 84 % to 13.6
Bcfe, compared to 7.4 Bcfe in the same quarter of 1996.
For the six-month period, gas production increased 74% to 22.2 Bcf. Oil
and liquids production increased 174% to 952,000 barrels. Total production
increased 88% to 27.9 Bcfe. "The increases for the quarter and six-month
periods were largely due to production from the Company's Mid-Continent
properties, which were acquired in the Medallion Acquisition late last year,"
said Mr. Christmas.
Termination of TGT Contract and Lower Gas Prices Reduce Average
Realized Gas Prices approximately 42%
Reflecting the termination of the TGT contract, average realized gas
prices for the 1997 second quarter decreased 42% to $2.07 per Mcf, compared to
$3.57 per Mcf in 1996's second quarter. Excluding the TGT contract premium,
average realized gas prices in the 1996 quarter were $2.24 per Mcf. Average
realized oil prices also decreased to $17.89 per barrel, compared to $19.92
per barrel in the same period last year.
For the six-month period, average realized gas prices were $2.33 per Mcf,
compared to $3.64 per Mcf (including the TGT contract premium) and $2.31 per
Mcf (excluding the TGT contract premium). Reflecting strong first quarter oil
prices, average realized oil prices for the six-month period were $19.60 per
barrel, compared to $19.00 per barrel in the same period last year.
Manderson Field Update
To date, KCS has drilled 45 new wells and re-entered two old producing
wells in the Manderson Field targeting the Phosphoria Dolomite, Octh Louie,
Muddy and Frontier sands. "Our initial success was in the Phosphoria, to
which we drilled a total of 36 wells. We tested 20 of these wells at rates
ranging from 200 to 1,900 barrels of oil per day and 450 Mcf to 4,000 Mcf of
sour gas per day. The presence of the sour gas, however, severely limited
production from these wells, most of which have been shut in for extended
periods of time awaiting completion of our sour gas processing facility.
During this period, eight of the new wells were re-completed to shallower
zones, principally the Octh Louie, in order to make the best use of the
existing well bores. We intend to drill twin wells back to the Phosphoria at
these locations once our gas processing and gas re-injection facilities
are fully operational. We are also currently using one of the new Phosphoria
wells and one re-entered old producing well as full-stream gas re-injection
wells," said Mr. Christmas.
"We broke ground on our gas treatment facility in February, started
testing in early May and began processing sour gas on July 30, 1997," said Mr.
Christmas. "The proper, safe and reliable handling of the sour gas production
from the Phosphoria has always been the key to unlocking that formation's
substantial reserve potential. We expect it will take at least 30 days to
bring the plant up to a fully operational status. Once that is accomplished,
we will begin our program to complete and fracture stimulate, or in some cases
re-mediate, the remaining wells drilled to the Phosphoria and begin to ramp up
that formation's oil and gas production," said Mr. Christmas. "We currently
have six completion rigs under contract and expect to have all existing wells
on line within 60 days and fracture stimulated before year-end. We currently
have two drilling rigs active in the field and plan to have two additional
rigs operating before the end of the third quarter. We are targeting new
wells to the Phosphoria as well as the six other producing horizons in the
field," said Mr. Christmas.
Recent Drilling Results Increase Estimated Reserve Potential
"Based only on the Company's core acreage position in the Manderson Field
and assuming 160-acre well spacing, we believe that the Phosphoria formation
alone has potential reserves, net to our interest, of more than 50 million
barrels of oil and 100 Bcf of gas," said Mr. Christmas. This would require
the Company to drill as many as 200 wells at an average cost to drill and
complete of $500,000 per well. "KCS now has leased nearly 50,000 gross
(45,000 net) acres in the Manderson Field area, two-thirds of which could be
considered as its core position," said Mr. Christmas. "The remaining acreage
should be considered prospective."
"But the real story of the Manderson Field is the fact that it contains
multiple producing horizons; all of which except the Phosphoria produce sweet
oil and/or gas," said Mr. Christmas. When one adds the potential of the other
productive formations, the total potential of our core acreage position in the
Manderson Field, net to our interest, could total more than 80 million barrels
of oil and 1.0 Tcf of gas. At year-end 1996, the Company's proved reserves
included only 3.4 million barrels and 23 Bcf of gas from the Manderson Field,
out of its total of 355.8 Bcfe.
Octh Louie, Muddy and Frontier Formations Add Significantly
to Reserve Potential
The other major producing formations in the Manderson Field are the Octh
Louie (sweet oil and sweet gas), the Muddy (sweet gas and natural gas liquids)
and the Frontier (sweet gas and natural gas liquids). The Company currently
estimates potential reserves, net to its interest, of 25 million barrels of
oil and 25 Bcf of gas from as many as 375 possible locations (assuming 80-acre
spacing and a $200,000 per well cost) in the Octh Louie, more than 600 Bcf of
gas from up to 200 possible locations (assuming 160-acre and $200,000 per well
cost) in the Muddy and 150 Bcf of gas from 100 locations (assuming 160-acre
spacing and $160,000 per well cost) from the Frontier. The other three
potentially productive horizons in the field, the Lakota, Dakota and Ten
Sleep, have the potential to add more than 5 million barrels of oil and 125
Bcf of gas. To date, the Company has drilled 5 new wells to the Octh Louie
(plus 7 re-completed Phosphoria wells), 3 new wells to the Muddy (plus one re-
entered old well) and 1 new well to the Frontier. However, the Octh Louie and
Muddy also appear productive in each of the 36 drilled wells to the
Phosphoria, while the Frontier and other reservoirs appear productive in many
of the well bores.
Outlook for the Remainder of 1997
By year-end 1997, the Company expects to have drilled a total of 65 wells
in the field, 42 of which would have been drilled during 1997. "In order to
capitalize on the potential of the field, we intend to accelerate our drilling
program and currently plan to drill up to 100 wells in the Manderson Field in
1998, targeting the four major formations. The exact mix will be dependent on
several factors, including relative oil and gas pricing, gas treatment plant
and gas re-injection capacity and permitting," said Mr. Christmas.
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, 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 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.
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 Six Months Ended
(Amounts in Thousands June 30, June 30,
Except Per Share Data) 1997 1996 1997 1996
Oil and gas revenue $30,589 $26,292 $69,823 $53,073
Other revenue, net 1,962 -194 2,607 309
Total revenue 32,551 26,098 72,430 53,382
Operating costs and expenses
Lease operating
expenses 7,011 1,928 13,699 3,573
Production taxes 1,312 497 3,086 1,117
Other operating and
administrative 2,289 1,942 5,338 3,749
Depreciation, depletion
and amortization 13,914 11,010 28,565 22,387
Total operating costs
and expenses 24,526 15,377 50,688 30,826
Operating income 8,025 10,721 21,742 22,556
Interest and other
income, net 119 1,619 230 3,210
Interest expense -4,536 -3,672 -9,798 -7,722
Income from continuing
operations before
income taxes 3,608 8,668 12,174 18,044
Federal and state
income taxes 1,316 3,144 4,477 6,547
Income from continuing
operations 2,292 5,524 7,697 11,497
Discontinued operations:
Net loss from operations 0.00 -537 -72 -655
Net gain on disposition 0.00 0.00 5,461 0.00
Net income $ 2,292 $ 4,987 $13,086 $10,842
Earnings per share of common
stock and common stock equivalents:
Continuing operations $ 0.08 $ 0.23 $ 0.27 $ 0.49
Discontinued operations 0.00 -0.02 0.18 -0.03
Total earnings per share $ 0.08 $ 0.21 $ 0.45 $ 0.46
Average shares of common
stock and common stock
equivalents outstanding 29,970 23,790 29,021 23,683
KCS Energy, Inc.
Condensed Balance Sheets
June 30, Dec. 31,
(Thousands of Dollars) 1997 1996
Assets
Cash $ 4,543 $ 5,100
Other current assets 39,991 38,699
Net assets of discontinued
operations 5,882 26,658
Property, plant and
equipment, net 484,735 430,353
Investments and other assets 8,404 11,010
Total assets $543,555 $511,820
Liabilities and stockholders' equity
Current liabilities $ 42,022 $ 39,702
Deferred credits and
other liabilities 43,557 36,149
Long-term debt 207,500 310,347
Stockholders' equity 250,476 125,622
Total liabilities and
stockholders' equity $543,555 $511,820
Condensed Statements of Cash Flows
Six Months Ended
June 30,
1997 1996
Net income $ 13,086 $ 10,842
Depreciation, depletion
and amortization 28,565 22,912
Gain on sale of discontinued
operations -5,461 0.00
Other non-cash items, net 4,710 2,790
40,900 36,544
Net changes in assets and
liabilities 4,683 -26,874
Net cash provided by
operating activities 45,583 9,670
Cash flow from investing activities:
Investment in oil and
gas properties -87,557 -26,498
Proceeds from the sale of
pipeline assets 27,907 0.00
Proceeds from the sale of oil
and gas properties 5,833 16,384
Other capital expenditures, net -1,274 -1,676
Net cash used in investing
activities -55,091 -11,790
Cash flow from financing
activities 8,951 -1,118
Decrease in cash and cash
equivalents $ -557 $ -3,238
EBITDA * $ 50,307 $ 44,943
* 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Production data:
Oil (Mbbl) 427 189 882 348
Liquids (Mbbl) 28 - 70 -
Natural gas (MMcf) 10,920 6,302 22,159 12,760
Total production (MMcfe) 13,648 7,436 27,872 14,848
Other data:
Average sales prices
Oil (per bbl) $17.89 $19.92 $19.60 $19.00
Liquids (per bbl) $10.73 - $11.76 -
Natural gas (per Mcf):
Tennessee Gas Contract - $8.37 - $8.30
Other $2.07 $2.24 $2.33 $2.31
Average $2.07 $3.57 $2.33 $3.64
Total (per Mcfe) $2.24 $3.54 $2.51 $3.57
SOURCE KCS Energy, Inc.
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CONTACT:
Henry A. Jurand, SVP & CFO of KCS Energy,
908-632-1770; or General - Marianne Stewart, Analyst - Christina
Howard, or Media - Judith Sylk-Siegel, of The Financial Relations
Board, 212-661-8030
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