-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U5PJsvFJll3qzLR8JhmhCdwJ9XO02Bic5jDMK8zlMVx3jNgYRJOizwAmhvFj0e/R LB2/bch7DS0L+u+mQOALGw== 0000932384-96-000114.txt : 19960517 0000932384-96-000114.hdr.sgml : 19960517 ACCESSION NUMBER: 0000932384-96-000114 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHEFFIELD EXPLORATION CO INC CENTRAL INDEX KEY: 0000755199 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 061052062 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13201 FILM NUMBER: 96567469 BUSINESS ADDRESS: STREET 1: 1801 BROADWAY STE 600 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032961908 MAIL ADDRESS: STREET 1: 1801 BROADWAY SUITE 600 CITY: DENVER STATE: CO ZIP: 80202 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 March 31, 1996 Commission File Number 0-13201 SHEFFIELD EXPLORATION COMPANY, INC. 1801 Broadway, Suite 600 Denver, Colorado 80202 Incorporated in Delaware IRS ID #06-1052062 Telephone: (303) 296-1908 Sheffield Exploration Company, Inc. ("the Company") (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. 3,459,512 shares of common stock, $.01 par value, outstanding at May 13, 1996 INDEX ----- Page ---- Part One - Financial Information Consolidated Balance Sheets - March 31, 1996 and June 30, 1995 1 Consolidated Statements of Operations - Nine months and three months ended March 31, 1996 and 1995 3 Consolidated Statements of Cash Flows - Nine months ended March 31, 1996 and 1995 4 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part Two - Other Information Exhibits and Reports on Form 8-K 10 Signatures 11 PART ONE - FINANCIAL INFORMATION SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
MARCH 31, JUNE 30, 1996 1995 -------------- -------------- CURRENT ASSETS Cash and cash equivalents $ 2,738,647 $ 43,594 Receivables, net 328,523 1,156,837 Gas in storage -- 237,810 Assets held for sale 97,431 4,144,040 Deferred income taxes, net -- 670,000 Other 102,720 78,809 ------------- ------------- 3,267,321 6,331,090 PROPERTY AND EQUIPMENT (Using the successful efforts method) Unproved oil and gas properties 627,342 624,980 Proved properties 4,453,661 4,258,381 Gas plant and related equipment 2,220,575 2,071,328 Other property and equipment 164,686 123,402 ------------- ------------- 7,466,264 7,078,091 Accumulated depreciation, depletion and amortization and impairment (4,594,222) (3,800,247) ------------- ------------- 2,872,042 3,277,844 Deferred income taxes, net 321,000 321,000 Other assets 27,747 105,832 ------------- ------------- $ 6,488,110 $ 10,035,766 ============= =============
The accompanying notes are an integral part of these consolidated financial statements -1- SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, JUNE 30, 1996 1995 -------------- -------------- CURRENT LIABILITIES Accounts payable $ 280,318 $ 849,349 Deposits -- 12,783 Current portion of long-term debt 15,419 1,175,250 Production and ad valorem taxes payable 89,637 147,781 ------------- ------------- 385,374 2,185,163 LONG-TERM DEBT, net of current portion 10,050 1,374,050 STOCKHOLDERS' EQUITY Preferred stock $.01 par value; 2,000,000 shares authorized; none issued -- -- Common stock, $.01 par value; 10,000,000 shares authorized; 3,459,512 and 3,389,261 shares issued and outstanding at March 31, 1996 and June 30, 1995, respectively 34,595 33,893 Additional paid-in capital 6,941,128 6,805,550 Accumulated deficit (883,037) (362,890) ------------- ------------- 6,092,686 6,476,553 ------------- ------------- $ 6,488,110 $ 10,035,766 ============= =============
The accompanying notes are an integral part of these consolidated financial statements -2- SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------------- -------------------------- 1996 1995 1996 1995 ----------- ------------ ------------ ------------- Revenues Gas processing, gathering and storage $ 451,054 $ 1,774,461 $ 3,041,377 $ 5,359,373 Oil and gas sales 261,733 265,842 768,149 883,775 ----------- ------------ ----------- ----------- Total revenues 712,787 2,040,303 3,809,526 6,243,148 Expenses Gas processing, gathering and storage 371,599 1,495,314 2,300,856 4,582,530 Operation of producing properties 94,336 96,032 309,070 285,318 Production taxes 25,793 28,922 81,266 87,370 Exploration 13,556 13,416 57,233 34,523 Depreciation, depletion and amortization: Gas processing, gathering and storage assets 49,671 148,488 221,174 360,121 Oil and gas properties 87,828 72,529 289,962 272,052 Other 2,629 12,066 18,977 34,261 Impairments: Unproved properties -- -- -- 100,951 Proved properties 355,000 -- 355,000 511,347 General and administrative, net 590,601 266,138 1,172,337 504,392 ----------- ------------ ----------- ----------- Total expenses 1,591,013 2,132,905 4,805,875 6,772,865 ----------- ------------ ----------- ----------- Operating (loss) (878,226) (92,602) (996,349) (529,717) Other income (expense) Interest income and other 67,044 (4,138) 116,536 8,951 Gain on sale of fixed assets 53,824 14,936 1,104,778 32,488 Interest expense, net of capitalized interest (4,786) (43,959) (75,112) (131,663) ----------- ------------ ----------- ----------- 116,082 (33,161) 1,146,202 (90,224) ----------- ------------ ----------- ----------- Income (loss) before income taxes (762,144) (125,763) 149,853 (619,941) Provision for income taxes -- 12,704 670,000 12,704 ----------- ------------ ----------- ----------- Net (loss) $ (762,144) $ (138,467) $ (520,147) $ (632,645) =========== ============ =========== =========== Net (loss) per share $ (0.22) $ (0.04) $ (0.15) $ (0.19) =========== ============ =========== =========== Weighted average common shares outstanding 3,451,908 3,389,898 3,414,524 3,307,076 =========== ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements -3- SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
NINE MONTHS ENDED MARCH 31, -------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net (loss) $ (520,147) $ (632,645) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depletion, depreciation and amortization 530,113 666,434 Deferred income taxes 670,000 -- Impairment expense 355,000 612,298 (Gain) on asset sales (1,104,278) (32,487) Cost of storage gas sales (purchases) 238,624 (77,889) Stock as compensation 135,511 28,800 Other 18,495 12,946 Changes in current assets and liabilities: Receivables 811,314 227,946 Payables (541,560) 72,466 Taxes payable (58,144) 37,272 Other current assets (23,911) 125,583 Other assets (1,770) (16,368) ------------ ------------ Net cash provided by operating activities 509,247 1,024,356 Cash flows from investing activities: Proceeds from asset sales 5,335,220 99,772 Additions to properties: Producing properties (195,280) (852,183) Gas plant, gathering and storage systems (149,629) (474,033) Unproved properties (23,799) (59,570) Other (68,756) (153,712) Additions to assets held for sale (176,104) -- Gas in storage -- (266,000) Deposits (12,783) 28,959 ------------ ------------ Net cash provided by (used in) investing activities 4,708,869 (1,676,767) Cash flows from financing activities: Loan proceeds 16,422 511,614 Payment of loan principal (2,540,253) (141,283) Proceeds from stock issuance 3,000 65,000 Purchase of common stock (2,232) -- ------------ ------------ Net cash (used in) provided by financing activities (2,523,063) 435,331 ------------ ------------ Net increase in cash and equivalents 2,695,053 (217,080) Cash and equivalents at beginning of period 43,594 360,124 ------------ ------------ Cash and equivalents at end of period $ 2,738,647 $ 143,044 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements -4- SHEFFIELD EXPLORATION COMPANY, INC. AND SUBSIDIARIES ("Sheffield" or "the Company") NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) FINANCIAL STATEMENT ADJUSTMENTS AND FOOTNOTE DISCLOSURES: The accompanying consolidated financial statements are unaudited. However, in the opinion of management, the accompanying financial statements reflect all adjustments, which are normal and recurring in nature, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. Management believes the disclosures made are adequate to make the information not misleading and suggests that these financial statements be read in conjunction with the Company's June 30, 1995 Form 10-K. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. (2) INCOME TAXES: As a result of the Company's January 1, 1991 quasi-reorganization, income tax benefits resulting from utilization in subsequent years of net operating loss carryforwards existing at January 1, 1991 are excluded from results of operations and, since the Company's adoption of Statement of Financial Accounting Standard No. 109 in fiscal 1993, credited to the deferred tax asset. From the date of quasi- reorganization through June 30, 1992, benefits were credited to additional paid-in capital. The $670,000 tax provision for the nine months ended March 31, 1996 consists of taxes at the federal statutory rate of 34 percent ($51,000), a 3 percent state provision ($5,000) and an increase in the tax asset valuation allowance of $614,000. As discussed in Note 5, the Company has executed a merger agreement. Assuming the merger is consummated, it is anticipated that future use of the Company's tax loss carryforward will be restricted. 5 (3) NET LOSS PER SHARE: Warrants and options have been excluded from the loss per share calculation as they have no material effect. (4) RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARD: The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" in October 1995. This statement, which is required to be adopted in fiscal year 1997, introduces a fair-value based method of accounting for stock-based compensation. The Company has not yet adopted the statement and has not yet determined the impact it may have on the Company's financial statements or on the financial statement disclosure. (5) PROPOSED MERGER WITH TRANSMONTAIGNE OIL COMPANY: On February 6, 1996, the Company executed an agreement with TransMontaigne Oil Company ("TransMontaigne"), a privately-held, Denver-based holding company, to merge TransMontaigne into Sheffield. Sheffield will be the surviving corporation and its name will be changed to TransMontaigne Oil Company. The current stockholders of TransMontaigne will own 93% of the surviving corporation. The board of directors of the surviving entity will consist of the members of the current TransMontaigne board, as well as Edwin H. Morgens, chairman of Sheffield. The current officers of TransMontaigne will serve as officers after the merger. On May 10, 1996 a Form S-4 Registration Statement registering the shares to be issued in connection with the proposed merger became effective with the Securities and Exchange Commission. A proxy statement/prospectus was mailed to all stockholders regarding a special stockholders' meeting to be held on June 3, 1996 for the purpose of voting on the merger. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES GENERAL. The Company does not anticipate incurring any material capital expenditures prior to the merger (expected to be consummated in early June) described in Note 5. OPERATIONS. The decrease in operating cash flows from 1995 to 1996 results from the Asset Sale and higher general and administrative expense related to the proposed merger with TransMontaigne Oil Company. INVESTING. On October 2, 1995, the Company sold all of its gas gathering and processing assets in Kansas and Oklahoma for a pre- adjustment price of $5.5 million (the "Asset Sale"). The purchase and sale agreement provided for an effective date of July 1, 1995. However, the purchase and sale agreement specified that Sheffield was entitled to all proceeds from the sale of natural gas from storage inventory provided that at closing there be a minimum of 150,000 mmbtu in inventory. Additionally, Sheffield continued to operate the assets until January 31, 1996. The Company recorded a gain of approximately $1 million during the quarter ended December 31, 1995 as a result of the Asset Sale. A portion of the proceeds have been used to substantially reduce bank debt, leaving the Company with a cash balance of approximately $2.7 million at March 31, 1996. During the quarter ended March 31, 1996, Sheffield (through its joint venture partner) finalized a purchase agreement with a Canadian gas producer which will facilitate the intended extension of the Company's Lignite, North Dakota gathering system into Saskatchewan. However, construction of the extension will not commence until after completion of the merger described in Note 5. During the quarter ended March 31, 1996, Sheffield entered into a joint venture with TransMontaigne and BP Energy Operating, LLC to form a development stage company with its primary focus in the gas gathering sector of the industry. In addition, Sheffield and TransMontaigne executed a put agreement by which TransMontaigne agreed that if the merger is not consummated, Sheffield would have the option to put its interest in the joint venture to TransMontaigne for a cash price equal to the cash contributions made by Sheffield to the joint venture prior to the date of purchase. FINANCING. Proceeds from the Asset Sale were used to pay down substantially all the Company's bank debt. After reducing the borrowing base to reflect the Asset Sale, the Company has approximately $1.5 million of unused bank borrowing capacity. 7 RESULTS OF OPERATIONS GAS GATHERING, PROCESSING AND STORAGE. The change in components of gas processing and gathering revenue from 1995 to 1996 is comprised of the following: PRICE QUANTITY REVENUE CHANGE CHANGE CHANGE ------ -------- ------- For the quarters: Residue gas sales (24)% (87)% (90)% Natural gas liquid sales 19% (25)% (11)% For the nine-month periods: Residue gas sales (13)% (55)% (61)% Natural gas liquid sales 14% (18)% (9)% The quantity and revenue decreases from 1995 to 1996 are a result of the October 1995 Asset Sale. However, the positive impact of storage field sales during the quarter ended September 30, 1995 resulted in net income from gathering, processing and storage declining only 5 percent for the nine months ended March 31, 1996 versus the same nine month period in fiscal 1995. With regard to the Lignite, North Dakota system (the only system the Company owns after the Asset Sale), gas and liquids volumes and gas prices declined from fiscal 1995 to fiscal 1996. These declines have been offset somewhat by stronger liquids prices. Lower 1995 depreciation, depletion and amortization reflects the Asset Sale. OIL AND GAS EXPLORATION AND PRODUCTION. The change in components of oil and gas revenue from 1995 to 1996 is comprised of the following: PRICE QUANTITY REVENUE CHANGE CHANGE CHANGE ------ -------- ------- For the quarters: Oil 4% (12)% (8)% Gas 29% (11)% 15% For the nine-month periods: Oil -nil- (7)% (7)% Gas (12)% (15)% (25)% Volume declines resulted from normal well depletion combined with the fact that no successful wells have been completed during the current fiscal year. However, two wells in the Pinedale, Wyoming field, which had been shut-in during April 1995 due to gas price 8 considerations, were put back on production during December 1995. Production from those wells, together with production from another Pinedale well, is now being sold pursuant to a ten-year contract at a price of $1.85 per mmbtu (or $1.67 per mcf at the wellhead). The contract contains an annual escalation factor of 4 percent. The Company incurred repair and reworking expense on certain Williston Basin oil wells during the quarter ended December 31, 1995. As a result of downward revisions of the reserves attributable to the Company's south Texas gas properties, impairment expense was recognized during both fiscal 1995 and fiscal 1996. INTEREST/GENERAL AND ADMINISTRATIVE EXPENSE. Proceeds from the Asset Sale were used to pay down bank debt (resulting in lower fiscal 1996 interest expense) and invested in short-term money market instruments (resulting in higher fiscal 1996 interest income). In December 1994, Trinity Petroleum Management, Inc. ("Trinity") became a wholly-owned subsidiary of Sheffield. Trinity previously provided management and administrative services to Sheffield and another company; now the former Trinity employees provide these services exclusively to Sheffield. Accordingly, certain personnel and overhead costs formerly shared by Sheffield and a third party company are now borne entirely by Sheffield, resulting in higher fiscal 1996 expense. During the quarter ended March 31, 1996, the Company incurred $236,000 of costs in conjunction with the TransMontaigne Oil Company merger. The Company also incurred an additional $107,000 in expense related to stock issued as compensation during the nine months ended March 31, 1996 as compared to the comparable nine-month period in 1995. PROVISION FOR TAXES. As discussed in Note 2 to the Consolidated Financial Statements, the tax provision for the nine months ended March 31, 1996 consists of taxes provided at the federal and state statutory rates as well as an amount representing a change in the deferred tax asset valuation allowance. 9 PART TWO OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a. Exhibits required by Item 601 of S-K. 10.20 Restated Agreement and Plan of Merger, dated as of February 6, 1996, between the Company and TransMontaigne Oil Company.* 10.21 Bear Paw LLC Operating Agreement dated January 1, 1996 between the Company, TransMontaigne and BP Energy Operating, LLC.* 10.22 Put Agreement dated February 21, 1996 between the Company and TransMontaigne relating to Bear Paw Operating Company, LLC.* 27 Financial Data Schedule ____________________ * Incorporated by reference to the Company's Registration Statement on Form S-4, as filed with the Commission on May 6, 1996. b. On February 7, 1996, the Company filed a Form 8-K disclosing that it had issued a press release on February 6, 1996 reporting the execution of a merger agreement with privately-held TransMontaigne Oil Company. On May 2, 1996, the Company filed an amended Form 8-K describing the October 2, 1995 sale of its Oklahoma and Kansas gas gathering, processing and storage assets to NGC Energy Resources, Limited Partnership, a Delaware limited partnership, for a pre-adjustment price of $5.5 million. Included in the Form 8-K were pro forma financial statements showing the theoretical effect on the Company's statement of operations and balance sheet had the sale occurred at the beginning of the Company's fiscal year ended June 30, 1995. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHEFFIELD EXPLORATION COMPANY, INC. Date: May 13, 1996 By: David L. Milanesi ------------------------------------- David L. Milanesi On behalf of Registrant as Treasurer; Principal Financial Officer 11 EXHIBIT INDEX Exhibit No. Description Page - ----------- ----------- ---- 27 Financial Data Schedule 13 12 EX-27 2 FDS 3/96 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDING MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-1996 MAR-31-1996 2739 0 329 0 0 3267 7466 (4594) 6488 385 0 35 0 0 6058 6488 713 834 492 1591 0 0 5 (762) 0 (762) 0 0 0 (762) (.22) 0
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