8-K 1 form8k-kcs_55475.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 5, 2003 KCS ENERGY, INC. (Exact name of registrant as specified in its charter) Delaware 001-13781 22-2889587 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.) 5555 San Felipe Road, Suite 1200, Houston, TX 77056 (Address of principal executive offices) (Zip Code) (713)877-8006 Registrant's telephone number, including area code NOT APPLICABLE (Former name or former address, if changed since last report.) Item 7. Financial Statements and Exhibits. (c) Exhibits. 99.1 KCS Energy, Inc. Press Release dated November 5, 2003 reporting financial and operating results for the three and nine months ended September 30, 2003. Item 12. Results of Operations and Financial Condition. On November 5, 2003, KCS Energy, Inc. issued a press release reporting financial and operating results for the three and nine months ended September 30, 2003. A copy of the press release is filed as Exhibit 99.1 hereto and is incorporated herein by reference. The information in this report is being furnished, not filed, pursuant to Item 12 of Form 8-K. Accordingly, the information in Item 12 of this report will not be incorporated by reference into any registration statement filed by KCS Energy, Inc. under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference. 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 hereunto duly authorized. KCS Energy, Inc. Date: November 7, 2003 /s/ Frederick Dwyer ---------------------------- Frederick Dwyer Vice President, Controller and Secretary EXHIBIT INDEX Exhibit Description ------- ----------- 99.1 KCS Energy, Inc. Press Release dated November 5, 2003 reporting financial and operating results for the three and nine months ended September 30, 2003. Exhibit 99.1 AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD -------------- -------------------------------- James W. Christmas Marilynn Meek - General Info (212) 445-8451 Chairman and CEO Peter Seltzberg - Analyst Info (212) 445-8457 (713) 877-8006 FOR IMMEDIATE RELEASE: ---------------------- November 5, 2003 KCS ENERGY ANNOUNCES THIRD QUARTER RESULTS ------------------------------------------ PRODUCTION TOPS 100 MMCFEPD - NET INCOME INCREASES OVER 200% ------------------------------------------------------------ HOUSTON, TX, November 5, 2003 -- KCS Energy, Inc. (NYSE: KCS) today announced financial and operating results for the third quarter and nine months ended September 30, 2003. James W. Christmas, Chairman and Chief Executive Officer, said, "The continuing success of our drilling program enabled the Company to steadily increase production to an average of over 100 MMCFEPD for the quarter. While commodity prices were lower than the second quarter, they were still considerably higher than last year. The combination of rising production and solid commodity prices resulted in very strong earnings and cash flow for the quarter." Financial Highlights ($ thousands except per share) 3 mos. 2003 3 mos. 2002 ----------- ------------ Revenue and other $ 40,671 $ 30,472 Operating Income $ 16,122 $ 7,830 Net Income $ 11,681 $ 3,813 Diluted Earnings Per Share $ 0.28 $ 0.09 9 mos. 2003 9 mos. 2002 ----------- ------------ Revenue and other $ 123,843 $ 89,573 Operating Income $ 55,795 $ 21,036 Income Before Income Taxes $ 42,071 $ 6,836 Income (Loss) Before Cumulative Effect of Accounting Change $ 53,818 $ (7,297) Net Income (Loss) $ 52,884 $ (13,463) Diluted Earnings (Loss) Per Share Before Accounting Change $ 1.30 $ (0.23) Diluted Earnings (Loss) Per Share $ 1.28 $ (0.40) Note: The nine months ended September 30, 2003 includes an $11.0 million non-cash income tax benefit related to the reversal of a portion of the Company's valuation allowance against net deferred income tax assets compared to a non-cash income tax expense from an increase in the valuation allowance of $15.9 million for the same period in 2002. In addition, the 2003 nine-month period includes a $0.9 million non-cash charge related to the cumulative effect of an accounting change as a result of the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations" while the nine months ended September 30, 2002 includes a non-cash charge of $6.2 million for the cumulative effect of an accounting change to the "units of production" method of amortizing oil and gas properties. Net income for the three months ended September 30, 2003 increased 206% to $11.7 million compared to $3.8 million for the same period a year ago. This increase was driven primarily by a 37% rise in average realized natural gas and oil prices and a 6% increase in working interest production which reflects the success of the 2003 drilling program and largely offset the impact of 2002 property sales and the expiration of the Company's VPPs in November 2002. For the nine months ended September 30, 2003, revenue and other increased 38% to $123.8 million compared to $89.6 million for the first nine months of 2002. This growth resulted from a 53% increase in average realized natural gas and oil prices and a $4.7 million sale of emission credits, partially offset by a 14% decrease in production due to the 2002 sales of non-core properties and expiration of the Company's remaining VPPs in November 2002. Total operating costs and expenses were $68.0 million for the 2003 nine-month period compared to $68.5 million for the first nine months of 2002. Interest expense for the first nine months of 2003 decreased 3% to $13.8 million. As a result, income before income taxes increased 515% to $42.1 million compared to $6.8 million for the nine months ended September 30, 2002. The Company recorded an income tax benefit of $11.7 million for the nine months ended September 30, 2003, due to an adjustment in the Company's valuation allowance and recognition of a portion of its net deferred tax assets. This compares to an income tax expense of $14.1 million for the same period last year, primarily due to an increase in the valuation allowance for deferred tax assets. As previously reported, the cumulative effect of an accounting change at the beginning of the year as a result of the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations" was $0.9 million for the current year nine-month period. For the nine months ended September 30, 2002, the cumulative effect of an accounting change to the units-of-production method of amortizing capitalized costs related to oil and gas properties was $6.2 million. Net income was $52.9 million, or $1.28 per diluted share, for the nine months ended September 30, 2003 compared to a net loss of $13.5 million, or $0.40 per diluted share, for the nine months ended September 30 2002. Continued Production Increases from Drilling Success ---------------------------------------------------- William N. Hahne, President and Chief Operating Officer, stated, "During the third quarter, KCS drilled 23 wells, 20 of which were successful, for a 87% success rate. Through the end of the third quarter, we had drilled 63 wells with 58 productive wells for a year to date success ratio of 92%. Third quarter drilling included six Elm Grove Field wells, three Joaquin Field wells, two Talihina Field wells and nine wells in south Texas. "Average daily production for the quarter increased 9% over the second quarter and topped 100 MMCFEPD. Third quarter average daily production represents a 20% increase over first quarter production levels. After considering production payment obligations, third quarter production represents a 35% increase from first quarter volumes contributing to cash flow. With third quarter exit rate volumes of approximately 103 MMCFEPD, the Company anticipates fourth quarter volumes will continue to increase." Significant wells drilled in the third quarter include: o Elm Grove Field, North Louisiana (97 - 100% WI) >> EGP #12: 2,130 MCFPD initial rate from three commingled Cotton Valley Zones. >> EGP #13: 2,900 MCFPD initial rate from three commingled Cotton Valley Zones. >> Roos #17: 1,600 MCFPD initial rate from the Hosston formation. >> Roos #18: 600 MCFPD initial rate from the Hosston formation. >> Roos #19: 2,000 MCFPD initial rate from the Hosston formation. >> Garison 10 #1: Completing. One operated and one non-operated (33% WI) well are currently drilling. Current plans call for drilling 20-30 operated wells in the Elm Grove field in 2004. o Joaquin Field, East Texas (74 - 100% WI) >> Rushing #2 (Drilled in Second Quarter.): 2,100 MCFPD initial rate from two commingled Travis Peak intervals. Two additional intervals have been tested and will be commingled. >> Rushing #3: 4,990 MCFPD from one interval. Three other intervals have been tested and will eventually be commingled. The Hanson #7 and Hardin Simmons #2 are both being completed. Each well is expected to test three to four Travis Peak intervals before being commingled. o Talihina Field, Oklahoma >> Blake 1-21 (30% WI): 4,500 MCFPD initial rate from an unstimulated Jackfork interval. o South Texas >> East Marshall Prospect; Hoff #2 (25% WI): 8,300 MCFPD initial rate from two commingled Wilcox Zones. A follow-up well is drilling and a step-out well should spud before year-end. >> 5 Mile Creek Prospect; Jank #1 (35% WI): 6,890 MCFPD initial rate from an unstimulated Wilcox interval. An amine unit is currently being installed to allow the well to produce at higher rates. >> Bayou Development B #18A, Dickenson Field (100% WI): 2,400 MCFPD initial rate from a Frio interval. >> Josey Ranch 5#22, Langham Creek Field (22% WI): 2,500 MCFPD from two Wilcox sands. Hedging Program --------------- The Company's hedging program consists of a series of transactions designed to limit exposure to downside price movements while floors and three-way collars allow participation in increasing prices. Based on third quarter production levels, these hedges would equate to approximately 37% of fourth quarter 2003 production. The Company's current hedge positions for the fourth quarter of 2003 are summarized in the following table. Average 2003 Average Equivalent Type Period Daily Volume NYMEX Price ---- ------ ------------ ----------- Prod. Paymt. Oct. - Dec. 16.2 MMCFEPD $4.05 Gas Floors Oct. - Nov. 5.0 MMCFPD $4.25 3 Way Oct. - Dec. 15.0 MMCFPD $4.47-7.08/$7.58 Oil Swap Oct. - Dec. 415 BOPD $30.38 The Company has also put into place three-way collars covering 10 MMCFPD of first quarter 2004 gas production at a floor price of $4.50 that allow KCS to retain all upside except for the portion of realized prices between $8.50 and $9.00. In 2004, 430 BOPD are hedged at $29.89 for the first quarter and 100 BOPD have been hedged at $28.50 for April through December 2004. In addition, during 2004 the Company will deliver 14.2 MMCFEPD under the production payment sold in 2001 at an average price of approximately $4.05 per MCFE. Outlook ------- 2003 2004 ---- ---- Production (BCFE) Working Interest 34-36 38-41 Production Payment (6.8) (5.2) Net Production 27-29 33-36 LOE ($MM) 26 27-29 G&A ($MM) 7.5-8.5 8-10 DD&A ($MM) 47-49 53-57 Interest Expense ($MM) 18 17-20 Capital Expenditures ($MM) 75 80-85 The following abbreviations are utilized herein: WI - Working Interest 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 LOE -Lease operating expenses G&A - General and administrative expenses DD&A -Depreciation, depletion and amortization 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 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 ------------------------- ### 5555 San Felipe, Suite 1200, Houston, TX 77056 -Financial tables follow- (b) Includes the effects of hedging and the Production Payment sold in February 2001.
KCS Energy, Inc. Condensed Income Statements Three Months Ended Nine Months Ended (Amounts in Thousands September 30, September 30, ----------------------- --------- --------- Except Per Share Data) 2003 2002 2003 2002 ----------- --------- --------- --------- Oil and gas revenue $ 41,085 $ 30,391 $ 119,154 $ 90,556 Other, net (414) 81 4,689 (983) ----------------------------------------------------------------------------------------- --------------------- Total revenue and other 40,671 30,472 123,843 89,573 ----------------------------------------------------------------------------------------- --------------------- Operating costs and expenses Lease operating expenses 6,773 5,930 19,797 19,339 Production taxes 2,197 1,458 5,958 4,413 General and administrative expenses 1,989 2,363 5,651 6,253 Stock compensation 633 156 1,044 666 Accretion of asset retirement obligation 279 - 837 - Depreciation, depletion and amortization 12,678 12,735 34,761 37,866 ----------------------------------------------------------------------------------------- --------------------- Total operating costs and expenses 24,549 22,642 68,048 68,537 ----------------------------------------------------------------------------------------- --------------------- Operating income 16,122 7,830 55,795 21,036 ----------------------------------------------------------------------------------------- --------------------- Interest and other income (1) 42 101 121 Interest expense (4,623) (4,655) (13,825) (14,321) ----------------------------------------------------------------------------------------- --------------------- Income before income taxes 11,498 3,217 42,071 6,836 Federal and state income (taxes) benefit 183 596 11,747 (14,133) ----------------------------------------------------------------------------------------- --------------------- Net income (loss) before cumulative effect of accounting change 11,681 3,813 53,818 (7,297) Cumulative effect of accounting change, net of tax - - (934) (6,166) ----------------------------------------------------------------------------------------- --------------------- Net income (loss) 11,681 3,813 52,884 (13,463) ----------------------------------------------------------------------------------------- --------------------- Dividends and accretion of issuance costs on preferred stock (287) (214) (729) (625) ----------------------------------------------------------------------------------------- --------------------- Income (loss) available to common stockholders $ 11,394 $ 3,599 $ 52,155 $ (14,088) ========================================================================================= ===================== Earnings (loss) per share of common stock - basic Before cumulative effect of accounting change $ 0.30 $ 0.10 $ 1.39 $ (0.23) Cumulative effect of accounting change - - (0.02) (0.17) ----------------------------------------------------------------------------------------- --------------------- Earnings (loss) per share of common stock - basic $ 0.30 $ 0.10 $ 1.37 $ (0.40) ========================================================================================= ===================== Earnings (loss) per share of common stock - diluted Before cumulative effect of accounting change $ 0.28 $ 0.09 $ 1.30 $ (0.23) Cumulative effect of accounting change - - (0.02) (0.17) ----------------------------------------------------------------------------------------- --------------------- Earnings (loss) per share of common stock - diluted $ 0.28 $ 0.09 $ 1.28 $ (0.40) ========================================================================================= ===================== Average shares outstanding for computation of earnings per share Basic 38,464 36,247 38,046 35,634 Diluted 41,905 40,881 41,431 35,634 ========================================================================================= =====================
KCS Energy, Inc. Condensed Balance Sheets September 30, December 31, (Thousands of Dollars) 2003 2002 ----------- ------------ Assets ------ Cash $ 2,754 $ 6,935 Trade accounts receivable, net 26,343 16,863 Other current assets 3,972 3,396 Property, plant and equipment, net 283,536 240,294 Deferred taxes 10,978 - Deferred charges and other assets 3,219 645 -------------------------------------------------------------------------------------------- Total assets $ 330,802 $ 268,133 ============================================================================================ Liabilities and stockholders' equity (deficit) ---------------------------------------------- Accounts payable and accrued liabilities $ 48,021 $ 35,499 Accrued interest 3,337 8,174 Deferred revenue 44,837 66,582 Deferred credits and other liabilities 12,576 961 Long-term debt 194,999 186,774 Preferred stock 4,736 12,859 Stockholders' equity (deficit) 22,296 (42,716) -------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity (deficit) $ 330,802 $ 268,133 ============================================================================================
CONDENSED STATEMENTS of CASH FLOW Nine Months Ended September 30, ------------------------------ 2003 2002 ------------- ------------- Net income (loss) $ 52,884 $ (13,463) DD&A 34,761 37,866 Amortization of deferred revenue (21,745) (35,138) Other non-cash charges and credits, net (4,650) 24,571 ------------------------------------------------------------------------------- 61,250 13,836 Net changes in assets and liabilities (7,945) (9,755) ------------------------------------------------------------------------------- Net cash provided by operating activities 53,305 4,081 ------------------------------------------------------------------------------- Cash flow from investing activities: Investment in oil and gas properties, net (61,909) (6,964) Other capital expenditures, net (486) 78 ------------------------------------------------------------------------------- Net cash used in investing activities (62,395) (6,886) ------------------------------------------------------------------------------- Cash flow from financing activities: Net increase (decrease) in debt 8,225 (9,726) Deferred financing costs and other, net (3,316) - ------------------------------------------------------------------------------- Net cash used in investing activities 4,909 (9,726) ------------------------------------------------------------------------------- Decrease in cash and cash equivalents $ (4,181) $ (12,531) ===============================================================================
KCS Energy, Inc. Supplemental Data Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ---------------------- 2003 2002 2003 2002 --------- ------------ --------- -------- Production data: (a) Natural gas (MMcf) 7,570 7,382 20,303 23,270 Oil (Mbbl) 207 248 635 776 Liquids (Mbbl) 70 79 175 221 Summary (MMcfe): Working Interest 9,227 8,716 25,160 27,098 VPP - 628 - 2,153 -------- -------- ------------ ------- Total 9,227 9,344 25,160 29,251 Production Payment (1,594) (2,671) (5,314) (8,715) -------- -------- ------------ ------- Net Production 7,633 6,673 19,846 20,536 Average realized prices (b) Gas (per Mcf) $ 4.61 $ 3.26 $ 4.94 $ 3.13 Oil (per bbl) $ 25.36 $ 22.35 $ 25.61 $ 20.12 Liquids (per bbl) $ 13.78 $ 9.57 $ 14.81 $ 9.55 Total (per Mcfe) $ 4.45 $ 3.25 $ 4.74 $ 3.10
Notes: a) Production includes 1,594 and 5,314 Mmcfe, respectively, for the three and nine months ended September 30, 2003 compared to 2,671 and 8,715 Mmcfe for the three and nine months ended September 30, 2002, respectively, dedicated to the Production Payment sold in February 2001.