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Venoco 10-Q 2005

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

or

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-123711

Venoco, Inc.

(Exact name of registrant as specified in its charter)

Delaware

 

77-0323555

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

370 17th Street, Suite 2950

 

 

Denver, Colorado

 

80202-1370

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (303) 626-8300

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.

YES x     NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES o     NO x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o     NO x

As of November 14, 2005, there were 32,692,500 shares of the issuer’s common stock, par value $0.01 per share, issued and outstanding.

 




VENOCO, INC.
Form 10-Q for the Quarterly Period Ended September 30, 2005
TABLE OF CONTENTS

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2005 (Successor) and
December 31, 2004 (Successor)

 

3

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 (Successor) and the Three and Nine Months Ended September 30, 2004 (Predecessor)

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 (Successor) and the Nine Months Ended September 30, 2004 (Predecessor)

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

 

24

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

32

 

Item 4.

 

Controls and Procedures

 

35

 

PART II.

 

OTHER INFORMATION

 

 

 

Item 1.

 

Legal Proceedings

 

37

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

Item 3.

 

Defaults upon Senior Securities

 

37

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

37

 

Item 5.

 

Other Information

 

37

 

Item 6.

 

Exhibits and Reports on Form 8-K

 

37

 

Signatures

 

38

 

 

2




PART I—FINANCIAL INFORMATION

VENOCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except shares and per share amounts)

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 

(Successor)

 

(Successor)

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

13,023

 

 

 

$

54,715

 

 

Accounts receivable

 

 

26,449

 

 

 

17,755

 

 

Inventories

 

 

1,784

 

 

 

1,079

 

 

Income tax receivable

 

 

 

 

 

3,906

 

 

Commodity derivatives

 

 

3,680

 

 

 

5,300

 

 

Notes receivable—officer

 

 

 

 

 

1,420

 

 

Prepaid expenses and other current assets

 

 

7,025

 

 

 

3,640

 

 

Total current assets

 

 

51,961

 

 

 

87,815

 

 

PROPERTY, PLANT AND EQUIPMENT, AT COST:

 

 

 

 

 

 

 

 

 

Oil and natural gas properties (full cost method, of which $2,226 and $3,317 were excluded from amortization at September 30, 2005 and December 31, 2004, respectively)

 

 

239,340

 

 

 

214,842

 

 

Drilling equipment

 

 

7,767

 

 

 

7,594

 

 

Other property and equipment

 

 

27,001

 

 

 

25,857

 

 

Total property, plant and equipment

 

 

274,108

 

 

 

248,293

 

 

Less accumulated depletion, depreciation, amortization and impairment

 

 

64,857

 

 

 

49,730

 

 

Net property, plant and equipment

 

 

209,251

 

 

 

198,563

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

 

950

 

 

 

4,855

 

 

Deferred loan costs

 

 

5,918

 

 

 

6,596

 

 

Other

 

 

1,127

 

 

 

1,053

 

 

Total other assets

 

 

7,995

 

 

 

12,504

 

 

TOTAL ASSETS

 

 

$

269,207

 

 

 

$

298,882

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

$

33,164

 

 

 

$

19,385

 

 

Undistributed revenue payable

 

 

4,492

 

 

 

4,774

 

 

Income taxes payable

 

 

4,853

 

 

 

 

 

Current maturities of long-term debt

 

 

124

 

 

 

127

 

 

Commodity derivatives

 

 

39,603

 

 

 

1,520

 

 

Repurchase of common stock

 

 

 

 

 

5,316

 

 

Total current liabilities

 

 

82,236

 

 

 

31,122

 

 

LONG-TERM DEBT

 

 

158,942

 

 

 

163,542

 

 

DEFERRED INCOME TAXES

 

 

1,000

 

 

 

32,208

 

 

ASSET RETIREMENT OBLIGATIONS

 

 

24,540

 

 

 

23,184

 

 

COMMODITY DERIVATIVES

 

 

21,874

 

 

 

 

 

Total liabilities

 

 

288,592

 

 

 

250,056

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

MINORITY INTEREST

 

 

 

 

 

387

 

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value (200,000,000 shares authorized; 32,692,500 shares issued and outstanding at September 30, 2005 and December 31, 2004)

 

 

327

 

 

 

327

 

 

Additional paid-in capital

 

 

21,057

 

 

 

31,085

 

 

Retained earnings (accumulated deficit)

 

 

(19,766

)

 

 

15,104

 

 

Accumulated other comprehensive income (loss)

 

 

(21,003

)

 

 

1,923

 

 

Total stockholders’ equity (deficit)

 

 

(19,385

)

 

 

48,439

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

$

269,207

 

 

 

$

298,882

 

 

 

See notes to condensed consolidated financial statements.

3




VENOCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(Successor)

 

(Predecessor)

 

(Successor)

 

(Predecessor)

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

 

 

$

47,278

 

 

 

$

36,844

 

 

 

$

134,668

 

 

 

$

99,761

 

 

Commodity derivative losses (realized)

 

 

(8,287

)

 

 

(4,968

)

 

 

(15,442

)

 

 

(11,076

)

 

Commodity derivative losses (unrealized)

 

 

(16,242

)

 

 

(851

)

 

 

(44,241

)

 

 

(1,692

)

 

Other

 

 

776

 

 

 

1,953

 

 

 

2,867

 

 

 

4,134

 

 

Total revenues

 

 

23,525

 

 

 

32,978

 

 

 

77,852

 

 

 

91,127

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas production

 

 

13,748

 

 

 

12,583

 

 

 

38,030

 

 

 

35,298

 

 

Transportation expense

 

 

464

 

 

 

783

 

 

 

1,680

 

 

 

2,222

 

 

Depletion, depreciation, amortization and impairment

 

 

5,634

 

 

 

3,611

 

 

 

15,127

 

 

 

10,992

 

 

Accretion of abandonment liability

 

 

293

 

 

 

373

 

 

 

1,311

 

 

 

1,093

 

 

General and administrative, net of amounts capitalized

 

 

2,955

 

 

 

2,957

 

 

 

10,654

 

 

 

8,697

 

 

Amortization of deferred loan costs

 

 

320

 

 

 

103

 

 

 

1,341

 

 

 

233

 

 

Interest, net

 

 

3,361

 

 

 

443

 

 

 

10,181

 

 

 

1,076

 

 

Total expenses

 

 

26,775

 

 

 

20,853

 

 

 

78,324

 

 

 

59,611

 

 

Income (loss) before income taxes

 

 

(3,250

)

 

 

12,125

 

 

 

(472

)

 

 

31,516

 

 

Income tax provision (benefit)

 

 

(1,417

)

 

 

5,143

 

 

 

(643

)

 

 

13,227

 

 

Income (loss) before minority interest

 

 

(1,833

)

 

 

6,982

 

 

 

171

 

 

 

18,289

 

 

Minority interest in consolidated subsidiary

 

 

 

 

 

36

 

 

 

42

 

 

 

36

 

 

Net income (loss)

 

 

(1,833

)

 

 

6,946

 

 

 

129

 

 

 

18,253

 

 

Preferred stock dividends

 

 

 

 

 

(2,116

)

 

 

 

 

 

(6,348

)

 

Net income (loss) applicable to common equity 

 

 

$

(1,833

)

 

 

$

4,830

 

 

 

$

129

 

 

 

$

11,905

 

 

 

See notes to condensed consolidated financial statements.

4




VENOCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

 

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

 

 

(Successor)

 

(Predecessor)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

$

129

 

 

 

$

18,253

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depletion, depreciation, amortization and impairment

 

 

15,127

 

 

 

10,992

 

 

Accretion of abandonment liability

 

 

1,311

 

 

 

1,093

 

 

Deferred income taxes (benefit)

 

 

(12,180

)

 

 

6,419

 

 

Amortization of deferred loan costs and bond discount

 

 

1,469

 

 

 

174

 

 

Gain on sale of subsidiary

 

 

 

 

 

(100

)

 

Change in other liabilities

 

 

 

 

 

(533

)

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,418

)

 

 

(2,855

)

 

Inventories

 

 

(705

)

 

 

(93

)

 

Prepaid expenses and other current assets

 

 

(3,547

)

 

 

(1,127

)

 

Income tax receivable

 

 

3,907

 

 

 

1,185

 

 

Accounts payable and accrued liabilities

 

 

5,175

 

 

 

892

 

 

Income taxes payable

 

 

4,730

 

 

 

272

 

 

Undistributed revenue payable

 

 

369

 

 

 

146

 

 

Net premiums paid on derivative contracts

 

 

(18,434

)

 

 

(3,026

)

 

Changes in unrealized commodity derivatives and amortization of premiums

 

 

45,900

 

 

 

1,692

 

 

Minority interest in undistributed earnings of subsidiary

 

 

42

 

 

 

36

 

 

Net cash provided by operating activities

 

 

33,875

 

 

 

33,420

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Expenditures for oil and gas properties

 

 

(59,183

)

 

 

(12,007

)

 

Acquisition of Marquez Energy, LLC

 

 

(14,628

)

 

 

1,328

 

 

Proceeds from sale of oil and gas properties

 

 

44,619

 

 

 

1,526

 

 

Proceeds from sale of other property and equipment

 

 

 

 

 

2,476

 

 

Notes receivable—officers and employees

 

 

1,370

 

 

 

3,530

 

 

Expenditures for property and equipment and other

 

 

(1,367

)

 

 

(258

)

 

Net cash used in investing activities

 

 

(29,189

)

 

 

(3,405

)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

39,000

 

 

 

4,685

 

 

Principal payments on long-term debt

 

 

(43,706

)

 

 

(23,625

)

 

Distribution payments to Marquez Energy members

 

 

(707

)

 

 

(10

)

 

Payments of dividends to shareholder

 

 

(35,000

)

 

 

 

 

Repurchase of common shares

 

 

(5,301

)

 

 

 

 

Increase in deferred loan costs

 

 

(664

)

 

 

(60

)

 

Net cash used in financing activities

 

 

(46,378

)

 

 

(19,010

)

 

Net (decrease) increase in cash and cash equivalents

 

 

(41,692

)

 

 

11,005

 

 

Cash and cash equivalents, beginning of period

 

 

54,715

 

 

 

8,417

 

 

Cash and cash equivalents, end of period

 

 

$

13,023

 

 

 

$

19,422

 

 

Supplemental Disclosure of Cash Flow Information—

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

Interest

 

 

$

7,474

 

 

 

$

1,685

 

 

Income taxes

 

 

$

2,900

 

 

 

$

5,350

 

 

 

See notes to condensed consolidated financial statements.

5




VENOCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)

1.   BASIS OF PRESENTATION

Interim Financial Statements—The accompanying condensed consolidated financial statements of Venoco Inc. are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position at September 30, 2005, the results of operations for the three and nine months ended September 30, 2005 and 2004 and cash flows for the nine months ended September 30, 2005 and 2004. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, these financial statements should be read in conjunction with the Company’s audited 2004 financial statements contained in its Registration Statement on Form S-4/A (Registration No. 333-123711) as filed with the Securities and Exchange Commission on April 20, 2005. The results for interim periods are not necessarily indicative of annual results.

Stock Split—All common share amounts in the accompanying financial statements have been adjusted for the 1,000-for-one reverse stock split effected on February 10, 2005 and a one-for-7,500 stock split approved by the board of directors of the Company on October 13, 2005 and effected on November 8, 2005.

New Company BasisDuring 2004, the Company’s CEO, Tim Marquez, increased his ownership in the Company from 41% to 100%. As a result of a transaction that closed on July 12, 2004, Mr. Marquez purchased 53% of the common shares (18,510,000 common shares) of the Company from two of the Company’s former officers and their respective affiliates. On December 22, 2004, the Company merged with a corporation the sole stockholder of which was a trust controlled by Mr. Marquez. As a result of this merger, Mr. Marquez acquired beneficial ownership of the remaining 6% of the Company’s common stock.

As a result of Mr. Marquez obtaining control of over 95% of the common stock of the Company on December 22, 2004, SEC Staff Accounting Bulletin No. 54 requires the acquisition by Mr. Marquez to be “pushed-down”, meaning the post-transaction condensed consolidated balance sheet and the condensed consolidated statements of operations and cash flows of the Company reflect a new basis of accounting (“successor basis”). The pre-transaction condensed consolidated statements of operations and cash flows are presented on the historical basis (“predecessor basis”).

Common Control Merger—On March 21, 2005 the Company completed the acquisition of Marquez Energy, LLC, a Colorado limited liability company (“Marquez Energy”) majority-owned and controlled by Timothy Marquez, the Company’s CEO and sole shareholder. Due to the common control aspects of the transaction, the financial statements of Marquez Energy have been combined with the consolidated financial statements of the Company and its subsidiaries in a manner similar to a pooling-of-interests, from the date common control was achieved. Therefore, the Company’s financial statements since July 1, 2004 were restated to include Marquez Energy’s financial results.

2.   ACQUISITIONS

On March 21, 2005, the Company completed the acquisition of Marquez Energy. The transaction added proved reserves of approximately 2.0 MMBOE as of December 31, 2004, based on a reserve report prepared by Netherland, Sewell and Associates, Inc. (NSAI). The purchase price for the membership interests in Marquez Energy was $16.6 million. The purchase price was based on the member’s equity on

6




Marquez Energy’s unaudited December 31, 2004 balance sheet as adjusted to reflect the value of its oil and natural gas properties (as determined by NSAI as of December 31, 2004) and certain other adjustments. For the purpose of calculating the purchase price, the following values were assigned to Marquez Energy’s proved reserves: (i) $1.75/Mcfe for its proved developed producing reserves, (ii) $1.00/Mcfe for its proved developed non-producing reserves and (iii) $0.75/Mcfe for its proved undeveloped reserves. Quantities of proven reserves were as set forth by NSAI in the December 31, 2004 reserve report. NSAI or another nationally recognized engineering firm will conduct supplemental evaluations of the Marquez Energy properties as of year-end 2005 and 2006. In the event those evaluations attribute proved reserves to the Marquez Energy properties as of December 31, 2004 in excess of those reflected in NSAI’s initial report, additional payments will be made to the former holders of interests in Marquez Energy pursuant to the same formula, subject to a maximum aggregate price, including debt assumption, of $25 million. The Company had paid a deposit of $2 million to the members of Marquez Energy as of December 31, 2004 and on March 21, 2005 paid the remaining $14.6 million to the members of Marquez Energy and $3.2 million to Bank of Oklahoma to repay the existing debt. As discussed in Note 1, 91.383% of the voting equity of this entity was owned by the Company’s CEO and 100% beneficial shareholder, therefore, the assets and liabilities on a net basis were recorded at their historical cost. The amount of the purchase price in excess of the historical cost, net of tax, has been charged directly against equity. The remaining 8.617% of the assets and liabilities were recorded at the purchase price paid to the minority shareholders of Marquez Energy.

In September 2005, the Company acquired a 100% working interest in the Willows-Beehive Bend Gas Field, a 100% working interest in the Bounde Creek Gas Field and a 65% working interest in the Arbuckle Field for an aggregate net price of $10.1 million in cash. The Company operates all of the acquired fields, which are located in the Sacramento Basin in California.

3.   SALES OF PROPERTIES

In February 2005, the Company entered into a purchase and sale agreement to sell the Big Mineral Creek field (“BMC”), located in Grayson County, Texas. The sales price was $45 million, subject to adjustments that, among other things, gave economic effect to the transaction as of February 1, 2005. The closing of the transaction occurred on March 31, 2005.

In order to facilitate a like-kind exchange of the Company’s BMC property under Section 1031 of the Internal Revenue Code, the proceeds from the sale of $44.6 million were deposited with a qualified intermediary. The Company acquired qualified replacement properties of approximately $15.6 million prior to the 180 day deadline, which expired on September 27, 2005. Included in the Company’s qualified replacement properties acquired was a portion of the Marquez Energy properties. The Company has deferred a portion of the gain on sale of the BMC property under the provisions of section 1031 of the Internal Revenue Code. However, since the qualified replacement property acquired is less than the proceeds on sale of the BMC property, the Company recognized for tax purposes a gain on the sale of the BMC property of approximately $27.9 million and incurred an associated tax liability of $11.1 million during the three months ended September 30, 2005. In accordance with its accounting policies, the Company did not recognize a gain on the sale for financial reporting purposes, but applied the net sales proceeds to reduce the capitalized costs of its oil and natural gas properties.

In March 2004, the Company sold its subsidiary, Venoco Patagonia, Ltd., a Bermuda corporation, for $0.2 million. The $0.2 million sales price was comprised of cash of $0.1 million and payment of liabilities of $0.1 million.

In February 2004, the Company sold its interest in the North and South Afton, California, natural gas properties for a net sales price of approximately $1.5 million. In accordance with its accounting policies,

7




the Company did not recognize any gain or loss on the transaction, but applied the net sales proceeds to reduce the capitalized cost of its oil and natural gas properties.

4.    HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into derivative contracts, primarily collars, swaps and option contracts, to hedge future crude oil and natural gas production in order to mitigate the risk of market price fluctuations. The objective of the Company’s hedging activities and the use of derivative financial instruments is to achieve more predictable cash flows. While the use of these derivative instruments limits the downside risk of adverse price movements, they also limit future revenues from favorable price movements. The use of derivatives also involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts.

In order to qualify for hedge accounting, the relationship between the hedging instrument and the hedged item must be highly effective in achieving the offset of changes in cash flows attributable to the hedged risk both at the inception of the contract and on an ongoing basis. The Company measures effectiveness on a quarterly basis. Hedge accounting is discontinued prospectively when a hedge instrument is no longer considered highly effective.

All derivative instruments are recorded on the balance sheet at fair value. Fair value is generally determined based on the difference between the fixed contract price and the underlying market price at the determination date, and/or confirmed by the counterparty. Changes in the fair value of the effective portion of the cash flow hedges are recorded as a component of accumulated other comprehensive income (loss), which is later transferred to the income statement as a component of commodity derivative income (loss) when the hedged transaction occurs. Changes in the fair value of derivatives which do not qualify as a hedge or are not designated as a hedge, as well as the ineffective portion of hedge derivatives, are recorded in commodity derivative income (loss) on the income statement. The Company determines hedge ineffectiveness based on changes during the period in the price differentials between the index price of the derivative contracts (which uses a New York Mercantile Exchange (“NYMEX”) index in the case of oil hedges, and NYMEX and PG&E Citygate in the case of natural gas hedges) and the contract price for the point of sale for the cash flow that is being hedged. Hedge ineffectiveness occurs only if the cumulative gain or loss on the derivative hedging instrument exceeds the cumulative change in the expected future cash flows on the hedged transaction. Ineffectiveness is recorded in earnings to the extent the cumulative changes in fair value of the actual derivative exceed the cumulative changes in fair value of the hypothetical derivative.

The components of commodity derivative losses in the condensed consolidated income statements are as follows (in thousands):

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(Successor)

 

(Predecessor)

 

(Successor)

 

(Predecessor)

 

Realized commodity derivative losses

 

 

$

8,287

 

 

 

$

4,968

 

 

 

$

15,442

 

 

 

$

11,076

 

 

Unrealized commodity derivative losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivatives that do not qualify for hedge accounting

 

 

18,830

 

 

 

(218

)

 

 

47,266

 

 

 

 

 

Ineffective portion of derivatives qualifying for hedge accounting

 

 

(2,588

)

 

 

1,069

 

 

 

(3,025

)

 

 

1,692

 

 

Total unrealized commodity derivative losses

 

 

16,242

 

 

 

851

 

 

 

44,241

 

 

 

1,692

 

 

Total realized and unrealized commodity derivative losses

 

 

$

24,529

 

 

 

$

5,819

 

 

 

$

59,683

 

 

 

$

12,768

 

 

 

8




The estimated fair values of derivatives included in the consolidated balance sheets at September 30, 2005 and December 31, 2004 are summarized below. The increase in the net derivative liability from December 31, 2004 to September 30, 2005 is primarily attributable to the effect of rising oil and natural gas prices, partially offset by cash settlements of derivatives during the period (in thousands):

 

 

September 30,
2005

 

December 31,
2004

 

Derivative assets:

 

 

 

 

 

 

 

 

 

Oil derivative contracts

 

 

$

2,378

 

 

 

$

6,775

 

 

Gas derivative contracts

 

 

2,252

 

 

 

3,380

 

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

Oil derivative contracts

 

 

(44,104

)

 

 

(1,383

)

 

Gas derivative contracts

 

 

(17,373

)

 

 

(137

)

 

Net derivative asset (liability).

 

 

$

(56,847

)

 

 

$

8,635

 

 

 

As of September 30, 2005, an unrealized derivative fair value loss of $34.8 million ($21.0 million after tax), related to cash flow hedges, was recorded in accumulated other comprehensive loss. Based on September 30, 2005 mark-to-market prices, the Company expects to reclassify as decreases to earnings $21.3 million ($12.8 million after tax) from accumulated other comprehensive loss during the twelve months ending September 30, 2006. The actual reclassification to earnings will be based on mark-to-market prices at the contract settlement date.

Crude Oil Agreements—As of September 30, 2005, the Company had entered into option, swap and collar agreements to receive average minimum and maximum New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) prices as summarized below. Location and quality differentials attributable to the Company’s properties are not included in the following prices. The agreements provide for monthly settlement based on the differential between the agreement price and the actual NYMEX crude oil price.

 

 

Minimum

 

Maximum

 

 

 

Barrels/day

 

Avg. Prices

 

Barrels/day

 

Avg. Prices

 

Crude oil hedges at September 30, 2005 for production:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1 – December 31, 2005

 

 

9,471

 

 

 

$

37.73

 

 

 

5,471

 

 

 

$

47.17

 

 

January 1 – December 31, 2006

 

 

8,500

 

 

 

$

45.34

 

 

 

5,000

 

 

 

$

53.56

 

 

January 1 – December 31, 2007

 

 

4,313

 

 

 

$

43.96

 

 

 

4,313

 

 

 

$

68.99

 

 

January 1 – December 31, 2008

 

 

2,946

 

 

 

$

52.00

 

 

 

2,946

 

 

 

$

75.00

 

 

January 1 – June 30, 2009

 

 

2,170

 

 

 

$

50.00

 

 

 

2,170

 

 

 

$

75.00

 

 

 

Natural Gas Agreements—As of September 30, 2005, the Company had entered into option, swap and collar agreements to receive average minimum and maximum PG&E Citygate prices as follows:

 

 

Minimum

 

Maximum

 

 

 

MMBtu/Day

 

Avg. Prices

 

MMBtu/Day

 

Avg. Prices

 

Natural gas hedges at September 30, 2005 for production:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1 – December 31, 2005

 

 

14,000

 

 

 

$

6.09

 

 

 

4,000

 

 

 

$

6.77

 

 

January 1 – December 31, 2006

 

 

21,000

 

 

 

$

7.06

 

 

 

15,000

 

 

 

$

11.04

 

 

January 1 – December 31, 2007

 

 

6,000

 

 

 

$

6.00

 

 

 

6,000

 

 

 

$

8.40

 

 

 

9




As of September 30, 2005, the Company had entered into a forward sales contract with a gas purchaser under which it is obligated for physical delivery of specified volumes of gas with a floor price. As this contract provides for physical delivery of the gas, it is not considered a derivative because it has been designated as a normal sale and the transaction will be recorded in the financial statements when the associated delivery occurs. The Company has contracted for 2,000 MCF per day at a floor price of $4.85 per MCF for the period October 1, 2005 to September 30, 2006.

5.   LONG-TERM DEBT

Long term debt consists of the following (in thousands):

 

 

September 30,
2005

 

December 31,
2004

 

8.75% senior notes due December 15, 2011

 

 

$

149,146

 

 

 

$

149,043

 

 

Marquez Energy Credit Agreement due August 31, 2006

 

 

 

 

 

4,684

 

 

5.79% Mortgage on office building due January 1, 2015

 

 

9,920

 

 

 

9,942

 

 

Total long-term debt

 

 

159,066

 

 

 

163,669

 

 

Less: current portion of long-term debt

 

 

(124

)

 

 

(127

)

 

Long-term debt, net of current portion

 

 

$

158,942

 

 

 

$

163,542

 

 

 

On December 20, 2004, the Company sold $150 million in 8.75% senior notes (the “notes”). The notes were issued at 99.362% of par to yield 8.80% to maturity in December 2011. Interest on the notes is due each June 15 and December 15 beginning June 15, 2005. The notes are senior unsecured obligations and contain covenants that, among other things, limit the Company’s ability to make investments, incur additional debt or issue preferred stock, create liens and sell assets.

In November 2004, the Company borrowed $96.7 million under a credit facility, the proceeds of which were used to repurchase outstanding preferred stock and repay prior borrowings. In December 2004, proceeds from the sale of the notes were used to repay existing borrowings under the Company’s credit facility, which was amended and restated in December 2004 to provide for a revolving credit facility with an initial borrowing base of $50 million and no associated term loan facility (“restated Credit Agreement”). The borrowing base under the restated Credit Agreement was reduced to $40 million on March 31, 2005 due to the sale of the Big Mineral Creek field and, effective September 30, 2005, was increased to $80.0 million based upon an updated reserve report and additional property pledged as collateral. The restated Credit Agreement contains a number of restrictive operating and financial covenants and other terms customary in a credit facility secured by oil and natural gas properties. At September 30, 2005, there were no borrowings outstanding under the restated Credit Agreement. As of September 30, 2005, the Company was in compliance with all of its covenants under the restated Credit Agreement.

At December 31, 2004, Marquez Energy, now merged with the Company, had a $5.0 million revolving credit facility with the Bank of Oklahoma. Interest accrued at the JP Morgan Chase Bank prime rate plus 1 percent. The agreement was collateralized by Marquez Energy’s oil and gas properties and was guaranteed by Marquez Energy’s principal shareholder and president. The credit agreement also contained certain net worth, leverage and ratio requirements and limited the payment of distributions. At December 31, 2004, Marquez Energy had approximately $4.7 million of outstanding borrowings under this credit facility. On March 21, 2005, the Company repaid the outstanding borrowings of $3.2 million on this credit facility and terminated the facility.

On December 9, 2004, the Company purchased an office building in Carpinteria, California for $14.2 million. The purchase was financed in part by a secured 5.79% $10 million promissory note due January 1, 2015. The promissory note provides for a monthly payment of $58,612 beginning February 1,

10




2005 and continuing through December 1, 2014. The balance of unpaid principal and all accrued but unpaid interest is due and payable on January 1, 2015.

6.   COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income and certain items recorded directly to Stockholders’ Equity and classified as Accumulated Other Comprehensive Income (“OCI”). The following table reflects comprehensive income for the three and nine month periods ended September 30, 2005 and 2004.

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(Successor)

 

(Predecessor)

 

(Successor)

 

(Predecessor)

 

Net income (loss)

 

 

$

(1,833

)

 

 

$

6,946

 

 

 

$129

 

 

 

$

18,253

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments for settled contracts 

 

 

 

 

 

 

 

 

161

 

 

 

615

 

 

Changes in fair value of effective portion of outstanding hedging positions

 

 

(10,443

)

 

 

(3,998

)

 

 

(23,087

)

 

 

(6,053

)

 

Other comprehensive loss

 

 

(10,443

)

 

 

(3,998

)

 

 

(22,926

)

 

 

(5,438

)

 

Comprehensive income (loss)

 

 

$

(12,276

)

 

 

$

2,948

 

 

 

$

(22,797

)

 

 

$

12,815

 

 

 

7.   LITIGATION

Beverly Hills Litigation

Six lawsuits have been filed against the Company and certain other energy companies in Los Angeles County Superior Court by persons who attended Beverly Hills High School or who are citizens of Beverly Hills/Century City or visitors to that area from the time period running from the 1930s to date. There are approximately 1,000 plaintiffs (including plaintiffs in two related lawsuits in which the Company has not been named) who claim to be suffering from various forms of cancer or some other illnesses, fear they may suffer from such maladies in the future, or are related in some manner to persons who have suffered from cancer or other illnesses. Plaintiffs allege that exposure to substances in the air, soil and water which derive from either oil field or other operations in the area are the cause of the cancers and other maladies. The Company has owned an oil and gas facility adjacent to the school since 1995. For the majority of the plaintiffs, their alleged exposures occurred before the Company owned the facility. It is anticipated that additional plaintiffs may be added to the litigation over time. All cases have been consolidated before one judge. The judge has ordered that all of the cases be stayed except for an initial trial group consisting of twelve “representative” plaintiffs. Discovery relating to the initial trial group is ongoing, with a trial set for March 2006. Management believes that the claims made in the suits are without merit and the Company intends to defend against the claims vigorously. However, the Company cannot predict, at this time, the outcome of the suits. The Company also has defense and indemnity obligations to certain other defendants in the actions. The Company cannot predict the cost of defense and indemnity obligations, if any, at the present time.

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 5, Accounting for Contingencies, the Company has not accrued for a loss contingency relating to the Beverly Hills litigation because it believes that, although unfavorable outcomes in the proceedings may be reasonably possible, they are not considered by management to be probable or reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, and if insurance coverage is determined to not

11




be applicable, their impact on the Company’s results of operations, financial position and/or liquidity could be material.

Litigation by former directors and former preferred stockholders

In December 2004, a lawsuit was filed against the Company by two of its former directors and the former preferred shareholders. The claim was for indemnification of attorneys’ fees and expenses incurred in defending the former directors in litigation filed by the former CEO in connection with the termination of his employment from Venoco. Fees incurred in the defense total approximately $1,000,000. On July 28, 2005, the Company entered into a settlement agreement with the former directors and the former preferred shareholders and settled the litigation for an amount which did not differ materially from the amount previously accrued. The case was dismissed in August 2005.

Former Chief Operating Officer (COO) Litigation

In December 2004, a former COO of the Company filed a lawsuit against the Company and its CEO in Santa Barbara County Superior Court, claiming that the Company breached his employment agreement and wrongfully failed to pay him wages due, primarily in connection with stock bonuses. In April 2005 the former COO, in connection with the merger effected on December 22, 2004 and described in note 1, filed a Petition for Appraisal in the Delaware Court of Chancery asking for an appraisal of the shares he held as well as those shares which were the subject of the employment contract dispute. In August 2005, the Company and the former COO agreed to settle the lawsuits for amounts accrued as of June 30, 2005 in the financial statements. The Santa Barbara County action was dismissed on September 19, 2005, and the Delaware action was dismissed October 5, 2005.

12




8.   STOCK OPTION PLANS

During 2005, the Company entered into non-qualified stock option agreements with certain employees, officers and directors of the Company other than Mr. Marquez. Total options granted in 2005 through September 30, 2005 were 4,013,662 at a weighted average exercise price of $7.09 ($6.00 to $13.33). The options vest over a four year period, with 20% vesting on the grant date and 20% of the options vesting on each subsequent anniversary of the grant date. The non-qualified stock option agreements provide that all options will become immediately vested following a change in control of the Company. The agreements with director option holders provide that any unvested options will terminate when the director’s service to the Company ceases. The agreements with employee and officer option holders provide that all of the holder’s options will vest if the company terminates the holder’s employment, unless the termination is for specified misconduct. We have previously recorded stock compensation pursuant to the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, whereby no compensation was recognized for these stock option awards. Had compensation expense for the options granted to our employees, officers and directors been determined based on the fair value at the grant date for the options, consistent with the provisions of SFAS No. 123, the Company’s net income (loss) for the three and nine months ended September 30, 2005 and 2004 would have been increased to the pro forma amounts indicated below:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(in thousands)

 

Net income as reported

 

$

(1,833

)

$

6,946

 

$

129

 

$

18,253

 

Stock-based compensation expense included in the income statement, net of related tax effects

 

0

 

0

 

0

 

0

 

Deduct:

 

 

 

 

 

 

 

 

 

Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects

 

(648

)

0

 

(1,969

)

0

 

Pro forma net income

 

$

(2,481

)

$

6,949

 

$

(1,840

)

$

18,253

 

 

9.   SHAREHOLDERS’ EQUITY

On June 1, 2004, an agreement was reached between certain shareholders of the Company that ultimately resulted in the acquisition of 53.5% of the outstanding common shares in the Company by Timothy Marquez in a transaction that closed on July 12, 2004. The terms of the transaction were contained in a private agreement among Timothy Marquez and the selling shareholders. On June 2, 2004 Timothy Marquez was elected Chairman of the Board and CEO of the Company and the selling shareholders resigned from the Board of Directors.

On January 3, 2005, a dividend of $35 million was paid to the Company’s sole stockholder, a trust controlled by Timothy Marquez and his wife, from the proceeds of the senior notes.

10.   ASSET RETIREMENT OBLIGATIONS

The Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations as of January 1, 2003. Under SFAS No. 143, liabilities are accreted to their present value each period and the capitalized asset retirement costs are depleted over the productive life of the related assets. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or decrease in the asset retirement obligation (“ARO”) and the related capitalized asset retirement costs.

13




The Company’s asset retirement obligations represent expected future costs associated with site reclamation, facilities dismantlement, and plugging and abandonment of wells. The following is a summary of the asset retirement obligation activity (in thousands):

 

 

2005

 

2004

 

 

 

(Successor)

 

(Predecessor)

 

Balance of ARO as of January 1,

 

 

$

23,390

 

 

 

$

19,248

 

 

Revisions in estimated cash flows

 

 

 

 

 

494

 

 

Liabilities incurred during the nine months ended September 30,

 

 

587

 

 

 

409

 

 

Liabilities settled during the nine months ended September 30,

 

 

(547

)

 

 

(59

)

 

Accretion expense

 

 

1,311

 

 

 

1,093

 

 

Balance of ARO as of September 30,

 

 

$

24,741

 

 

 

$

21,185

 

 

 

Of the liability for asset retirement obligations balance at September 30, 2005, $0.2 million is classified as current and included in accrued liabilities in the accompanying consolidated balance sheet. The balance of ARO as of September 30, 2005 represents the Company’s estimate of the present value of its aggregate asset retirement obligations as of that date. The discount rates used to calculate the present value varied depending on the estimated timing of the obligation, but typically ranged between 6% and 8%.

11.   SUBSEQUENT EVENTS

On November 1, 2005, the Company merged two of its wholly-owned subsidiaries, Marquez Energy LLC, a Colorado limited liability company, and 217 State Street, Inc., a California corporation, with and into Venoco, Inc.

12.   RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (Revised 2004), Share-Based Payment, which requires that compensation related to all stock-based awards, including stock options, be recognized in the financial statements. This pronouncement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. In April 2005, the Securities and Exchange Commission postponed the required implementation date for this new statement to annual periods beginning after June 15, 2005. The Company currently plan to adopt SFAS No. 123R as of January 1, 2006. We have previously recorded stock compensation pursuant to the intrinsic value method under APB Opinion No. 25, whereby no compensation was recognized for most stock option awards. The Company expects that stock option grants will continue to be a significant part of employee compensation, and, therefore, SFAS No. 123R will have a significant impact on its financial statements. For the pro forma effect of recording compensation for all stock awards at fair value, utilizing the Black-Scholes method, see Note 8 to the Condensed Consolidated Financial Statements. The Company has not yet completed its evaluation but expects the adoption of SFAS No. 123R to have an effect on the financial statements similar to the pro forma effects. The Company is currently considering alternative valuation methods to determine the fair value of stock options granted after December 31, 2005.

SFAS No. 123R permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods, either for all periods presented or to the beginning of the fiscal year in which the statement is adopted, based on previous pro

14




forma disclosures made in accordance with SFAS No. 123. The Company has not yet determined which of the methods it will use upon adoption.

In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, Accounting for Conditional Asset Retirement Obligations. This Interpretation clarifies the definition and treatment of conditional asset retirement obligations as discussed in FASB Statement No. 143, Accounting for Asset Retirement Obligations. A conditional asset retirement obligation is defined as an asset retirement activity in which the timing and/or method of settlement are dependent on future events that may be outside the control of a company. FIN 47 states that a company must record a liability when incurred for conditional asset retirement obligations if the fair value of the obligation is reasonably estimable. This Interpretation is intended to provide more information about long-lived assets, more information about future cash outflows for these obligations and more consistent recognition of these liabilities. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company does not believe that its financial position, results of operations or cash flows will be impacted by this Interpretation.

In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement 154 changes the requirements for the accounting and reporting of a change in accounting principle. APB Opinion No. 20 previously required that most voluntary changes in an accounting principle be recognized by including the cumulative effect of the new accounting principle in net income of the period of the change. SFAS No. 154 now requires retrospective application of changes in an accounting principle to prior period financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The Statement is effective for fiscal years beginning after December 15, 2005. We do not expect the adoption of this statement will have a material impact on our financial statements.

In October 2005, the FASB issued FSP FAS No. 13-1, Accounting for Rental Costs Incurred during a Construction Period, which is effective for reporting periods beginning after December 15, 2005. This Position requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. We do not expect the adoption of FSP No. 13-1 to have an impact on our financial statements.

13.   GUARANTOR FINANCIAL INFORMATION

In connection with the issuance of the notes in December 2004, three of the Company’s wholly-owned subsidiaries, BMC, Ltd., Whittier Pipeline Corp. and 217 State Street, Inc. (“Guarantors”), fully and unconditionally guaranteed, on a joint and several basis, the Company’s obligations under the notes (the “Guarantees”). On March 31, 2005, Marquez Energy became a Guarantor of the notes. Each Guarantee is a general unsecured obligation of the Guarantor, senior in right of payment to all existing and future subordinated indebtedness of that Guarantor, pari passu in right of payment with any existing and future senior unsecured indebtedness of that Guarantor and effectively junior in right of payment to that Guarantor’s existing and future secured indebtedness, including its guarantee of indebtedness under the restated Credit Agreement, to the extent of the value of the collateral securing that facility. All Guarantors are 100% owned by the Company. The Company has two subsidiaries, 6267 Carpinteria Avenue, LLC and Ellwood Pipeline, Inc., that are not guarantors of the notes (the “Non-Guarantor Subsidiaries”).

The following is condensed consolidating financial information for the three and nine months ended September 30, 2005 and 2004 and as of September 30, 2005 and December 31, 2004.

15




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2005
(Successor)
(in thousands)

 

 

Venoco, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

 

 

$

45,203

 

 

 

$

2,075

 

 

 

$

 

 

 

$

 

 

 

47,278

 

 

Commodity derivative losses (realized)

 

 

(8,287

)

 

 

 

 

 

 

 

 

 

 

 

(8,287

)

 

Commodity derivative losses (unrealized)

 

 

(16,242

)

 

 

 

 

 

 

 

 

 

 

 

(16,242

)

 

Other

 

 

653

 

 

 

4

 

 

 

1,622

 

 

 

(1,503

)

 

 

776

 

 

Total revenues

 

 

21,327

 

 

 

2,079

 

 

 

1,622

 

 

 

(1,503

)

 

 

23,525

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas production

 

 

13,092

 

 

 

322

 

 

 

334

 

 

 

 

 

 

13,748

 

 

Transportation expense

 

 

1,401

 

 

 

141

 

 

 

 

 

 

(1,078

)

 

 

464

 

 

Depletion, depreciation, amortization and impairment

 

 

5,192

 

 

 

380

 

 

 

62

 

 

 

 

 

 

5,634

 

 

Accretion of abandonment liability

 

 

263

 

 

 

25

 

 

 

5

 

 

 

 

 

 

293

 

 

General and administrative, net of amounts capitalized

 

 

2,986

 

 

 

262

 

 

 

132

 

 

 

(425

)

 

 

2,955

 

 

Amortization of deferred loan costs

 

 

320

 

 

 

 

 

 

 

 

 

 

 

 

320

 

 

Interest, net

 

 

4,357

 

 

 

(664

)

 

 

(332

)

 

 

 

 

 

3,361

 

 

Total expenses

 

 

27,611

 

 

 

466

 

 

 

201

 

 

 

(1,503

)

 

 

26,775

 

 

Equity in subsidiary income

 

 

1,027

 

 

 

 

 

 

 

 

 

(1,027

)

 

 

 

 

Income (loss) before income taxes

 

 

(5,257

)

 

 

1,613

 

 

 

1,421

 

 

 

(1,027

)

 

 

(3,250

)

 

Income tax provision (benefit)

 

 

(3,424

)

 

 

61

 

 

 

531

 

 

 

1,415

 

 

 

(1,417

)

 

Income (loss) before minority interest

 

 

(1,833

)

 

 

1,552

 

 

 

890

 

 

 

(2,442

)

 

 

(1,833

)

 

Minority interest in consolidated subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

$

(1,833

)

 

 

$

1,552

 

 

 

$

890

 

 

 

$

(2,442

)

 

 

$

(1,833

)

 

 

16




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2004
(Predecessor)
(in thousands)

 

 

Venoco, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

 

 

$

33,912

 

 

 

$

2,932

 

 

 

$

 

 

 

$

 

 

 

$

36,844

 

 

Commodity derivative losses (realized)

 

 

(4,968

)

 

 

 

 

 

 

 

 

 

 

 

(4,968

)

 

Commodity derivative losses (unrealized)

 

 

(851

)

 

 

 

 

 

 

 

 

 

 

 

(851

)

 

Other

 

 

1,404

 

 

 

247

 

 

 

1,106

 

 

 

(804

)

 

 

1,953

 

 

Total revenues

 

 

29,497

 

 

 

3,179

 

 

 

1,106

 

 

 

(804

)

 

 

32,978

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas production

 

 

11,563

 

 

 

651

 

 

 

369

 

 

 

 

 

 

12,583

 

 

Transportation expense

 

 

1,525

 

 

 

2

 

 

 

 

 

 

(744

)

 

 

783

 

 

Depletion, depreciation, amortization and impairment

 

 

3,379

 

 

 

211

 

 

 

21

 

 

 

 

 

 

3,611

 

 

Accretion of abandonment liability

 

 

344

 

 

 

24

 

 

 

5

 

 

 

 

 

 

373

 

 

General and administrative, net of amounts capitalized

 

 

2,532

 

 

 

425

 

 

 

60

 

 

 

(60

)

 

 

2,957

 

 

Amortization of deferred loan costs

 

 

103

 

 

 

 

 

 

 

 

 

 

 

 

103

 

 

Interest, net

 

 

768

 

 

 

49

 

 

 

(374

)

 

 

 

 

 

443

 

 

Total expenses

 

 

20,214

 

 

 

1,362

 

 

 

81

 

 

 

(804

)

 

 

20,853

 

 

Equity in subsidiary income

 

 

1,598

 

 

 

 

 

 

 

 

 

(1,598

)

 

 

 

 

Income (loss) before income taxes

 

 

10,881

 

 

 

1,817

 

 

 

1,025

 

 

 

(1,598

)

 

 

12,125

 

 

Income tax provision

 

 

3,935

 

 

 

768

 

 

 

440

 

 

 

 

 

 

5,143

 

 

Income (loss) before minority interest

 

 

6,946

 

 

 

1,049

 

 

 

585

 

 

 

(1,598

)

 

 

6,982

 

 

Minority interest in consolidated subsidiary

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

36

 

 

Net income (loss)

 

 

$

6,946

 

 

 

$

1,013

 

 

 

$

585

 

 

 

$

(1,598

)

 

 

$

6,946

 

 

 

17




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2005
(Successor)
(in thousands)

 

 

Venoco, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

 

 

$

126,967

 

 

 

$

7,701

 

 

 

$

 

 

 

$

 

 

 

$

134,668

 

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