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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to __________
COMMISSION FILE NUMBER 0-18691
NORTH COAST ENERGY, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1594000
(State of incorporation) (I.R.S. Employer
Identification No.)
1993 CASE PARKWAY
TWINSBURG, OHIO 44087-2343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 425-2330
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
SERIES A 6% CONVERTIBLE NON-CUMULATIVE PREFERRED STOCK, $0.01 PAR VALUE
(Title of class)
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK, $0.01 PAR VALUE
(Title of class)
WARRANTS TO PURCHASE COMMON STOCK, $0.01 PAR VALUE
(Title of class)
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Indicate by check mark whether the Registrant (1) has filed all Reports required
to be filed 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 reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X. No _____.
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
As of June 9, 2000, the Registrant had outstanding 15,199,749 shares of Common
Stock, 73,046 shares of Series A Preferred Stock, and 232,864 shares of Series B
Preferred Stock. All Common shares reflect the 1 for 5 reverse Common Stock
split effective June 7, 1999.
The aggregate market value of Common Stock held by non-affiliates of the
Registrant at June 9, 2000 was $7,415,790 which value has been computed on the
basis of $3.66 per share of Common Stock, the mean between the closing bid and
ask price as reported for that day on Nasdaq.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE
Part of Form 10-K
-----------------
Part III (Items 10, 11, 12, and 13)
Document Incorporated by Reference
----------------------------------
Portions of the Registrant's definitive Proxy Statement to be used in connection
with its 2000 Annual Meeting of Stockholders.
Except as otherwise indicated, the information contained in this Report is as of
March 31, 2000.
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PART I
ITEM 1. BUSINESS.
GENERAL
North Coast Energy, Inc., an affiliate of NUON, NV, a Delaware
corporation, with its subsidiaries and predecessors, ("North Coast" or the
"Company"), is an independent natural gas and oil company engaged in
exploration, development and production activities primarily in the Appalachian
Basin. The Company's strategy focuses primarily on its acquisition of proved
developed and undeveloped properties and on the enhancement, drilling and
development of such properties. As used in this Annual Report on Form 10-K, the
terms "Company" and "North Coast" mean North Coast Energy, Inc., its
subsidiaries and predecessors, unless the context otherwise requires. The
Company currently has three wholly-owned subsidiaries, NCE Securities, Inc.
("NCE Securities"), North Coast Operating Company ("NCOC"), and Peake Energy,
Inc. ("Peake"), two of which are considered active (NCE Securities and Peake).
The Company began operations in 1981. In 1990, the Company acquired the
assets and properties of 21 Drilling Programs ("Drilling Programs")* through an
exchange offer (the "Exchange Offer") in which the Company issued publicly
traded stock. In 1997, NUON International Projects, BV ("NUON") and the Company
formed a strategic alliance that has resulted in NUON acquiring a majority
ownership position (86%) in the Company as of June 9, 2000. Moreover, NUON has
provided significant financial and technical resources that have enabled the
Company to acquire additional oil and gas producing assets, increase its daily
production and reserves, improve its efficiency as an owner/operator and
substantially improve its financial results.
As of March 31, 2000, North Coast owned interests in 3,785 wells,
operating 3,697 of these wells. In connection with the drilling and development
of the wells it operates, North Coast currently owns approximately 1,400 miles
of natural gas gathering pipelines. At March 31, 2000, the Company had estimated
net proved reserves of approximately 124.9 Bcf of natural gas and 1,021,400
barrels of oil. Daily net production as of March 31, 2000 was approximately
23,800 million cubic feet of natural gas equivalents.
*Reference herein to Drilling Programs is synonymous with any of the 29 separate
Ohio limited partnerships currently managed by the Company, and those that were
dissolved as a result of the Exchange Offer.
SIGNIFICANT EVENTS
On June 7, 1999, a 1 for 5 reverse stock split became effective thereby
reducing the number of shares of outstanding Common Stock from 22,784,070 to
4,556,814.
In September 1999, the Company sold an additional 1,042,125 shares of
its common stock to NUON for $4,370,057 per the terms of a Stock Purchase
Agreement by and between the Company and NUON dated August 1, 1997.
In October 1999, the Company purchased producing oil and gas assets,
well operating rights and gas gathering systems from Environmental Exploration
for a purchase price of $3.5 million.
In October 1999, Omer Yonel was appointed Chief Executive Officer and a
Director of North Coast Energy. Prior to joining North Coast in January of 1999,
Mr. Yonel served as NUON's International Business Development Manager for North
America where he spent fourteen months as a liaison between the Company and its
largest share owner, NUON. Mr. Yonel has ten years of international experience
(Saudi Arabia, Denmark, Turkey, The Netherlands) in project engineering and
project management and sales in the European oil and gas industry with Schelde
Engineering & Contractors bv, and with ABB Lummus, a subsidiary of Asea Brown
Boveri (ABB).
In December 1999, the Company formed a $5.2 million investor financed
drilling program to drill 31 development wells. This was the largest single
investor financed program ever to be formed by the Company and enhanced revenues
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from drilling, oil and gas production, well operating, transportation and
administrative services.
In March 2000, the Company purchased the stock of Peake Energy, Inc. of
Ravenswood, West Virginia for $72.5 million, based upon the effective date of
January 1, 2000. The actual funds transferred at the time of closing were
$69,541,000 to reflect net proceeds from the effective date. The purchase was
financed through borrowings from NUON. Peake is a large, successful
producer/operator of Appalachian natural gas and oil and provides the Company a
foothold for continued growth in West Virginia and Kentucky. The acquisition of
Peake will add significantly to production, reserves and financial results. On
May 4, 2000, NUON converted $24 million of debt related to the Peake acquisition
to 9.6 million shares of common stock of the Company.
AREAS OF OPERATION
The Appalachian Basin is located in close proximity to major natural
gas markets in the northeast United States. This proximity to a substantial
number of large commercial and industrial gas markets, coupled with the
relatively stable nature of Appalachian Basin production and the availability of
transportation facilities has resulted in generally higher wellhead prices for
Appalachian natural gas than those prices available in the Gulf Coast and
Mid-continent regions. The Appalachian Basin is the oldest gas and oil-producing
region in the United States and includes portions of Ohio, Pennsylvania, New
York, West Virginia, Kentucky and Tennessee. Historically, most production in
the Appalachian Basin has been from wells drilled to a number of relatively
shallow blanket formations at depths of 1,000 to 7,500 feet. These formations
are generally characterized as long-lived reserves that produce for more than 20
years.
The Company's drilling operations in the Appalachian Basin have
principally involved drilling to the Clinton/Medina sandstone geologic
formation. This formation is an oil and gas bearing sandstone formation, which
underlies a large section of eastern Ohio and western Pennsylvania in varying
thicknesses and at depths ranging generally from 2,800 to 7,500 feet.
Substantially all of the wells that the Company drills in this area have
estimated depths of between 3,500 and 6,700 feet.
In 1998, the Company began a seismic data program that led to the
inception of exploration drilling on a portion of its Ohio leasehold acreage.
The exploration drilling has focused on the Knox unconformity, a sequence of
sandstones and dolomites which includes the Rose Run, Beekmantown and
Trempealeau productive zones, at depths ranging from 2,500 to 8,000 feet. In the
Company's area of interest the Knox is targeted at approximately 2,000 feet
below the Clinton formation at between 6,000 and 7,000 feet. To date, the
Company's exploration in the Knox has resulted in two discoveries on two
exploration wells.
The Company also maintains leasehold acreage in portions of Ohio,
Pennsylvania and West Virginia with other potential producing formations.
ACQUISITIONS
Recent Acquisitions
Peake Energy, Inc.
------------------
In March 2000, the Company acquired 100% of the stock of Peake Energy,
Inc. of Ravenswood, West Virginia providing the Company with a new foothold in
the Appalachian Basin. The Company's objective in acquiring Peake was to
increase production, reserves and the overall critical mass to allow it to more
effectively operate in a cost efficient manner. Peake operates approximately
1,900 wells with daily net production of approximately 16 million cubic feet of
gas equivalents and has proved net reserves in excess of 74 Bcfe. Peake operates
900 miles of gas gathering systems and associated natural gas compression
facilities. Through Peake, the Company has greatly increased its development
drilling and exploration opportunities in the Appalachian Basin. Peake will
substantially increase revenues and cash flow to the Company's financial
results.
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Environmental Exploration Company
---------------------------------
In October 1999, the Company acquired the oil and gas assets and well
operating rights of Environmental Exploration and its affiliate, Loma
Enterprises, Inc., of North Canton, Ohio. The assets included 220 producing
wells and a series of natural gas gathering systems. The Company's primary
objective in acquiring these assets was to increase daily net production through
cost-effective operations. The majority of the assets are in close proximity to
existing North Coast operations and permitted the integration of the acquired
assets with no additional general and administrative and minimal field-level
personnel costs.
Kelt Ohio, Inc.
---------------
In fiscal 1999, the Company acquired the assets of Kelt Ohio, Inc.
("Kelt") including the working interest and operations of over 900 wells located
in Ohio, well drilling, servicing and oilfield equipment, natural gas
compressors and gas gathering systems and additional drilling locations.
Acquisition Strategy
The Company's acquisition strategy focuses on properties and other oil
and gas entities that can provide:
A. enhanced cash flow,
B. additional drilling and development opportunities,
C. synergies with North Coast properties,
D. enhancement potential of current operations, or
E. economies of scale and cost efficiencies.
Since 1994 the Company has completed the acquisition of the working
interest in approximately 3,300 wells, various gas gathering systems and
additional drilling locations. The Company has also acquired additional
interests in its prior Drilling Programs by offering investors an exit strategy
from the Drilling Programs.
EXPLORATION AND DEVELOPMENT
Exploration and development activities conducted by the Company have
primarily involved the acquisition of proved undeveloped oil and gas properties
and the drilling and development of such properties by the Company or in
conjunction with Drilling Programs and joint ventures.
The Company's strategy focuses on increasing its natural gas and oil
reserves, as well as production, drilling and oilfield service revenues, by
acquiring undeveloped oil and gas properties in the Appalachian Basin and
financing and conducting the drilling and development of these properties by the
Company or in conjunction with the Drilling Programs. The Company is pursuing a
strategy of increasing reserves through drilling and development, the
acquisition of other gas and oil companies and producing properties.
DRILLING ACTIVITY
North Coast continually evaluates undeveloped prospects originated by
its staff or other independent geologists as well as other gas and oil
companies. If review of a prospect indicates that it may be geologically and
economically attractive, the Company will attempt to obtain a lease of the
mineral rights on the acreage.
Typically, the Company will acquire the entire working interest in a
lease in consideration of paying a lease bonus and annual rentals subject to a
landowner's royalty and, where the property is acquired through a third party,
possibly an overriding royalty interest. During fiscal year 2000, the Company
participated in the drilling of 35 wells.
DRILLING PROGRAMS
From the Company's inception in 1981 through March 31, 2000, North
Coast has raised approximately
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$92,000,000 and has sponsored 50 Drilling Programs to engage in oil and gas
drilling and development operations.
Each Drilling Program has been conducted as a separate limited
partnership with the Company serving as managing general partner of each.
Currently, North Coast serves as the managing general partner of 29 Drilling
Programs. To maintain the marketability of its Drilling Programs, the Company
continually reviews program structure and performance and makes modifications
from program to program, as it deems appropriate. These modifications have
included changes to the compensation arrangements between the Company and the
Drilling Programs, including charges for its drilling and administrative
services, and changes in the Company's interest in the Drilling Programs.
The Company acts as operator and general contractor for drilling and
production operations, undertaking to drill and complete Drilling Program wells
and to serve as operator for producing wells. At March 31, 2000 the Company
operated 415 wells for the Drilling Programs. In the Drilling Programs,
typically the entire working interest in the leasehold is acquired by the
Program, although only the minimum required acreage for a well is assigned by
the Company to the Drilling Program.
As managing general partner, North Coast is subject to full liability
for the obligations of the Drilling Programs although it is indemnified by each
program to the extent of the assets of the Drilling Programs under certain
circumstances. The partnership interests in the Drilling Programs constitute
securities and the Company is subject to potential liability for failure to
comply with applicable federal and state securities laws and regulations under
certain circumstances.
Typically, each Drilling Program is structured as a "functional
allocation" program whereby the non-industry investors contribute cash in an
aggregate amount equal to the intangible drilling and development costs to be
incurred for the Drilling Program wells. The Company contributes the drill sites
to the Drilling Program and agrees to contribute all tangible equipment
necessary to drill, complete and produce each well, as well as organizational
and syndication costs of the Drilling Program. The allocation of partnership
revenues in each Drilling Program may vary depending upon the structure chosen
by the Company, with the Company's initial percentage interest ranging from 20%
to 40%.
Interests in North Coast's Drilling Programs are sold to investors
through securities dealers registered with the NASD. In each program, NCE
Securities, a subsidiary of the Company, a member of the NASD and a
broker-dealer registered with the SEC, acts as placement agent and enters into
selling agreements with a number of broker-dealers to assist it in selling the
interests.
The Drilling Programs raised $2.7 million from investors during fiscal
year 1998, $3.5 million in fiscal year 1999 and $5.2 million in fiscal year
2000. The Company intends to sponsor a Drilling Program for fiscal year 2000 and
has prepared the necessary documentation. The offering will have maximum
subscriptions of up to $6 million at the Company's discretion.
DRILLING SERVICES
North Coast derives revenue and net income from the drilling services
it provides to the Drilling Programs. North Coast enters into turnkey (fixed
price) contracts with the Drilling Programs to drill program wells. Pursuant to
these drilling contracts, the Company is responsible for the drilling and
development of the wells. The Company subcontracts with third parties for the
performance of a substantial portion of the operations required to drill,
complete and equip these wells for production. The Company manages and
supervises all necessary drilling and related service and equipment operations
on these wells and contracts a number of third party services including contract
drilling, fracturing, logging and pipeline construction, which are performed by
subcontractors who specialize in those operations. Since North Coast contracts
with the Drilling Programs on a turnkey basis, North Coast is responsible for
drilling and completing the wells, regardless of the actual cost. Consequently,
North Coast is subject to the risk that prices incurred in the actual drilling
and development operations could increase or decrease beyond its contract price
thereby rendering its drilling contracts more or less profitable. The Company
continually monitors the cost incurred in drilling, completion and production
operations and reviews its turnkey contract prices for each Drilling Program in
order to reduce the risk of unprofitable drilling operations. These turnkey
drilling prices are subject to change based
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on competition, the return sought by Drilling Program investors, North Coast's
revenue and profit considerations and other industry conditions.
OIL FIELD SERVICE OPERATIONS
As of March 31, 2000, North Coast operated 3,985 wells located in Ohio,
Pennsylvania, West Virginia and Kentucky. As operator of producing wells, North
Coast is responsible for the maintenance and verification of all production
records, contracting for oil and gas sales, distribution of production proceeds
and information, and compliance with various state and federal regulations.
Generally, the Company provides the routine day-to-day production operations for
producing wells and also subcontracts certain oil field operations that require
third party services.
North Coast receives a monthly operating fee for each producing well it
operates for third parties and is reimbursed for most unaffiliated third party
costs associated with operations and production of the wells. Each third party
pays North Coast their specified operating fee based upon their aggregate
interest in the wells, exclusive of North Coast's ownership interest.
GAS-GATHERING ACTIVITIES
In connection with the drilling and development of the wells that it
operates, North Coast has acquired, constructed and owns approximately 1,400
miles of gas-gathering pipelines in various counties throughout Ohio,
Pennsylvania, West Virginia and Kentucky. These pipelines carry natural gas from
the wellhead to the gas transmission systems of various utilities for sale to
such utilities, to natural gas brokers purchasing gas for resale to others or to
industrial purchasers pursuant to self-help gas purchase arrangements. The
Company continues its acquisition and construction of pipelines and gathering
systems and the establishment of compressor facilities in order to expand the
number of natural gas purchasers available to the Company.
For such gas-gathering services, the Company collects certain
allowances from public utilities, end-users or other natural gas purchasers,
including natural gas brokers. These gathering fees or transportation allowances
averaged approximately $.37 per Mcf of natural gas at March 31, 2000.
MARKETS
The ability of the Company to market oil and gas depends to an extent,
on factors beyond its control. The potential effects of governmental regulation
and market factors including alternative domestic and imported energy sources,
available pipeline capacity, and general market conditions are not entirely
predictable.
Natural Gas. Natural gas is generally sold pursuant to individually
negotiated gas purchase contracts, which vary in length from spot market sales
of a single day to term agreements that may extend several years. Customers of
the Company purchasing natural gas include marketing affiliates of the major
pipeline companies, natural gas marketing companies, and a variety of
commercial/public authorities, industrial, and institutional end users who
ultimately consume the gas. Gas purchase contracts define the terms and
conditions unique to each of these sales. The price received for natural gas
sold on the spot market may vary daily reflecting changing market conditions.
As discussed, the deliverability and price of natural gas are subject
to both governmental regulation and supply/demand forces. During the past
several years, regional natural gas surpluses and shortages have occurred
resulting in wide fluctuations in the prices paid to producers.
The lengths of the contracts as defined in the "Term" provision in the
Company's gas purchase agreements vary widely. Additionally, several of the
Company's contracts provide for monthly pricing which are derived from published
NYMEX or Appalachian price indexes. The Columbia Transmission (TCO) and
Consolidated Natural Gas (CNG) Index prices, which create a basis for spot sales
prices in the Mid Atlantic and northeastern United States, ranged from $2.05 to
$3.28 per MMBtu during fiscal 2000. As of March 31, 2000, approximately 10% of
the Company's natural gas contracts are fixed price contracts with industrial
end-users. The prices received from these
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contracts range between $2.66 and $4.43 per Mcf. The remainder of the Company's
natural gas contracts are with utilities and marketers. The prices received from
these contracts range between $2.09 and $3.495 per Mcf. For the fiscal year
ended March 31, 2000, the Company received an average price of $2.58 per Mcf.
During fiscal year 2000, Interstate Gas Supply, Inc. purchased 22% of the gas
produced by North Coast.
Due to the seasonality of supply and demand, prices paid by purchasers
for natural gas will continue to fluctuate. The Company has pursued a strategy
of varying the length and pricing provisions of its gas purchase contracts so as
to maintain flexibility to react to those fluctuating prices. Due to current
market conditions, the duration of recently renegotiated fixed price contracts
have been extended 1 to 3 years in length. The Company committed a larger
portion of its natural gas to longer-term arrangements to optimize revenues
derived from these sales.
During the past several years, an overabundance of natural gas supplies
and promulgation of State and Federal regulations pertaining to the sale,
transportation, and marketing of natural gas resulted in increasing competition
and declining prices. However, recent trends have shown that supply tightness is
starting to take effect. This is evidenced by increased future natural gas
prices as indicated by the Nymex price trends. This upward trend in prices has
been attributed to the upcoming struggle to maximize storage refill during a
period of increased demand caused by new gas-fired electric generation projects
and declining domestic production. It is likely that supply and demand factors
will continue to be the driving force in the evolving marketplace.
Crude Oil. Oil produced from the Company's properties is generally sold
at the prevailing field price to one or more of a number of unaffiliated
purchasers in the area. Generally, purchase contracts for the sale of oil are
cancelable on 30 days notice. The price paid by these purchasers is generally an
established, or "posted," price that is offered to all producers. The Company
received an average price of $20.08 per barrel for its oil during fiscal 2000;
however, during the last several years prices paid for crude oil have fluctuated
substantially. The price posted for purchase contracts for the sale of oil at
March 31, 2000, was $23.65. Future oil prices are difficult to predict due to
the impact of worldwide economic trends, coupled with supply and demand
variables, and such non-economic factors as the impact of political
considerations on OPEC pricing policies and the possibility of supply
interruptions. Oil production comprised approximately 6% of North Coast's total
oil and gas production calculated on an equivalent Mcf basis for fiscal year
2000. Therefore a price increase or decrease in oil prices has a minimal effect
on revenues when compared to the effect of the price of natural gas. To the
extent that the prices, which the Company receives for its crude oil, increases
or decreases from current levels, revenues from oil production will be affected
accordingly.
COMPETITION
The gas and oil industry is highly competitive in all phases. The
Company encounters strong competition from other independent oil companies in
acquiring economically desirable properties as well as in marketing production
therefrom and obtaining external financing. Many of the Company's competitors
may have financial resources, personnel and facilities equal to or greater than
those of the Company.
REGULATION
Exploration and Production. The exploration, production and sale of
natural gas and oil are subject to various types of local, state and federal
laws and regulations. Such laws and regulations govern a wide range of matters,
including the drilling and spacing of wells, allowable rates of production,
restoration of surface areas, plugging and abandonment of wells and requirements
for the operation of wells. Such regulations may adversely affect the rate at
which the Company's wells produce gas and oil. In addition, legislation and new
regulations concerning gas and oil exploration and production operations are
constantly being reviewed and proposed. Most of the states in which the Company
owns and operates properties have laws and regulations governing several of the
matters enumerated above. Compliance with the laws and regulations affecting the
gas and oil industry generally increases the Company's cost of doing business
and consequently affects its profitability.
Environmental Matters. The discharge of oil, gas or other pollutants
into the air, soil or water may give rise to liabilities to the government and
third parties and may require the Company to incur costs to remedy the
discharge.
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Natural gas, oil or other pollutants (including salt water brine) may be
discharged in many ways, including from a well or drilling equipment at a drill
site, leakage from pipelines or other gathering and transportation facilities,
leakage from storage tanks and sudden discharges from damage or explosion at
natural gas facilities or gas and oil wells. Discharged hydrocarbons may migrate
through soil to water supplies or adjoining property, giving rise to additional
liabilities. A variety of federal and state laws and regulations govern the
environmental aspects of natural gas and oil production, transportation and
processing and may, in addition to other laws, impose liability in the event of
discharges (whether or not accidental), failure to notify the proper authorities
of a discharge, and other noncompliance with those laws. Compliance with such
laws and regulations may increase the cost of gas and oil exploration,
development and production although the Company does not currently anticipate
that compliance will have a material adverse effect on capital expenditures or
earnings of the Company.
The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. The Company believes its present activities substantially comply, in
all material respects, with existing environmental laws and regulations.
Nevertheless, no assurance can be given that environmental laws will not, in the
future, result in a curtailment of production or material increase in the cost
of production, development or exploration or otherwise adversely affect the
Company's operations and financial condition. Although the Company maintains
liability insurance coverage for certain liabilities from pollution, such
environmental risks generally are not fully insurable; the amount of such
coverage is currently $1,000,000 and is provided on a "claims made" basis.
Marketing and Transportation. The interstate transportation and sale
for resale of natural gas is regulated by the Federal Energy Regulatory
Commission (the "FERC") under the Natural Gas Act of 1938 ("NGA"). The wellhead
price of natural gas is also regulated by FERC under the authority of the
Natural Gas Policy Act of 1978 ("NGPA"). The Natural Gas Wellhead Decontrol Act
of 1989 (the "Decontrol Act"), which was enacted on July 26, 1989, eliminated
all gas price regulation effective January 1, 1993. In addition, FERC recently
has proposed several rules or orders concerning transportation and marketing of
natural gas. The impact of these rules and other regulatory developments on the
Company cannot be predicted.
In 1992 FERC finalized Order 636, regulations pertaining to the
restructuring of the interstate transportation of natural gas. Pipelines serving
this function have since been required to "unbundle" the various components of
their service offerings, which include gathering, transportation, storage, and
balancing services. In their current capacity, pipeline companies must provide
their customers with only the specific service desired, on a non-discriminatory
basis. Although North Coast is not an interstate pipeline, the Company believes
the changes brought about by Order 636 have increased competition in the
marketplace, resulting in greater market volatility.
Various rules, regulations and orders, as well as statutory provisions
may affect the price of natural gas production and the transportation and
marketing of natural gas.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's gas and oil operations are subject to all operating
hazards and risks normally incident to drilling for and producing gas and oil,
such as encountering unusual formations and pressures, blow-outs, environmental
pollution, and personal injury. The Company will maintain such insurance
coverage as it believes to be appropriate, taking into account the size of the
Company and its proposed operations. The Company currently does not maintain
insurance coverage for physical loss or damage to equipment located on the wells
or for selected properties (such as crude oil stored in tanks). The Company's
insurance policies also have standard exclusions. Losses can occur from an
uninsurable risk or in amounts more than existing insurance coverage. The
occurrence of an event, which is not insured or not fully insured, could have an
adverse impact on the Company's revenues and earnings.
EMPLOYEES
At March 31, 2000, the Company had 144 full-time employees, including
103 field employees, 3 petroleum engineers, 4 geologists, 7 accountants, 2 land
men, 1 attorney, and 2 gas marketers. No employees are represented by a union
and the Company believes that it maintains good relations with its employees.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, the
competition within the oil and gas industry, the price of oil and gas in the
Appalachian Basin area, the weather in the Company's geographic region, possible
acquisitions by the Company, the cost of the locating and drilling of oil and
gas wells in the Appalachian Basin area, including fluctuations in both tangible
and intangible drilling costs, the amount of funds raised in the fiscal 2001
Drilling Programs, equity investment, available financing and the ability to
locate productive oil and gas prospects for development by the Company.
ITEM 2. PROPERTIES.
Oil and Gas Properties
- ----------------------
In the following tables, "gross" refers to the total acres or wells in
which the Company has a working interest and "net" refers to gross acres or
wells multiplied by the Company's percentage working interests therein. Royalty
interests held by the Company will not affect the Company's working interests
(net wells) in its properties and will not be reflected in net wells.
PROVED RESERVES. The following table reflects the estimates of North
Coast's proved reserves as of March 31, 2000.
RESERVES
Oil Reserves (Bbls):
Proved Developed 920,400
Proved Undeveloped 101,000
---------
Total 1,021,400
Gas Reserves (Mcf):
Proved Developed 109,174,000
Proved Undeveloped 15,694,000
-----------
Total 124,868,000
Production. The following table summarizes the net oil and gas
production (on a rounded basis), average sales prices, and average production
(operating) expenses per equivalent unit of production for the periods
indicated.
PRODUCTION
Production Sales Price Average Operating
Years Ended Oil Gas Cost per Equivalent
March 31: (Bbls) (Mcf) Per Bbl Per Mcf Mcf (1)
- --------- ------ ----- ------- ------- -------
1998 13,900 1,116,000 $16.18 $2.50 $0.70 (2)
1999 28,100 2,688,000 $11.39 $2.57 $0.91
2000 31,000 2,947,000 $20.08 $2.58 $1.14
(1) For calculation of average operating cost per equivalent Mcf, the
standard ratio of 6:1 for gas to oil was used.
(2) Includes costs for the rework of ten wells located in Pennsylvania
and relocation of production facilities in Louisiana.
PRODUCTIVE WELLS. The following table sets forth the number of gross
and net productive oil and gas wells of the Company as of March 31, 2000. Wells
are classified as gas or oil according to their predominant product stream.
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PRODUCTIVE WELLS
Gross Wells (1) Net Wells
Oil Gas Total Oil Gas Total
--- --- ----- --- --- -----
388 3,397 3,785 367 2581 2,948
(1) Gross wells include 237 wells in which the Company owns a royalty
interest.
ACREAGE. The following table sets forth the Developed and Undeveloped
Acreage of the Company, on both a gross and net basis, as of March 31, 2000. The
amounts included in proved undeveloped acreage recognizes only the acreage
directly offsetting locations to wells that have indicated commercial production
in the objective formation which North Coast fully expects to drill in the near
future.
LEASEHOLD ACREAGE
Total Leasehold Acreage:
Gross Acres 380,378
Net Acres 292,492
Developed Acreage:
Gross Acres 175,264
Net Acres 140,971
Proved Undeveloped Acreage:
Gross Acres 4,830
Net Acres 4,830
Undeveloped Acreage (includes Proved Undeveloped Acreage):
Gross Acres 205,114
Net Acres 151,521
DRILLING ACTIVITY. The following table sets forth the results of
drilling activities on the Company's properties. Such information and the
results of prior drilling activities should not be considered as necessarily
indicative of future performance, nor should it be assumed that there is
necessarily any correlation between the number of productive wells drilled and
the oil and gas reserves generated thereby.
All wells were drilled by March 31 of their respective years and are
reflected in the Drilling Activities table. Wells in which the Company owns only
a royalty interest are not reflected in the table below.
DRILLING ACTIVITIES
Fiscal year ended March 31,
- ---------------------------
2000 1999 1998
---- ---- ----
Exploratory Wells (1)
Productive
Gross 1 0 0
Net 1 0 0
Dry
Gross 0 0 0
Net 0 0 0
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DRILLING ACTIVITIES (CONTINUED)
Fiscal year ended March 31,
- ---------------------------
2000 1999 1998
---- ---- ----
Development Wells (2)
Productive (3)
Gross 34 37 16
Net 8.15 20.20 4.50
Dry
Gross 0 0 1
Net 0 0 .22
Total Wells (4)
Productive
Gross 35 37 16
Net 9.15 20.20 4.50
Dry
Gross 0 0 1
Net 0 0 .22
(1) Exploratory Wells are those wells drilled outside the confines of a known
productive reservoir area.
(2) Development Wells are those wells drilled within the confines of a known
productive reservoir.
(3) The number of productive wells for fiscal 2000 includes 2 gross wells and
0.4 net wells as productive development wells that are awaiting pipeline
connection or well completion operations at March 31, 2000.
(4) Total Wells is the sum of the Exploratory and Development Wells.
FACILITIES
North Coast owns a 12,000 square foot building, its corporate
headquarters, in Twinsburg, Ohio. The office facility is in a centralized
location, which during fiscal 1997 allowed the Company to relocate certain
operations and personnel from its Cleveland and Youngstown offices. As part of
the Peake acquisition North Coast acquired 11,280 square feet of office and
operation facilities near Ravenswood, Jackson County, West Virginia. North Coast
also owns or leases operating facilities in Youngstown and Cambridge Ohio and
Maben and Clarksburg, West Virginia. It also leases a small operating facility
in Shrewsbury, Kentucky.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company is
a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year ended March 31, 2000,
there were no matters submitted to a vote of security holders through the
solicitation of proxies or otherwise.
Executive Officers of the Registrant*
Gerald W. Merriam, age 42, joined North Coast in September 1999 as Vice
President, Exploration and Production. He has 19 years experience in the oil and
gas industry. Prior to joining North Coast, he was Vice President,
Operations/Engineering for Meridian Exploration Corporation. From 1992 to 1997
when he joined Meridian, Mr. Merriam was engineering manager for Ashland
Exploration, Inc. He holds a B.S. in Chemical Engineering from the University of
Pittsburgh.
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Ron Huff, age 45, joined North Coast in May 2000 as Chief Financial Officer. Mr.
Huff has 23 years of broad-based experience in the energy industry with
particular emphasis in financing, strategic planning, and mergers and
acquisitions. He held various senior level positions with energy companies in
Houston, Texas from 1977-1986. Mr. Huff joined Belden & Blake Corporation in
Ohio in 1986 and most recently held the position of President and Chief
Financial Officer. He also has venture capital experience having sourced,
evaluated and placed private equity in a variety of industries. Mr. Huff
graduated from the University of Wyoming and is a certified public accountant.
Thomas A. Hill, age 42, has served as Secretary and General Counsel of North
Coast Energy since August 1988. Mr. Hill joined Capital Oil & Gas, Inc. in 1984
before its acquisition by North Coast. He graduated from Hiram College with a
Bachelor of Arts degree in History and Political Science and from George
Washington University National Law Center with a Juris Doctor degree. Mr. Hill
is a member of the state bars of Ohio, Pennsylvania, Texas, Oklahoma and the
District of Columbia and the Energy Bar Association.
*The description of the Company's executive officers called for in this item is
included herein pursuant to instruction 3 to Section (b) of Item 401 of
Regulation S-K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "NCEB." The following tables sets forth, the high and low bid and ask
prices for the Common Stock for the fiscal periods indicated.
Common Stock
(Amounts rounded to the nearest 32nd)
High Low
---- ---
Bid Ask Bid Ask
--- --- --- ---
FISCAL 1999
First Quarter.............................................. $5-15/16 $6-1/4 $3-3/4 $4-7/32
Second Quarter............................................. 5-5/16 5-5/8 2-3/16 2-13/16
Third Quarter.............................................. 4-11/16 5 2-1/2 2-13/16
Fourth Quarter............................................. 4-3/8 4-11/16 2-1/2 2-13/16
FISCAL 2000
First Quarter.............................................. $5-5/16 $5-15/16 $2-7/8 $3-3/8
Second Quarter............................................. 4-15/16 5 3-5/16 3-11/16
Third Quarter.............................................. 3-15/16 4-1/8 1-13/16 2
Fourth Quarter............................................. 3-5/16 3-7/16 1-15/16 2-5/16
As of June 9, 2000, there were 15,199,749 shares of Common Stock
outstanding, which were held by approximately 1,300 holders of record. On June
7, 1999, a 1 for 5 reverse stock split became effective thereby reducing the
number of shares of outstanding Common Stock from 22,784,070 to 4,556,814.
Of the total 15,199,749 outstanding shares of the Company's Common
Stock, 9,600,000 were issued on May 4, 2000, to NUON in compliance with NUON's
election to convert a $24,000,000 Non-Negotiable Subordinated Convertible
Promissory Note from debt to equity. The Note had been entered into between the
Company and NUON on March 17, 2000, and represented a portion of the financing
that had been provided by NUON in conjunction with the purchase of the stock of
Peake Energy, Inc.
Holders of Series A Preferred Stock may be entitled to receive
semi-annual non-cumulative cash dividends at an annual rate of $.60 per share
when and if declared by the Board of Directors. Such dividends are payable on
June 1 and December 1 of each year. The Series A Preferred Stock is convertible
to 2.3 shares of Common Stock prior to the
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reverse stock split and is convertible to .46 shares of Common Stock after the
reverse stock split. The holders of Series B Preferred Stock are entitled to
receive quarterly cumulative cash dividends at an annual rate of $1.00 per
share. The Series B Preferred Stock is convertible to 6.56 shares of Common
Stock prior to the reverse stock split and is convertible to 1.311 shares of
Common Stock after the stock split. For the year ended March 31, 2000, the
Company paid $232,864 in aggregate cash dividends on its Series B Preferred
Stock.
Whenever dividends on the Series B Preferred Stock have not been paid
for an amount equal to six quarterly dividend payments, the number of directors
of the Company may be increased, and the holders of the Series B will be
entitled to elect such additional directors on the Board of Directors. Such
voting right will terminate when all such distributions accrued and in default
have been paid in full or set apart for payment. The Company has dividends in
arrears on its Series B Preferred Stock of $326,010 at March 31, 2000.
The Company has never paid any cash dividends on its Common Stock and
is currently restricted from paying cash dividends on any of its common stock
under the terms of its credit facility. The Company currently intends to retain
future earnings in order to provide funds for use in the operation of its
business.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth-selected financial data for the Company
for each of the five fiscal years in the period ended March 31, 2000, 1999,
1998, 1997, and 1996.
Years Ended March 31
(In thousands, except per share amounts)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Revenues $16,494 $13,942 $8,591 $9,665 $10,860
Net Income (Loss) 1,312 870 262 292 (1,254)
Net Income (Loss) per Share(1) .21 .16 (.00) (.75) (1.19)
Total Assets 123,618 43,573 22,312 21,229 20,243
Long-term Debt (less current portion) 90,122 21,494 7,171 10,721 8,955
(1) Net Income (Loss) per share has been restated to reflect stock dividends
and all per share amounts have been restated to give retroactive effect to
the reverse stock split effective June 7, 1999.
The following table sets forth summary unaudited financial information on a
quarterly basis for the past two years.
(In thousands, except per share amounts)
2000
----
June 30 Sept. 30 Dec. 31 Mar. 31
------- -------- ------- -------
Revenues $2,414 $2,553 $3,546 $ 7,981
Net Income (Loss) (561) (245) 589 1,529
Net Income (Loss) per share (1) (.14) (.07) .10 .25
Total Assets 44,550 51,140 51,061 123,618
Long Term Debt (less current portion) 23,543 21,516 20,340 90,122
1999
June 30 Sept. 30 Dec. 31 Mar. 31
------- -------- ------- -------
Revenues $2,506 $2,601 $3,057 $5,778
Net Income (Loss) (97) 12 261 694
Net Income (Loss) per share (1) (0.05) (0.01) 0.04 0.14
Total Assets 40,176 42,389 43,994 43,573
Long Term Debt (less current portion) 24,641 21,672 20,734 21,494
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15
(1) Net Income (Loss) per share has been restated to reflect stock dividends
and all per share amounts have been restated to give retroactive effect to
the reverse stock split effective June 7, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
North Coast is engaged in the acquisition and enhancement of developed
producing properties and the exploration, development and production of
undeveloped natural gas and oil properties, owned by the Company or in
conjunction with joint ventures or partnerships sponsored and managed by the
Company. North Coast derives its revenues from its own oil and gas production,
turnkey drilling, well operations, gas gathering, transportation and gas
marketing services it provides for third parties.
During the fiscal year ended March 31, 2000, North Coast executed
successful acquisition and drilling and development activities that resulted in
significant increases in its operations, proved reserves and financial results.
Well operations increased from 1,711 wells operated at March 31, 1999 to 3,785
at March 31, 2000. North Coast's proved developed natural gas reserves increased
to 109.2 Bcf for fiscal 2000 from 41.2 Bcf for the fiscal year ended March 31,
1999 and proved developed oil reserves increased to 920,400 barrels from 322,700
barrels. The increase in well operations and proved reserves at the fiscal
year-end resulted from the acquisitions of properties and reserves of
Environmental Exploration and Peake Energy, Inc. combined with a successful
exploration program and drilling and development activities. The proved gas
reserves (developed and undeveloped) increased to 124.9 Bcf for fiscal 2000 from
52.5 Bcf for fiscal 1999. The increase in proved gas reserves was due to the
increases mentioned previously for the proved developed reserves. Proved oil
reserves (developed and undeveloped) increased to 1,021,400 barrels for fiscal
2000 from 425,200 barrels for fiscal 1999. North Coast recognizes as proved
undeveloped reserves only the potential oil and gas which can reasonably be
expected to be recovered from drillable locations which it owned (or had rights
to) at fiscal year end which are directly offsetting locations to wells that
have indicated commercial production in the objective formation and which North
Coast fully expects to drill in the very near future. Changes in the
Standardized Measure of Discounted Future Net Cash Flows are set forth in Note
12 of the Company's financial statements. The above mentioned additions and
sales of natural gas, coupled with the development costs associated with
undeveloped acreage, create timing differences which are reflected in the other
category of the Standardized Measure. Of the Company's total proved reserves,
approximately 88% are proved developed and approximately 12% are proved
undeveloped based upon equivalent unit Mcfs. Proved undeveloped acreage requires
considerable capital expenditures to develop. Management believes that a
significant percentage of the proved undeveloped reserves should be recovered in
future years, although no assurance of such recovery can be given.
The following table is a review of the results of operations of the
Company for the fiscal years ended March 31, 2000, 1999 and 1998. All items in
the table are calculated as a percentage of total revenues.
Revenues: 2000 1999 1998
----- ---- ----
Oil and gas production 50% 52% 35%
Drilling revenues 27 26 35
Well operating, transportation and other 18 15 19
Administrative and agency fees 5 7 11
-- -- --
Total Revenues 100% 100% 100%
---- ---- ----
Expenses:
Oil and gas production expenses 22% 19% 10%
Drilling costs 21 21 29
Oil and gas operations 10 9 8
General and administrative expenses 14 15 26
Depreciation, depletion, amortization, impairment and other 15 18 15
Abandonment of oil and gas properties 0 0 0
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2000 1999 1998
---- ---- ----
Expenses (continued)
Provision (credit) for income taxes 0 0 0
Other 10 12 9
-- -- -
Total Expenses 92% 94% 97%
-- --
Net Income 8% 6% 3%
== == ==
Net Income (Loss) Applicable to Common Stock(1) 7% 5% 0%
== == ==
(1) Dividends were paid or accrued on the Series B cumulative preferred
stock in the amount of $232,864, $236,654, and $268,264 for fiscal
2000, 1999, and 1998.
The following discussion and analysis reviews the results of operations
and financial condition for the Company for the years ended March 31, 2000, 1999
and 1998. This review should be read in conjunction with the Financial
Statements and other financial data presented elsewhere herein.
COMPARISON OF FISCAL 2000 TO FISCAL 1999
REVENUES
Oil and gas production increased from 2.9 Bcf equivalent in fiscal 1999
to 3.1 Bcfe in fiscal 2000. The acquisition of assets from Environmental
Exploration was completed in October of 1999 and has provided six months of
operating results for the fiscal year and the acquisition of Peake Energy, Inc.
in March of 2000 has resulted in 14 days of operating results to the Company for
the year ended March 31, 2000. Increased production also resulted from the
Company's drilling and development activities. Oil and gas production revenues
increased $989,439 (14%) to $8,223,202 for fiscal 2000 compared to $7,233,763
for fiscal 1999. The increase in oil and gas revenues is attributed to higher
volumes and higher prices received for oil and gas sold.
The Company received an average price of $20.08 and $11.39 per barrel
of oil for fiscal 2000 and 1999, and $2.58 and $2.57 per Mcf for natural gas for
fiscal years 2000 and 1999, respectively.
Drilling revenues increased $689,764 (19%) to $4,375,922 for fiscal
2000 compared to $3,686,158 for fiscal 1999 due to the increase in the number of
wells recognized in revenue for the comparable year ends. Drilling revenues were
recognized on 26 wells for fiscal year 2000 compared to 23 for fiscal 1999.
Well operating, transportation and other revenues increased $978,334
(47%) to $3,040,547 for fiscal 2000 compared to $2,062,213 for fiscal 1999. The
increases result primarily from increased volumes of gas transported through
facilities owned by North Coast and an increase in wells operated for third
parties. The Company also recognized $276,012 in revenues from oilfield services
provided to third parties.
EXPENSES
Oil and gas production expense increased to $3,572,027 for fiscal 2000
from $2,601,555 for fiscal 1999 primarily as a result of the wells acquired and
operated during the fiscal year. North Coast's average operating cost per
equivalent Mcf was $1.14.
Drilling costs for fiscal 2000 increased $526,985 (18%) as a result of
the increased number of Drilling Program wells drilled and completed compared to
fiscal 1999. The Company maintained a 26% profit margin for wells drilled during
the fiscal year.
Oil and gas operations expense increased $373,449 (31%) as a result of
the increase in the number of wells
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17
operated by the Company through its acquisition and drilling activities.
General and administrative expense increased $237,076 (11%) as a result
of a one-time payment of $370,000 to a former executive officer of the Company
in lieu of continuing his employment contract. As a percentage of revenues,
general and administrative expenses, excluding the one-time payment of $370,000,
decreased to 12% in fiscal year 2000 from 15% in fiscal year 1999.
Depreciation, depletion, amortization, impairment and other decreased
$76,744 primarily as a result of higher prices paid for oil and gas.
Interest expense increased $216,631 to $2,057,739 from $1,841,108
primarily reflecting the increase in the average outstanding borrowings
resulting from the Company's acquisition activities.
Income from operations for fiscal 2000 increased $520,157 (20%) to
$3,144,594 from $2,624,437 for fiscal 1999. The increase in income from
operations was primarily due to higher production and higher prices paid for
natural gas and oil and increased drilling revenues, well operating,
transportation and other revenues.
The Company's net income as a result of the aforementioned areas of
improvement increased $441,602 (51%) to $1,311,816 for the fiscal year ended
March 31, 2000 from $870,214 for the fiscal year ended March 31, 1999.
COMPARISON OF FISCAL 1999 TO FISCAL 1998
REVENUES
Oil and gas production increased from 1.2 bcf equivalent in fiscal 1998
to 2.9 bcf equivalent in fiscal 1999. Oil and gas production revenues increased
$4,219,834 (140%) to $7,233,763 for fiscal 1999 compared to $3,013,929 for
fiscal 1998 primarily due to the increased production volumes. This increase in
oil and gas revenue and production was primarily associated with the properties
acquired from Kelt. The Company received an average price of $11.39 and $16.18
per barrel of oil for fiscal 1999 and 1998, respectively, and $2.57 and $2.50
per Mcf for natural gas for fiscal year 1999 and 1998, respectively.
Drilling revenues increased by $697,787 (23%) to $3,686,158 for
fiscal 1999 compared to $2,988,371 for fiscal 1998 due to the increase in the
number of wells recognized in revenue for the comparable periods. Drilling
revenues were recognized on 23 wells for fiscal 1999 compared to 20 wells for
fiscal 1998.
For fiscal 1999, well operating, transportation and other revenues
increased $439,605 (27%) compared to fiscal 1998. This increase was primarily
due to the increase in revenue from gas transportation and oilfield services,
which was a result of the Kelt acquisition. North Coast has utilized the
oilfield equipment from the acquisition to provide services to its oilfield
operations.
EXPENSES
Oil and gas production expense increased to $2,601,555 for fiscal 1999
from $840,346 for fiscal 1998 primarily due to the Kelt acquisition. North
Coast's average operating cost per equivalent Mcf increased to $0.91 for the
year ended March 31, 1999 compared to $0.70 for the year ended March 31, 1998
primarily due to the integration of the assets and operating staff from the Kelt
acquisition for the year ended March 31, 1999.
Drilling costs for fiscal 1999 compared to fiscal 1998 increased
$410,714 (16%). This increase between comparable periods was due to the larger
number of Drilling Program wells drilled and completed during the fiscal year
ended 1999 compared to the fiscal year ended 1998. North Coast's profit margin
was 21% for fiscal 1999 compared to 16% for fiscal 1998.
Oil and gas operations expenses increased $547,842 (84%) for fiscal
1999 compared to fiscal 1998. This increase is due to an increase in gas
purchases related to unaffiliated third party gas sales, increased costs
associated
15
18
with the utilization of oilfield equipment acquired in the Kelt acquisition and
the increase in costs due to the integration of the Kelt operations.
General and administrative expense decreased $107,013 (5%) primarily as
a result of a reallocation of overhead expenses related to integration of the
assets acquired from Kelt as well as a reduction in consulting fees in fiscal
1999 compared to fiscal 1998. As a percentage of revenues, general and
administrative expense decreased from 26% in fiscal 1998 to 15% in fiscal 1999.
Depreciation, depletion, amortization, impairment, and other increased
$1,237,344 (100%) for fiscal 1999 compared to fiscal 1998. The increase is
primarily due to the increased depletion associated with the wells acquired from
Kelt and the increased depreciation associated with the oilfield equipment and
saleslines also acquired from Kelt.
Interest expense increased to $1,841,108 for fiscal 1999 from $839,342
for fiscal 1998. This increase reflects the increase in the average outstanding
borrowings for the comparable periods due to the increase in debt associated
with the Kelt acquisition, the investment in the enhancement and development
activities and North Coast's contributions to the Drilling Program wells.
Income from operations for fiscal 1999 increased to $2,624,437 from
$1,033,918 for fiscal 1998. The increase in income from operations was primarily
due to higher production volumes, the increased price of natural gas and
increased drilling revenues. The aforementioned increases in volumes, price, and
drilling revenue also increased the Company's net income $608,076 (232%) to
$870,214 for fiscal 1999 from $262,138 for fiscal 1998.
INFLATION AND CHANGES IN PRICES
Inflation affects the Company's operating expenses as well as interest
rates, which may have an affect on the Company's profitability. Oil and gas
prices have not followed inflation and have fluctuated during recent years as a
result of other forces such as OPEC, economic factors, demand for and supply of
natural gas in the United States and within the Company's regional area of
operation. Oil prices during the Company's fiscal year have increased as a
result of continued production constraints by members of OPEC which has reduced
the available supply of crude oil to world markets. Natural gas prices have also
increased particularly during the fourth quarter of the fiscal year ended March
31, 2000, and more so subsequent to that date. These increases in price are
attributed to lower storage supplies following the winter of 1999/2000 and
higher natural gas demand for the generation of electricity in the United
States. As a result of these market forces, North Coast received an average
price of $20.08 per barrel of oil for fiscal 2000 compared $11.39 for fiscal
1999. The Company received an average price of $2.58 per Mcf for its natural gas
for fiscal 2000 compared to $2.57 for fiscal 1999.
The Company cannot predict the duration of the current strength of oil
and gas markets and price, as those forces noted above as well as other
variables may change.
Currently, North Coast sells natural gas under fixed price contracts,
on the spot market and through a fixed price commodity hedge. The Company has
positioned itself to take advantage of current market conditions by fixing a
greater portion of its gas to contracts of a year or longer at prices
substantially higher than were received in recent years. Additionally, the
Company continues to acquire and construct new pipeline systems to transport
natural gas from Company wells and third parties.
LIQUIDITY AND CAPITAL RESOURCES
North Coast's working capital was $5,351,000 at March 31, 2000,
compared to $2,399,000 at March 31, 1999. The increase of $2,951,000 in working
capital reflects the working capital acquired in the Peake transaction and the
funds received from the formation of the fiscal 2000 Drilling Program. As of
March 31, 2000, the Company had $20,000,000 outstanding under its Credit
Facility and $72,500,000 in borrowings from NUON. On May 4, 2000, the Company
converted $24 million of the NUON debt into 9.6 million common shares.
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The following table summarizes the Company's financial position at
March 31, 2000 and 1999:
(Amounts in Thousands) 2000 1999
---- ----
Amount % Amount %
------ -- ------ --
Working capital $ 5,351 5 $2,399 6
Property and equipment 104,763 91 36,418 89
Other 4,491 4 1,857 5
-------- ---- -------- ----
Total $114,605 100 $40,674 100
======== === ======= ===
Long-term debt $ 90,122 79 $21,494 53
Deferred income taxes and other liability 1,091 1 1,238 3
Stockholders' equity 23,392 20 17,942 44
-------- --- -------- ---
Total $114,605 100 $40,674 100
======== === ======= ===
The oil and gas exploration and development activities of North Coast
historically have been financed through the Drilling Programs, through
internally generated funds, and from bank financing.
The following table summarizes North Coast's Statements of Cash Flows
for the years ended March 31, 2000, 1999 and 1998:
(Amounts in Thousands) 2000 1999 1998
---- ---- ----
Net cash provided by operating activities $ 3,901 $ 2,385 $ 1,186
Net cash used for investing activities (75,443) (20,913) (2,122)
Net cash provided by financing activities 75,792 18,906 1,012
-------- -------- -------
Increase (decrease) in cash and cash equivalent $ 4,250 $ 378 $ 76
======== ======== =======
As the above table indicates, North Coast's cash provided by operating
activities is $3,901,000 for fiscal 2000 compared to a $2,385,000 increase for
fiscal 1999.
Net cash used for investing activities increased to $75,442,712 for
fiscal 2000 from $20,912,938 for fiscal 1999. This increase was due to the
acquisition of Peake Energy, Inc. and the assets of Environmental Exploration.
Net cash from financing activities increased $56,886,991 for fiscal
2000 compared to fiscal 1999. This increase reflects the Company's borrowings
from NUON to finance the Peake acquisition. Also reflected is the receipt of
$4,370,057 from NUON on September 29, 1999 for the issuance of Common Stock of
the Company and the subsequent payment of a portion of the Company's Credit
Facility.
On February 9, 1998, the Company entered into an agreement with ING
(US) Capital Corporation to replace the $20 million revolving credit facility
with its previous lender. An amended credit facility dated May 29, 1998,
("Credit Agreement") expanded the Company's $20 million revolving credit
facility with ING ("ING") to a $25 million revolving credit facility ("Credit
Facility"). The Credit Agreement also provides for a borrowing base that is
determined semiannually by the lender based upon the Company's financial
position, oil and gas reserves, as well as outstanding letters of credit
($150,000 at March 31, 2000), as defined. The Credit Agreement requires payment
of an agent fee (0.75% for Credit Agreement) on amounts available and 1/2%
commitment fee on amounts not borrowed up to the available line. At March 31,
2000, the Company's borrowing base was $25 million subject to reduction for the
outstanding letters of credit. Available borrowings under the facility at March
31, 2000, were $4,850,000 and may subsequently be adjusted upon the semiannual
reserve study and borrowing base determination (see Note 4 to the Company's
March 31, 2000, financial statements). The Credit Facility provides that the
payment of cash dividends with respect to the Common Stock of the Company is
prohibited. As of March 31, 2000, the Company had $20,000,000 outstanding under
the Credit Facility, and was in compliance with its loan covenants. Amounts
borrowed under the Credit Facility bear interest at the prime rate of the
lending bank plus .75% or Libor plus 2.50%. The line of credit is reviewed
semi-annually and extended by an amendment to the current facility or converted
to a term loan
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on July 2, 2000. The lender has performed its September 30, 1999, semi-annual
borrowing base review and has provided a third amendment to the Credit Facility
which continues the facility without payment of principal until September 30,
2000. The lender has indicated that, in the future, it intends to discontinue
lending in the oil and gas business in the United States and has requested that
the Company find another lender. North Coast is currently reviewing options with
several lenders that are interested in providing at least a $100 million credit
facility.
The amounts borrowed under its revolving line of credit are secured by
the Company's receivables, inventory, equipment and a first mortgage on certain
of the Company's interests in oil and gas wells and reserves. The mortgage notes
are secured by certain land and buildings.
In addition, at March 31, 2000, the Company had approximately $34,800
outstanding under a mortgage note payable for its facility in Youngstown. The
mortgage note bears interest at the rate of 8% and requires the Company to make
monthly payments of approximately $1,019 through July 2003. The Company
purchased a building for its headquarters and entered a mortgage note on May 13,
1996, for $540,000 over a 15-year term with an interest rate of 8.58% to be
renegotiated every five years. The amount outstanding under the mortgage note at
March 31, 2000, was $464,800.
On September 29, 1999, the Company sold an additional 1,042,125 shares
of its Common Stock for $4,370,057 to NUON International Projects BV, a limited
liability company organized under the laws of the Netherlands (NUON), pursuant
to the terms of a stock purchase agreement ("Agreement") by and between the
Company and NUON dated August 1, 1997. By exercising its option to purchase
additional shares by September 30, 1999, NUON's stock ownership increased to 62%
of the Company's outstanding Common Stock. The Company issued 80,400 warrants
representing the right of the holders to purchase one share of Common Stock for
$4.375 per share in connection with the sale of Common Stock to NUON.
The Company acquired certain assets and assumed certain rights and
obligations of Environmental Exploration, headquartered in North Canton, Ohio.
The acquisition was made pursuant to a Purchase and Sale Agreement dated October
7, 1999, with an effective date of September 30, 1999. The purchase price for
the acquired assets was approximately $3.5 million. The Company funded the
acquisition using cash from the third installment under the 1997 NUON Agreement.
North Coast acquired 100% of the stock of Peake Energy, Inc. per the
terms of a Stock Purchase Agreement dated March 17, 2000. The Company borrowed
$72.5 million from NUON to finance the acquisition. On May 4, 2000, the Company
converted $24 million of the NUON debt to 9.6 million common shares.
On April 30, 1999, the Company's chief executive officer resigned and
under a separation agreement was entitled to certain payments in lieu of his
existing employment contract and as consideration for non-compete provisions. A
warrant to purchase common stock was also a part of the separation provisions.
Management of North Coast believes that general economic conditions and various
sources of available capital, including cash flow from operations, borrowings
from the anticipated new credit facility and funds raised in Drilling Programs
will be sufficient to fund the Company's obligations, and operations through
fiscal 2001.
YEAR 2000 READINESS DISCLOSURE
North Coast developed an action plan and identified the resources to
convert its computer systems and software applications to achieve year 2000
readiness. The costs associated with this action plan were approximately
$60,000. The Company did not incur any significant operational problems as a
result of the year 2000 issue.
ACCOUNTING STANDARDS
In June 1998, SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," was issued. SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS 133,
as
18
21
amended by SFAS 137, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The effect of the anticipated adoption of this
standard is expected to have no material effect on the Company's financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
SAB 101 summarizes the staff's views and provides guidance on applying generally
accepted accounting principles to revenue recognition. SAB 101, as amended by
SAB 101A and SAB 101B, must be adopted no later than the fourth fiscal quarter
of fiscal years beginning after December 15, 1999. The Company has not
determined the effects, if any, the SAB may have on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary interest rate risk exposure results from floating
rate debt including debt under the Company's revolving Credit Facility and the
two Non-Negotiable Subordinated Promissory Notes between the Company and NUON.
At March 31, 2000, approximately 99% of the Company's total long-term debt
consisted of floating rate debt. Subsequent to the fiscal year end, $24,000,000
of the aggregate $72,500,000 NUON debt was converted to equity. If interest
rates were to increase 100 basis points (1%) from March 31, 2000, and assuming
no changes in long-term debt (other than the NUON conversion) from the March 31,
2000, levels, the additional annual expense would be approximately $725,000 on a
pre-tax basis. The Company currently does not hedge its exposure to this
floating interest rate risk.
Subsequent to March 31, 2000, and effective with May 2000 production,
the Company has entered into a natural gas hedging program to eliminate exposure
to changes in natural gas prices that may affect a substantial portion of its
net production contracted to one large industrial customer. The hedging program
involves the use of a financial swap and fixes the Company's price at $3.51 per
Mcf through December 2001. Gains or losses on the hedging program are recognized
monthly as additions to or subtractions from oil and gas sales. The Company had
no material futures-related contracts at March 31, 2000.
The information included in this Item is considered to constitute
"forward looking statements" for purposes of the statutory safe harbor provided
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The following pages contain the Financial Statements and supplementary
data required by Item 8 of Part II of Form 10-K.
19
22
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Carel W.J. Kok was elected as a Director in December 1998 and currently serves
as Chairman of the Board of Directors of the Company. Mr. Kok has been Manager
of Business Development with the International Division of the NUON Energy Group
since October 1996. From 1990 to 1995, he was with Royal Dutch Shell Group
working in a variety of downstream commercial, trading and new business
development functions in East Asia, the Middle East, as well as Western and
Eastern Europe. Mr. Kok was co-founder of the Lone Star Europe Holding, a U.S.
Dutch joint venture with the American chain Lone Star Steakhouse & Saloon. Mr.
Kok has also served on the Boards of Calortex Ltd., a retail gas distribution
company in the United Kingdom serving nearly 500,000 customers and has served as
Chairman of the Board of the Sino-foreign joint venture company Shantou Dan Nan
Windpower Development Company, Ltd., a joint venture now operating the largest
windfarm in China. Mr. Kok holds a B.A. from Princeton University and an M.B.A.
from the Rotterdam School of Management at Erasmus University.
Omer Yonel was appointed Executive Vice President-Corporate Development in
January 1999; in May 1999 was promoted to Chief Operating Officer and in October
1999 was promoted to Chief Executive Officer and appointed as a Director. Mr.
Yonel has ten years' of international experience in project engineering, project
management and sales in the European oil and gas industry. Prior to joining NUON
in January 1998, he was a project manager for the construction of co-generation
plants at Schelde Engineering & Contractors bv. Previous to his service with
Schelde, Mr. Yonel held various project engineering, management and sales
positions at ABB Lummus, an Asea Brown Boveri subsidiary that provides
engineering, management and consultancy services to global chemical,
petrochemical, petroleum refining, oil and gas and other industries. Mr. Yonel
holds a B.S. degree in Civil Engineering from American Bosphorus University in
Istanbul, Turkey as well as a Master of Service degree in Civil Engineering from
Delft University of Technology in Holland.
Cok van der Horst was appointed to the Board of Directors in October 1999. Mr.
van der Horst is currently the Director, NUON East and North Holland, where he
was the Chief Financial Officer between 1993 and 1999, and was also in charge of
technical affairs, information technology, personnel and activities in the
national energy market. He has recently assumed responsibilities in the area of
mergers, acquisitions and divestments for the parent company, NUON n.v. Prior to
joining NUON in January of 1993, Mr. van der Horst was chairman of the board of
PEB, the energy distribution company of the province of Friesland (a regional
government in The Netherlands). At PEB he was responsible for the financial and
economic policy. Mr. van der Horst holds a Master's Degree in business
administration from Erasmus University in Rotterdam.
Jos J. M. Smits was appointed to the Board of Directors in September 1997. Mr.
Smits has been Manager-Purchasing and Trade for NUON Energy Group since July
1994. From October 1992 until July 1994, Mr. Smits was Managing Director of Fels
bv, a Dutch manufacturer of building materials. Mr. Smits holds a degree in
Economics from the University of Amsterdam, The Netherlands.
Garry Regan participated in the organization of North Coast's predecessor in
1981, has been an executive officer and Director since such time, serving as
President since August, 1988. He holds a B.S. degree from Ohio State University
and a Masters degree from Indiana University. Mr. Regan is a member of the
Independent Petroleum Association of America. Mr. Regan also serves as a
Director and President of NCE Securities a wholly owned subsidiary of the
Company and a registered broker-dealer.
Ralph Bradley was elected as a Director of North Coast in December 1997. Mr.
Bradley is currently President of Bradley Energy International, which provides
energy solutions for the world market, and Bradley Energy USA, which provides
individuals with the opportunity to own various aspects of natural gas
production. Prior to forming these entities, Mr. Bradley was chief executive
officer of The Eastern Group, Inc., and its predecessor, Eastern States
Exploration Company, Inc. Mr. Bradley currently chairs the Compensation and
Stock Option Committee of the Board
20
23
of Directors.
C. Rand Michaels was elected as a Director of North Coast in 1996. Mr. Michaels
retired from the office of Vice Chairman of Range Resources Corporation
(formerly Lomak Petroleum, Inc.) and is a Director of Range Resources
Corporation, served as the President and Chief Executive Officer of Lomak
Petroleum, Inc. from 1976 through 1988 and Chairman of the Board from 1984
through 1988, when he became Vice Chairman of Lomak Petroleum, Inc. Mr. Michaels
received his B.S. from Auburn University and his M.B.A. from the University of
Denver. Mr. Michaels is also a director of American Business Computers
Corporation of Akron, Ohio, a public company serving the beverage dispensing and
fast food industries. Mr. Michaels currently chairs the Audit Committee of the
Board of Directors.
Information required by this Item 10 as to the Executive Officers of the Company
is included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated by reference to
the information set forth under the captions "Principal Shareholders" and "Share
Ownership of Directors and Officers" in the Company's definitive Proxy Statement
for the 2000 Annual Meeting of Stockholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated by reference to
the information set forth under the caption "Transactions with Management" in
the Company's definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
The following Consolidated Financial Statements of the Registrant and its
subsidiaries are included in Part II, Item 8:
Page(s)
Auditor's Reports on the Financial Statements F-3 - F-4
Consolidated balance sheets F-5 - F-6
Consolidated statements of operations F-7
Consolidated statements of stockholders' equity F-8
Consolidated statements of cash flows F-9 - F-10
Notes to consolidated financial statements F-11 - F-32
(a) (2) Financial Statements Schedules
21
24
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a) (3) Exhibits
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K:
The Company's report on Form 8-K dated April 5, 1999.
The Company's report on Form 8-K dated March 22, 2000.
The Company's report on Form 8-K/A dated May 23, 2000.
22
25
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
2000 CONSOLIDATED FINANCIAL REPORT
F-1
26
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONTENTS
- --------------------------------------------------------------------------------
Page
AUDITORS' REPORTS ON THE FINANCIAL STATEMENTS F-3 - F-4
FINANCIAL STATEMENTS
Consolidated balance sheets F-5 - F-6
Consolidated statements of operations F-7
Consolidated statements of stockholders' equity F-8
Consolidated statements of cash flows F-9 - F-10
Notes to consolidated financial statements F-11 - F-32
F-2
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
North Coast Energy, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of North
Coast Energy, Inc. (a Delaware corporation) and subsidiaries as of March 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of North
Coast Energy, Inc. and subsidiaries as of March 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
HAUSSER + TAYLOR LLP
Cleveland, Ohio
June 26, 2000
F-3
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
North Coast Energy, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated statement of operations
and the related statements of stockholders' equity and cash flows of North Coast
Energy, Inc. (a Delaware corporation) and subsidiaries for the year ended March
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of North Coast Energy, Inc. and subsidiaries for the year ended March
31, 1998, in conformity with accounting principles generally accepted in the
United States.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
June 4, 1998.
F-4
29
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and 1999
- --------------------------------------------------------------------------------
2000 1999
---- ----
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 6,206,686 $ 1,956,617
Accounts receivable:
Trade, net 7,202,492 2,740,394
Affiliates 205,775 115,278
Inventories 450,718 210,556
Other, net 297,720 275,000
------------ -----------
Total current assets 14,363,391 5,297,845
PROPERTY AND EQUIPMENT, at cost
Land 222,822 97,822
Oil and gas properties (successful efforts) 102,177,522 42,964,679
Pipelines 15,798,806 6,543,928
Vehicles 1,970,687 937,613
Furniture and fixtures 627,414 588,473
Building and improvements 1,845,457 823,225
------------ -----------
122,642,708 51,955,740
Less accumulated depreciation, depletion, amortization and
impairment 17,879,417 15,537,255
------------ -----------
104,763,291 36,418,485
OTHER ASSETS, net 4,491,322 1,857,137
------------ -----------
$ 123,618,004 $ 43,573,467
============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-5
30
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and 1999
- --------------------------------------------------------------------------------
2000 1999
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 3,124,600 $ 97,600
Accounts payable 4,963,160 2,355,982
Accrued expenses 357,716 444,808
Billings in excess of costs on uncompleted contracts 568,056 -
----------- ----------
Total current liabilities 9,013,532 2,898,390
LONG-TERM DEBT, net of current portion
Affiliates 72,500,000 -
Non-affiliates 17,622,181 21,493,922
----------- ----------
90,122,181 21,493,922
ACCRUED PLUGGING LIABILITY 724,535 872,408
DEFERRED INCOME TAXES 366,200 366,200
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A, 6% Noncumulative Convertible Preferred stock, par
value $.01 per share; 563,270 shares authorized; 73,096 and
73,816 issued and outstanding (aggregate liquidation value of
$730,960 and $738,160, respectively) 731 738
Series B, Cumulative Convertible Preferred stock, par
value $.01 per share; 625,000 shares authorized; 232,864
issued and outstanding (aggregate liquidation value of
$2,328,640 plus dividends in arrears of $326,010) 2,329 2,329
Undesignated Serial Preferred stock, par value $.01 per share;
811,730 shares authorized; none issued and outstanding - -
Common stock, par value $.01 per share; 60,000,000 shares
authorized; 5,599,706 and 4,556,814 issued and outstanding 55,997 45,568
Additional paid-in capital 26,274,574 21,914,939
Retained deficit (2,942,075) (4,021,027)
----------- ----------
Total stockholders' equity 23,391,556 17,942,547
----------- ----------
$ 123,618,004 $ 43,573,467
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
F-6
31
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
REVENUE
Oil and gas production $ 8,223,202 $ 7,233,763 $ 3,013,929
Drilling revenues 4,375,922 3,686,158 2,988,371
Well operating, transportation and other 3,040,547 2,062,213 1,622,608
Administrative and agency fees 854,024 960,166 965,724
----------- ----------- -----------
16,493,695 13,942,300 8,590,632
COSTS AND EXPENSES
Oil and gas production expenses 3,572,027 2,601,555 840,346
Drilling costs 3,454,287 2,927,302 2,516,588
Oil and gas operations 1,573,963 1,200,514 652,672
General and administrative expenses 2,346,024 2,108,948 2,215,961
Depreciation, depletion, amortization, impairment
and other 2,402,800 2,479,544 1,242,200
Abandonment of oil and gas properties - - 88,947
----------- ----------- -----------
13,349,101 11,317,863 7,556,714
----------- ----------- -----------
INCOME FROM OPERATIONS 3,144,594 2,624,437 1,033,918
OTHER INCOME (EXPENSE)
Interest income 162,413 82,505 62,263
Other 62,548 4,380 5,299
Interest expense (2,057,739) (1,841,108) (839,342)
----------- ----------- -----------
(1,832,778) (1,754,223) (771,780)
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,311,816 870,214 262,138
PROVISION FOR INCOME TAXES - - -
----------- ----------- -----------
NET INCOME $ 1,311,816 $ 870,214 $ 262,138
=========== =========== ===========
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCK (after dividends on cumulative Preferred Stock
of $232,864, $236,654 and $268,264, respectively) $ 1,078,952 $ 633,560 $ (6,126)
=========== =========== ===========
NET INCOME PER SHARE (basic and diluted) $ 0.21 $ 0.16 $ -
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-7
32
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Series A Series B
Preferred Stock Preferred Stock Common Stock
----------------------- -------------------------- ------------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
BALANCE, MARCH 31, 1997 76,951 $ 770 269,464 $ 2,695 2,150,779 $ 21,508
Net income - - - - - -
Shares converted (1,470) (15) (1,200) (12) 3,273 33
Dividends on Series B Preferred stock ($.25
per share) - - - - - -
Issuance of common stock - - - - 1,165,144 11,651
Issuance of stock bonus common shares - - - - 3,390 34
------ ----- ------- ------- --------- --------
BALANCE, MARCH 31, 1998 75,481 755 268,264 2,683 3,322,586 33,226
Net income - - - - - -
Shares converted (1,665) (17) (35,400) (354) 81,333 813
Dividends on Series B Preferred stock ($.85
per share) - - - - - -
Issuance of common stock - - - - 1,149,425 11,494
Issuance of stock bonus common shares - - - - 3,470 35
------ ----- ------- ------- --------- --------
BALANCE, MARCH 31, 1999 73,816 738 232,864 2,329 4,556,814 45,568
Net income - - - - - -
Shares converted and other transactions (720) (7) - - 767 8
Dividends on Series B Preferred stock $1.00
per share) - - - - - -
Issuance of common stock - - - - 1,042,125 10,421
------ ----- ------- ------- --------- --------
BALANCE, MARCH 31, 2000 73,096 $ 731 232,864 $ 2,329 5,599,706 $ 55,997
====== ===== ======= ======= ========= ========
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Total
Paid-in Retained Stockholders'
Capital Deficit Equity
------- ------- ------
BALANCE, MARCH 31, 1997 $ 12,169,227 $ (4,884,589) $ 7,309,611
Net income - 262,138 262,138
Shares converted (6) - -
Dividends on Series B Preferred stock ($.25
per share) - (67,066) (67,066)
Issuance of common stock 4,812,322 - 4,823,973
Issuance of stock bonus common shares 10,597 - 10,631
------------ ------------ ------------
BALANCE, MARCH 31, 1998 16,992,140 (4,689,517) 12,339,287
Net income - 870,214 870,214
Shares converted (442) - -
Dividends on Series B Preferred stock ($.85
per share) - (201,724) (201,724)
Issuance of common stock 4,913,506 - 4,925,000
Issuance of stock bonus common shares 9,735 - 9,770
------------ ------------ ------------
BALANCE, MARCH 31, 1999 21,914,939 (4,021,027) 17,942,547
Net income - 1,311,816 1,311,816
Shares converted and other transactions (1) - -
Dividends on Series B Preferred stock ($1.00
per share) - (232,864) (232,864)
Issuance of common stock 4,359,636 - 4,370,057
------------ ------------ ------------
BALANCE, MARCH 31, 2000 $ 26,274,574 $ (2,942,075) $ 23,391,556
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-8
33
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,311,816 $ 870,214 $ 262,138