SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
FEBRUARY 22, 2002
EEX CORPORATION
(Exact name of Registrant as specified in its charter)
TEXAS 1-12905 75-2421863
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
2500 CityWest Boulevard, Suite 1400, Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (713)243-3100
ITEM 5. Other Events
A. As of the date this report is filed, EEX has been unable to conclude its
negotiations for a new credit agreement (mentioned in the News Releases below)
on terms that are acceptable. While EEX continues to negotiate for the new
credit agreement, no assurances can be given that an agreement will be reached.
B. Set forth below is the text of a News Release issued by EEX Corporation on
February 22,2002:
EEX REPORTS PRELIMINARY FOURTH QUARTER AND 2001 RESULTS
HOUSTON, TEXAS (February 22, 2002) -- EEX Corporation (NYSE: EEX) reported
preliminary results of a $168 million loss for the fourth quarter ending
December 31, 2001, or ($4.02) per share, compared to net income of $6 million,
or $0.16 per share, for the same period a year ago. For the year ended December
31, 2001, EEX reported preliminary results of a net loss of $160 million, or
($3.85) per share, compared to a net loss of $10 million, or ($0.25) per share
in 2000. The results are subject to completion of the annual audit.
Year-end onshore U.S. reserves, including minority interest, reviewed by EEX's
independent reserve auditors, were approximately 417 billion cubic feet of
natural gas equivalent ("Bcfe"), an increase of 12% over year-end 2000. Reserve
additions of 111 Bcfe and downward revisions of 13 Bcfe due to lower product
prices, compared to 2001 production of 46 Bcfe, represents a replacement rate of
213%. The Company invested a total of approximately $109 million onshore U.S.
during the year resulting in a finding and development cost of $1.11/Mcfe.
Results without unusual items were a loss of $8 million for the fourth quarter
and $5 million for 2001. The following table summarizes the significant items
that have influenced the preliminary quarterly and annual results of operations
(pre-tax amounts, except as indicated):
Three Months Year
Ended Ended
December 31, 2001 December 31, 2001
--------------------------------------------
(In millions)
Results without unusual items........................................................ $ (8) $ (5)
Impairments required under FAS 121:
FPS and Pipelines.................................................................. (82) (82)
Onshore properties................................................................. (29) (29)
Indonesian assets.................................................................. (16) (16)
Loss on sale - exercise of option.................................................... (18) (18)
Change in net realizable value of deferred tax asset................................. (11) (11)
Bad debt expense related to Enron.................................................... (3) (3)
Contract forfeiture of offshore lease................................................ (4) (4)
Extraordinary post-tax gain - Repurchase of notes.................................... 4 4
Post-tax gain on sale of Llano field................................................. -- 17
Stacking and assignment of Arctic I rig.............................................. -- (15)
All other unusual items.............................................................. (1) 2
------------------------------------
Net loss applicable to common shareholders......................................... $(168) $(160)
====================================
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In the fourth quarter, the Company's Cooper Floating Production System ("FPS")
and pipelines were written down to a fair market valuation based on competitive
factors for processing and transportation facilities in the Llano area and the
values management believes could be received in an orderly sale of the assets.
Certain onshore U.S. oil and gas properties were impaired a total of $29 million
of which $23 million was attributable to the production payment resulting from
the Encogen obligation. The Company's Indonesian assets were impaired to
reflect the bid of a potential purchaser with whom the Company is currently
negotiating. The fourth quarter results also include a loss on sale of $18
million from the January exercise of a previously-described option to repurchase
a portion of the production payment resulting from the Encogen obligation and a
reduction in the net realizable value of the deferred tax asset in accordance
with FAS 109. The Company realized an extraordinary post-tax gain from the
repurchase of a portion of the notes related to the FPS and pipelines.
Revenues for the fourth quarter were $47 million, or approximately 36% lower
than the $73 million reported for the fourth quarter a year ago. Lower revenues
were primarily the result of lower average oil and natural gas prices and lower
volumes of natural gas related to the offshore shelf properties sold in December
2000. Total expenses for the quarter, excluding loss from asset sales and
impairments, were $54 million in 2001, unchanged from 2000. A $3 million bad
debt expense was offset by lower depreciation expenses related primarily to
lower overall production volumes.
Revenues for the year 2001 were $207 million, or approximately 21% lower than
the $262 million reported for 2000. Lower revenues this year were primarily the
result of lower natural gas and oil production due to the sale of the offshore
shelf properties and lower average oil prices. Total expenses for 2001,
excluding the gain from asset sales and impairments, were $193 million, compared
to $204 million for the twelve months of 2000. Lower depreciation expenses
related primarily to lower overall production volumes were partially offset by
increased exploration expense due to costs associated with the stacking of the
Arctic I rig and recognition of the net cost associated with the assignment of
the Arctic I rig contract and increased taxes other than income. Excluding the
bad debt expense recorded in the fourth quarter, general, administrative and
other expenses were down approximately 18% for the year.
At year-end, the Company's debt to capital ratio under its revolving credit
agreement is greater than the agreement's limit of 60% because of the decrease
in equity resulting from the above-described losses and increase in outstanding
borrowings. The lenders have agreed to amend the loan agreement to increase the
ratio to 72% and waive the covenant breach; the amendment and waiver will expire
April 30, 2002. The current revolving credit agreement terminates June 27,
2002. If the Company is not able to effect a new credit agreement or obtain
additional waivers, it will be in default under the current revolving credit
agreement. The Company is negotiating with its lenders for a new credit
agreement with a maturity of June 2003. At present, most of the lenders have
approved the general terms of the new agreement that will require the Company to
provide a security interest in all of its U.S. proved reserves and other assets.
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The Company's planned capital expenditures in 2002 are approximately $50
million. Actual capital expenditures will depend on cash flow, which, in turn,
depends principally on realized natural gas prices during the year.
(Earnings Summary Follows)
EEX CORPORATION
PRELIMINARY FINANCIAL AND OPERATING HIGHLIGHTS
(In thousands, except per share amounts)
Three Months Year Ended
Ended December 31 December 31
----------------------- ----------------------
(Unaudited) (Unaudited)
2001 2000 2001 2000
---------- --------- ---------- ---------
INCOME STATEMENT DATA
Natural gas $ 33,456 $50,979 $ 138,573 $173,195
Oil, condensate and natural gas liquids 12,055 19,409 60,261 78,829
Cogeneration operations 1,053 2,474 6,247 8,389
Other 411 420 1,803 1,999
--------- ------- --------- --------
Total revenues 46,975 73,282 206,884 262,412
--------- ------- --------- --------
Production and operating expenses 10,739 9,810 36,697 39,212
Exploration 12,305 11,646 49,373 33,780
Depletion, depreciation and amortization 18,086 23,108 68,313 93,965
Impairment of FPS and Pipelines 82,286 --- 82,286 ---
Impairment of producing oil and gas properties 44,744 --- 44,744 12,200
Loss (Gain) on sales of property, plant and equipment 16,578 3,552 (12,263) 7,230
Cogeneration operations 794 2,167 5,254 6,960
General, administrative and other 9,282 3,984 18,739 19,538
Taxes, other than income 2,765 3,503 14,731 10,906
--------- ------- --------- --------
Total expenses 197,579 57,770 307,874 223,791
--------- ------- --------- --------
Operating income (loss) (150,604) 15,512 (100,990) 38,621
Interest and other - net (6,244) (8,213) (28,466) (32,139)
--------- ------- --------- --------
Income (loss) before income taxes, minority interest and
extraordinary item (156,848) 7,299 (129,456) 6,482
Income taxes (benefit) 10,837 (1,514) 20,118 1,586
--------- ------- --------- --------
Income (loss) before minority interest and extraordinary item (167,685) 8,813 (149,574) 4,896
Minority interest third party --- (1,112) --- 1,950
--------- ------- --------- --------
Income (loss) before extraordinary item (167,685) 9,925 (149,574) 2,946
Extraordinary item - debt extinguishment gain, net of tax (3,593) --- (3,593) ---
--------- ------- --------- --------
Net income (loss) (164,092) 9,925 (145,981) 2,946
Preferred stock dividends 3,724 3,441 14,465 13,364
--------- ------- --------- --------
Net income (loss) applicable to common shareholders $(167,816) $ 6,484 $(160,446) $(10,418)
========= ======= ========= ========
Net income (loss) per common share, basic and diluted
Before extraordinary item $ (4.11) $ 0.16 $ (3.94) $ (0.25)
Extraordinary item - debt extinguishment gain, net of tax 0.09 --- 0.09 ---
--------- ------- --------- --------
Per common share $ (4.02) $ 0.16 $ (3.85) $ (0.25)
========= ======= ========= ========
Weighted average shares outstanding 41,762 41,470 41,724 41,949
========= ======= ========= ========
CASH FLOW DATA (In thousands)
Cash flows provided by operating activities $ 27,649 $40,216 $ 74,172 $ 85,391
Capital expenditures 23,800 53,798 170,362 181,220
SALES VOLUMES
Natural gas (MMcf) 11,019 13,158 43,003 55,145
Crude Oil (MBbls) 664 675 2,530 2,726
Natural gas liquids (MBbls) 12 18 71 63
Total Volume (MMcfe) 15,078 17,316 58,608 71,881
AVERAGE SALES PRICE
Natural gas (per Mcf) $ 3.04 $ 3.87 $ 3.22 $ 3.14
Crude oil (per Bbl) 18.00 28.30 23.47 28.54
Natural gas liquids (per Bbl) 8.42 16.94 12.44 16.63
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C. Set forth below is the text of a News Release issued by EEX Corporation on
February 26, 2002:
EEX DISCUSSES PRELIMINARY FOURTH QUARTER/YEAREND RESULTS AND OPERATIONS IN
CONFERENCE CALL
HOUSTON, TEXAS (February 26, 2002) -- In a conference call held yesterday, Tom
Hamilton, Chairman and President, Chief Executive Officer, Richard Langdon,
Executive Vice President and Chief Financial Officer, and David Henderson,
Executive Vice President and Chief Operating Officer of EEX Corporation (NYSE:
EEX) discussed preliminary fourth quarter and yearend results and current
operations.
Financial Results
Mr. Langdon reviewed the preliminary financial results announced in an earnings
news release issued on Friday, February 22. For the fourth quarter ended
December 31, 2001, EEX reported a net loss of approximately $168 million, or
$4.02 per share, and for the year 2001, a net loss of $160 million, or $3.85 per
share. These results are preliminary; EEX does not plan to request Ernst &
Young's audit opinion until negotiations for a new credit agreement are
concluded and the agreement has been signed.
The results for the quarter include approximately $160 million of impairments
and other unusual items. Most of these write-downs are associated with two
legacy issues: the FPS Infrastructure and Encogen.
Infrastructure: The largest impairment, totaling approximately $82 million, was
related to the deepwater infrastructure used to develop the Cooper field. This
impairment resulted from a review of the carrying value of the infrastructure
required under FAS 121 that indicated impairment was appropriate. The magnitude
was determined based upon an estimate of fair market value. This was based, in
part, on ongoing discussions with the Llano Field operator and the current
competitive environment in the Llano area for transportation and processing
facilities. The new book value of these assets is approximately $70 million.
After the conclusion of the conference call, the Llano Field operator notified
EEX that the floating production system is no longer being considered for use in
a Llano development. The pipelines remain under consideration as a
transportation alternative for Llano.
Encogen: The second largest write-down, in two parts totaling approximately $41
million, was associated with the natural gas reserves related to a contract
entered into by Enserch Exploration in the late 1980's, known as the Encogen
obligation, to deliver gas to a West Texas cogeneration facility.
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EEX's obligation to deliver gas under that contract expired in the second
quarter of 2001. When EEX sold its East Texas producing properties in 1997, EEX
carved out sufficient reserves to support this obligation. The purchaser of the
East Texas properties had an annual option to purchase that portion of the
carved out reserves equal to the amount of gas EEX delivered to Encogen during
the prior year. The price EEX paid for the gas purchased to fulfill the Encogen
commitment was capitalized during the course of the year and used to measure
gain or loss on the exercise of the purchase option. If one of the annual
options was not exercised, the price paid for the Encogen gas during the
preceding year became the basis for the reserves added to the books at the end
of the year, subject to FAS 121 review. At the end of the fourth quarter, EEX
incurred an $18 million book loss-on-sale (net of the $10 million purchase
price) on the exercise of its 2001 option and a $23 million FAS 121 impairment
of the Encogen reserves remaining on the books. This impairment is included in
the $29 million impairment of onshore properties shown in the table of Friday's
press release. Thus, the total impairment on all other onshore reserves totaled
only $6 million.
Indonesia: EEX also incurred a $16 million impairment on its Indonesian assets.
EEX is in the process of negotiating a purchase and sale agreement on the
subsidiaries holding these assets. Roughly half of this impairment reflects the
difference between the projected sale proceeds and book value at closing, some
of which is offset by the income that will be generated from the assets between
the September 30, 2001 effective date of the sale and closing, currently
estimated at the end of the first quarter. The remaining portion of the
impairment represents a discount to the sales price associated with certain
receivables. During the fourth quarter, the Indonesian assets produced about
6,000 barrels of oil per day (EEX net) and have approximately 60 Bcfe of
remaining reserves at yearend.
Other Items: Other unusual items included an $11 million reduction in net
realizable value of the deferred tax asset, a $3 million charge resulting from
the exposure to the Enron bankruptcy and a $4 million charge related to the
expiration of rights to explore an offshore lease, all of which took place in
the fourth quarter. With the full impairment of the deferred tax asset,
domestic income will not be tax-effected until this asset has been realized.
Debt Repurchase: EEX realized a $4 million after-tax gain on the purchase at
discount of approximately $22.5 million principal amount of notes that are
secured by the floating production system and related infrastructure. After
giving effect to the January 2002 principal payment made on these notes, EEX
currently has approximately $101 million outstanding under the infrastructure
financing that is a general corporate obligation.
Base Earnings: Excluding all the above items, the base business generated
losses of $8 million for the fourth quarter and $5 million for the year ended
December 31, 2001. The quarter included increased revenue associated with
financial hedging of approximately $6 million, or approximately $0.50 per Mcf.
Hedging: Approximately 36 Bcfe is hedged for 2002 at an average price of $3.34
(including the gas sales obligation).
Operations Update
Mr. Henderson gave callers an update on operations.
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Onshore: EEX experienced another year of strong performance in the onshore,
replacing 213% of 2001 production at a cost of $1.11/Mcfe (thousand cubic feet
of natural gas equivalent), and grew reserves from 373 Bcfe (billion cubic feet
of natural gas equivalent) at the beginning of the year to 417 Bcfe at yearend.
Two-year results reflect equally impressive numbers - EEX has replaced an
average of 233% of production since the Tesoro acquisition at an average cost of
$0.87/Mcfe.
EEX drilled a total of 65 onshore wells during the year, 55 of which were
successful, for an overall success rate of 85%. Included in the 65 well program
were 45 proved and probable locations - 42 of which were converted to proved-
producing - a 93% success rate. EEX replaced roughly 80% of its inventory of
drilling prospects this past year, ending with a total of 131 proved and
probable locations compared with 140 locations at the beginning of 2001.
After adjusting for property sales, onshore production increased 4% from January
to December, and averaged 126 MMcfe (million cubic feet of natural gas
equivalent) per day for 2001.
In addition to the drilling successes at Langtry Field, Vaquillas Ranch and
Provident City field (all of which were noted in the yearend press release), EEX
also found a new field in the Wilcox trend of South Texas at Dinn Ranch. At
present, EEX has one well producing, one well completing and two wells drilling.
EEX's working interest ranges from 35-50%.
Gulf of Mexico: In the Llano area of Garden Banks, the Devil's Island well
commenced on December 29 and is drilling below 13,000 feet towards a proposed
total depth of 24,500 feet. EEX entered into a joint venture agreement with
Amerada Hess for the drilling of this prospect, utilizing the Glomar Arctic I
rig at its full day rate. The agreement calls for Amerada to earn an 80%
working interest in Garden Banks Block 345 and the east-half of GB 344 by
participating in drilling the well. EEX will retain a 20% interest after the
well is drilled and pay 30% of the costs of the well up to the AFE amount or
total depth, and 20% thereafter. The Company anticipates well results in the
later part of April.
International: In New Zealand, EEX has shown the Taranaki Block to several
parties expressing interest in drilling on the acreage. EEX will elect to drill
or drop the block in early March.
Concluding Remarks
Mr. Hamilton concluded management's remarks.
EEX has been burdened for the past several years with costly, non-working legacy
assets that came with the spin-off in 1997. The first of these legacy items,
the Cooper infrastructure, i.e., the FPS and pipelines in the Llano area, have
been a substantial financial drag on the Company while producing no visible
benefit. For example, in 2001 the Company spent $70 million ($14 of which was
capitalized) to buy back the lease equity interest. Because of the
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buy-back, EEX is now free to market, along with its co-owner, the FPS anywhere
in the world as opposed to being restricted to U.S. waters.
The second legacy item is the Encogen obligation. Since 1997, EEX has spent
roughly $90 million buying 29 Bcfe of gas to fulfill that commitment.
Obviously, that resulted in a capital drain on the Company. EEX bought the last
gas under that agreement in the second quarter of 2001. Though the Company was
near the end of the obligation in 2001, given the very high price of natural gas
in the first quarter, EEX spent $34 million buying gas to fulfill the
commitment. A substantial portion of the 2001 impairment resulted from this
legacy item.
The other situation that has been a drain on EEX over the past year or so is the
contract on the Arctic I rig. The rig is presently working for Amerada Hess and
EEX at the Devil's Island prospect. EEX estimates that the uncovered exposure
is down to about two months of rig time in the event Devil's Island is dry and
the rig is not used to side-track the current well. EEX is working to farmout
the rig if it does not remain at Devil's Island. Failing that, the rig will be
stacked for about two months.
After EEX's efforts to go to the bond market were cut short by the events of
September 11, the Company has been working with lenders to convert the revolving
credit agreement to a secured borrowing base facility. EEX now has verbal
agreements from 18 of 19 banks to the general terms of a new credit agreement.
While management is encouraged, this process is not over until everyone has
agreed and signed a final set of terms.
A recorded version of the conference call is available on EEX's Web site
(www.eex.com) for those persons interested in listening to the entire
discussion.
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EEX CORPORATION
PRELIMINARY UNAUDITED BALANCE SHEET
The following unaudited balance sheet is preliminary and does not include notes
necessary for a complete understanding. The results are subject to completion
of the annual audit. Full financial statements for this period with appropriate
notes will be filed with the Securities and Exchange Commission as required.
December 31 December 31
2001 2000
------------- ------------
(In thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents................................................ $ 136,638 $ 19,791
Accounts receivable--trade (net of allowance of $4,430 and $2,270)....... 57,671 57,539
Other.................................................................... 10,208 22,478
--------- ---------
Total current assets................................................. 204,517 99,808
--------- ---------
Property, Plant and Equipment (at cost):
Oil and gas properties (successful efforts method)....................... 975,007 955,263
Other.................................................................... 8,668 8,160
--------- ---------
Total................................................................ 983,675 963,423
Less accumulated depletion, depreciation and amortization................ 446,020 323,875
--------- ---------
Net property, plant and equipment.................................... 537,655 639,548
--------- ---------
Deferred Income Tax Assets.................................................. -- 19,846
Other Assets................................................................ 7,946 4,866
--------- ---------
Total................................................................ $ 750,118 $ 764,068
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable--trade.................................................. $ 48,575 $ 76,999
Bank revolving credit agreement.......................................... 325,000 --
Capital lease obligations................................................ -- 13,351
Secured notes payable.................................................... 13,579 --
Other.................................................................... 7,118 5,993
--------- ---------
Total current liabilities............................................ 394,272 96,343
--------- ---------
Bank Revolving Credit Agreement............................................. -- 75,000
Capital Lease Obligations................................................... -- 192,283
Secured Notes Payable....................................................... 100,764 --
Gas Sales Obligation........................................................ 59,937 83,490
Other Liabilities........................................................... 9,357 22,351
Minority Interest Third Party............................................... 5,000 5,000
Shareholders' Equity:
Preferred stock (10,000 shares authorized; 1,899 and 1,755 shares issued;
Liquidation preference of $189,946 and $175,481)..................... 19 18
Common stock ($0.01 par value; 150,000 shares authorized; 42,496 and
42,256 shares issued)................................................ 432 429
Paid in capital.......................................................... 760,484 744,782
Retained (deficit)....................................................... (605,612) (445,166)
Unamortized restricted stock compensation................................ (1,403) (1,067)
Unearned compensation.................................................... -- (349)
Other comprehensive income............................................... 35,954 --
Treasury stock, at cost (817 and 808 shares)............................. (9,086) (9,046)
--------- ---------
Total shareholders' equity........................................... 180,788 289,601
--------- ---------
Total................................................................ $ 750,118 $ 764,068
========= =========
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EEX Corporation
By: /s/ T. E. COATS
-------------------
T. E. Coats
Vice President and
Controller
Date: March 7, 2002
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