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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 2, 2003
PLAINS RESOURCES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 13-2898764
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
0-9808
(COMMISSION FILE NO.)
500 DALLAS STREET, SUITE 700
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 739-6700
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBIT 99.1 - PRESS RELEASE DATED MAY 2, 2003
ITEM 9 AND 12. REGULATION FD DISCLOSURE; RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Plains Resources Inc. (the "Company", "our", "we" or "us") today
issued a press release reporting its first quarter results. The Company is
furnishing the press release, attached as Exhibit 99.1, pursuant to Item 9 and
Item 12 of Form 8-K. The Company is also furnishing pursuant to Item 9 its
estimates of certain operating and financial results for the three months ended
June 30, 2003 and the year ended December 31, 2003. In accordance with General
Instruction B.2. of Form 8-K, the information presented under this Item 9,
including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18
of the Securities Act of 1934, as amended, nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933, as amended, except
as expressly set forth by specific reference in such a filing.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
All statements, other than statements of historical fact, included in
this report are forward-looking statements, including, but not limited to,
statements identified by the words "anticipate," "believe," "estimate,"
"expect," "plan," "intend" "will" and "forecast" and similar expressions and
statements regarding our business strategy, plans and objectives of our
management for future operations. These statements reflect our current views
with respect to future events, based on what we believe are reasonable
assumptions. These statements, however, are subject to certain risks,
uncertainties and assumptions, including, but not limited to:
o the consequences of any potential change in the relationship between us and
Plains Exploration & Production Company;
o the consequences of our and Plains Exploration's officers and employees
providing services to both us and Plains Exploration and not being required
to spend any specified percentage of or amount of their time on our
business;
o risks, uncertainties and other factors that could have an impact on Plains
All American Pipeline, L.P., or PAA, which could in turn impact the value of
our holdings in PAA (for a discussion of these risks, uncertainties and
other factors, see PAA's filings with the SEC);
o the effects of our indebtedness, which could adversely restrict our ability
to operate, could make us vulnerable to general adverse economic and
industry conditions, could place us at a competitive disadvantage compared
to our competitors that have less debt, and could have other adverse
consequences;
o uncertainties inherent in the exploration for and development and production
of oil and gas and in estimating reserves;
o unexpected future capital expenditures (including the amount and nature
thereof);
o impact of oil and gas price fluctuations, particularly given the termination
of hedge accounting for our hedges;
o the effects of competition;
o the success of our risk management activities;
o the availability (or lack thereof) of acquisition or combination
opportunities;
o the impact of current and future laws and governmental regulations;
o environmental liabilities that are not covered by an indemnity or insurance;
and
o general economic, market or business conditions.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual results may vary materially from
those in the forward-looking statements. Except as required by applicable
securities laws, we do not intend to update these forward-looking statements and
information.
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DISCLOSURE OF 2003 ESTIMATES
The following table and notes reflect current estimates of certain
results for the three months ended June 30, 2003 and the year ended December
31, 2003 for the Company. These estimates are based on assumptions and
estimates that management believes are reasonable based on currently available
information; however, management's assumptions and the Company's future
performance are both subject to a wide range of business risks and uncertainties
and there is no assurance that these goals and estimates can or will be met. Any
number of factors could cause actual results to differ materially from those in
the following table, including but not limited to the factors discussed above.
The estimates set forth below are given as of the date hereof only based on
information available as of the date hereof. The Company undertakes no
obligation to publicly update or revise any forward-looking statements. Further
information on risks and uncertainties is available in the Company's filings
with the Securities and Exchange Commission ("SEC"), and we encourage you to
review such filings.
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PLAINS RESOURCES INC.
OPERATING AND FINANCIAL GUIDANCE
THREE MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2003
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ESTIMATED PRODUCTION VOLUMES
Barrels of oil - MBbl 215 - 230 850 - 900
MBbl per day 2.4-2.5 2.3 - 2.5
% Oil 100% 100%
ESTIMATED OIL PRICE DIFFERENTIAL TO NYMEX (PRE-HEDGE) - $/Bbl $7.50 - $8.50 $7.50 - $8.50
CRUDE OIL HEDGE POSITIONS - BARRELS PER DAY
Swaps - average price $26.10 per barrel 1,500 1,500
OPERATING COSTS PER BARREL
Production expenses $7.05 - $7.20 $7.05 - $7.20
Production and ad valorem taxes $1.20 - $1.30 $1.20 - $1.30
Oil transportation expenses $4.00 - $4.25 $4.00 - $4.25
DD&A - oil and gas $4.68 $4.68
Accretion of asset retirement obligation $0.26 $0.26
OTHER INCOME (EXPENSE) ($ IN THOUSANDS)
Equity in earnings of Plains All American Pipeline, L.P. $5,000 -$ 5,900 $19,600 -$21,300
General and administrative expense
Cash expense $700 - $775 $3,000 -$ 3,300
Noncash compensation expense 800 2,900
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Total general and administrative expense $1,500 - $1,575 $5,900 - $6,200
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Interest expense Note 6 Note 6
Other DD&A $75 $300
BOOK TAX RATE
Current 20% 20%
Deferred 28% 28%
WEIGHTED AVERAGE EQUIVALENT SHARES OUTSTANDING (IN THOUSANDS)
Basic 23,550 23,660
Restricted stock 322 286
Options (treasury method assuming $11.75 common stock price) 185 185
Series D Preferred (if dilutive) 1,671 1,671
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Diluted shares 25,728 25,802
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CAPITAL EXPENDITURES ($ IN THOUSANDS) $1,700 $3,500 - $4,000
DISTRIBUTIONS FROM PLAINS ALL AMERICAN PIPELINE, L.P. ($ IN THOUSANDS)
General partner interest $815 $3,127
Limited partner units 6,978 27,756
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$7,793 $30,883
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Notes:
1. Estimated production volumes. Production estimates are based on
historical operating performance and trends and the Company's 2003
capital budget and assume that market demand and prices for oil and gas
will continue at levels that allow for profitable production of these
products.
SEC Staff Accounting Bulletin 101 ("SAB 101") requires that revenue from
oil production be recognized as the volumes are sold versus when
produced. The location of the Company's Florida properties and the
timing of the barges that transport the oil to market cause reported
sales volumes to differ from production volumes. Actual timing of sales
volumes is difficult to predict. The Company's oil production is
typically sold in shipments of approximately 110,000-140,000 barrels and
typically occurs every 30-50 days.
2. Estimated oil price differentials. The Company's realized wellhead oil
price is lower than the NYMEX index level as a result of area and
quality differentials. Differentials like commodity prices are
difficult to predict and increased significantly over recent levels
during the first quarter of 2003.
3. Discontinuation of hedge accounting. During the first quarter of 2003,
the NYMEX oil price and the price the Company receives for its Florida
oil production did not correlate closely enough for the Company's hedges
to qualify for hedge accounting pursuant to the provisions of SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". As a
result, the Company was required to discontinue hedge accounting
effective February 1, 2003 and reflect the mark-to-market value of its
hedges in earnings. Previously, the Company included gains or losses for
hedges in earnings based on cash settlements for the period that the
related volumes were delivered. The foregoing financial guidance does
not include assumptions or projections with respect to potential gains
or losses related to changes in fair value recognized pursuant to SFAS
133, as there is no accurate way to forecast these potential gains or
losses. Absent a stable oil price environment, the potential gains or
losses related to SFAS 133 are likely to materially change reported net
income and increase the volatility of reported net income due to
non-cash mark-to-market gains or losses.
4. General and administrative expense. Estimated G&A expense for the second
quarter and year ended December 31, 2003 includes approximately $0.8
million and $2.9 million, respectively of noncash compensation expense,
primarily related to restricted stock grants to officers and directors
of the Company. Restricted shares are included in the weighted average
share count for diluted earnings per share from the date of issuance.
Restricted shares are included in the share count for basic earnings per
share when they vest.
5. Equity in earnings of Plains All American Pipeline, L.P. ("PAA"). The
Company's equity in earnings from PAA is based on guidance provided by
PAA in its Form 8-K filed with the SEC on April 25, 2003 for the three
months ended June 30, 2003, and its Form 8-K filed with the SEC on
February 26, 2003 for the year ended December 31, 2003, and the
Company's aggregate ownership interest, as adjusted for general partner
incentive distributions. As of the date hereof, the Company has an
aggregate ownership interest of approximately 24%, consisting of (i) a
44% ownership stake in the general partner interest and incentive
distribution rights, (ii) 45%, or approximately 4.5 million, of the
subordinated units and (iii) 19%, or approximately 7.9 million of the
common units (including 1.3 million Class B common units). PAA's Form
8-K's provide guidance of $19.7 million to $23.1 million for its second
quarter 2003 net income and $75.7 million to $82.5 million for the full
year 2003. The Company encourages you to refer to the 8-K's
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filed by PAA for additional information concerning guidance provided by
PAA, including certain expenses that are not reflected in the net income
guidance provided by PAA. These expenses relate to the potential vesting
of restricted units in 2003. Certain of the restricted units may vest in
the same proportion as the conversion of PAA's subordinated units and
others vest when PAA achieves targeted distribution levels. PAA will
recognize an expense when the financial tests for conversion of
subordinated units and required distribution levels are met. The income
effect on the Company's equity in earnings of PAA may be somewhat
mitigated because the Company may recognize a noncash gain when PAA's
subordinated units vest. Such gain would be similar to the gains that
the Company has recognized in the past when PAA issues common equity and
would be recognized because the subordinated units owned by the Company
would no longer be subordinated in any way to common units, including
the right to receive distributions, including distributions upon an
assumed liquidation of PAA.
6. Interest expense. The Company's interest expense will consist of
interest on amounts outstanding under its $45 million secured term loan
facility. Borrowings under the facility bear interest, at the Company's
option, at LIBOR plus 3% or prime plus 1.5%. The balance outstanding on
the term loan was $40.5 million at March 31, 2003. Based on the loan
amortization schedule, the balance will be reduced to $27.0 million at
December 31, 2003.
7. Book tax rate. The Company's book tax rate is based on a Federal rate of
35% and an estimated combined foreign and state rate of 13%. The foreign
tax is attributable to the Canadian operations of PAA and represents
approximately 70% of the 20% estimated current rate. The Company's
deferred and current tax rates are based on current estimates of book
and taxable income and utilization of net operating loss carryforwards.
At December 31, 2002, the Company had carryforwards of approximately
$46.4 million of regular tax net operating losses, $15.0 million of
alternative minimum tax net operating losses and approximately $3.8
million of enhanced oil recovery credits.
8. Weighted average equivalent shares outstanding. Estimated basic shares
are based on shares outstanding on April 30, 2003, net of treasury
shares and assumes no additional treasury purchases. The Company may
purchase additional treasury shares in 2003. Diluted shares include the
effect of restricted stock as well as outstanding options and preferred
stock, when dilutive. The Company currently has approximately 4.2
million outstanding stock options with an average exercise price of
$13.26 per share. Utilizing the treasury stock method and an assumed
stock price of $11.75, the options would add approximately 185,000
shares to the diluted share count. In addition, the Company has 46,600
shares of Series D Cumulative Convertible Preferred Stock, or Series D
Preferred, that is convertible into 1,671,416 shares of common stock for
a current conversion price of $13.94. The Series D Preferred has an
aggregate stated value of $23.3 million and bears an annual dividend of
$30.00 per share (approximately $1.4 million). Depending on the
Company's net income, the Series D Preferred may at times be
anti-dilutive and not reflected in the diluted share count.
9. Capital expenditures. Capital expenditures are based on the Company's
2003 capital budget for its oil and gas properties. These expenditures
do not include any estimated amounts for capital contributions that the
Company may be required to make for its general partner interest in PAA.
When PAA issues equity, the general partner is required to contribute
cash to maintain its 2% general partner interest. In March 2003, PAA
issued 2.6 million shares in a public equity offering. The Company was
required to make a cash capital contribution to the general partner of
PAA in the amount of $0.6 million for its 44% interest in the general
partner. If PAA issues equity in the future, the company will be
required to make additional cash capital contributions.
10. Distributions from Plains All American Pipeline, L.P. The estimated cash
distributions for the second quarter are based on PAA's $0.55 per unit
quarterly distribution ($2.20 on an annual basis) that was declared in
April 2003. The estimated cash distributions for the twelve months
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ended December 31, 2003 are based on the $0.5375 per unit distribution
paid by PAA in the first quarter plus estimated distributions in the
second, third and fourth quarters of $0.55 per unit. The amounts
presented reflect estimated cash to be received from PAA and have not
been adjusted for cash taxes.
11. Write-downs under full cost ceiling test rules. Under the SEC's full
cost accounting rules, the Company reviews the carrying value of its
proved oil and gas properties at the end of each quarter. Under these
rules, capitalized costs of proved oil and gas properties (net of
accumulated DD&A, and including deferred income taxes) may not exceed a
"ceiling" equal to the present value (discounted at 10%) of estimated
future cash flows from proved oil and gas reserves of such properties
(including the effect of any hedging related activities) reduced by
future operating expenses, development expenditures and abandonment
costs (net of salvage values) and estimated future income taxes. The
rules require that the Company price its future oil and gas production
at the prices in effect at the end of each fiscal quarter and require a
write-down if its capitalized costs exceed the "ceiling" even if prices
decline for only a short period of time. The Company estimates that
based on the book value of its proved oil and gas properties (including
related deferred income taxes) and its estimated proved reserves as of
March 31, 2003, that the Company would have a write-down under the full
cost ceiling test rules at a net realized price for the Company's oil
production of approximately $16.35 per barrel. Based on the estimated
oil differential for 2003 plus oil transportation totalling
$11.50 - $12.75 per barrel, the Company would have a write-down at
a NYMEX crude oil index price of $27.85 - $29.10 per barrel.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLAINS RESOURCES INC.
Date: May 2, 2003 /s/ Stephen A. Thorington
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Stephen A. Thorington
Executive Vice President
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit 99.1 -- Press Release dated May 2, 2003