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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): AUGUST 12, 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 August 12, 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 second 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 September 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.
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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.
DISCLOSURE OF 2003 ESTIMATES
The following table and accompanying notes reflect current estimates of
certain results for the three months ended September 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
SEPTEMBER 30, 2003 DECEMBER 31, 2003
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ESTIMATED PRODUCTION VOLUMES
Barrels of oil - MBbl 200 - 210 850 - 900
MBbl per day 2.2 - 2.3 2.3 - 2.5
% Oil 100% 100%
ESTIMATED OIL PRICE DIFFERENTIAL TO NYMEX (PRE-HEDGE) - $/Bbl $ 7.00 - $8.50 $ 7.00 - $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 $ 8.10 - $8.25 $ 7.80 - $7.95
Production and ad valorem taxes $ 1.25 - $1.35 $ 1.25 - $1.35
Oil transportation expenses $ 4.00 - $4.25 $ 4.00 - $4.25
DD&A - oil and gas $4.68 $4.68
OTHER INCOME (EXPENSE) ($ IN THOUSANDS)
Equity in earnings of Plains All American Pipeline, L.P. $ 5,100 -$5,900 $22,100 -$24,000
General and administrative expense
Cash expense $ 600 - $700 $ 3,000 -$ 3,300
Noncash compensation expense 750 2,900
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Total general and administrative expense $1,350 - $1,450 $ 5,900 - $6,200
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Interest expense Note 6 Note 6
Other DD&A $ 100 $ 400
Accretion of asset retirement obligation $ 60 $ 225
BOOK TAX RATE
Current 18% 18%
Deferred 30% 30%
WEIGHTED AVERAGE EQUIVALENT SHARES OUTSTANDING (IN THOUSANDS)
Basic 23,372 23,552
Restricted stock 311 311
Options (treasury method assuming $14.15 common stock price) 312 246
Series D Preferred (if dilutive) -- 710
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Diluted shares 23,995 24,819
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CAPITAL EXPENDITURES ($ IN THOUSANDS) $1,000 - $1,500 $ 3,500 - $4,000
DISTRIBUTIONS FROM PLAINS ALL AMERICAN PIPELINE, L.P. ($ IN THOUSANDS)
General partner interest $ 815 $ 3,128
Limited partner units 6,976 27,752
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$ 7,791 $ 30,880
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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 half 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 third
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 July 29, 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 provides guidance of $19.9 million to $23.2 million for its third
quarter 2003 net income and $88.2 million to $95.8 million for the full
year 2003. The Company encourages you to refer to the 8-K's filed by
PAA for additional information concerning guidance provided by PAA,
including certain expenses that are not
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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 $60 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 $60 million at June 30, 2003. Based on the loan
amortization schedule, the balance will be reduced to $50.0 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 80% of the 18% 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 July 31, 2003, net of treasury
shares and assumes no additional treasury purchases. The Company may
repurchase additional treasury shares in 2003. Diluted shares include
the effect of restricted stock and outstanding stock options The
Company currently has approximately 4.0 million outstanding stock
options with an average exercise price of $13.39 per share. Utilizing
the treasury stock method and an assumed stock price of $14.15, the
closing price on June 30, 2003, the options would add approximately
312,000 shares and 246,000 shares to the diluted share count for the
third quarter and year, respectively. If dilutive, the Series D
Preferred shares will be included in the diluted share count for the
period prior to June 4, 2003, the date the Series D was repurchased by
the Company.
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 third quarter are based on PAA's $0.55 per
unit quarterly distribution ($2.20 on an annual basis)
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that was declared in August 2003. The estimated cash distributions for
the twelve months ended December 31, 2003 are based on the actual
distributions paid by PAA in the first and second quarters plus
estimated distributions in the 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
June 30, 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 $16.00 per barrel. Based on an estimated
oil differential including oil transportation totaling $11.00 - $12.75
per barrel, the Company would have a write-down at a NYMEX crude oil
index price of $27.00 - $28.75 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: August 12, 2003 /s/ Stephen A. Thorington
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Stephen A. Thorington
Executive Vice President
and Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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99.1 Press Release dated August 12, 2003.