================================================================================
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): February 27, 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
================================================================================
Item 9. Regulation FD Disclosure
In accordance with General Instruction B.2. of Form 8-K, the following
information 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
shall be 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" 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 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 crude oil and natural gas price fluctuations;
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.
Disclosure of 2003 Estimates
The following table and notes reflect current estimates of certain results
for 2003 for Plains Resources Inc. (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.
2
Plains Resources Inc.
Operating and Financial Guidance
Quarter Ended Year Ended
March 31, 2003 December 31, 2003
--------------- ----------------
Estimated Production Volumes
Barrels of oil - MBbl 225 - 235 850 - 900
MBbl per day 2.5 - 2.6 2.3 - 2.5
% Oil 100% 100%
Estimated Oil Price Differential to NYMEX (pre-hedge) - $/Bbl $8.50 - $9.00 $9.00 - $9.50
Crude Oil Hedge Positions - barrels per day
Swaps - Average price $26.10 per barrel 1,500 1,500
Operating Costs per Barrel
Production expenses $8.25 - $8.50 $8.25 - $8.50
DD&A - oil and gas $5.00 $5.00
Other Income (Expense) ($ in thousands)
Equity in Earnings of Plains All American Pipeline, L.P. $4,900 - $5,500 $20,400 -$22,100
General and administrative expense
Cash expense $700 - $775 $2,800 - $3,100
Noncash compensation expense 650 2,300
--------------- ----------------
Total general and administrative expense $1,350 - $1,425 $5,100 - $5,400
=============== ================
Interest expense Note 6 Note 6
Other DD&A $75 $300
Book Tax Rate
Current 24% 24%
Deferred 26% 26%
Weighted Average Equivalent Shares Outstanding (in thousands)
Basic 24,000 24,000
Restricted stock 180 180
Options (treasury method assuming $11.75 PLX stock price) 200 200
Series D Preferred (if dilutive) 1,671 1,671
--------------- ----------------
Diluted shares 26,051 26,051
=============== ================
Capital Expenditures ($ in thousands) $1,000 $3,500 - $4,000
Distributions from Plains All American Pipeline, L.P. ($ in thousands)
General partner interest $682 $2,728
Limited Partner Units 6,822 27,288
--------------- ----------------
$7,504 $30,016
=============== ================
3
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 crude oil to market cause
reported sales volumes to differ from production volumes. Actual timing
of sales volumes is difficult to predict. The Florida 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, including costs to transport the oil.
Differentials like commodity prices are difficult to predict. The
average differential for the Company's Florida properties was $8.31 per
barrel, $13.97 per barrel and $10.73 per barrel for 2002, 2001 and 2000,
respectively.
3. General and administrative. Estimated G&A expense for 2003 includes
approximately $2.3 million of noncash compensation expense, primarily
related to restricted stock grants to officers of the Company. All
restricted shares are included in the share count for diluted earnings
per share. Restricted shares are included in the share count for basic
earnings per share when they vest.
4. DD&A - oil and gas. Based on the book value of the Company's proved oil
and gas properties at December 31, 2002 and the reserve volumes and
future development costs included in the proved reserve reports at that
date, the 2003 DD&A rate for the Company's oil and gas properties will
be approximately $5.00 per barrel. This number will be revised when the
Company completes the calculations to implement FAS 143 effective
January 1, 2003. Under FAS 143 the Company will record a liability equal
to its discounted estimated abandonment costs and a corresponding
increase to oil and gas properties. The Company does not expect that
expense recognized after adoption of FAS 143 will exceed the $5.00 per
barrel estimate although a portion of the expense will be recognized as
accretion expense rather than DD&A expense.
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 February 26, 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 25%, 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) 20%, 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 $18.1 million to $20.5 million for its first
quarter 2003 net income and $75.7 million to $82.5 million for the full
year. We encourage you to refer to the 8-K 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
4
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%. Based on the loan
amortization schedule and assuming no additional principal reductions,
the average debt balance outstanding for the first quarter and full year
of 2003 will be approximately $43.4 million and $36.7 million,
respectively.
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 15%. The foreign
tax is attributable to the Canadian operations of PAA and represents
approximately 80% of the 24% estimated current rate. The Company's tax
rate on Canadian income is approximately 46%. 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 $46.0
million of regular tax net operating losses, $16.0 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 January 31, 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 outstanding options and preferred stock, when dilutive. The
Company currently has approximately 4.4 million outstanding stock
options with an average exercise price of $13.16 per share. Utilizing
the treasury stock method and an assumed stock price of $11.75, the
options would add approximately 200,000 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. 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 as was the
case in the fourth quarter and full year of 2002.
9. Distributions from Plains All American Pipeline, L.P. The estimated cash
distributions are based on PAA's $0.5375 per unit quarterly distribution
($2.15 on an annual basis) that was declared in January 2003. The amount
presented reflects estimated cash to be received from PAA and has not
been adjusted for cash taxes.
10. 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
5
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 proved reserve reports as of December 31, 2002, 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 $17.50 per barrel. Based on the estimated oil differential
for 2003 of $9.00 - $9.50 per barrel, the Company would have a
write-down at a NYMEX crude oil index price of $26.50 - $27.00 per
barrel.
6
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: February 27, 2003 /s/ Stephen A. Thorington
-----------------------------------------
Stephen A. Thorington
Executive Vice President and
Chief Financial Officer
7