UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
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: 1-10671
THE MERIDIAN RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0319553
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1401 ENCLAVE PARKWAY, SUITE 300, HOUSTON, TEXAS 77077
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 281-597-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 and 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 such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock outstanding at November 5, 2002 49,990,937
Page 1 of 1
THE MERIDIAN RESOURCE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited)
for the Three Months and Nine Months Ended
September 30, 2002 and 2001 3
Consolidated Balance Sheets as of September 30,
2002 (unaudited) and December 31, 2001 4
Consolidated Statements of Cash Flows (unaudited) for
the Nine Months Ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share information)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
REVENUES:
Oil and natural gas $ 26,445 $ 33,582 $ 82,715 $ 148,617
Price risk management activities 222 -- 87 --
Interest and other 108 176 294 1,236
---------- ---------- ---------- ----------
26,775 33,758 83,096 149,853
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Oil and natural gas operating 2,720 3,723 8,822 12,943
Severance and ad valorem taxes 1,519 3,022 6,636 9,322
Depletion and depreciation 19,262 18,017 46,181 51,765
General and administrative 2,862 2,779 9,104 12,151
Impairment of long-lived assets 69,124 -- 69,124 --
---------- ---------- ---------- ----------
95,487 27,541 139,867 86,181
---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE INTEREST
AND INCOME TAXES (68,712) 6,217 (56,771) 63,672
OTHER EXPENSES:
Interest expense 3,850 4,284 11,494 16,151
Credit facility retirement costs 1,202 -- 1,202 --
Taxes on income - current -- (3,400) 100 (200)
Taxes on income - deferred (23,800) 4,100 (22,300) 18,700
---------- ---------- ---------- ----------
(18,748) 4,984 (9,504) 34,651
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) (49,964) 1,233 (47,267) 29,021
DIVIDENDS ON PREFERRED STOCK 1,420 -- 2,522 429
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS $ (51,384) $ 1,233 $ (49,789) $ 28,592
========== ========== ========== ==========
NET EARNINGS (LOSS) PER SHARE:
Basic $ (1.03) $ 0.03 $ (1.00) $ 0.59
========== ========== ========== ==========
Diluted $ (1.03) $ 0.03 $ (1.00) $ 0.53
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES:
Basic 49,946 47,904 49,685 48,485
========== ========== ========== ==========
Diluted 49,946 54,009 49,685 56,622
========== ========== ========== ==========
See notes to consolidated financial statements.
3
THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
(unaudited)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,204 $ 14,340
Accounts receivable, less allowance for doubtful
accounts $891 [2002 and 2001] 23,677 23,875
Due from affiliates 2,030 844
Prepaid expenses and other 2,785 1,825
Assets from price risk management activities 292 --
------------ ------------
Total current assets 42,988 40,884
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, full cost method
(including $18,211 [2002] and
$30,247 [2001] not subject to depletion) 1,140,610 1,085,656
Land 478 478
Equipment 9,849 9,578
------------ ------------
1,150,937 1,095,712
Less accumulated depletion and depreciation 747,063 631,758
------------ ------------
Total property and equipment, net 403,874 463,954
------------ ------------
OTHER ASSETS:
Assets from price risk management activities 1,018 --
Other 6,706 2,828
------------ ------------
Total other assets 7,724 2,828
------------ ------------
Total assets $ 454,586 $ 507,666
============ ============
See notes to consolidated financial statements.
4
THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(thousands of dollars)
(unaudited)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,945 $ 35,952
Revenues and royalties payable 10,603 9,562
Notes payable 1,020 25,763
Accrued liabilities 9,775 15,895
Liabilities from price risk management activities 4,211 --
Current income taxes payable 273 (27)
Current portion long-term debt 15,000 --
----------- -----------
Total current liabilities 55,827 87,145
----------- -----------
LONG-TERM DEBT 175,000 190,000
----------- -----------
9 1/2% CONVERTIBLE SUBORDINATED NOTES 20,000 20,000
----------- -----------
OTHER:
Liabilities from price risk management activities 1,015 --
Deferred income taxes -- 22,300
----------- -----------
1,015 22,300
----------- -----------
REDEEMABLE PREFERRED STOCK:
Preferred stock, $1.00 par value (1,500,000 shares authorized, 668,500
[2002] shares of Series C Redeemable Convertible Preferred Stock
issued at stated value) 66,850 --
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (200,000,000 shares
authorized, 53,868,341 [2002] and 53,866,694 [2001]
issued) 556 553
Additional paid-in capital 378,559 393,280
Accumulated deficit (207,515) (157,726)
Accumulated other comprehensive income (4,003) --
Unrealized loss on securities held for resale (185) (185)
Unamortized deferred compensation (382) (386)
----------- -----------
167,030 235,536
Less treasury stock, at cost (3,877,406 [2002] and
5,892,342 [2001] shares) 31,136 47,315
----------- -----------
Total stockholders' equity 135,894 188,221
----------- -----------
Total liabilities and stockholders' equity $ 454,586 $ 507,666
=========== ===========
See notes to consolidated financial statements.
5
THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (47,267) $ 29,021
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depletion and depreciation 46,181 51,765
Amortization of other assets 1,788 1,545
Credit facility retirement costs 1,202 --
Non-cash compensation 1,246 1,493
Non-cash price risk management activities (87) --
Impairment of long-lived assets 69,124 --
Deferred income taxes (22,300) 17,400
Changes in assets and liabilities:
Accounts receivable 198 2,906
Due from affiliates (1,186) (2,894)
Prepaid expenses and other (960) (2,756)
Accounts payable (21,007) 17,919
Revenues and royalties payable 1,041 5,385
Accrued liabilities and other (7,240) (1,080)
------------ ------------
Net cash provided by operating activities 20,733 120,704
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (55,685) (101,350)
Sale of property and equipment 461 29,273
------------ ------------
Net cash used in investing activities (55,224) (72,077)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redeemable preferred stock 66,850 --
Reductions in long-term debt (25,000) (40,000)
Notes payable 257 26,210
Repurchase of stock -- (114,000)
Issuance of stock/exercise of options 218 576
Preferred dividends (1,102) (3,129)
Additions to deferred loan costs (6,868) (508)
------------ ------------
Net cash provided by (used in) financing activities 34,355 (130,851)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (136) (82,224)
Cash and cash equivalents at beginning of period 14,340 95,122
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,204 $ 12,898
============ ============
See notes to consolidated financial statements.
6
THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements reflect the accounts of The Meridian
Resource Corporation and its subsidiaries (the "Company") after elimination of
all significant intercompany transactions and balances. The financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, as filed with the Securities and Exchange Commission.
The financial statements included herein as of September 30, 2002, and for the
three and nine month periods ended September 30, 2002 and 2001, are unaudited,
and in the opinion of management, the information furnished reflects all
material adjustments, consisting of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods presented. Certain minor
reclassifications of prior period statements have been made to conform to
current reporting practices.
2. IMPAIRMENT OF LONG-LIVED ASSETS
A write-down in oil and natural gas proved undeveloped reserves associated with
the Kent Bayou Field have resulted in the Company recognizing a non-cash
impairment totaling $69.1 million ($46.9 million after tax) of its oil and
natural gas properties under the full cost method of accounting.
Due to the potential volatility in oil and natural gas prices and their effect
on the carrying value of the Company's proved oil and gas reserves, there can be
no assurance that future write-downs will not be required as a result of factors
that may negatively affect the present value of proved oil and natural gas
reserves and the carrying value of oil and natural gas properties, including
volatile oil and natural gas prices, downward revisions in estimated proved oil
and natural gas reserve quantities and unsuccessful drilling activities.
3. DEBT
SUBORDINATED CREDIT AGREEMENT
The Company extended and amended the short-term subordinated credit agreement
with Fortis Capital Corporation for $25 million on April 5, 2002. The interest
rate is the London interbank offered rate ("LIBOR") plus 4.5% through December
31, 2002, LIBOR plus 5.5% from January 1, 2003, through August 31, 2003, and
LIBOR plus 6.5% from September 1, 2003, through December 31, 2004. Note payments
of $5 million each are due on September 30, 2002, which has been paid, December
31, 2002, August 31, 2003 and April 30, 2004, with the remaining $5 million
payable on December 31, 2004.
REVOLVING CREDIT AGREEMENT
During August 2002, the Company replaced its Chase Manhattan Bank Credit
Facility with a new three-year $175 million underwritten senior secured credit
agreement (the "Credit Agreement") with Societe Generale, as administrative
agent, lead arranger and book runner, and Fortis Capital Corp., as co-lead
arranger and documentation agent. Deferred debt costs associated with the prior
credit facility of $1.2 million were written off in September 2002. The current
borrowing base under the new Credit Agreement has been set at $165 million. The
Company's banks are currently conducting a scheduled borrowing base
redetermination. The Company has not been provided with a new amount; however,
the possibility exists that such amount could be lower than the current
outstanding balance. In addition to the regularly scheduled semi-annual
borrowing base
7
redeterminations of March 15 and September 15, the lenders under the Credit
Agreement have the right to redetermine the borrowing base at any time once
during each calendar year and the Company has the right to obtain a
redetermination by the banks of the borrowing base once during each calendar
year. Borrowings under the Credit Agreement are secured by pledges of
outstanding capital stock of the Company's subsidiaries and a mortgage on the
Company's oil and natural gas properties of at least 90% of its present value of
proved properties. The Credit Agreement contains various restrictive covenants,
including, among other items, maintenance of certain financial ratios and
restrictions on cash dividends on Common Stock. Borrowings under the Credit
Agreement mature on August 13, 2005.
Under the new Credit Agreement, the Company may secure either (i) an alternative
base rate loan that bears interest at a rate per annum equal to the greater of
the administrative agent's prime rate plus an additional 0.5% to 1.5% depending
on the ratio of the aggregate outstanding loans and letters of credit to the
borrowing base; or a federal funds-based rate plus 1/2 of 1% or (ii) a
Eurodollar base rate loan that bears interest, generally, at a rate per annum
equal to the London interbank offered rate ("LIBOR") plus 1.5% to 2.5%,
depending on the ratio of the aggregate outstanding loans and letters of credit
to the borrowing base. The Credit Agreement also provides for commitment fees
ranging from 0.375% to 0.5% per annum.
9 1/2% CONVERTIBLE SUBORDINATED NOTES
During March 2002, the Company and the holders of the Notes amended the
conversion price to $5.00 per share. The conversion price is subject to
customary anti-dilution provisions. The holders of the Notes have been granted
registration rights with respect to the shares of Common Stock that would be
issued upon conversion of the Notes.
4. 8.5% REDEEMABLE CONVERTIBLE PREFERRED STOCK
A private placement of $66.85 million of 8.5% redeemable convertible preferred
stock was completed during May 2002. The preferred stock is convertible into
shares of the Company's Common Stock at a conversion price of $4.75 per share.
Dividends are payable semi-annually in cash. At the option of the Company,
one-third of the preferred shares can be forced to convert to Common Stock if
the closing price of the Company's Common Stock exceeds 150% of the conversion
price for 30 out of 40 consecutive trading days on the New York Stock Exchange.
Based on the above conversion criteria, the Company can elect to convert up to
one-third of the original issue provided that the conversion occurs no sooner
than twelve months from the most recent conversion. The preferred stock is
subject to redemption at the option of the Company after March 2005, and
mandatory redemption on March 31, 2009. The holders of the preferred stock have
been granted registration rights with respect to the shares of Common Stock
issued upon conversion of the preferred stock. Dividend payments of $1.1 million
were paid during the third quarter of 2002. Dividends of $1.4 million have been
accrued as of September 30, 2002.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION
There are no material legal proceedings to which Meridian or any of its
subsidiaries or partnerships is a party or by which any of its property is
subject, other than ordinary and routine litigation incidental to the business
of producing and exploring for crude oil and natural gas.
8
6. EARNINGS PER SHARE (in thousands, except per share)
The following tables set forth the computation of basic and diluted net earnings
(loss) per share:
THREE MONTHS ENDED SEPT. 30,
2002 2001
------------ ------------
Numerator:
Net earnings (loss) applicable to common stockholders $ (51,384) $ 1,233
Plus income impact of assumed conversions:
Preferred stock dividends 1,420 --
Interest on convertible subordinated notes 309 316
Net earnings (loss) applicable to common stockholders
plus assumed conversions $ (49,655) $ 1,549
Denominator:
Denominator for basic net earnings per
share - weighted-average shares outstanding 49,946 47,904
Effect of potentially dilutive common shares:
Redeemable preferred stock N/A --
Convertible subordinated notes N/A 2,857
Employee and director stock options N/A 986
Warrants N/A 2,262
------------ ------------
Denominator for diluted net earnings per
share - weighted-average shares outstanding
and assumed conversions 49,946 54,009
============ ============
Basic net earnings (loss) per share $ (1.03) $ 0.03
============ ============
Diluted net earnings (loss) per share $ (1.03) $ 0.03
============ ============
NINE MONTHS ENDED SEPT. 30,
2002 2001
------------ ------------
Numerator:
Net earnings (loss) applicable to common stockholders $ (49,789) $ 28,592
Plus income impact of assumed conversions:
Preferred stock dividends 2,522 429
Interest on convertible subordinated notes 927 937
Net earnings (loss) applicable to common stockholders
plus assumed conversions $ (46,340) $ 29,958
Denominator:
Denominator for basic net earnings per
share - weighted-average shares outstanding 49,685 48,485
Effect of potentially dilutive common shares:
Convertible preferred stock -- 1,317
Redeemable preferred stock N/A --
Convertible subordinated notes N/A 2,857
Employee and director stock options N/A 1,551
Warrants N/A 2,412
------------ ------------
Denominator for diluted net earnings per
share - weighted-average shares outstanding
and assumed conversions 49,685 56,622
============ ============
Basic net earnings (loss) per share $ (1.00) $ 0.59
============ ============
Diluted net earnings (loss) per share $ (1.00) $ 0.53
============ ============
9
7. ISSUANCE OF STOCK GRANTS
In December 2001, an offer was made to repurchase and terminate certain
interests in the Well Bonus Plans from current and former employees in exchange
for the issuance of Common Stock. The offering was for a total of 1,940,991
shares of our Common Stock. The Common Stock was issued on February 4, 2002, at
the last reported sales price of $3.48 per share. The effective date of this
transaction was December 31, 2001.
8. OIL AND NATURAL GAS HEDGING ACTIVITIES
The Company's results of operations and operating cash flows are impacted by
changes in market prices for oil and natural gas. To mitigate a portion of the
exposure to adverse market changes, the Company has entered into various swaps.
These swaps allow the Company to predict with greater certainty the effective
oil and natural gas prices to be received for our hedged production. Although
derivatives often fail to achieve 100% effectiveness for accounting purposes,
our derivative instruments continue to be highly effective in achieving the risk
management objectives for which they were intended.
These swaps have qualified for designation as a cash flow hedge under FAS 133
and any changes in fair value of the cash flow hedge resulting from
ineffectiveness of the hedge is reported in the consolidated statement of
operation as price risk management activities.
The estimated September 30, 2002, fair value of the Company's oil and natural
gas swaps is $4.0 million. Based upon the September 30, 2002, market price
approximately $3.9 million of the balance in accumulated other comprehensive
income would lower gross revenues over the next twelve months when the
transactions actually occur. All price risk management activities are expected
to expire by July 31, 2005.
9. EARLY ADOPTION OF FAS NO. 145
On July 1, 2002, we adopted the provisions of Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The
applicable portion of this Statement rescinds Statement of Financial Accounting
Standards No. 4 "Reporting Gains and Losses from Extinguishment of Debt" which
required all gains and losses from extinguishment of debt to be aggregated and,
when material, classified as an extraordinary item, net of related income tax
effect. As a result of adopting SFAS No. 145, the $1.2 million in unamortized
debt costs associated with the termination of the Company's revolving credit
agreement in August 2002 were recognized as credit facility retirement costs in
the Consolidated Statement of Operations. SFAS No. 145 also amends Statement of
Financial Accounting Standards No. 13 "Accounting for Leases" ("SFAS No. 13") to
require that certain lease modifications having economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This portion of SFAS No. 145 did not have any
effect on our financial position or results of operations for any periods
presented.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of Meridian's financial operations for the three
months and nine months ended September 30, 2002 and 2001. The notes to the
Company's consolidated financial statements included in this report, as well as
our Annual Report on Form 10-K for the year ended December 31, 2001 (and the
notes attached thereto), should be read in conjunction with this discussion.
GENERAL
BUSINESS ACTIVITIES. During the third quarter of 2002, Meridian's drilling
activities have been focused in the Company's East Lake Arthur Field, the
Lakeside Field, the Biloxi Marshlands project area and the Kent Bayou Field.
For the remainder of 2002, the Company will focus on its Biloxi Marshland
project, representing over 200,000 acres comprised of options and leases on
higher confidence, lower cost, repeatable targets identifiable by direct
hydrocarbon indicators on seismic data.
Current activities include:
During March 2002, the Company commenced drilling operations on the East Lake
Arthur - Hughes #2 well in Jefferson Davis Parish, Louisiana. Hole conditions
have delayed the drilling operations. As a result, the Company recently began
sidetrack operations on the well and is currently drilling below 16,000 feet
with an objective depth of approximately 19,000 feet. During the drilling of the
Hughes #1 well, the Company logged an apparent 100' of net pay in the Bol Mex 3
through Bol Mex 6 sands and detected no water levels. The Company is the
operator of the field and owns a 96% working interest and a 68% net revenue
interest in the field. The Hughes #2 well is a twin offset to the Hughes #1
well.
During April 2002, the Company began drilling the Lakeside - Lacassane No. 12-1
well located in Cameron Parish, Louisiana. The well is currently awaiting a
completion rig to test the Marg Howei and Alliance intervals. The Company is
operator of the well and has a 63% working interest and a 43% net revenue
interest.
During June 2002, the Company commenced drilling operations on the Continental
Land and Fur No. 65 well in the Kent Bayou Field in Terrebonne Parish,
Louisiana. The well reached total depth of 19,250 feet without encountering
commercial hydrocarbons due to faulting encountered immediately above the target
formation. The Company is currently plugging the well.
The Biloxi Marshland project area represents the most visible of Meridian's
efforts to transform its exploration program from a concentration on deep, high
pressured and expensive projects in south Louisiana to an emphasis on shallower,
less risky plays with repeatable targets identifiable by direct hydrocarbon
indicators on the seismic data. At the Biloxi project, the Company has recently
acquired and processed over 43 square miles of new, proprietary data this year
and expects to begin drilling the first well based on this data by year end.
Several additional wells are expected during 2003, all of which are projected to
target objectives above 10,000 feet vertical depth.
In the Company's other drilling operations, the James Antill No. 1 well in the
Gibson Field has been completed in the EE-6 sand having encountered
approximately 20 feet of gas pay at 12,733 feet. The well has tested at a rate
of 2,484 thousand cubic feet of gas per day (Mcf/d) and 87 barrels of oil per
day (BOPD) on a 10/64th inch choke with a flowing tubing pressure of 6,250
pounds per square inch (psi). Meridian holds a 28.6% working interest in this
well which is operated by Apache Corporation. An additional well in the
Thornwell Field, the Blank Trust No. 1, operated by Denbury, is drilling below
10,300 feet with a depth target of 12,200 feet. Meridian's working interest in
this well is 30.3%. In addition, the Company has expanded its acreage and 3-D
seismic inventory to provide a continued blend of high potential low risk
projects extending its capital budget to take advantage of expected increased
demand and reduced supply of domestic oil and natural gas beginning in 2003 and
beyond.
11
Concurrent with this transformation in exploration focus, Meridian is also
planning to institute cost reductions aimed at achieving an across-the-board
reduction of general and administrative expenses of 25%. Plans are in the
preliminary stage, therefore the Company has not determined an estimated
restructure cost associated with these plans. These changes will begin taking
effect during the next 60 days. In keeping with our commitment to reduce debt
and improve the Company's capital structure, the Company has further lowered its
outstanding debt, reduced operating costs, general and administrative overhead,
and interest expenses.
INDUSTRY CONDITIONS. Revenues, profitability and future growth rates of Meridian
are substantially dependent upon prevailing prices for oil and natural gas. Oil
and natural gas prices have been extremely volatile in recent years and are
affected by many factors outside of our control. Our average oil price for the
three months ended September 30, 2002, was $27.10 per barrel compared to $25.80
per barrel for the three months ended September 30, 2001, and $24.99 per barrel
for the three months ended June 30, 2002. Our average oil price for the nine
months ended September 30, 2002, was $24.06 per barrel compared to $27.39 per
barrel for the nine months ended September 30, 2001. Our average natural gas
price for the three months ended September 30, 2002, was $3.44 per Mcf compared
to $2.92 per Mcf for the three months ended September 30, 2001, and $3.69 per
Mcf for the three months ended June 30, 2002. Our average natural gas price for
the nine months ended September 30, 2002, was $3.18 per Mcf compared to $5.35
per Mcf for the nine months ended September 30, 2001. Fluctuations in prevailing
prices for oil and natural gas have several important consequences to us,
including affecting the level of cash flow received from our producing
properties, the timing of exploration of certain prospects and our access to
capital markets, which could impact our revenues, profitability and ability to
maintain or increase our exploration and development program.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. The Company's discussion and
analysis of its financial condition and results of operation are based upon
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted and adopted in the United States. The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. See the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, for further discussion.
CEILING TEST WRITE-DOWN. A write-down in oil and natural gas proved undeveloped
reserves associated with the Kent Bayou Field has resulted in the Company
recognizing a non-cash impairment totaling $69.1 million ($46.9 million after
tax) of its oil and natural gas properties under the full cost method of
accounting. Consequently at September 30, 2002, the carrying value of our
evaluated properties is equal to the present value of our proved reserves, net
of tax, discounted at 10% using prices and costs in effect as of that date. Due
to the potential volatility in oil and natural gas prices and their effect on
the carrying value of the Company's proved oil and gas reserves, there can be no
assurance that future write-downs will not be required as a result of factors
that may negatively affect the present value of proved oil and natural gas
reserves and the carrying value of oil and natural gas properties, including
volatile oil and natural gas prices, downward revisions in estimated proved oil
and natural gas reserve quantities and unsuccessful drilling activities.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
OPERATING REVENUES. Third quarter 2002 oil and natural gas revenues decreased
$7.1 million as compared to third quarter 2001 revenues, primarily due to a 30%
decrease in production volumes partially offset by a 12% increase in average
commodity prices, both on a natural gas equivalent basis. The decrease in
production was a result of the property sales during 2001 and natural production
declines, plus the effects of Hurricane Isidore at the end of September 2002.
The following table summarizes the Company's operating revenues, production
volumes and average sales prices for the three months ended September 30, 2002
and 2001:
THREE MONTHS ENDED
SEPTEMBER 30, INCREASE
2002 2001 (DECREASE)
Production Volumes:
Oil (Mbbl) 525 683 (23%)
Natural gas (MMcf) 3,556 5,471 (35%)
Mmcfe 6,705 9,569 (30%)
Average Sales Prices:
Oil (per Bbl) $ 27.10 $ 25.80 5%
Natural gas (per Mcf) $ 3.44 $ 2.92 18%
Mmcfe $ 3.94 $ 3.51 12%
Operating Revenues (000's):
Oil $14,229 $17,621 (19%)
Natural gas 12,216 15,961 (23%)
------- -------
Total Operating Revenues $26,445 $33,582 (21%)
======= =======
OPERATING EXPENSES. Oil and natural gas operating expenses decreased $1.0
million (27%) to $2.7 million for the three months ended September 30, 2002,
compared to $3.7 million for the same period in 2001. This decrease was
primarily due to the sale of a high cost, non-core property during December 2001
and the reorganization of field operations over the last ten months. This
reorganization involved a 25% reduction in field operating personnel and
increased emphasis on operating cost reductions.
SEVERANCE AND AD VALOREM TAXES. Severance and ad valorem taxes decreased $1.5
million (50%) to $1.5 million for the third quarter of 2002, compared to $3.0
million during the same period in 2001. Meridian's oil and natural gas
production is primarily from southern Louisiana, and is therefore subject to
Louisiana severance tax. The severance tax rates for Louisiana are 12.5% of
gross oil revenues and $0.122 per Mcf for natural gas, a decrease from $0.199
per Mcf effective in July 2002. Our decrease was primarily due to the decrease
in the natural gas rate and a decrease in oil and natural gas production
partially offset by an increase in oil prices over the same period in 2001.
DEPLETION AND DEPRECIATION. Depletion and depreciation expense increased $1.3
million (7%) during the third quarter of 2002 to $19.3 million from $18.0
million for the same period of 2001. This was primarily a result of an increase
in the depletion rate from 2001 levels due to the write-down of the proved
reserves associated with the Kent Bayou Field partially offset by the decrease
in production volumes during the 2002 period in comparison to 2001.
13
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
by $0.1 million (3%) to $2.9 million for three months ended September 30, 2002,
compared to $2.8 million during the comparable period last year. This slight
increase is primarily due to increased rental expense, professional service fees
and the reduction of both capitalized and billable costs principally from the
decrease in drilling activities for the comparable periods, partially offset by
the savings realized from staff reductions during 2001 and the purchase and
termination of certain outstanding well bonus plan interests.
INTEREST EXPENSE. Interest expense decreased $0.4 million (9%) to $3.9 million
for the third quarter of 2002 in comparison to $4.3 million for the third
quarter of 2001. The decrease is primarily a result of the reduction in the
balance outstanding on the revolving credit lines and a decrease in interest
rates from the prior year.
IMPAIRMENT OF LONG-LIVED ASSETS. A write-down in oil and natural gas proved
undeveloped reserves associated with the Kent Bayou Field has resulted in the
Company recognizing a non-cash impairment totaling $69.1 million ($46.9 million
after tax) of its oil and natural gas properties under the full cost method of
accounting.
CREDIT FACILITY RETIREMENT COSTS. During August 2002, the Company replaced its
Chase Manhattan Bank Credit Facility with a new three-year $175 million
underwritten senior secured credit agreement with Societe Generale and Fortis
Capital Corp. Deferred debt costs associated with the prior credit facility of
$1.2 million were written off in September 2002.
14
NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2001
OPERATING REVENUES. Oil and natural gas revenues during the nine months ended
September 30, 2002, decreased $65.9 million as compared to revenues during the
nine months ended September 30, 2001, due to average commodity prices decreasing
29% and a decrease in production volumes of 22%, both on a natural gas
equivalent basis. The production decrease is primarily a result of the property
sales in 2001 and natural production declines.
The following table summarizes production volumes, average sales prices and
gross revenues for the nine months ended September 30, 2002 and 2001.
NINE MONTHS ENDED
SEPTEMBER 30, INCREASE
2002 2001 (DECREASE)
---------- ---------- ----------
Production Volumes:
Oil (Mbbl) 1,789 2,149 (17%)
Natural gas (MMcf) 12,456 16,766 (26%)
MMcfe 23,189 29,658 (22%)
Average Sales Prices:
Oil (Bbl) $ 24.06 $ 27.39 (12%)
Natural gas (Mcf) $ 3.18 $ 5.35 (41%)
MMcfe $ 3.57 $ 5.01 (29%)
Gross Revenues (000's):
Oil $ 43,051 $ 58,845 (27%)
Natural gas 39,664 89,772 (56%)
---------- ----------
Total $ 82,715 $ 148,617 (44%)
========== ==========
OPERATING EXPENSES. Oil and natural gas operating expenses decreased $4.1
million (32%) to $8.8 million for the nine months ended September 30, 2002,
compared to $12.9 million for the nine months ended September 30, 2001. This
decrease was primarily due to the sale of high cost, non-core properties during
2001 and the reorganization of field operations over the last ten months. This
reorganization involved a 25% reduction in field operating personnel and
increased emphasis on operating cost reductions. In addition, the Company
undertook an expanded workover program during 2001 in order to benefit from the
higher commodity prices being realized at the time.
SEVERANCE AND AD VALOREM TAXES. Severance and ad valorem taxes decreased $2.7
million (29%) to $6.6 million for the nine months ended September 30, 2002,
compared to $9.3 million for the nine months ended September 30, 2001. This
decrease is largely attributable to the decrease in natural gas production and
the decrease in oil revenues from the same period in 2001 partially offset by an
increase in the average tax rate for natural gas. Meridian's production is
primarily from southern Louisiana, and, therefore, is subject to a current tax
rate of 12.5% of gross oil revenues and $0.122 per Mcf for natural gas.
15
DEPLETION AND DEPRECIATION. Depletion and depreciation expense decreased $5.6
million (11%) to $46.2 million during the first nine months of 2002 from $51.8
million for the same period last year. This decrease was primarily a result of
the 22% decrease in production on an Mcfe basis from the comparable period in
2001, partially offset by an increase in the depletion rate from 2001 levels due
to the write-down of the proved reserves associated with the Kent Bayou Field.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased
$3.1 million (25%) to $9.1 million for the first nine months of 2002 compared to
$12.2 million during the first nine months of 2001. On an equivalent unit of
production basis, general and administrative expenses decreased to $0.39 per
MCFE from $0.41 for the comparable nine-month periods. This reduction is
primarily due to the savings realized from staff reductions during 2001 and the
purchase and termination of certain outstanding well bonus plan interests at the
end of 2001.
INTEREST EXPENSE. Interest expense decreased $4.7 million (29%) to $11.5 million
during the first nine months of 2002 compared to $16.2 million during the
comparable period of 2001. The decrease is primarily a result of the reduction
in the debt balance and the Federal Reserve Bank's decrease in overall interest
rates which has led to a decrease in the average interest rate charged on the
revolving credit facilities.
IMPAIRMENT OF LONG-LIVED ASSETS. A write-down in oil and natural gas proved
undeveloped reserves associated with the Kent Bayou Field has resulted in the
Company recognizing a non-cash impairment totaling $69.1 million ($46.9 million
after tax) of its oil and natural gas properties under the full cost method of
accounting.
CREDIT FACILITY RETIREMENT COSTS. During August 2002, the Company replaced its
Chase Manhattan Bank Credit Facility with a new three-year $175 million
underwritten senior secured credit agreement with Societe Generale and Fortis
Capital Corp. Deferred debt costs associated with the prior credit facility of
$1.2 million were written off in September 2002.
16
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. During the third quarter of 2002, Meridian's capital
expenditures were internally financed with cash from operations. As of September
30, 2002, we had a cash balance of $14.2 million and a working capital deficit
of $12.8 million, including $15 million in current portion of long-term debt and
a net $3.9 million current liability in price risk management activities. We are
evaluating our alternatives for sources and uses of our near term cash with a
focus being placed on liquidity. Our strategy is to grow the Company prudently,
taking advantage of the strong asset base built over the years to add reserves
through the drill bit while maintaining a disciplined approach to costs.
CREDIT AGREEMENT. During August 2002, the Company entered into a new three-year
$175 million underwritten senior secured credit agreement (the "Credit
Agreement") with Societe Generale, as administrative agent, lead arranger and
book runner, and Fortis Capital Corp., as co-lead arranger and documentation
agent. The current borrowing base under the Credit Agreement has been set at
$165 million. The Company's banks are currently conducting a regularly scheduled
borrowing base redetermination. The Company has not been provided with a new
amount; however, the possibility exists that such amount could be lower than the
current outstanding balance. The Company is considering means by which it can
manage this condition should it occur.
Under the new Credit Agreement, the Company may secure either (i) an alternative
base rate loan that bears interest at a rate per annum equal to the greater of
the administrative agent's prime rate or a federal funds-based rate plus 1/2 of
1% plus an additional 0.5% to 1.5% depending on the ratio of the aggregate
outstanding loans and letters of credit to the borrowing base; or (ii) a
Eurodollar base rate loan that bears interest, generally, at a rate per annum
equal to the London interbank offered rate ("LIBOR") plus 1.5% to 2.5%,
depending on the ratio of the aggregate outstanding loans and letters of credit
to the borrowing base. The Credit Facility also provides for commitment fees
ranging from 0.375% to 0.5% per annum.
SUBORDINATED CREDIT AGREEMENT. The Company extended and amended the short-term
subordinated credit agreement with Fortis Capital Corporation for $25 million on
April 5, 2002. The interest rate is LIBOR plus 4.5% through December 31, 2002,
LIBOR plus 5.5% from January 1, 2003, through August 31, 2003, and LIBOR plus
6.5% from September 1, 2003, through December 31, 2004. Note payments of $5
million each are due on September 30, 2002, which has been paid, December 31,
2002, August 31, 2003 and April 30, 2004, with the remaining $5 million payable
on December 31, 2004.
9 1/2% CONVERTIBLE SUBORDINATED NOTES. During March 2002, the Company and the
holders of the Notes amended the conversion price to $5.00 per share. The
conversion price is subject to customary anti-dilution provisions. The holders
of the Notes have been granted registration rights with respect to the shares of
Common Stock that would be issued upon conversion of the Notes.
8.5% REDEEMABLE CONVERTIBLE PREFERRED STOCK. During May 2002, the Company
completed the private placement of $66.85 million of 8.5% redeemable convertible
preferred stock. The conversion price is subject to customary anti-dilution
provisions. See Note 3 of the Notes to Consolidated Financial Statements.
OIL AND NATURAL GAS HEDGING ACTIVITIES. The Company's results of operations and
operating cash flows are impacted by changes in market prices for oil and
natural gas. To mitigate a portion of the exposure to adverse market changes,
the Company has entered into various swaps. These swaps allow the Company to
predict with greater certainty the effective oil and natural gas prices to be
received for our hedged production. Although derivatives often fail to achieve
100% effectiveness for accounting purposes, our derivative instruments continue
to be highly effective in achieving the risk management objectives for which
they were intended.
17
These swaps have qualified for designation as a cash flow hedge under FAS 133
and any changes in fair value of the cash flow hedge resulting from
ineffectiveness of the hedge is reported in the consolidated statement of
operation as price risk management activities.
The estimated September 30, 2002, fair value of the Company's oil and natural
gas swaps is $4.0 million. Based upon the September 30, 2002, market price
approximately $3.9 million of the balance in accumulated other comprehensive
income would lower gross revenues over the next twelve months when the
transactions actually occur. All price risk management activities are expected
to expire by July 31, 2005.
CAPITAL EXPENDITURES. In the third quarter of 2002, Meridian's drilling
activities have been focused in the Company's East Lake Arthur Field, Lakeside
Field, the Biloxi Marshlands project area and the Kent Bayou Field. For the
remainder of 2002, the Company will focus its activities on the Biloxi
Marshlands project area. These activities will comprise our 2002 capital budget
of $70 million.
DIVIDENDS. It is our policy to retain existing cash for reinvestment in our
business, and therefore, we do not anticipate that dividends will be paid with
respect to the Common Stock in the foreseeable future. During May 2002, the
Company completed the private placement of $66.85 million of 8.5% redeemable
convertible preferred stock and dividends are payable semi-annually. Dividend
payments of $1.1 million were paid during the third quarter of 2002. Dividends
of $1.4 million have been accrued as of September 30, 2002.
FORWARD-LOOKING INFORMATION
From time to time, we may make certain statements that contain "forward-looking"
information as defined in the Private Securities Litigation Reform Act of 1995
and that involve risk and uncertainty. These forward-looking statements may
include, but are not limited to exploration and seismic acquisition plans,
anticipated results from current and future exploration prospects, future
capital expenditure plans, anticipated results from third party disputes and
litigation, expectations regarding compliance with our credit facility, the
anticipated results of wells based on logging data and production tests, future
sales of production, earnings, margins, production levels and costs, market
trends in the oil and natural gas industry and the exploration and development
sector thereof, environmental and other expenditures and various business
trends. Forward-looking statements may be made by management orally or in
writing including, but not limited to, the Management's Discussion and Analysis
of Financial Condition and Results of Operations section and other sections of
our filings with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to the following:
Changes in the price of oil and natural gas. The prices we receive for our oil
and natural gas production and the level of such production are subject to wide
fluctuations and depend on numerous factors that we do not control, including
seasonality, worldwide economic conditions, the condition of the United States
economy (particularly the manufacturing sector), foreign imports, political
conditions in other oil-producing countries, the actions of the Organization of
Petroleum Exporting Countries and domestic government regulation, legislation
and policies. Material declines in the prices received for oil and natural gas
could make the actual results differ from those reflected in our forward-looking
statements.
Operating Risks. The occurrence of a significant event for which we are not
fully insured could have a material adverse effect on our financial position and
results of operations. Our operations are subject to all of the risks normally
incident to the exploration for and the production of oil and natural gas,
including uncontrollable flows of oil, natural gas, brine or well fluids into
the environment (including groundwater and shoreline contamination), blowouts,
cratering, mechanical difficulties, fires, explosions, unusual or unexpected
18
formation pressures, pollution and environmental hazards, each of which could
result in damage to or destruction of oil and natural gas wells, production
facilities or other property, or injury to persons. In addition, we are subject
to other operating and production risks such as title problems, weather
conditions, compliance with government permitting requirements, shortages of or
delays in obtaining equipment, reductions in product prices, limitations in the
market for products, litigation and disputes in the ordinary course of business.
Although we maintain insurance coverage considered to be customary in the
industry, we are not fully insured against certain of these risks either because
such insurance is not available or because of high premium costs. We cannot
predict if or when any such risks could affect our operations. The occurrence of
a significant event for which we are not adequately insured could cause our
actual results to differ from those reflected in our forward-looking statements.
Drilling Risks. Our decision to purchase, explore, develop or otherwise exploit
a prospect or property will depend in part on the evaluation of data obtained
through geophysical and geological analysis, production data and engineering
studies, which are inherently imprecise. Therefore, we cannot assure you that
all of our drilling activities will be successful or that we will not drill
uneconomical wells. The occurrence of unexpected drilling results could cause
the actual results to differ from those reflected in our forward-looking
statements.
Uncertainties in Estimating Reserves and Future Net Cash Flows. Reserve
engineering is a subjective process of estimating the recovery from underground
accumulations of oil and natural gas that cannot be measured in an exact manner,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgement.
Reserve estimates are inherently imprecise and may be expected to change as
additional information becomes available. There are numerous uncertainties
inherent in estimating quantities and values of proved reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond our control. Because all reserve estimates are to
some degree speculative, the quantities of oil and natural gas that we
ultimately recover, production and operating costs, the amount and timing of
future development expenditures and future oil and natural gas sales prices may
differ from those assumed in these estimates. Significant downward revisions to
our existing reserve estimates could cause the actual results to differ from
those reflected in our forward-looking statements.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is currently exposed to market risk from hedging contracts changes
and changes in interest rates. A discussion of the market risk exposure in
financial instruments follows.
INTEREST RATES
We are subject to interest rate risk on our long-term fixed interest rate debt
and variable interest rate borrowings. Our long-term borrowings primarily
consist of borrowings under the Credit Facility and the $20 million principal of
9 1/2% Convertible Subordinated Notes due June 18, 2005. Since interest charged
borrowings under the Credit Facility floats with prevailing interest rates
(except for the applicable interest period for Eurodollar loans), the carrying
value of borrowings under the Credit Facility should approximate the fair market
value of such debt. Changes in interest rates, however, will change the cost of
borrowing. Assuming $165 million remains borrowed under the Credit Facility, we
estimate our annual interest expense will change by $1.65 million for each 100
basis point change in the applicable interest rates utilized under the Credit
Facility. Changes in interest rates would, assuming all other things being
equal, cause the fair market value of debt with a fixed interest rate, such as
the Notes, to increase or decrease, and thus increase or decrease the amount
required to refinance the debt. The fair value of the Notes is dependent on
prevailing interest rates and our current stock price as it relates to the
conversion price of $5.00 per share of our Common Stock.
HEDGING CONTRACTS
Meridian may address market risk by selecting instruments whose value
fluctuations correlate strongly with the underlying commodity being hedged. From
time to time, we may enter into swaps and other derivative contracts to hedge
the price risks associated with a portion of anticipated future oil and gas
production. While the use of hedging arrangements limits the downside risk of
adverse price movements, it may also limit future gains from favorable
movements. Under these agreements, payments are received or made based on the
differential between a fixed and a variable product price. These agreements are
settled in cash at or prior to expiration or exchanged for physical delivery
contracts. Meridian does not obtain collateral to support the agreements, but
monitors the financial viability of counter-parties and believes its credit risk
is minimal on these transactions. In the event of nonperformance, we would be
exposed to price risk. Meridian has some risk of accounting loss since the price
received for the product at the actual physical delivery point may differ from
the prevailing price at the delivery point required for settlement of the
hedging transaction.
Effective August 13, 2002, we entered into certain hedging contracts as
summarized in the table below. The Notional Amount is equal to the total net
volumetric hedge position of Meridian during the periods. The positions
effectively hedge approximately 33% of our proved developed natural gas
production and 74% of our proved developed oil production. The fair values of
the hedges are based on the difference between the strike price and the New York
Mercantile Exchange future prices for the applicable trading months.
Weighted Average Fair Value at
Notional Strike price September 30, 2002
Amount ($ per unit) (in thousands)
--------- ---------------- ------------------
Natural Gas (mmbtu)
October 2002 -
June 2005 9,950,000 $3.74 $2,634
Oil (bbls)
Nov 2002 -
July 2005 2,316,000 $24.65 $1,369
--------------------------------------------------------------------------------------
$4,003
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
conducted under the supervision and with the participation of Meridian's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of our disclosure
controls and procedures are effective. There have been no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of our evaluation.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which Meridian or any of its
subsidiaries or partnerships is a party or by which any of its property is
subject, other than ordinary and routine litigation incidental to the business
of producing and exploring for crude oil and natural gas.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the annual meeting of shareholders held on June 26, 2002, the Company's
shareholders elected Class III Directors. The following summarizes the number of
votes for and against each nominee.
Broker
Nominee For Against Abstain Non-Vote
------- ---------- --------- ------- --------
Joseph A. Reeves, Jr. 35,854,737 4,043,543 -- --
Michael J. Mayell 35,854,737 4,043,543 -- --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Credit Agreement, dated August 13, 2002, among the Company,
Societe Generale, as Administrative Agent, Lead Arranger and
Book Runner, Fortis Capital Corp., as Co-Lead Arranger and
Documentation Agent, and the several lenders from time to time
parties thereto (incorporated by reference from the Company's
Current Report on Form 8-K, dated August 13, 2002).
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification of President pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.4 Certification of Chief Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated August 13, 2002,
under Item 5, Other Events and Required FD Disclosure, regarding the
Company's Credit Agreement.
21
SIGNATURES
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.
THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES
(Registrant)
Date: November 14, 2002 By: JOSEPH A. REEVES, JR.
------------------------------------
Joseph A. Reeves, Jr.
Chief Executive Officer
(Principal Executive Officer)
Director and Chairman of the Board
By: MICHAEL J. MAYELL
------------------------------------
Michael J. Mayell
President and Director
By: JAMES H. SHONSEY
------------------------------------
James H. Shonsey
Executive Vice President
Chief Financial Officer
By: LLOYD V. DELANO
------------------------------------
Lloyd V. DeLano
Senior Vice President
Chief Accounting Officer
22
CERTIFICATIONS
I, Joseph A. Reeves, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Meridian
Resource Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
23
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Joseph A. Reeves, Jr.
-------------------------
Joseph A. Reeves, Jr.
Chief Executive Officer
24
CERTIFICATIONS
I, Michael J. Mayell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Meridian
Resource Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
25
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Michael J. Mayell
---------------------
Michael J. Mayell
President
26
CERTIFICATIONS
I, James H. Shonsey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Meridian
Resource Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
27
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ James H. Shonsey
-----------------------
James H. Shonsey
Chief Financial Officer
28
CERTIFICATIONS
I, Lloyd V. DeLano, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Meridian
Resource Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
29
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Lloyd V. DeLano
------------------------
Lloyd V. DeLano
Chief Accounting Officer
30
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Credit Agreement, dated August 13, 2002, among the Company,
Societe Generale, as Administrative Agent, Lead Arranger and
Book Runner, Fortis Capital Corp., as Co-Lead Arranger and
Documentation Agent, and the several lenders from time to time
parties thereto (incorporated by reference from the Company's
Current Report on Form 8-K, dated August 13, 2002).
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification of President pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.4 Certification of Chief Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.