Debt-Reprieved Costilla Seeking Options
Costilla Energy Inc. of Midland, TX, is examining its options
after lenders extended until June 1 a $10.2 million mandatory
principal payment due a bank credit facility. Petrie Parkman &
Co. was hired to weigh potential deals.
The credit extension also provides for the sharing of proceeds
from the sale of oil and gas properties. Costilla is marketing
certain assets to reduce bank debt. Chairman Cadell S. Liedtke,
said "We have been working closely with our bankers and we are very
encouraged by their cooperation and support. We are also very
pleased with the industry's high level of interest in the
properties we are marketing."
The company said it expects to announce shortly the execution of
purchase and sale agreements for divestiture of its Rocky Mountain
properties. "The planned sale of Rocky Mountain properties coupled
with our recently announced transaction with Ballard Petroleum LLC
will effectively end our activities in the Rockies and allow our
team to focus their full attentions where we have been most
successful strategically," said Henry G. Musselman, chief operating
With negative first quarter cash flow of $1.5 million, or $0.12
per share, the company recorded a net loss applicable to common
equity of $55.9 million, or $4.36 per share. That included an
expense of $47.5 million related to termination of a deal to
acquire assets from Pioneer Natural Resources.
Costilla production for the quarter ended March 31, 1999
increased 4% over the comparable three months of 1998 to 6.9 Bcfe,
an average of 77.1 MMcfe/d, from 6.7 Bcfe, or about 74.4 MMcfe/d.
"As intended, the gas component of our production has been steadily
rising even with the sale of some gas producing properties during
1998," Musselman said. In the first quarter of 1999, Costilla's gas
component of its total production was 69%, compared with 48% in the
first quarter of 1998. Gas production in the first quarter
increased 39% over the same quarter of last year. Revenues from oil
and gas sales for 1Q99 were about $12.8 million, compared to $15.3
million for 1Q98. During the first quarter Costilla realized an
average net gas price of $1.89/Mcf, including $0.32/Mcf from
hedging, 7% below the $2.03, net of a $0.02/Mcf hedging cost, in
first quarter of 1998.
Earlier this month, Costilla began a restructuring and cut
overhead by about $225,000/month, or about $675,000 on a projected
quarterly basis, as a result of job cuts and other cost savings
measures. In April Mike Grella stepped down as president and CEO,
and was replaced by Liedtke and Musselman. Also in April, Costilla
said the previously announced purchase and sale agreement with
Pioneer Natural Resources was off and added asset dispositions were
necessary to meet debt repayment requirements. The company also
said capital expenditures for the remainder of 1999 would be
"extremely limited" in order to meet required debt payments.
Joe Fisher, Houston
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