10-Q 1 l90809ae10-q.txt NORTH COAST ENERGY, INC. FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF --- THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 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 0-18691 NORTH COAST ENERGY, INC. (Exact name of Registrant as specified in its charter) DELAWARE 34-1594000 (State of incorporation) (I.R.S. Employer Identification No.) 1993 CASE PARKWAY TWINSBURG, OHIO 44087-2343 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 425-2330 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 . ------ ------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes . No . ------ ------ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at October 30, 2001 ---------------------------------------- -------------------------------------- Common Stock, $.01 par value 15,208,031 NORTH COAST ENERGY, INC. AND SUBSIDIARIES

~~ASSETS~~Page ~~June~~No. ~~30, March 31,~~ ------- ~~2001~~PART ~~2001~~I -~~-----------~~ ~~------------~~FINANCIAL ~~(Unaudited)~~INFORMATION ~~CURRENT~~Consolidated ~~ASSETS~~Balance ~~Cash~~Sheets ~~and~~- ~~equivalents~~3 $September 1730,~~791,926~~ $2001 ~~18,288,814~~(Unaudited) ~~Accounts~~and ~~receivable~~March 831,~~594,728~~ ~~7,846,469~~2001 ~~Inventories~~Unaudited ~~306,724~~Consolidated ~~307,195~~Statements ~~Prepaid~~of ~~drilling~~Income ~~and other expenses 668,742 161,819~~ -~~-----------~~ ~~------------~~5 ~~Total~~For ~~current~~the ~~assets~~Three ~~27,362,120~~and ~~26,604,297~~Six ~~PROPERTY~~Months ~~AND~~Ended ~~EQUIPMENT,~~September ~~at cost Land 222~~30,~~822~~ ~~222,822~~2001 ~~Oil~~ and ~~gas~~2000 ~~properties~~Unaudited ~~(successful~~Consolidated ~~efforts)~~Statements ~~110,948,104~~of ~~108,466,905~~Cash ~~Gathering~~Flows ~~systems~~- ~~16,126,327~~6 ~~16,092,838~~For ~~Vehicles~~the ~~2,156,862~~Six ~~1,986,671~~Months ~~Furniture~~Ended ~~and~~September ~~fixtures 694~~30,~~772~~ ~~659,103~~2001 ~~Building~~ and ~~improvements~~2000 ~~1,847,463~~Unaudited ~~1,847,463~~Notes ~~------------~~to ~~------------~~Consolidated ~~131,996,350~~Financial ~~129,275,802~~Statements ~~Less~~7 ~~accumulated~~Management's ~~depreciation,~~Discussion ~~depletion, amortization~~ and ~~impairment~~Analysis ~~25,656,210~~of ~~24,032,646~~Financial ~~------------~~Condition ~~------------~~and ~~106,340,140~~Results ~~105,243,156~~of ~~OTHER~~Operations ~~ASSETS,~~10 ~~net~~PART ~~3,074,571~~II ~~3,505,711~~ -~~-----------~~ ~~------------~~OTHER ~~$136,776,831~~INFORMATION ~~$135,353,164 ============ ============~~17

2 NORTH COAST ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2001 and March 31, 2001

~~LIABILITIES~~ASSETS ~~AND~~September ~~STOCKHOLDERS' EQUITY June~~ 30, March 31, ------ 2001 2001 --------------------~~----------~~ ~~2001 2001~~ ------------- --------~~----~~ (Unaudited) CURRENT ~~LIABILITIES~~ASSETS ~~Current~~Cash ~~portion~~and ofequivalents ~~long-term debt~~ $ ~~256~~19,~~406~~902,495 $ ~~557~~18,~~400~~288,814 Accounts ~~payable~~receivable 36,~~689~~574,~~803~~759 37,~~012~~846,~~992~~469 ~~Accrued~~Inventories ~~expenses 6~~280,~~136,879~~705 6307,~~081,521~~195 ~~Advanced~~Prepaid ~~billings~~drilling onand ~~uncompleted~~other ~~drilling~~expenses ~~contracts~~477,963 ~~-- 877~~161,~~281~~819 ------------- ------------ Total current ~~liabilities~~assets 1027,~~083~~235,~~088~~922 1026,~~529~~604,~~194~~297 ~~LONG-TERM~~PROPERTY ~~DEBT~~AND EQUIPMENT, ~~net~~at ofcost ~~current~~Land ~~portion Affiliates 10~~222,~~000,000~~822 10222,~~000,000~~822 ~~Non-affiliates~~Oil ~~57,143,961~~and ~~57,166,626~~gas ~~-------------~~properties ~~------------~~(successful ~~67,143,961~~efforts) 67113,~~166~~303,~~626~~815 ~~ACCRUED PLUGGING LIABILITY 638~~108,~~877 638~~466,~~877~~905 ~~DEFERRED~~Gathering ~~INCOME~~systems ~~TAXES 3~~16,~~779~~259,~~200~~539 316,~~066~~092,~~200~~838 ~~STOCKHOLDERS'~~Vehicles ~~EQUITY: Series A~~2, ~~6% Noncumulative Convertible Preferred stock~~198,091 ~~par value $.01 per share; 563~~1,~~270 shares authorized; 73~~986,~~096~~671 ~~issued~~Furniture and ~~outstanding~~fixtures ~~(aggregate liquidation value of $730~~722,~~960)~~271 ~~731 731 Series B~~659,103 ~~Cumulative~~Building ~~Convertible Preferred stock, par value $.01 per share; 625,000 shares authorized, 232,864 issued~~ and ~~outstanding~~improvements ~~(aggregate liquidation value $2~~1,~~328~~847,~~640~~463 ~~plus dividends in arrears of $326~~1,~~010) 2~~847,~~329~~463 ~~2,329 Undesignated Serial Preferred stock, par value $.01 per share; 811,730 shares authorized; none issued and outstanding~~ ------------ ------------ ~~Common Stock~~134, ~~par value $.01 per share; 60~~554,~~000,000~~001 ~~shares authorized; 15~~129,~~208~~275,~~031~~802 ~~issued~~Less ~~and~~accumulated ~~outstanding 152~~depreciation,~~080~~ ~~152~~depletion,~~080~~ ~~Additional~~amortization ~~paid-in~~and ~~capital~~impairment 5027,~~213~~547,~~422~~469 5024,~~213~~032,~~422~~646 ~~Accumulated other comprehensive income (295,000)~~ -- ~~Retained earnings 5,058,143 3,583,705~~ ----------~~---~~ ------------ ~~Total~~107,006,532 ~~stockholders'~~105,243,156 ~~equity~~OTHER 55ASSETS,~~131~~ net 2,~~705~~627,555 533,~~952~~505,~~267~~711 ------------- ------------ $ 136,~~776~~870,~~831~~009 $135,353,164 ============= ============

The accompanying notes are an integral part of these consolidated financial statements. 3 NORTH COAST ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2001 and March 31, 2001

~~2001~~LIABILITIES ~~2000~~AND STOCKHOLDERS' EQUITY September 30, March 31, ------------ ----------------------------------------------------------------- ~~REVENUE~~2001 ~~Oil~~2001 ~~and gas production $ 7,613,929 $ 6,568,086 Drilling revenues 1,175,720 671,840 Well operating, gathering, and other 2,423,455 856,090~~ ---------------- --------------- ~~11,213,104~~(Unaudited) ~~8,096,016~~CURRENT ~~COSTS~~LIABILITIES ~~AND~~Current ~~EXPENSES~~portion ~~Oil~~of ~~and~~long-term ~~gas~~debt ~~production~~$ ~~expenses~~-- ~~2,196,366~~$ 2557,~~423,571~~400 ~~Drilling~~Accounts ~~costs~~payable 13,~~185~~213,~~830~~771 ~~652~~3,~~459 Well operating~~012,992 ~~gathering,~~Accrued ~~and~~expenses ~~other 1~~4,~~558~~094,~~295~~691 ~~334~~6,~~385~~081,521 ~~General~~Advanced ~~and~~billings ~~administrative~~on ~~expenses~~uncompleted ~~966,852~~drilling ~~413,455~~contracts ~~Depreciation,~~-- ~~depletion, amortization 1,912,918 1,~~877,~~000~~281 ------------ ------------ Total current liabilities 7,~~820~~308,~~261~~462 510,~~700~~529,~~870~~194 LONG-TERM DEBT, net of current portion Affiliates 10,000,000 10,000,000 Non-affiliates 57,000,000 57,166,626 ------------ ------------ 67,000,000 67,166,626 ACCRUED PLUGGING LIABILITY 531,432 638,877 DEFERRED INCOME ~~FROM~~TAXES ~~OPERATIONS~~4,646,809 3,~~392~~066,~~843~~200 2STOCKHOLDERS' EQUITY: Series A,~~395~~ 6% Noncumulative Convertible Preferred stock,~~146~~ ~~OTHER~~par ~~INCOME~~value $.01 per share; 563,270 shares authorized; 73,096 issued and outstanding (~~EXPENSE~~aggregate liquidation value of $730,960) ~~Interest~~731 ~~income~~731 ~~179~~Series B,~~872~~ 87Cumulative Convertible Preferred stock,~~989~~ ~~Interest~~par ~~expense~~value (1$.01 per share; 625,~~327~~000 shares authorized; 232,~~061)~~864 issued and outstanding (aggregate liquidation value $2,~~077~~328,~~030~~640 plus dividends in arrears of $326,010) 2,329 2,329 Undesignated Serial Preferred stock, par value $.01 per share; 811,730 shares authorized; none issued and outstanding -- -- Common Stock, par value $.01 per share; 60,000,000 shares authorized; 15,208,031 issued and outstanding 152,080 152,080 Additional paid-~~-------~~in capital 50,213,422 50,213,422 Accumulated other comprehensive income 126,113 --~~---------~~ (1Retained earnings 6,~~147~~888,~~189)~~631 (13,~~989~~583,~~041)~~705 ------------ ------------ ~~INCOME~~Total ~~BEFORE~~stockholders' ~~PROVISION~~equity ~~FOR INCOME TAXES 2~~57,~~245~~383,~~654~~306 ~~406~~53,~~105 PROVISION FOR INCOME TAXES 713~~952,~~000~~267 -- ------------ ------------ ~~NET INCOME~~ $ 1136,~~532~~870,~~654~~009 $ ~~406~~135,~~105 ============ =========== NET INCOME APPLICABLE TO COMMON STOCK (after dividends on Cumulative Preferred Stock of $58~~353,~~216~~164 ~~for the three months ended June 30, 2001 and 2000 $ 1,474,438 $ 347,889~~ ============ =========== ~~NET INCOME PER SHARE (basic and diluted) $ 0.10 $ 0.03~~ =~~=========== ===========~~

The accompanying notes are an integral part of these consolidated financial statements. 4 NORTH COAST ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Periods Ended September 30, 2001 and 2000 (Unaudited)

Three Months Ended September 30, Six Months Ended September 30, ----------------------------------- ------------------------------------ 2001 2000 2001 2000 ----------------------------------- ------------------------------------ ~~CASH~~REVENUE ~~FLOWS~~Oil ~~FROM~~and ~~OPERATING~~gas ~~ACTIVITIES~~production ~~Net~~$ ~~income~~7,936,738 $ 17,~~532~~576,~~654~~947 $ ~~406~~15,~~105~~550,667 ~~Adjustments~~$ to14,145,032 ~~reconcile~~Drilling ~~net~~revenues ~~income~~-- to-- ~~net~~1,175,720 ~~cash~~671,840 ~~provided~~Well by operating, ~~activities: Depreciation~~gathering, ~~depletion~~ and ~~amortization~~other 12,~~912~~407,~~918~~922 12,~~877~~428,~~000~~986 ~~Deferred~~4,831,377 ~~liability~~4,361,877 ---------------------------------- ~~(153)~~---------------------------------- ~~Deferred~~10,344,660 ~~income~~10,005,933 ~~taxes~~21,557,764 ~~713~~19,~~000~~178,749 --COSTS ~~Change~~AND ~~in:~~EXPENSES ~~Accounts~~Oil ~~receivable~~and ~~(748~~gas production expenses 2,~~259)~~212,148 (2,833,243 4,~~788~~454,~~733)~~767 ~~Inventories~~5,015,495 ~~and~~Drilling ~~other~~costs ~~current~~164,088 ~~assets~~322,559 ~~(346~~1,~~452)~~349,918 ~~(293~~975,~~445)~~018 ~~Other~~Well ~~assets~~operating, ~~net~~gathering, ~~142~~and other 1,~~071~~389,814 101,~~636~~157,713 ~~Accounts~~2,949,201 ~~payable~~2,382,917 General and ~~accrued~~administrative expenses ~~276~~906,~~884~~733 3593,~~093~~167 1,~~208~~826,240 ~~Billings~~1,171,623 inDepreciation, ~~excess~~depletion, ofamortization ~~costs~~2,182,905 on2,520,261 ~~uncompleted contracts (877~~4,~~281)~~095,823 ~~(568~~4,~~056)~~659,561 ---------------------------------- ---------------------------------- ~~Total~~6,855,688 ~~adjustments~~7,426,943 114,~~072~~675,~~881~~949 ~~(669~~14,~~543)~~204,614 ---------------------------------- ---------------------------------- ~~Net~~INCOME ~~cash~~FROM ~~provided~~OPERATIONS ~~(used)~~3,488,972 by2,578,990 ~~operating~~6,881,815 ~~activities 2~~4,~~605~~974,~~535~~135 OTHER INCOME (~~263,438~~EXPENSE) ~~CASH~~Interest ~~FLOWS~~income ~~FROM~~138,300 ~~INVESTING~~221,482 ~~ACTIVITIES~~318,172 ~~Purchases~~309,470 ofInterest ~~property~~expense ~~and~~(938,866) ~~equipment~~(1,438,357) (2,~~720~~265,~~548~~927) (~~556~~3,~~211~~515,386) ------------ ---------------------- ~~Net cash used by investing activities (2,720,548) (556,211) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under revolving credit facility~~ ---------------------------------- ~~3,000,000 Repayment of long term debt~~ (~~323~~800,~~659~~566) (301,~~487~~216,875) ~~Distributions and dividends~~ (581,~~216~~947,755) (583,~~216~~205,916) ---------------------------------- ---------------------------------- ~~Net~~INCOME ~~cash~~BEFORE ~~provided~~PROVISION ~~(used)~~FOR byINCOME ~~financing~~TAXES ~~activities (381~~2,~~875)~~688,406 21,~~911~~362,~~297~~115 ~~INCREASE (DECREASE) IN CASH AND EQUIVALENTS (496~~4,~~888)~~934,060 21,~~091~~768,~~648~~219 ~~CASH~~PROVISION ~~AND~~FOR ~~EQUIVALENTS~~INCOME ATTAXES ~~BEGINNING~~799,702 OF349,400 ~~PERIOD 18~~1,~~288~~512,~~814~~702 6349,~~206,686~~400 ---------------------------------- ---------------------------------- ~~CASH~~NET ~~AND~~INCOME ~~EQUIVALENTS~~$ AT1,888,704 ~~END~~$ OF1,012,715 ~~PERIOD~~ $ 173,~~791~~421,~~926~~358 $ 81,~~298~~418,~~334~~819 ================================== ================================== ~~Supplemental~~NET ~~disclosures~~INCOME ofAPPLICABLE ~~cash~~TO ~~flow~~COMMON ~~information:~~STOCK ~~Cash~~(after ~~paid~~dividends ~~during~~on Cumulative Preferred Stock of $58,216 for the ~~period~~three months ended September 30, 2001 and 2000 and $116,432 for: ~~Interest~~the six months ended September 30, 2001 and 2000 $ 1,~~315~~830,~~678~~488 $ ~~370~~954,~~861~~499 ~~Income~~$ ~~taxes~~3,304,926 --$ --1,302,387 ================================== ================================== NET INCOME PER SHARE (basic and diluted) $ 0.12 $ 0.06 $ 0.22 $ 0.10 ================================== ==================================

5 NORTH COAST ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended September 30, 2001 and 2000 (Unaudited)

~~Financial~~2001 ~~Hedges~~2000 ~~Fixed Price Contracts~~ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,421,358 $ 1,418,819 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 4,095,823 4,659,561 Deferred liability (107,445) -- Deferred income taxes 1,512,702 349,400 Change in: Accounts receivable 1,465,730 2,023,771 Inventories and other current assets (289,654) (306,548) Other assets, net 300,020 203,930 Accounts payable and accrued expenses (1,786,051) 1,150,469 Billings in excess of costs on uncompleted contracts (877,281) (568,056) ------------ ------------ Total adjustments 4,313,844 7,512,527 ------------ ------------ ~~Estimated~~Net ~~Estimated~~cash ~~NYMEX~~provided ~~Wellhead~~by ~~Wellhead~~operating ~~Quarter~~activities ~~Ending~~7,735,202 ~~MMcf~~8,931,346 ~~Price~~CASH ~~Price~~FLOWS ~~MMcf~~FROM ~~Price~~INVESTING ACTIVITIES Purchases of property and equipment (5,281,063) (1,345,067) ------------ ------------ Net cash used by investing activities (5,281,063) (1,345,067) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under credit agreements -- 63,000,000 Repayment of long term debt - Affiliate -- (38,500,000) Repayment of long term debt (724,026) (23,055,204) Distributions and dividends (116,432) (116,432) ------------ ------------ Net cash (used) provided by financing activities (840,458) 1,328,364 INCREASE IN CASH AND EQUIVALENTS 1,613,681 8,914,643 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 18,288,814 6,206,686 ------------~~------~~ ------------~~--------------~~ ~~September~~CASH ~~30,~~AND ~~2001~~EQUIVALENTS ~~727~~AT ~~$4.10~~END OF PERIOD $~~3.99~~ 119,~~093~~902,495 $~~3.39~~ ~~December 31~~15,121,329 ~~2001~~============ ~~727~~============ ~~4.30~~Supplemental ~~3.99~~disclosures ~~954~~of ~~3.32~~cash ~~March~~flow ~~31,~~information: ~~2002~~Cash ~~327~~paid ~~4.39~~during ~~4.50~~the ~~507~~period ~~3.09~~for: ~~June~~Interest 30$ 2,832,465 ~~2002~~$ --3,280,936 Income taxes -- -- ~~507~~Supplemental ~~3.09~~disclosure ~~September~~of ~~30,~~noncash ~~2002~~investing --and --financing activities: Note payable -- ~~507~~affiliate ~~3.09~~exchanged ~~December~~for ~~31,~~common ~~2002~~stock --$ -- --$ ~~507 3.09~~24,000,000

The accompanying notes are an integral part of these consolidated financial statements. 6 NORTH COAST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Summary of Accounting Policies A. General The accompanying unaudited consolidated financial statements included herein, have been prepared by North Coast Energy, Inc. in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. These financial statements should be read in conjunction with the financial statements and notes thereto which are in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2001. The balance sheet at March 31, 2001, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results of the operations for the interim periods may not necessarily be indicative of the results to be expected for the full year. In addition, the preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. Per Share Amounts The average number of shares used in computing basic (diluted) net income per share was 15,208,031 (15,244,894) and 15,199,706 (15,233,330) for the three months ended September 30, 2001 and 2000, respectively and 15,208,031 (15,247,087) and 13,406,299 (13,439,924) for the six months ended September 30, 2001 and 2000, respectively. C. Reclassifications Certain reclassifications were made to prior period financial statement presentations to conform with current period presentations. Note 2. Commitment and Contingencies The Company and a commercial bank have issued standby letters of credit that provide a guarantee of $25,000 in lieu of surety bonds to ensure performance of obligations or compliance with state oil and gas regulations. 7 NORTH COAST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 3. Preferred Dividends The Company paid a dividend of $116,432 on the Cumulative Convertible Series B Preferred Stock during the six months ended September 30, 2001 and 2000. Cumulative dividends in arrears on the Cumulative Convertible Series B Preferred Stock are $326,010 at September 30, 2001. Note 4. Hedge The Company is exposed to commodity price risks related to natural gas and oil. The Company's financial results can be significantly impacted by changes in commodity prices. Effective with May 2000 production, the Company entered into a natural gas hedge to lessen exposure to changes in natural gas prices that may affect a portion of its net production contracted to one large industrial customer. The hedge involves the use of a financial swap and fixes the Company's price at $3.51 per Mcf on approximately 5,000 Mcf per day through December 2001. Gains or losses on the hedge relative to the market are recognized monthly as additions to or subtractions from oil and gas sales. As a result of this arrangement, the Company recognized a decrease in oil and gas revenue of $2,950 and $636,100 for the three months ended September 30, 2001 and 2000 respectively and $841,300 and $889,000 for the six months ended September 30, 2001 and 2000 respectively. In May 2001, the Company entered into a costless collar arrangement that establishes a floor and ceiling price ($4.10 and $5.30 per Mcf, respectively) for approximately 4,000 Mcf per day through March 31, 2002. As a result of this arrangement, the Company recognized an increase in oil and gas revenue of $342,000 for the three and six months ended September 30, 2001, respectively. The Company also entered into a costless collar arrangement covering approximately 3,200 Mcf per day from November 1, 2002 through March 31, 2003. The ceiling and floor prices under this arrangement are $3.90 and $3.45 per Mcf respectively. To lessen its exposure to commodity price risk, NCE expects to continue to sell natural gas under fixed price contracts, on the spot market and to use financial hedging instruments to realize a fixed price on a portion of its production. The following table reflects the natural gas volumes and the weighted average prices under financial hedges and fixed price contracts at September 30, 2001:

~~(Amounts~~Financial inHedges ~~thousands)~~Fixed ~~June~~Price ~~30,~~Contracts ~~2001 March 31, 2001 Amount % Amount %~~ -------- --- --------------------------- --------------------------- ~~Working~~Estimated ~~Capital~~Estimated $NYMEX ~~17,279~~Wellhead 14Wellhead $Quarter ~~16,075~~Ending 13MMcf ~~Property~~Price ~~and~~Price ~~equipment~~MMcf ~~(net)~~Price ~~106,340 84 105,243 84 Other 3,075 2 3,506 3~~ -------- --- ------------------------------------------------------------ --------------------------- ~~Total~~December ~~$126~~31,~~694~~ ~~100~~2001 ~~$124,824~~750 ~~100~~2.23 ~~========~~3.99 ~~===~~630 ~~========~~3.54 ~~===~~March ~~Long-term~~31, ~~debt~~2002 $351 ~~67,144~~2.82 534.50 $527 673.55 June 30,~~167~~ 542002 ~~Deferred~~- ~~income~~- ~~taxes~~- ~~and~~491 ~~other~~3.42 ~~liabilities~~September 430,~~418~~ 32002 ~~3,705~~- 3- ~~Stockholders'~~- ~~equity~~354 ~~55,132~~3.43 44December 5331,~~952~~ 432002 ~~--------~~196 ~~---~~3.11 ~~--------~~3.28 ~~---~~374 ~~Total~~3.33 ~~$126,694~~March ~~100 $124~~31,~~824~~ ~~100~~2003 ~~========~~294 ~~===~~3.30 ~~========~~3.38 ~~===~~369 3.33

Note 5. Accounting Standards On April 1, 2001, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended). SFAS 133 establishes accounting and reporting standards for hedging activities and derivative instruments, including certain derivative instruments embedded in other contracts. 8 NORTH COAST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 5. Accounting Standards (continued) The Company qualifies for special hedge accounting treatment under SFAS 133, whereby the fair value of the hedge is recorded in the balance sheet as either an asset or liability and changes in fair value are recognized in other comprehensive income until settled, when the resulting gains and losses are recorded in earnings. Any hedge ineffectiveness will be charged to earnings. The Company believes that any ineffectiveness of its hedges will be immaterial. The effect on earnings and other comprehensive income as a result of SFAS 133 will vary from period to period and will be dependent upon prevailing oil and gas prices, the volatility of forward prices for such commodities, the volumes of production the Company hedges and the time periods covered by such hedges. As a result of the adoption of SFAS 133, the Company recorded a liability associated with its natural gas hedge based on gas prices in effect at April 1, 2001 of $3,200,000, with offsetting charges to deferred taxes of $1,100,000 and other comprehensive income of $2,100,000. During the six months ended September 30, 2001, natural gas prices decreased and as a result, the liability has been eliminated along with the deferred tax asset and a mark to market asset of $194,000 and a deferred tax liability of $68,000 have been recorded at September 30, 2001. As a result, accumulated other comprehensive income at September 30, 2001 was $126,000. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method and further clarifies the criteria to recognize intangible assets separately from goodwill. In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to periodic impairment tests. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which is effective the first quarter of fiscal year 2003. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of long-lived assets and the associated asset retirement cost. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets, which is effective the first quarter of fiscal year 2002. SFAS No. 144 modifies and expands the financial accounting and reporting for the impairment or disposal of long-lived assets other than goodwill. The Company does not believe that the impact of these four SFAS will have a significant impact on its financial position and results of operations. Note 6. Comprehensive Income Comprehensive income consists of net income and the change in the mark-to-market amount of the Company's hedges, net of deferred taxes, as follows:

~~(Amounts~~Three inMonths ~~thousands)~~Ended Six Months Ended September 30, 2001 ~~2000~~September 30, 2001 ------- -------------------------------------- Net ~~cash~~Income ~~provided (used) by operating activities~~ $ 21,~~606~~888,704 $ ~~(263)~~3,421,358 ~~Net~~Change ~~cash~~in ~~used~~mark-to-market byhedge ~~investing~~liability ~~activities~~and (2asset,~~721)~~ ~~(556)~~net ~~Net~~of ~~cash~~deferred ~~provided~~taxes ~~(used)~~421,000 ~~by financing activities (382)~~ 2,~~911~~226,000 ------- ------------------------------------- ~~Increase~~Comprehensive ~~(decrease)~~Income ~~in cash and equivalents~~ $ ~~(497)~~2,309,704 $ 25,~~092~~647,358 ======= =====================================

9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL North Coast Energy, Inc., a Delaware corporation ("NCE" or the "Company"), is an affiliate of nv NUON ("NUON"), a limited liability company organized under the laws of the Netherlands. NCE and its subsidiaries, are engaged in the acquisition and enhancement of developed producing natural gas and oil properties and the exploration, development and production of undeveloped natural gas and oil properties, owned by the Company or in conjunction with joint ventures or partnerships sponsored and managed by the Company. NCE derives its revenues from its own oil and gas production and turnkey drilling, well operations, gas gathering and gas marketing services it provides for third parties. The following table is a review of the results of operations of the Company for the three and six-month periods ended September 30, 2001 and 2000. All items in the table are calculated as a percentage of total revenues.

The following discussion and analysis reviews the results of operations and the financial condition for the Company for the three months ended September 30, 2001 and 2000. The review should be read in conjunction with the financial information presented elsewhere herein. 10 COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 TO SEPTEMBER 30, 2000 REVENUES Oil and gas revenues increased $359,791 (5%) to $7,936,738 for the three months ended September 30, 2001, from $7,576,947 for the three months ended September 30, 2000. The increase in oil and gas revenues reflects higher volumes of gas and oil production partially offset by lower prices received for natural gas. The Company's production volumes for the three months ended September 30, 2001 were 2,425,822 MCFE of natural gas compared to 2,193,100 per one thousand cubic feet of gas equivalent (MCFE) for the three months ended September 30, 2000. The Company received an average price of $3.27 and $3.45 per MCFE for oil and natural gas sold for the three months ended September 30, 2001 and 2000, respectively. Well operating, gathering and other revenue decreased $21,064 (1%) to $2,407,922 for the three months ended September 30, 2001, compared to $2,428,986 for the three months ended September 30, 2000. This decrease results from lower natural gas gathering revenue (due to lower prices), and lower gas marketing revenues. EXPENSES Oil and gas production expenses decreased $621,095 (22%) to $2,212,148 for the three months ended September 30, 2001, from $2,833,243 for the three months ended September 30, 2000, reflecting efficiencies from the successful integration of Peake Energy, Inc. ("Peake Energy") acquired in March 2000 and operating efficiencies from capital expenditures. Peake Energy later changed its name to North Coast Energy Eastern, Inc. Drilling costs decreased $158,471 (49%) to $164,088 for the three months ended September 30, 2001, compared to $322,559 at September 30, 2000, reflecting lower drilling activity in this 2001 period. Well operating, gathering, and other increased $232,101 (20%) for the three months ended September 30, 2001 to $1,389,814, from $1,157,713 at September 30, 2000, primarily as a result of increased costs of gas marketed, a higher number of wells operated and greater amounts of gas gathered. General and administrative expenses increased $313,566 (53%) to $906,733 for the three months ended September 30, 2001, from $593,167 for the three months ended September 30, 2000. The increase primarily reflects higher staffing levels, provision for the Company's incentive compensation plan and the implementation of a new computer system. The increase in general and administrative expense also reflects a reduction of administrative cost reimbursements from nine of the Company's 31 Limited Partnerships, which were terminated on December 31, 2000. The decrease in depreciation, depletion, and amortization of $337,356 to $2,182,905 for the three months ended September 30, 2001, from $2,520,261 for the three months ended September 30, 2000, results from a larger reserve base in 2001 compared to 2000. For the three months ended September 30, 2001 net interest expense decreased $416,309 to $800,566 from $1,216,875 for the three months ended September 30, 2000. The decrease reflects lower amounts outstanding and lower interest rates on the Company's long-term debt, partially offset by lower interest income in 2001 compared to 2000. The provision for income taxes increased $450,302 (129%) to $799,702 for the three months ended September 30, 2001 from $349,400 for the three months ended September 30, 2000. The increase reflects the provision required at the Company's current level of earnings. Net income for the three months ended September 30, 2001 increased $875,989 to $1,888,704 from net income of $1,012,715 for the three months ended September 30, 2000 primarily reflecting higher production volume and lower net costs as discussed above offset by a higher provision for income taxes. 11 The Company's diluted net income attributable to common stock was $1,830,488 ($.12/share) for the three months ended September 30, 2001, compared to $954,499 ($.06/share) for the three months ended September 30, 2000, reflecting dividends declared on the Company's Series B Cumulative Preferred Stock. 12 COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 2001 TO SEPTEMBER 30, 2000. REVENUES Oil and gas revenues increased $1,405,635 (10%) to $15,550,667 for the six months ended September 30, 2001, compared to oil and gas revenues of $14,145,032 for the six months ended September 30, 2000. The increase in oil and gas revenues reflects increased production resulting from the Company's successful exploration and developmental drilling program and the higher natural gas and oil prices that the Company has received for natural gas and oil. For the six months ended September 30, 2001, the Company's production volumes increased 122,035 MCFE to 4,533,972 MCFE compared to 4,411,937 MCFE for the six months ended September 30, 2000. The Company received an average price of $3.43 and $3.21 per MCFE for the six months ended September 30, 2001 and 2000, respectively, The Company recognized drilling revenues of $1,175,720 and $671,840 for the six months ended September 30, 2001 and 2000 respectively. The revenues relate to seven and four wells, which were in progress on March 31, 2001, and 2000 respectively. Well operating, gathering and other revenue increased $469,500 (11%) to $4,831,377 for the six months ended September 30, 2001, compared to $4,361,877 for the six months ended September 30, 2000. This increase results from the increase in the number of wells the Company receives third party operating revenues from and the additional volume of natural gas transported for third parties. EXPENSES For the six months ended September 30, 2001, oil and gas production expenses decreased $560,728 (11%) to $4,454,767 from $5,015,495 for the six months ended September 30, 2000 reflecting the Company's efforts to reduce overhead costs and the impact of capital expenditures made to improve efficiency. Drilling expenses increased $374,900 (38%) to $1,349,918 for the six months ended September 30, 2001 from $975,018 for the six months ended September 30, 2000 due to completing seven wells in the six months ended September 30, 2001 verses four wells in the comparable period in 2000 coupled with higher costs in 2001. Well operating, gathering and other costs increased $566,284 (24%) to $2,949,201 for the six months ended September 30, 2001 from $2,382,917 for the six months ended September 30, 2000 as a result of the increase in number of wells operated for third parties through the Company's partnership and acquisition activities. General and administrative expenses increased $654,617 (56%) to $1,826,240 for the six months ended September 30, 2001 from $1,171,623 for the six months ended September 30, 2000 primarily reflecting a strengthening of the corporate staff, the realignment of personnel to profit centers, and provision for the Company's incentive program coupled with a decrease in administrative fee reimbursement from fewer partnerships in the six months ended September 30, 2001 compared to 2000. Depreciation, depletion, and amortization, decreased $563,738 (12%) to $4,095,823 for the six months ended September 30, 2001, from $4,659,561 for the six months ended September 30, 2000. This decrease results primarily from increased reserves at March 31, 2001 compared to 2000. Interest expense (net) decreased $1,258,161 (39%) to $1,947,755 for the six months ended September 30, 2001 from $3,205,916 for the six months ended September 30, 2000. The decrease reflects lower borrowing levels combined with lower rates in 2001. The provision for income taxes increased $1,163,302 (333%) to $1,512,702 for the six months ended September 30, 2001 from $349,400 for the six months ended September 30, 2000. The increase reflects the provision required at the Company's current level of earnings. 13 Net income for the six months ended September 30, 2001 increased $2,002,539 to $3,421,358 from $1,418,819 for the six months ended September 30, 2000. The increase in net income reflects the increase in production combined with an increase in natural gas and oil prices as well as a net reduction in expenses offset by an increased provision for income tax. The Company's net income attributable to common stock was $3,304,926 ($ .22 per share) for the six months ended September 30, 2001 compared to $1,302,387 ($ .10 per share) for the six months ended September 30, 2000. INFLATION AND CHANGES IN PRICES Inflation affects the Company's operating expenses as well as interest rates, which may have an effect on the Company's profitability. Oil and gas prices have not followed inflation and have fluctuated during recent years as a result of other forces such as OPEC, economic factors, demand for and supply of natural gas in the United States and within the Company's regional area of operation and acts of terrorism committed against the United States. Oil prices have decreased as a result of continued production quotas by members of OPEC, which has maintained the available supply of crude oil to world markets. Natural gas prices have decreased during the three months ended September 30, 2001, compared to the natural gas prices for the three months ended September 30, 2000. These decreases in price are attributed to higher storage supplies. As a result of these market forces, the Company received an average price of $3.27 MCFE after recognition of a portion of the wellhead price as gas gathering and other revenues, for gas sold in the three months ended September 30, 2001 compared to $3.45 MCFE for the comparable period of 2000. Currently, the Company sells natural gas under fixed and variable priced contracts, on the spot market and through a fixed price commodity hedge. The Company has positioned itself to take advantage of current market conditions by fixing its gas contracts at prices substantially higher than were received in recent years while keeping an increasing portion of its natural gas production available for sale at current market prices. Additionally, the Company continues to acquire and construct new pipeline systems to gather natural gas from the Company wells and for third parties. 14 LIQUIDITY AND CAPITAL RESOURCES The Company's working capital was $19,927,460 at September 30, 2001, compared to $16,075,103 at March 31, 2001. The increase of $3,852,357 in working capital at September 30, 2001 reflects the cash flow from operations offset by cash used in financing activities and capital expenditures during the period. The following table summarizes the Company's financial position at September 30, 2001 and March 31, 2001:

The oil and gas exploration and development activities of NCE historically have been financed through the Drilling Programs, internally generated funds, and from bank and equity financing. The following table summarizes the Company's Statements of Cash Flows for the six months ended September 30, 2001 and 2000:

As the above table indicates, the Company's cash provided by operating activities was $7,735,202 for the six months ended September 30, 2001, compared $8,931,346 for the six months ended September 30, 2000. Net income increased by $2,002,539, and depreciation, depletion, and amortization decreased by $563,738. The increased activity also caused an increase in working capital of $3,852,357 including an increase in cash of $1,613,681. Net cash used for investing activities was $5,281,063 for the six months ended September 30, 2001, compared to $1,345,067 for the six months ended September 30, 2000. 15 Net cash used in financing activities was $840,458 for the six months ended September 30, 2001, compared to a source of $1,328,364 for the six months ended September 30, 2000. At September 30, 2001, the company has $8,000,000 available on its revolving line of credit and cash balances totaling $19,902,495. The Company believes that its cash, cash flow from operations and available borrowing capacity are adequate to fund its planned capital expenditures and operations. ACCOUNTING STANDARDS On April 1, 2001, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended). SFAS 133 establishes accounting and reporting standards for hedging activities and derivative instruments, including certain derivative instruments embedded in other contracts. The Company qualifies for special hedge accounting treatment under SFAS 133, whereby the fair value of the hedge is recorded in the balance sheet as either an asset or liability and changes in fair value are recognized in other comprehensive income until settled, when the resulting gains and losses are recorded in earnings. Any hedge ineffectiveness will be charged to earnings. The Company believes that any ineffectiveness of its hedges will be immaterial. The effect on earnings and other comprehensive income as a result of SFAS 133 will vary from period to period and will be dependent upon prevailing oil and gas prices, the volatility of forward prices for such commodities, the volumes of production the Company hedges and the time periods covered by such hedges. As a result of the adoption of SFAS 133, the Company recorded a liability associated with its natural gas hedge based on gas prices in effect at April 1, 2001 of $3,200,000, with offsetting charges to deferred taxes of $1,100,000 and other comprehensive income of $2,100,000. During the six months ended September 30, 2001, natural gas prices decreased and as a result, the liability at September 30, 2001 was eliminated along with the related deferred tax asset and a market-to-market asset of $194,000, deferred tax liability of $68,000 have been recorded. As a result, accumulated other comprehensive income at September 30, 2001 is $126,000 and comprehensive income for the six months ended September 30, 2001 was $5,647,358. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method and further clarifies the criteria to recognize intangible assets separately from goodwill. In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to periodic impairment tests. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which is effective the first quarter of fiscal year 2003. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of long-lived assets and the associated asset retirement cost. In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets, which is effective the first quarter of fiscal year 2002. SFAS No. 144 modifies and expands the financial accounting and reporting for the impairment or disposal of long-lived assets other than goodwill. The Company does not believe that the impact of these four SFAS will have a significant impact on its financial position and results of operations. 16 NORTH COAST ENERGY, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders On or about August 15, 2001, a Proxy Statement was mailed to all holders of record as of July 20, 2001, of the Company's common stock and Series A Preferred Stock along with a Notice of Annual Meeting of Stockholders to be held on September 21, 2001. At the meeting, the stockholders were asked to consider and act upon the election of three directors whose terms of office expire in 2004 and one director whose term of office expires in 2002. The Proxy Statement filed with the Securities and Exchange Commission on August 10, 2001, is incorporated by reference herein. At the Annual Meeting of Stockholders held on September 21, 2001, directors Carel W.J. Kok and Omer Yonel were reelected, and nominee Joop G. Drechsel was elected, to three year terms by votes of 14,958,183, 14,957,996 and 14,958,183, respectively, in favor and 35,466, 35,654 and 35,466, respectively, opposed. Director C. Rand Michaels retired from the Board, being replaced by Garry Regan, who was elected to a one year term expiring in 2002 by a vote of 14,956,502 in favor and 37,147 opposed. Directors Cok van der Horst, Ron L. Langenkamp and Ralph L. Bradley continue in office. Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K a.) Exhibits 10.27 The Second Amendment to the Credit Agreement, dated August 13, 2001 between North Coast Energy, Inc. as Borrower, Union Bank of California, NA, as Agent, Bank One, Texas, NA, as Syndication Agent, and certain financial institutions as Lenders. b) Reports on Form 8-K dated August 2, 2001 concerning the change in the Company's fiscal year from March 31 to December 31. No other reports on Form 8K have been filed during the quarter for which this report was filed. 17 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. NORTH COAST ENERGY, INC. October 31, 2001 /s/ Omer Yonel ------------------------------------------------ Omer Yonel President, Chief Executive Officer and Director NORTH COAST ENERGY, INC. October 31, 2001 /s/ Dale E. Stitt ------------------------------------------------ Dale E. Stitt Chief Financial Officer and Principal Accounting Officer 18

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