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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
=========
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9041
------
MESA INC.
=========
(Exact name of registrant as specified in its charter)
Texas 75-2394500
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2600 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
------------------------- -----
(Address of Principal (Zip Code)
Executive Offices)
(214) 969-2200
--------------
(Registrant's telephone number, including area code)
(no change)
-----------
(Former name, former address, and former
fiscal year, if changed since last report)
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
-------- -------
Number of shares outstanding as of the close of business on November 11,
1994: 64,050,009
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PART I - FINANCIAL INFORMATION
==============================
Item 1. Financial Statements
- -----------------------------
MESA INC.
=========
Consolidated Statements of Operations
-------------------------------------
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine months Ended
September 30 September 30
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
REVENUES:
Natural gas.................... $ 24,062 $ 27,870 $ 96,763 $101,340
Natural gas liquids............ 17,753 11,928 50,562 43,781
Oil and condensate............. 1,820 1,607 5,519 8,743
Other.......................... 2,090 972 7,326 3,165
-------- -------- -------- --------
45,725 42,377 160,170 157,029
-------- -------- -------- --------
COSTS AND EXPENSES:
Lease operating................ 11,806 10,234 39,036 37,335
Production and other taxes..... 5,206 4,863 15,745 15,012
Exploration charges............ 2,259 776 4,115 2,012
General and administrative..... 7,479 6,310 20,034 17,927
Depreciation, depletion
and amortization.............. 21,040 20,704 68,262 70,317
-------- -------- -------- --------
47,790 42,887 147,192 142,603
-------- -------- -------- --------
OPERATING INCOME (LOSS)............. (2,065) (510) 12,978 14,426
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income................ 3,837 2,774 9,538 8,156
Interest expense............... (35,393) (35,006) (108,368) (105,000)
Gains on dispositions of
oil and gas properties........ -- -- -- 9,600
Securities gains (losses)...... 8,512 (4,736) 3,191 5,778
Other.......................... (798) 9,998 13,650 8,027
-------- -------- -------- --------
(23,842) (26,970) (81,989) (73,439)
-------- -------- -------- --------
NET LOSS............................ $(25,907) $(27,480) $(69,011) $(59,013)
======== ======== ======== ========
NET LOSS PER COMMON SHARE........... $ (.40) $ (.71) $ (1.21) $ (1.53)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING................ 64,050 38,681 57,111 38,615
======== ======== ======== ========
(See accompanying notes to consolidated financial statements.)
MESA INC.
=========
Consolidated Balance Sheets
---------------------------
(in thousands, except share data)
September 30, December 31,
ASSETS 1994 1993
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash investments................... $ 114,736 $ 138,709
Marketable securities and futures
contracts................................. 24,883 11,319
Accounts and notes receivable............... 30,909 43,442
Other....................................... 3,972 2,732
---------- ----------
Total current assets................... 174,500 196,202
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Oil and gas properties, wells and
equipment using the successful
efforts method of accounting.............. 1,855,704 1,846,237
Office and other............................ 43,233 41,064
Accumulated depreciation, depletion
and amortization.......................... (757,276) (695,455)
---------- ----------
1,141,661 1,191,846
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OTHER ASSETS:
Restricted cash of subsidiary partnership... 60,044 62,649
Gas balancing receivable.................... 53,151 47,101
Other....................................... 33,696 35,584
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146,891 145,334
---------- ----------
$1,463,052 $1,533,382
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........ $ 20,537 $ 67,657
Accounts payable and accrued liabilities.... 34,859 33,375
Interest payable............................ 4,913 19,012
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Total current liabilities.............. 60,309 120,044
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LONG-TERM DEBT................................... 1,185,823 1,173,637
---------- ----------
DEFERRED REVENUE................................. 22,071 22,707
---------- ----------
OTHER LIABILITIES................................ 55,911 102,133
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CONTINGENCIES
MINORITY INTEREST................................ -- 2,732
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized
10,000,000 shares; no shares issued and
outstanding............................... -- --
Common stock, $.01 par value, authorized
100,000,000 shares; outstanding 64,050,009
and 46,511,439 shares, respectively....... 641 465
Additional paid-in capital.................. 398,988 303,344
Accumulated deficit......................... (260,691) (191,680)
---------- ----------
138,938 112,129
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$1,463,052 $1,533,382
========== ==========
(See accompanying notes to consolidated financial statements.)
MESA INC.
=========
Consolidated Statements of Cash Flows
-------------------------------------
(in thousands)
(unaudited)
Nine months Ended
September 30
-------------------
1994 1993
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(69,011) $(59,013)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization..... 68,262 70,317
Accreted interest on discount notes.......... 59,833 30,536
Accrued interest exchanged for discount notes -- 15,395
Litigation settlement........................ (42,750) --
Securities gains............................. (3,191) (5,778)
Changes in operating receivables and payables (3,799) (36,254)
Changes in marketable securities and futures
contracts, net............................. (10,373) 384
Other........................................ 2,567 (3,275)
-------- --------
Cash provided by operating activities........ 1,538 12,312
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (18,509) (22,440)
Proceeds from dispositions of oil
and gas properties.............................. -- 26,118
Other............................................. (7,336) (72)
-------- --------
Cash provided by (used in)
investing activities....................... (25,845) 3,606
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.......................... 93,091 --
Long-term borrowings.............................. 42,750 --
Repayments of long-term debt...................... (137,517) (61,388)
Other............................................. 2,010 (6,887)
-------- --------
Cash provided by (used in)
financing activities....................... 334 (68,275)
-------- --------
NET DECREASE IN CASH AND CASH INVESTMENTS.............. (23,973) (52,357)
CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD....... 138,709 157,197
-------- --------
CASH AND CASH INVESTMENTS AT END OF PERIOD............. $114,736 $104,840
======== ========
(See accompanying notes to consolidated financial statements.)
MESA INC.
=========
Consolidated Statement of Changes in Stockholders' Equity
---------------------------------------------------------
(in thousands)
(unaudited)
Common Stock Additional
--------------- Paid-in Accumulated
Shares Amount Capital Deficit
------ ------ ---------- -----------
BALANCE, December 31, 1993..... 46,511 $465 $303,344 $(191,680)
Net loss.................. -- -- -- (69,011)
Common stock issued for
conversion of the
General Partner
minority interest....... 1,251 13 2,716 --
Common stock issued in
secondary public
offering................ 16,288 163 92,928 --
------ ---- -------- ---------
BALANCE, September 30, 1994.... 64,050 $641 $398,988 $(260,691)
====== ==== ======== =========
(See accompanying notes to consolidated financial statements.)
MESA INC.
=========
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1994
(unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
===========================================================
MESA Inc., a Texas corporation, was formed in 1991 in connection with a
transaction (the Corporate Conversion) which reorganized the business of
Mesa Limited Partnership (the Partnership). The Partnership was formed in
1985 to succeed to the business of Mesa Petroleum Co. Unless the context
otherwise requires, as used herein the term "Company" refers to MESA Inc.
and its subsidiaries taken as a whole and includes its predecessors.
The consolidated financial statements of the Company for the three- and
nine-month periods ended September 30, 1994 and 1993 are unaudited but
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results for
such periods. The accompanying financial statements of the Company should
be read in conjunction with the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
Principles of Consolidation
- ---------------------------
The Company owns and operates its oil and gas properties and other
assets through various direct and indirect subsidiaries. Pursuant to the
Corporate Conversion, the Company obtained a 95.86% limited partnership
interest and Boone Pickens (the General Partner) obtained a 4.14% general
partner interest in three direct subsidiary partnerships, which interest was
convertible into a total of 1,667,560 shares of common stock of the Company.
On December 31, 1993, the General Partner converted approximately one-fourth
of his general partner interests into common stock. In early 1994, the
Company effected a series of merger transactions which resulted in the
conversion of each of its direct subsidiary partnerships to corporate form
(see note 8). Pursuant to these mergers, the remaining general partner
interests in the Company's subsidiary partnerships held directly or
indirectly by the General Partner were converted into common stock, thereby
eliminating the minority interest.
The accompanying consolidated financial statements reflect the
consolidated accounts of the Company and its subsidiaries after elimination
of intercompany transactions. The General Partner's interest, prior to the
conversion into common stock discussed above, is reflected as a minority
interest in the consolidated financial statements.
Certain reclassifications have been made to amounts reported in previous
years to conform to 1994 presentation.
Statements of Cash Flows
- ------------------------
For purposes of the statements of cash flows, the Company classifies
all cash investments with original maturities of three months or less as
cash and cash investments.
Investments
- -----------
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which addresses the accounting and reporting
for investments in equity securities that have readily determinable fair
values and for all investments in debt securities. The Company's portfolio
of securities is classified as "trading securities" under the provisions of
SFAS No. 115 and is reported at fair value, with unrealized gains and losses
included in net income (loss) for the current period. The cost of
securities sold is determined on the first-in, first-out basis. Prior to
January 1, 1994, investments in marketable securities were stated at the
lower of cost or market. The adoption of SFAS No. 115 on January 1, 1994,
did not have a material effect on the financial position or results of
operations of the Company.
The Company enters into various futures contracts which are not
intended to be hedges of future natural gas or crude oil production.
Investments in such contracts are periodically adjusted to market prices and
gains and losses are included in securities gains (losses) in the statements
of operations.
Oil and Gas Properties
- ----------------------
Under the successful efforts method of accounting, all costs of
acquiring unproved oil and gas properties and drilling and equipping
exploratory wells are capitalized pending determination of whether the
properties have proved reserves. If an exploratory well is determined to be
nonproductive, the drilling and equipment costs of the well are expensed at
that time. All development drilling and equipment costs are capitalized.
Capitalized costs of proved properties and estimated future dismantlement
and abandonment costs are amortized on a property-by-property basis using
the unit-of-production method. Geological and geophysical costs and delay
rentals are expensed as incurred.
Unproved properties are periodically assessed for impairment of value
and a loss is recognized at the time of impairment. The aggregate carrying
value of proved properties is periodically compared with the undiscounted
future net cash flows from proved reserves, determined in accordance with
Securities and Exchange Commission regulations, and a loss is recognized if
permanent impairment of value is determined to exist. A loss is recognized
on proved properties expected to be sold in the event that carrying value
exceeds expected sales proceeds.
Net Loss Per Common Share
- -------------------------
The computations of net loss per common share are based on the weighted
average number of common shares outstanding during each period.
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist of cash, marketable
securities, short-term trade receivables and payables, restricted cash and
long-term debt. The carrying values of cash, short-term trade receivables
and payables, notes receivable and restricted cash approximate fair value.
Marketable securities are stated at fair value. The fair value of long-term
debt is estimated based on the market prices for the Company's publicly
traded debt and on current rates available for similar debt with similar
maturities and security for the Company's remaining debt.
Gas Revenues
- ------------
The Company recognizes its ownership interest in natural gas sales as
revenue. Actual production quantities sold by the Company may be different
than its ownership share of production in a given period. If the Company's
natural gas sales exceed its ownership share of production, the excess is
recorded as deferred revenue. Gas balancing receivables are recorded when
the Company's ownership share of production exceeds its natural gas sales.
The Company also accrues production expenses related to its ownership share
of production. At September 30, 1994, the Company had produced and sold a
net 17.6 billion cubic feet of natural gas less than its ownership share of
production and had recorded gas balancing receivables, net of deferred
revenues, of approximately $34.1 million. Substantially all of the
Company's gas balancing receivables and deferred revenue is classified as
long-term.
The Company periodically enters into natural gas futures contracts as a
hedge against natural gas price fluctuations. Gains or losses on futures
contracts related to expected production for future periods are deferred and
recognized as natural gas revenue when such production occurs. The Company
recognized $3.4 million of hedging losses related to hedge positions closed
out in the second quarter of 1994 as reductions in natural gas revenue
during the third quarter of 1994. At September 30, 1994, the Company had
deferred gains of $6.2 million resulting from hedging a substantial portion
of the Company's anticipated natural gas production for the fourth quarter
of 1994 and the first two quarters of 1995. These deferred gains and any
increases or decreases in the value of open hedge contracts related to such
production periods will be recognized as natural gas revenues when the
hedged production occurs.
Taxes
- -----
The Company provides for income taxes using the asset and liability
method under which deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax laws or tax
rates is recognized in income in the period that includes the enactment
date.
(2) RESOURCES AND LIQUIDITY
=======================
At September 30, 1994, the Company's long-term debt, net of current
maturities, totaled approximately $1.2 billion (see note 4). The Company
also had approximately $114 million of working capital; cash and securities
totaled approximately $140 million.
In recent years, the Company has repaid or refinanced a substantial
amount of its debt, primarily with proceeds from sales of oil and gas
properties and through long-term debt refinancing transactions. In the
second quarter of 1994, the Company completed a public offering of over 16
million shares of common stock at a public offering price of $6.00 per share
(the Equity Offering). The Equity Offering resulted in net proceeds to the
Company of approximately $93 million which were used to redeem approximately
$6 million of 12% subordinated notes, plus accrued interest, and to redeem
or repurchase approximately $87 million accreted value ($99.1 million face
amount at maturity) of 12-3/4% unsecured discount notes, both of which were
scheduled to mature in 1996.
During the third quarter of 1994, the Company negotiated an amendment
to its bank credit facility which, when finalized, will extend final
maturity of this facility to 1997 and increase the borrowing capacity of
such facility (see note 4 for additional discussion). In the fourth quarter
of 1994, the Company intends to borrow an additional $35 million under this
facility and redeem or repurchase approximately one-half of the remaining
12-3/4% unsecured discount notes due in 1996. See the expected principal
repayment schedule in note 4.
The Company expects to service its debt obligations and meet capital
expenditure requirements through 1995 with cash flows from operating
activities and available cash and securities balances. The Company's cash
flows from operating activities are substantially dependent on the amount of
oil and gas produced and the prices received for such production. In
addition, approximately $637 million of the Company's long-term debt as of
September 30, 1994 does not require interest payments until December 31,
1995; however, the accreted value of such debt increases at a rate of 12-
3/4%, compounded semiannually, per year through June 30, 1995. On December
31, 1995, the Company will begin making interest payments on its 12-3/4%
secured discount notes due June 30, 1998 and the remaining 12-3/4% unsecured
discount notes due June 30, 1996 (together, the Discount Notes). Assuming
no changes in the Company's capital structure, other than the credit
facility amendment and the related redemption of 12-3/4% unsecured discount
notes discussed above, the Company will be required to make cash interest
payments related to the Discount Notes totaling approximately $41.7 million
on December 31, 1995 and approximately $81.1 million during 1996. In
addition, the remaining 12-3/4% unsecured discount notes in the amount of
$37.3 million will mature and be payable in mid-1996. The Company believes
that its cash flows plus its assets, including available cash, will generate
sufficient funds to meet its 1996 obligations. Assuming effectiveness of
the credit facility amendment, principal payments in the amount of $38.6
million related to the bank credit facility are due in June 1997. In
addition, principal payments in the amount of $617.4 million are due in 1998
related to the 12-3/4% secured discount notes. The Company's financial
forecasts indicate that a significant refinancing or restructuring of the
Company's capital structure will be required to meet these obligations.
Depending on industry and market conditions, the Company may generate
cash by issuing additional equity or debt securities or selling assets.
However, the Company's two largest assets, its interests in the Hugoton and
West Panhandle fields, are pledged under long-term debt agreements. The
Company may issue and sell up to $300 million of debt securities pursuant to
a shelf registration statement. If and when such debt securities are
issued, the net proceeds will be used to retire existing debt. There can be
no assurances that the Company will be able to issue any such debt
securities, raise additional equity capital or otherwise refinance its debt.
(3) MARKETABLE SECURITIES AND FUTURES CONTRACTS
===========================================
The fair value of marketable securities and futures contracts are as
follows (in thousands):
September 30, December 31,
1994 1993
------------- ------------
Equity securities........................... $ 5,380 $11,156
Futures contracts........................... 12,627 656
Unrealized gain (loss) ..................... 6,876 (493)
------- -------
Fair value............................. $24,883 $11,319
======= =======
For the nine months ended September 30, 1994, the Company recognized a
net gain of $3.2 million from its investments in securities and futures
contracts compared with a net gain for the same period in 1993 of $5.8
million. The net securities gains and losses do not include gains or losses
from natural gas futures contracts accounted for as hedges of natural gas
production. Hedge gains or losses are included in natural gas revenue in
the period in which the hedged production occurs (see note 1).
The net securities gains and losses recognized during a period include
both realized and unrealized gains and losses. During the nine-month period
ended September 30, 1994, the Company realized net losses of $1.0 million
from securities transactions and futures contracts. The Company realized
net gains from securities transactions and futures contracts of $4.6 million
during the nine-month period ended September 30, 1993.
(4) LONG-TERM DEBT
==============
Long-term debt and current maturities are as follows (in thousands):
September 30, December 31,
1994 1993
------------- ------------
HCLP Secured Notes.......................... $ 520,180 $ 541,600
Credit Agreement............................ 36,127 59,148
12-3/4% secured discount notes.............. 564,657 472,939
12-3/4% unsecured discount notes............ 72,701 148,576
12% subordinated notes...................... -- 6,336
13-1/2% subordinated notes.................. 7,390 7,390
Other....................................... 5,305 5,305
---------- ----------
1,206,360 1,241,294
Current maturities.......................... (20,537) (67,657)
---------- ----------
Long-term debt.............................. $1,185,823 $1,173,637
========== ==========
HCLP Secured Notes
- ------------------
In 1991, Hugoton Capital Limited Partnership (HCLP), an indirect
subsidiary partnership, issued $616 million of secured notes (HCLP Secured
Notes) in a private placement with a group of institutional lenders. The
issuance also funded a $66 million restricted cash balance within HCLP,
which is available to supplement cash flows from the HCLP properties in the
event such cash flows are not sufficient to fund principal and interest
payments on the HCLP Secured Notes when due. As the HCLP Secured Notes are
repaid, the required restricted cash balance is reduced. HCLP holds
substantially all of the Company's Hugoton field natural gas properties.
The HCLP Secured Notes were issued in 15 series and have final stated
maturities extending through 2012 but can be retired earlier. The HCLP
Secured Notes outstanding at September 30, 1994 bear interest at fixed rates
ranging from 8.80% to 11.30% per annum (weighted average 10.27%). Principal
payments, if required, and interest payments are made semiannually.
Provisions in the HCLP Secured Note agreements require interest rate
premiums to be paid to the noteholders in the event that the HCLP Secured
Notes are repaid more rapidly or slowly than under the initial scheduled
amortization. Beginning in August 1994 HCLP elected to make principal
payments on the HCLP Secured Notes based on actual production, rather than
according to the initial scheduled amortization. As a result, interest rate
premiums at a rate of 1.5% per annum will be applied to those principal
amounts not paid according to the initial scheduled amortization. Such
premiums have increased the effective weighted average interest rate payable
on the remaining HCLP Secured Notes outstanding to 10.33% per annum at
September 30, 1994. According to current expectations, principal payments
based on actual production and prices could reduce principal payments from
the initial scheduled amortization by approximately $50 million through
1996.
The HCLP Secured Note agreements contain various covenants which, among
other things, limit HCLP's ability to sell or acquire oil and gas property
interests, incur additional indebtedness, make unscheduled capital
expenditures, make distributions of property or funds subject to the
mortgage, or enter into certain types of long-term contracts or forward
sales of production. The agreements also require HCLP to maintain separate
existence from the Company and its other subsidiaries. The assets of HCLP
that are subject to the mortgage securing the HCLP Secured Notes are
dedicated to service HCLP's debt and are not available to pay creditors of
the Company or its subsidiaries other than HCLP. Any cash not subject to
the mortgage is available for distribution to Mesa Operating Co. (MOC), a
Company subsidiary.
Revenues received from production from HCLP's Hugoton properties are
deposited in a collection account maintained by a collateral agent
(Collateral Agent). The Collateral Agent releases or reserves funds, as
appropriate, for the payment of royalties, taxes, operating costs, capital
expenditures and principal and interest on the HCLP Secured Notes. Only
after all required payments have been made may any remaining funds held by
the Collateral Agent be released from the mortgage.
The restricted cash balance and cash held by the Collateral Agent for
payment of interest and principal on the HCLP Secured Notes are invested by
the Collateral Agent under the terms of a guaranteed investment contract
(GIC) with Morgan Guaranty Trust Co. of New York (Morgan). Morgan was paid
$13.9 million at the date of issuance of the HCLP Secured Notes to guarantee
that funds invested under the GIC would earn an interest rate equivalent to
the weighted average coupon rate on the outstanding principal balance of the
HCLP Secured Notes (10.27% at September 30, 1994). A portion of this amount
may be refunded if the HCLP Secured Notes are repaid earlier than if HCLP
had produced according to its scheduled production, depending primarily on
prevailing interest rates at that time.
In February 1994, the Company contributed $5.8 million to HCLP which,
along with $10.3 million of HCLP cash not subject to the mortgage, was used
to supplement HCLP's cash flows in order to make the February 1994 scheduled
principal payment. In the third quarter of 1994, HCLP distributed $10
million of cash not subject to the mortgage to its partners.
HCLP cash balances were as follows (in thousands):
September 30, December 31,
1994 1993
------------- ------------
Subject to the mortgage...................... $16,647 $30,145
Not subject to the mortgage.................. 17,855 10,301
------- -------
Cash included in current assets.............. $34,502 $40,446
======= =======
Restricted cash included in noncurrent assets $60,044 $62,649
======= =======
MOC, which owns substantially all of the limited partnership interests
of HCLP, is party to a services agreement with HCLP. MOC provides services
necessary to operate the Hugoton field properties and market production
therefrom, process remittances of production revenues and perform certain
other administrative functions in exchange for a services fee. The fee
totaled approximately $9.0 million for the nine-month period ended September
30, 1994 and $7.9 million for the same period in 1993.
Credit Agreement
- ----------------
The Company's bank credit agreement (the Credit Agreement), provided
for $80 million of initial borrowings in the third quarter of 1993, $10
million in letter of credit obligations and required scheduled principal
payments of $10 million in the fourth quarter of 1993, $30 million in the
first half of 1994, and the remaining balance at final maturity in the
second quarter of 1995 (including an obligation to cash collateralize any
remaining letter of credit obligations outstanding at that time). As of
September 30, 1994, the Company had outstanding borrowings of approximately
$36.1 million under the Credit Agreement and had $11.4 million in letter of
credit obligations outstanding secured under the Credit Agreement.
The rate of interest payable on borrowings under the Credit Agreement
is the Eurodollar rate plus 1-1/2% or the prime rate. Obligations under the
Credit Agreement are secured by a first lien on the Company's West Panhandle
field properties, the Company's equity interest in MOC and a 77% limited
partner interest in HCLP.
The Credit Agreement requires the Company to maintain tangible adjusted
equity, as defined, of $50 million. At September 30, 1994, the Company's
tangible adjusted equity, as defined, was approximately $139 million.
The Credit Agreement also requires the Company to maintain a ratio of
cash flow and available cash to debt service, as each is defined, of 1.50 to
1 as of the end of each fiscal quarter. The ratio as calculated at
September 30, 1994, was 1.42 to 1.
In the fourth quarter of 1994, the Company negotiated an amendment to
the Credit Agreement, which, when finalized, will extend its final maturity
date until June 1997 and increase the amount that may be borrowed to $82.5
million, including letters of credit. The terms of the amendment require
principal payments of $10 million in December 1995, $22.5 million in 1996
and the remainder in June 1997 (including cash collateralization of letters
of credit outstanding at that time). The amendment also eliminates the
covenant regarding the ratio of cash flow and available cash to debt
service. Effectiveness of the amendment is subject to final documentation
and customary closing conditions.
The provisions of the Credit Agreement also prohibit the Company from
paying any dividends to equity holders, other than those paid in the form of
equity securities.
Discount Notes
- --------------
In conjunction with a debt exchange transaction consummated on August
26, 1993, the Company issued the Discount Notes consisting of approximately
$435.5 million initial accreted value, as defined, of 12-3/4% secured
discount notes due June 30, 1998 and $136.9 million initial accreted value,
as defined, of 12-3/4% unsecured discount notes due June 30, 1996. The
Company also issued $29.3 million principal amount of 0% convertible notes
due June 30, 1998, which were converted into approximately 7.5 million
shares of common stock by the end of 1993. The Discount Notes, which rank
pari passu with each other, are senior in right of payment to the remaining
13-1/2% subordinated notes due 1999 and subordinate to all permitted first
lien debt, as defined, including obligations under the Credit Agreement.
The Discount Notes will not accrue interest through June 30, 1995;
however, the accreted value, as defined, of both series increases at a rate
of 12-3/4% per year, compounded semiannually, until June 30, 1995. After
June 30, 1995, each series will accrue interest at an annual rate of 12-
3/4%, payable in cash semiannually in arrears, with the first payment due
December 31, 1995.
In the second quarter of 1994, the Company completed the Equity
Offering (see note 2). The Company used approximately $87 million of the
$93 million of net proceeds from the Equity Offering to redeem or repurchase
$87 million accreted value ($99.1 million face amount at maturity) of 12-
3/4% unsecured discount notes which were due in 1996.
The Company intends to use the proceeds from increased borrowings under
its amended Credit Agreement to redeem or repurchase approximately one-half
of the 12-3/4% unsecured discount notes outstanding as of September 30,
1994.
The 12-3/4% secured discount notes are secured by second liens on the
Company's West Panhandle field properties and on a 77% limited partner
interest in HCLP, both of which also secure obligations under the Credit
Agreement. The Company's right to maintain first lien debt, as defined, is
limited by the terms of the Discount Notes to $82.5 million.
The indentures governing the Discount Notes restrict, among other
things, the Company's ability to incur additional indebtedness, pay
dividends, acquire stock or make investments, loans and advances.
On March 2, 1994, the Company issued $48.2 million face amount of
additional 12-3/4% secured discount notes due June 30, 1998. The proceeds
of $42.8 million were used to pay the settlement amount arising from the
early 1994 settlement of a lawsuit with Unocal. The additional indebtedness
incurred to settle the Unocal lawsuit was specifically permitted under the
terms of the indentures governing the Discount Notes and under the Credit
Agreement. See note 7 for additional discussion of the Unocal litigation.
Subordinated Notes
- ------------------
The 13-1/2% subordinated notes are unsecured and mature in 1999.
Interest on these notes is payable semiannually in cash. The 12%
subordinated notes outstanding as of December 31, 1993 were redeemed on May
31, 1994 with proceeds from the Equity Offering (see Note 2).
Interest and Maturities
- -----------------------
The aggregate interest payments made during the nine months ended
September 30, 1994 and 1993 were $58.3 million and $86.0 million,
respectively. Payment of approximately $59.8 million of interest expense
incurred during the nine months ended September 30, 1994 has been deferred
until the maturities of the Discount Notes. Such interest is included in
interest expense in the consolidated statements of operations.
The expected principal repayments on long-term debt for the remainder
of 1994 and for the four succeeding years are as follows (in millions):
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
HCLP Secured Notes(a).......... $ -- $ 15.3 $ 32.3 $ 36.0 $ 37.3
Credit Agreement(b) (c)........ -- 10.0 22.5 38.6 --
12-3/4% secured
discount notes............... -- -- -- -- 617.4
12-3/4% unsecured
discount notes (c)........... 39.9 -- 37.3 -- --
Other.......................... -- 5.3 -- -- --
------ ------ ------ ------ ------
Total..................... $ 39.9 $ 30.6 $ 92.1 $ 74.6 $654.7
====== ====== ====== ====== ======
(a) Reflects estimated required principal payments under the terms of the
HCLP Secured Note agreements assuming principal payments will be based
on actual production and prices received from HCLP's Hugoton
properties.
(b) Excludes approximately $11 million in letter of credit obligations
currently outstanding and required to be cash collateralized in 1997.
(c) Assumes the effectiveness of the amendment to the Credit Agreement and
the Company's intent to redeem or repurchase approximately one-half of
the unsecured Discount Notes with proceeds from additional borrowings
under the Credit Agreement.
Fair Value of Long-Term Debt
- ----------------------------
Based on borrowing rates currently available for secured debt with
similar maturities and credit rating, the fair value of the HCLP Secured
Notes at September 30, 1994 is estimated to be approximately $546 million.
Based on borrowing rates currently available for bank loans with
similar collateral, the fair value of the borrowings under the Credit
Agreement at September 30, 1994, is estimated to be their carrying value.
The Discount Notes are publicly traded but not listed on a national
securities exchange. Based on trading prices available at September 30,
1994, the fair value of the 12-3/4% secured discount notes is estimated to
be approximately $545 million and the fair value of the 12-3/4% unsecured
discount notes is estimated to be approximately $72 million.
The 13-1/2% subordinated notes are publicly traded but have not
experienced significant activity. Based on recent trades, the fair value of
the 13-1/2% subordinated notes is not materially different from their
carrying value.
(5) OTHER INCOME (EXPENSE)
======================
In April 1993, the Company sold a portion of its Rocky Mountain area
properties for approximately $7.1 million, after adjustments, and recorded a
gain on the sale of approximately $4.1 million. The Company also retained a
reversionary interest in the properties under which the Company will receive
a 50% net profits interest in the properties after the purchaser has
recovered its investment and certain other costs and expenses.
In June 1993, the Company sold its interest in the deep portion of the
Hugoton field not owned by HCLP for approximately $19.0 million, after
adjustments, and recorded a gain on the sale of approximately $5.5 million.
During the nine-month period ended September 30, 1994 and 1993, the
Company recognized gains totaling $16.6 million and $13.8 million,
respectively, representing collection of additional interest amounts
relating to a 1988 loan from the Company to Bicoastal Corporation
(Bicoastal). Bicoastal emerged from bankruptcy in 1992 and has since repaid
of all of its principal obligations relating to such loan.
(6) STOCKHOLDERS' EQUITY
====================
At December 31, 1993, the Company had outstanding 46.5 million shares
of common stock and the Company owned a 97.38% interest in its direct
subsidiaries; the General Partner owned a 2.62% interest. In January 1994,
the remaining general partner interest was converted into common stock. See
note 1 for further discussion of the conversion in 1994 of the remaining
general partner interest into common stock of the Company.
In the second quarter of 1994, the Company completed the Equity
Offering which resulted in the issuance of an additional 16.3 million shares
of common stock, which increased the number of shares of common stock
outstanding to 64.1 million, and an increase in stockholders' equity of
approximately $93 million. Proceeds from the Equity Offering were used to
reduce long-term debt.
The Company has authorized 10 million shares of preferred stock. No
shares of preferred stock have been issued as of September 30, 1994.
(7) CONTINGENCIES
=============
Unocal
- ------
The Company was subject to a lawsuit relating to a 1985 investment in
Unocal which asserted that certain profits allegedly realized by the Company
and other defendants upon the disposition of Unocal common stock in 1985
were recoverable by Unocal pursuant to Section 16(b) of the Securities
Exchange Act of 1934. On January 11, 1994, the Company and the other
defendants entered into a settlement agreement (the Settlement Agreement)
whereby they agreed to pay Unocal an aggregate of $47.5 million, of which
$42.75 million was to be paid by the Company and $4.75 million by the other
defendants. The Settlement Agreement was approved by the court on February
28, 1994. The Company funded its share of the settlement amount with
proceeds from issuance of additional long-term debt. See note 4 for
discussion of the issuance of the additional long-term debt.
As a result of the settlement, the Company recognized a $42.8 million
loss in the fourth quarter of 1993.
Masterson
- ---------
In February 1992, the current lessors of an oil and gas lease (the Gas
Lease) dated April 30, 1955, between R. B. Masterson, et al., as lessor, and
Colorado Interstate Gas Company (CIG), as lessee, sued CIG in Federal
District Court in Amarillo, Texas, claiming that CIG had underpaid royalties
due under the Gas Lease. The Company owns an interest in the Gas Lease.
The plaintiffs, in their Second Amended Complaint, included the Company as a
defendant. The plaintiffs allege that the underpayment was the result of
CIG's use of an improper gas sales price upon which to calculate royalties
and that the proper price should have been determined pursuant to a favored
nations clause in a July 1, 1967 amendment to the Gas Lease. The plaintiffs
also sought a declaration by the court as to the proper price to be used for
calculating future royalties.
In August 1992, CIG filed a third-party complaint against the Company
for any such royalty underpayments which may be allocable to the Company's
interest in the Gas Lease.
The plaintiffs subsequently dismissed their claims against the Company
for reasons relating to the jurisdiction of the federal court; however, the
third-party complaint by CIG against the Company is not affected by the
dismissal.
The plaintiffs allege royalty underpayments of approximately $500
million (including interest at 10%) covering the period July 1, 1967 to the
present. In addition, the plaintiffs seek exemplary damages. Management
believes that the Company has several defenses to plaintiffs' claims,
including (i) that the royalties for all periods were properly computed and
paid and (ii) that plaintiffs' claims with respect to all periods prior to
October 1, 1988 and/or 1989 (which appear to account for approximately $400
million of the claims) were explicitly released by a 1988 written agreement
among plaintiffs, CIG and the Company and are further barred by the statute
of limitations and (iii) from October 1, 1988 thereafter the favored nations
clause was suspended because CIG and the Company only had to pay the
expressly agreed to Federal Energy Regulatory Commission rate or market
value rate set forth in the 1988 royalty agreements. If the plaintiffs were
to prevail, the manner in which any resulting liability would be shared
between the Company and CIG would depend on the resolution of issues
relating to the contractual agreements and the relationship between the
Company, CIG and the lessors during the period in question. The case has
been set for trial beginning November 28, 1994.
The Company does not expect the resolution of this lawsuit to have a
material adverse effect on its financial position or results of operations,
however, no determination can be made at this time as to the ultimate
outcome of the litigation.
Preference Unitholders
- ----------------------
The Company is a defendant in lawsuits related to the Corporate
Conversion filed in the U.S. District Court for the Northern District of
Texas--Dallas Division. Plaintiffs allege, among other things, that (i) the
proxy materials delivered to unitholders in connection with the Corporate
Conversion contained material misstatements and omissions, (ii) the general
partner of the Partnership breached fiduciary duties to the preference
unitholders in structuring the transaction and allocating the common stock
of the Company and (iii) the Corporate Conversion was implemented in breach
of the partnership agreement of the Partnership because defendants allegedly
did not obtain the requisite opinion of independent counsel regarding
certain tax effects of the transaction. The Company and the other
defendants have denied the allegations and believe they are without merit.
Plaintiffs seek a declaration declaring the Corporate Conversion void and
rescinding it, an order requiring payment of $164 million to the former
preference unitholders in respect of the preferential distribution rights of
their units, unspecified compensatory and punitive damages and other relief.
On August 12, 1994, the Court granted motions filed by the Company for
summary judgment on all issues and ordered that the plaintiffs take nothing
and that their complaint be dismissed. The plaintiffs have appealed the
Court's judgment to the U.S. Court of Appeals for the Fifth Circuit.
Other
- -----
The Company is also a defendant in other lawsuits and has assumed
liabilities relating to Mesa Petroleum Co. and the Partnership. The Company
does not expect the resolution of these other matters to have a material
adverse effect on its financial position or results of operations.
(8) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
============================================
The Company conducts its operations through various direct and indirect
subsidiaries. On September 30, 1994, the Company's direct subsidiaries were
MOC and Mesa Holding Co. (MHC). MOC owns all of the Company's interest in
the West Panhandle field of Texas, the Gulf Coast and the Rocky Mountain
areas, as well as an approximate 99% limited partnership interest in HCLP.
MHC owns cash and securities, an approximate 1% limited partnership interest
in HCLP and 100% of MESA Environmental Ventures Co. (Mesa Environmental), a
company established to compete in the natural gas vehicle market. See
discussion below for 1994 changes in subsidiaries and HCLP ownership. HCLP
owns substantially all of the Company's Hugoton field natural gas properties
and is liable for the HCLP Secured Notes (see note 4). The assets and cash
flows of HCLP that are subject to the mortgage securing the HCLP Secured
Notes are dedicated to service the HCLP Secured Notes and are not available
to pay creditors of the Company or its subsidiaries other than HCLP. MOC
and the Company are liable for the Credit Agreement, the 13-1/2%
subordinated notes and the Discount Notes. Mesa Capital Corp. (Mesa
Capital), a wholly owned financing subsidiary of MOC, is also an obligor
under the 13-1/2% subordinated notes and the Discount Notes. Mesa Capital,
which has insignificant assets and results of operations, is included with
MOC in the condensed consolidating financial statements. MESA Environmental
is included with MHC in the condensed consolidating financial statements.
In early 1994, the Company effected a series of merger transactions
which resulted in the conversion of the predecessors of MOC, MHC and the
other subsidiary partnerships, other than HCLP, to corporate form and
eliminated all of the General Partner's minority interests in the
subsidiaries.
As of December 31, 1993, MHC had intercompany payables to MOC of
approximately $123 million. On February 28, 1994, MHC assigned an 18%
limited partnership interest in HCLP (out of its total interest of
approximately 19%) to MOC in satisfaction of $90 million of intercompany
payables. Provisions of the Discount Note indentures required the repayment
of intercompany indebtedness to specified levels and provided that any HCLP
limited partnership interests transferred in satisfaction of intercompany
debt would be valued at $5 million for each one percent of interest
assigned. MHC has also repaid an additional $33 million of intercompany
debt to MOC in cash during 1994. As a result of these transactions, MOC now
owns 99% of the limited partnership interest in HCLP, and all of the
Company's intercompany debt which was outstanding at December 31, 1993 has
been eliminated.
The following are condensed consolidating financial statements of MESA
Inc., HCLP, MOC, which includes Mesa Capital, and MHC, which includes Mesa
Environmental, (in millions):
Condensed Consolidating Balance Sheets
- --------------------------------------
Consol. The
MESA and Company
September 30, 1994 Inc. HCLP MOC MHC Elimin. Consol'd
- ------------------ ---- ---- ---- ---- ------- --------
Assets:
Cash and cash investments... $ - $ 34 $ 12 $ 69 $ - $ 115
Other current assets........ - 13 40 6 - 59
---- ---- ---- ---- ------ ------
Total current assets...... - 47 52 75 - 174
---- ---- ---- ---- ------ ------
Property, plant and
equipment, net............. - 635 506 1 - 1,142
Investment in subsidiaries.. 148 - 127 9 (284) -
Intercompany receivables.... - - 9 4 (13) -
Other noncurrent assets..... - 85 59 3 - 147
---- ---- ---- ---- ------ ------
$148 $767 $753 $ 92 $ (297) $1,463
==== ==== ==== ==== ====== ======
Liabilities and Equity:
Current liabilities......... $ - $ 33 $ 26 $ 1 $ - $ 60
Long-term debt.............. - 505 681 - - 1,186
Intercompany payables....... 9 - 4 - (13) -
Other noncurrent liabilities - - 74 4 - 78
Partners'/Stockholders'
equity (deficit)........... 139 229 (32) 87 (284) 139
---- ---- ---- ---- ------ ------
$148 $767 $753 $ 92 $ (297) $1,463
==== ==== ==== ==== ====== ======
December 31, 1993
- -----------------
Assets:
Cash and cash investments... $ - $ 40 $ 16 $ 83 $ - $ 139
Other current assets........ - 23 22 12 - 57
---- ---- ---- ---- ------ ------
Total current assets...... - 63 38 95 - 196
---- ---- ---- ---- ------ ------
Property, plant and
equipment, net............. - 656 535 1 - 1,192
Investment in subsidiaries.. 121 - 44 189 (354) -
Intercompany receivables.... - - 113 - (113) -
Other noncurrent assets..... - 87 55 3 - 145
---- ---- ---- ---- ------ ------
$121 $806 $785 $288 $ (467) $1,533
==== ==== ==== ==== ====== ======
Liabilities and Equity:
Current liabilities......... $ - $ 73 $ 46 $ 1 $ - $ 120
Long-term debt.............. - 499 675 - - 1,174
Intercompany payables....... 9 - - 123 (132) -
Other noncurrent liabilities - - 120 4 - 124
Minority interest........... - - - - 3 3
Partners'/Stockholders'
equity (deficit)........... 112 234 (56) 160 (338) 112
---- ---- ---- ---- ------ ------
$121 $806 $785 $288 $ (467) $1,533
==== ==== ==== ==== ====== ======
Condensed Consolidating Statements of Operations
- ------------------------------------------------
Nine months Ended:
- -----------------
Consol. The
MESA and Company
September 30, 1994 Inc. HCLP MOC MHC Elimin. Consol'd
- ------------------ ---- ---- ---- ---- ------- --------
Revenues...................... $ - $ 81 $ 79 $ - $ - $ 160
---- ---- ---- ---- ------ ------
Costs and Expenses:
Operating, exploration
and taxes.................. - 22 37 - - 59
General and administrative.. - - 18 2 - 20
Depreciation, depletion and
amortization............... - 25 43 - - 68
---- ---- ---- ---- ------ ------
- 47 98 2 - 147
---- ---- ---- ---- ------ ------
Operating Income (Loss)....... - 34 (19) (2) - 13
---- ---- ---- ---- ------ ------
Interest Expense, Net of
Interest Income.............. - (36) (65) 2 - (99)
Securities Gains (Losses)..... - - 4 (1) - 3
Loss on Repayment of
Intercompany Debt............ - - - (91)(d) 91 -
Equity in Loss of
Subsidiaries................. (71) - (2) - 73 -
Other......................... 2 - 16 17 (21) 14
---- ---- ---- ---- ------ ------
Net Loss...................... $(69) $ (2) $(66) $(75) $ 143 $ (69)
==== ==== ==== ==== ====== ======
September 30, 1993
- ------------------
Revenues...................... $ - $ 68 $ 89 $ - $ - $ 157
---- ---- ---- ---- ------ ------
Costs and Expenses:
Operating, exploration
and taxes.................. - 19 36 - - 55
General and administrative.. - - 16 2 - 18
Depreciation, depletion and
amortization............... - 23 47 - - 70
---- ---- ---- ---- ------ ------
- 42 99 2 - 143
---- ---- ---- ---- ------ ------
Operating Income (Loss)....... - 26 (10) (2) - 14
---- ---- ---- ---- ------ ------
Interest Expense, Net of
Interest Income.............. - (37) (61) 1 - (97)
Intercompany Interest
Income (Expense)............. - - 12 (12) - -
Securities Gains (Losses)..... - - 7 (1) - 6
Equity in Loss of Subsidiaries (59) - (9) (2) 70 -
Minority Interest............. - - - - 3 3
Other......................... - - (7) 17 5 15
---- ---- ---- ---- ------ ------
Net Income (Loss)............. $(59) $(11) $(68) $ 1 $ 78 $ (59)
==== ==== ==== ==== ====== ======
Condensed Consolidating Statements of Cash Flows
- ------------------------------------------------
Nine months Ended:
- -----------------
Consol. The
MESA and Company
September 30, 1994 Inc. HCLP MOC MHC Elimin. Consol'd
- ------------------ ---- ---- ---- ---- ------- --------
Cash Flows from
Operating Activities........ $ 3 $ 22 $(43) $ 23 $ (3) $ 2
---- ---- ---- ---- ------ ------
Cash Flows from
Investing Activities:
Capital expenditures....... - (4) (14) (1) - (19)
Contributions to
subsidiaries.............. (96) - (5) (1) 102 -
Distributions from
subsidiaries.............. - - 10 - (10) -
Other...................... - - 28 (5) (30) (7)
---- ---- ---- ---- ------ ------
(96) (4) 19 (7) 62 (26)
---- ---- ---- ---- ------ ------
Cash Flows from
Financing Activities:
Issuance of common stock... 93 - - - - 93
Repayments of long-term
debt...................... - (22) (116) - - (138)
Long-term borrowings....... - - 43 - - 43
Contributions from equity
holders................... - 6 93 3 (102) -
Distributions to partners.. - (10) (3) - 13 -
Other...................... - 2 3 (33) 30 2
---- ---- ---- ---- ------ ------
93 (24) 20 (30) (59) -
---- ---- ---- ---- ------ ------
Net Decrease in Cash and
Cash Investments............ $ - $ (6) $ (4) $(14) $ - $ (24)
==== ==== ==== ==== ====== ======
September 30, 1993
- ------------------
Cash Flows from
Operating Activities....... $ - $ 3 $ 17 $ (8) $ - $ 12
---- ---- ---- ---- ------ ------
Cash Flows from
Investing Activities:
Capital expenditures....... - (6) (15) (1) - (22)
Proceeds from sales of oil
and gas properties........ - - 23 3 - 26
Other...................... - - 4 2 (6) -
---- ---- ---- ---- ------ ------
- (6) 12 4 (6) 4
---- ---- ---- ---- ------ ------
Cash Flows from
Financing Activities:
Repayments of long-term
debt...................... - (39) (22) - - (61)
Other...................... - 2 (9) (6) 6 (7)
---- ---- ---- ---- ------ ------
- (37) (31) (6) 6 (68)
---- ---- ---- ---- ------ ------
Net Decrease in Cash and
Cash Investments............ $ - $(40) $ (2) $(10) $ - $ (52)
==== ==== ==== ==== ====== ======
Notes to Condensed Consolidating Financial Statements
- -----------------------------------------------------
(a) These condensed consolidating financial statements should be read in
conjunction with the consolidated financial statements of the Company
and notes thereto of which this note is an integral part.
(b) As of September 30, 1994, the Company owns 100% interest in each of MOC
and MHC. These condensed consolidating financial statements present
the Company's investment in its subsidiaries and MOC's and MHC's
investments in HCLP using the equity method. Under this method,
investments are recorded at cost and adjusted for the parent company's
ownership share of the subsidiary's cumulative results of operations.
In addition, investments increase in the amount of contributions to
subsidiaries and decrease in the amount of distributions from
subsidiaries.
(c) The consolidation and elimination entries (i) eliminate the equity
method investment in subsidiaries and equity in income (loss) of
subsidiaries, (ii) eliminate the intercompany payables and receivables,
(iii) eliminate other transactions between subsidiaries including
contributions and distributions and (iv) establish the General
Partner's minority interest in the consolidated results of operations
and financial position of the Company.
(d) The condensed consolidating statement of operations of MHC for the
nine months ended September 30, 1994 reflects a $91 million loss from
its disposition of an 18% equity interest in HCLP. The HCLP interest
was used to repay a portion of MHC's intercompany payable to MOC and
was valued, in accordance with the provisions of the Discount Notes, at
$5 million for each one percent of interest assigned. A loss was
recognized for the difference between the carrying value of the HCLP
interests assigned to MOC and the $90 million value attributed to such
interests which reduced the intercompany payable. The loss recognized
by MHC is eliminated in consolidation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
=====================
MESA Inc. (Mesa) incurred a net loss of $25.9 million in the third
quarter of 1994 compared with a net loss of $27.5 million in the third
quarter of 1993. Mesa incurred a net loss of $69.0 million for the nine
months ended September 30, 1994 compared with a net loss of $59.0 million
for the same period in 1993.
Revenues
- --------
The following table presents the reported revenues, production and
average prices from sales of natural gas, natural gas liquids and oil and
condensate for the three- and nine-month periods ended September 30, 1994
and 1993.
Three Months Nine months
Ended Ended
September 30 September 30
--------------- ----------------
1994 1993 1994 1993
------- ------- ------- --------
Revenues (in thousands):
Natural gas...................... $24,062 $27,870 $96,763 $101,340
Natural gas liquids.............. 17,753 11,928 50,562 43,781
Oil and condensate............... 1,820 1,607 5,519 8,743
Production:
Natural gas equivalents (MMcfe*). 28,157 23,332 89,384 81,104
Natural gas (MMcf).......... 17,801 16,870 57,212 58,082
Natural gas liquids (MBbls). 1,610 975 4,975 3,341
Oil and condensate (MBbls).. 116 102 387 496
Average Prices:
Natural gas (per Mcf)............ $ 1.25**$ 1.67 $ 1.67** $ 1.76
Natural gas liquids (per Bbl).... 11.04 12.10 10.20 13.06
Oil and condensate (per Bbl)..... 15.98 15.70 14.44 17.49
* Quantities stated as equivalent natural gas are based on a factor of 6
thousand cubic feet of natural gas per barrel of liquids.
** The average natural gas prices reported for the three months and nine
months ended September 30, 1994 reflect losses of $.19 and $.06,
respectively, related to hedges of natural gas production in the
natural gas futures market.
Total equivalent natural gas production increased in 1994 compared with
the same periods in 1993, principally due to increased production in the
Hugoton field. Equivalent production from Mesa's properties in the Hugoton
field increased due to higher field allowables and increased natural gas
liquids recoveries at Mesa's Satanta natural gas processing plant, which
began processing Hugoton production in late 1993. The recently enacted
field rule changes, which became effective on April 1, 1994, are expected to
allow Mesa to increase its Hugoton production for the remainder of 1994 and
in future years as compared to 1993 levels.
The average natural gas price of $1.25 per Mcf for the third quarter of
1994 decreased due to lower spot market prices and the recognition of losses
from hedging transactions in the natural gas futures market (see note 1 to
the consolidated financial statements). The actual average price received in
the third quarter of 1994 was $1.44 per Mcf. Natural gas liquids and oil
and condensate prices decreased in 1994 compared with 1993 primarily due to
lower world market prices for crude oil.
Costs and Expenses
- ------------------
Total costs and expenses for the three- and nine-month periods ending
September 30, 1994 are greater than such amounts in the same periods of
1993. General and administrative (G&A) expenses were higher in 1994 than in
1993 due to litigation expenses associated with Mesa's defense of a royalty
lawsuit in the West Panhandle field (see note 7 to the consolidated
financial statements). Lease operating expenses have also increased in 1994
compared with 1993. Such expenses reflect the higher operating costs of
Mesa's new Satanta natural gas processing plant in the Hugoton field and
higher Hugoton field production. Lease operating expenses, however, have
decreased on a unit of production basis due to increased natural gas liquids
production and increased allowables in the Hugoton field. Exploration
charges in 1994 are greater than such charges in 1993 reflecting Mesa s
increased exploration activities in the Gulf of Mexico. The increased 1994
costs result primarily from the purchase of 3-D seismic data.
Depreciation, depletion and amortization expense (DD&A) was
approximately the same for the third quarters of 1994 and 1993 and such
expense was $2 million lower for the nine months ended September 30, 1994 as
compared with the same period in 1993 despite increases in equivalent
production in 1994. DD&A expense reflects lower expense in the Gulf Coast
as those higher-cost properties continue to experience declining production
and inclusion of certain anticipated oil and gas reserve increases in the
calculation of DD&A expense. These factors offset the effect of overall
increased equivalent production.
Other Income (Expense)
- ----------------------
Other income includes gains of $16.6 million and $13.8 million for the
nine months ended September 30, 1994 and 1993, respectively from the
collection of additional interest from Bicoastal Corporation (Bicoastal).
Bicoastal emerged from bankruptcy in 1992 and has since repaid all of its
principal obligations related to a 1988 loan from Mesa to Bicoastal. Mesa
has additional interest claims but does not expect Bicoastal to have
sufficient funds to make significant future payments.
The results of operations of Mesa for the three- and nine-month periods
ended September 30, 1994 and 1993 were significantly affected by gains and
losses from securities transactions. Mesa recognized a net gain from its
transactions in marketable securities and futures contracts of approximately
$8.5 million and a net loss of $4.7 million for the three months ended
September 30, 1994 and 1993, respectively, and a net gain of $3.2 million
compared with a net gain of $5.8 million for the nine months ended September
30, 1994 and 1993, respectively. These net gains and losses resulted
primarily from investments in natural gas futures contracts not accounted
for as hedges of natural gas production. In the second quarter of 1993,
Mesa sold certain of its oil producing properties in the deep Hugoton and
Rocky Mountain areas for an aggregate $26.1 million and recognized a gain on
the sales of $9.6 million. In the third quarter of 1993, Mesa expensed
approximately $7.6 million of costs associated with the completion of its
$600 million debt exchange offer.
Production Allocation Agreement
- -------------------------------
Effective January 1, 1991, the Company entered into a Production
Allocation Agreement (PAA) with Colorado Interstate Gas Co. (CIG) which
allocates 77% of reserves and production from the West Panhandle field to
the Company and 23% to CIG. The Company records its 77% ownership interest
in natural gas production as revenue. The difference between the net value
of production sold by the Company and the net value of its 77% entitlement
is accrued as a gas balancing receivable. The revenues and costs associated
with such accrued production are included in results of operations.
The following table represents the incremental effect on results of
operations and production from entitlement production recorded in excess of
actual sales as a result of the PAA (in thousands).
Three Months Ended Nine months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
------ ------ ------- -------
Revenues accrued.................. $2,603 $ 196 $ 8,112 $ 1,589
Costs and expenses accrued........ (911) 60 (2,839) 117
Depreciation, depletion and
amortization..................... (1,113) 95 (3,593) 206
------ ------ ------- -------
$ 579 $ 351 $ 1,680 $ 1,912
====== ====== ======= =======
Production Accrued:
Natural gas (MMcf)........... 729 (65) 2,271 (141)
Natural gas liquids (MBbls).. 106 (10) 332 (24)
Oil and condensate (MBbls)... 4 -- 14 --
Helium (MMcf)................ 1 17 2 53
At September 30, 1994, the long-term gas balancing receivable from CIG,
net of accrued costs, relating to the PAA was $39.6 million, which is
included in other assets in the consolidated balance sheet. The provisions
of the PAA allow for periodic and ultimate cash balancing to occur. The PAA
also provides that CIG may not take in excess of its 23% share of ultimate
production.
CAPITAL RESOURCES AND LIQUIDITY
===============================
Financial Condition and Cash Requirements
- -----------------------------------------
Mesa owns and operates its oil and gas properties through direct and
indirect subsidiaries. Hugoton Capital Limited Partnership (HCLP) owns
substantially all of Mesa's Hugoton field natural gas properties. HCLP was
established in 1991 to own these properties and to issue secured long-term
debt (the HCLP Secured Notes). The assets and cash flows of HCLP that are
subject to the mortgage securing the HCLP Secured Notes are dedicated to
service HCLP's debt and are not available to pay creditors of Mesa or its
subsidiaries other than HCLP. However, any "excess cash," as defined in the
HCLP debt agreements, may be distributed by HCLP to Mesa Operating Co. (MOC)
and Mesa Holding Co. (MHC) to be used for general corporate purposes. MOC
owns all of Mesa's interest in the West Panhandle field of Texas and the
Gulf Coast and the Rocky Mountain areas. At September 30, 1994, MOC owned
an approximate 99% limited partnership interest in HCLP. MHC owns cash and
securities, a 1% interest in HCLP and 100% of MESA Environmental Ventures
Co., a company established to compete in the natural gas vehicle market.
The following table summarizes certain components of Mesa's financial
position and cash flows as of and for the nine months ended September 30,
1994 (in thousands):
MOC HCLP MHC Total
-------- -------- -------- ----------
Debt:
HCLP Secured Notes...... $ -- $520,180 $ -- $ 520,180
Credit Agreement
and other............. 41,432 -- -- 41,432
12-3/4% secured
discount notes........ 564,657 -- -- 564,657
12-3/4% unsecured
discount notes........ 72,701 -- -- 72,701
13-1/2% subordinated
notes................. 7,390 -- -- 7,390
-------- -------- -------- ----------
$686,180 $520,180 $ -- $1,206,360
======== ======== ======== ==========
Cash and securities(a).... $ 33,776 $ 34,502(c) $ 71,341 $ 139,619
======== ======== ======== ==========
Working capital........... $ 26,444 $ 13,071 $ 74,676 $ 114,191
======== ======== ======== ==========
Restricted cash (in
noncurrent assets)..... $ -- $ 60,044 $ -- $ 60,044
======== ======== ======== ==========
Operating cash flows
before interest and
litigation settlement.. $ 1,561 $ 70,061 $ 21,411 $ 93,033
Litigation settlement..... (42,750) -- -- (42,750)
Interest payments, net(b). (2,101) (48,710) 2,066 (48,745)
-------- -------- -------- ----------
Cash flows from
operating activities... $(43,290) $ 21,351 $ 23,477 $ 1,538
======== ======== ======== ==========
(a) Included in working capital.
(b) Cash interest payments, net of interest income.
(c) Includes $17.9 million of cash not subject to the HCLP Secured
Notes mortgage that may be distributed to MOC and MHC.
The HCLP Secured Notes, for which HCLP is the sole obligor, are secured
by its Hugoton field properties and are due in semiannual installments
through August 2012, but may be repaid earlier. Mesa's bank credit
agreement, as amended (the Credit Agreement), is a facility under which
approximately $36.1 million of borrowings and $11.4 million of letter of
credit obligations were outstanding at September 30, 1994. Obligations
under the Credit Agreement are secured by a first lien on MOC's West
Panhandle properties, Mesa's equity interest in MOC and a 77% limited
partner interest in HCLP. Borrowings under the Credit Agreement (assuming
effectiveness of the pending amendment described below) will be due in
installments with final maturity in 1997. Mesa and MOC are obligors under
the Credit Agreement. The 12-3/4% secured discount notes are due in 1998
and are secured by second liens on MOC's West Panhandle properties and a 77%
limited partner interest in HCLP. The remaining 12-3/4% unsecured discount
notes are due in 1996. The 13-1/2% subordinated notes (unsecured) have a
stated maturity of May 1999. The 12-3/4% secured discount notes and 12-3/4%
unsecured notes (together, the Discount Notes) and the 13-1/2% subordinated
notes are obligations of MOC, Mesa and Mesa Capital Corporation, a financing
subsidiary of MOC.
In recent years, Mesa has repaid or refinanced a substantial amount of
its debt primarily with proceeds from sales of oil and gas properties and
through long-term debt refinancing transactions. In the second quarter of
1994, Mesa completed a public offering of over 16 million shares of common
stock at a public offering price of $6.00 per share (the Equity Offering).
The Equity Offering resulted in net proceeds to Mesa of about $93 million
which were used to redeem approximately $6 million of 12% subordinated notes
then outstanding, plus accrued interest, and approximately $87 million
accreted value ($99.1 million face amount at maturity) of the 12-3/4%
unsecured discount notes, both of which were scheduled to mature in 1996.
During the third quarter of 1994, the Company negotiated an amendment
to its Credit Agreement which, when finalized, will extend final maturity of
this facility to 1997 and increase the borrowing capacity of such facility
(see note 4 to the consolidated financial statements for additional
discussion). In the fourth quarter of 1994, the Company intends to borrow
an additional $35 million under the Credit Agreement and redeem or
repurchase approximately one-half of the remaining 12-3/4% unsecured
discount notes due in 1996.
The following tables summarize Mesa's 1993 actual and 1994 through 1997
forecast cash requirements, assuming no changes in capital structure other
than the amendment to the Credit Agreement and the related redemption of 12-
3/4% discount notes discussed above, for interest, debt principal and
capital expenditures (in thousands):
Actual Forecast
-------- -----------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
HCLP:
Interest payments,
net(a)................ $ 50,185 $ 46,900 $ 45,500 $ 43,200 $ 38,800
Principal repayments(b). 39,250 21,400 15,300 32,300 36,000
Capital expenditures(c). 8,090 6,000 9,200 3,900 --
-------- -------- -------- -------- --------
$ 97,525 $ 74,300 $ 70,000 $ 79,400 $ 74,800
======== ======== ======== ======== ========
MOC:
Interest payments,
net(a)................ $ 30,547 $ (400)$ 44,800 $ 91,300 $ 95,400
Principal repayments(d). 40,852 156,000 15,300 59,800 38,600
Capital expenditures(c). 20,622 25,700 19,200 20,400 8,700
-------- -------- -------- -------- --------
$ 92,021 $181,300 $ 79,300 $171,500 $142,700
======== ======== ======== ======== ========
(a) Cash interest payments, net of interest income.
(b) Principal repayments beyond September 30, 1994 are estimated based
on expected actual production and prices from HCLP's Hugoton
properties. HCLP was previously making such payments based on the
initial scheduled amortization, but will reduce the payments as
permitted by the HCLP indentures. The initial scheduled
amortization of the HCLP Secured Notes is as follows (in
thousands):
1994 1995 1996 1997
------- ------- ------- -------
Scheduled principal repayments.... $42,900 $39,300 $45,400 $46,700
======= ======= ======= =======
(c) Forecast capital expenditures represent Mesa's best estimate of
drilling and facilities expenditures required to attain projected
levels of production from its existing properties during the
forecast period and to fund its current exploration and
development program. Mesa may incur capital expenditures in
addition to those reflected in the table.
(d) Includes approximately $93 million of principal repayments made in
1994 with proceeds from the Equity Offering. Such principal was
scheduled to mature in 1996.
Debt Covenants
- --------------
The Credit Agreement requires Mesa to maintain tangible adjusted
equity, as defined, of $50 million. At September 30, 1994, Mesa's tangible
adjusted equity, as defined, was approximately $139 million.
The Credit Agreement also required Mesa to maintain a ratio of cash
flow and available cash to debt service, as each is defined, of 1.50 to 1 as
of the end of each fiscal quarter. The ratio as calculated at September 30,
1994, was 1.42 to 1. When finalized, the terms of the Credit Agreement
amendment eliminates the ratio of cash flow and available cash to debt
service.
The indentures governing the Discount Notes restrict, among other
things, Mesa's ability to incur additional indebtedness, pay dividends,
acquire stock or make investments, loans and advances. The Credit Agreement
also restricts, among other things, Mesa's ability to incur additional
indebtedness, create liens, pay dividends, acquire stock or make
investments, loans and advances.
Company Resources and Alternatives
- ----------------------------------
Mesa expects to service its debt obligations and meet capital
expenditure requirements through 1995 with cash flows from operating
activities and available cash and securities balances. Mesa's cash flows
from operating activities are substantially dependent on the amount of oil
and gas produced and the prices received for such production. In addition,
the Discount Notes do not require interest payments until December 31, 1995.
Assuming no changes in the Company's capital structure other than the
amendment to the Credit Agreement and the related redemption of 12-3/4%
discount notes discussed above, the Company will be required to make cash
interest payments related to the Discount Notes totaling approximately $41.7
million on December 31, 1995 and approximately $81.1 million during 1996.
In addition, the remaining 12-3/4% unsecured discount notes in the amount of
$37.3 million become due in mid-1996. Mesa believes that cash flows and its
assets, including available cash, will generate sufficient funds to meet its
1996 obligations. Assuming effectiveness of the Credit Agreement amendment,
principal payments in the amount of $38.6 million related to the Credit
Agreement are due in June 1997. In addition, principal payments in the
amount of $617.4 million are due in 1998 related to the 12-3/4% secured
discount notes. The Company's financial forecasts indicate that a
significant refinancing or restructuring of the Company's capital structure
will be required to meet these obligations.
Depending on industry and market conditions, the Company may generate
cash by issuing additional equity or debt securities or selling assets.
However, the Company's two largest assets, its interests in the Hugoton and
West Panhandle fields, are pledged under long-term debt agreements, which
limit the Company's ability to raise incremental available cash by selling
assets. Mesa may issue and sell up to $300 million of debt securities
pursuant to a shelf registration statement. If and when such debt
securities are issued, the net proceeds will be used to retire existing
debt. There can be no assurances that Mesa will be able to issue any such
debt securities, raise additional equity capital or otherwise refinance its
debt.
OTHER
=====
Mesa recognizes its ownership interest in natural gas production as
revenue. Actual production quantities sold may be different from Mesa's
ownership share of production in a given period. Mesa records these
differences as gas balancing receivables or as deferred revenue. Net gas
balancing underproduction represented approximately 5.6% of total equivalent
production in the nine months ended September 30, 1994 compared with 1.5%
during the same period in 1993. The gas balancing receivable or deferred
revenue component of natural gas and natural gas liquids revenues in future
periods is dependent on future rates of production, field allowables and the
amount of production taken by Mesa or by its joint interest partners.
Mesa invests from time to time in marketable equity and other
securities and in commodity and futures contracts, primarily related to
crude oil and natural gas. Mesa also enters into natural gas futures
contracts as a hedge against natural gas price fluctuations.
Management does not anticipate that inflation will have a significant
effect on Mesa's operations.
PART II - OTHER INFORMATION
===========================
Item 1. Legal Proceedings
- --------------------------
Reference is made to Part I, Item 1, Note 7 of this Form 10-Q for
information regarding legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits (Asterisk indicates incorporated by reference herein)
*2.1 - Transaction Agreement among the Partnership, the Company,
Pickens Operating Co., and Boone Pickens, dated as of October
9, 1991, together with (i) the Form of Amendment to the
Partnership Agreement of the Partnership, (ii) the Form of
Conversion Agreement among the Partnership, Pickens Operating
Co. and Boone Pickens, (iii) the Form of Amendment to
Partnership Agreements of the Subsidiary Partnerships and
(iv) the Form of Amendment to the Articles of Incorporation
of the Company with respect to the reverse stock split, and
exhibits thereto (Exhibit 2[a] to the Company's Registration
Statement on Form S-4 [Registration No. 33-42102]).
*2.2 - Second Amendment to Transaction Agreement among Mesa Limited
Partnership, MESA Inc., Pickens Operating Co., and Boone
Pickens dated November 7, 1991, and exhibits thereto (Exhibit
2[b] to the Company's Registration Statement on Form S-4
[Registration No. 33-43833]).
*2.3 - Supplement to Transaction and Related Agreements dated as of
May 18, 1993 by and among Mesa Limited Partnership, MESA
Inc., Pickens Operating Co., and Boone Pickens (Exhibit 2[c]
to the Company's Form 10-Q/A dated June 30, 1993). (Note:
This exhibit was previously filed inadvertently by EDGAR as
Exhibit Document Type EX-99.)
*4.1 - Indenture dated as of May 1, 1993 among MESA Inc., Mesa
Operating Limited Partnership, Mesa Capital Corporation and
Harris Trust and Savings Bank, as Trustee, relating to the
secured discount notes and including (a) a form of Secured
Notes, (b) a form of Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement, dated as of May
1, 1993, between Mesa Operating Limited Partnership and
Harris Trust and Savings Bank, as trustee, securing the
Secured Notes, and (c) a form of Security Agreement, Pledge
and Financing Statement dated as of May 1, 1993 between Mesa
Operating Limited Partnership and Harris Trust and Savings
Bank, as trustee, securing the Secured Notes) (Exhibit 4[f]
to the Company's Form 10-Q/A dated June 30, 1993).
*4.2 - First Supplemental Indenture dated as of January 5, 1994,
among MESA Inc., Mesa Operating Co., Mesa Capital Corporation
and Harris Trust and Savings Bank, as Trustee (Exhibit 4.2 to
the Company's Registration Statement on Form S-1,
Registration No. 33-51909).
*4.3 - First Supplement to Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement dated as of March
2, 1994 between Mesa Operating Co. as Mortgagor and Debtor,
and Harris Trust and Savings Bank, as mortgagee and Secured
Party (Exhibit 4.8 to the Company's Form 10-Q dated March 31,
1994).
*4.4 - First Supplement to Security Agreement, Pledge and Financing
Statement dated as of March 2, 1994 by Mesa Operating Co. in
favor of Harris Trust and Savings Bank, as Trustee for the
pro rata benefit of the Noteholders under the Indenture
(Exhibit 4.9 to the Company's Form 10-Q dated March 31,
1994).
*4.5 - Indenture dated as of May 1, 1993 among MESA Inc., Mesa
Operating Limited Partnership, Mesa Capital Corporation and
American Stock Transfer & Trust Company, as Trustee, relating
to the unsecured discount notes (Exhibit 4[g] to the
Company's Form 10-Q/A dated June 30, 1993).
*4.6 - First Supplemental Indenture dated as of January 5, 1994
among MESA Inc., Mesa Operating Co., Mesa Capital Corporation
and American Stock Transfer & Trust Company, as Trustee
(Exhibit 4.4 to the Company's Registration Statement on Form
S-1, Registration No. 33-51909).
*4.7 - Indenture dated May 1, 1989 among Mesa Capital Corporation,
Mesa Limited Partnership, Mesa Operating Limited Partnership,
and Texas Commerce Bank National Association, as Trustee
(Exhibit 4[c] to the Partnership's Form 10-Q dated March 31,
1989).
*4.8 - First Supplemental Indenture dated as of December 31, 1991
among Mesa Capital Corporation, MESA Inc., Mesa Operating
Limited Partnership, as Issuers, and Texas Commerce Bank
National Association, as Trustee (Exhibit 4[e] to the
Company's Form 10-K dated December 31, 1991).
*4.9 - Second Supplemental Indenture dated as of April 30, 1992
among Mesa Capital Corporation, MESA Inc., Mesa Operating
Limited Partnership and Texas Commerce Bank National
Association, as Trustee (Exhibit 4[k] to the Company's Form
10-Q dated June 30, 1992).
*4.10 - Third Supplemental Indenture dated as of August 26, 1993
among Mesa Capital Corporation, MESA Inc., Mesa Operating
Limited Partnership and Texas Commerce Bank National
Association, as Trustee (Exhibit 4[l] to the Company's Form
10-Q/A dated June 30, 1993).
*4.11 - Fourth Supplemental Indenture dated as of January 5, 1994,
among MESA Inc., Mesa Operating Co., Mesa Capital Corporation
and Texas Commerce Bank National Association, as Trustee
(Exhibit 4.16 to the Company's Registration Statement on Form
S-1, Registration No. 33-51909).
*4.12 - Indenture dated as of May 30, 1991 among Hugoton Capital
Limited Partnership, Hugoton Capital Corporation and Bankers
Trust Company (Exhibit 4[e] to the Partnership's Form 10-Q
dated June 30, 1991).
*4.13 - First Supplemental Indenture dated September 1, 1991, among
Hugoton Capital Limited Partnership, Hugoton Capital
Corporation and Bankers Trust Company, as Trustee (Exhibit
4[h] to the Company's Registration Statement on Form S-4,
Registration No. 33-42102).
*4.14 - Amended and Restated Mortgage, Assignment, Security Agreement
and Financing Statement dated June 12, 1991 from Hugoton
Capital Limited Partnership to Bankers Trust Company, as
Collateral Agent (Exhibit 4[f] to the Partnership's Form 10-Q
dated June 30, 1991).
*4.15 - Second Amended and Restated Credit Agreement dated as of May
1, 1993 among the Company, Mesa Operating Limited
Partnership, the Banks, and Societe Generale, Southwest
Agency, as Agent (Exhibit 4.17 to the Company's Registration
Statement on Form S-4, Registration No. 33-53706).
*4.16 - Assignment and Assumption Agreement dated as of January 5,
1994, among Mesa Inc., Mesa Operating Co., Mesa Operating
Limited Partnership, Pickens Operating Co., the Banks party
to the Credit Agreement and the Agent with respect to the
Credit Agreement (Exhibit 4.21 to the Company's Registration
Statement on Form S-4, Registration No. 33-53706).
*4.17 - Intercreditor Agreement dated as of August 26, 1993, among
Societe Generale, Southwest Agency, as agent for the Banks
under the Company's Credit Agreement, Harris Trust and
Savings Bank, as trustee with respect to the Secured Notes,
and American Stock Transfer & Trust Company, as trustee with
respect to the Unsecured Notes and the Convertible Notes
(Exhibit 4.18 to the Company's Registration Statement on Form
S-4, Registration No. 33-53706).
*4.18 - Amended and Restated Pledge Agreement dated as of March 2,
1994 by Mesa Operating Co., in favor of Societe Generale,
Southwest Agency, as Agent for the pro rata benefit of the
banks parties to the Credit Agreement (Exhibit 4.31 to the
Company's Form 10-Q dated March 31, 1994).
The Company agrees to furnish to the Commission, upon
request, any instruments defining the rights of holders of
long-term debt with respect to which the total amount
outstanding does not exceed 10% of total assets of the
Company and its subsidiaries on a consolidated basis.
*10.1 - Form of First Agreement to Deferred Compensation Agreement
and Life Insurance Agreement between Mesa Petroleum Co. and
certain officers and key employees (Exhibit 10[i] to the
Company's Form 10-K dated December 31, 1980).
*10.2 - Hugoton (MTR) Gas Purchase Contract between The Kansas Power
and Light Company, buyer, and Mesa Operating Limited
Partnership, seller, dated effective January 1, 1990 (Exhibit
19[a] to the Partnership's Form 10-Q dated June 30, 1989).
*10.3 - Supplemental Gas Purchase Contract between The Kansas Power
and Light Company, buyer, and Mesa Operating Limited
Partnership, seller, dated effective January 1, 1990 (Exhibit
19[b] to the Partnership's Form 10-Q dated June 30, 1989).
*10.4 - Second Amended and Restated Consulting Agreement between Mesa
Limited Partnership, Mesa Operating Limited Partnership, Mesa
Holding Limited Partnership, Mesa Acquisition Limited
Partnership and BTC Partners, Inc. dated December 1, 1988
(Exhibit 10[i] to the Partnership's Form 10-K dated December
31, 1988).
*10.5 - Contract dated January 3, 1928 between Colorado Interstate
Gas Company and Amarillo Oil Company (the "B" Contract)
(Exhibit 10.1 to Pioneer Corporation's Form 10-K dated
December 31, 1985).
*10.6 - Amendments to the "B" Contract (Exhibit 10.2 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.7 - Gathering Charge Agreement dated January 20, 1985 as
amended, with respect to the "B" Contract (Exhibit 10.3 to
Pioneer Corporation's Form 10-K dated December 31, 1985).
*10.8 - Agreement of Compromise and Settlement dated May 29, 1987
between the Partnership and Colorado Interstate Gas Company
(Confidential Treatment Requested) (Exhibit 10[s] to the
Partnership's Form 10-K dated December 31, 1987).
*10.9 - Agreement of Sale between Pioneer Corporation and Cabot
Corporation dated August 29, 1984 (Exhibit 10.5 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.10 - Gas Purchase Contract dated June 27, 1949 as amended through
October 3, 1985 between Amarillo Oil Company and Energas
Company (Exhibit 10.6 to Pioneer Corporation's Form 10-K
dated December 31, 1985).
*10.11 - Settlement Agreement dated March 15, 1989 by and among Mesa
Operating Limited Partnership and Mesa Limited Partnership,
et al, Energas Company and the City of Amarillo (Exhibit
10[k] to the Partnership's Form 10-K dated December 31,
1990).
*10.12 - Copy of the Partnership's Restricted MLP Unit Plan dated
August 27, 1987 (Exhibit 10[w] to the Partnership's Form
10-K dated December 31, 1987).
*10.13 - Gas Purchase Agreement dated December 1, 1989 between
Williams Natural Gas Company and Mesa Operating Limited
Partnership acting on behalf of itself and as agent for Mesa
Midcontinent Limited Partnership (Exhibit 10.1 to the
Partnership's Registration Statement on Form S-3,
Registration No. 33-32978).
*10.14 - Form of 1991 Common Stock Option Plan of MESA Inc. (Exhibit
10[n] to the Company's Registration Statement on Form S-4,
Registration No. 33-42104).
*10.15 - Supplemental Stipulation and Agreement to replace the
Uncontested Settlement Agreement between Mesa Operating
Limited Partnership and Colorado Interstate Gas Company with
respect to deliveries of gas to Amarillo Oil Company (now
Mesa Operating Limited Partnership) by Colorado Interstate
Gas Company under the "B" Contract (Exhibit 10[o] to the
Partnership's Form 10-K dated December 31, 1990).
*10.16 - Purchase and Sale Agreement dated February 6, 1991, by and
among Mesa Limited Partnership, Mesa Operating Limited
Partnership and Mesa Midcontinent Limited Partnership and
Seagull Energy Corporation, as amended by a first amendment
dated February 22, 1991, a second amendment dated March 8,
1991, and a third amendment dated March 11, 1991 (Exhibit 1
to the Partnership's Form 8-K dated March 8, 1991).
*10.17 - Purchase and Sale Agreement dated February 6, 1991, by and
among Mesa Limited Partnership, Mesa Operating Limited
Partnership and Mesa Midcontinent Limited Partnership and
an independent oil and gas producer (Exhibit 3 to the
Partnership's Form 8-K dated March 8, 1991).
*10.18 - Purchase and Sale Agreement dated March 25, 1991, by and
among Mesa Limited Partnership and Mesa Operating Limited
Partnership and Conoco, Inc. (Exhibit 5 to the Partnership's
Form 8-K dated March 8, 1991).
*10.19 - Incentive Bonus Plan of Mesa Operating Limited Partnership,
as amended, dated effective January 1, 1986 (Exhibit 10[s]
to the Partnership's Form 10-K dated December 31, 1990).
*10.20 - Performance Bonus Plan of Mesa Operating Limited Partnership
dated effective January 1, 1990 (Exhibit 10[t] to the
Partnership's Form 10-K dated December 31, 1990).
*10.21 - Engagement Agreement dated as of July 1, 1991 between Mesa
Limited Partnership, Mesa Operating Limited Partnership, Mesa
Holding Limited Partnership, Mesa Midcontinent Limited
Partnership and Mesa Acquisition Limited Partnership, on the
one hand, and BTC Partners, Inc., on the other hand (Exhibit
10[v] to the Company's Registration Statement on Form S-4,
Registration No. 33-42104.)
*10.22 - Third Amendment dated December 19, 1991, to the Hugoton
(MTR) Gas Purchase Contract between The Kansas Power and
Light Company, buyer, and Mesa Operating Limited
Partnership, seller, dated effective January 1, 1990
(Exhibit 10[q] to the Company's Form 10-K dated December 31,
1991).
*10.23 - Amended Supplemental Stipulation and Agreement between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership dated June 19, 1991 (Exhibit 10[w] to the
Company's Registration Statement on Form S-4, Registration
No. 33-42102).
*10.24 - "B" Contract Production Allocation Agreement dated July 29,
1991 and effective as of January 1, 1991 between Colorado
Interstate Gas Company and Mesa Operating Limited
Partnership (Exhibit 10[r] to the Company's Form 10-K dated
December 31, 1991).
*10.25 - Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993 between Colorado Interstate
Gas Company and Mesa Operating Limited Partnership (Exhibit
10.24 to the Company's Registration Statement on Form S-1,
Registration No. 033-51909).
*10.26 - Amended Peak Day Gas Purchase Agreement dated effective June
19, 1991 between Colorado Interstate Gas Company and Mesa
Operating Limited Partnership (Exhibit 10[t] to the
Company's Form 10-K dated December 31, 1991).
*10.27 - Omnibus Amendment to Collateral Instruments to Supplemental
Stipulation and Agreement dated June 19, 1991 between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership (Exhibit 10[u] to the Company's Form 10-K dated
December 31, 1991).
*10.28 - 1991 Stock Option Plan of the Company (Exhibit 10[v] to the
Company's Form 10-K dated December 31, 1991).
*10.29 - First Amendment to Settlement and Interim Release Agreement
between Hugoton Capital Limited Partnership, Mesa Operating
Limited Partnership and The Kansas Power and Light Company
dated December 19, 1991 (Exhibit 10[w] to the Company's Form
10-K dated December 31, 1991).
*10.30 - Conversion Agreement dated as of December 31, 1991 between
the Company, Boone Pickens and Pickens Operating Co.
(Exhibit 10[y] to the Company's Form 10-K dated December 31,
1991).
*10.31 - Amendment to the Gas Purchase Contract dated June 27, 1949,
as amended, between Amarillo Oil Company and Energas Company
dated June 4, 1992 (Exhibit 10[z] to the Company's Form 10-K
dated December 31, 1992).
*10.32 - Split-Dollar Insurance Agreements dated June 29, 1992 by and
between Mesa Operating Limited Partnership and Boone Pickens
and Paul Cain, respectively, and Collateral Assignments
dated as of June 29, 1992 by Boone Pickens and Paul Cain,
respectively (Exhibit 10[aa] to the Company's Form 10-K
dated December 31, 1992).
*10.33 - Agreement of Compromise and Settlement dated January 11,
1994 among Unocal Corporation, David Colan, MESA Inc. and
certain other parties (Exhibit 10.25 to the Company's
Registration Statement on Form S-1, Registration No.
033-51909).
*10.34 - Agreement of Merger, dated as of January 5, 1994, entered
into by and among MESA Inc., Boone Pickens and certain other
parties (Exhibit 10.27 to the Company's Form 10-K dated
December 31, 1993).
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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.
MESA INC.
(Registrant)
/s/ William D. Ballew
---------------------
William D. Ballew
Controller
(Principal accounting
officer and officer duly
authorized to sign on
behalf of the Registrant)
Date: November 14, 1994
-------------------
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
27 Article 5 of Regulation S-X Financial Data Schedule
for Third Quarter Form 10-Q