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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10874
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MESA Inc.
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(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)
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
- ---------------------------- -----
(Address of Principal (Zip Code)
Executive Offices) (214) 444-9001
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(Registrant's telephone number)
(No changes)
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(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
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Number of shares outstanding as of the close of business on May 14,
1996: 64,050,009
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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MESA Inc.
=========
Consolidated Statement of Operations
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(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31
-------------------
1996 1995
-------- --------
REVENUES:
Natural gas...................................... $ 50,567 $ 35,856
Natural gas liquids.............................. 23,136 18,206
Oil and condensate............................... 4,363 5,393
Other............................................ 2,577 2,792
-------- --------
80,643 62,247
-------- --------
COSTS AND EXPENSES:
Lease operating.................................. 13,544 12,574
Production and other taxes....................... 5,406 4,745
Exploration charges.............................. 544 1,304
General and administrative....................... 5,584 6,644
Depreciation, depletion and amortization......... 30,242 21,006
-------- --------
55,320 46,273
-------- --------
OPERATING INCOME...................................... 25,323 15,974
-------- --------
OTHER INCOME (EXPENSE):
Interest income.................................. 3,217 3,909
Interest expense................................. (37,749) (36,663)
Gains on investments............................. 8,763 4,553
Gain from collection of interest from
Bicoastal Corporation.......................... 2,548 4,653
Other............................................ (1,045) (320)
-------- --------
(24,266) (23,868)
-------- --------
NET INCOME (LOSS)..................................... $ 1,057 $ (7,894)
======== ========
NET INCOME (LOSS) PER COMMON SHARE.................... $ .02 $ (.12)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 64,050 64,050
======== ========
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Consolidated Balance Sheets
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(in thousands, except share data)
March 31, December 31,
ASSETS 1996 1995
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(unaudited)
CURRENT ASSETS:
Cash and cash investments.................... $ 115,755 $ 149,143
Investments.................................. 39,956 38,280
Accounts and notes receivable................ 40,485 44,734
Other........................................ 6,663 4,590
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Total current assets.................... 202,859 236,747
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PROPERTY, PLANT AND EQUIPMENT:
Oil and gas properties, wells and
equipment using the successful
efforts method of accounting............... 1,907,487 1,900,163
Office and other............................. 41,783 41,603
Accumulated depreciation, depletion
and amortization........................... (887,232) (859,077)
---------- ----------
1,062,038 1,082,689
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OTHER ASSETS:
Restricted cash of subsidiary partnership.... 56,541 57,731
Gas balancing receivable..................... 58,145 56,020
Other........................................ 29,513 31,509
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144,199 145,260
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$1,409,096 $1,464,696
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities on long-term debt......... $ 92,502 $ 101,413
Accounts payable and accrued liabilities..... 30,712 31,068
Interest payable............................. 26,887 60,465
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Total current liabilities............... 150,101 192,946
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LONG-TERM DEBT.................................... 1,121,768 1,135,330
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DEFERRED REVENUE.................................. 17,328 17,578
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OTHER LIABILITIES................................. 51,838 51,838
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CONTINGENCIES
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 shares.......................... 640 640
Additional paid-in capital................... 398,965 398,965
Accumulated deficit.......................... (331,544) (332,601)
---------- ----------
68,061 67,004
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$1,409,096 $1,464,696
========== ==========
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Consolidated Statements of Cash Flows
-------------------------------------
(in thousands)
(unaudited)
Three Months Ended
March 31
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1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 1,057 $ (7,894)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization..... 30,242 21,006
Accreted interest on discount notes.......... -- 19,585
Gains from investments....................... (8,763) (4,553)
Changes in operating receivables and payables (35,142) (16,875)
Changes in investments, net.................. 7,087 16,038
Other........................................ 3,288 1,886
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Cash provided by (used in) operating
activities................................. (2,231) 29,193
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (9,754) (7,039)
Other............................................. (228) (3,230)
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Cash used in investing activities............ (9,982) (10,269)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt...................... (22,365) --
Other............................................. 1,190 2,150
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Cash provided by (used in) financing
activities................................. (21,175) 2,150
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NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS... (33,388) 21,074
CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD....... 149,143 143,422
-------- --------
CASH AND CASH INVESTMENTS AT END OF PERIOD............. $115,755 $164,496
======== ========
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Consolidated Statement of Changes in Stockholders' Equity
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(in thousands)
(unaudited)
Common Stock Additional
--------------- Paid-in Accumulated
Shares Amount Capital Deficit
------ ------ ---------- -----------
BALANCE, December 31, 1995..... 64,050 $640 $398,965 $(332,601)
Net income ............... -- -- -- 1,057
------ ---- -------- ---------
BALANCE, March 31, 1996........ 64,050 $640 $398,965 $(331,544)
====== ==== ======== =========
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Notes to Consolidated Financial Statements
------------------------------------------
March 31, 1996
(unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
===========================================================
MESA Inc., a Texas corporation, was formed in 1991 in connection with a
transaction which reorganized the business of Mesa Limited Partnership (the
"Partnership") into corporate form. The Partnership was formed in 1985 to
succeed to the business of Mesa Petroleum Co. ("Original Mesa"). Unless the
context otherwise requires, as used herein the term "Mesa" refers to MESA
Inc. and its subsidiaries taken as a whole and includes its predecessors.
Mesa is primarily in the business of exploring for, developing,
producing, processing and selling natural gas and oil in the United States.
Over 65% of Mesa's annual equivalent production is natural gas and the
balance is principally natural gas liquids. Mesa's primary producing areas
are the Hugoton field of southwest Kansas, the West Panhandle field of Texas
and the Gulf of Mexico offshore Texas and Louisiana. Production from Mesa's
properties has access to a substantial portion of the major metropolitan
markets in the United States, primarily in the midwest and northeast,
through numerous pipelines and other purchasers.
The consolidated financial statements of Mesa for the three month
period ended March 31, 1996 and 1995, 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
preparation of the consolidated financial statements of Mesa in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from the estimates. The accompanying financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto contained in Mesa's Annual Report on Form 10-K ("Form 10-K")
for the year ended December 31, 1995.
Principles of Consolidation
- ---------------------------
Mesa owns and operates its oil and gas properties and other assets
through its direct and indirect subsidiaries. The accompanying consolidated
financial statements reflect the consolidated accounts of Mesa and its
subsidiaries after elimination of intercompany transactions.
Statements of Cash Flows
- ------------------------
For purposes of the statements of cash flows, Mesa classifies all cash
investments with original maturities of three months or less as cash and
cash investments.
Investments
- -----------
Mesa invests from time to time in marketable equity and other
securities which are classified as "trading securities" and 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.
Mesa enters into various energy futures contracts including New York
Mercantile Exchange ("NYMEX") futures contracts, commodity price swaps and
options which are not intended to be hedges of future natural gas or crude
oil production. Investments in such contracts are adjusted to market prices
at the end of each reporting period and gains and losses are included in
gains from investments 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.
In the first quarter of 1996 Mesa adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. SFAS No. 121 requires a
review for impairment whenever circumstances indicate that the carrying
amount of an asset may not be recoverable. Mesa will estimate future cash
flows (undiscounted and without interest charges) expected to result from
use of an asset. Impairment is only recognized if the carrying amount of an
asset is greater than the expected future cash flows and the amount of
impairment is based on the fair value of the asset. An impairment charge of
$6.8 million is included in depreciation, depletion and amortization expense
for the first quarter of 1996 in the consolidated statements of operations
which impairment relates primarily to a Gulf Coast oil and gas property.
Net Income (Loss) Per Common Share
- ----------------------------------
The computations of net income (loss) per common share are based on the
weighted average number of common shares outstanding during each period.
Fair Value of Financial Instruments
- -----------------------------------
Mesa's financial instruments consist of cash, marketable securities,
short-term trade receivables and payables, restricted cash, notes
receivable, and long-term debt. The carrying values of cash, marketable
securities, short-term trade receivables and payables, restricted cash, and
notes receivable approximate fair value. The fair value of long-term debt
is estimated based on the market prices for Mesa's publicly traded debt and
on current rates available for similar debt with similar maturities and
security for Mesa's remaining debt (see Note 4).
Gas Revenues
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Mesa recognizes its ownership interest in natural gas production as
revenue. Actual production quantities sold by Mesa may be different than
its ownership share of production in a given period. If Mesa's sales exceed
its ownership share of production, the differences are recorded as deferred
revenue. Gas balancing receivables are recorded when Mesa's ownership share
of production exceeds sales. Mesa also accrues production expenses related
to its ownership share of production. At March 31, 1996, Mesa had produced
and sold a net 23.4 billion cubic feet ("Bcf") of natural gas less than its
ownership share of production and had recorded gas balancing receivables,
net of deferred revenues, of approximately $41.2 million. Substantially all
of Mesa's gas balancing receivables and deferred revenue are classified as
long-term.
Mesa periodically enters into NYMEX natural gas futures contracts as a
hedge against natural gas price fluctuations. Gains or losses on such
futures contracts are deferred and recognized as natural gas revenue when
the hedged production occurs. Mesa recognized net gains of $4.9 million in
the first quarter of 1995 related to hedging activities and did not hedge
any of its natural gas production for the first quarter of 1996.
Taxes
- -----
Mesa 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.
Other
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In October 1995 the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which establishes
accounting and reporting standards for stock-based employee compensation
plans. SFAS No. 123 defines a fair value-based method of accounting for
stock options or similar equity instruments, but allows companies to
continue to measure compensation cost using the intrinsic value-based method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."
Mesa will not adopt the fair value-based method of accounting for its
option plans and, accordingly, adoption of this statement will have no
impact on Mesa's results of operations.
(2) RESOURCES AND LIQUIDITY
=======================
Long-term Debt and Cash Flows
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Mesa is highly leveraged with over $1.2 billion of long-term debt,
including current maturities. The major components of Mesa's debt are (1)
$492.3 million of secured notes ("HCLP Secured Notes") due in installments
through 2012 at Hugoton Capital Limited Partnership ("HCLP"), an indirect,
wholly owned subsidiary, (2) $51.1 million (plus $11.4 million in letter of
credit obligations) outstanding under a bank credit facility, due in
installments through 1997, with the majority of such debt due on June 23,
1997, (3) $39.7 million of unsecured discount notes due on June 30, 1996,
and (4) $617.4 million of secured discount notes due on June 30, 1998. Both
the secured and unsecured discount notes are subordinate to the bank credit
facility. See Note 4 for a complete description of Mesa's long-term debt.
Mesa is required to make significant principal and interest payments on
its debt during the remainder of 1996. Mesa is required to make $81.6
million of principal and interest payments related to its discount notes and
$12.5 million of principal payments related to its bank credit facility by
June 30, 1996. In addition, Mesa is required to pay $39.4 million in
interest on its secured discount notes on December 31, 1996. In the
aggregate, assuming no acceleration of amounts due under any of Mesa's long-
term debt agreements, Mesa's principal and interest obligations for the
remainder of 1996, excluding HCLP, will total almost $140 million.
The assets and cash flows of HCLP that are subject to the mortgage
securing HCLP's debt are dedicated to service HCLP's debt and are not
available to pay creditors of Mesa or its subsidiaries other than HCLP.
Mesa's bank credit facility contains a covenant requiring it to
maintain tangible adjusted equity, as defined, of at least $50 million. At
March 31, 1996, tangible adjusted equity was approximately $67.8 million.
Assuming no changes in its capital structure and no significant transactions
completed, Mesa expects that it will incur losses from operations for the
remainder of 1996 and that its tangible adjusted equity will fall below $50
million during 1996. If and when Mesa determines that tangible adjusted
equity is below $50 million, an Event of Default, as defined, would occur
under the bank credit facility and the bank would have the right to
accelerate the payment of all outstanding principal and require cash
collateralization of letters of credit. An Event of Default under the bank
credit facility would cause a cross default under Mesa's secured and
unsecured discount note indentures unless and until the bank credit facility
default were cured or waived or the debt under the bank credit facility were
repaid or otherwise discharged. The Events of Default, if they occur and
are not waived, could result in acceleration of approximately $656 million
of long-term debt principal otherwise due in mid-1997 and mid-1998.
Pursuant to the subordination provisions of the discount note indentures,
Mesa would be prohibited from making any payments on such notes for
specified periods upon and during the continuance of any Event of Default
under the bank credit facility.
As a result of improved results of operations in the first quarter of
1996, Mesa now expects that cash generated by its operations, together with
available cash and investment balances, will be sufficient to fund the debt
principal and interest obligations due by June 30, 1996. In addition, if
the obligations under the bank credit facility are accelerated and become
due in the second half of 1996 as discussed above, Mesa expects to have
sufficient cash to repay those obligations. However, whether Mesa would
have sufficient cash to pay both those obligations and the interest payments
on its secured discount notes due at December 31, 1996 would depend upon
results of operations for the remainder of 1996. Mesa will make decisions
regarding payments on its debt as such payments come due, taking into
account the status at such time of the Recapitalization discussed below.
Proposed Recapitalization
- -------------------------
On April 26, 1996, Mesa entered into a stock purchase agreement with
DNR-MESA Holdings L.P., a Texas limited partnership ("DNR"), whose sole
general partner is Rainwater Inc., a Texas corporation owned by Richard E.
Rainwater. The agreement contemplates that Mesa will issue $265 million in
new equity and will repay and/or refinance substantially all of its $1.2
billion of existing debt (the "Recapitalization"). DNR will purchase
approximately 58.8 million shares of a new class of convertible preferred
stock entitled Series B 8% Cumulative Convertible Preferred Stock ("Series B
Preferred") in a private placement and Mesa will offer approximately 58.4
million shares of Series A 8% Cumulative Convertible Preferred Stock
("Series A Preferred") to Mesa stockholders in a rights offering (the
"Rights Offering"). DNR will provide a standby commitment to purchase an
additional number of shares of Series B Preferred equal to the number of
shares of Series A Preferred not subscribed to in the Rights Offering. The
rights, to be distributed to common stockholders on a pro rata basis, will
allow the stockholders to purchase, in respect of each share of common
stock, .912 shares of Series A Preferred at $2.26 per share, the same per
share price at which DNR will purchase shares of Series B Preferred. The
rights will be transferrable and holders of the rights will be offered over-
subscription privileges for shares not purchased by other rights holders.
Each share of Series A and B Preferred will be convertible into one
share of Mesa common stock at any time prior to mandatory redemption in
2008. An annual 8% pay-in-kind dividend will be paid on the shares during
the first four years following issuance. Thereafter, the 8% dividend may,
at the option of Mesa, be paid in cash or additional shares depending on
whether certain financial tests are met and subject to any limitations in
Mesa's debt agreements.
The Series A and B Preferred will represent 64.7% of the fully diluted
common shares at the time of issuance and 71.5% after the mandatory four-year
pay-in-kind period, excluding stock options and assuming no other stock
issuance by Mesa. The Series A and B Preferred will have a liquidation
preference per share equal to $2.26 plus accrued and unpaid dividends. The
terms of the Series A and Series B Preferred are substantially identical
except for certain voting rights and certain provisions relating to
transferability. The Series A and B Preferred will vote with the common
stock as a single class on all matters, except as otherwise required by law
and except for certain special voting rights of the Series B Preferred,
including the right of the holders of the Series B Preferred to nominate and
elect a majority of Mesa's Board of Directors for so long as DNR and its
affiliates meet certain minimum stock ownership requirements and certain
rights of the holders of the Series A Preferred to elect two directors in
the event of certain dividend arrearages.
The sale of shares to DNR and certain other matters will be submitted
to a vote of stockholders at a special meeting expected to take place in
June 1996. Mesa expects to issue shares to DNR and to complete the
refinancing of its existing debt promptly after that meeting. The Rights
Offering would commence promptly thereafter. On May 9, 1996, Mesa filed a
registration statement with the Securities and Exchange Commission (the
"SEC") for the issuance and sale of $132 million of Series A Preferred
through the Rights Offering.
On May 7, 1996, Mesa filed a registration statement with the SEC for
the issuance and sale of $500 million of senior subordinated notes ("New
Notes") consisting of $325 million of senior subordinated notes and $175
million of senior subordinated discount notes, both with ten year
maturities. In addition Mesa has received a commitment from a group of
banks for a new $500 million senior secured revolving credit facility ("New
Credit Facility"). Borrowings under the New Credit Facility and the New
Notes, together with existing cash and investment balances and the $265
million of new equity, will be used to repay and/or refinance substantially
all of Mesa's existing debt.
The consummation of the Recapitalization is subject to certain
conditions including stockholder approval and completion of the refinancing.
Effect of the Recapitalization
- ------------------------------
The Recapitalization will enhance Mesa's ability to compete in the oil
and gas industry by substantially increasing its cash flow available for
investment and improving its ability to attract capital, which will increase
its ability to pursue investment opportunities. Specifically, Mesa's
financial condition will improve significantly as a result of the
Recapitalization due to (i) a significant reduction in total debt
outstanding, (ii) a reduction in annual cash interest expense of
approximately $75 million, (iii) the implementation of a cost savings
program designed to initially reduce annual general and administrative and
other operating overhead expenses by approximately $10 million, and (iv) the
extension of maturities on its long-term debt, which will eliminate Mesa's
present liquidity concerns.
The expected reduction of annual cash interest expense is based on the
following assumptions: (i) initial borrowings under the New Credit Facility
of approximately $375 million (assuming a June 30, 1996 closing; assuming
cash and investment balances are reduced to $1 million; and assuming that a
prepayment premium (see Note 4) is not paid on the HCLP Secured Notes), and
(ii) annual interest rates of approximately 7% under the New Credit
Facility, 11% under the senior subordinated notes and 12-1/4% under the
senior subordinated discount notes. Actual borrowings and interest rates
under the New Credit Facility will fluctuate over time and will affect
Mesa's actual cash interest expense. If Mesa were required to pay a full
prepayment premium on the HCLP Secured Notes as of May 14, 1996, the amount
of such premium would have been approximately $55 million.
Management believes that cash from operating activities, together with
as much as $125 million of availability (assuming no prepayment premium on
the HCLP Secured Notes) under the $500 million New Credit Facility following
the completion of the Recapitalization, will be sufficient for Mesa to meet
its debt service obligations and scheduled capital expenditures, and to fund
its working capital needs for the foreseeable future following the
Recapitalization.
The successful completion of the Recapitalization is expected to
position Mesa to operate and continue as a going concern and to pursue its
business strategies. The consolidated financial statements of Mesa do not
include any adjustments reflecting any treatment other than going concern
accounting.
If the Recapitalization is not completed, Mesa will pursue other
alternatives to address its liquidity issues and financial condition,
including pursuing other merger and sale transactions, the possibility of
seeking to restructure its balance sheet by negotiating with its current
debt holders or seeking protection from its creditors under the Federal
Bankruptcy Code.
(3) INVESTMENTS
===========
The value of investments are as follows (in thousands):
March 31, December 31,
1996 1995
--------- -----------
NYMEX Futures Contracts:
Margin Cash............................... $33,078 $17,498
Unrealized gain in trading contracts...... 4,963 7,558
Commodity Price Swaps:
Margin Cash............................... 548 2,434
Unrealized gain (loss) in price swaps..... 1,367 (811)
Natural Gas Options:
Premiums.................................. -- 66
Unrealized gain in trading options........ -- 978
Equity securities:
Cost...................................... -- 10,719
Unrealized loss........................... -- (162)
------- -------
Total market value........................ $39,956 $38,280
======= =======
For the three months ended March 31, 1996, Mesa recognized net gains of
approximately $8.8 million from its investments compared with net gains for
the same period in 1995 of $4.6 million. These gains do not include gains
or losses from natural gas futures contracts accounted for as a hedge 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 investment gains and losses recognized during a period include
both realized and unrealized gains and losses. Mesa realized net gains from
investments of $10.0 million for the three months ended March 31, 1996, and
$5.9 million for the same period in 1995. At March 31, 1996, Mesa had
recognized but not realized approximately $6.3 million of gains associated
primarily with natural gas futures.
In 1995 Mesa invested in certain over-the-counter commodity price swap
agreements for trading purposes. Mesa is required to make payments to (or
receive payments from) a counter party based on the differential between a
fixed and a variable price for specified natural gas volumes. Mesa's
agreements were to expire on the last day of trading for April, May and June
1996 natural gas futures contracts as determined by the NYMEX. During the
three months ended March 31, 1996, Mesa closed out certain of these
positions pertaining to 6.9 million British thermal units ("BTUS") of
natural gas at a gain of $1.7 million. Mesa was the fixed price payor on a
notional quantity of 3.2 million BTUs of natural gas (which remained open
from year-end) with a fair value of $7.1 million at March 31, 1996. The
remaining agreements were to expire on the last trading day for June 1996
natural gas futures contracts as determined by the NYMEX and were closed in
mid-April at a gain of approximately $1.7 million. The average fair value
of all commodity price swaps during the three months ended March 31, 1996
was $15.1 million. In 1995 Mesa also entered into 1,800 over-the-counter
natural gas futures call and put options contracts (each contract represents
10,000 MMBTUS of natural gas). Such contracts were closed early in the
first quarter of 1996 at a gain of $1.1 million. The average fair value of
such option contracts while open was $.8 million. The counter party to
these instruments is a credit-worthy financial institution which is a
recognized market maker. Mesa believes the risk of incurring losses related
to the credit risk of the party is remote.
(4) LONG-TERM DEBT
==============
Long-term debt and current maturities are as follows (in thousands):
March 31, December 31,
1996 1995
---------- ------------
HCLP Secured Notes.......................... $ 492,309 $ 504,674
Credit Agreement............................ 51,131 61,131
12-3/4% secured discount notes.............. 618,410 618,518
12-3/4% unsecured discount notes............ 39,725 39,725
13-1/2% subordinated notes.................. 7,390 7,390
Other....................................... 5,305 5,305
---------- ----------
1,214,270 1,236,743
Current maturities.......................... (92,502) (101,413)
---------- ----------
Long-term debt.............................. $1,121,768 $1,135,330
========== ==========
HCLP Secured Notes
- ------------------
In 1991 HCLP issued $616 million of HCLP Secured Notes in a private
placement with a group of institutional lenders. The issuance 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 Mesa'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 March 31, 1996, bear interest at fixed rates
ranging from 9.05% to 11.30% per annum (weighted average 10.35%). 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 and .35%
per annum will be applied to the remaining notes. Such premiums have
increased the effective weighted average interest rate payable on the
remaining HCLP Secured Notes outstanding to 10.84% per annum at March 31,
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 Mesa 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 Mesa or its
subsidiaries other than HCLP. Any cash not subject to the mortgage is
available for distribution to Mesa's subsidiaries which own HCLP's equity.
The HCLP Secured Note agreements also contain a provision which
requires calculation and payment of premiums on early retirement of the HCLP
Secured Notes. The prepayment premium calculation is based on prevailing
interest rates at the date of redemption. In the aggregate, such premiums
would have totaled $60 million as of March 31, 1996 and approximately $55
million on May 14, 1996. Mesa is currently negotiating with the holders of
the HCLP Secured Notes as to the amount of prepayment premium, if any, to be
paid upon redemption of the HCLP Secured Notes.
Revenues received from production from HCLP's Hugoton properties are
deposited in a collection account maintained by a collateral agent (the
"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.
In accordance with the HCLP Secured Note agreements on April 19, 1996,
HCLP obtained its reserve estimates as of December 31, 1995, prepared by an
independent engineering consultant covering its Hugoton field properties.
The reserve quantities in such reserve report are compared to the initial
reserve quantities set forth in the HCLP Secured Note agreements, adjusted
for production. The quantities in such reserve report were less than the
adjusted initial quantities, and a Deficit Reserve Amount ("DRA"), as
defined, of .0215 Bcfe was determined to exist. To the extent a DRA exists,
the Collateral Agent may be required to retain additional funds in the
collection account subject to the mortgage for the repayment of the HCLP
Secured Notes. However, HCLP determined in accordance with the HCLP Secured
Note agreements, that the DRA was not so significant as to require
additional funds to be retained in the collection account subject to the
mortgage for the repayment of the HCLP Secured Notes.
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
(the "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 (10.35% at March 31, 1996). 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.
HCLP's cash balances were as follows (in thousands):
March 31, December 31,
1996 1995
------------- -----------
Subject to the mortgage..................... $35,894 $40,163
Not subject to the mortgage................. 5,249 7,450
------- -------
Cash included in current assets............. $41,143 $47,613
======= =======
Restricted cash included in
noncurrent assets......................... $56,541 $57,731
======= =======
Refundable GIC fee included in
noncurrent assets......................... $ 8,667 $ 9,010
======= =======
Mesa Operating Co. ("MOC"), a Mesa subsidiary 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 $5.3 million for
the three months of 1996 and $5.1 million for the same period in 1995.
Credit Agreement
- ----------------
As of March 31, 1996, Mesa had outstanding borrowings of approximately
$51.1 million and letter of credit obligations of $11.4 million under its
$82.5 million bank credit facility, as amended (the "Credit Agreement").
The Credit Agreement requires principal payments of $22.5 million in the
first half of 1996 with the remainder due in June 1997 (including cash
collateralization of letters of credit outstanding at that time).
The rate of interest payable on borrowings under the Credit Agreement
is lesser of the Eurodollar rate plus 2-1/2% or the prime rate plus 1/2%.
Obligations under the Credit Agreement are secured by a first lien on Mesa's
West Panhandle field properties, Mesa's equity interest in MOC and a 76%
limited partner interest in HCLP.
The Credit Agreement requires Mesa to maintain tangible adjusted
equity, as defined, of at least $50 million and available cash, as defined,
of $32.5 million. At March 31, 1996, Mesa's tangible adjusted equity, as
defined, was approximately $67.8 million and available cash, as defined, was
$113.5 million. See Note 2 for discussion of the tangible adjusted equity
covenant and its potential effect on Mesa's liquidity.
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.
Discount Notes
- --------------
In August 1993, Mesa issued approximately $435.5 million initial
accreted value ($569.2 million face amount), as defined, of 12-3/4% secured
discount notes due June 30, 1998, $136.9 million initial accreted value
($178.8 million face amount) of 12-3/4% unsecured discount notes due June
30, 1996 (together, the "Discount Notes") and $29.3 million principal amount
of 0% convertible notes. These notes were exchanged (the "Debt Exchange")
for an aggregate $586.3 million of the outstanding 12% subordinated notes
due 1996 (all of which have been repaid) and 13-1/2% subordinated notes due
1999 (plus accrued interest thereon). The 0% convertible notes were
converted into approximately 7.5 million shares of common stock in 1993.
The Discount Notes rank pari passu with each other, are senior to other
subordinated debt and are subordinate to all permitted first lien debt, as
defined, including obligations under the Credit Agreement.
In 1994, Mesa issued an additional $48.2 million face amount of 12-3/4%
secured discount notes and used the proceeds to settle a lawsuit. Also in
1994, Mesa redeemed $139.1 million face amount of 12-3/4% unsecured discount
notes with proceeds from a public offering of Mesa common stock and from
additional borrowings under the Credit Agreement.
The Discount Notes did not accrue interest through June 30, 1995;
however, the accreted value, as defined, of both series increased at a rate
of 12-3/4% per year, compounded semiannually, until June 30, 1995.
Beginning July 1, 1995, each series began to accrue interest at an annual
rate of 12-3/4%, payable in cash semiannually in arrears, with the first
payment due on December 31, 1995.
The 12-3/4% secured discount notes are secured by second liens on
Mesa's West Panhandle field properties and a 76% limited partner interest in
HCLP, both of which also secure obligations under the Credit Agreement.
Mesa's right to maintain first lien debt, as defined, is limited by the
terms of the Discount Notes to $82.5 million.
See Note 2 for a discussion of certain cross-default provisions in the
Discount Note indentures which could become effective if Mesa defaults under
the terms of the tangible adjusted equity covenant of the Credit Agreement.
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.
Subordinated Notes
- ------------------
The 13-1/2% subordinated notes are unsecured and mature in 1999.
Interest on these notes is payable semiannually in cash.
Interest and Maturities
- -----------------------
The aggregate interest payments, net of amounts capitalized, made
during the three months ended March 31, 1996 and 1995, were $70.8 million
and $29.0 million, respectively. The interest payments in the first quarter
of 1996 included a $42 million interest payment on January 2, 1996,
according to terms of the Discount Notes, related to Mesa's Discount Notes
which was due December 31, 1995. Payment of approximately $19.7 million of
interest incurred during the three months ended March 31, 1995 was deferred
under the terms of the Debt Exchange until the repayment dates of the
Discount Notes. Such interest is included in interest expense in the
consolidated statements of operations for the first quarter of 1995.
The scheduled principal repayments on long-term debt for the remainder
of 1996 and for the four succeeding years are as follows (in millions):
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
HCLP Secured Notes................. $ 21.5 $ 33.3 $ 36.1 $ 37.1 $ 36.0
Credit Agreement(a)(b)............. 12.5 38.6 -- -- --
12-3/4% secured discount notes(c).. -- -- 617.4 -- --
12-3/4% unsecured discount notes(c) 39.7 -- -- -- --
13-1/2% subordinated notes......... -- -- -- 7.4 --
Other.............................. 5.3 -- -- -- --
------ ------ ------ ------ ------
Total......................... $ 79.0 $ 71.9 $653.5 $ 44.5 $ 36.0
====== ====== ====== ====== ======
- ----------
(a) Excludes approximately $11.4 million in letter of credit
obligations currently outstanding and required to be cash
collateralized in June 1997.
(b) Maturities may be accelerated if tangible adjusted equity falls
below $50 million. (See Note 2).
(c) Maturities may be accelerated if an Event of Default occurs and
continues under the Credit Agreement. (See Note 2).
Fair Value of Long-term Debt
- ----------------------------
The following is a summary of estimated fair value of Mesa's long-term
debt as of the years ended (in thousands):
March 31, 1996 December 31, 1995
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
HCLP Secured Notes.............. $492,309 $539,078 $504,674 $568,641
Credit Agreement................ 51,131 51,131 61,131 61,131
12-3/4% secured discount notes.. 618,410 606,042 618,518 541,905
12-3/4% unsecured discount notes 39,725 39,700 39,725 35,262
13-1/2% subordinated notes...... 7,390 7,390 7,390 7,390
The fair value of long-term debt is estimated based on the market
prices for Mesa's publicly traded debt and on current rates available for
similar debt with similar maturities and security for Mesa's remaining debt.
Based on the current financial condition of Mesa, there is no assurance that
Mesa could obtain borrowings under long- term debt agreements with terms
similar to those described above and receive proceeds approximating the
estimated fair values. See Note 2 for proposed Recapitalization.
(5) CONTINGENCIES
=============
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. Under the agreements with CIG, Mesa has an
entitlement to gas produced from the Gas Lease. In August 1992 CIG filed a
third-party complaint against Mesa for any such royalty underpayments which
may be allocable to Mesa. Plaintiffs alleged 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 "Gas Lease Amendment"). The plaintiffs also sought a declaration by
the court as to the proper price to be used for calculating future
royalties.
The plaintiffs alleged royalty underpayments of approximately $500
million (including interest at 10%) covering the period from July 1, 1967,
to the present. In March 1995 the court made certain pretrial rulings that
eliminated approximately $400 million of the plaintiffs' claims (which
related to periods prior to October 1, 1989), but which also reduced a
number of Mesa's defenses. Mesa and CIG filed stipulations with the court
whereby Mesa would have been liable for between 50% and 60%, depending on
the time period covered, of an adverse judgment against CIG for post-
February 1988 underpayments of royalties.
On March 22, 1995, a jury trial began and on May 4, 1995, the jury
returned its verdict. Among its findings, the jury determined that CIG had
underpaid royalties for the period after September 30, 1989, in the amount
of approximately $140,000. Although the plaintiffs argued that the
"favored-nations" clause entitled them to be paid for all of their gas at
the highest price voluntarily paid by CIG to any other lessor, the jury
determined that the plaintiffs were estopped from claiming that the
"favored-nations" clause provides for other than a pricing-scheme to
pricing-scheme comparison. In light of this determination, and the
plaintiffs' stipulation that a pricing-scheme to pricing-scheme comparison
would not result in any "trigger prices" or damages, defendants asked the
court for a judgment that plaintiffs take nothing. The court, on June 7,
1995, entered final judgment that plaintiffs recover no monetary damages.
The plaintiffs have filed a motion for new trial on which the court has not
yet ruled. Mesa cannot predict whether the court will grant such motion or,
if it does not, whether the plaintiffs will appeal the court's final
judgment. However, based on the jury verdict and final judgment, Mesa does
not expect the ultimate resolution of this lawsuit to have a material
adverse effect on its financial position or results of operations.
Lease Termination
- -----------------
In 1991 Mesa sold certain producing oil and gas properties to Seagull
Energy Company ("Seagull"). In 1994 two lawsuits were filed against Seagull
in the 100th District Court in Carson County, Texas, by certain land and
royalty owners claiming that certain of the oil and gas leases owned by
Seagull have terminated due to cessation in production and/or lack of
production in paying quantities occurring at various times from first
production through 1994. In the third quarter of 1995 Seagull filed third-
party complaints against Mesa claiming breach of warranty and false
representation in connection with the sale of such properties to Seagull.
Mesa believes it has several defenses to these lawsuits including a two-year
limitation on indemnification set forth in the purchase and sale agreement.
Seagull filed a similar third-party complaint against Mesa covering a
different lease in the 69th District Court in Moore County, Texas. Mesa
believes it has similar defenses in this case.
The plaintiffs in the cases against Seagull are seeking to terminate
the leases. Seagull, in its complaint against Mesa, is seeking unspecified
damages relating to any leases which are terminated.
Mesa does not expect the resolution of this lawsuit to have a material
adverse effect on its financial position or results of operations.
Other
- -----
Mesa is also a defendant in other lawsuits and has assumed liabilities
relating to Original Mesa and the Partnership. Mesa does not expect the
resolution of these other matters to have a material adverse effect on its
financial position or results of operations.
(6) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
============================================
Mesa conducts its operations through various direct and indirect
subsidiaries. On March 31, 1996, Mesa's direct subsidiaries were MOC, Mesa
Holding Co. ("MHC") and Hugoton Management Co. ("HMC"). MOC owns all of
Mesa'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. HMC owns the general partner interest of HCLP. HCLP owns
substantially all of Mesa'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 Mesa or its subsidiaries other than HCLP. MOC and Mesa 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. Other Mesa subsidiaries in
the condensed consolidating financial statements include MHC, HMC, and Mesa
Environmental.
The following are condensed consolidating financial statements of MESA
Inc., HCLP, MOC, and Mesa's other direct and indirect subsidiaries combined
(in millions):
Condensed Consolidating Balance Sheets
- --------------------------------------
Other Consol.
Mesa Mesa and Mesa
March 31, 1996 Inc. HCLP MOC Subs. Elimin. Consol'd
- -------------- ------ ------ ------ -------- -------- --------
Assets:
Cash and cash
investments.........$ - $ 41 $ 17 $ 58 $ - $ 116
Other current assets. - 19 64 4 - 87
------ ----- ------ ------ ------ ------
Total current
assets............ - 60 81 62 - 203
------ ----- ------ ------ ------ ------
Property, plant
and equipment, net.. - 594 465 3 - 1062
Investment in
subsidiaries........ 77 - 121 10 (208) -
Intercompany
receivables......... - - 9 - (9) -
Other noncurrent
assets.............. - 80 61 3 - 144
------ ----- ------ ------ ------ ------
$ 77 $ 734 $ 737 $ 78 $ (217) $ 1409
====== ===== ====== ====== ====== ======
Liabilities and Equity:
Current liabilities..$ - $ 55 $ 95 $ - $ - $ 150
Long-term debt....... - 457 665 - - 1122
Intercompany payables 9 - - - (9) -
Other noncurrent
liabilities......... - - 65 4 - 69
Partners'/Stock-
holders' equity
(deficit)........... 68 222 (88) 74 (208) 68
------ ------- ----- ------ ------ ------
$ 77 $ 734 $ 737 $ 78 $ (217) $ 1409
====== ======= ===== ====== ====== ======
Other Consol.
Mesa Mesa and Mesa
December 31, 1995 Inc. HCLP MOC Subs. Elimin. Consol'd
- ----------------- ------ ------ ------ -------- -------- --------
Assets:
Cash and cash
investments....... $ - $ 47 $ 38 $ 64 $ - $ 149
Other current
assets............ - 20 53 15 - 88
------ ------ ------ ------ ------ ------
Total current
assets.......... - 67 91 79 - 237
------ ------ ------ ------ ------ ------
Property, plant
and equipment,
net............... - 602 478 3 - 1,083
Investment in
subsidiaries...... 76 - 115 10 (201) -
Intercompany
receivables....... - - 9 - (9) -
Other noncurrent
assets............ - 82 58 5 - 145
------ ------ ------ ------ ------ ------
$ 76 $ 751 $ 751 $ 97 $ (210) $1,465
====== ====== ====== ====== ====== ======
Liabilities and
Equity:
Current
liabilities....... $ - $ 64 $ 128 $ 1 $ - $ 193
Long-term debt..... - 471 665 - - 1,136
Intercompany
payables.......... 9 - - - (9) -
Other noncurrent
liabilities....... - - 66 3 - 69
Partners'/Stock-
holders' equity
(deficit)......... 67 216 (108) 93 (201) 67
------ ------ ------ ------ ------ ------
$ 76 $ 751 $ 751 $ 97 $ (210) $1,465
====== ====== ====== ====== ====== ======
Condensed Consolidating Statements of Operations
- ------------------------------------------------
Three Months Ended:
- ------------------
Other Consol.
Mesa Mesa and Mesa
March 31, 1996 Inc. HCLP MOC Subs. Elimin. Consol'd
- -------------- ------ ------ ------ -------- -------- --------
Revenues...............$ - $ 37 $ 43 $ 1 $ - $ 81
------ ------ ------ ------ ------ ------
Costs and Expenses:
Operating,
exploration and
taxes............... - 10 9 - - 19
General and
administrative...... - - 5 1 - 6
Depreciation,
depletion and
amortization........ - 9 19 2 - 30
------ ------ ------ ------ ------ ------
- 19 33 3 - 55
------ ------ ------ ------ ------ ------
Operating Income
(Loss)................ - 18 10 (2) - 26
------ ------ ------ ------ ------ ------
Interest expense, net
of interest income.... - (12) (23) - - (35)
Equity income of
subsidiaries.......... 1 - 6 - (7) -
Other.................. - - 7 3 - 10
------ ------ ------ ------ ------ ------
Net Income ............$ 1 $ 6 $ - $ 1 $ (7) $ 1
====== ====== ====== ====== ====== ======
Other Consol.
Mesa Mesa and Mesa
March 31, 1995 Inc. HCLP MOC Subs. Elimin. Consol'd
- -------------- ------ ------ ------ -------- -------- --------
Revenues............. $ - $ 25 $ 37 $ - $ - $ 62
------ ------ ------ ------ ------ ------
Costs and Expenses:
Operating,
exploration and
taxes............. - 9 9 - - 18
General and
administrative.... - - 6 1 - 7
Depreciation,
depletion and
amortization...... - 9 12 - - 21
------ ------ ------ ------ ------ ------
- 18 27 1 - 46
------ ------ ------ ------ ------ ------
Operating Income
(Loss).............. - 7 10 (1) - 16
------ ------ ------ ------ ------ ------
Interest expense, net
of interest income.. - (12) (22) 1 - (33)
Equity in loss of
subsidiaries........ (8) - (5) - 13 -
Other................ - - 4 5 - 9
------ ------ ------ ------ ------ ------
Net Income (Loss).... $ (8) $ (5) $ (13) $ 5 $ 13 $ (8)
====== ====== ====== ====== ====== ======
Condensed Consolidating Statements of Cash Flows
- ------------------------------------------------
Three Months Ended:
- ------------------
Other Consol.
Mesa Mesa and Mesa
March 31, 1996 Inc. HCLP MOC Subs. Elimin. Consol'd
- -------------- ------ ------ ------ -------- -------- --------
Cash Flows from
Operating Activities. $ - $ 6 $ (22) $ 14 $ - $ (2)
------ ------ ------ ------ ------ ------
Cash Flows from
Investing Activities:
Capital expenditures - (1) (9) - - (10)
Contribution to
subsidiary........... - - - - - -
------ ------ ------ ------ ------ ------
- (1) (9) - - (10)
------ ------ ------ ------ ------ ------
Cash Flows from
Financing Activities:
Dividend to parent... - - - (20) 20 -
Contribution from
parent.............. - - 20 - (20) -
Repayments of long-
term debt........... - (12) (10) - - (22)
Other................ - 1 - - - 1
------ ------ ------ ------ ------ ------
- (11) 10 (20) - (21)
------ ------ ------ ------ ------ ------
Net Increase (Decrease)
in cash and cash
investments...........$ - $ (6) $ (21) $ (6) $ - $ (33)
====== ====== ====== ====== ====== ======
Other Consol.
Mesa Mesa and Mesa
March 31, 1995 Inc. HCLP MOC Subs. Elimin. Consol'd
- -------------- ------ ------ ------ -------- -------- --------
Cash Flows from
Operating Activities $ - $ (3) $ 26 $ 6 $ - $ 29
------ ------ ------ ------ ------ ------
Cash Flows from
Investing Activities:
Capital
expenditures...... - (1) (5) (1) - (7)
Other.............. - - - (3) - (3)
------ ------ ------ ------ ------ ------
- (1) (5) (4) - (10)
------ ------ ------ ------ ------ ------
Cash Flows from
Financing Activities:
Other.............. - 2 - - - 2
------ ------ ------ ------ ------ ------
- 2 - - - 2
------ ------ ------ ------ ------ ------
Net Increase (Decrease)
in Cash and Cash
Investments......... $ - $ (2) $ 21 $ 2 $ - $ 21
====== ====== ====== ====== ====== ======
Notes to Condensed Consolidating Financial Statements
- -----------------------------------------------------
(a) These condensed consolidating financial statements should be read
in conjunction with the consolidated financial statements of Mesa
and notes thereto of which this note is an integral part.
(b) As of March 31, 1996, Mesa owns 100% interest in each
of MOC, MHC, and HMC. These condensed consolidating financial
statements present Mesa'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, and (iii) eliminate other transactions between
subsidiaries including contributions and distributions.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
===============================================
This Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation, the statements under "Capital Resources and Liquidity" and Notes
2 and 4 to the consolidated financial statements of Mesa regarding MESA
Inc.'s ("Mesa") financial position and liquidity, the amount of and its
ability to make debt service payments, its strategic alternatives,
financial instrument covenant compliance and other matters are forward-
looking statements. Although Mesa believes that the expectations reflected
in such forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from Mesa's
expectations ("Cautionary Statements") are disclosed in this Form 10-Q,
including without limitation in conjunction with the forward-looking
statements included in this Form 10-Q. All subsequent written and oral
forward-looking statements attributable to Mesa or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary
Statements.
RESULTS OF OPERATIONS
=====================
Mesa reported net income of $1.1 million in the first quarter of 1996
compared with a net loss of $7.9 million in the first quarter of 1995.
The following table presents a summary of the results of operations of
Mesa for the three months ended March 31, 1996 and 1995:
1996 1995
-------- --------
(in thousands)
Revenues......................................... $ 80,643 $ 62,247
Operating and administrative costs............... (25,078) (25,267)
Depreciation, depletion and amortization......... (30,242) (21,006)
-------- --------
Operating income................................. 25,323 15,974
Interest expense, net of interest income......... (34,532) (32,754)
Other............................................ 10,266 8,886
-------- --------
Net income (loss)............................... $ 1,057 $ (7,894)
======== ========
Revenues
--------
The table below presents, for the three months ended March 31, 1996 and
1995, the revenues, production and average prices received from sales of
natural gas, natural gas liquids and oil and condensate.
1996 1995
-------- --------
Revenues (in thousands):
Natural gas.................................. $ 50,567 $ 35,856
Natural gas liquids.......................... 23,136 18,206
Oil and condensate........................... 4,363 5,393
-------- --------
Total................................... $ 78,066 $ 59,455
======== ========
Natural Gas Production (million cubic feet):
Hugoton...................................... 12,855 12,699
West Panhandle............................... 5,471 4,927
Gulf Coast................................... 3,697 2,245
Other........................................ 88 4
-------- --------
Total................................... 22,111 19,875
======== ========
Natural Gas Liquids Production (thousand barrels):
Hugoton...................................... 869 930
West Panhandle............................... 840 696
Gulf Coast................................... 12 13
Other........................................ 2 1
-------- --------
Total................................... 1,723 1,640
======== ========
Oil and Condensate Production (thousand barrels):
Hugoton...................................... -- --
West Panhandle............................... 34 16
Gulf Coast................................... 198 292
Other........................................ 12 14
-------- --------
Total................................... 244 322
======== ========
Weighted average sales price:
Natural gas (per thousand cubic feet)........ $ 2.26 $ 1.71*
Natural gas liquids (per barrel)............. $ 13.82 $ 11.18
Oil and condensate (per barrel).............. $ 17.61 $ 16.51
* Includes the effects of hedging activities. See below.
Mesa's natural gas production increased in the first quarter of 1996
compared with the same period of 1995 due to a weather-related increase in
demand in the West Panhandle field and increased production in the Gulf
Coast as a result of successful drilling in 1995. Natural gas liquids
production increased slightly in the first quarter of 1996 compared to the
first quarter of 1995 in proportion to higher natural gas production in the
West Panhandle field. In the first quarter of 1996 oil and condensate
production decreased compared to the same period of 1995 due to natural
decline in the Gulf Coast oil properties.
Natural gas prices in the first quarter of 1996 were substantially
higher than in the first quarter of 1995 due to a colder 1995/1996 winter.
Natural gas liquids and oil and condensate prices were also higher due to
the colder weather.
Approximately 85 percent of Mesa's 1996 natural gas production was sold
at market prices. The remaining 15 percent was sold under a fixed-price
contract. When circumstances warrant, Mesa hedges its production.
Amortization of deferred gains and losses from hedging activities are
included in natural gas revenues when the hedged production occurs. In the
first quarter of 1995, Mesa recognized as natural gas revenues $4.9 million
of hedge gains. Mesa did not hedge any of its first quarter 1996
production. The following table shows the effect of hedging activities on
Mesa's natural gas prices:
Three Months
Ended March 31
--------------
1996 1995
------ ------
Natural gas prices (per Mcf):
Actual price received for production............. $ 2.26 $ 1.47
Effect of hedging activities..................... -- .24
------ -----
Average price.................................... $ 2.26 $ 1.71
====== ======
Costs and Expenses
------------------
Mesa's aggregate costs and expenses increased by approximately 20% in
the first quarter of 1996 compared to the same period in 1995 due primarily
to increased depreciation, depletion and amortization expenses ("DD&A")
resulting from a non-recurring impairment. Lease operating expenses
increased marginally due to increased production. Production and other
taxes increased 14% due to increased production and higher natural gas
prices. Exploration charges decreased reflecting lower seismic costs.
General and administrative expenses were lower primarily due to a reduction
in employee benefit expenses and lower outside consultant costs. DD&A,
which is calculated quarterly on a unit-of-production basis, was higher by
44% primarily due to impairment of long-lived assets of approximately $6.8
million in accordance with the adoption of a new accounting requirement
(SFAS No. 121) and higher production in the first quarter of 1996.
Other Income (Expense)
----------------------
Interest income and interest expense in the first quarter of 1996 were
not materially different from such income and expense during the same period
in 1995 as average cash balances and aggregate debt outstanding were not
materially different.
Results of operations for the three months ended March 31, 1996 and
1995 include certain items which are either non-recurring or are not
directly associated with Mesa's oil and gas producing operations. The
following table sets forth the amounts of such items for the periods
indicated (in thousands):
1996 1995
------- -------
Gains from investments............................... $ 8,763 $ 4,553
Gains from collections from Bicoastal Corporation.... 2,548 4,653
Other................................................ (1,045) (320)
------- -------
Total Other Income.............................. $10,266 $ 8,886
======= =======
The gains from investments relate to Mesa's investments in marketable
securities and energy futures contracts, which include NYMEX futures
contracts, commodity price swaps and options that are not accounted for as
hedges of future production. Mesa's investments in marketable securities
and futures contracts are valued at market prices at each reporting date
with gains and losses included in the statement of operations for such
reporting period whether or not such gains or losses have been realized.
The gains from collection of interest from Bicoastal Corporation relate
to a note receivable from such company, which was in bankruptcy. Mesa's
claims in the bankruptcy exceeded its recorded receivable. As of March 31,
1996, Mesa had collected the full amount of its allowed claim plus a portion
of the interest due on such claims. Mesa does not expect any future amounts
received from such company to be significant.
CAPITAL RESOURCES AND LIQUIDITY
===============================
Mesa is highly leveraged with over $1.2 billion of long-term debt,
including current maturities. The major components of Mesa's debt are (1)
$492.3 million of secured notes ("HCLP Secured Notes") due in installments
through 2012 at Hugoton Capital Limited Partnership ("HCLP"), an indirect,
wholly owned subsidiary, (2) $51.1 million (plus $11.4 million in letter of
credit obligations) outstanding under a bank credit facility, due in
installments through 1997, with the majority of such debt due on June 23,
1997, (3) $39.7 million of unsecured discount notes due on June 30, 1996,
and (4) $617.4 million of secured discount notes due on June 30, 1998. Both
the secured and unsecured discount notes are subordinate to the bank credit
facility. See Note 4 for a complete description of Mesa's long-term debt.
Mesa is required to make significant principal and interest payments on
its debt during the remainder of 1996. Mesa is required to make $81.6
million of principal and interest payments related to its discount notes and
$12.5 million of principal payments related to its bank credit facility by
June 30, 1996. In addition, Mesa is required to pay $39.4 million in
interest on its secured discount notes on December 31, 1996. In the
aggregate, assuming no acceleration of amounts due under any of Mesa's long-
term debt agreements, Mesa's principal and interest obligations for the
remainder of 1996, excluding HCLP, will total almost $140 million.
The assets and cash flows of HCLP that are subject to the mortgage
securing HCLP's debt are dedicated to service HCLP's debt and are not
available to pay creditors of Mesa or its subsidiaries other than HCLP.
Mesa's bank credit facility contains a covenant requiring it to
maintain tangible adjusted equity, as defined, of at least $50 million. At
March 31, 1996, tangible adjusted equity was approximately $67.8 million.
Assuming no changes in its capital structure and no significant transactions
completed, Mesa expects that it will incur losses from operations for the
remainder of 1996 and that its tangible adjusted equity will fall below $50
million during 1996. If and when Mesa determines that tangible adjusted
equity is below $50 million, an Event of Default, as defined, would occur
under the bank credit facility and the bank would have the right to
accelerate the payment of all outstanding principal and require cash
collateralization of letters of credit. An Event of Default under the bank
credit facility would cause a cross default under Mesa's secured and
unsecured discount note indentures unless and until the bank credit facility
default were cured or waived or the debt under the bank credit facility were
repaid or otherwise discharged. The Events of Default, if they occur and
are not waived, could result in acceleration of approximately $656 million
of long-term debt principal otherwise due in mid-1997 and mid-1998.
Pursuant to the subordination provisions of the discount note indentures,
Mesa would be prohibited from making any payments on such notes for
specified periods upon and during the continuance of any Event of Default
under the bank credit facility.
As a result of improved results of operations in the first quarter of
1996, Mesa now expects that cash generated by its operations, together with
available cash and investment balances, will be sufficient to fund the debt
principal and interest obligations due by June 30, 1996. In addition, if
the obligations under the bank credit facility are accelerated and become
due in the second half of 1996 as discussed above, Mesa expects to have
sufficient cash to repay those obligations. However, whether Mesa would
have sufficient cash to pay both those obligations and the interest payments
on its secured discount notes due at December 31, 1996 would depend upon
results of operations for the remainder of 1996. Mesa will make decisions
regarding payments on its debt as such payments come due, taking into
account the status at such time of the Recapitalization discussed below.
Proposed Recapitalization
- -------------------------
On April 26, 1996, Mesa entered into a stock purchase agreement with
DNR-MESA Holdings L.P., a Texas limited partnership ("DNR"), whose sole
general partner is Rainwater Inc., a Texas corporation owned by Richard E.
Rainwater. The agreement contemplates that Mesa will issue $265 million in
new equity and will repay and/or refinance substantially all of its $1.2
billion of existing debt (the "Recapitalization"). DNR will purchase
approximately 58.8 million shares of a new class of convertible preferred
stock entitled Series B 8% Cumulative Convertible Preferred Stock ("Series B
Preferred") in a private placement and Mesa will offer approximately 58.4
million shares of Series A 8% Cumulative Convertible Preferred Stock
("Series A Preferred") to Mesa stockholders in a rights offering (the
"Rights Offering"). DNR will provide a standby commitment to purchase an
additional number of shares of Series B Preferred equal to the number of
shares of Series A Preferred not subscribed to in the Rights Offering. The
rights, to be distributed to common stockholders on a pro rata basis, will
allow the stockholders to purchase, in respect of each share of common
stock, .912 shares of Series A Preferred at $2.26 per share, the same per
share price at which DNR will purchase shares of Series B Preferred. The
rights will be transferrable and holders of the rights will be offered over-
subscription privileges for shares not purchased by other rights holders.
Each share of Series A and B Preferred will be convertible into one
share of Mesa common stock at any time prior to mandatory redemption in
2008. An annual 8% pay-in-kind dividend will be paid on the shares during
the first four years following issuance. Thereafter, the 8% dividend may,
at the option of Mesa, be paid in cash or additional shares depending on
whether certain financial tests are met and subject to any limitations in
Mesa's debt agreements.
The Series A and B Preferred will represent 64.7% of the fully diluted
common shares at the time of issuance and 71.5% after the mandatory four-year
pay-in-kind period, excluding stock options and assuming no other stock
issuance by Mesa. The Series A and B Preferred will have a liquidation
preference per share equal to $2.26 plus accrued and unpaid dividends. The
terms of the Series A and Series B Preferred are substantially identical
except for certain voting rights and certain provisions relating to
transferability. The Series A and B Preferred will vote with the common
stock as a single class on all matters, except as otherwise required by law
and except for certain special voting rights of the Series B Preferred,
including the right of the holders of the Series B Preferred to nominate and
elect a majority of Mesa's Board of Directors for so long as DNR and its
affiliates meet certain minimum stock ownership requirements and certain
rights of the holders of the Series A Preferred to elect two directors in
the event of certain dividend arrearages.
The sale of shares to DNR and certain other matters will be submitted
to a vote of stockholders at a special meeting expected to take place in
June 1996. Mesa expects to issue shares to DNR and to complete the
refinancing of its existing debt promptly after that meeting. The Rights
Offering would commence promptly thereafter. On May 9, 1996, Mesa filed a
registration statement with the Securities and Exchange Commission (the
"SEC") for the issuance and sale of $132 million of Series A Preferred
through the Rights Offering.
On May 7, 1996, Mesa filed a registration statement with the SEC for
the issuance and sale of $500 million of senior subordinated notes ("New
Notes") consisting of $325 million of senior subordinated notes and $175
million of senior subordinated discount notes, both with ten year
maturities. In addition Mesa has received a commitment from a group of
banks for a new $500 million senior secured revolving credit facility ("New
Credit Facility"). Borrowings under the New Credit Facility and the New
Notes, together with existing cash and investment balances and the $265
million of new equity, will be used to repay and/or refinance substantially
all of Mesa's existing debt.
The consummation of the Recapitalization is subject to certain
conditions including stockholder approval and completion of the refinancing.
Effect of the Recapitalization
- ------------------------------
The Recapitalization will enhance Mesa's ability to compete in the oil
and gas industry by substantially increasing its cash flow available for
investment and improving its ability to attract capital, which will increase
its ability to pursue investment opportunities. Specifically, Mesa's
financial condition will improve significantly as a result of the
Recapitalization due to (i) a significant reduction in total debt
outstanding, (ii) a reduction in annual cash interest expense of
approximately $75 million, (iii) the implementation of a cost savings
program designed to initially reduce annual general and administrative and
other operating overhead expenses by approximately $10 million, and (iv) the
extension of maturities on its long-term debt, which will eliminate Mesa's
present liquidity concerns.
The expected reduction of annual cash interest expense is based on the
following assumptions: (i) initial borrowings under the New Credit Facility
of approximately $375 million (assuming a June 30, 1996 closing; assuming
cash and investment balances are reduced to $1 million; and assuming that a
prepayment premium (see Note 4) is not paid on the HCLP Secured Notes), and
(ii) annual interest rates of approximately 7% under the New Credit
Facility, 11% under the senior subordinated notes and 12-1/4% under the
senior subordinated discount notes. Actual borrowings and interest rates
under the New Credit Facility will fluctuate over time and will affect
Mesa's actual cash interest expense. If Mesa were required to pay a full
prepayment premium on the HCLP Secured Notes as of May 14, 1996, the amount
of such premium would have been approximately $55 million.
Management believes that cash from operating activities, together with
as much as $125 million of availability (assuming no prepayment premium on
the HCLP Secured Notes) under the $500 million New Credit Facility following
the completion of the Recapitalization, will be sufficient for Mesa to meet
its debt service obligations and scheduled capital expenditures, and to fund
its working capital needs for the foreseeable future following the
Recapitalization.
The successful completion of the Recapitalization is expected to
position Mesa to operate and continue as a going concern and to pursue its
business strategies. The consolidated financial statements of Mesa do not
include any adjustments reflecting any treatment other than going concern
accounting.
If the Recapitalization is not completed, Mesa will pursue other
alternatives to address its liquidity issues and financial condition,
including pursuing other merger and sale transactions, the possibility of
seeking to restructure its balance sheet by negotiating with its current
debt holders or seeking protection from its creditors under the Federal
Bankruptcy Code.
OTHER
=====
See Note 5 to the consolidated financial statements of Mesa included
elsewhere in this Form 10-Q for information regarding the status of certain
pending litigation.
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 5.4% of total equivalent
production for the three months ended March 31, 1996, compared with 2.6%
during the same period in 1995. 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, as well as in energy-related commodity futures contracts, which
include NYMEX futures contracts, price swaps and options. 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 5 of this Form 10-Q for
information regarding other legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits (Asterisk indicates incorporated by reference herein)
*2.1 - Rainwater, Inc. letter of intent dated February 27, 1996,
between MESA Inc. and Rainwater, Inc.(Exhibit no. 2 to
Mesa's Form 8-K filed March 1, 1996).
*3.1 - Amended and Restated Articles of Incorporation of MESA Inc.
dated December 31, 1991 (Exhibit 3[a] to Mesa's Form
10-K dated December 31, 1991).
*3.2 - Amended and Restated Bylaws of MESA Inc. (Exhibit 3[c] to
Mesa's Registration Statement on Form S-4,
Registration No. 33-42102).
*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 Mesa'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
Mesa's Registration Statement on Form S-1,
Registration No. 33-51909).
*4.3 - 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 Mesa's Form 10-Q dated March 31,
1994).
*4.4 - 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
Mesa's Form 10-Q/A dated June 30, 1993).
*4.5 - 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 Mesa's Registration Statement on Form
S-1, Registration No. 33-51909).
*4.6 - 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).
*4.7 - 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 Mesa's
Form 10-K dated December 31, 1991).
*4.8 - 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 Mesa's Form
10-Q dated June 30, 1992).
*4.9 - 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 Mesa's Form
10-Q/A dated June 30, 1993).
*4.10 - 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 Mesa's Registration Statement on Form
S-1, Registration No. 33-51909).
*4.11 - 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).
*4.12 - 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 Mesa's Registration Statement on Form S-4,
Registration No. 33-42102).
*4.13 - 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).
*4.14 - Third Amended and Restated Credit Agreement dated as of
November 29, 1994, among Mesa, Mesa Operating Co., and
the Banks named in this Credit Agreement and Societe
Generale, Southwest Agency, as Agent (Exhibit 4.7 to Mesa's
Form 10-K dated December 31, 1994).
*4.15 - Intercreditor Agreement dated as of August 26, 1993, among
Societe Generale, Southwest Agency, as agent for the Banks
under Mesa'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 (Exhibit 4.18 to Mesa's
Registration Statement on Form S-4, Registration No.
33-53706).
The Registrant agrees to furnish to the Commission upon
request any instruments defining the right of holders of
long-term debt with respect to which the total amount
outstanding does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
*10.1 - Stock Purchase Agreement, dated April 26, 1996, between Mesa
and DNR-MESA Holdings, L.P. (Exhibit No. 10 to Mesa's
Form 8-K filed on April 29, 1996).
*10.2 - Form of First Amendment to Deferred Compensation Agreement
and Life Insurance Agreement between Mesa Petroleum Co. and
certain officers and key employees (Exhibit 10[i] to Mesa
Petroleum Co.'s Form 10-K dated December 31, 1980).
*10.3 - 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).
*10.4 - Amendments to the "B" Contract (Exhibit 10.2 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.5 - Gathering Charge Agreement dated January 20, 1984, as
amended, with respect to the "B" Contract (Exhibit 10.3 to
Pioneer Corporation's Form 10-K dated December 31, 1985).
*10.6 - 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).
*10.7 - 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).
*10.8 - 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).
*10.9 - 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
Registration Statement of the Partnership on Form S-3,
Registration No. 33-32978).
*10.10 - "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 Mesa's Form 10-K dated
December 31, 1991).
*10.11 - 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 Mesa's Registration Statement on Form S-1,
Registration No. 033-51909).
*10.12 - Amended Supplemental Stipulation and Agreement between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership dated June 19, 1991 (Exhibit 10[w] to the
Partnership's Registration Statement on Form S-4,
Registration No. 33-42102).
*10.13 - 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 Mesa's
Form 10-K dated December 31, 1991).
*10.14 - 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 Mesa's Form 10-K dated
December 31, 1991).
*10.15 - Amarillo Supply Agreement between Mesa Operating Limited
Partnership, Seller, and Energas Company, a division of Atmos
Energy Corporation, Buyer, dated effective January 2, 1993
(Exhibit 10.14 Mesa's Form 10-K dated December 31,
1995).
*10.16 - Gas Gathering Agreement-Interruptible between Colorado
Interstate Gas Company, Transporter, and Mesa Operating
Limited Partnership, Shipper, dated effective October 1,
1993, as amended by agreements dated January 1, 1994, January
5, 1994, and June 1, 1994 (Exhibit 10.15 Mesa's Form
10-K dated December 31, 1995).
*10.17 - Gas Supply Agreement dated May 11, 1994, between Mesa
Operating Co., as successor to Mesa Operating Limited
Partnership, acting on behalf of itself and as agent for
Hugoton Capital Limited Partnership, and Williams Gas
Marketing Company, and Gas Supply Guarantee dated May 11,
1994 (Exhibit 10.14 Mesa's Form 10-K dated December
31, 1995).
*10.18 - Gas Transportation Agreement dated June 14, 1994, between
Western Resources, Inc. and Mesa Operating Co., acting on
behalf of itself and as agent for Hugoton Capital Limited
Partnership (Exhibit 10.24 to Mesa's Form 10-K dated
December 31, 1994).
*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 - 1991 Stock Option Plan of Mesa (Exhibit 10[v] to Mesa's
Form 10-K dated December 31, 1991).
*10.22 - Interruptible Gas Transportation and Sales Agreement dated
January 1, 1991, between Mesa Operating Limited Partnership
and Energas Company and Amendment dated January 1, 1995
(Exhibit 10.22 Mesa's Form 10-K dated December 31,
1995).
*10.23 - "B" Contract Operating Agreement dated January 1, 1988,
between Mesa Operating Limited Partnership and Colorado
Interstate Gas Company (Exhibit 10.23 Mesa's Form 10-K
dated December 31, 1995).
*10.24 - "B" Contract Agreement of Compromise and Settlement dated
May 29, 1987, between Mesa Operating Limited Partnership and
Colorado Interstate Gas Company, and Amendment to Gathering
Agreement dated July 15, 1990 (Exhibit 10.24 Mesa's
Form 10-K dated December 31, 1995).
*10.25 - Gas Purchase Agreement dated January 1, 1996, between Mesa
Operating Co., as Seller, and KN Marketing L.P., as Buyer,
and Amendment dated August 1, 1995 (Exhibit 10.25 Mesa's
Form 10-K dated December 31, 1995).
*10.26 - Change in Control Retention/Severance Plan adopted August
22, 1995, and Amendment dated October 20, 1995 (Exhibit 10.26
Mesa's Form 10-K dated December 31, 1995).
*10.27 - Article 5 of Regulation S-X Financial Data Schedule
for the Third Quarter 1995 Form 10-Q.
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated April 29, 1996 regarding the
Stock Purchase Agreement between MESA Inc. and DNR-MESA Holdings,
L.P.
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
duly authorized to sign on
behalf of the Registrant)
Date: May 15, 1996
------------
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
27 Article 5 of Regulation S-X Financial Data Schedule
for the Second Quarter 1995 Form 10-Q.