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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
=========
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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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.
=========
(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) (972) 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,
1997: 64,279,568
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PART I - FINANCIAL INFORMATION
==============================
Item 1. Financial Statements
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MESA Inc.
=========
Consolidated Statement of Operations
-------------------------------------
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31
-------------------
1997 1996
-------- --------
REVENUES:
Natural gas........................................ $ 54,564 $ 50,567
Natural gas liquids................................ 30,044 23,136
Oil and condensate................................. 6,378 4,363
Other.............................................. 3,157 2,577
-------- --------
94,143 80,643
-------- --------
COSTS AND EXPENSES:
Lease operating.................................... 18,054 12,962
Production and other taxes......................... 5,924 5,406
Exploration charges................................ 5,933 544
General and administrative......................... 3,801 5,584
Depreciation, depletion and amortization........... 25,723 30,824
-------- --------
59,435 55,320
-------- --------
OPERATING INCOME........................................ 34,708 25,323
-------- --------
OTHER INCOME (EXPENSE):
Interest income.................................... 467 3,217
Interest expense................................... (22,724) (37,749)
Gains on investments............................... -- 8,763
Other.............................................. (230) 1,503
-------- --------
(22,487) (24,266)
-------- --------
NET INCOME ............................................. $ 12,221 $ 1,057
DIVIDENDS ON PREFERRED STOCK ........................... (5,496) --
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 6,725 $ 1,057
======== ========
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENT ................................ $ 0.10 $ 0.02
======== ========
NET INCOME PER COMMON SHARE
ASSUMING FULL DILUTION ................................. $ 0.07 $ 0.02
======== ========
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING................................. 65,779 64,050
======== ========
FULLY DILUTED COMMON SHARES OUTSTANDING ................ 187,578 64,050
======== ========
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Consolidated Balance Sheets
---------------------------
(in thousands, except share data)
March 31, December 31,
ASSETS 1997 1996
----------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash investments.................... $ 20,137 $ 16,681
Accounts and notes receivable................ 30,555 63,410
Other........................................ 4,448 4,186
----------- ------------
Total current assets.................... 55,140 84,277
----------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Oil and gas properties, wells and
equipment using the successful
efforts method of accounting............... 2,051,775 1,975,684
Office and other............................. 37,165 36,740
Accumulated depreciation, depletion
and amortization........................... (991,722) (966,040)
----------- ------------
1,097,218 1,046,384
----------- ------------
OTHER ASSETS:
Gas balancing receivable..................... 42,727 61,204
Other........................................ 53,864 22,014
----------- ------------
96,591 83,218
----------- ------------
$ 1,248,949 $ 1,213,879
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities on long-term debt......... $ 5,305 $ 5,305
Accounts payable and accrued liabilities..... 35,827 43,045
Interest payable............................. 10,779 21,150
----------- ------------
Total current liabilities............... 51,911 69,500
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LONG-TERM DEBT.................................... 843,386 802,772
----------- ------------
DEFERRED REVENUE.................................. 14,875 14,977
----------- ------------
OTHER LIABILITIES................................. 61,062 61,136
----------- ------------
CONTINGENCIES
STOCKHOLDERS' EQUITY:
8% Cumulative convertible preferred
stock, $.01 par value, authorized
500,000,000 shares; outstanding
124,075,599 shares and 121,643,686 shares,
respectively............................... 1,240 1,216
Common stock, $.01 par value, authorized
600,000,000 shares; outstanding 64,279,568
shares and 64,050,009 shares, respectively. 643 643
Additional paid-in capital................... 662,277 656,805
Accumulated deficit.......................... (386,445) (393,170)
----------- ------------
277,715 265,494
----------- ------------
$ 1,248,949 $ 1,213,879
=========== ============
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Consolidated Statements of Cash Flows
-------------------------------------
(in thousands)
(unaudited)
Three Months Ended
March 31
-------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 12,221 $ 1,057
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization..... 25,723 30,824
Accreted interest on discount notes.......... 4,614 --
Gains from investments....................... -- (8,763)
Changes in operating receivables and payables 16,355 (35,142)
Changes in investments, net.................. -- 7,087
Other........................................ 7,159 2,706
-------- --------
Cash provided by (used in) operating
activities................................. 66,072 (2,231)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (97,904) (9,754)
Other............................................. (525) (228)
-------- --------
Cash used in investing activities............ (98,429) (9,982)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ............................. 80,000 --
Repayments of long-term debt...................... (44,000) (22,365)
Other............................................. (187) 1,190
-------- --------
Cash provided by (used in) financing
activities................................. 35,813 (21,175)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS... 3,456 (33,388)
CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD....... 16,681 149,143
-------- --------
CASH AND CASH INVESTMENTS AT END OF PERIOD............. $ 20,137 $115,755
======== ========
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Consolidated Statement of Changes in Stockholders' Equity
---------------------------------------------------------
(in thousands)
(unaudited)
December 31, Net March 31,
1996 Income Dividends 1997
----------- -------- --------- ---------
Common Stock..................... $ 643 $ -- $ -- $ 643
8% Cumulative Convertible
Preferred Stock
Series A...................... 604 -- 12 616
Series B...................... 612 -- 12 624
Additional Paid in Capital....... 656,805 -- 5,472 662,277
Accumulated Deficit.............. (393,170) 12,221 (5,496) (386,445)
----------- -------- -------- ---------
Total Stockholders' Equity....... $ 265,494 $ 12,221 $ -- $ 277,715
=========== ======== ======== =========
Shares Outstanding
Common Stock.................. 64,280 -- -- 64,280
Series A...................... 60,443 -- 1,208 61,651
Series B...................... 61,201 -- 1,224 62,425
(See accompanying notes to consolidated financial statements.)
MESA Inc.
=========
Notes to Consolidated Financial Statements
------------------------------------------
March 31, 1997
(unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
===========================================================
MESA Inc., a Texas corporation, was formed in 1991 to reorganize the
business of Mesa Limited Partnership. 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 acquiring, exploring for,
developing, producing, processing and selling natural gas and oil in the
United States. For the quarter ended March 31, 1997, over 60% of MESA's
equivalent production was natural gas and the balance was 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. In the first quarter of 1997, MESA acquired additional condensate
and natural gas liquids ("NGL") interests (the "Liquids Acquisition") in the
West Panhandle field of Texas from MAPCO, Inc. and its affiliates ("MAPCO").
In April 1997, MESA closed its acquisition of Greenhill Petroleum Corporation
("Greenhill") from Western Mining Corporation (USA) (the "Greenhill
Acquisition"). The Greenhill Acquisition provides MESA with reserve and
production growth opportunities, a new core area onshore Gulf Coast and
increased oil reserves. (See Note 5 for further information).
The consolidated financial statements of MESA for the three month periods
ended March 31, 1997 and 1996 are unaudited but reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly present the results for such periods. The accompanying
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in MESA's Annual
Report on Form 10-K/A ("Form 10-K") for the year ended December 31, 1996.
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.
Certain reclassifications have been made to amounts reported in the
previous year to conform to 1997 presentation.
(2) INVESTMENTS
===========
Since April 10, 1996, MESA has made no speculative investments in
commodity futures contracts. Speculative investments are expected to be
limited in the future.
In the first quarter of 1996, MESA recognized net gains of approximately
$8.8 million from its investments. 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. At March 31, 1996 and December 31, 1995,
MESA had recognized but not realized approximately $6.3 million and $7.6
million, respectively, of gains associated primarily with natural gas futures
contracts.
These gains do not include gains or losses from financial instruments
accounted for as a hedge of oil and gas production. Hedge gains and losses
are included in revenue in the period in which the hedged production occurs.
(3) LONG-TERM DEBT
==============
Long-term debt and current maturities are as follows (in thousands):
March 31, December 31,
1997 1996
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10-5/8% Senior Subordinated Notes........... $ 325,000 $ 325,000
11-5/8% Senior Discount Notes............... 163,386 158,772
Credit Facility............................. 355,000 319,000
Other....................................... 5,305 5,305
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848,691 808,077
Current maturities.......................... (5,305) (5,305)
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Long-term debt.............................. $ 843,386 $ 802,772
========== ==========
Recapitalization
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In August of 1996, MESA completed a recapitalization (the
"Recapitalization") led by Richard E. Rainwater who, along with existing
shareholders, injected $265 million of equity into MESA. This equity infusion
enabled MESA to substantially reduce its overall debt level and debt service
requirements.
Credit Facility
- ---------------
In conjunction with the Recapitalization, MESA entered into a seven-year
$525 million secured revolving credit facility ("the Credit Facility"). Mesa
Operating Co.("MOC"), a wholly owned subsidiary of MESA Inc., is the borrower
under the Credit Facility and all borrowings are fully and unconditionally
guaranteed by MESA Inc. The Credit Facility, which is secured by liens on
substantially all of MESA's assets, matures on June 30, 2003. The borrowing
base for the Credit Facility is determined from the value of MESA's proved oil
and gas reserves. As of March 31, 1997, the Credit Facility supported Letters
of Credit totaling $11.0 million and MESA had $159 million of unused borrowing
capacity. Borrowings bear interest, at MESA's option, at Interbank Eurodollar
rates plus 1-1/2%, CD rates plus 1-1/2%, Fed Funds rates plus 1% or the prime
rate plus 1/2%. MESA has entered into an interest rate swap for two years
that fixes the interest rate on $250 million of borrowings at 7.73%.
The Credit Facility restricts, among other things, MESA's ability to
incur additional indebtedness, create liens, pay dividends, acquire stock or
make investments, loans or advances.
See Note 5, Subsequent Events, for a discussion of the Amendment of the
Credit Facility in April 1997.
Senior Notes
- ------------
In conjunction with the Recapitalization, MESA issued and sold $475
million of senior subordinated notes consisting of $325 million of 10-5/8%
senior subordinated notes due in 2006 (the "Senior Subordinated Notes") and
$150 million in initial accreted value of 11-5/8% senior subordinated discount
notes due in 2006 (the "Senior Discount Notes"). MOC is the issuer of such
notes and such notes are fully and unconditionally guaranteed by MESA Inc. but
are unsecured. Interest on the Senior Subordinated Notes is payable
semi-annually in cash. Through June 30, 2001, interest will not accrue on
the Senior Discount Notes; however, the accreted value, as defined, of such
notes will increase at a rate of 11-5/8% per year, compounded semi-annually.
Thereafter, through maturity, interest will be payable semi-annually in cash.
The indentures governing the Senior Subordinated Notes and the Senior
Discount Notes contain certain covenants that, among other things, limit the
ability of MESA and its restricted subsidiaries to incur additional
indebtedness and issue certain types of capital stock, pay dividends, make
investments, make certain other restricted payments, enter into certain
transactions with affiliates, dispose of assets, incur liens and engage in
mergers and consolidations. See Note 5, Subsequent Events, for a discussion of
a potential merger.
Interest and Maturities
- -----------------------
The aggregate interest payments, net of amounts capitalized, made during
the three months ended March 31, 1997 and 1996, were $27.9 million and $70.8
million, respectively. The interest payments in the three months ended March
31, 1996 included a $42 million interest payment made on January 2, 1996, paid
pursuant to the terms of a series of debt repaid in the Recapitalization, in
respect of the regular December 31, 1995 interest payment. Payment of
approximately $4.6 million of interest expense incurred during the three
months ended March 31, 1997, was deferred under the terms of the Senior
Discount Notes until the repayment dates of the Senior Discount Notes. Such
interest is included in interest expense in the consolidated statements of
operations for the three months ended March 31, 1997.
There are no scheduled principal payments under the terms of the Credit
Facility, the Senior Subordinated Notes or the Senior Discount Notes in the
next five years. However, MESA may have to pay the $5.3 million of other
long-term debt within the next year and therefore classifies such debt in
current maturities.
(4) 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.
On June 7, 1996, the plaintiffs filed a separate suit against CIG and
MESA in state court in Amarillo, Texas, similarly claiming underpayment of
royalties under the "favored-nations" clause, but based upon the
above-described pricing-scheme to pricing-scheme comparison on a well-by-well
monthly basis. The plaintiffs also claim underpayment of royalties since June
7, 1995, under the "favored-nations" clause based upon either the
pricing-scheme to pricing-scheme method or their previously alleged higher
price method. MESA believes it has several defenses to this action and intends
to contest it vigorously. MESA has not yet determined the amount of damages,
if any, that would be payable if such action was determined adversely to MESA.
The federal court in the above-referenced first suit issued an order on
July 29, 1996, which stayed the second suit pending a decision by the court on
plaintiff's motion for new trial in the first suit.
However, based on the jury verdict and final judgment, MESA does not
expect the ultimate resolution of these lawsuits 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 had 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.
Seagull filed a similar third-party complaint June 29, 1995, against MESA
covering a different lease in the 69th District Court in Moore County, Texas.
The plaintiffs in the cases against Seagull sought to terminate the leases.
Seagull, in its complaint against MESA, sought unspecified damages relating to
any leases which were terminated. In February 1997, MESA entered a settlement
agreement with Seagull whereby MESA has been released from all claims
associated with the third-party claims.
Shareholder Litigation
- ----------------------
On July 3, 1995, Robert Strougo filed a class action and derivative
action in the District Court of Dallas County, Texas, 160th Judicial District,
against T. Boone Pickens, Paul W. Cain, John L. Cox, John S. Herrington, Wales
H. Madden, Jr., Fayez S. Sarofim, Robert L. Stillwell, and J. R. Walsh, Jr.
(the "Director Defendants"), each of whom is a present or former director of
MESA. The class action is purportedly brought on behalf of a class of MESA
shareholders and alleges, inter alia, that the Board infringed upon the
suffrage rights of the class and impaired the ability of the class to receive
tender offers by adoption of a shareholder rights plan. The lawsuit is also
brought derivatively on behalf of MESA and alleges, inter alia, that the Board
breached fiduciary duties to MESA by adopting a shareholder rights plan and by
failing to consider the sale of MESA. The lawsuit seeks unspecified damages,
attorneys' fees, and injunctive and other relief. Two other lawsuits filed by
Herman Krangel, Lilian Krangel, Jacquelyn A. Cady, and William A. Montagne,
Jr., in the District Court of Dallas County have been consolidated into this
lawsuit. A third lawsuit filed by Deborah M. Eigen and Adele Brody as a
derivative lawsuit in the U.S. District Court for the Northern District of
Texas, Dallas Division, intervened in this lawsuit.
On February 5, 1996, the Court denied Defendants' Motion to Dismiss. A
trial date has been set for September 15, 1997. The case has been stayed
pending a Special Litigation Committee investigation by MESA to decide whether
the case should be dismissed.
Other
- -----
MESA is also a defendant in other lawsuits and has assumed liabilities
relating to its predecessors. MESA does not expect the resolution of any of
these matters to have a material adverse effect on its financial position or
results of operations.
(5) Subsequent Events
=================
On April 6, 1997, MESA announced that it and Parker & Parsley Petroleum
Company ("Parker & Parsley") had entered into an agreement (the "Merger
Agreement") to merge and create Pioneer Natural Resources Company ("Pioneer").
The consummation of the transaction contemplated in the Merger Agreement is
subject to the approval of the shareholders of each of MESA and Parker &
Parsley. If the Merger Agreement is approved and the business combination is
completed, (i) each seven outstanding shares of MESA Common Stock will be
converted into the right to receive one share of Pioneer Common Stock, (ii)
each seven outstanding shares of MESA's Series A 8% Cumulative Convertible
Preferred Stock and MESA's Series B 8% Cumulative Convertible Preferred Stock
will be converted into the right to receive either (a) 1.25 shares of Pioneer
Common Stock or (b) one share of Pioneer's Series A 8% Cumulative Convertible
Preferred Stock, in each case as the holder thereof shall elect or be deemed
to elect (provided that if the holders of a majority of the outstanding MESA
Series A Preferred Stock or MESA Series B Preferred Stock, each voting as a
separate class, vote in favor of the Merger Agreement, then all holders of the
series for which the vote has been obtained will receive Pioneer Common Stock)
and (iii) each outstanding share of Parker & Parsley Common Stock will be
converted into the right to receive one share of Pioneer Common Stock.
On February 7, 1997, MESA entered into a Stock Purchase Agreement to
purchase 100% of the outstanding capital stock of Greenhill. MESA paid $267
million for Greenhill at the closing of the transaction on April 15, 1997, net
of the cash acquired in the transaction. The Greenhill Acquisition will be
accounted for under the purchase method of accounting. However, because the
purchase agreement provides for an effective date of January 1, 1997, MESA
received the benefits of all Greenhill production and cash flow from the
effective date to the closing date as part of the assets acquired. Under the
purchase agreement, MESA paid interest on the purchase price (less a $15
million deposit) at an annual rate of 10% from the effective date to the
closing date. The purchase price was subject to adjustment for certain title
and environmental matters. The acquisition was funded under the Credit
Facility. In order to accommodate the additional debt incurred in the
Greenhill Acquisition, the Credit Facility was amended to increase the
borrowing base to $650 million. As a result of the Greenhill Acquisition, the
Credit Facility had an outstanding balance of $610 million at May 15, 1997,
excluding $30 million in letters of credit.
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's
financial position and liquidity, oil and gas production levels, expected
prices, acquisition, exploitation and exploration plans, 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 applicable to common stock of $6.7 million in
the first quarter of 1997 compared with $1.1 million in the first quarter of
1996.
The following table presents a summary of the results of operations of
MESA for the three months ended March 31, 1997 and 1996:
1997 1996
-------- --------
(in thousands)
Revenues......................................... $ 94,143 $ 80,643
Operating and administrative costs............... (33,712) (24,496)
Depreciation, depletion and amortization......... (25,723) (30,824)
-------- --------
Operating income................................. 34,708 25,323
Interest expense, net of interest income......... (22,257) (34,532)
Other............................................ (230) 10,266
-------- --------
Net income ..................................... $ 12,221 $ 1,057
Dividends on Preferred Stock .................. (5,496) --
-------- --------
Net Income Applicable to Common Stock .......... $ 6,725 $ 1,057
======== ========
Revenues
- --------
The table below presents, for the three months ended March 31, 1997 and
1996, the revenues, production and average prices received from sales of
natural gas, natural gas liquids and oil and condensate.
1997 1996
-------- --------
Revenues (in thousands):
Natural gas.................................. $ 54,564 $ 50,567
Natural gas liquids.......................... 30,044 23,136
Oil and condensate........................... 6,378 4,363
Other ....................................... 3,157 2,577
-------- --------
Total................................... $ 94,143 $ 80,643
======== ========
Natural Gas Production (million cubic feet):
Hugoton...................................... 10,828 12,942
West Panhandle............................... 5,276 5,471
Gulf Coast................................... 3,013 3,697
Other........................................ 2 1
-------- --------
Total................................... 19,119 22,111
======== ========
Natural Gas Liquids Production (thousand barrels):
Hugoton...................................... 742 870
West Panhandle............................... 912 840
Gulf Coast................................... 32 12
Other........................................ 1 1
-------- --------
Total................................... 1,687 1,723
======== ========
Oil and Condensate Production (thousand barrels):
Hugoton...................................... -- --
West Panhandle............................... 217 34
Gulf Coast................................... 92 198
Other........................................ 21 12
-------- --------
Total................................... 330 244
======== ========
Weighted average sales price (1):
Natural gas (per thousand cubic feet)........ $ 2.90 $ 2.26
Natural gas liquids (per barrel)............. $ 17.80 $ 13.82
Oil and condensate (per barrel).............. $ 19.33 $ 17.61
(1) Includes $0.15, $0.03 and $(0.08) from hedging natural gas, natural
gas liquids and oil and condensate, respectively, in the first quarter of
1997.
MESA's natural gas equivalent production was 8% lower in the first
quarter of 1997 than in the same period of 1996. Hugoton field production was
lower due to high production rates in the first quarter of 1996 resulting from
compression installed in late 1995 at the Ulysses Station. Present Hugoton
production rates have equalized with second quarter 1996 levels, and it is
anticipated that total 1997 volumes will approximate total 1996 volumes as a
result of a field compression expansion program currently underway. Gulf
Coast production was lower due to natural production decline; however,
production from five wells at East Cameron 322 which will come on stream in
the second quarter is expected to offset the decline in the first quarter of
1997. West Panhandle condensate and NGL production increased as a result of
new processing arrangements at the Fain plant as well as from the acquisition
of condensate and NGL interests from MAPCO effective January 1, 1997. MESA
anticipates total production of 157 Bcfe in 1997, up from 128 Bcfe in 1996,
due to (i) the above mentioned activities in Hugoton and the Gulf Coast, (ii)
development activities in the West Panhandle Field, and (iii) expected
production of 17 Bcfe for the remainder of 1997 from the recently closed
Greenhill Acquisition, which includes approximately 3 Bcfe from planned
development activities on those properties.
Prices for all of MESA's production increased significantly in the
first quarter of 1997 in comparison to the first quarter of 1996. The higher
recognized prices reflect the increase in energy commodity prices beginning in
the fourth quarter of 1996 as well as MESA's hedging activities. The first
quarter natural gas price is the highest realized gas price for MESA since the
first quarter of 1984.
The following table shows the effects of MESA's hedging activities on
its natural gas prices for the periods indicated:
Three Months Ended
March 31
1997 1996
------- -------
Natural Gas Prices (per Mcf):
Actual price received for production................ $ 2.75 $ 2.26
Effect of hedging activities........................ .15 --
------- -------
Average price......................................... $ 2.90 $ 2.26
======= =======
Costs and Expenses
- ------------------
MESA's aggregate costs and expenses increased by approximately 7% in the
first quarter of 1997 compared to the same period in 1996. Lease operating
expenses increased 39% as a result of higher production costs under certain
contracts in the West Panhandle field and workovers in the Gulf Coast.
Exploration charges increased reflecting the dry hole costs associated with
Vermilion 348. General and administrative expenses decreased 32% primarily as
a result of lower legal expenses and a significant reduction in personnel in
MESA's natural gas vehicle equipment business and administrative functions.
Depreciation, depletion and amortization, which is calculated quarterly on a
unit-of-production basis, decreased 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) in the first quarter of 1996.
Other Income (Expense)
- ----------------------
Interest income and interest expense in the first quarter of 1997
decreased from such income and expense during the same period in 1996 as
average cash balances and aggregate debt outstanding decreased.
Summarized long-term debt (in thousands) and quarter-end interest rates
are as follows:
March 31, 1997 March 31, 1996
-------------------- -----------------------
Average Average
Interest Interest
Balance Rate Balance Rate
-------- -------- ---------- --------
Fixed rate debt..... $488,386 10.96% $1,157,834 11.73%
Variable rate debt.. 355,000 7.52% 51,131 7.92%
Other............... 5,305 N/A 5,305 N/A
-------- ----------
Total............... $848,691 $1,214,270
======== ==========
Results of operations for the three months ended March 31, 1997 and 1996,
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):
1997 1996
------ -------
Gains from investments............................... $ -- $ 8,763
Other ............................................... (230) 1,503
------ -------
Total Other Income.............................. $ (230) $10,266
====== =======
The gains from investments relate to MESA's investments in marketable
securities and energy futures contracts, which included 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. Since April
10, 1996, MESA has not engaged in speculative investments. Such investments
are expected to be limited in the future.
Subsequent Events
- -----------------
See Note 5 to the consolidated financial statements included in this Form
10-Q for a discussion of the Merger Agreement and the Greenhill Acquisition.
CAPITAL RESOURCES AND LIQUIDITY
===============================
In August of 1996, MESA completed a recapitalization of its balance sheet
by issuing new equity and repaying and refinancing substantially all of its
then existing long-term debt. In the Recapitalization, Richard E. Rainwater,
along with then existing shareholders, injected $265 million of equity into
MESA. The Recapitalization enhanced 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. The ability to
redirect cash flow to acquisition, exploitation and exploration activities and
plant expansion rather than debt service allows MESA to pursue its aggressive
growth strategy.
See Note 3 to the consolidated financial statements of MESA included
elsewhere in this Form 10-Q for a detailed discussion of MESA's existing debt.
MESA has budgeted $130 million for development, exploration and gas
processing in 1997. Of the 1997 total, $86 million is planned for
development, $32 million for exploratory drilling, seismic and lease
acquisition, and $12 million for gas plant and facility expansions. The 1997
budget includes work planned for the Greenhill properties. The timing of most
of MESA's capital expenditures is discretionary with no material long-term
capital expenditure commitments. Consequently, MESA has a significant degree
of flexibility to adjust the level of such expenditures as circumstances
warrant.
In addition to developing its existing reserves, MESA will attempt to
increase its reserve base, production and operating cash flow by engaging in
strategic acquisitions of oil and natural gas properties. MESA does not have
a specific acquisition budget because of the unpredictability of the timing
and size of forthcoming acquisition activities. There is no assurance that
MESA will be able to identify suitable acquisition candidates in the future,
or that MESA will be successful in the acquisition of producing properties.
Further, there can be no assurances that any future acquisitions made by the
Company will be integrated successfully into the Company's operations or will
achieve desired profitability objectives.
Management believes that cash from operating activities, together with
the availability under the Credit Facility will be sufficient for MESA to meet
its debt service obligations and scheduled capital expenditures and to fund
its working capital needs for the next several years. In order to finance any
possible future acquisitions, MESA will either use borrowings available under
the Credit Facility or MESA may seek to obtain additional debt or equity
financing in the public or private capital markets. In February 1997, MESA
filed a shelf registration statement for $500 million of debt securities
and/or common stock with the Securities and Exchange Commission. In April
1997, MESA amended the Credit Facility, increasing the borrowing base to $650
million to accommodate additional debt incurred to finance the Greenhill
Acquisition. In addition, MESA may seek to use its equity securities as an
acquisition currency. The availability and attractiveness of these sources of
financing will depend upon a number of factors, some of which will relate to
the financial condition and performance of MESA, and some of which will be
beyond MESA's control, such as prevailing interest rates, oil, natural gas and
NGL prices, the availability of properties for acquisition and other market
conditions. There can be no assurance that additional debt or equity
financing will be available or be available on terms attractive to MESA. In
addition, the ability of MESA to incur any additional indebtedness and grant
security interests with respect thereto will be subject to the terms of the
Credit Facility and the indentures governing its Senior Subordinated Notes and
Senior Discount Notes.
Price Risk Management
=====================
In order to mitigate the potential negative effects of volatile commodity
prices, MESA entered into over-the-counter commodity and natural gas basis
swap agreements with financial institutions and gas marketing companies. A
commodity swap has the effect of fixing the absolute price or setting a
trading range for a specific product. A natural gas basis swap "fixes" the
differential between MESA's physical gas delivery points and the NYMEX Henry
Hub.
As a result of physical sales contracts and other hedging arrangements,
MESA's estimated fixed price profile for the balance of 1997 is as follows:
36% of expected natural gas production is hedged at an average of $2.29 per
MMBtu; 10% of expected natural gas liquids production is hedged at an average
$17.07 per Bbl; and 25% of expected oil and condensate production is hedged at
an average of $22.21 per Bbl. MESA has entered into various option contracts
to limit the price risk on additional 4% of its expected natural gas
production.
In connection with acquisitions, MESA has and expects to continue to
enter into hedging arrangements for all or a portion of the production on the
acquired properties. Regarding the Greenhill acquisition, MESA hedged
approximately 100% of its 1997 expected natural gas production at
approximately $2.60 per MMBtu and approximately 30% of Greenhill's projected
crude oil production at approximately $22.60 per barrel. Through the use of a
collar, MESA created a $19.25 floor and a $25.50 cap for approximately 20% of
the 1997 expected Greenhill crude oil production. For the year 1998, MESA
fixed approximately 40% of the projected Greenhill natural gas production
around $2.35. With respect to the Liquids Acquisition, MESA sold approximately
100% of the crude oil and natural gas liquids at a net price of $21.00 per
barrel and $18.66 per barrel, respectively, for the first three quarters of
1997.
In addition to these hedges, MESA entered into an eight year agreement
for 13,000 MMBtus of natural gas per day beginning in early 1997. Under this
agreement, MESA will receive NYMEX Henry Hub plus $0.52 per MMBtu for the
first two years and 10% of the NYMEX WTI crude oil price for the remaining six
years.
Net Operating Loss Carryforwards
================================
At December 31, 1996, MESA had a regular tax net operating loss ("NOL")
carryforward of approximately $560 million. Additionally, MESA had an
alternative minimum tax loss carryforward available to offset future
alternative minimum taxable income of approximately $535 million. If not used,
these carryforwards will expire between 2007 and 2011. As a result of the
Recapitalization, MESA's ability to carry forward its NOLs is subject to the
limitations of Section 32 of the Internal Revenue Code of 1986, which, in
general, limits the utilization of NOL carryforwards subsequent to a
substantial change (generally more than 50%) in corporate stock ownership.
Notwithstanding the above limitations, MESA expects the NOL's available in
1997 to be sufficient to offset any taxable income expected to be generated in
1997.
Other
=====
Mesa recognizes its ownership interest in natural gas production as
revenue. Actual production quantities sold may be different from Mesa's
ownership share of production in a given period. Mesa records these
differences as gas balancing receivables or as deferred revenue. Net gas
balancing overproduction represented approximately 1.9% of total equivalent
production for the three months ended March 31, 1997, compared with net gas
balancing underproduction amounting to approximately 5.4% of total equivalent
production during the same period in 1996. 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.
PART II - OTHER INFORMATION
===========================
Item 1. Legal Proceedings
- --------------------------
Reference is made to Part I, Item 1, Note 4 of this Form 10-Q for
information regarding legal proceedings, which information is incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)(3) Exhibits
- ----------------
(Asterisk indicates exhibits are incorporated by reference herein).
*2.1 - Stock Purchase Agreement dated February 7, 1997, by and between
Western Mining Corporation (USA) and MESA Operating Co.
(Exhibit 10 to MESA's Form 8-K dated February 7, 1997).
*2.2 - Agreement and Plan of Merger dated as of April 6, 1997, among
MESA Inc, Mesa Operating Co., MXP Reincorporation Corp., and
Parker & Parsley Petroleum Company (Exhibit 2.1 to MESA's
Form 8-K dated April 6, 1997).
*2.3 - Shareholders Agreement dated as of April 6, 1997, by and between
MESA Inc. and DNR-MESA Holdings, L.P. (Exhibit 2.2 to MESA's
Form 8-K dated April 6, 1997).
*2.4 - Letter Agreement dated April 6, 1997, between Parker & Parsley
Petroleum Company and DNR-MESA Holdings, L.P. (Exhibit 2.3 to
MESA's Form 8-K dated April 6, 1997).
*2.5 - Shareholders Agreement dated as of April 6, 1997, by and between
MESA Inc., Boone Pickens and Parker & Parsley Petroleum Company
(Exhibit 2.4 to MESA's Form 8-K dated April 6, 1997).
*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 - Statement of Resolution establishing Series A 8% Cumulative
Convertible Preferred Stock and Series B 8% Cumulative
Convertible Preferred Stock. (Exhibit 4 to MESA's Form 8-K
dated April 29, 1996).
*3.3 - Amended and Restated Bylaws of MESA Inc. dated July 2,
1996 (Exhibit 3.3 to MESA's Form 10-Q dated August 13,
1996).
*4.1 - Credit Agreement dated as of July 2, 1996, among MESA
Operating Co., as Borrower, MESA Inc. and the Banks listed as
lenders in the Credit Agreement and The Chase Manhattan
Bank, N.A., as Administrative Agent, Bankers Trust Company,
as Syndication Agent, and Society Generale, Southwest Agency,
as Documentation Agent (Exhibit No. 4.16 to MESA's Form 10-Q
dated August 13, 1996).
*4.2 - Indenture dated July 2, 1996, among Mesa Operating Co., as
Issuer, MESA Inc., as a Guarantor, and Harris Trust and
Savings Bank as Trustee relating to 11-5/8% Senior
Subordinated Discount Notes Due 2006 (Exhibit No. 4.17 to
MESA's Form 10-Q dated August 13, 1996).
*4.3 - Indenture dated July 2, 1996, among Mesa Operating Co., as
Issuer, MESA Inc., as a Guarantor, and Harris Trust and
Savings Bank as Trustee relating to 10-5/8% Senior
Subordinated Notes Due 2006 (Exhibit No. 4.18 to MESA's Form
10-Q dated August 13, 1996).
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 - 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).
*10.3 - Amendments to the "B" Contract (Exhibit 10.2 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.4 - 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).
*10.5 - 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).
*10.6 - 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).
*10.7 - 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).
*10.8 - 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).
*10.9 - "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).
*10.10 - 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).
*10.11 - 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).
*10.12 - 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).
*10.13 - 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).
*10.14 - 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 to MESA's Form 10-K dated December 31,
1995).
*10.15 - 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 to MESA's
Form 10-K dated December 31, 1995).
*10.16 - 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 10.16 to MESA's Form 10-K dated December 31,
1995).
*10.17 - 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).
*10.18 - 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).
*10.19 - 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).
*10.20 - 1991 Stock Option Plan of MESA (Exhibit 10[v] to MESA's
Form 10-K dated December 31, 1991).
*10.21 - 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 to MESA's Form 10-K dated December 31,
1995).
*10.22 - "B" Contract Operating Agreement dated January 1, 1988,
between Mesa Operating Limited Partnership and Colorado
Interstate Gas Company (Exhibit 10.23 to MESA's Form 10-K
dated December 31, 1995).
*10.23 - "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 to MESA's
Form 10-K dated December 31, 1995).
*10.24 - 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 to MESA's
Form 10-K dated December 31, 1995).
*10.25 - Change in Control Retention/Severance Plan adopted August
22, 1995, and Amendment dated October 20, 1995 (Exhibit 10.26
to MESA's Form 10-K dated December 31, 1995).
*10.26 - Employment Agreement dated as of August 21, 1996, between
MESA Inc., a Texas corporation, and Ira Jon Brumley,
a Texas resident.
*10.27 - 1996 Incentive Plan of MESA Inc. (Exhibit 10.27 to MESA's Form
10-K/A dated December 31, 1996).
*10.28 - Mesa Management Severance Plan including Schedule of
Participants (Exhibit 10.28 to MESA's Form 10-K/A dated
December 31, 1996).
27 - Article 5 of Regulation S-X Financial Data Schedule
for the First Quarter 1997 Form 10-Q.
(b) Reports on Form 8-K
1. Current Reports on Form 8-K and 8-K/A dated February 8, 1997
regarding the acquisition of Greenhill Petroleum Corporation,
including Greenhill's financial statements for the year ended
June 30, 1996 and the six months ended December 31, 1996.
2. Current Report on Form 8-K dated April 7, 1997 regarding the
proposed merger of MESA Inc. and Parker & Parsley Petroleum
Company.
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)
---------------------
Wayne A. Stoerner
Controller
(Principal accounting officer
duly authorized to sign on
behalf of the Registrant)
Date: May 15, 1997
------------
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
27 Article 5 of Regulation S-X Financial Data Schedule
for the First Quarter 1997 Form 10-Q.
[ARTICLE] 5
[LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE MESA INC. AND
SUBSIDIARIES MARCH 31, 1997, FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
[MULTIPLIER] 1,000
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] MAR-31-1997
[CASH] 20,137
[SECURITIES] 0
[RECEIVABLES] 30,555
[ALLOWANCES] 2,534
[INVENTORY] 2,459
[CURRENT-ASSETS] 55,140
[PP&E] 2,088,940
[DEPRECIATION] 991,722
[TOTAL-ASSETS] 1,248,949
[CURRENT-LIABILITIES] 51,911
[BONDS] 843,386
[PREFERRED-MANDATORY] 1,240
[PREFERRED] 0
[COMMON] 643
[OTHER-SE] 275,832
[TOTAL-LIABILITY-AND-EQUITY] 1,248,949
[SALES] 94,143
[TOTAL-REVENUES] 94,143
[CGS] 0
[TOTAL-COSTS] 59,435
[OTHER-EXPENSES] 22,487
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 22,724
[INCOME-PRETAX] 6,725
[INCOME-TAX] 0
[INCOME-CONTINUING] 6,725
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 6,725
[EPS-PRIMARY] 0.10
[EPS-DILUTED] 0.07