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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-7667
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SANTA FE SNYDER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2722169
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
840 GESSNER, SUITE 1400
HOUSTON, TEXAS 77024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 507-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
CLASS OUTSTANDING AS OF APRIL 28, 2000
Common stock, $.01 par value 182,301,574
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SANTA FE SNYDER CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Operations (Unaudited) --
Three Months Ended March 31, 2000 and 1999 ..................... 3
Consolidated Balance Sheet --
March 31, 2000 (Unaudited) and December 31, 1999 ............... 4
Consolidated Statement of Cash Flows (Unaudited) --
Three Months Ended March 31, 2000 and 1999 ..................... 5
Consolidated Statement of Comprehensive Income (Unaudited) --
Three Months Ended March 31, 2000 and 1999 ..................... 6
Notes to Consolidated Financial Statements ....................... 7
Management's Discussion and Analysis of Financial
ITEM 2. Condition and Results of Operations ............................ 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks ...... 16
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K ................................. 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In Millions of Dollars, except as noted)
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Revenues
Crude oil and liquids .......................... $ 124.5 $ 43.1
Natural gas .................................... 77.5 24.8
Other .......................................... -- .3
------- -------
202.0 68.2
------- -------
Costs and Expenses
Production costs ............................... 41.9 28.3
Production and other taxes ..................... 11.4 3.5
Exploration .................................... 10.1 11.2
Depletion, depreciation and
amortization ................................ 68.9 31.9
General and administrative ..................... 7.1 5.4
Loss (gain) on disposition of
assets ...................................... (.2) .1
------- -------
139.2 80.4
------- -------
Income (Loss) from Operations .................... 62.8 (12.2)
Interest income ................................ .7 .4
Interest expense ............................... (15.0) (6.8)
Interest capitalized ........................... 1.5 1.3
------- -------
Income (Loss) Before Income Taxes ................ 50.0 (17.3)
Current income tax (expense)
benefit ..................................... (6.3) (.7)
Deferred income tax (expense)
benefit ..................................... (13.0) 5.9
------- -------
Net Income (Loss) ................................ $ 30.7 $ (12.1)
======= =======
Net Income (Loss) per Common Share
(in dollars)
Basic and diluted .............................. $ .17 $ (.12)
======= =======
Weighted Average Shares Outstanding
(in millions) .................................. 182.4 102.2
======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
3
SANTA FE SNYDER CORPORATION
CONSOLIDATED BALANCE SHEET
(In Millions of Dollars)
MARCH 31, DECEMBER 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents .................... $ 11.1 $ 6.0
Accounts receivable .......................... 116.0 106.6
Inventories .................................. 24.4 25.5
Other current assets ......................... 52.3 35.0
-------- --------
203.8 173.1
-------- --------
Properties and Equipment, at cost
Oil and gas (successful efforts
method of accounting) ..................... 3,387.1 3,134.9
Other ........................................ 64.2 53.2
-------- --------
3,451.3 3,188.1
Accumulated depletion, depreciation,
amortization and impairment ............... (1,581.5) (1,531.0)
-------- --------
1,869.8 1,657.1
-------- --------
Other Assets ................................... 32.0 32.6
-------- --------
$2,105.6 $1,862.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ............................. $ 169.1 $ 200.4
Income taxes payable ......................... 5.8 1.3
Interest payable ............................. 9.0 2.1
Other current liabilities .................... 30.1 36.1
-------- --------
214.0 239.9
-------- --------
Long-Term Debt ................................. 794.0 629.4
-------- --------
Deferred Revenues .............................. 166.5 104.8
-------- --------
Other Long-Term Obligations .................... 75.4 70.1
-------- --------
Deferred Income Taxes .......................... 90.5 77.4
-------- --------
Commitments and Contingencies (Note 6)
Shareholders' Equity
Common stock ................................. 1.8 1.8
Paid-in capital .............................. 1,247.3 1,247.4
Accumulated deficit .......................... (467.9) (498.5)
Accumulated other comprehensive income ....... 1.7 1.3
Treasury stock, at cost ...................... (16.6) (10.8)
Unamortized restricted stock awards .......... (1.1) --
-------- --------
765.2 741.2
-------- --------
$2,105.6 $1,862.8
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
4
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Millions of Dollars)
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Operating Activities
Net income (loss) ............................... $ 30.7 $(12.1)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depletion, depreciation and
amortization ............................ 68.9 31.9
Deferred income taxes ...................... 13.0 (5.9)
Loss (gain) on disposition of
assets .................................. (.2) .1
Exploratory dry hole costs ................. .4 5.5
Other ...................................... 1.2 1.2
Changes in operating assets and
liabilities:
Decrease (increase) in
accounts receivable ..................... (9.4) (3.6)
Decrease (increase) in
inventories ............................. 1.1 .9
Increase (decrease) in
accounts payable ........................ (1.7) .9
Increase (decrease) in income
taxes payable ........................... 4.5 (.6)
Increase (decrease) in
interest payable ........................ 6.9 2.7
Increase (decrease) in
deferred revenues ....................... 61.7 .1
Change in other assets and
liabilities ............................. (22.3) 9.3
------ ------
Net cash provided by operating
activities ................................... 154.8 30.4
------ ------
Investing Activities
Capital expenditures ............................ (115.8) (61.7)
Acquisition of producing properties ............. (191.9) (.5)
Proceeds from disposition of assets ............. .4 .1
------ ------
Net cash used in investing
activities ................................... (307.3) (62.1)
------ ------
Financing Activities
Net change in long-term lines of
credit ....................................... 164.5 31.3
Treasury stock purchased ........................ (8.8) (.2)
Treasury stock reissued ......................... 1.9 --
------ ------
Net cash provided by financing
activities ................................... 157.6 31.1
------ ------
Net Increase (Decrease) in Cash and
Cash Equivalents ................................ 5.1 (.6)
Cash and cash equivalents at
beginning of period .......................... 6.0 12.1
------ ------
Cash and Cash Equivalents at End of
Period .......................................... $ 11.1 $ 11.5
====== ======
Supplemental Disclosure of Cash Flow
Information
Interest paid ................................... $ 7.9 $ 4.0
Income taxes paid ............................... $ 1.9 $ 1.7
The accompanying notes are an integral part
of these consolidated financial statements.
5
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(In Millions of Dollars)
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Net Income (Loss) .................................. $30.7 $(12.1)
----- -----
Other Comprehensive Income
Unrealized holding gain on securities ............ .5 --
Deferred income taxes ............................ (.1) --
----- -----
.4 --
----- -----
Comprehensive Income (Loss) ........................ $31.1 $(12.1)
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
6
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. UNAUDITED INTERIM
FINANCIAL STATEMENTS. The unaudited interim consolidated financial statements
of Santa Fe Snyder Corporation ("Santa Fe Snyder" or the "Company") reflect,
in the opinion of management, all adjustments (consisting only of normal and
recurring adjustments) necessary to present fairly the Company's financial
position at March 31, 2000 and the Company's results of operations and cash
flows for the three-month periods ended March 31, 2000 and 1999. Interim period
results are not necessarily indicative of results of operations or cash flows
for a full-year period.
These unaudited interim consolidated financial statements and the notes thereto
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of Santa Fe
Snyder and its subsidiaries include the accounts of all wholly owned
subsidiaries. Effective May 5, 1999, Snyder Oil Corporation ("Snyder Oil") was
merged with and into Santa Fe Energy Resources, Inc. ("Santa Fe Energy"), a
Delaware corporation, pursuant to an Agreement and Plan of Merger dated January
13, 1999 (the "Merger"). In connection with the Merger, Santa Fe amended its
Articles of Incorporation to change its name to Santa Fe Snyder Corporation. The
Merger was accounted for as a purchase. See Note 2 -- Merger with Snyder Oil
Corporation.
All significant intercompany accounts and transactions have been eliminated.
Certain amounts in prior periods have been reclassified to conform to the
current year's presentation.
PRICE RISK MANAGEMENT. The Company engages in price risk management activities
for non-trading purposes. Derivative financial instruments (primarily fixed
price swaps, collars and options) are utilized to hedge the impact of market
fluctuations on natural gas and crude oil market prices. Gains and losses on
derivative financial instruments are recognized in oil and gas revenues in the
period in which the hedged production is sold. Gains and losses on hedging
instruments that are closed prior to maturity are deferred and recognized in
earnings over the period the hedged production is sold. The cash flow impact of
hedging activities are reflected in Cash Provided by Operating Activities in the
Consolidated Statement of Cash Flows. See Note 6 -- Commitments and
Contingencies -- Oil and Gas Hedging.
EARNINGS PER SHARE. The computation of earnings per share is discussed in Note
3 -- Earnings Per Share.
USE OF ESTIMATES. The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the Company to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
and the periods in which certain items of revenue and expense are included. The
Company's most significant financial estimates are related to the Company's
proved oil and gas reserves. Actual results may differ from such estimates.
COMPREHENSIVE INCOME. Comprehensive income is net income, plus certain other
items that are recorded directly to shareholders' equity.
NEW ACCOUNTING STANDARDS. Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
as amended by Statement of Financial Accounting Standards No. 137, is effective
for fiscal years beginning after June 15, 2000. The Company intends to implement
the provisions of SFAS 133 beginning January 1, 2001.
SFAS 133 requires all derivatives to be recognized in the balance sheet as
either assets or liabilities and measured at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in
7
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
earnings. The Company has not yet determined the impact that the adoption of
SFAS 133 will have on its earnings, statement of financial position or cash
flows.
NOTE 2. MERGER WITH SNYDER OIL CORPORATION. Effective May 5, 1999, Snyder Oil
was merged with and into Santa Fe Energy pursuant to an Agreement and Plan of
Merger dated January 13, 1999. In the Merger each issued and outstanding share
of common stock of Snyder Oil was converted into 2.05 shares of common stock of
Santa Fe Snyder. The exchange ratio was determined through arm's length
negotiations between the parties. The Merger has been accounted for as a
purchase and the results of operations of the acquired company are included in
Santa Fe Snyder's results of operations effective May 1, 1999.
The allocation of the purchase price to specific assets was based on certain
estimates of fair values. At the time of the Merger the Company assumed or
accrued the following $19.4 million of costs which were capitalized: (i)
severance costs related to Snyder employees of $9.6 million; (ii) professional
fees of $5.7 million; (iii) provisions for certain lease obligations for
duplicate or unused facilities of $2.5 million; and (iv) other transition costs
of $1.6 million. Subsequently the Company increased the accruals for
professional fees and other transition costs by $0.3 million and $1.0 million,
respectively. At March 31, 2000, after deducting payments made, the Company's
accrued liabilities included $2.0 million with respect to severance costs and
$0.3 million of costs with respect to lease obligations for duplicate or unused
facilities.
The following unaudited proforma condensed income statement information has been
prepared to give effect to the Merger as if such transaction had occurred at the
beginning of the period presented. The historical results of operations have
been adjusted to reflect the difference between Snyder Oil's historical
depletion, depreciation and amortization and such expense calculated based on
the value allocated to the assets acquired in the Merger. The information
presented is not necessarily indicative of the results of future operations of
the merged companies.
THREE MONTHS ENDED
MARCH 31, 1999
- --------------------------------------------------------------------------------
HISTORICAL PROFORMA
- --------------------------------------------------------------------------------
(in millions of dollars, except per
share data)
Revenues .......................................... 68.2 98.9
Net loss .......................................... (12.1) (26.0)
Basic and diluted loss per share .................. (.12) (.15)
Weighted average shares outstanding (millions) .... 102.2 171.0
NOTE 3. EARNINGS PER SHARE. The following table sets forth the components of
the Company's basic and diluted earnings per share calculations:
WEIGHTED
AVERAGE
COMMON SHARES PER SHARE
NET INCOME (LOSS) OUTSTANDING AMOUNT
- -----------------------------------------------------------------------------------------------------
($/millions) (millions) (in dollars)
Three Months Ended March 31, 2000
Basic ..................................... 30.7 182.4 0.17
Effect of dilutive stock options,
performance awards and
restricted stock grants ................. -- 2.3 --
----- ----- -----
Basic and diluted ......................... 30.7 184.7 0.17
===== ===== =====
Three Months Ended March 31, 1999
Basic and diluted ......................... (12.1) 102.2 (.12)
===== ===== =====
The Company had 4.7 million and 6.7 million stock options outstanding at
March 31, 2000 and 1999, respectively, which were not included in the
computation of diluted earnings per share because the
8
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
exercise price of these options was greater than the average market price of the
common shares. At March 31, 1999 the Company had 1.0 million outstanding stock
options and performance awards whose exercise price was less than the average
market price of the common shares. Since the Company reported a loss for the
three months ended March 31, 1999, the potential dilutive effects of such stock
options and performance awards were not included in the computation of diluted
earnings per share as they are antidilutive.
NOTE 4. INVESTMENTS. The Company's investment in SOCO International plc
("SOCO") is classified as an available-for-sale security and such investment
is reported at fair value, with unrealized gains and losses excluded from
earnings and reported in Comprehensive Income. The fair value of the Company's
investment in SOCO was $9.6 million at March 31, 2000 and at December 31, 1999
the fair value of such securities was $9.1 million. Accordingly, Comprehensive
Income for the three months ended March 31, 2000 includes an unrealized gain of
$0.5 million ($0.4 million after deducting $0.1 million in deferred income
taxes). The Company's investment in SOCO is included in Other Assets in the
Consolidated Balance Sheet.
NOTE 5. SEGMENT INFORMATION. The principal business of the Company consists of
the exploration, development and acquisition of oil and gas properties and the
production and sale of crude oil and liquids and natural gas. The Company has
determined that its reportable segments are those that are based on the
Company's method of internal reporting, which disaggregates its business by
geographic area. The Company's reportable segments are the United States,
Southeast Asia, South America, and West Africa.
The accounting policies of the segments are the same as those described in Note
1. The Company evaluates the performance of its segments and allocates resources
based principally on operating income or loss.
The following table presents information about the reported segments for the
three months ended March 31, 2000 and 1999. Other reconciling items include
other corporate income and expenses, hedging activities and overhead costs not
allocated to specific geographic areas. Asset information by reportable segment
is not presented because such information is not a factor used by management to
evaluate the performance of the segments.
DEPLETION
DEPRECIATION
OPERATING INCOME (LOSS) AMORTIZATION GAIN (LOSS)
TOTAL INCOME BEFORE INCOME AND ON DISPOSITION OF
REVENUES (LOSS) TAXES IMPAIRMENT ASSETS
- ------------------------------------------------------------------------------------------------------------------
(millions of dollars)
2000
United States .................... 157.9 66.2 66.2 53.0 (.2)
Southeast Asia ................... 24.4 4.1 4.1 8.1 --
South America .................... 15.8 6.9 6.9 4.5 --
West Africa ...................... 10.1 2.5 2.5 2.1 --
Other reconciling items .......... (6.2) (16.9) (29.7) 1.2 --
------ ------ ------ ------ ------
202.0 62.8 50.0 68.9 (.2)
====== ====== ====== ====== ======
1999
United States .................... 40.8 (.5) (.5) 20.4 .1
Southeast Asia ................... 16.8 1.3 1.3 4.4 --
South America .................... 7.5 (1.0) (1.0) 4.2 --
West Africa ...................... 3.1 (4.2) (4.2) 1.2 --
Other reconciling items .......... -- (7.8) (12.9) 1.7 --
------ ------ ------ ------ ------
68.2 (12.2) (17.3) 31.9 .1
====== ====== ====== ====== ======
9
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
The information presented for Southeast Asia and South America includes the
following amounts for operations in Indonesia and Argentina, respectively, for
the three months ended March 31, 2000 and 1999:
INDONESIA ARGENTINA
- --------------------------------------------------------------------------------
2000 1999 2000 1999
- --------------------------------------------------------------------------------
(millions of dollars)
Total revenues ................................. 24.4 16.8 15.8 7.4
Operating income (loss) ........................ 6.4 3.3 7.3 (1.0)
Income (loss) before income taxes .............. 6.4 3.3 7.3 (1.0)
Depletion, depreciation, amortization
and impairment ............................... 7.9 4.3 4.4 4.2
NOTE 6. COMMITMENTS AND CONTINGENCIES. OIL AND GAS HEDGING. From time to time
the Company hedges a portion of its oil and gas sales to provide a certain
minimum level of cash flow from its sales of oil and gas. While the hedges are
generally intended to reduce the Company's exposure to declines in market price,
the Company's gain from increases in market price may be limited. The Company
uses various financial instruments whereby monthly settlements are based on
differences between the prices specified in the instruments and the settlement
prices of certain futures contracts quoted on the New York Mercantile Exchange
("NYMEX") or certain other indices. Generally, in instances where the
applicable settlement price is less than the price specified in the contract,
the Company receives a settlement based on the difference; in instances where
the applicable settlement price is higher than the specified price, the Company
pays an amount based on the difference. The instruments utilized by the Company
differ from futures contracts in that there is no contractual obligation which
requires or allows for the future delivery of the product. Gains or losses on
hedging activities are recognized in oil and gas revenues in the period in which
the hedged production is sold.
Crude oil sales hedges resulted in a $6.2 million decrease in revenues in the
first three months of 2000. The Company had no open crude oil sales hedges
during the first three months of 1999. At March 31, 2000, the Company had open
crude oil sales hedges based on NYMEX futures contracts on an average of 16,700
barrels per day through December 31, 2000. The hedges have an average floor of
approximately $20.00 per barrel and an average ceiling of approximately $25.00
per barrel. Based on the March 31, 2000 settlement price of the applicable NYMEX
futures contracts, the Company's unrealized loss with respect to such hedges at
March 31, 2000 was $3.9 million. The actual gains or losses realized by the
Company from these hedges may vary significantly due to the volatility of the
futures markets and other indices.
The Company had no open natural gas sales hedges in the first three months of
2000 or 1999. In April 2000 the Company entered into natural gas sales hedges
for the period May 1, 2000 through October 31, 2000 on an average of 30,000
MMBtu per day based on NYMEX futures contracts and an average of 20,000 MMBtu
per day based on the Index of Colorado Interstate Gas, Rocky Mountains (the
"CIG Index"). The NYMEX hedges have an average floor of $3.00 per MMBtu and an
average ceiling of $3.28 per MMBtu and the CIG Index hedges have an average
floor of $2.60 per MMBtu and an average ceiling of $2.87 per MMBtu.
The Company has a long-term gas swap agreement that was entered into by Snyder
Oil in 1994 to lock in the price difference between the Rocky Mountain and Henry
Hub prices on a portion of its Rocky Mountain gas production. The contract
covers 20,000 MMBtus per day through 2004. The long-term gas swap agreement
reduced natural gas revenues by $0.1 million in the first three months of 2000.
The unrealized gain with respect to the swap agreement at March 31, 2000 was
$0.5 million.
CRUDE OIL SALES CONTRACTS. In August 1999, the Company entered into a crude oil
forward sales contract under the terms of which the Company is to deliver a
total of 6.2 million barrels of crude oil to the purchaser, at specified monthly
volumes, during the period from October 1999 through August 2002. In
consideration the Company received a prepayment of $99.3 million, after
deducting arrangement and
10
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
other related costs. In January 2000, the Company entered into a crude oil
forward sales contract under the terms of which the Company is to deliver a
total of 4.2 million barrels of crude oil to the purchaser, at specified monthly
volumes, during the period from February 2000 through August 2002. In
consideration the Company received a prepayment of $74.6 million, after
deducting arrangement and other related costs. The prepayments are recognized in
earnings when the crude oil is delivered. The balance of the prepayment related
to undelivered crude oil, $152.0 million at March 31, 2000, is reflected on the
consolidated balance sheet under the caption Deferred Revenues. Under the terms
of the contracts, the Company will deliver a total of 9.0 million barrels during
the period April 2000 through August 2002. The proceeds from the January 2000
contract were used to pay a portion of the purchase price of certain proved oil
and gas properties acquired in January 2000.
ENVIRONMENTAL REGULATION. The Company's oil and gas operations are subject to
stringent environmental regulation by government authorities. Such regulation
has increased the costs of planning, designing, drilling, installing, operating
and abandoning oil and gas wells and associated facilities. The Company has
expended significant financial and managerial resources to comply with such
regulations. Although the Company believes its operations and facilities are in
general compliance with applicable environmental regulations, the risk of
substantial costs and liabilities are inherent to oil and gas operations. It is
possible that other developments, such as increasingly strict environmental
laws, regulations and enforcement policies or claims for damages to property,
employees, other persons and the environment resulting from the Company's
operations, could result in significant costs and liabilities in the future. As
it has in the past, the Company intends to fund the future costs of
environmental compliance from operating cash flows.
OTHER MATTERS. There are other claims and actions, including certain
environmental matters, pending against the Company. In the opinion of
management, the amounts, if any, which may be awarded in connection with any of
these claims and actions could be significant to the results of operations or
cash flows of any period but are not believed to be material to the Company's
consolidated financial position.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our U.S. core areas are the Gulf of Mexico, the Permian Basin and the Rocky
Mountains. Our international core areas are Southeast Asia and South America. We
also explore and produce in West Africa.
On May 5, 1999 Snyder Oil Corporation was merged with and into Santa Fe Energy
Resources, Inc. (the "Merger") and the Company's name was changed to Santa Fe
Snyder Corporation. The producing properties that we acquired in the Merger are
entirely located in the U.S., primarily in the Gulf of Mexico and the Rocky
Mountains. The Merger is described in the notes to the consolidated financial
statements. The Merger was accounted for as a purchase and the consolidated
interim financial statements include results of operations attributable to the
acquired Company with effect from May 1, 1999.
RESULTS OF OPERATIONS
The following table reflects the components of our oil and gas revenues:
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
OIL
SALES VOLUMES (MBBLS/DAY)
Domestic ................................... 38.8 21.4
Argentina .................................. 5.6 5.0
Indonesia .................................. 10.6 16.1
Gabon ...................................... 4.1 2.6
------ ------
59.1 45.1
====== ======
SALES PRICES ($/BBL)
Unhedged
Domestic ................................. 23.52 10.17
International ............................ 26.39 11.46
Total .................................... 24.51 10.85
Hedged ..................................... 23.35 10.85
REVENUES ($ MILLIONS)
Sales
Domestic ................................. 83.0 19.6
International ............................ 48.8 24.5
------ ------
131.8 44.1
Hedging .................................... (6.2) --
Net Profits Payments ....................... (1.1) (1.0)
------ ------
124.5 43.1
====== ======
(TABLE CONTINUED ON FOLLOWING PAGE)
12
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
GAS
SALES VOLUMES (MMCF/DAY)
Domestic ................................... 360.1 155.0
Argentina .................................. 23.7 25.8
Indonesia .................................. .3 .2
------ ------
384.1 181.0
====== ======
SALES PRICES ($/MCF)
Unhedged
Domestic ................................. 2.35 1.66
International ............................ 1.20 1.20
Total .................................... 2.27 1.59
Hedged ..................................... 2.27 1.59
REVENUES ($ MILLIONS)
Sales
Domestic ................................. 76.9 23.1
International ............................ 2.6 2.8
------ ------
79.5 25.9
Hedging .................................... (.1) --
Net Profits Payments ....................... (1.9) (1.1)
------ ------
77.5 24.8
====== ======
The following table sets forth our revenues and costs and expenses on a BOE
basis:
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
(In Dollars Per BOE,
except as noted)
Production -- MMBOE ............................... 11.2 6.8
===== =====
Revenues .......................................... 18.03 10.06
----- -----
Production costs .................................. 3.74 4.17
Production and other taxes ........................ 1.02 .51
General and administrative ........................ .63 .80
Financing costs, net(a) ........................... 1.14 .76
----- -----
6.53 6.24
----- -----
Operating margin ............................. 11.50 3.82
Exploration ....................................... .90 1.66
DD&A .............................................. 6.15 4.71
Loss (gain) on disposition of assets .............. (.02) .01
----- -----
Pre-tax margin ............................... 4.47 (2.56)
===== =====
- ------------
a) Reflects interest expense less amounts capitalized and interest income.
13
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Total revenues for the first quarter of 2000 of $202.0 million were 300% higher
than in the first quarter of 1999, reflecting higher prices and increased
production from the properties acquired in the Merger and other producing
property acquisitions. Oil prices increased over 200% to $23.35 per barrel in
2000 and gas prices increased 40% to $2.25 per Mcf in 2000. Oil production
increased 30%, to 59.1 MBbls per day in 2000, due to 11 MBbls per day from newly
acquired deepwater Gulf of Mexico properties. Gas production increased over
200%, to 384.1 MMcf per day in 2000, due to 188 MMcf per day from Rocky Mountain
and Gulf Coast properties acquired in the Merger. Realized oil prices for 2000
were reduced $1.16 per barrel by hedging losses. The Company did not hedge oil
or gas sales in 1999.
Costs and expenses increased from $80.4 million in 1999 to $139.2 million in
2000. Production costs and depletion, depreciation and amortization ("DD&A")
increased reflecting costs attributable to the new properties discussed above.
Production and other taxes increased due to increased production volumes and
sales prices. Exploration costs decreased $1.1 million in 2000, due to lower dry
hole costs. Interest expense increased $8.2 million reflecting increased
long-term debt associated with the Merger and producing propery acquisitions.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Total revenues for the first quarter of 1999 of $68.2 million were slightly
lower than the first quarter of 1998 as higher oil production volumes were more
than offset by lower prices for oil and gas. Our oil production increased to
45.1 MBbls per day in 1999, due to new production in Indonesia, an increase in
our working interest in the Tuban field in Indonesia in April 1998 and a full
quarter's production from the Tchatamba field in Gabon. Oil sales prices
decreased 16% to $10.85 per barrel in 1999 and gas sales prices decreased 17% to
$1.59 per Mcf in 1999. Realized oil prices for 1998 included $0.09 per barrel of
hedging gains.
Costs and expenses increased from $74.1 million in the first quarter of 1998 to
$80.4 million in the first quarter of 1999. Production costs and DD&A increased
$3.0 million and $3.8 million, respectively, reflecting the increase in
production volumes. Interest income in 1998 includes a $1.9 million benefit
related to refunds on federal income tax audits. Interest expense increased $3.0
million in 1999 due to increased borrowings. Income taxes in 1998 includes a
$2.4 million benefit related to an income tax refund.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Our primary needs for cash are for exploration,
development and acquisition activities. We spent $307.7 million for capital
expenditures in the first quarter of 2000, including $191.9 million related to
the acquisition of producing oil and gas properties. In 2000 we expect to spend
approximately $340 million on exploration and development programs and
approximately $230 million on the acquisition of producing oil and gas
properties. Since the actual amounts expended in the future and the results
therefrom will be influenced by numerous factors, including many beyond our
control, no assurances can be given as to the amounts that will be expended. The
Board of Directors has authorized the purchase of up to $50 million of our
common stock to meet the requirements of outstanding stock options and to
satisfy the stock requirements of employee benefit plans. Through year-end 1999,
we purchased 2.9 million common shares for $23.6 million and in the first
quarter of 2000 we purchased an additional 1.2 million common shares for $8.8
million.
CAPITAL RESOURCES. Our principal capital resources in the first quarter of 2000
consisted of cash flow from operating activities of $154.8 million, which
included $74.6 million relating to a crude oil forward sale contract, and $164.5
million in borrowings under the Credit Facility.
At March 31, 2000 we had a $10.2 million working capital deficit compared to a
$66.8 million deficit at year-end. Current assets increased $30.7 million as
accounts receivable increased, reflecting higher sales prices, and other current
assets increased, reflecting higher prepaid items related to foreign operations.
Current liabilities decreased $25.9 million as accounts payable decreased $31.3
million with the payment of accrued amounts related to our drilling operations
in the fourth quarter of 1999.
14
At March 31, 2000 our long-term debt totaled $795.3 million, as follows:
o $482.0 million outstanding under the terms of a $600.0 million credit
facility (the "Credit Facility"). At March 31 there were also three
letters of credit for $26.4 million outstanding under the terms of the
Credit Facility. The weighted average interest rate under the Credit
Facility during the first quarter of 2000 was 6.8%.
o $175.0 million of 8.75% Senior Subordinated Notes due 2007 (the
"Subordinated Notes").
o $125.0 million of 8.05% Senior Notes due 2004 (the "Senior Notes").
o $13.3 million outstanding under the terms of $30 million in working
capital lines of credit.
Amounts outstanding under the above lines of credit are classified as long-term
on the balance sheet since we have the ability and intend to refinance on a
long-term basis.
The Credit Facility and the indentures for the Subordinated Notes and the Senior
Notes include covenants that restrict our ability to take certain actions,
including the ability to incur additional indebtedness and to pay dividends or
repurchase capital stock. Under the most restrictive of these covenants, at
March 31, 2000 we could incur $864 million of additional indebtedness, of which
$92 million could be borrowed under the Credit Facility, and could pay dividends
and/or repurchase common stock of up to $125 million.
The fair value of our long-term debt on March 31, 2000 was $786.4 million. The
fair value of the Subordinated Notes and the Senior Notes is based on market
prices and the fair value of our floating-rate debt is assumed to equal carrying
value. This fair value is not representative of the amount that could be
realized or settled and does not consider tax consequences, if any, of
realization or settlement.
In June 1999 we filed a shelf registration statement with the Securities and
Exchange Commission under which, for a period of two years, we may sell
different types of securities in one or more offerings up to a total amount of
$500 million. To date we have issued the $125 million of Senior Notes and sold
12.6 million shares of common stock in a public offering for $114.6 million
under the shelf registration.
In January 2000 we increased our working interest in two recently acquired
offshore Gulf of Mexico fields by purchasing Marathon Oil Company's working
interest for $160.0 million. To finance a portion of this acquisition, we
entered into an oil forward sales contract whereby we will deliver a total of
4.2 million barrels of oil to the purchaser, at specified monthly volumes,
during the period from February 2000 through August 2002. In consideration, we
received a prepaid amount of $74.6 million, after deducting arrangement and
other related costs. The balance of the prepayment related to undelivered oil is
shown on the consolidated balance sheet under the caption Deferred Revenues. The
remainder of the purchase price was paid utilizing the Credit Facility.
In April 2000 Standard & Poor's Credit Rating Agency upgraded our senior
unsecured debt to BBB-, an investment grade rating. As a result of the upgrade
and our improved debt ratios, we estimate savings of $2.5 million this year in
interest costs on the Credit Facility.
Historically we have funded our operations and investment programs with cash
flow from operations, borrowings under credit facilities, public debt, equity
offerings and forward sales of production. We believe we will be able to fund
our anticipated capital requirements for 2000 from the same or similar sources.
ENVIRONMENTAL MATTERS. Almost all phases of our oil and gas operations are
subject to stringent environmental regulation by governmental authorities. These
regulations have increased the costs of planning, designing, drilling,
installing, operating and abandoning oil and gas wells and other facilities. We
have expended significant financial and managerial resources to comply with
these regulations and believe our operations and facilities are in general
compliance with applicable environmental regulations. However, risks of
substantial costs and liabilities are inherent in oil and gas operations. It is
possible that other developments, such as increasingly strict environmental
laws, regulations and enforcement policies or claims for damages to property,
employees, other persons and the environment resulting from our operations,
could result in significant costs and liabilities in the future. As we have done
in the past, we intend to fund the cost of environmental compliance from
operating cash flows.
15
DIVIDENDS. The determination of the amount of future cash dividends, if any, to
be declared and paid on our common stock is at the sole discretion of our Board
of Directors and is dependent on financial condition, earnings and available
funds from operations, level of capital and exploration expenditures, dividend
restrictions as set forth in financing agreements, future business prospects and
other matters that our Board deems relevant.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to market risk, which includes adverse changes in commodity
prices and interest rates as discussed below.
COMMODITY PRICE RISK
We sell the majority of our oil and gas on a monthly basis at prices based on
NYMEX or other indices. As a result, our financial results can be materially
affected as these commodity prices fluctuate widely in response to changing
market factors. Oil prices are subject to significant changes in response to the
world political situation as it affects OPEC and other producing countries and
to fluctuations in the domestic and world supply and demand and other market
conditions. In 1999 our average unhedged oil sales price ranged from a low of
$10.85 per barrel in the first quarter to a high of $21.70 per barrel in the
fourth quarter. In the first quarter of 2000 our average unhedged oil sales
price was $24.51 per barrel. The price of gas fluctuates due to weather
conditions, the level of gas in storage, the relative balance between supply and
demand and other economic factors. Our average unhedged sales price for gas in
1999 ranged from a low of $1.59 per Mcf in the first quarter to a high of $2.36
per Mcf in the third quarter. In the first quarter of 2000 our average unhedged
gas sales price was $2.27 per Mcf.
Based on operating results for the first quarter of 2000, we estimate that a
$1.00 per barrel change in our average oil sales price would result in a
corresponding $14.2 million change in net income and a $19.2 million change in
cash flow from operating activities. A $0.10 per Mcf change in our average gas
sales price would result in a corresponding $8.5 million change in net income
and an $12.6 million change in cash flow from operating activities. These
estimates do not give effect to other factors that might result from a change in
prices.
From time to time we hedge a portion of our oil and gas sales to provide a
certain minimum level of cash flow. While the hedges are generally intended to
reduce our exposure to declines in market price, our gain from increases in
market price may be limited. We use various financial instruments whereby
monthly settlements are based on differences between the prices specified in the
instruments and the settlement prices of certain futures contracts quoted on the
New York Mercantile Exchange ("NYMEX") or certain other indices. The
instruments we utilize differ from futures contracts in that there is no
contractual obligation which requires or allows for the future delivery of the
product. Gains or losses on hedging activities are recognized in oil and gas
revenues in the period in which the hedged production is sold.
Oil sales hedges resulted in a $6.2 million decrease in revenues in the first
quarter of 2000. At March 31, 2000 we had open oil sales hedges based on NYMEX
futures contracts on an average of 16,700 barrels per day through December 31,
2000. The hedges have an average floor of approximately $20.00 per barrel and an
average ceiling of approximately $25.00 per barrel. Based on the March 31, 2000
settlement price of the applicable NYMEX futures contracts, our unrealized loss
with respect to such hedges at March 31, 2000 was $3.9 million. The actual gains
or losses realized from these hedges may vary significantly due to the
volatility of the futures markets and other indices.
In addition to oil sales hedges, we entered into two forward sales contracts in
August 1999 and January 2000 which cover approximately 9.6 million barrels of
our oil production during the period from February 2000 until August 2002. In
consideration, we received prepayments totaling $173.9 million, after deducting
arrangement and other related costs.
We had no gas sales hedges in the first quarter of 2000. In April 2000 we
entered into natural gas sales hedges for the period May 1, 2000 through October
31, 2000 on an average of 30,000 MMBtu per day based on NYMEX futures contracts
and an average of 20,000 MMBtu per day based on the Index for Colorado
Interstate Gas, Rocky Mountains (the "CIG Index"). The NYMEX hedges have an
average
16
floor of $3.00 per MMBtu and an average ceiling of $3.28 per MMBtu and the CIG
Index hedges have an average floor of $2.60 per MMBtu and an average ceiling of
$2.87 per MMBtu.
We have a long-term gas swap agreement that was entered into by Snyder Oil in
1994 to lock in the price difference between the Rocky Mountain and Henry Hub
prices on 20,000 MMBtu per day of Rocky Mountain gas production through 2004.
The gas swap agreement reduced gas revenues by $0.1 million in the first quarter
of 2000. The unrealized gain with respect to the gas swap agreement at March 31,
2000 was $0.5 million.
INTEREST RATE RISK
Our exposure to changes in interest rates primarily results from our short-term
and long-term debt with both fixed and floating interest rates. To date, we have
not entered into any financial instruments such as interest rate swaps.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by Statement of
Financial Accounting Standards No. 137, is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. We intend to implement the
provisions of SFAS 133 beginning January 1, 2001.
SFAS 133 requires all derivatives to be recognized in the balance sheet as
either assets or liabilities and measured at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. We have not yet determined the impact that the adoption
of SFAS 133 will have on earnings, financial position or cash flows.
RISK FACTORS AND CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference certain statements (other than
statements of historical fact) that constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used herein, the words "budget,"
"budgeted," "anticipates," "expects," "believes," "seeks,"
"estimates," "intends" or "projects" and similar expressions are intended
to identify forward-looking statements. Where any forward-looking statement
includes a statement of the assumptions or bases underlying such forward-looking
statement, we caution that while we believe these assumptions or bases to be
reasonable and to be made in good faith, assumed facts or bases almost always
vary from actual results and the difference between assumed facts or bases and
actual results could be material, depending on the circumstances. It is
important to note that our actual results could differ materially from those
projected by such forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable and
such forward-looking statements are based upon the best data available at the
time this report is filed with the Securities and Exchange Commission, we cannot
assure you that such expectations will prove correct. Factors that could cause
our results to differ materially from the results discussed in such
forward-looking statements include, but are not limited to, the following:
production variances from expectations, volatility of oil and gas prices,
hedging results, the need to develop and replace reserves, the substantial
capital expenditures required to fund operations, exploration risks,
environmental risks, uncertainties about estimates of reserves, competition,
litigation, government regulation, political risks, and our ability to implement
our business strategy. All such forward-looking statements in this document are
expressly qualified in their entirety by the cautionary statements in this
paragraph.
For a discussion of important factors that could cause actual results to differ
materially from those expressed in any forward-looking statement made by us or
on our behalf, see "Risk Factors and Cautionary Statement for Purposes of the
Safe Harbor Provisions of the Private Securities Lithigation Reform Act of
1995" in the Company's 1999 Annual Report on Form 10-K.
17
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) -- Bylaws of Santa Fe Snyder Corporation, as amended March 9, 2000.
(b) Reports on Form 8-K
None
18
SIGNATURE
Pursuant to the requirements Section 13 or 15 (d) of the Securities Exchange Act
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 10th day of May, 2000.
SANTA FE SNYDER CORPORATION
(REGISTRANT)
/s/ MARK A. JACKSON
---------------------------------
MARK A. JACKSON
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
DULY AUTHORIZED OFFICER)
Date: May 10, 2000
19