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 JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-7667
------------------------
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)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (713) 507-5000
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 JULY 30, 1999
Common stock, $.01 par value 171,387,554
================================================================================
SANTA FE SNYDER CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Operations
(unaudited) --
Three Months Ended June 30, 1999
and 1998 and
Six Months Ended June 30, 1999 and
1998............................... 3
Consolidated Balance Sheet --
June 30, 1999 (unaudited) and
December 31, 1998.................. 4
Consolidated Statement of Cash Flows
(unaudited) --
Three Months Ended June 30, 1999
and 1998 and
Six Months Ended June 30, 1999 and
1998............................... 5
Notes to Consolidated Financial
Statements......................... 6
ITEM 2. Management's Discussion and Analysis
of Financial
Condition and Results of
Operations......................... 13
ITEM 3. Quantitative and Qualitative
Disclosures about Market Risks..... 19
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of
Security Holders................... 20
ITEM 6. Exhibits and Reports on Form 8-K..... 20
2
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
Sales of crude oil and liquids..... $ 63.4 $ 45.7 $ 106.5 $ 85.5
Sales of natural gas............... 48.5 31.9 73.3 60.7
Other.............................. 0.5 0.2 0.8 0.4
--------- --------- --------- ---------
Total Revenues................ 112.4 77.8 180.6 146.6
--------- --------- --------- ---------
Costs and expenses:
Production and operating........... 30.9 26.2 59.2 51.5
Exploration, including dry hole
costs............................ 9.4 7.3 20.6 19.5
Depletion, depreciation and
amortization..................... 44.1 33.4 76.0 61.5
Impairment of oil and gas
properties....................... 196.4 -- 196.4 --
General and administrative......... 7.6 4.6 13.0 9.0
Taxes other than income............ 6.1 4.3 9.6 8.4
Merger related costs............... 16.8 -- 16.8 --
Loss (gain) on disposition of
assets........................... 0.1 1.2 0.2 1.2
--------- --------- --------- ---------
Total costs and expenses...... 311.4 77.0 391.8 151.1
--------- --------- --------- ---------
Income (loss) from operations........... (199.0) 0.8 (211.2) (4.5)
Interest income.................... 0.3 1.0 0.7 3.2
Interest expense................... (10.7) (5.3) (17.5) (9.1)
Interest capitalized............... 1.3 1.9 2.6 3.6
Other income (expense)............. (0.1) (0.1) (0.1) (0.1)
--------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item.................... (208.2) (1.7) (225.5) (6.9)
Current income tax (expense)
benefit.......................... 0.6 2.8 (0.1) 5.4
Deferred income tax (expense)
benefit.......................... 63.8 (0.7) 69.7 1.6
--------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (143.8) 0.4 (155.9) 0.1
Extraordinary item -- debt
extinguishment................... (4.2) -- (4.2) --
--------- --------- --------- ---------
Net income (loss)....................... $ (148.0) $ 0.4 $ (160.1) $ 0.1
========= ========= ========= =========
Net income (loss) per common share,
basic and diluted
Before extraordinary item.......... $ (0.99) $ -- $ (1.26) $ --
Extraordinary item -- debt
extinguishment................... (0.03) -- (0.03) --
--------- --------- --------- ---------
Per common share................... $ (1.02) $ -- $ (1.29) $ --
========= ========= ========= =========
Weighted average number of shares
outstanding........................... 145.3 102.9 123.9 102.8
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
SANTA FE SNYDER CORPORATION
BALANCE SHEET
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
--------- -------------
ASSETS (UNAUDITED)
Current Assets:
Cash and cash equivalents.......... $ 21.7 $ 12.1
Accounts receivable, net........... 73.1 53.2
Inventories........................ 22.8 19.0
Other current assets............... 27.4 31.7
--------- -------------
Total Current Assets....... 145.0 116.0
--------- -------------
Investments........................ 29.2 --
Properties and equipment, at cost:
Oil and gas (successful efforts
method of accounting).......... 2,833.9 1,956.5
Other........................... 24.5 20.5
--------- -------------
2,858.4 1,977.0
Accumulated depletion,
depreciation, amortization and
impairment...................... (1,537.2) (1,258.7)
--------- -------------
Net property and equipment.... 1,321.2 718.3
--------- -------------
Other Assets:
Deferred income taxes.............. -- 13.5
Other.............................. 22.7 11.2
--------- -------------
Total Other Assets......... 22.7 24.7
--------- -------------
Total Assets......................... $ 1,518.1 $ 859.0
========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 105.8 $ 123.3
Other current liabilities.......... 49.4 15.9
--------- -------------
Total Current
Liabilities.................. 155.2 139.2
--------- -------------
Long-term debt....................... 640.9 330.6
Deferred revenues.................... 6.7 3.6
Other long-term obligations.......... 41.4 37.2
Deferred income taxes................ 75.9 --
Commitments and Contingencies (See
Note 8)
Shareholders' Equity:
Preferred stock, $0.01 par value,
50.1 and 38.1 shares authorized,
respectively, none issued and
outstanding..................... -- --
Common stock, $0.01 par value,
300.0 and 200.0 shares
authorized,
171.8 and 103.0 shares issued
and outstanding, respectively... 1.7 1.0
Paid-in capital.................... 1,139.6 728.2
Accumulated deficit................ (532.9) (372.5)
Treasury stock, at cost, 0.8 shares
and 0.8 shares, respectively.... (6.5) (6.8)
Unamortized restricted stock
awards.......................... -- (1.5)
Accumulated other comprehensive
loss............................ (3.9) --
--------- -------------
Total Shareholders' Equity........... 598.0 348.4
--------- -------------
Total Liabilities and Shareholders'
Equity............................... $ 1,518.1 $ 859.0
========= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Operating activities:
Net income (loss).................. $ (148.0) $ 0.4 $ (160.1) $ 0.1
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depletion, depreciation and
amortization.................. 44.1 33.4 76.0 61.5
Impairment of oil and gas
properties.................... 196.4 -- 196.4 --
Deferred income taxes........... (66.1) 0.7 (72.0) (1.6)
Loss (gain) on disposition of
assets........................ 0.1 1.2 0.2 1.2
Exploratory dry hole costs...... 0.8 3.6 6.3 7.2
Other........................... 2.8 1.0 4.0 1.9
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable...................... (0.9) 6.6 (4.5) 4.6
Decrease (increase) in
inventories..................... (2.9) (0.8) (2.0) (3.8)
Increase (decrease) in accounts
payable......................... 0.3 2.1 1.2 (10.2)
Net change in other assets and
liabilities..................... (7.8) 0.4 3.7 2.2
--------- --------- --------- ---------
Net cash provided by operating
activities......................... 18.8 48.6 49.2 63.1
--------- --------- --------- ---------
Investing activities:
Capital expenditures, including
exploratory dry hole costs...... (67.2) (59.4) (128.9) (118.1)
Acquisition of producing
properties...................... 0.1 (88.2) (0.4) (100.0)
Acquisition of Snyder Oil
Corporation..................... (1.5) -- (1.5) --
Net proceeds from disposition of
assets.......................... 0.3 0.3 0.4 1.8
--------- --------- --------- ---------
Net cash used in investing
activities......................... (68.3) (147.3) (130.4) (216.3)
--------- --------- --------- ---------
Financing activities:
Net change in long-term lines of
credit.......................... 36.2 108.8 67.5 165.9
Issuance of Senior Notes........... 123.4 -- 123.4 --
Retirement of 11% Subordinated
Debentures...................... (100.0) -- (100.0) --
Treasury stock reissued............ 0.4 1.1 0.4 1.5
Treasury stock purchased........... (0.3) (1.1) (0.5) (6.0)
--------- --------- --------- ---------
Net cash provided by financing
activities......................... 59.7 108.8 90.8 161.4
--------- --------- --------- ---------
Net increase in cash and cash
equivalents........................ 10.2 10.1 9.6 8.2
Cash and cash equivalents at
beginning of period................ 11.5 3.7 12.1 5.6
--------- --------- --------- ---------
Cash and cash equivalents at end of
period............................. $ 21.7 $ 13.8 $ 21.7 $ 13.8
========= ========= ========= =========
Supplemental disclosure of cash flow
information:
Interest paid...................... $ 18.8 $ 7.1 $ 22.8 $ 7.8
Income taxes paid.................. $ 0.6 $ 1.5 $ 2.3 $ 3.3
The accompanying notes an are integral part of these consolidated financial
statements.
5
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements at June 30, 1999 and for the three
and six months then ended are unaudited and reflect all adjustments (consisting
of only normal and recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results of Santa Fe Snyder Corporation ("Santa Fe Snyder" or the
"Company") for the interim periods. Santa Fe Snyder was formed by the merger
of Snyder Oil Corporation ("Snyder") into Santa Fe Energy Resources, Inc.
("Santa Fe") on May 5, 1999.
The consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations contained in the Annual Reports on Form 10-K/A for the year ended
December 31, 1998 for Santa Fe and Snyder. The results for the three and six
months ended June 30, 1999 are not necessarily indicative of the results which
may be expected for any other interim period or for the year ending December 31,
1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 was amended by Statement of
Financial Accounting Standards No. 137 resulting in the deferral of the
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company intends to implement the provisions of the Statement
beginning with the first quarter of 2001. SFAS 133 requires all derivatives to
be recognized in the balance sheet as either assets or liabilities and measured
at fair value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS 133. 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, a Delaware corporation, merged with and into
Santa Fe, also a Delaware corporation, pursuant to an Agreement and Plan of
Merger dated January 13, 1999. In connection with the merger, Santa Fe amended
its Articles of Incorporation to change its name to "Santa Fe Snyder
Corporation". In the merger, each issued and outstanding share of common stock
of Snyder, par value $.01 per share ("Snyder Common Stock") was converted into
2.05 shares of common stock, par value $.01 per share, of Santa Fe Snyder
("Santa Fe Snyder Common Stock"). The exchange ratio was determined through
arm's length negotiations between the parties. Santa Fe Snyder issued
approximately 68.8 million shares of Santa Fe Snyder Common Stock.
The merger was accounted for using the purchase method of accounting. The
purchase price totalling approximately $674.2 million (subject to purchase price
adjustments) involved a combination of the issuance of approximately $412.1
million of Santa Fe Snyder common stock (68.8 million shares) to Snyder
shareholders, the value of certain liabilities incurred totalling $43.1 million
and the fair value of the net liabilities assumed of approximately $219.0
million. The total value allocated between the net assets of Snyder was
determined based on the fair value of the Santa Fe Snyder Common Stock offered
to the Snyder stockholders as increased to reflect the incremental cash expenses
incurred to effect the merger.
Other accrued merger costs of $19.4 million include those capitalizable
costs incurred to consummate the transaction, consisting primarily of severance
costs related to Snyder employees ($9.6 million), professional fees ($5.7
million) and the provision for certain lease obligations for duplicate or unused
facilities ($2.5 million). The allocation of the purchase price to specific
assets and liabilities is based on certain estimates of fair values and costs
which will be adjusted to actual amounts as determined. The allocation of the
purchase price resulted in approximately $639.0 million being allocated to
property, plant and
6
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
equipment and $35.2 million allocated to investments. The results of Snyder's
operations have been included in the consolidated financial statements effective
May 1, 1999.
In connection with the merger, the Company evaluated the recovery of its
long-lived assets pursuant to Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of " ("SFAS 121"). The Company determined that the
estimated future undiscounted cash flows were below the carrying value of
certain oil and gas properties in the United States which were written up in
accordance with purchase accounting rules, resulting in an impairment of
approximately $196.4 million. The estimated fair value was based on anticipated
future cash flows discounted at a rate commensurate with the risk involved with
the properties and the Company's long-term outlook for future commodity prices.
The following unaudited pro forma condensed income statement information
has been prepared to give effect to the merger as if such transaction had
occurred at the beginning of the periods presented. The historical results of
operations have been adjusted to reflect the difference between Snyder'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.
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(IN MILLIONS)
Revenues............................. $ 220.4 $ 215.6
Loss before extraordinary item....... (179.4) (7.0)
Net loss available to common
shareholders......................... (183.6) (7.0)
Basic and diluted loss per share..... (0.95) (0.04)
NOTE 3. CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
The Merger included certain non-cash investing and financing activities not
reflected in the Statement of Cash Flows as follows (in millions of dollars):
Common stock issued.................. $ 412.1
Deferred tax liability............... 163.4
Long-term debt assumed............... 219.0
Assets acquired, other than cash, net
of liabilities assumed............. 796.0
NOTE 4. FINANCING AND DEBT
In connection with the merger, the Company assumed $175.0 million of
Snyder's 8.75% Senior Subordinated Notes (the "Subordinated Notes") due June
15, 2007. Concurrently with the closing of the merger on May 5, 1999, the
Company entered into a new $500 million credit facility (the "Credit
Facility"). The Credit Facility consists of a $350 million five-year tranche
and a renewable $150 million 364 day tranche. The Credit Facility bears
interest, at the Company's option, at LIBOR or prime rates plus applicable
margins dependent upon the Company's credit rating and ratio of total debt to
earnings before interest, taxes, depreciation, depletion, amortization,
exploration charges and non-cash impairments ("EBITDAX"). Borrowings under the
Credit Facility are unsecured but are subject to compliance with
7
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
certain covenants including limitations on the incurrence of additional debt,
payment of dividends and other restricted payments and limitations on liens.
Financing fees of approximately $2.1 million were incurred related to the Credit
Facility.
In June 1999, the Company issued $125 million of 8.05% Senior Notes due
2004 (the "Notes"). The Notes were issued for 98.758% of face value and the
Company received total proceeds of $121.6 million after deducting related costs
and expenses of $1.9 million. The Notes, which mature June 15, 2004, are
redeemable, upon not less than thirty nor more than sixty days' notice, as a
whole or in part, at the option of the Company at a redemption price equal to
the sum of (i) 100% of the principal amount thereof, (ii) the applicable
make-whole premium as determined by an independent investment banker and (iii)
accrued and unpaid interest. The Notes are general unsecured obligations of the
Company. In connection with the Notes offering, the Company executed two forward
treasury lock agreements (the "Treasury Locks") to mitigate interest rate risk
during the issuance of the Notes. Upon the issuance of the Notes, the Treasury
Locks were terminated resulting in proceeds to the Company totalling $3.1
million which amount has been deferred and will be recognized as a reduction of
interest expense over the life of the Notes.
The net proceeds of the notes offering were used to retire the existing
$100 million 11% Senior Subordinated Debentures and to pay $5.5 million in
accrued interest and prepayment penalties upon retirement of such debt and the
remaining $16.1 million was used for a partial repayment on credit facility
borrowings.
In connection with these financing activities, the Company recorded an
extraordinary loss of $4.2 million, net of taxes. The extraordinary loss
represents the write-off of certain debt issue costs of the Senior Subordinated
Debentures and Credit Facility and prepayment penalties pertaining to the
retirement of the Senior Subordinated Debentures, net of related tax benefits.
8
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
NOTE 5. EARNINGS PER SHARE
The following table sets forth the components of the Company's basic and
diluted earnings per share calculations:
EARNINGS (LOSS) WEIGHTED
ATTRIBUTABLE AVERAGE OF
TO COMMON COMMON SHARES PER SHARE
SHARES OUTSTANDING AMOUNT
---------------- -------------- ----------
Three months ended June 30, 1999
Basic........................... $ (143.8) 145.3
Effect of dilutive stock
options......................... -- 1.8
---------------- --------------
Basic and diluted before
extraordinary item.............. $ (143.8) 147.1 $(0.99)
Basic and
diluted -- extraordinary item... $ (4.2) 147.1 $(0.03)
---------------- -------------- ----------
Basic and diluted after
extraordinary item.............. $ (148.0) 147.1 $(1.02)
================ ============== ==========
Three months ended June 30, 1998
Basic........................... $ 0.4 102.9
Effect of dilutive stock
options......................... -- 2.3
Effect of dilutive performance
awards.......................... -- 0.4
---------------- --------------
Basic and diluted............... $ 0.4 105.6 $--
================ ============== ==========
Six months ended June 30, 1999
Basic........................... $ (155.9) 123.9
Effect of dilutive stock
options......................... -- 1.1
Effect of dilutive performance
awards.......................... -- 0.3
---------------- --------------
Basic and diluted before
extraordinary item.............. $ (155.9) 125.3 $(1.26)
Basic and
diluted -- extraordinary item... $ (4.2) 125.3 $(0.03)
---------------- -------------- ----------
Basic and diluted after
extraordinary item.............. $ (160.1) 125.3 $(1.29)
================ ============== ==========
Six months ended June 30, 1998
Basic........................... $ 0.1 102.8
Effect of dilutive stock
options......................... -- 2.4
Effect of dilutive performance
awards.......................... -- 0.4
---------------- --------------
Basic and diluted............... $ 0.1 105.6 $--
================ ============== ==========
The Company had 2.4 million stock options outstanding at June 30, 1998,
which were not included in the computation of diluted earnings per share because
the exercise price of these options was greater than the average market price of
the common shares. The Company reported a loss for the three and six months
ended June 30, 1999; therefore the potential effects of dilutive stock options
and performance awards were not included in the computation of diluted earnings
per share.
9
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
NOTE 6. INVESTMENTS
The Company holds marketable securities of two foreign energy companies,
listed on the London Stock Exchange, accounted for using the cost method. The
Company follows Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), which requires that such investments be adjusted to their fair values
with a corresponding increase or decrease to stockholders' equity. In accordance
with SFAS 115, investments were reduced by $6.0 million and deferred taxes were
increased by $2.1 million in the second quarter to reflect the change in fair
value from May 5, 1999 to June 30, 1999. The following table sets forth the fair
value and cost basis (in millions):
JUNE 30, 1999
-----------------------
FAIR COST
VALUE BASIS
---------- ---------
Cairn Energy plc (11.7 million
shares).............................. $ 24.0 $27.6
SOCO International plc (7.8 million
shares).............................. 5.2 7.6
---------- ---------
Total...................... $ 29.2 $35.2
========== =========
NOTE 7. 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, Argentina, Indonesia, and
Other International. Other International represents various exploration and
development projects in China, Gabon, Brazil and other international arenas. The
prior quarter's segment information has been restated to present the Company's
four reportable segments.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments and allocates resources based principally on
operating income or loss.
The table below presents information about the reported segments for the
three and six months ended June 30, 1999 and 1998. 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,
AMORTIZATION (LOSS) GAIN EARNINGS (LOSS)
TOTAL AND ON SALE OF OPERATING BEFORE
REVENUES IMPAIRMENT ASSETS INCOME (LOSS) INCOME TAXES
-------- -------------- ----------- ------------- ---------------
THREE MONTHS ENDED
JUNE 30, 1999:
United States........................ $ 78.5 $228.9 $ 0.1 $(177.5) $(177.5)
Argentina............................ 9.8 4.4 -- 1.4 1.4
Indonesia............................ 22.3 4.2 -- 9.9 9.9
Other International.................. 3.5 1.7 -- (3.2) (3.2)
Other reconciling items.............. (1.7) 1.3 -- (29.6) (38.8)
-------- -------------- ----------- ------------- ---------------
Total Consolidated.............. $112.4 $240.5 $ 0.1 $(199.0) $(208.2)
======== ============== =========== ============= ===============
10
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
DEPLETION,
DEPRECIATION,
AMORTIZATION (LOSS) GAIN EARNINGS (LOSS)
THREE MONTHS ENDED TOTAL AND ON SALE OF OPERATING BEFORE
JUNE 30, 1998: REVENUES IMPAIRMENT ASSETS INCOME (LOSS) INCOME TAXES
-------- -------------- ----------- ------------- ---------------
United States........................ $ 51.4 $ 22.7 $(1.2) $ 5.4 $ 5.4
Argentina............................ 8.8 3.4 -- 1.5 1.5
Indonesia............................ 14.9 5.3 -- 3.4 3.4
Other International.................. 2.0 0.7 -- (2.9) (2.9)
Other reconciling items.............. 0.7 1.3 -- (6.6) (9.1)
-------- -------------- ----------- ------------- ---------------
Total Consolidated.............. $ 77.8 $ 33.4 $(1.2) $ 0.8 $ (1.7)
======== ============== =========== ============= ===============
SIX MONTHS ENDED
JUNE 30, 1999:
United States........................ $119.5 $249.3 $(0.2) $(177.0) $(177.0)
Argentina............................ 17.2 8.6 -- 0.5 0.5
Indonesia............................ 39.1 8.5 -- 13.2 13.2
Other International.................. 6.6 3.2 -- (9.4) (9.4)
Other reconciling items.............. (1.8) 2.8 -- (38.5) (52.8)
-------- -------------- ----------- ------------- ---------------
Total Consolidated.............. $180.6 $272.4 $(0.2) $(211.2) $(225.5)
======== ============== =========== ============= ===============
SIX MONTHS ENDED
JUNE 30, 1998:
United States........................ $102.4 $ 43.4 $(1.2) $ 14.7 $ 14.7
Argentina............................ 17.9 6.6 -- 2.9 2.9
Indonesia............................ 22.3 7.7 -- 3.2 3.2
Other International.................. 3.2 1.3 -- (12.2) (12.2)
Other reconciling items.............. 0.8 2.5 -- (13.1) (15.5)
-------- -------------- ----------- ------------- ---------------
Total Consolidated.............. $146.6 $ 61.5 $(1.2) $ (4.5) $ (6.9)
======== ============== =========== ============= ===============
NOTE 8. 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 a 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 decrease in revenues of $0.2 million
for the three and six months ended June 30, 1999, compared with an increase of
$0.9 million and $1.1 million for the three and six months ended June 30, 1998.
At June 30, 1999, the Company had open crude oil sales hedges on 6,000
barrels per day through July 1999. The instruments used have an average floor of
$16.50 per barrel and an average ceiling of $18.81 per barrel. The Company
recognized a $0.2 million loss with respect to such hedges in July, 1999.
11
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
The Company has a long-term gas swap agreement that was entered into by
Snyder in 1994 to lock in the price differential between the Rocky Mountain and
Henry Hub prices on a portion of its Rocky Mountain gas production. The contract
covers 20,000 MMBtu's per day through 2004. In addition to the long-term gas
swap, the Company had open natural gas sales hedges at June 30, 1999 on an
average of approximately 50,000 MMbtu per day of its natural gas production for
the period July through September 1999 at an approximate price of $2.12 per
MMBtu. The long-term gas swap agreement and natural gas sales hedges resulted in
a decrease in revenues of $1.1 million in the second quarter of 1999. The
Company had no natural gas hedges in 1998. The Company recognized a $0.2 million
loss with respect to the swap agreement and hedges in July, 1999.
ENVIRONMENTAL MATTERS. 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 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 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.
There are other claims and actions 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 of any period but would not be material to the Company's consolidated
financial position.
NOTE 9. SUBSEQUENT EVENTS
On August 10, 1999, the Company acquired working interests in four Shell
Deepwater Development, Inc. ("Shell") Gulf of Mexico discoveries, as well as
unexplored acreage on some adjacent blocks for $210 million. Under terms of the
purchase, Santa Fe Snyder acquired portions of Shell's working interests in the
Macaroni Field located in the Auger Basin in Garden Banks and the Angus complex
located near the Bullwinkle, Troika and Brutus fields in Green Canyon. Shell
will retain a majority working interest and continue as operator. Both the
Macaroni and Angus areas are currently in development, and production is
expected to begin from both later in 1999. Santa Fe Snyder's interests will
range from 15 percent to 49 percent.
In August 1999, the Company completed a $114.6 million equity offering of
Santa Fe Snyder common stock (12.65 million shares) receiving $108.3 million
after deducting the underwriting discount. In addition, the Company entered into
a forward sale of crude oil and received a prepayment of approximately $100
million. The net proceeds of these transactions were utilized to fund the Shell
acquisition.
On July 22, 1999 the Company acquired an additional interest in the Anton
Irish Unit in West Texas from Phillips Petroleum for $11.0 million. The
transaction increases the Company's interest to 29.5 percent in the unit and
adds approximately 5 million barrels of proved reserves.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MERGER
Santa Fe Snyder is an independent oil and gas company engaged in the
production, development, acquisition and exploration of oil and gas properties
in the United States, Southeast Asia, South America and West Africa. Santa Fe
Snyder was formed by the merger on May 5, 1999 of Snyder Oil Corporation into
Santa Fe Energy Resources, Inc. The merger was accounted for as a purchase
business combination, and the results of operations of the properties acquired
(the "Snyder properties") are included in Santa Fe Snyder's results of
operations effective May 1, 1999. See Note 2 to the Consolidated Financial
Statements. The Snyder properties are located primarily in the Rocky Mountains,
Gulf of Mexico and northern Louisiana. The estimated proved reserves at year-end
1998 associated with these properties was 100.3 million barrels of oil
equivalent of which 83% was natural gas.
FINANCIAL PERFORMANCE
The Company reported net income of $2.8 million, or $0.02 per share, for
the three months ended June 30, 1999 before recognition of $150.8 million of
non-recurring charges, net of tax, related to the merger. The non-recurring
charges were property impairments, merger related costs and debt extinguishment
costs in the amount of $135.0, $11.6 and $4.2 million, respectively, net of tax.
Including these charges, the Company reported a net loss of $148.0 million, or
$1.02 per share, compared with earnings of $0.4 million, or break even earnings
per share, in the second quarter of 1998.
For the six months ended June 30, 1999, the Company reported a net loss of
$160.1 million or $1.29 per share, compared with net income of $0.1 million or
break even earnings per share for the comparable period of 1998, primarily due
to the non-recurring charges.
13
RESULTS OF OPERATIONS
The following tables set forth certain financial and operating data for the
periods presented:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES (IN MILLIONS)
Crude oil and liquids.............. $ 63.4 $ 45.7 $ 106.5 $ 85.5
Natural gas........................ 48.5 31.9 73.3 60.7
Other.............................. 0.5 0.2 0.8 0.4
--------- --------- --------- ---------
$ 112.4 $ 77.8 $ 180.6 $ 146.6
========= ========= ========= =========
CRUDE OIL AND LIQUIDS VOLUMES
(MBBLS/DAY)
Domestic........................... 23.8 21.5 22.7 21.5
Argentina.......................... 5.0 5.5 5.0 5.5
Indonesia.......................... 15.5 13.0 15.7 10.0
Gabon.............................. 2.7 1.9 2.7 1.4
--------- --------- --------- ---------
47.0 41.9 46.1 38.4
========= ========= ========= =========
AVERAGE CRUDE OIL AND LIQUIDS PRICE
($/BBL)
Unhedged
Domestic........................ $ 14.73 $ 11.70 $ 12.59 $ 12.46
Argentina....................... 14.90 11.03 12.52 11.74
Indonesia....................... 15.87 12.56 13.71 12.33
Gabon........................... 14.41 12.12 13.78 12.42
Total...................... 15.11 11.90 13.03 12.32
Hedged............................. 15.06 12.12 13.01 12.48
NATURAL GAS VOLUMES (MMCF/DAY)
Domestic........................... 255.1 156.8 205.3 154.1
Argentina.......................... 25.7 26.0 25.8 25.7
Indonesia.......................... 0.2 0.4 0.2 0.3
--------- --------- --------- ---------
281.0 183.2 231.3 180.1
========= ========= ========= =========
AVERAGE NATURAL GAS PRICE ($/MCF)
Unhedged
Domestic........................ $ 2.03 $ 2.10 $ 1.89 $ 2.07
Argentina....................... 1.27 1.34 1.24 1.29
Indonesia....................... 0.97 1.04 0.97 1.03
Total...................... 1.96 1.99 1.82 1.96
Hedged............................. 1.92 1.99 1.79 1.96
14
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Costs and Expenses per BOE
Production and operating (a)......... $ 3.62 $ 3.97 $ 3.87 $ 4.15
Exploration, including dry hole
costs................................ 1.09 1.11 1.34 1.58
Depletion, depreciation and
amortization......................... 5.17 5.06 4.96 4.96
General and administrative........... 0.89 0.70 0.85 0.73
Taxes other than income (b).......... 0.72 0.65 0.63 0.68
Interest expense, net (c)............ 1.07 0.47(d) 0.93 0.39(d)
--------- --------- --------- ---------
Total costs and expenses... $ 12.56 $ 11.96 $ 12.58 $ 12.49
========= ========= ========= =========
- ------------
a) Excludes related production, severance and ad valorem taxes.
b) Includes related production, severance and ad valorem taxes.
c) Reflects interest expense less amounts capitalized and interest income.
d) Excludes effect of $0.7 million ($0.04 per BOE) for the three months ended
June 30, 1998 and $2.6 million ($0.05 per BOE) for the six months ended June
30, 1998, of interest income on an income tax refund.
GENERAL
As an independent oil and gas producer, the Company's results of operations
are dependent upon the difference between the prices received for oil and gas
and the costs of finding and producing such resources. Crude oil prices are
subject to significant changes primarily in response to fluctuations in the
domestic and world supply and demand. For the twelve months ended June 30, 1999
the actual average crude oil and liquids sales price received by the Company
ranged from a high of $15.06 per barrel in the second quarter of 1999 to a low
of $10.32 per barrel in the fourth quarter of 1998. Based on operating results
for the first six months of 1999, the Company estimates that on an annualized
basis a $1.00 per barrel increase or decrease in its average crude oil sales
price would result in a corresponding $11.6 million change in net income and a
$14.4 million change in cash flow from operating activities. The price of
domestic natural gas fluctuates due to weather conditions, the level of natural
gas in storage, the relative balance between supply and demand and other
economic factors. The actual average sales price received by the Company for the
twelve months ended June 30, 1999 for its domestic natural gas ranged from a
high of $1.92 per Mcf in the second quarter of 1999 to a low of $1.59 per Mcf in
the first quarter of 1999. Based on operating results for two months of combined
Santa Fe and Snyder operations since the merger, the Company estimates that on
an annualized basis a $0.10 per Mcf increase or decrease in its average natural
gas sales price would result in a corresponding $7.4 million change in net
income and a $11.0 million change in cash flow from operating activities. The
foregoing estimates do not give effect to change in any other factors, such as
the effect of the Company's hedging program, its debt levels and related
interest expense or the level of capital expenditures, that might result from a
change in crude oil and natural gas prices.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
OIL AND GAS REVENUES. Revenues from crude oil and natural gas operations
increased 44% to $111.9 million for the three months ended June 30, 1999 from
$77.6 million for the same period in 1998. The increase in revenue was due to
gas production from the Snyder properties, international oil production growth
and increased oil prices. The Company's crude oil and liquids production
increased 12% in the second quarter of 1999 to 47.0 MBbls per day from 41.9
MBbls per day for the same period in 1998. The increase in oil production was
driven by new wells at the Mudi field in Indonesia, the ramp up of production at
the Tchatamba field in Gabon and production from the Snyder properties. Natural
gas production of 281.0 MMcf per day in the second quarter of 1999 increased
97.8 MMcf per day from the same period in 1998 principally due to production
from the Snyder properties. The Company's realized
15
crude oil price for the three months ended June 30, 1999 increased 24% to $15.06
per barrel from the average realized oil price of $12.12 per barrel for the same
period in 1998. Realized natural gas prices for the three months ended June 30,
1999 averaged $1.92 per Mcf, compared with an average of $1.99 per Mcf for the
same period in 1998.
COSTS AND EXPENSES. Production and operating expense and depletion,
depreciation and amortization increased $4.7 million and $10.7 million,
respectively, for the three months ended June 30, 1999 from the same period in
1998, primarily due to increased crude oil and natural gas production from the
Snyder properties. Exploration expense for the three months ended June 30, 1999
increased to $9.4 million from $7.3 million for the same period in 1998, due
primarily to costs associated with seismic programs in the Gulf of Mexico and
Brazil. General and administrative expense for the second quarter of 1999 was
$3.0 million higher compared to the same period in 1998 due to incremental labor
and other overhead costs associated with the merger. Taxes other than income
increased to $6.1 million in the second quarter of 1999 primarily due to
increased severance taxes resulting from increased production and higher
realized prices. Merger related expenses of $16.8 million in the second quarter
of 1999 included $1.9 million of severance and relocation costs related to Santa
Fe employees and $9.6 million of costs related to the acceleration of certain
compensation plans and other benefits. In the second quarter of 1999, the
Company recorded a pre-tax impairment charge of $196.4 million pursuant to the
provisions of SFAS 121. See Note 2 to the Consolidated Financial Statements.
Interest expense for the second quarter of 1999 increased by $5.4 million
compared to the same period in 1998, reflecting debt assumed as a result of the
merger with Snyder and the Company's increased borrowings. Income taxes for the
three months ended June 30, 1998 included a $1.7 million benefit due to the
resolution of prior year tax matters.
The Company recorded an extraordinary loss of $4.2 million, net of taxes in
the three months ended June 30, 1999. The extraordinary loss included the
write-off of certain debt issue costs of the 11% Senior Subordinated Debentures
and Credit Facility and prepayment penalties pertaining to the retirement of the
11% Senior Subordinated Debentures, net of related tax benefits.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
OIL AND GAS REVENUES. Revenues from crude oil and natural gas operations
increased to $179.8 million for the six months ended June 30, 1999 from $146.2
million for the same period in 1998, due to increased gas production from the
Snyder properties and international oil production growth. The Company's crude
oil and liquids production increased by approximately 20% in the first six
months of 1999 to 46.1 MBbls per day from 38.4 MBbls per day for the same period
in 1998, primarily due to increased production in Indonesia and Gabon combined
with production from the Snyder properties. Natural gas production increased in
the first six months of 1999 to 231.3 MMcf per day compared with 180.1 MMcf per
day for the same period in 1998 primarily due to production from the Snyder
properties and from new wells in the Gulf of Mexico. The Company's realized
crude oil prices for the six months ended June 30, 1999 averaged $13.01 per
barrel, compared with an average realized oil price of $12.48 per barrel, for
the same period in 1998. Realized natural gas prices for the six months ended
June 30, 1999 averaged $1.79 per Mcf, compared with an average of $1.96 per Mcf
for the same period in 1998.
COSTS AND EXPENSES. Production and operating expense and depletion,
depreciation and amortization expense increased $7.7 million and $14.5 million,
respectively, for the six months ended June 30, 1999 compared with the same
period in 1998, due to increased crude oil and natural gas production, as noted
above. General and administrative expense for the six months ended June 30, 1999
was $4.0 million higher compared to the same period in 1998 due to incremental
labor and other overhead costs associated with the merger. Taxes other than
income increased to $9.6 million in the second quarter of 1999 primarily due to
higher severance taxes resulting from increased production and prices.
Interest income for the six months ended June 30, 1998 included a $2.6
million benefit related to an income tax refund. Interest expense for the first
six months of 1999 increased by $8.4 million compared with the same period in
1998, reflecting an increase in borrowings between the comparative periods and
the
16
assumption of debt as a result of the merger with Snyder. Income taxes for the
six months ended June 30, 1998 included a $2.4 million benefit related to the
previously discussed income tax refund and a $1.7 million benefit due to the
resolution of prior year tax matters.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. The Company's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties. The Company
spent $130.8 million for capital expenditures in the six months ended June 30,
1999, including $1.9 million for acquisitions, and expects to spend
approximately $350.0 million in the second half of 1999 which includes $210
million related to the acquisition of certain Gulf of Mexico deepwater
properties from Shell Deepwater Development, Inc. in the third quarter of 1999.
This acquisition was funded with proceeds from the issuance of common stock and
a forward sale of crude oil as described below. Because the actual amounts
expended in the future for capital expenditures will be influenced by numerous
factors, some of which are beyond the Company's control, no assurances can be
given as to the amount that will actually be expended during the year.
CAPITAL RESOURCES. The Company's principal capital resources for the six
months ended June 30, 1999 consisted of cash flow from operating activities of
$50.7 million, $67.5 million in borrowings under the Credit Facility and
approximately $20.0 million of proceeds from the issuance of the Senior Notes in
excess of the amount used to retire the 11% Senior Subordinated Debentures. At
June 30, 1999, the Company had $640.9 million in borrowings outstanding, which
were classified as long-term debt on the balance sheet since the Company has the
ability and intends to refinance such amount on a long-term basis. The Company
had two letters of credit outstanding under the Credit Facility at June 30, 1999
for $21.4 million and one letter of credit outside the Credit Facility for $1.8
million.
Concurrently with the closing of the merger on May 5, 1999, the Company
entered into a new $500 million credit facility (the "Credit Facility"). The
Credit Facility consists of a $350 million five-year tranche and a renewable
$150 million 364 day tranche. The Credit Facility bears interest, at the
Company's option, at LIBOR or prime rates plus applicable margins dependent upon
the Company's credit rating and ratio of total debt to earnings before interest,
taxes, depreciation, depletion, amortization, exploration charges and non-cash
impairments ("EBITDAX"). Borrowings under the Credit Facility are unsecured but
are subject to compliance with certain covenants including limitations on the
incurrence of additional debt, payment of dividends and other restricted
payments and limitations on liens. Financing fees of approximately $2.1 million
were incurred related to the Credit Facility.
In June 1999, the Company issued $125 million of 8.05% Senior Notes due
2004 (the "Notes") for 98.758% of face value and received $121.6 million after
deducting related costs and expenses of $1.9 million. In connection with the
Notes offering, the Company executed two forward treasury lock agreements (the
"Treasury Locks") to mitigate interest rate risk during the issuance of the
Notes. Upon the issuance of the Notes, the Treasury Locks were terminated
resulting in proceeds to the Company of $3.1 million. The net proceeds of the
Notes offering were used to retire the existing $100 million 11% Senior
Subordinated Debentures and to pay $5.5 million in accrued interest and
prepayment penalties upon retirement of such debt.
In August 1999, the Company acquired working interests in four Shell
Deepwater Development, Inc. Gulf of Mexico discoveries, as well as unexplored
acreage on some adjacent blocks for $210 million. The acquisition was funded
with proceeds from the completion of a $114.6 million equity offering of Santa
Fe Snyder common stock ($108.3 million after deducting underwriting discounts)
and the receipt of a prepayment of approximately $100 million related to the
forward sale of crude oil.
The Credit Facility and the Indenture for the Subordinated Notes include
covenants that restrict the Company's 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 June 30, 1999
the Company could incur approximately $141.0 million of additional indebtedness.
In addition to the Credit Facility, the Company also has short-term
uncommitted lines of credit totalling $36.7 million which are used to meet
short-term cash needs. Interest rates on borrowings under these lines of credit
are typically lower than rates paid under the Credit Facility when compared to
the prime rate, which would be required for short-term (less than 30 days)
borrowings. At June 30, 1999, the
17
Company had $12.4 million in borrowings outstanding under these facilities,
which were classified as long-term debt on the balance sheet since the Company
has the ability and intends to refinance such amount on a long-term basis.
The Company has historically funded its operations and exploration and
development capital spending programs with cash flow from operations and
borrowings under bank credit facilities and funded acquisitions with cash flow
from operations, bank debt, public debt, equity offerings and forward sales of
production. The Company believes that cash flow from operations and the
borrowing availability under the Credit Facility and from other capital markets
will be sufficient to meet its anticipated capital requirements for 1999.
YEAR 2000
Many computer systems have been built using software that processes
transactions using two digits to represent the year. This type of software will
generally require modifications to function properly with dates after December
31, 1999 (or, to become "Y2K Compliant"). The same issue may apply to
microprocessors embedded in machinery and equipment, such as gas compressors and
pipeline meters. The impact of failing to identify those computer systems
(operated by the Company or its business partners) that are not Y2K compliant
and correct the problem could be significant to the Company's ability to operate
and report results, as well as potentially expose the Company to third-party
liability.
The Company has formed a Year 2000 Task Force with representation from
major business units to inventory and assess the risk associated with hardware,
software, telecommunications systems, office equipment, embedded chip controls
and systems, process control systems, facility control systems and dependencies
on third party trading partners. The project phases, expected completion dates
and percentage complete are as follows:
PHASE COMPLETION DATE PERCENT COMPLETE
- ---------------------------------------- ----------------- ----------------
Organization............................ complete 100%
Assessment.............................. complete 100%
Implementation/Replacement.............. October 31, 1999 85%
Contingency Planning.................... August 31, 1999 95%
The Company has contacted all significant customers, transporters, partners
and suppliers and is in the process of evaluating responses received to
determine if further action is necessary.
The Year 2000 Task Force is on schedule and the Company believes the total
related costs will be approximately $2.0 million, funded by cash from operations
or borrowings on the Credit Facility, when completed in 1999. Through June 30,
1999 the Company has spent $0.8 million for identifying, remediating and testing
systems for Year 2000 related problems. The project costs and timetable for Y2K
compliance are based on management's best estimates. In developing these
estimates, assumptions were made regarding future events including, among other
things, the availability of certain resources and the continued cooperation of
the Company's customers and suppliers. Actual costs and timing may differ from
management's estimate due to unexpected difficulties in locating and correcting
relevant computer code and other factors.
To date, the Company is not aware of any significant Year 2000 issues that
would cause problems in the area of safety, environmental or business
interruption. The Company recognizes that, notwithstanding the efforts described
above, the Company could experience disruptions to its operations or
administrative functions, including from non-compliant systems utilized by
governmental and business entities.
The Company has reviewed and evaluated its most reasonably likely worst
case scenario with regard to the Year 2000. Management believes that it is
taking every reasonable precaution to detect, remediate and test all critical
computer systems and equipment. Management believes that the most reasonably
likely worst case scenario would involve failure of production equipment in the
field, which would result in disruption of those operations affected until the
problem is solved and possibly expose the Company to contractual penalties and
other liabilities.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
The Company is exposed to market risk, which includes adverse changes in
commodity prices, interest rates and foreign currency as discussed below.
COMMODITY PRICE RISK. The Company produces and sells crude oil, liquids
and natural gas. As a result, the Company's financial results can be
significantly affected as these commodity prices fluctuate widely in response to
changing market factors. The Company makes a limited use of hedging agreements
at times to reduce its exposure to declines in market prices. The Company uses
the hedge method of accounting for these instruments and, as a result, gains and
losses on commodity futures contracts are generally offset by similar changes in
the realized prices of the commodities. At June 30, 1999, the Company had open
crude oil and natural gas sales hedges. See Note 8 to the Consolidated Financial
Statements for further discussion on hedging activities.
INTEREST RATE RISK. The Company's exposure to changes in interest rates
primarily results from its debt with both fixed and floating interest rates.
Currently, the Company has no outstanding interest rate swaps.
EQUITY PRICE RISK AND FOREIGN CURRENCY RISK. The Company has investments
in two international exploration and production companies, Cairn Energy plc
("Cairn") and SOCO International plc ("SOCI plc"), which are both listed on
the London Stock Exchange. The value of these investments is subject to the risk
of fluctuations in their stock prices as well as fluctuations in the British
pound, the currency in which they trade. The Company owns 11.7 million shares of
Cairn and 7.8 million shares of SOCI plc and the book and fair market value of
the investments was $29.2 million at June 30, 1999.
FORWARD-LOOKING STATEMENTS
Company has included 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," "goals," "intends" or
"projects" and similar expressions are intended to identify forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those projected by such forward-looking statements.
Although the Company believes 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, no assurance can be given that such
expectations will prove correct. Factors that could cause the Company's 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 its reserves, the substantial capital expenditures
required to fund its operations, exploration and development risks,
environmental risks, uncertainties about estimates of reserves, competition,
government regulation and political and litigation risks, uncertainties
associated with the Year 2000 issue, and the ability of the Company to implement
its business strategy. All such forward-looking statements in this document are
expressly qualified in their entirety by the cautionary statements in this
paragraph.
19
PART II. OTHER INFORMATION
ITEMS 1, 2, 3 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of Stockholders held on May 5, 1999, the following
proposals were approved:
AFFIRMATIVE NEGATIVE VOTES
VOTES VOTES WITHHELD
------------ --------- ---------
1. Approve and adopt the Agreement
and Plan of Merger, dated as of
January 13, 1999, between Snyder
Oil Corporation and the Company,
with the Company surviving the
merger, including the issuance of
shares of the Company's common
stock in the merger.............. 80,011,500 553,884 175,045
2. Approve, contingent upon the
passing of Proposal 1, the change
in the Company's name to "Santa
Fe Snyder Corporation".......... 79,646,065 870,106 224,258
3. Approve, contingent upon the
passing of Proposal 1, the
increase in the authorized shares
of capital stock to 350,000,000
shares........................... 77,546,849 2,905,882 287,698
4. Subject to the completion of the
merger, election to the Board of
Directors of the Company the
following individuals:
James E. McCormick................ 79,735,375 -- 1,005,054
(Term expires at annual meeting
of stockholders in 1999)
Harold R. Logan, Jr............... 79,744,935 -- 995,494
(Term expires at annual meeting
of stockholders in 2000)
Edward T. Story................... 79,722,944 -- 1,017,485
(Term expires at annual meeting
of stockholders in 2000)
John A. Hill...................... 79,745,446 -- 994,983
(Term expires at annual meeting
of stockholders in 2001)
John C. Snyder.................... 79,732,901 -- 1,007,528
(Term expires at annual meeting
of stockholders in 2001)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------
*3(a)* -- Bylaws, as amended May 5, 1999.
*3(b) -- Bylaws, as amended June 30, 1999.
*10(a) -- Credit Agreement dated as of May 5,
1999 among Santa Fe Snyder Corp., the
banks signatory thereto, and Chase
Bank of Texas, N.A. as Administrative
Agent; Bank of America National Trust
and Savings Association as
Syndication Agent; Wells Fargo Bank
(Texas), N.A. as Documentation Agent;
Bank One, Texas, N.A. as Managing
Agent; ABN AMRO Bank N.V., Credit
Lyonnais New York Branch and Salomon
Brothers Holding Company Inc. as
Co-Agents.
*10(b) -- 364-Day Credit Agreement dated as of
May 5, 1999 among Santa Fe Snyder
Corp., the banks signatory thereto,
and Chase Bank of Texas, N.A. as
Administrative Agent; Bank of America
National Trust and Savings
Association as Syndication Agent;
Wells Fargo Bank (Texas), N.A. as
Documentation Agent; Bank One, Texas,
N.A. as Managing Agent; ABN AMRO Bank
N.V., Credit Lyonnais New York Branch
and Salomon Brothers Holding Company
Inc. as Co-Agents.
*27 -- Financial Data Schedule.
- ------------
* Filed herewith
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(b) Reports on Form 8-K
On May 6, 1999, the Company filed a Current Report on Form 8-K with respect
to the merger. The item reported in such Current Report was Item 5 (Other
Events). On May 25, 1999, the Company filed an amendment to Form 8-K on
Form 8-K/A with respect to the merger. The items reported in such Current
Report were Item 2 (Acquisition or Disposition of Assets) and Item 7
(Financial Statements and Exhibits). On June 15, 1999, the Company filed a
Current Report with respect to the issuance of $125 million 8.05% Senior
Notes. The items reported in Current Report were Item 5 (Other Events) and
Item 7 (Financial Statements and Exhibits). On July 8, 1999, the Company
filed a Current Report with respect to Snyder Oil Corporation's first
quarter financial statements. The item reported in such Current Report was
Item 7 (Financial Statements and Exhibits). On July 23, 1999, the Company
filed a Current Report with respect to the announcement of the Shell
acquisition. The item reported in such Current Report was Item 7 (Financial
Statements and Exhibits). On August 9, 1999, the Company filed a Current
Report on Form 8-K with respect to the issuance of common stock. The item
reported in such Current Report was Item 5 (Other Events).
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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 16th day of
August, 1999.
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: August 16, 1998
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