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, 2001
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO __________
COMMISSION FILE NUMBER 0-9207
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2841597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16285 PARK TEN PLACE, SUITE 600 77084
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (281) 717-1300
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 _______
The number of shares of Common Stock, par value $0.01 per share, outstanding
as of August 1, 2001 was 18,130,592
HARKEN ENERGY CORPORATION
INDEX TO QUARTERLY REPORT
JUNE 30, 2001
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Condensed Balance Sheets...................... 4
Consolidated Condensed Statements of Operations............ 5
Consolidated Condensed Statement of Stockholders' Equity... 6
Consolidated Condensed Statements of Cash Flows............ 7
Notes to Consolidated Condensed Financial Statements....... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
PART II. OTHER INFORMATION............................................. 23
SIGNATURES............................................................. 27
2
PART I - FINANCIAL INFORMATION
3
ITEM 1. CONDENSED FINANCIAL STATEMENTS
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
DECEMBER 31, JUNE 30,
2000 2001
---------------- -------------
ASSETS
------
Current Assets:
Cash and temporary investments $ 20,673,000 $ 16,230,000
Accounts receivable, net 7,160,000 7,497,000
Related party notes receivable 169,000 169,000
Prepaid expenses and other current assets 1,142,000 925,000
------------- -------------
Total Current Assets 29,144,000 24,821,000
Property and Equipment, net 110,961,000 110,457,000
Other Assets, net 5,242,000 4,268,000
------------- -------------
$ 145,347,000 $ 139,546,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Trade payables $ 3,106,000 $ 2,538,000
Accrued liabilities and other 8,819,000 7,325,000
Revenues and royalties payable 1,952,000 1,507,000
------------- -------------
Total Current Liabilities 13,877,000 11,370,000
Convertible Notes Payable 69,940,000 60,829,000
Bank Credit Facilities 9,937,000 9,937,000
Other Long-Term Obligations 4,917,000 6,248,000
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Series G1 Preferred Stock, $1.00 par value; $100 liquidation
value; 240,000 and 700,000 shares authorized, respectively;
158,155 and 494,465 shares issued, respectively 158,000 494,000
Common stock, $0.01 par value; 225,000,000 shares authorized;
17,699,110 and 18,220,342 shares issued, respectively 177,000 182,000
Additional paid-in capital 371,546,000 378,324,000
Accumulated deficit (324,886,000) (327,172,000)
Accumulated other comprehensive income 134,000 (213,000)
Treasury stock, at cost, 89,750 shares held (453,000) (453,000)
------------- -------------
Total Stockholders' Equity 46,676,000 51,162,000
------------- -------------
$ 145,347,000 $ 139,546,000
============== =============
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
4
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ ------------------------------------
2000 2001 2000 2001
--------------- ---------------- ---------------- ---------------
Revenues:
Oil and gas operations $ 10,790,000 $ 10,792,000 $20,674,000 $ 19,707,000
Interest and other income 287,000 190,000 675,000 467,000
------------- -------------- ----------- --------------
11,077,000 10,982,000 21,349,000 20,174,000
------------- -------------- ----------- --------------
Costs and Expenses:
Oil and gas operating expenses 3,695,000 3,327,000 6,968,000 6,581,000
General and administrative expenses, net 2,977,000 2,892,000 5,711,000 5,372,000
Depreciation and amortization 3,221,000 4,834,000 6,142,000 8,083,000
Interest expense and other, net 1,301,000 986,000 2,744,000 2,698,000
Charge for European Note conversion - - 2,068,000 -
------------- -------------- ----------- --------------
11,194,000 12,039,000 23,633,000 22,734,000
------------- -------------- ----------- --------------
Loss before income taxes $ (117,000) $ (1,057,000) $(2,284,000) $ (2,560,000)
Income tax expense 15,000 15,000 30,000 30,000
------------- -------------- ----------- --------------
Loss before extraordinary items $ (132,000) $ (1,072,000) $(2,314,000) $ (2,590,000)
Extraordinary item-charge for reduction of
unamortized issuance costs - - (7,000) -
Extraordinary item-gain on
repurchase/exchange of European Notes 1,872,000 1,147,000 1,872,000 1,253,000
------------- -------------- ----------- --------------
Net income (loss) $ 1,740,000 $ 75,000 $ (449,000) $ (1,337,000)
============= ============== ========== ==============
Preferred stock dividends - (633,000) - (949,000)
------------- -------------- ----------- --------------
Net income (loss) attributed to
common stock $ 1,740,000 $ (558,000) $ (449,000) $ (2,286,000)
============= ============== =========== ==============
Basic and diluted income (loss) per
common share:
Loss before extraordinary items $ (0.01) $ (0.09) $ (0.14) $ (0.20)
Extraordinary item-charge for reduction of
unamortized issuance costs - - (0.00) -
Extraordinary item-gain on
repurchase/exchange of European Notes 0.11 0.06 0.11 0.07
------------- -------------- ----------- --------------
Income (loss) per common share $ 0.10 $ (0.03) $ (0.03) $ (0.13)
============= ============== =========== ==============
Weighted average shares outstanding 16,634,574 18,124,805 16,177,101 17,991,060
============= ============== =========== ==============
The accompanying Notes to Consolidated Condensed Financial Statements are
an integral part of these Statements.
5
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
ADDITIONAL
PREFERRED COMMON PAID-IN TREASURY
STOCK STOCK CAPITAL STOCK
-------------------------------------------------------------------
Balance, December 31, 2000 $158,000 $177,000 $371,546,000 $(453,000)
Issuance of common stock, net - 5,000 (5,000) -
Issuance of preferred stock, net 336,000 - 6,783,000 -
Preferred stock dividends - - - -
Comprehensive income:
Cumulative effect of change
in accounting principle - - - -
Net change in derivative
fair value - - - -
Reclassification of derivative
fair value into earnings - - - -
Net loss - - - -
Total comprehensive
income (loss)
----------------------------------------------------------
Balance, June 30, 2001 $494,000 $182,000 $378,324,000 $(453,000)
==========================================================
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME (LOSS) TOTAL
---------------------------------------------------------
Balance, December 31, 2000 $(324,886,000) $ 134,000 $46,676,000
Issuance of common stock, net - - -
Issuance of preferred stock, net - - 7,119,000
Preferred stock dividends (949,000) - (949,000)
Comprehensive income:
Cumulative effect of change
in accounting principle - (3,025,000)
Net change in derivative
fair value - 1,153,000
Reclassification of derivative
fair value into earnings - 1,525,000
Net loss (1,337,000) -
Total comprehensive
income (loss) (1,684,000)
----------------------------------------------------
Balance, June 30, 2001 $(327,172,000) $ (213,000) $51,162,000
====================================================
The accompanying Notes to Consolidated Condensed Financial Statements are
an integral part of these Statements.
6
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2000 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (449,000) $ (1,337,000)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 6,142,000 8,083,000
Amortization of issuance costs 545,000 837,000
Extraordinary items (1,865,000) (1,253,000)
Charge for European Note conversion 2,068,000 -
Other 89,000 294,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable (1,505,000) (840,000)
Increase (decrease) in trade payables and other (3,695,000) (1,396,000)
------------ ------------
Net cash provided by operating activities 1,330,000 4,388,000
------------ ------------
Cash flows from investing activities:
Proceeds from sales of assets 1,552,000 9,620,000
Capital expenditures, net (14,106,000) (18,384,000)
------------ ------------
Net cash used in investing activities (12,554,000) (8,764,000)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt (3,072,000) (207,000)
Proceeds from issuances of common stock, net of
issuances costs 2,831,000 -
Collection of note receivable - 140,000
------------ ------------
Net cash used in financing activities (241,000) (67,000)
------------ ------------
Net decrease in cash and temporary investments (11,465,000) (4,443,000)
Cash and temporary investments at beginning of period 25,612,000 20,673,000
------------ ------------
Cash and temporary investments at end of period $ 14,147,000 $ 16,230,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,587,000 $ 2,046,000
Income taxes - -
The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these Statements.
7
HARKEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 2001
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Harken Energy Corporation ("Harken") have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to these rules and regulations, although
Harken believes that the disclosures made are adequate to make the information
presented not misleading. In the opinion of Harken, these financial statements
contain all adjustments necessary to present fairly its financial position as of
December 31, 2000 and June 30, 2001 and the results of its operations and
changes in its cash flows for all periods presented as of June 30, 2000 and
2001. All such adjustments represent normal recurring items. These condensed
financial statements should be read in conjunction with the financial statements
and the notes thereto included in Harken's Annual Report on Form 10-K for the
year ended December 31, 2000. Certain prior year amounts have been reclassified
to conform with the 2001 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
The results of operations for the six month period ended June 30, 2001 are
not necessarily indicative of the results to be expected for the full year.
(2) ACQUISITIONS AND DISPOSITIONS
Acquisition of Benz Prospects -- On December 30, 1999, pursuant to a
Purchase and Sale Agreement and other related agreements, Harken, along with
Harken Gulf Exploration Company, a wholly-owned subsidiary, purchased oil and
gas leases covering nine exploration prospect areas (the "Benz Prospects")
covering approximately 51,000 net acres plus certain other assets from Benz
Energy, Incorporated ("Benz"). In exchange for the prospects, Harken issued 5%
subordinated notes (the "Benz Convertible Notes") with a face value of $12
million, which are convertible into Harken common stock at a conversion price of
$65.00 per share and originally were to mature on May 26, 2003.
Benz retained a 20% reversionary interest, subject to the Benz Prospects
achieving payout as defined in the Purchase and Sale Agreement. Also, pursuant
to the agreements, a former officer of Benz shall earn additional purchase price
consideration based on 20% of the project reserve value, as defined, as of
December 31, 2000, 2001 and 2002 less total project costs, as defined, related
to the Benz Prospects. Such purchase price consideration percentage shall
increase to 40% in the event Benz merges into or is otherwise acquired by
Harken. Pursuant to the agreement, in April 2001 Harken issued 263,301 shares of
Harken
8
common stock relating to this additional purchase price consideration based on
the reserve value of the Benz Prospects as of December 31, 2000.
Sale of Certain Producing Property Interests - During the first six months
of 2001, Harken sold certain interests in oil and gas properties located in
Texas, Arkansas, New Mexico, and Louisiana for approximately $9,258,000 cash.
Subsequent to June 30, 2001, Harken sold certain additional interests in gas
properties located in western Texas for approximately $3,716,000 cash.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
December 31, June 30,
2000 2001
-------------- -------------
Unevaluated oil and gas properties:
Unevaluated Colombian properties $ 588,000 $ 53,000
Unevaluated Costa Rican properties 7,159,000 8,050,000
Unevaluated Peru properties - 415,000
Unevaluated domestic properties 9,919,000 8,293,000
Evaluated oil and gas properties:
Evaluated Colombian properties 173,358,000 181,845,000
Evaluated domestic properties 148,487,000 146,224,000
Facilities, gas plants and other property 22,048,000 24,257,000
Less accumulated depreciation and
amortization (250,598,000) (258,680,000)
------------- -------------
$ 110,961,000 $ 110,457,000
============= =============
(4) MIDDLE AMERICAN OPERATIONS
Colombia Operations -- Harken's Colombian operations are conducted through
Harken de Colombia, Ltd. ("HDC"), a wholly-owned subsidiary of Harken. During
the second quarter of 2001, and following the evaluation of the results of
recent 3-D seismic, Harken declined the extension of the Los Olmos Contract into
a third contract year, and relinquished the Los Olmos Contract acreage back to
Ecopetrol. In June 2001, HDC signed a Technical Evaluation Agreement ("TEA")
covering the El Retorno acreage block, which covers approximately 86,000 acres
adjacent to the Alcaravan Contract area. The TEA requires HDC to carry out a
seismic reprocessing program over the next six months and grants HDC an option
to execute an Association Contract over the area.
Terms of each of the Association Contracts commit Harken to perform certain
activities in accordance with a prescribed timetable. During July 2001, Harken
received from Ecopetrol an extension to
9
October 31, 2001 for Harken to determine whether to extend the Bolivar Contract
into its sixth contract year. Also during July 2001, Harken received from
Ecopetrol an additional extension to December 8, 2001 to drill the fifth year
obligation well related to the Bocachico Contract. As of August 9, 2001, Harken
was in compliance with the requirements of each of the Association Contracts, as
amended.
Costa Rica Operations -- Harken, through Harken Costa Rica Holdings LLC
("HCRH", a Nevada limited liability corporation subsidiary) owns an interest in
an Exploration and Production concession contract with the Republic of Costa
Rica ("Costa Rica Contract"). At June 30, 2001, Harken owned 80% of the stock of
HCRH, with an affiliate of MKJ Xploration, Inc. ("MKJ") owning the remaining 20%
of the stock of HCRH. In July 2001, Harken elected not to pay the $4 million of
additional funds to be transferred to HCRH, which, in accordance with the
contract between Harken and MKJ, resulted in Harken's ownership in HCRH being
reduced to 40% (with MKJ's ownership being increased to 60%) and resulted in MKJ
assuming the operations of the Costa Rica Contract. MKJ is seeking additional
joint venture partner participation for the work program obligations required by
the Costa Rica Contract to fund the initial well to be drilled.
Peru Operations -- In April 2001, Harken, through a wholly-owned
subsidiary, signed a Technical Evaluation Agreement ("TEA") with PeruPetro, the
national oil company of Peru. The TEA covers an area of approximately 6.8
million gross acres in northeastern Peru. Under the terms of the TEA, Harken has
the option to convert the TEA to a seven year exploration contract, with a
twenty-two year production period. Terms of the TEA allow Harken to conduct a
study of the area that will include the reprocessing of seismic data and
evaluation of previous well data.
(5) BANK CREDIT FACILITY OBLIGATIONS
A summary of long-term bank obligations follows:
December 31, June 30,
2000 2001
----------- ----------
Subsidiary notes payable to bank (A) $9,937,000 $9,937,000
Subsidiary project finance facility (B) - -
---------- ----------
9,937,000 9,937,000
Less: Current portion - -
---------- ----------
$9,937,000 $9,937,000
========== ==========
(A) Certain Harken subsidiaries (the "Borrowers") entered into a three year
loan facility with Bank One, N.A. ("Bank One") which is secured by certain
of Harken's domestic oil and gas properties and a guarantee from Harken.
The Bank One facility provides borrowings limited by a borrowing base (as
defined by the Bank One facility) which was approximately $18,480,000 as of
June 30, 2001, and approximately $16,090,000 as of August 9, 2001. Such
borrowing base, which is net of outstanding letters of credit, is
redetermined by Bank One on May 1 and October 1 of each year in accordance
with the facility agreement. The Bank One facility provides for interest
based on LIBOR plus a margin of 2.350% (6.21% as of June 30, 2001), payable
at the underlying LIBOR maturities or lender's prime rate, and provides for
a commitment fee of 0.375 % on the unused amount. At June 30, 2001 Harken
10
has $9,937,000 outstanding pursuant to the facility.
The Bank One facility requires the Borrowers, as well as Harken, to
maintain certain financial covenant ratios and requirements. Harken and the
Borrowers are in compliance with all requirements under the Bank One
facility, as amended, as of June 30, 2001. Such financial covenant ratios
and requirements for the Borrowers became effective beginning June 30, 2001
and include a current ratio, as defined, of not less than 1.0 to 1.0, a
total liabilities to net capital investment ratio, as defined, of not more
than 1.15 to 1.0 and a debt service coverage ratio, as defined, of not less
than 1.5 to 1.0. Required financial covenants for Harken include a ratio of
total liabilities to net worth, as defined, of not more than 0.6 to 1.0,
and a debt service coverage ratio, as defined, of not less than 1.25 to
1.0.
(B) Effective September 1, 1999, Harken de Colombia, Ltd. entered into a
project finance loan agreement with the International Finance Corporation
("IFC") to be utilized in the development of the Bolivar Association
Contract block in Colombia ("the Project"). No borrowings were drawn down
by Harken de Colombia, Ltd. under the facility.
During the second quarter of 2001, Harken de Colombia, Ltd and IFC agreed
to terminate the project finance loan agreement.
(6) CONVERTIBLE NOTES PAYABLE
A summary of convertible notes payable is as follows:
December 31, June 30,
2000 2001
--------------- --------------
5% European Notes $59,810,000 $50,560,000
Benz Convertible Notes 10,130,000 10,269,000
----------- -----------
69,940,000 60,829,000
Less: Current portion - -
----------- -----------
$69,940,000 $60,829,000
=========== ===========
5% European Notes -- On May 26, 1998, Harken issued to qualified purchasers
a total of $85 million in 5% Senior Convertible Notes (the "5% European Notes")
which mature on May 26, 2003. Interest incurred on these notes is payable semi-
annually in May and November of each year to maturity or until the 5% European
Notes are converted.
During the second quarter of 2001, Harken issued 325,150 newly-issued
shares of Series G1 Preferred stock in exchange for 5% European Notes in the
face amount of $9,000,000. Harken has reflected an extraordinary item gain of
$1,147,000 in the accompanying Consolidated Condensed Statements of Operations
for the difference between the face amount of the 5% European Notes exchanged
and the fair value of the Series G1 Preferred shares issued, less transaction
expenses.
11
During July 2001, Harken issued 95,800 shares of a new series of
convertible preferred stock (the "Series G2 Preferred") in exchange for 5%
European Notes in the face amount of $9,580,000. Harken will reflect an
extraordinary item gain during the third quarter of 2001 for the difference
between the face amount of the 5% European Notes exchanged and the fair value of
the Series G2 Preferred shares issued, less transaction expenses.
(7) HEDGING ACTIVITIES
Harken holds certain commodity derivative instruments which are effective
in mitigating commodity price risk associated with a portion of its future
monthly natural gas production and related cash flows. Harken's oil and gas
operating revenues and cash flows are highly dependent upon commodity product
prices, which are volatile and cannot be accurately predicted. Harken's
objective for holding these commodity derivatives is to protect the operating
revenues and cash flows related to a portion of its future oil and gas sales
from the risk of significant declines in commodity prices.
As of June 30, 2001, Harken, through a wholly-owned subsidiary, held
natural gas price swaps resulting in the subsidiary receiving fixed prices of
approximately $2.20 per MMBTU covering a total of 450,000 MMBTUs over the
remaining life of the swaps, which terminate in December 2001. Upon the January
1, 2001 adoption of Statement of Financial Accounting Standards ("SFAS") No.
133, Harken reflected an increase in its accrued liabilities of approximately
$3,025,000 in order to fully record the fair value of these natural gas swaps.
As such derivatives qualify as cash flow hedges under SFAS No. 133, the
offsetting impact upon adoption was a charge to Other Comprehensive Income
within Harken's stockholders' equity. Such natural gas swaps are reflected in
accrued liabilities at June 30, 2001 with a remaining fair value of
approximately $516,000.
The above derivative has been designated as a cash flow hedge of the
exposure to variability of cash flows related to future sales of specified
production from certain of Harken's domestic property operations. Gains and
losses from commodity derivative instruments are reclassified into earnings when
the associated hedged production occurs. Harken holds no derivative instruments
which are designated as either fair value hedges or foreign currency hedges.
Settlements of commodity derivatives are based on the difference between fixed
swap prices and the New York Mercantile Exchange closing prices for each month
during the life of the contracts. Harken monitors its natural gas production
prices compared to New York Mercantile Exchange prices to assure its commodity
derivatives are effective hedges in mitigating its commodity price risk.
Risk management policies established by Harken management limit Harken's
derivative instrument activities to those derivative instruments which are
effective in mitigating certain operating risks, including commodity price risk.
In addition to other restrictions, the extent and terms of any derivative
instruments are required to be reviewed and approved by executive management of
Harken. With the August 19, 1999 merger with XPLOR Energy, Inc. ("XPLOR"),
Harken assumed the above mentioned natural gas swap contract currently held by
XPLOR.
(8) SEGMENT INFORMATION
Harken's accounting policies for each of its operating segments are the
same as those for its
12
consolidated financial statements. There are no intersegment sales or transfers.
Revenues and expenses not directly identifiable with either segment, such as
certain general and administrative expenses, are allocated by Harken based on
various internal and external criteria including an assessment of the relative
benefit to each segment. During the periods presented below, none of Harken's
Middle American segment operating revenues related to Costa Rica or Peru.
Harken's financial information for each of its operating segments is as
follows for the periods ended June 30, 2000 and 2001:
THREE MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------ ------------------------------------------------
NORTH MIDDLE NORTH MIDDLE
AMERICA AMERICA TOTAL AMERICA AMERICA TOTAL
----------- ------------ ------------ ----------- ------------ ------------
Operating revenues $ 8,450,000 $ 2,340,000 $ 10,790,000 $15,605,000 $ 5,069,000 $ 20,674,000
Interest and other income 150,000 137,000 287,000 300,000 375,000 675,000
Depreciation and
amortization 2,046,000 1,175,000 3,221,000 4,037,000 2,105,000 6,142,000
Interest expense and
other, net 924,000 377,000 1,301,000 1,739,000 1,005,000 2,744,000
Income tax expense 15,000 - 15,000 30,000 - 30,000
Segment income (loss)
before extraordinary items 831,000 (963,000) (132,000) 186,000 (2,500,000) (2,314,000)
Segment income (loss) 1,767,000 (27,000) 1,740,000 1,122,000 (1,571,000) (449,000)
Capital expenditures 2,125,000 5,822,000 7,947,000 4,632,000 9,078,000 13,710,000
Total assets at end of
period 96,037,000 199,253,000 295,290,000 96,037,000 199,253,000 295,290,000
THREE MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2001
------------------------------------------------ ------------------------------------------------
NORTH MIDDLE NORTH MIDDLE
AMERICA AMERICA TOTAL AMERICA AMERICA TOTAL
----------- ------------ ------------ ----------- ------------ -----------
Operating revenues $ 8,139,000 $ 2,653,000 $ 10,792,000 $15,147,000 $ 4,560,000 $ 19,707,000
Interest and other income 85,000 105,000 190,000 204,000 263,000 467,000
Depreciation and
amortization 2,581,000 2,253,000 4,834,000 4,400,000 3,683,000 8,083,000
Interest expense and
other, net 673,000 313,000 986,000 1,549,000 1,149,000 2,698,000
Income tax expense 15,000 - 15,000 30,000 - 30,000
Segment income (loss)
before extraordinary items 1,383,000 (2,455,000) (1,072,000) 2,149,000 (4,739,000) (2,590,000)
Segment income (loss) 1,956,000 (1,881,000) 75,000 2,775,000 (4,112,000) (1,337,000)
Capital expenditures 3,176,000 1,046,000 4,222,000 5,913,000 9,258,000 15,171,000
Total assets at end of
period 92,266,000 47,280,000 139,546,000 92,266,000 47,280,000 139,546,000
(9) COMMITMENTS AND CONTINGENCIES
Search Acquisition Corp. ("Search Acquisition"), a wholly-owned subsidiary
of Harken, is a defendant in a lawsuit filed by Petrochemical Corporation of
America and Lorken Investments Corporation (together, "Petrochemical"). This
lawsuit arises out of Petrochemical's attempt to enforce a judgment of joint and
several liability entered in 1993 against a group of twenty limited partnerships
known as the "Odyssey limited partnerships." Petrochemical claims that Search
Exploration, Inc. is liable for payment of the judgment as the successor-in-
interest to eight Odyssey limited partnerships. Search Acquisition was the
surviving corporation in the 1995 merger with Search Exploration, Inc. On
February 28, 1996, the court granted Search Acquisition's motion for summary
judgment. On July 3, 1998, the Fifth District Court of Appeals for the State of
Texas reversed the trial court's summary judgment and remanded the case to the
trial
13
court. It is estimated that this trial will take place in the fourth quarter of
2001. Although the ultimate outcome of this litigation is uncertain, Harken
believes that any liability to Harken as a result of this litigation will not
have a material adverse effect on Harken's financial condition.
420 Energy Investment, Inc. and ERI Investments, Inc. (collectively "420
Energy") filed a lawsuit against XPLOR Energy, Inc., ("XPLOR") a wholly-owned
subsidiary of Harken, on December 21, 1999 in the New Castle County Court of
Chancery of the State of Delaware. 420 Energy alleges that they are entitled to
appraisal and payment of the fair value of their common stock in XPLOR as of the
date XPLOR merged with Harken. Harken has relied on an indemnity provision in
the XPLOR merger agreement to tender the costs of defense in this matter to a
third party. Although the outcome of this litigation is uncertain, Harken
believes that any liability to Harken as a result of this litigation will not
have a material adverse effect on Harken's financial condition.
Harken has accrued approximately $6,008,000 at June 30, 2001 relating to
certain other operational or regulatory liabilities related to Harken's domestic
operations. Harken and its subsidiaries currently are involved in various
lawsuits and other contingencies, which in management's opinion, will not result
in significant loss exposure to Harken.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Certain statements included in the accompanying condensed financial
statements and in the following discussion and analysis of financial condition
and results of operations, including statements of Harken management's current
expectations, intentions, plans and beliefs, and statements containing the words
"believes", "anticipates", "estimates", "expects", or "may" are forward-looking
statements, as defined in Section 21D of the Securities Exchange Act of 1934.
Such forward-looking statements involve known and unknown risk, uncertainties
and other factors which may cause the actual results, performance, timing or
achievements of Harken to be materially different from any results, performance,
timing or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the risks described in Harken's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000 filed with the
Securities and Exchange Commission.
OVERVIEW
Harken reported a net loss for the six months ended June 30, 2001 of
$1,337,000 compared to a net loss of $449,000 for the prior year period due
primarily to increased depreciation and amortization on Harken's oil and gas
properties, particularly in Colombia. Harken worldwide oil and gas revenues have
decreased slightly during the first six months of 2001 compared to the prior
year period despite increased prices for natural gas primarily due to certain
domestic property sales. Gross profit before depreciation and amortization,
general and administrative and interest expenses totaled approximately $13.1
million during the six months ended June 30, 2001 compared to approximately
$13.7 million for the prior year period. During June 2001, Harken's Board of
Directors approved a new plan to restructure Harken's operations for the purpose
of focusing Harken's resources more directly on its domestic U.S. assets and
operations particularly in the Gulf Coast region of Texas and Louisiana. During
the six months ended June 30, 2001, Harken's domestic operating segment
reflected segment gross profit of approximately $10.4 million compared to
approximately $9.7 million during the prior year period.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
2000 2001 2000 2001
--------------- ------------- ---------------- --------------
OPERATING REVENUES (unaudited) (unaudited)
Domestic Exploration and Production
Operations
Gas sales revenues $ 4,115,000 $ 5,748,000 $ 7,106,000 $ 11,300,000
Gas volumes in mcf 970,000 1,132,000 2,094,000 2,101,000
Gas price per mcf $ 4.24 $ 5.08 $ 3.39 $ 5.38
Oil sales revenues $ 4,077,000 $ 2,391,000 $ 8,045,000 $ 3,847,000
Oil volumes in barrels 144,000 90,000 287,000 144,000
Oil price per barrel $ 28.31 $ 26.57 $ 28.03 $ 26.72
Gas plant revenues $ 258,000 $ - $ 454,000 $ -
Colombian Exploration and Production
Operations
Oil sales revenues $ 2,340,000 $ 2,653,000 $ 5,069,000 $ 4,560,000
Oil volumes in barrels 108,000 143,000 232,000 237,000
Oil price per barrel $ 21.67 $ 18.55 $ 21.85 $ 19.24
15
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
2000 2001 2000 2001
--------------- ------------- ---------------- --------------
(unaudited) (unaudited)
OTHER REVENUES
Interest income $ 283,000 $ 174,000 $ 665,000 $ 419,000
Other income $ 4,000 $ 16,000 $ 10,000 $ 48,000
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected Harken's earnings and balance sheet
during the periods included in the accompanying consolidated financial
statements.
For the quarter ended June 30, 2001 compared with the corresponding prior
period.
NORTH AMERICAN OPERATIONS
Domestic gross oil and gas revenues during the second quarter of 2001
relate primarily to the operations in the onshore and offshore areas of the
Texas and Louisiana Gulf Coast, and the Western and Panhandle regions of Texas.
During the second quarter of 2001, Harken sold its operations in the Magnolia
region of Arkansas, the Carlsbad region of New Mexico and certain properties in
southern Louisiana.
Domestic gas revenues increased 40% to $5,748,000 for the three months
ended June 30, 2001 compared to $4,115,000 for the prior year period due
primarily to the increase in average gas prices received during the second
quarter of 2001, as Harken received an overall average price of $5.08 per mcf of
gas during the second quarter of 2001 compared to $4.24 per mcf received during
the second quarter of 2000. In addition, Harken's domestic gas production
volumes increased 17% compared to the prior year period due to new production
from Harken's recent drilling activity, particularly from the Old Ocean Field in
the Texas Gulf Coast region. Such new production volumes offset the production
decreases resulting from the sales of producing properties discussed above.
Domestic oil revenues decreased 41% to $2,391,000 during the second quarter
of 2001 compared to $4,077,000 during the second quarter of 2000 due primarily
to the December 2000 sale of Harken Southwest Corporation, which operated
Harken's Four Corners area production, and due to the sale during the second
quarter 2001 of Harken's New Mexico operations. Overall, domestic oil production
volumes decreased 38% during the second quarter of 2001 compared to the prior
year period.
Gas plant revenues during the second quarter of 2000 were derived through
Harken Southwest Corporation, which was sold in December 2000.
Domestic oil and gas operating expenses consist of lease operating expenses
and production and reserve based taxes. Domestic oil and gas operating expenses
decreased 29% to $2,228,000 during the second quarter of 2001 compared to
$3,126,000 during the prior year primarily due to the above mentioned sales of
producing properties. Oil and gas operating expenses decreased as a percentage
of related oil and gas
16
revenues due primarily to the increase in gas prices during the second quarter
of 2001 compared to the prior year period. Harken continues to review its
existing domestic operations to identify specific properties for which operating
expenses can be reduced.
Harken expects that oil and gas production volumes generated as a result of
recent drilling and workover activity will continue to offset the normal
production declines experienced in its operating areas and help to mitigate the
production decreases as a result of recent sales of non-strategic producing
properties. Harken's oil and gas revenues are highly dependent upon product
prices, which Harken is unable to predict.
MIDDLE AMERICAN OPERATIONS
Harken's Colombian oil revenues have increased 13% from $2,340,000 during
the second quarter of 2000 to $2,653,000 during the second quarter of 2001,
despite a decrease in the average price received per barrel, which decreased to
$18.55 during the second quarter 2001 compared to $21.67 during the prior year
period. During the second quarter of 2000 and 2001, Harken's Colombian
production operations related to its Bolivar and Alcaravan Association Contract
areas.
During the second quarter of 2000, sales of production from Harken's Estero
#1 well on the Alcaravan Contract area were temporarily limited to approximately
1,000 gross barrels of oil per day due to pipeline constraints and pumping
capacity. Beginning in April 2001, such pipeline constraints were partially
alleviated. In addition, during the second quarter of 2001, Harken purchased the
45 kilometer Guarimena to Santiago crude oil pipeline and negotiated a new
transportation agreement with the owner/operator of the pipeline that transports
crude oil from Santiago north to market and export points. As a result of the
above steps, Harken is now allowed to produce and transport up to approximately
3,000 gross barrels of oil per day combined from both Estero #1 and initial
production test operations from the recently drilled Estero #2 well, and during
the second quarter 2001, averaged approximately 1,574 gross barrels of oil
production per day. Harken's Catalina #1 and Olivo #1 wells on the Bolivar
Contract area have averaged a combined 208 gross barrels of oil per day during
the second quarter of 2001, compared to averaging approximately 768 gross
barrels per day during the prior year period. Harken's production volumes during
the remainder of 2001 will primarily remain dependent on existing well
production, pumping efficiency, and security conditions.
Middle American operating expenses have increased from $569,000 during the
second quarter of 2000 to $1,099,000 for the second quarter of 2001, primarily
due to transportation and security costs.
INTEREST AND OTHER INCOME
Interest and other income decreased during the second quarter of 2001
compared to the prior year period due to Harken's usage of cash for capital
expenditures during 2000 and first quarter 2001. Harken generated approximately
$283,000 of interest income during the second quarter of 2000, compared to
approximately $174,000 of interest income during the second quarter of 2001.
Additional decreases in Harken's cash balances could be mitigated or offset by
additional capital sources.
17
OTHER COSTS AND EXPENSES
General and administrative expenses decreased slightly during the second
quarter of 2001 compared to the second quarter of 2000 primarily due to staff
reductions and overall administrative efficiencies.
Depreciation and amortization expense increased during the second quarter
of 2001 compared to the prior year period primarily due to downward revisions
during 2000 in Harken's Colombia proved reserves. Depreciation and amortization
on oil and gas properties is calculated on a unit of production basis in
accordance with the full cost method of accounting for oil and gas properties.
Interest expense and other decreased during the second quarter of 2001
compared to the prior year period primarily due to the repurchase and exchange
of certain 5% European Notes during 2000 and during the first half of 2001. Such
decrease in net interest expense was despite the decrease in the amounts of
interest capitalized to Harken's Colombian unevaluated property costs.
For the six months ended June 30, 2001 compared with the corresponding prior
period.
NORTH AMERICAN OPERATIONS
Domestic gross oil and gas revenues during the first six months of 2001
relate primarily to the operations in the onshore and offshore areas of the
Texas and Louisiana Gulf Coast, the Western and Panhandle regions of Texas, the
Magnolia region of Arkansas and the Carlsbad region of New Mexico.
Domestic gas revenues increased 59% to $11,300,000 for the six months ended
June 30, 2001 compared to $7,106,000 for the prior year period due primarily to
the increase in average gas prices received during the first half of 2001, as
Harken received an overall average price of $5.38 per mcf of gas during the
first six months of 2001 compared to $3.39 per mcf received during the first
half of 2000. Gas production volumes during the first six months of 2001
remained flat compared to the prior year period, despite the sales of certain
producing properties, due to new production from Harken's recent drilling
activity, particularly from the Old Ocean Field in the Texas Gulf Coast region.
Domestic oil revenues decreased 52% to $3,847,000 during the first six
months of 2001 compared to $8,045,000 during the first six months of 2000 due to
the December 2000 sale of Harken Southwest Corporation, which owned and operated
Harken's Four Corners area production. In addition, Harken's Gulf Coast oil
production was reduced by temporary operational curtailments during the first
quarter of 2001 at Harken's Main Pass area offshore Louisiana. Overall, domestic
oil production volumes decreased 50% during the first six months of 2001
compared to the prior year period.
Gas plant revenues during the first six months of 2000 were derived through
Harken Southwest Corporation, which was sold in December 2000.
Domestic oil and gas operating expenses consist of lease operating expenses
and production and reserve based taxes. Domestic oil and gas operating expenses
decreased 20% to $4,719,000 during the first six months of 2001 compared to
$5,872,000 during the prior year primarily due to the above mentioned sales of
producing properties. Oil and gas operating expenses decreased as a percentage
of related oil and gas
18
revenues due primarily to the increase in gas prices during the first half of
2001 compared to the prior year period.
Harken expects that oil and gas production volumes generated as a result of
recent drilling and workover activity will continue to offset the normal
production declines experienced in its operating areas and help to mitigate the
production decreases as a result of recent sales of non-strategic producing
properties. Harken's oil and gas revenues are highly dependent upon product
prices, which Harken is unable to predict.
MIDDLE AMERICAN OPERATIONS
Harken's Colombian oil revenues have decreased 10% from $5,069,000 during
the first six months of 2000 to $4,560,000 during the first half of 2001 due to
a decrease in the average price received per barrel, which decreased from $21.85
during the first half of 2000 to $19.24 during 2001. During 2000 and 2001,
Harken's Colombian production operations related to its Bolivar and Alcaravan
Association Contract areas.
During 2000 and the first quarter of 2001, sales of production from
Harken's Estero #1 well on the Alcaravan Contract area were limited to
approximately 1,000 gross barrels of oil per day due to pipeline constraints and
pumping capacity. During the second quarter of 2001, Harken has taken the steps
discussed above to resolve such limitations and Harken is now allowed to produce
and transport up to approximately 3,000 gross barrels of oil per day from both
Estero #1 and initial production test operations from the recently drilled
Estero #2 well. Harken's production volumes during the remainder of 2001 will
primarily remain dependent on existing well production, pumping efficiency, and
security conditions.
Middle American operating expenses have increased from $1,096,000 during
the first six months of 2000 to $1,862,000 for the first six months of 2001,
primarily due to transportation and security costs.
INTEREST AND OTHER INCOME
Interest and other income decreased during the first six months of 2001
compared to the prior year period due to Harken's usage of cash for capital
expenditures during 2000 and first quarter 2001. Harken generated approximately
$665,000 of interest income during the first six months of 2000, compared to
approximately $419,000 of interest income during the first six months of 2001.
Additional decreases in Harken's cash balances could be mitigated or offset by
additional capital sources.
OTHER COSTS AND EXPENSES
General and administrative expenses decreased during the first six months
of 2001 compared to the first six months of 2000 primarily due to staff
reductions and overall administrative efficiencies.
Depreciation and amortization expense increased during the first half of
2001 compared to the prior year period primarily due to downward revisions
during 2000 in Harken's Colombia proved reserves. Depreciation and amortization
on oil and gas properties is calculated on a unit of production basis in
accordance with the full cost method of accounting for oil and gas properties.
Interest expense and other decreased slightly during the first six months
of 2001 compared to the prior year period primarily due to the repurchase and
exchange of certain 5% European Notes during 2000 and during the first six
months of 2001. Such decrease in net interest expense was despite the decrease
in the
19
amounts of interest capitalized to Harken's Colombian unevaluated property
costs. In addition, during the first quarter of 2001, Harken expensed the
remaining unamortized issuance costs related to the IFC project loan finance
facility, which was terminated in May 2001.
LIQUIDITY AND CAPITAL RESOURCES
Harken's working capital at June 30, 2001 was approximately $13.5 million,
compared to approximately $15.3 million at December 31, 2000. The decrease in
working capital during the first six months of 2001 resulted primarily from
approximately $18.4 million of capital expenditures, which were funded primarily
by sales of domestic oil and gas properties totaling approximately $9.6 million.
Assisted by strong oil and natural gas prices, Harken's operations generated
approximately $4.4 million of cash flow during the first six months of 2001.
Harken's cash resources at June 30, 2001 totaled approximately $16.2 million.
Considering its existing cash resources and potential additional capital
sources, Harken believes that it will have sufficient cash resources to fund all
of its planned capital expenditures during 2001. Harken's ongoing exploration,
development and acquisition efforts are expected to be funded through a
combination of cash on hand, issuances of debt or equity securities, or through
cash provided by either existing or newly established financing arrangements.
In June 2001, Harken's Board of Directors approved a plan to restructure
Harken's operations ("the Restructuring Plan"). This plan would focus on
concentrating Harken's future activities on domestic exploration and
development, while seeking a new venue for Harken's international assets that
could provide continued benefit to Harken from upside growth. Under the
Restructuring Plan, Harken has determined that its international assets can best
be valued and developed if placed in a venue and market outside of traditional
U.S. markets.
CAPITAL SOURCES
During the first six months of 2001, sales of domestic producing property
interests generated cash proceeds of approximately $9.3 million. Subsequent to
June 30, 2001, Harken has sold certain additional gas properties for
approximately $3.7 million cash. Harken is currently not considering additional
sales of producing properties.
Harken's cash flows from operations continue to be supplemented by ongoing
production from its Alcaravan and Bolivar Contract areas in Colombia. Beginning
in the second quarter 2001, Colombian operating cash flows have also been
strengthened by production from Harken's newly drilled Estero #2 well, in
addition to Harken's success in increasing transportation capacity from the Palo
Blanco field area. Domestically, reductions in operating cash flows due to
recent property sales are expected to continue to be partially mitigated due to
new production generated from the significant drilling activity during 2000 and
2001, and additional domestic drilling planned in 2001.
Certain Harken subsidiaries entered into a three year loan facility with
Bank One, N.A. ("Bank One"), which is secured by certain of Harken's domestic
oil and gas properties and a guarantee from Harken. The Bank One facility
provides borrowings subject to a borrowing base (as defined by the Bank One
facility) which was approximately $18,480,000 as of June 30, 2001. As of August
9, 2001, and following the July 2001 sale of producing properties, the borrowing
base was approximately $16,090,000, which provides
20
availability for additional borrowing of up to approximately $6.2 million to be
used for domestic exploration and development activities.
The Bank One facility requires the Borrowers, as well as Harken, to
maintain certain financial covenant ratios and requirements. Harken and the
Borrowers are in compliance with all requirements under the Bank One facility,
as amended, as of June 30, 2001.
CAPITAL COMMITMENTS
Harken's primary need for capital is to fund its planned exploration and
development efforts domestically. Harken anticipates worldwide capital
expenditures will total approximately $26 million during 2001. Harken also plans
to seek partner participation to fund a portion of the cost for all of its
significant exploration projects. A portion of Harken's planned capital
expenditures are discretionary and, as a result, will be curtailed if sufficient
funds are not available. In addition, Harken intends to continue to pursue North
American acquisition opportunities.
Funded by additional cash generated through the sales of certain producing
properties, Harken's domestic operating strategy continues to include efforts to
increase its oil and gas reserves through exploration and development drilling
activities in North America. Harken has focused its operating strategy to
acquire, explore, and produce primarily natural gas prospects located in the
Gulf Coast region of Texas and Louisiana.
During the second quarter of 2001, Harken issued 325,150 shares of Series
G1 Preferred stock in exchange for 5% European Notes in the face amount of $9.0
million. In addition, in July 2001, Harken issued 95,800 shares of Series G2
Preferred stock in exchange for 5% European Notes in the face amount of
approximately $9.6 million. Including these most recent exchanges, Harken has
retired 5% European Notes totaling approximately $44 million since February
2000. Harken continues to consider additional transactions with the 5% European
Note holders whereby Harken may retire additional Notes in exchange for shares
of Harken common stock, cash or other consideration.
Operational Contingencies -- Harken has accrued approximately $6.0 million
at June 30, 2001 relating to operational or regulatory liabilities related to
Harken's North American operations. Harken and its subsidiaries currently are
involved in various lawsuits and other contingencies, which in management's
opinion, will not result in significant loss exposure to Harken.
Harken's operations are subject to stringent and complex environmental laws
and regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations are
subject to changes that may result in more restrictive or costly operations.
Failure to comply with applicable environmental laws and regulations may result
in the imposition of administrative, civil and criminal penalties or injunctive
relief. Harken's international oil and gas exploration and production
operations, including well drilling, pipeline construction, and seismic
activities, require specific federal and local environmental licenses and
permits, the acquisition of which in the past have been subject to extensive
delays. Harken may continue to experience similar delays in the future. Failure
to obtain these licenses and permits in a timely manner may prevent Harken from
obtaining alternative financing.
International Commitments--Terms of each of the Association Contracts
entered into between Harken de Colombia, Ltd. and Ecopetrol commit Harken to
perform certain activities in Colombia in
21
accordance with a prescribed timetable. Failure by Harken to perform these
activities as required could result in Harken losing its rights under the
particular Association Contract, which could potentially have a material adverse
effect on Harken's business. During July 2001, Harken received from Ecopetrol an
extension to October 31,2001 for Harken to determine whether to extend the
Bolivar Contract into its sixth contract year. Also during July 2001, Harken
received from Ecopetrol an additional extension to December 8, 2001 to drill the
fifth year obligation well related to the Bocachico Contract. As of August 9,
2001, Harken was in compliance with the requirements of each of the Association
Contracts, as amended.
Related to Harken's Costa Rica operations, Harken is to pay a remaining
amount of $500,000 to MKJ Xploration, Inc. ("MKJ") upon the mobilization of the
rig related to the initial well to be drilled offshore Costa Rica, the Moin #2,
which Harken expects will be drilled during 2002 pending the receipt of the
necessary environmental drilling permit and subject to drilling rig
availability. In July 2001, Harken elected not to pay the $4 million of
additional funds to be transferred to HCRH, which, in accordance with the
contract between Harken and MKJ, resulted in Harken's ownership in HCRH being
reduced to 40% (with MKJ's ownership being increased to 60%) and resulted in MKJ
assuming the operations of the Costa Rica Contract. MKJ is currently seeking
additional joint venture partner participation for the work program expenditures
required by the Costa Rica Contract prior to drilling the Moin #2 well. Terms of
the Costa Rica Contract and the agreement with MKJ commit Harken Costa Rica
Holdings ("HCRH") to perform certain activities in Costa Rica in accordance with
a prescribed timetable. Failure by HCRH to perform these activities as required
could result in HCRH losing its rights under the Costa Rica Contract, which
could have a material adverse effect on Harken's business.
22
PART II - OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information contained in Item 3 updates, and should be read in
conjunction with, information set forth in Part II, Item 7A in Harken's Annual
Report on Form 10-K for the year ended December 31, 2000, in addition to the
interim condensed consolidated financial statements and accompanying notes
presented in Item 1 of this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
Harken's annual meeting was held on June 22, 2001, at which three Class B
directors were elected. The nominees for director were Messrs. Larry G Akers,
Michael M. Ameen, and H.A. Smith. Mr. Akers received 14,583,177 votes for and
1,124,456 votes against or withheld. Mr. Ameen received 14,580,593 votes for
and 1,127,040 votes against or withheld. Mr. Smith received 14,589,027 votes
for and 1,118,606 votes against or withheld.
Item 6. Exhibits and Reports on Form 8-K.
9a) EXHIBIT INDEX
Exhibit
--------
3.1 Certificate of Incorporation of Harken Energy Corporation as
amended (filed as Exhibit 3.1 to Harken's Annual Report on Form
10-K for fiscal year ended December 31, 1989, File No. 0-9207,
and incorporated by reference herein).
3.2 Amendment to the Certificate of Incorporation of Harken Energy
Corporation (filed as Exhibit 28.8 to the Registration Statement
on Form S-1 of Tejas Power Corporation, file No. 33-37141, and
incorporated by reference herein.)
3.3 Amendment to the Certificate of Incorporation of Harken Energy
Corporation (filed as Exhibit 3 to Harken's Quarterly Report on
Form 10-Q for fiscal quarter ended March 31, 1991, File No.
0-9207, and incorporated by reference herein.)
3.4 Amendments to the Certificate of Incorporation of Harken Energy
Corporation (filed as Exhibit 3 to Harken's Quarterly Report on
Form 10-Q for fiscal quarter ended June 30,1991, File No. 0-9207,
and incorporated by reference herein.)
3.5 Amendments to the Certificate of Incorporation of Harken Energy
Corporation (filed as Exhibit 3.5 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, File No.
0-9207, and incorporated herein by reference).
3.6 Amendment to the Certificate of Incorporation of Harken Energy
Corporation (filed as Exhibit 3.6 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, File No.
0-9207 and incorporated by reference herein).
3.7 Amendment to the Certificate of Incorporation of Harken Energy
Corporation (filed as Exhibit 3.6 to Harken's Quarterly Report
on Form 10-Q for the fiscal
23
quarter ended June 30, 1998, File No. 0-9207, and incorporated by
reference herein).
3.8 Bylaws of Harken Energy Corporation, as amended (filed as Exhibit
3.2 to Harken's Annual Report on Form 10-K for fiscal year ended
December 31, 1989, File No. 0-9207, and incorporated by reference
herein).
4.1 Form of certificate representing shares of Harken common stock,
par value $.01 per share (filed as Exhibit 1 to Harken's
Registration Statement on Form 8-A, File No. 0-9027, and
incorporated by reference herein.)
4.2 Certificate of Designations, Powers, Preferences and Rights of
Series A Cumulative Convertible Preferred Stock, $1.00 par value,
of Harken Energy Corporation (filed as Exhibit 4.1 to Harken's
Annual Report on Form 10-K for the fiscal year ended December
31,1989, File No. 0-9207, and incorporated by reference herein).
4.3 Certificate of Designations, Powers, Preferences and Rights of
Series B Cumulative Convertible Preferred Stock, $1.00 par value,
of Harken Energy Corporation (filed as Exhibit 4.2 to Harken's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989, File No. 0-9207, and incorporated by reference herein.).
4.4 Certificate of the Designations, Powers, Preferences and Rights
of Series C Cumulative Convertible Preferred Stock, $1.00 par
value of Harken Energy Corporation (filed as Exhibit 4.3 to
Harken's Annual Report on Form 10-K for fiscal year ended
December 31,1989, File No. 0-9207, and incorporated by reference
herein).
4.5 Certificate of the Designations of Series D Preferred Stock,
$1.00 par value of Harken Energy Corporation (filed as Exhibit
4.3 to Harken's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30,1995, File No. 0-9207, and
incorporated by reference herein).
4.6 Rights Agreement, dated as of April 6, 1999, by and between
Harken Energy Corporation And ChaseMellon Shareholder Services
L.LC., as Rights Agent (filed as Exhibit 4 to Harken's Current
Report on Form 8-K dated April 7, 1998, File No. 0-9207, and
incorporated by reference herein).
4.7 Certificate of Designations of Series E Junior Participating
Preferred Stock (filed as Exhibit B to Exhibit 4 to Harken's
Current Report on Form 8-K dated April 7, 1998, file No. 0-9207,
and incorporated by reference herein).
4.8 Certificate of Designations, Preferences and Rights of Series F
Convertible Preferred Stock (filed as Exhibit 4.8 to Harken's
Quarterly Report on Form 10-Q for the period ended June 30, 1998,
File No. 0-9207, and incorporated by reference herein).
24
4.9 Certificate of Designations of Series G1 Convertible Preferred
Stock (filed as Exhibit 4.9 to Harken's Annual Report on Form
10-K for fiscal year ended December 31, 2000, File No. 09207, and
incorporated by reference herein).
10.1 Seventh Amendment and Restatement of Harken's Amended Stock
Option Plan (filed as Exhibit 10.1 to Harken's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, File No.
0-9207, and incorporated by reference herein).
10.2 Amended and Restated Non-Qualified Incentive Stock Option
Plan of Harken adopted by Harken's stockholders on February 18,
1991 (filed as Exhibit 10.2 to Harken's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, File No.
0-9207, and incorporated by reference herein).
10.3 Form of Advancement Agreement dated September 13, 1990,
between Harken and each director of Harken (filed as Exhibit
10.38 to Harken's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, File No. 0-9207, and incorporated by
reference herein).
10.4 Harken Energy Corporation's 1993 Stock Option and Restricted
Stock Plan (filed as Exhibit 4.3 to Harken's Registration
Statement on Form S-8, and incorporated by reference herein).
10.5 Harken Energy Corporation's Directors Stock Option Plan (filed as
Exhibit 4.3 to Harken's Registration Statement on Form S-8, and
incorporated herein by reference).
10.6 Association Contract (Bolivar) by and between Harken de Colombia,
Ltd. and Empresa Colombia de Petroleos (filed as Exhibit 10.4 to
Harken's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996, and incorporated herein by reference).
10.7 Harken Energy Corporation 1996 Incentive and Nonstatutory Stock
Option Plan (filed as Exhibit 10.1 to Harken's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1996,
and incorporated herein by reference).
10.8 Association Contract (Alcaravan) dated as of December 13, 1992,
but effective as of February 13, 1993, by and between Empresa
Colombia de Petroleos (filed as Exhibit 10.1 to Harken's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992,
File No. 0-9207, and incorporated herein by reference).
10.9 Association Contract (Bocachico) dated as of January 1994, but
effective as of April 1994, by and between Empresa Colombia de
Petroleos (filed as Exhibit 10.1 to Harken's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1994, File No.
0-9207, and incorporated herein by reference).
10.10 Trust Indenture dated June 11, 1997, by and between Harken and
Marine Midland Bank plc (filed as Exhibit 10.1 to Harken's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997, File No. 0-9207, and incorporated herein by reference).
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10.11 Placing Agreement Dated June 3, 1997, by and among Harken and the
other signatories thereto (filed as Exhibit 10.2 to Harken's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997, File No. 0-9207, and incorporated herein by reference).
10.12 Credit Agreement between Harken Exploration Company, XPLOR
Energy, Inc. Harken Energy West Texas, Inc. , Harken Southwest
Corporation, South Coast Exploration Co., Xplor Energy SPV-1,
Inc., McCulloch Energy, Inc. and Bank One, Texas, N.A. dated
August 11, 2000 and as amended December 21, 2000 and December 31,
2000 (filed as Exhibit 10.12 to Harken's Annual Report on Form
10-K for fiscal year ended December 31, 2000, File No. 09207, and
incorporated by reference herein).
*10.13 Third Amendment to Credit Agreement between Harken Exploration
Company, XPLOR Energy, Inc., Harken Energy West Texas, Inc.,
South Coast Exploration Co., XPLOR Energy SPV-1, Inc.,
McCulloch Energy, Inc., Harken Gulf Exploration Company, and Bank
One, N.A. dated May 11, 2001.
(b) REPORTS ON FORM 8-K
On June 29, 2001, Harken filed a Form 8-K to disclose certain
information presented to stockholders and posted to Harken's
internet website.
* Filed herewith
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HARKEN ENERGY CORPORATION
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Harken Energy Corporation
----------------------------------
(Registrant)
Date: August 10, 2001 By: /s/ Anna M. Williams
--------------- ---------------------------------
Senior Vice President-Finance and
Chief Financial Officer
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