UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
For the quarterly period ended March 31, 1997
Commission file number 1-13108
________________
VASTAR RESOURCES, INC.
(Exact name of registrant as specified in its charter)
________________
Delaware 95-4446177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15375 Memorial Drive
Houston, Texas 77079
(Address of principal executive offices) (Zip code)
__________________
(281) 584-6000
(Registrant's telephone number, including area code)
__________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $.01 par value, outstanding as of
March 31, 1997: 97,261,801.
PART I. FINANCIAL INFORMATION
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended
March 31,
------------------
(Millions of dollars 1997 1996
except per share amounts) ----- -----
REVENUES
Net sales and other operating
revenues............................. $281.7 $223.3
Other revenues......................... 1.9 3.5
----- -----
Net revenues..................... 283.6 226.8
----- -----
EXPENSES
Operating expenses..................... 32.7 32.5
Exploration expenses................... 70.8 39.8
Selling, general and administrative
expenses............................. 14.7 12.2
Taxes other than income taxes.......... 14.6 10.0
Depreciation, depletion and
amortization......................... 70.6 63.3
Interest............................... 13.0 13.4
----- -----
Total expenses................... 216.4 171.2
----- -----
Income before income taxes............. 67.2 55.6
Income tax provision .................. 4.3 ---
----- -----
Net income....................... $ 62.9 $ 55.6
===== =====
Earned per share....................... $ 0.65 $ 0.57
===== =====
Cash dividends paid per share
of common stock....................... $0.075 $ 0.075
===== =====
</TABLE
The accompanying notes are an integral part of these statements.
- 1 -
VASTAR RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
1997 1996
-------- --------
(Millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 22.8 $ 21.9
Accounts receivable:
Trade.......................................... 275.7 470.4
Related parties................................ 24.2 27.1
Inventories...................................... 10.3 12.5
Prepaid expenses and other assets................ 40.6 74.6
------- -------
Total current assets........................... 373.6 606.5
Oil and gas properties and equipment, net.......... 1,372.9 1,332.6
------- -------
Total assets................................. $ 1,746.5 $ 1,939.1
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 350.8 $ 469.6
Accrued liabilities.............................. 36.1 81.5
------- -------
Total current liabilities.................... 386.9 551.1
------- -------
Long-term debt..................................... 630.3 778.4
Deferred liabilities and credits................... 213.8 214.0
Deferred income taxes.............................. 166.5 102.2
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized, 110,000,000
shares; issued and outstanding, 97,261,801 shares
as of March 31, 1997 and 97,260,551 shares as of
December 31, 1996................................ 1.0 1.0
Capital in excess of par value of stock............ 454.1 454.1
Accumulated deficit................................ (106.1) (161.7)
------- -------
Total stockholders' equity...................... 349.0 293.4
------- -------
Total liabilities and stockholders' equity... $ 1,746.5 $ 1,939.1
======= =======
The accompanying notes are an integral part of these statements.
- 2 -
VASTAR RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
-------------------
1997 1996
(Millions of dollars) ----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 62.9 $ 55.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization............... 70.6 63.3
Deferred income taxes.................................. 64.3 0.2
Dry hole expense and undeveloped leasehold amortization 33.2 15.0
Gain on asset sales.................................... --- (0.2)
Net change in accounts receivable, inventories
and accounts payable.................................. 81.0 1.5
Other.................................................. (13.2) (20.1)
----- -----
Net cash provided by operating activities................ 298.8 115.3
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties and equipment,
including dry hole costs................................ (142.7) (82.8)
Proceeds from oil and gas property and equipment sales... 0.1 0.3
Other.................................................... 0.1 (0.7)
----- -----
Net cash used by investing activities.................... (142.5) (83.2)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance.................... 75.0 ---
Repayments of long-term debt............................. (223.1) (20.0)
Dividends paid........................................... (7.3) (7.3)
----- -----
Net cash used by financing activities.................... (155.4) (27.3)
----- -----
Net change in cash and cash equivalents.................. 0.9 4.8
Cash and cash equivalents at beginning of period......... 21.9 5.3
----- -----
Cash and cash equivalents at end of period............... $ 22.8 $ 10.1
===== =====
The accompanying notes are an integral part of these statements.
- 3 -
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. INTRODUCTION.
The foregoing information is unaudited and has been prepared from the
records of Vastar Resources, Inc. ("Vastar" or the "Company"). In the opinion
of management, the financial information reflects all adjustments (consisting
only of items of a normal recurring nature) necessary for a fair presentation
of financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Such statements are presented in
accordance with the requirements of Regulation S-X which does not require all
disclosures normally required by generally accepted accounting principles or
those normally on Form 10-K. These interim financial statements should be
read in conjunction with the annual financial statements for the year ended
December 31, 1996, and the Notes thereto, contained in the Company's report on
Form 10-K for the year ended December 31, 1996. Certain previously reported
amounts have been restated to conform with classifications adopted in 1997.
NOTE 2. NET SALES AND OTHER OPERATING REVENUES.
For the Three Months Ended
March 31,
------------------
(Millions of dollars) 1997 1996
------ ------
Sales and other operating revenues:
Unrelated parties.................... $1,035.7 $ 686.5
Related parties (1).................. 68.8 72.2
-------- -------
Total............................. 1,104.5 758.7
Less:
Purchases (2)........................ (799.1) (523.1)
Delivery expense..................... (23.7) (12.3)
-------- -------
Net sales and
other operating revenues............. $ 281.7 $ 223.3
======== =======
- -----------------
(1) The weighted average lifting and purchase cost per Mcfe associated with
proprietary production and third party purchased volumes multiplied by the
related party sales volumes results in average costs of $41.8 million and
$61.1 million for the three months ended March 31, 1997 and 1996,
respectively.
(2) Includes purchases from related parties at a cost of $5.2 million and
$6.6 million for the three months ended March 31, 1997 and 1996, respectively.
- 4 -
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 3. EXPLORATION EXPENSES.
Three Months Ended
March 31,
-------------------
(Millions of dollars) 1997 1996
------ ------
Dry hole costs...................... $ 26.4 $ 8.7
Geological and geophysical.......... 27.0 17.1
Undeveloped leasehold amortization.. 6.8 6.3
Staff............................... 8.5 7.0
Lease rentals....................... 2.1 0.7
----- -----
Total.......................... $ 70.8 $ 39.8
===== =====
NOTE 4. PER SHARE DATA.
Earned per share is computed based upon the weighted average number of
common shares outstanding during the period. The dilutive effect of common
stock equivalents was not significant. The following table reflects the
weighted average number of common shares outstanding for the specified
periods.
1997 1996
---------- ----------
Three months ended March 31, 97,260,759 97,250,001
- 5 -
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 5. COMMITMENTS AND CONTINGENCIES.
The Company and its subsidiaries are involved in a number of lawsuits,
all of which have arisen in the ordinary course of the Company's business.
The Company believes that any ultimate liability resulting from any of these
suits will not have a material adverse effect on the financial position, cash
flows or results of operations of the Company.
The operations, financial position and cash flows of Vastar continue to
be affected from time to time in varying degrees by domestic and foreign
political developments, as well as legislation and regulations pertaining to
restrictions on oil and gas production, imports and exports, natural gas
regulations, tax increases, environmental regulations and cancellation of
contract rights. Both the likelihood of such occurrences and their overall
effect on the Company vary greatly and are not predictable. These
uncertainties are part of a number of items that Vastar has taken and will
continue to take into account in periodically establishing accounting
reserves.
Vastar and Atlantic Richfield Company ("ARCO") have agreements whereby
Vastar will indemnify ARCO against certain claims or liabilities which ARCO
may incur relating to ARCO's historical ownership and operation of Vastar's
properties, including liabilities under law relating to the protection of the
environment and the workplace and liabilities arising out of certain
litigation. Under such agreements, ARCO will indemnify Vastar with respect to
other claims or liabilities and other matters of litigation not related to
Vastar's business or properties reflected in the consolidated financial
statements.
The Company has long-term contracts with certain cogeneration facilities
which have an average remaining life of 13 years. These contracts cover an
average of 75 MMcfd of the Company's natural gas production for the remainder
of the year at an average price of $2.50 per Mcf.
In September 1996, the Company entered into a contract for the major
upgrade and operation of a semisubmersible drilling rig for a three-year deep
water drilling program in the Gulf of Mexico, commencing late 1997. This
contract along with other contracts for support equipment are anticipated to
cost approximately $160 million over the term of the contract.
- 6 -
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 6. TAXES.
The provision (benefit) for taxes on income is comprised of the
following:
For the Three Months Ended
March 31,
------------------
(Millions of dollars) 1997 1996
------ ------
Federal:
Current.......................... $ (60.8) $ (0.9)
Deferred......................... 63.7 (0.5)
------ ------
Total federal.................. 2.9 (1.4)
------ ------
State:
Current.......................... 0.8 0.7
Deferred......................... 0.6 0.7
------ ------
Total state.................... 1.4 1.4
------ ------
Total income tax provision.......... $ 4.3 $ ---
====== ======
- 7 -
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 6. TAXES - (continued).
A reconciliation of the income tax provision with tax at the federal
statutory rate for the specified period is as follows:
For the Three Months Ended
March 31,
------------------
(Millions of dollars) 1997 1996
------ ------
Income before taxes.................. $ 67.2 $ 55.6
====== ======
Tax at the statutory rate............ $ 23.5 $ 19.5
Increase (reduction) in taxes
resulting from:
State income taxes (net
of federal effect).......... 0.9 0.9
Tax credits and other.......... (20.1) (20.4)
------ ------
Income tax provision.............. $ 4.3 $ ---
====== ======
During the first quarter of 1997, ARCO and Vastar agreed to a second
amendment to the Tax Sharing Agreement, effective January 1, 1997 (the "Second
Amendment"). The Second Amendment removes certain limitations under the
original agreement and generally allows Vastar to receive payment for all
Section 29 Tax Credits in the year generated. In return, the Company agreed to
a 3.25 percent reduction in the value of the Section 29 Tax Credits generated
from properties acquired by the Company before June 1, 1995. ARCO and Vastar
also agreed to apply the same 3.25 percent reduction to the $61.4 million of
Section 29 Tax Credits carried forward as of December 31, 1996, in exchange for
immediate payment upon execution of the Second Amendment. Accordingly, Vastar
received a payment from ARCO of $59.4 million on March 20, 1997. Tax credits,
that are not used in the current year pursuant to the Tax Sharing Agreement, as
amended, will generally be carried forward and used in subsequent tax years.
For further information on the Tax Sharing Agreement, refer to the Company's
report on Form 10-K for the year ended December 31, 1996.
- 8 -
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 7. LONG-TERM DEBT.
Long-term debt is comprised of the following:
March 31, December 31,
(Millions of dollars) 1997 1996
------- -------
8.75% Notes, due in 2005................ $ 149.4 $ 149.4
6.95% Notes, due in 2006................ 75.0 75.0
6.96% Notes, due in 2007................ 75.0 ---
Commercial Paper........................ 330.9 554.0
------- -------
Total................................... $ 630.3 $ 778.4
======= =======
In February 1997, the Company issued $75.0 million of 6.96 percent
unsecured Notes, due February 2007 pursuant to its $250 million Medium-Term
Note Program. To date $150 million of Notes have been issued under the
Medium-Term Note Program. The net proceeds from the February 1997 issuance
were used to pay down debt incurred under the Company's Commercial Paper
Program.
NOTE 8. SUBSEQUENT EVENT.
On April 17, 1997, the Company declared a quarterly dividend of $0.075 per
share of common stock, payable on June 2, 1997 to stockholders of record
on May 9, 1997.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and production volumes and average price statistics for the
specified periods are as follows:
Three Months Ended
March 31,
------------------
1997 1996
------ ------
Natural gas
Sales (MMcfd)*....................... 3,667 2,516
Production (MMcfd)................... 874 887
Average sales price (per Mcf)*....... $ 2.64 $ 2.52
Average wellhead price (per Mcf)..... $ 2.31 $ 1.57
Crude oil
Sales (MBbld)*....................... 98.2 98.7
Production (MBbld)................... 33.8 34.9
Average realized price (per Bbl)*.... $24.14 $19.36
Natural gas liquids ("NGLs")
Production (MBbld)................... 17.3 10.6
Average realized price (per Bbl)..... $15.51 $14.25
Total Production (MMcfed/net)......... 1,181 1,160
- ---------------------
* As used herein, the terms "Bcf," "MMcf" and "Mcf" mean billion,
million and thousand cubic feet, respectively; the terms "Bcfd," "MMcfd" and
"Mcfd" mean billion, million and thousand cubic feet per day, respectively;
the terms "MMBbl" and "MBbl" mean million and thousand barrels, respectively;
the term "Bbl" means barrel; the terms "MMBbld" and "MBbld" mean million and
thousand barrels per day, respectively. In calculating Mcf and Bbl
equivalents, one Bbl is equal to six Mcf.
- 10 -
The following table sets forth the statement of income for the specified
periods:
Three Months Ended
March 31,
------------------
(Millions of dollars) 1997 1996
------ ------
REVENUES
Natural gas
Sales............................. $ 872.7 $ 575.9
Purchases......................... (666.8) (416.6)
Delivery expense.................. (21.5) (11.2)
------ ------
Net sales - natural gas........ 184.4 148.1
------ ------
Crude oil
Sales............................. 200.3 170.6
Purchases......................... (125.2) (108.0)
Delivery expense.................. (1.6) (1.1)
------ ------
Net sales - crude oil.......... 73.5 61.5
------ ------
NGLs and other
Sales............................. 31.5 12.2
Purchases and other costs......... (7.7) 1.5
------ ------
Net sales - NGLs and other..... 23.8 13.7
------ ------
Net sales and other operating
revenues........................ 281.7 223.3
Other revenues...................... 1.9 3.5
------ ------
Net revenues................... 283.6 226.8
------ ------
EXPENSES
Operating expenses................. 32.7 32.5
Exploration expenses............... 70.8 39.8
Selling, general and administrative
expenses......................... 14.7 12.2
Taxes other than income taxes...... 14.6 10.0
Depreciation, depletion and
amortization..................... 70.6 63.3
Interest........................... 13.0 13.4
------ ------
Total expenses................... 216.4 171.2
------ ------
Income before income taxes......... 67.2 55.6
Income tax provision................. 4.3 ---
------ ------
Net income......................... $ 62.9 $ 55.6
====== ======
- 11 -
FIRST QUARTER 1997 vs. FIRST QUARTER 1996.
Net income for the first quarter 1997 was $62.9 million, compared to
$55.6 million for the first quarter of 1996. The 13 percent increase in
earnings was primarily the result of higher commodity prices.
Net sales and other operating revenues increased by $58.4 million to
$281.7 million for the first quarter of 1997, primarily as a result of higher
natural gas, crude oil and NGL prices.
Natural gas sales increased by $296.8 million to $872.7 million in the
first quarter 1997. The higher revenues were the result of a 46 percent
increase in sales volumes to an average of 3.7 Bcfd and a slightly higher
average natural gas sales price. Included in the natural gas revenues for
the first quarter of 1997 and 1996 was the unfavorable impact of $15.9
million and $22.7 million, respectively, related to the Company's hedging
activities.
First quarter 1997 natural gas purchases increased by $250.2 million
from the first quarter of 1996 to $666.8 million. This increase was primarily
a result of an increase in natural gas purchase volumes of over 65 percent,
resulting from increased marketing activities.
First quarter 1997 natural gas production declined slightly as compared
to the same period last year. This decrease was primarily a result of field
declines at Mustang Island 805, High Island 177 and Wilburton, almost entirely
offset by production growth in the San Juan basin, redevelopment efforts at
several offshore fields, and the year-end 1996 start-up of the Norphlet well
in Mobile 904.
Crude oil sales in the first quarter of 1997 increased from the same
period last year primarily as a result of a 19 percent increase in sales price.
First quarter 1997 crude oil production was down slightly from the first
quarter 1996 levels primarily as a result of natural field declines, partially
offset by the late first quarter 1997 resumption of production at the Company's
Bastian Bay discovery in the South Pass 60 field.
For the first quarter 1997, natural gas liquids ("NGLs") sales revenues
were 127 percent higher than the same period last year as a result of higher
production available for sale and higher NGL prices.
NGLs production averaged 17.3 MBbld, up 63 percent from the same period
last year. This increase primarily reflects increased processing of
Mid-continent wet gas. Also, during the first quarter of 1996, the Company
elected to bypass certain processing in favor of selling BTUs as natural gas
due to the economic advantage of natural gas prices at that time.
-12-
First quarter 1997 exploration expenses were $70.8 million, up 78 percent
from the same period in 1996. This increase is primarily a result of increased
dry hole costs and seismic purchases. Dry hole costs for first quarter of 1997
were $26.4 million as compared to $8.7 million for the same period last year.
Of the $17.7 million increase in dry hole costs from period to period,
approximately $14.0 million is attributable to the previously announced
decision of Ship Shoal 357 sub-salt well as a dry hole. Also, primarily in
support of the Company's efforts in the most recent federal Gulf of Mexico
lease sale, geological and geophysical expenditures increased to $27.0 million,
up $9.9 million from the same period last year.
Taxes other than income taxes increased $4.6 million during the first
quarter 1997 as compared to the same period last year. The increase in
product prices resulted in higher taxable values on the Company's production.
Depreciation, depletion and amortization increased by $7.3 million to
$70.6 million in the first quarter of 1997. The increase is equally due to
depletion rate increases at certain fields, the start-up of production at the
Clay West field and recognition of an impairment loss associated with the
South Marsh Island 24 facilities.
The tax provision of $4.3 million in the first quarter of 1997 is higher
than the first quarter 1996 primarily due to higher pre-tax earnings as
compared to the same period in 1996. Also, in the first quarter of 1997, the
tax provision includes $2.0 million of tax expense related to monetizing the
Company's pre-1997 tax credits pursuant to the recently executed second
amendment of the Company's tax sharing agreement with ARCO. (See Note 6 of the
Notes to Interim Consolidated Financial Statements). The tax provision for
first quarter 1997 and 1996 included the net benefit of $20.2 million and $20.4
million, respectively, of Internal Revenue Code Section 29 tax credits for non-
conventional fuels.
-13-
LIQUIDITY AND CAPITAL RESOURCES.
In the first quarter of 1997, cash flow from operations was $298.8
million, compared to $115.3 million for the same period in 1996. This increase
was due to higher product prices, the receipt of $59.4 million from ARCO
related to the recently amended tax sharing agreement and lower working capital
requirements as compared to the first quarter of 1996.
Net cash used in investing activities in 1997 was $142.5 million, a 71
percent increase over first quarter 1996, primarily as a result of increased
property acquisitions. Property acquisitions included approximately $58.0
million for the purchase of 47 tracts in the March 5, 1997 Outer Continental
Shelf (OCS), Central Gulf of Mexico Oil and Gas Lease Sale 166. The Company
was apparent high bidder on each of these tracts and the prescribed award
review process of the Minerals Management Service of the U.S. Department of
Interior is still ongoing with respect to some of the tracts.
The following table summarizes the Company's capital investments for the
comparative periods.
CAPITAL SPENDING SUMMARY
For the three months ended
March 31,
1997 1996
--------- ---------
Exploratory drilling.................... $ 26.6 $ 15.5
Development drilling.................... 40.4 51.0
Property acquisitions................... 62.3 3.9
Other additions........................ 13.4 12.4
------- ------
Total additions to property,
plant and equipment.......... 142.7 82.8
Geological and geophysical............. 27.0 17.1
------- -------
Total capital program............... $ 169.7 $ 99.9
======= =======
Cash flow used in financing activities was $155.4 million in the first
quarter of 1997, reflecting a $148.1 million pay down of long-term debt (net
of new borrowings).
In February 1997, the Company issued $75.0 million of 6.96 percent
unsecured Notes, due February 2007 pursuant to its $250 million Medium-Term
Note Program. To date $150 million of Notes have been issued under the
Medium-Term Note Program. The net proceeds from the February 1997 issuance
were used to pay down debt incurred under the Company's Commercial Paper
Program.
- 14 -
The Company's ratio of earnings to fixed charges for the three months
ended March 31, 1997 and 1996 was 6.2 and 5.2, respectively. This ratio was
computed by dividing earnings by fixed charges. For this purpose, earnings
include income before income taxes and fixed charges. Fixed charges include
interest and amortization of debt expenses and the estimated interest component
of rental.
RISK MANAGEMENT.
From time to time, the Company uses various hedging arrangements,
predominantly natural gas and crude oil price swaps, to manage the Company's
exposure to price risk from its natural gas and petroleum liquids production.
These hedging arrangements have the effect of locking in for a specified
period (at predetermined prices or ranges of prices) the prices the Company
will receive for the volumes to which the hedge relates. As a result, while
these hedging arrangements are structured to reduce the Company's exposure to
decreases in price associated with the hedged commodity, they can also limit
the benefit the Company might otherwise have received from any price increases
associated with the hedged commodity.
As a result of the various hedging transactions for natural gas and
crude oil, the Company realized $15.9 million and $22.7 million of pre-tax
losses in the first quarter of 1997 and 1996, respectively. Since these
transactions were considered to be hedges on production, these losses were
included in sales and other operating revenues and were reflected in the
average sales price of the particular products.
The following table summarizes the Company's hedged positions as of March
31, 1997.
Average Range of
Product/Location Time Period Volume Prices
- ---------------- --------------------------- ---------- ----------------
Per Mcf
----------------
Gas/Henry Hub April 1 to December 31, 1997 207 MMcfd $1.90 -- $2.17
Gas/Henry Hub January 1 to December 31, 1998 183 MMcfd $1.90 -- $2.21
Gas/San Juan April 1 to December 31, 1997 104 MMcfd $1.80 -- $1.82
Per Bbl
----------------
Oil/Cushing April 1 to June 30,1997 14.8 MBbld $20.00 -- $23.90
- 15 -
Based on forward price quotes from brokers and NYMEX forward prices as of
March 31, 1997, the deferred pre-tax loss to the Company for the hedged
transactions for 1997 and 1998 would be $2.4 million for natural gas and
minimal for crude oil. The actual gains or losses ultimately realized by the
Company from such hedges may vary significantly from the foregoing amounts due
to the volatility of the commodity markets.
The Company continues to evaluate its hedging positions in light of
current market conditions.
The Company has long-term contracts with certain cogeneration facilities
which have an average remaining life of 13 years. These contracts cover an
average of 75 MMcfd of the Company's natural gas production for the remainder
of the year at an average price of $2.50 per Mcf.
During the first quarter of 1997, the Company's long-term sales
commitments did not exceed the total of proprietary production and other
natural gas production controlled through call rights with third-party
producers and marketing agreements with the Company's royalty owners.
NEW ACCOUNTING STANDARDS.
In October 1996, the Accounting Standards Executive committee issued
Statement of Position 96-1, "Environmental Remediation Liabilities"
("SOP 96-1"). The provisions of SOP 96-1 include standards affecting the
measurement, recognition and disclosure of environmental remediation
liabilities. The adoption of the provisions of SOP 96-1 had no material
impact to the Company's financial position, results of operations and cash
flows.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
("SFAS 128"). This Statement specifies the computation, presentation and
disclosure for earnings per share. This statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
The implementation of SFAS 128 is expected to be insignificant.
------------------------
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and form
of existing or future governmental regulations and other possible actions by
governments.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. In the opinion of Management, the
financial information reflects all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
- 16 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments with respect to the
Company's legal proceedings as previously reported in the Company's report on
Form 10-K for the period ended December 31, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10 Second Amendment to Tax Sharing Agreement, dated as of
January 1, 1997, between Vastar Resources, Inc., its
subsidiaries that are signatories thereto and Atlantic
Richfield Company
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K.
Date of Report Item No. Financial Statements
-------------- -------- --------------------
February 18, 1997 Items 5 and 7 None
- 17 -
SIGNATURE
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.
VASTAR RESOURCES, INC.
(Registrant)
Dated: May 1, 1997 /s/ Joseph P. McCoy
------------------------------
Joseph P. McCoy
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 18 -
Exhibit Index
Exhibit No. Description
- ----------- ------------------------------------------------------
10 Second Amendment to Tax Sharing Agreement, dated as of
January 1, 1997, between Vastar Resources, Inc., its
subsidiaries that are signatories thereto and Atlantic
Richfield Company
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule