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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2001
OR
[_] 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 1-13446
Barrett Resources Corporation
(Exact name of registrant as specified in its charter)
Delaware 84-0832476
(State or other jurisdiction of (I.R.S. Employer)
Incorporation or organization) Identification No.)
1515 Arapahoe Street,
Tower 3,
Suite 1000
Denver, Colorado
(Address of principal executive offices)
80202
(Zip Code)
(303) 572-3900
(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 [_]
There were 33,461,004 shares of the registrant's $.01 par value common stock
outstanding as of May 9, 2001.
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BARRETT RESOURCES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1.Financial Statements
Consolidated Condensed Balance Sheets--March 31, 2001 and December
31, 2000........................................................... 3
Consolidated Condensed Statements of Operations--Three Months Ended
March 31, 2001 and 2000............................................. 4
Consolidated Condensed Statement of Comprehensive (Loss) Income..... 5
Consolidated Condensed Statements of Cash Flows--Three months ended
March 31, 2001 and 2000............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 12
Item 3.Quantitative and Qualitative Disclosures About Market Risk....... 14
PART II. OTHER INFORMATION
Item 6.Recent Developments.............................................. 16
Item 7.Exhibits and Reports on Form 8-K................................. 17
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, 2001 December 31, 2000
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................... $ 22,830 $ 25,454
Receivables, net............................ 177,519 297,766
Gas inventory held for sale, at market...... 855 27,418
Deferred income tax asset................... 26,372 --
Other current assets........................ 18,436 29,042
---------- ----------
Total current assets...................... 246,012 379,680
Net property and equipment (full cost
method)...................................... 907,494 869,606
Other assets, net............................. 9,264 4,547
---------- ----------
$1,162,770 $1,253,833
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 147,352 $ 234,739
Amounts payable to oil and gas property
owners..................................... 13,144 18,672
Production taxes payable.................... 44,039 39,229
Accrued and other liabilities............... 20,571 20,917
Derivative fair value--trading activities... 12,393 47,745
Derivative fair value--hedging activities... 69,400 --
---------- ----------
Total current liabilities................. 306,899 361,302
Long-term debt................................ 295,005 406,269
Other long-term liabilities................... 20,000 --
Deferred income taxes......................... 52,560 39,003
Derivative fair value--trading activities..... 36,340 31,446
Derivative fair value--hedging activities..... 51,439 --
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000
shares authorized, none outstanding........ -- --
Common stock, $.01 par value: 45,000,000
shares authorized; 33,466,003 issued
(33,394,063 at December 31, 2000).......... 335 334
Additional paid-in capital.................. 298,534 296,043
Retained earnings........................... 176,446 119,436
Accumulated other comprehensive income...... (74,525) --
Treasury stock, at cost..................... (263) --
---------- ----------
Total stockholders' equity................ 400,527 415,813
---------- ----------
$1,162,770 $1,253,833
========== ==========
The accompanying notes are an integral part of these statements.
3
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
--------------------
March 31, March 31,
2001 2000
--------- ---------
Operating revenues:
Oil and gas production................................... $161,430 $67,204
Other income............................................. 3,553 1,907
-------- -------
164,983 69,111
Operating expenses:
Lease operating expenses................................. 25,983 11,356
Transportation and gathering............................. 10,572 6,503
Depreciation, depletion and amortization................. 26,309 25,211
General and administrative............................... 5,603 7,825
-------- -------
68,467 50,895
-------- -------
Operating income from oil and gas operations............... 96,516 18,216
Other income and (expenses):
Interest income.......................................... 371 207
Interest expense......................................... (5,766) (6,097)
Trading activities, net.................................. 3,440 297
Other.................................................... (2,608) --
-------- -------
(4,563) (5,593)
-------- -------
Income before income taxes................................. 91,953 12,623
Provision for income taxes................................. 34,942 4,797
-------- -------
Net income................................................. $ 57,011 $ 7,826
======== =======
Earnings (loss) per common share
Basic.................................................... $ 1.70 $ 0.24
======== =======
Assuming dilution........................................ $ 1.67 $ 0.24
======== =======
Weighted average shares of common stock outstanding:
Basic.................................................... 33,453 32,600
======== =======
Assuming dilution........................................ 34,205 32,888
======== =======
The accompanying notes are an integral part of these statements.
4
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(in thousands)
For the
Three Month
Period Ended
------------
March 31,
2001
------------
Net income........................................................ $ 57,011
Other comprehensive (loss) income, net of tax
Cash flow hedges
Cumulative effect of change in accounting principle to record
the fair value of derivatives at January 1, 2001, net of tax
benefits of $62.1 million..................................... (101,300)
Unrealized gain due to change in fair value, net of tax effects
of $0.3 million................................................ 664
Less: reclassification adjustment for losses included in net
income, net of tax effect of $16.1 million..................... 26,111
---------
Total other comprehensive (loss).................................. (74,525)
---------
Comprehensive (loss) income....................................... $ (17,514)
=========
The accompanying notes are an integral part of these statements.
5
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended
--------------------
March 31, March 31,
2001 2000
--------- ---------
Cash flows from operations:
Net income.............................................. $ 57,011 $ 7,826
Adjustments needed to reconcile to net cash provided by
operations:
Depreciation, depletion and amortization.............. 26,513 25,312
Deferred income taxes................................. 33,104 4,545
Unrealized (gain) loss on mark to market
transactions......................................... (14,374) 1,029
Other................................................. (945) --
--------- --------
101,309 38,712
Change in current assets and liabilities:
Receivables............................................. 120,247 (46,564)
Other current assets.................................... 21,556 (2,183)
Accounts payable........................................ (87,387) 36,736
Amounts due oil and gas owners.......................... (5,528) 3,743
Production taxes payable................................ 4,810 3,121
Accrued and other liabilities........................... (1,520) (2,508)
--------- --------
Net cash flow provided by operations...................... 153,487 31,057
--------- --------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties............ 249 16,377
Acquisition of property and equipment................... (64,525) (89,655)
--------- --------
Net cash flow used in investing activities.............. (64,276) (73,278)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................. 1,926 403
Proceeds from long-term borrowing....................... 64,000 58,000
Payments on long-term debt.............................. (172,843) (28,809)
Deferred Revenue........................................ 20,000 --
Other................................................... (4,918) --
--------- --------
Net cash flow (used) provided by financing activities..... (91,835) 29,594
--------- --------
Decrease in cash and cash equivalents..................... (2,624) (12,627)
Cash and cash equivalents at beginning of period.......... 25,454 20,634
--------- --------
Cash and cash equivalents at end of period................ $ 22,830 $ 8,007
========= ========
The accompanying notes are an integral part of these statements.
6
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
1. UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the financial position of Barrett Resources Corporation and its
subsidiaries, collectively referred to as the "Company", as of March 31, 2001
and the results of operations and cash flows for the periods presented. All
such adjustments are of a normal recurring nature. The results of operations
for the periods presented are not necessarily indicative of the results for
the full year.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in Form 10-K for the year ended December
31, 2000. These financial statements should be read in conjunction with the
financial statements and notes included in the Form 10-K. Also see Note 6 to
these Consolidated Financial Statements regarding recently adopted accounting
standards.
Certain reclassifications have been made to 2000 amounts to conform to the
2001 presentation.
2. INCOME TAXES
Provisions for income taxes were calculated in accordance with Statement of
Financial Accounting Standards No. 109 which provides that a deferred tax
liability or asset be determined based on the timing differences between the
basis used for financial versus tax reporting of assets and liabilities as
measured by the effective tax rates. For the quarter ended March 31, 2001, the
Company used an estimated effective tax rate of 38 percent. Also see Note 6.
3. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
March December 31,
31, 2001 2000
-------- ------------
Line of Credit......................................... $140,000 $248,000
7.55% Senior Notes..................................... 150,000 150,000
Production Payments.................................... 13,209 15,298
-------- --------
Total................................................ 303,209 413,298
Less: current portion.................................. 8,204 7,029
-------- --------
Long-term debt......................................... $295,005 $406,269
======== ========
In December 2000, the Company entered into a revolving senior credit
facility under which up to $350 million is available for loans and letters of
credit. This revolving line of credit expires December 15, 2005.
As of March 31, 2001 the Company's effective interest rate, on the
outstanding balance on its line of credit averaged 6.4% per annum.
7
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 2001
The Company's outstanding letters of credit totaled $36.3 million and $40.3
million at March 31, 2001 and December 31, 2000, respectively.
4. EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock.
Three Months Ended
-------------------
March 31, March 31,
2001 2000
--------- ---------
(in thousands)
Income available to common stockholders................. $57,011 $ 7,826
======= =======
Weighted average number of common shares used in basic
EPS.................................................... 33,453 32,600
Effect of dilutive stock options........................ 752 288
------- -------
Weighted average number of common shares and dilutive
potential common stock used in EPS-assuming dilution... 34,205 32,888
======= =======
5. DERIVATIVES AND TRADING ACTIVITIES
The Company uses swap agreements to reduce the effect of price volatility on
a portion of its natural gas production. For its trading activities, the
Company enters into a variety of contracts to purchase and sell natural gas
and oil at both fixed prices and at index based prices. The Company also
enters into financial instruments (derivatives) that seek to reduce
sensitivity to price movements or to create guaranteed margins on certain
trading delivery and purchase commitments.
The Company accounts for and reports the fair value of its production and
trading derivatives in accordance with Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", adopted January 1, 2001. SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
(Changes in the fair value are often referred to as unrealized mark to market
adjustments.) Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. In
conjunction with SFAS 133, contracts to purchase and sell natural gas and
derivative positions for the Company's trading activity are marked to market
at the end of each reporting period as trading activities.
8
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 2001
Production Hedges
With the adoption of SFAS 133 on January 1, 2001, the Company recognized
other comprehensive loss of $101.3 million, net of tax benefits of $62.1
million, and an additional liability of $163.4 million for the unrealized fair
value of its derivative positions qualifying as cash flow hedges on 57.4 Bcf
of its natural gas production.
As of March 31, 2001, the Company held derivative positions on 51.0 Bcf of
its natural gas production. The fair value of these derivatives at March 31,
2001, is a negative $120.8 million and is reflected on the Company's balance
sheet as a liability (current $69.4 million and long term $51.4 million).
Changes in the fair value of the derivatives, reclassification of derivative
losses offsetting related results on hedged production recognized in the
income statement and assessment of hedge effectiveness decreased the Company's
other comprehensive loss to $74.5 million. (See Statement of Consolidated
Condensed Comprehensive (Loss) Income.)
For the three months ended March 31, 2001 and 2000, the Company recorded
unrealized mark to market losses under its natural gas production swap
agreements of $31.6 million and $4.7 million, respectively.
Trading Activities
The fair value of the Company's trading contracts and financial instruments
as of March 31, 2001 was an estimated net negative of $48.7 million, an
increase in value of $30.5 million from the $79.2 million fair value recorded
at December 31, 2000. Net trading activities include a net unrealized mark to
market gain of $14.8 million inclusive of mark to market adjustments on its
natural gas inventory for the three months ended March 31, 2001. For the same
period of 2000, the Company recognized a net unrealized mark to market loss of
$1 million. Gross trading activities are summarized in the table below.
Three Months ended March 31
----------------------------
Trading Activities 2001 2000
------------------ ------------- -------------
(in thousands)
Revenues, gross.............................. $ 447,149 $ 274,689
Operating expenses, gross.................... (458,478) (273,363)
Unrealized gains (losses) on mark to market
transactions................................ 14,769 (1,029)
------------- -------------
Net trading (expenses) income................ $ 3,440 $ 297
============= =============
9
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 2001
6. BUSINESS SEGMENT INFORMATION
The Company operates principally in two business segments: oil and gas
exploration and production and natural gas trading. In addition to marketing
its own gas, the Company engages in natural gas trading activities, which
involves purchasing natural gas from and selling natural gas to third parties
at prices and volumes that management anticipates will result in profits to
the Company. The Company evaluates segment performance based on the profit or
loss from operations before income taxes. Corporate general and administrative
expenses are unallocated, except for certain direct costs associated with the
Company's trading activity. Consolidated and segment financial information is
as follows:
Quarter ended March 31, 2001
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
Operating Revenues...... $161,630 $ 0 $161,630 $ 3,353 $164,983
DD&A.................... 24,323 0 24,323 1,986 26,309
Unrealized gains on mark
to market
transactions........... 0 14,769 14,769 0 14,769
Profit (loss)........... 100,752 3,143 103,895 (11,942) 91,953
Expenditures for assets,
net.................... 60,576 0 60,576 3,700 64,276
Quarter ended March 31, 2000
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
Operating Revenues...... $ 67,296 $ 0 $ 67,296 $ 1,815 $ 69,111
DD&A.................... 24,106 0 24,106 1,105 25,211
Unrealized (losses) on
mark to market
transactions........... 0 (1,029) (1,029) 0 (1,029)
Profit (loss)........... 25,330 (104) 25,226 (12,603) 12,623
Expenditures for assets,
net.................... 73,003 0 73,003 275 73,278
7. SUBSEQUENT EVENT
On May 7, 2001, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with the Williams Companies, Inc.("Williams") and
Williams' wholly-owned subsidiary Resources Acquisition Corp. ("Acquiror") in
a transaction valued at approximately $2.8 billion, including the assumption
of approximately $300 million in debt.
Pursuant to the terms of the Merger Agreement, on May 14, 2001 Williams,
through Acquiror, commenced a cash tender offer at $73.00 per share for 50
percent of the Company's outstanding common stock (the "Offer"). The Merger
Agreement provides that, following consummation of the Offer and the
satisfaction or waiver of the conditions set forth in the Merger Agreement,
the Company and Acquiror will merge pursuant to which each remaining share of
the Company's common stock will be converted into 1.767 shares of Williams'
common stock.
10
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 2001
The transaction, which is contingent upon approval from federal anti-trust
regulators and the tender of at least 50 percent of the Company's common
stock, is expected to close in 60 to 90 days. The Merger Agreement provides
for a termination fee of $75.5 million and reimbursement of up to $15 million
in expenses each payable to Williams upon certain events of termination.
8. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
Three Months
ended March 31
---------------
2001 2000
------- -------
(in thousands)
Cash amounts paid for interest and income taxes are as follows:
Interest..................................................... $ 9,641 $ 9,731
Income Taxes................................................. 74 287
Non-cash investing and financing activities:
Common Stock/treasury share options exercised................ 263 0
Compensation associated with acceleration of vesting stock
options..................................................... 304 0
11
BARRETT RESOURCES CORPORATION
For the Quarter Ended
March 31, 2001
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
For the three months ended March 31, 2001, total assets decreased $91
million, or seven percent, to $1.16 billion as compared with total assets of
$1.25 billion at December 31, 2000. The Company's net cash flow from
operations (see Consolidated Statement of Cash Flow) generated funds that were
used to fund capital expenditures for the period and to reduce the Company's
long term debt by $108.8 million.
The Company's cash and cash equivalents at March 31, 2001 decreased by $2.6
million to $22.8 million and working capital decreased from December 31, 2000
by $79.3 million. The decrease in working capital is attributed to the
monetization through collections and sale, respectively, of the Company's
receivables and natural gas inventory. Furthermore, as of March 31, 2001 and
in accordance with SFAS 133, adopted January 1, 2001, the Company recognized
an additional liability of $120.8 million, of which $69.4 million was current,
for the fair value of its production hedging positions. (See Note 5 to the
Consolidated Financial Statements.)
For the three months ended March 31, 2001, the Company generated operating
cash flow of $101.3 million before working capital changes compared with $38.7
million in 2000. After working capital changes, cash flow provided by
operations was $153.5 million, an increase of $122.4 million over 2000. These
increases are primarily attributable to higher prices received in 2001 for gas
sales.
The Company had $140 million outstanding under its bank credit facility at
March 31, 2001, down $108.8 million from the December 31, 2000 outstanding
balance.
The Company's oil and gas property expenditures for the first quarter of
2001 totaled $64.5 million, compared to $89.7 million for the same period of
2000. Of these expenditures, $25.9 million (40 percent) was invested in the
Piceance Basin, $13.2 million (20 percent) in the Powder River Basin--Coal Bed
Methane area, $10.6 million (16 percent) in the Raton Basin and $7.7 million
(12 percent) in the Uinta Basin.
In October 2000, the Company entered into a ten-year firm transportation
commitment to transport its gas on a pipeline to be placed in service in May
2002. In January 2001, for consideration of $20.0 million, the Company
assigned its rights and obligations for a 33 month period of that ten-year
commitment commencing July 1, 2002. The Company is obligated to refund all or
some of the consideration if, in the unlikely event, the pipeline is not
constructed or its in-service date is delayed.
On April 23, 2001, the Colorado Oil and Gas Conservation Commission issued a
ruling to approve 20-acre increased density drilling covering 16,000 acres of
Federal lands in the Piceance Basin. As a result of this ruling, the Company
added 212 Bcf of proved gas reserves attributed to 202 additional well
locations in the Piceance Basin.
12
As of April 30, 2001, including the increased well density in the Piceance
Basin and other additions resulting from on-going drilling activities, the
Company's total proved gas and oil reserves were 2.1 trillion cubic feet of
gas equivalents, or an increase of 53 percent over the December 31, 2000
volumes. The incremental proved reserves consist of 645 Bcf and 54 Bcf of gas
reserves in the Piceance and Powder River Basins, respectively, and 37 Bcfe of
oil and gas reserves in the Uinta Basin.
The Company expects cash flow from its producing properties and its
borrowing capacity to be sufficient to fund its anticipated capital and
operating requirements, including any contingencies.
The Company's operating results are directly affected by oil and gas prices.
Oil and gas prices also affect the reserve values used in determining the
"ceiling test" limitation for the Company's capitalized oil and gas property
costs accounted for under the full cost method. Should the net capitalized
costs of the Company's oil and gas properties exceed the estimated present
value of future net cash flows from proved oil and gas reserves, such excess
costs would be recognized as an impairment and charged to current expense. A
decline in oil and gas sales prices could possibly result in the recognition
of an impairment expense in future periods.
Results of Operations
For the quarter ended March 31, 2001, the Company earned net income of $57.0
million ($1.67 per share), compared to net income of $7.8 million ($0.24 per
share) in 2000. Excluding the effects of the unrealized non-cash mark to
market gains and losses and related income tax effects, the Company's net
income for 2001 and 2000 would have been $47.9 million ($1.40 per share) and
$8.4 million ($0.26 per share), respectively.
Operating income for the 2001 quarter was $96.5 million, an increase of
$78.3 million compared to $18.2 million for the same period in 2000. This
increase is primarily attributable to higher average sales prices received for
gas in the 2001 quarter.
Production revenues and related volumes and average prices during the
periods presented were as follows:
Quarter Ended
March 31,
----------------
2001 2000
-------- -------
Gas Revenues (000's)....................................... $156,163 $61,392
Gas Production (Bcf)....................................... 29.1 28.8
Average Price per Mcf...................................... $ 5.38 $ 2.13
Oil Revenues (000's)....................................... $ 5,267 $ 5,812
Oil Production (MBbls)..................................... 221 231
Average Price per Barrel................................... $ 23.89 $ 25.16
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls = thousand
barrels.)
First quarter gas revenues increased 154 percent as compared with the same
period in 2000, principally due to a 153 percent increase in average prices.
During the three months ended March 31, 2001, the Company recognized net
production hedging losses of approximately $31.2 million and $0.4 million of
expense associated with ineffective hedge assessment (see Note 5 to the
Consolidated Financial Statements), which were recorded in the consolidated
statements of income as adjustments to gas production revenue.
13
The nine percent decrease in the first quarter 2001 oil revenues from the
same period in 2000 is attributed to a five percent decrease in average oil
prices received together with a four percent decrease in oil production
volumes. The decrease in oil production volumes is principally attributable to
the sale of the Company's Permian Basin oil properties, effective February 1,
2000.
Lease operating expenses of $25.9 million averaged $0.85 per Mcfe compared
to $0.38 per Mcfe in 2000. The increase is primarily attributable to higher
average sales prices received in 2001 resulting in increases in value related
production and ad valorem taxes and net profits expense. Transportation and
gathering expenses for the first quarter of 2001 averaged $0.35 per Mcfe
compared to $0.22 per Mcfe for 2000.
Depreciation, depletion and amortization increased $1.1 million. On a per
unit of production basis, depletion rates were unchanged and averaged $0.80
per Mcfe for both 2001 and 2000. Depreciation expense averaged $0.06 per Mcfe
for the 2001 quarter and $0.03 per Mcfe for the same period of 2000. The
increase in depreciation is due to the acquisitions of additional gas
gathering and compression facilities in the Raton Basin in the fourth quarter
of 2000 and first quarter of 2001.
Interest expense for the first quarter of 2001, net of capitalized interest
of $1.4 million, decreased five percent ($0.3 million) compared to the same
period of 2000. The decrease is a result of lower debt outstanding during the
2001 quarter.
The Company reports its trading activities on a net basis (trading revenues
net of associated costs). Excluding unrealized mark to market adjustments, the
Company's net trading activities decreased from a $1.3 million gain in the
first quarter of 2000 to an $11.3 million loss in 2001. Gas trading volumes
decreased 51 percent from 118.6 Bcf in the first quarter of 2000 to 58.3 Bcf
for 2001. High volatility and higher gas prices resulted in higher settlement
costs on fixed price sales and financial derivative positions.
The Company's first quarter 2001 other expense includes $1.9 million of
costs associated with the Company's response to a hostile tender offer
commenced on March 7, 2001.
The Company's largest source of operating income is from gas and oil
production. The levels of the Company's revenues and earnings from gas and oil
production and trading activities are affected by prices at which natural gas
and oil are being sold. This is particularly true with respect to natural gas,
which accounted for approximately 97 percent of the Company's production
revenue for the first quarter of 2001. As a result, the Company's operating
results for any prior period are not necessarily indicative of future
operating results because of the fluctuations in gas and oil prices and the
lack of predictability of those fluctuations as well as changes in production
levels.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
Commodity financial instruments are intended to reduce the Company's
exposure to declines in the market price of natural gas and oil. Such
instruments may also limit the Company's gain from increases in the market
price of natural gas and oil. Fluctuations or changes in the settlement values
of commodity financial instruments are generally offset by similar changes in
the realized price of natural gas and oil.
The Company uses commodity derivative financial instruments, including
futures and swaps, to reduce the effect of natural gas price volatility on a
portion of its natural gas production. Commodity swap agreements are generally
used to fix a price at the natural gas market location or to fix a price
differential between two pricing
14
points. Settlements are based on the difference between a fixed and a variable
price as specified in the agreement. The following table summarizes the
Company's derivative financial instrument position on its natural gas
production as of March 31, 2001. The fair value of these instruments reflected
in the table below is the estimated amount that the Company would receive or
(pay) to settle the contracts as of March 31, 2001. Actual settlement of these
instruments when they mature will differ from these estimates reflected in the
table. Gains or losses realized from these instruments hedging the Company's
production are expected to be offset by changes in the actual sales price
received by the Company for its natural gas production.
For the year Bcf Price Range Per MMBtu Fair Value
------------ ---- --------------------- ---------------
2001 19.4 $1.6376--$2.84 $(50.2) million
2002 27.2 $1.6376--$2.84 $(60.5) million
2003 4.4 $1.6396--$1.72 $(10.1) million
The Company also uses commodity derivative financial instruments and
contracts for the purchase and sale of natural gas at both fixed and indexed
based prices in its trading activities. The financial instruments seek to
reduce sensitivity to price movements, to lock in margins on its trading
positions and to hedge the value of stored gas. The following tables summarize
the Company's derivative positions on its natural gas trading activities as of
March 31, 2001. The fair value of these instruments reflects the estimated
amounts that the Company would receive or (pay) to settle the contracts as of
March 31, 2001. Actual settlement of these instruments as they mature will
differ from these estimates.
CONTRACTS TO PURCHASE NATURAL GAS
Price Range Per
For the year Bcf MMBtu Fair Value
------------ ----- --------------- ---------------
2001 1.7 $ 2.465--$5.46 $ 4.3 million
67.4 Indexed Based $ (0.4) million
2002 .2 $ 2.465 $ 0.5 million
21.9 Indexed Based $ (0.4) million
2003 14.7 Indexed Based $ 0.2 million
2004 11.9 Indexed Based $ 0.3 million
2005 2.3 Indexed Based $ 0.1 million
CONTRACTS TO SELL NATURAL GAS
Price Range Per
For the year Bcf MMBtu Fair Value
------------ ----- --------------- ---------------
2001 11.7 $ 1.92--$5.46 $(16.9) million
136.7 Indexed Based $ 9.2 million
2002 5.6 $ 2.3725--$5.46 $ (4.6) million
71.4 Indexed Based $ 2.3 million
2003 2.7 $2.3725--$2.465 $ (3.6) million
52.8 Indexed Based $ (0.1) million
2004 2.7 $2.3725--$2.465 $ (3.0) million
45.4 Indexed Based $ (0.5) million
2005 1.4 $2.3725--$2.465 $ (1.4) million
15.6 Indexed Based $ (0.3) million
Thereafter 3.9 $ 2.465 $ (3.3) million
9.5 Indexed Based $ (0.5) million
15
DERIVATIVE FINANCIAL INSTRUMENT POSITIONS*
For the year Bcf Price Range Per MMBtu Fair Value
------------ ---- ---------------------------- --------------
2001 (8.3) $1.905--$5.055/Indexed Based $(4.2) million
2002 7.8 $2.84 /Indexed Based $(9.4) million
2003 8.0 Indexed Based $(4.5) million
2004 5.8 Indexed Based $(4.8) million
2005 (1.6) Indexed Based $(2.0) million
Thereafter (3.9) Indexed Based $(5.7) million
* Volumes presented in this table represent the Company's net position. A
positive position indicates a net purchase position; a negative position
indicates a net sell position.
Interest Rate Risk
The Company's use of fixed and variable rate long-term debt to partially
finance capital expenditures exposes the Company to market risk related to
changes in interest rates. As of March 31, 2001, there have been no material
changes in the Company's interest rate risk exposure, from that disclosed in
the 2000 Form 10-K.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in the forward-looking statements and the assumptions upon which
such forward-looking statements are based are reasonable, it can give no
assurance that such expectations and assumptions will prove to have been
correct. See the Company's Annual Report on Form 10-K for additional
statements concerning important factors that could cause actual results to
differ materially from the Company's expectations.
PART II. OTHER INFORMATION
Item 6. RECENT DEVELOPMENTS
On May 7, 2001, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with the Williams Companies, Inc. ("Williams") and
Williams' wholly-owned subsidiary Resources Acquisition Corp. ("Acquiror")
in a transaction valued at approximately $2.8 billion, including the
assumption of approximately $300 million in debt.
Pursuant to the terms of the Merger Agreement, on May 14, 2001 Williams,
through Acquiror, commenced a cash tender offer at $73.00 per share for 50
percent of the Company's outstanding common stock (the "Offer"). The Merger
Agreement provides that, following consummation of the Offer and the
satisfaction or waiver of the conditions set forth in the Merger Agreement,
the Company and Acquiror will merge pursuant to which each remaining share
of the Company's common stock will be converted into 1.767 shares of
Williams' common stock.
The transaction, which is contingent upon approval from federal anti-trust
regulators and the tender of at least 50 percent of the Company's common
stock, is expected to close in 60 to 90 days. The Merger Agreement provides
for a termination fee of $75.5 million and reimbursement of up to $15
million in expenses each payable to Williams upon certain events of
termination.
The description of the Merger Agreement is qualified in its entirety by the
terms of the Merger Agreement a copy of which was filed on Exhibit 10.1 on
the Company's current report on Form 8-K filed on May 7, 2001.
16
Item 7. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Quarterly Report on
Form 10-Q:
2.1 Agreement And Plan of Merger, dated as of May 2, 1995, among Barrett
Resources Corporation ("Barrett" or "Registrant"), Barrett Energy
Inc. (formerly known as Vanilla Corporation), and Plains Petroleum
Company ("Plains") is incorporated by reference from Annex I to the
Joint Proxy Statement/Prospectus of Barrett and Plains dated June 13,
1995.
3.1 Restated Certificate Of Incorporation of Barrett Resources
Corporation, a Delaware corporation, is incorporated herein by
reference from Exhibit 3.2 of Registrant's Registration Statement on
Form S-4 dated June 9, 1995.
3.2 Certificate of Amendment to Certificate of Incorporation of Barrett
dated June 17, 1997 is incorporated by reference from Exhibit 3.2 of
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997.
3.3A Bylaws of Barrett, as amended through February 25, 1998 are
incorporated by reference from Exhibit 3.3 of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.
3.3B Bylaw Amendments dated March 14, 2001 are incorporated by reference
from Exhibit (a)(2)(xi) of Registrant's Schedule 14D-9 filed with the
SEC on March 23, 2001.
3.3C Bylaw Amendment dated March 22, 2001 is incorporated by reference
from Exhibit 3.3C of Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000.
4.1A Form of Rights Agreement dated as of August 5, 1997 between Barrett
and BankBoston, N.A., which includes, as Exhibit A thereto, the form
of Certificate of Designations specifying the terms of the Series A
Junior Participating Preferred Stock, and as Exhibit B thereto, the
form of Rights Certificate, is incorporated by reference from Exhibit
1 to the Company's Registration Statement on Form 8-A filed August
11, 1997.
4.1B Form of the Amendment to Rights Agreement dated August 5, 1997
between Barrett and BankBoston, N.A. is incorporated by reference
from Exhibit 4.1B of Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000.
4.1C Form of the Second Amendment to Rights Agreement, dated as of May 7,
2001, between Registrant and BankBoston, N.A. as Rights Agent is
incorporated by reference from Exhibit 1 to Registrant's Form 8-A/A2
filed with the SEC on May 7, 2001.
4.2 Revised Form of Indenture between the Company and Bankers Trust
Company, as trustee, with respect to Senior Notes including specimen
of 7.55% Senior Notes is incorporated by reference from Exhibit 4.1
to the Company's Amendment No. 1 to Registration Statement on Form S-
3 filed February 10, 1997, File No. 333-19363.
4.3 Form of Indenture between the Registrant and Bankers Trust Company,
as trustee, with respect to Debt Securities is incorporated by
reference from Exhibit 4.2 of Registrant's Registration Statement on
Form S-3 filed May 6, 1998 (File No. 333-51985).
10.1 Non-Qualified Stock Option Plan Of Barrett Resources Corporation is
incorporated by reference from Registrant's Registration Statement on
Form S-8 dated November 15, 1989.
10.2 Registrant's 1990 Stock Option Plan, as amended, is incorporated by
reference from the Registrant's Registration Statement on Form S-8
dated March 15, 1995.
17
10.3 Registrant's Non-Discretionary Stock Option, as amended, is
incorporated by reference from Exhibit 99.2 of the Registrant's
Proxy Statement dated April 24, 1997.
10.4 Registrant's 1994 Stock Option Plan, As amended, is incorporated by
reference from the Registrant's Registration Statement on Form S-8
dated March 15, 1995.
10.5 Registrant's 1997 Stock Option Plan is incorporated by reference
from Exhibit 99.1 of the Registrant's Proxy Statement dated April
24, 1997.
10.6A Revolving Credit Agreement dated as of July 19, 1995 among Barrett
and Texas Commerce Bank National Association, as Agent, and Texas
Commerce Bank National Association, Nations Bank of Texas, N.A.,
Bank of Montreal, Houston Agency, Colorado National Bank, and The
First National Bank of Boston, as the "Banks", is incorporated by
reference from Exhibit 10.6 to Barrett's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.6B First Amendment to Revolving Credit Agreement dated October 31,
1996 between and among Barrett, Agent and the Banks is incorporated
by reference from Exhibit 10.1 to Amendment No. 2 to Barrett's
Registration Statement on Form S-3 (File No. 333-19363) dated
February 10, 1997.
10.6C Second Amendment to Revolving Credit Agreement dated February 10,
1997 between and among Barrett, the Agent, and the Banks is
incorporated by reference from Exhibit 10.2 to Amendment No. 2 to
Barrett's Registration Statement on Form S-3 (File No. 333-19363)
dated February 10, 1997.
10.6D Amended and Restated Credit Agreement dated November 12, 1997
between and among Barrett, the Agent, the Banks, and The Chase
Manhattan Bank as the "Competitive Bid Auction Agent" is
incorporated by reference from Exhibit 10.7D to Registrant's Annual
Report on Form 10-K for the Year ended December 31, 1997.
10.6E First Amendment to Amended and Restated Credit Agreement dated
December 19, 1997 between and among Barrett, the Agent, the Banks,
and the Competitive Bid Auction Agent is incorporated by reference
from Exhibit 10.7E to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.7 Revolving Credit Agreement among Barrett, as Borrower, Bank of
America, N.A., as Administrative Agent and Issuing Lender, Banc of
America Securities L.L.C., as Sole Lead Arranger and Book Manager,
Bank One, NA, as Syndication Agent, Fleet National Bank, as
Documentation Agent, and the Lenders Party to that agreement is
incorporated by reference from Exhibit 10.7 of Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000.
10.8A Severance Protection Agreement dated February 6, 1998 between
Registrant and William J. Barrett is incorporated by reference from
Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997
10.8B Amendment No. 1 to Severance Protection Agreement dated November
19, 1998 between Registrant and William J. Barrett is incorporated
by reference from Exhibit 10.8B of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
10.10A Form of Severance Protection Agreement is incorporated by reference
from Exhibit 10.9A to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
18
10.10B Schedule Identifying Material Differences Among Severance
Protection Agreements between Barrett and each of Peter A. Dea,
Joseph N. Jaggers, A. Ralph Reed, J. Frank Keller, Eugene A. Lang,
Jr. and Bryan G. Hassler is incorporated by reference from Exhibit
10.10B of Registrant's Annual Report on Form 10-K for the year
ended December 21, 2000.
10.10C Amendment No. 1 to Severance Protection Agreement dated February 9,
1998 between Registrant and Peter A. Dea is incorporated by
reference from Exhibit 10.8C to Registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
10.10D Form of Amendment to Severance Protection Agreement effective May
3, 2001, is incorporated by reference from Exhibit (e)(3) of
Registrant's Schedule 14D-9 filed with the SEC on May 14, 2001.
10.11 Agreement and Plan of Merger, dated as of May 7, 2001, between
Barrett Resources Corporation, The Williams Companies, Inc. and
Resources Acquisition Corp. is incorporated by reference from
Exhibit 10.1 of Registrant's Current Report on Form 8-K filed with
the SEC on May 7, 2001.
(b) On May 7, 2001, the Company filed a Form 8-K pertaining to the
Agreement and Plan of Merger entered into on May 7, 2001 with the
Williams Companies, Inc. and Resources Acquisition Corp.
19
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.
Barrett Resources Corporation
/s/ Peter A. Dea
May 15, 2001 By __________________________________
Peter A. Dea
Chairman of the Board and Chief
Executive Officer
/s/ J. Frank Keller
May 15, 2001 By __________________________________
J. Frank Keller
Chief Financial Officer
20