UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from _____________________ to ____________________
Commission file number 1-13446
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Barrett Resources Corporation
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(Exact name of registrant as specified in its charter)
Delaware 84-0832476
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Arapahoe Street, Tower 3, Suite 1000 Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
(303) 572-3900
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(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
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There were 31,724,839 shares of the registrant's $.01 par value common
stock outstanding as of May 7, 1998.
BARRETT RESOURCES CORPORATION
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INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Condensed Balance
Sheets - March 31, 1998 and
December 31, 1997.............................. 3
Consolidated Condensed Statements of
Income - Three Months Ended
March 31, 1998 and 1997........................ 4
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
March 31, 1998 and 1997........................ 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................. 13
Item 6. Exhibits and Reports on Form 8-K............... 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,055 $ 14,479
Receivables, net 87,958 102,934
Inventory 1,327 2,579
Other current assets 1,199 1,701
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Total current assets 102,539 121,693
Property and equipment, net 785,498 747,175
Other assets, net 3,727 3,833
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$891,764 $872,701
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,242 $ 61,870
Amounts payable to oil and gas property
owners 21,346 27,174
Production taxes payable 19,698 17,945
Accrued and other liabilities 14,071 17,917
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Total current liabilities 129,357 124,906
Long-term debt 262,018 266,437
Deferred income taxes 72,635 68,977
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000
shares authorized, none outstanding -- --
Common stock, $.01 par value: 45,000,000
shares authorized; 31,682,395 issued
(31,415,528 at December 31, 1997) 317 314
Additional paid-in capital 256,546 247,390
Retained earnings 170,891 164,677
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Total stockholders' equity 427,754 412,381
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$891,764 $872,701
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See Accompanying Notes.
3
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
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March 31, March 31,
1998 1997
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Revenues:
Oil and gas production $ 54,227 $ 53,035
Trading revenues 74,857 22,267
Revenue from gas gathering 845 466
Interest income 257 640
Other income 1,533 144
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131,719 76,552
Operating expenses:
Lease operating expenses 15,674 16,477
Cost of trading 69,945 21,820
Depreciation, depletion and amortization 24,261 14,067
General and administrative 6,803 5,977
Interest expense 4,709 2,223
Other 305 ---
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121,697 60,564
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Income for the period before income taxes 10,022 15,988
Provision for income taxes 3,808 6,075
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Net income for the period $ 6,214 $ 9,913
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Earnings per common share
Basic $ .20 $ .32
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Assuming dilution $ .19 $ .31
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See Accompanying Notes.
4
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended
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March 31, March 31,
1998 1997
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Cash flows from operations:
Net income $ 6,214 $ 9,913
Adjustments needed to reconcile to
net cash provided by operations:
Depreciation, depletion, and amortization 24,362 14,117
Deferred income taxes 3,658 5,276
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34,234 29,306
Change in current assets and liabilities:
Accounts receivable 14,976 17,126
Other current assets 502 65
Accounts payable 12,372 (9,498)
Amounts due oil and gas owners (5,828) 4,089
Production taxes payable 1,753 1,758
Accrued and other liabilities (8,075) 1,211
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Net cash flow provided by operations 49,934 44,057
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Cash flows from investing activities:
Proceeds from sale of oil and gas properties 3,344 --
Acquisition of property and equipment (55,555) (78,683)
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Net cash flow used in investing activities (52,211) (78,683)
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Cash flows from financing activities:
Proceeds from issuance of common stock 43 227
Net payments under line of credit --- (70,000)
Proceeds from issuance of Senior Notes, net of
offering costs --- 146,009
Payments on other long-term debt (190) (70)
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Net cash flow (used) provided by
financing activities (147) 76,166
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(Decrease) increase in cash and
cash equivalents (2,424) 41,540
Cash and cash equivalents at beginning of period 14,479 14,539
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Cash and cash equivalents at end of period $ 12,055 $ 56,079
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Non-cash investing and financing activities:
Assumption of debt with property acquisition $ --- $ 2,785
Issuance of common stock for property
acquisition $ 9,116 $ ---
See accompanying notes.
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BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
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
wholly owned subsidiaries, collectively referred to as the "Company", as of
March 31, 1998 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, 1997. These financial statements should be read in conjunction with the
financial statements and notes included in the Form 10-K.
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,
1998, the Company used an estimated effective tax rate of 38 percent.
The Company is vigorously contesting a "Notice of Deficiency" of $5.3
million together with penalties of $1.1 million, and an undetermined amount
of interest, issued by the Internal Revenue Service resulting from an
examination of federal tax returns of a subsidiary of the Company for years
1991 through 1993. The deficiency resulted primarily from the IRS's
disallowance of certain net operating loss deductions claimed during the
periods under examination and may affect approximately $30 million of
related net operating loss carryforwards. The Company believes that the
federal returns of the subsidiary properly reflect the federal tax
liability and that the existing net operating loss carryforwards are
appropriate as supported by relevant authority. The trial of this matter
began May 7, 1998. A decision is not expected until the first quarter of
1999.
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BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1998
3. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
March 31, December 31,
1998 1997
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Line of Credit $100,000 $100,000
7.55% Senior Notes 150,000 150,000
Production Payments 17,041 17,231
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Total 267,041 267,231
Less: current portion 5,023 794
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Long-term debt $262,018 $266,437
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As of March 31, 1998 the Company's effective interest rate, on an
outstanding balance of $100 million on its line of credit, was 6.074% per
annum.
Total interest expense paid for the quarter ended March 31, 1998 was $7.2
million.
On May 6, 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission that would permit the issuance of up to
$500 million in unsecured debt and/or equity securities, including common
stock, preferred stock, warrants and depositary shares. Net proceeds, terms
and pricing of any offerings of securities issued under the shelf
registration statement will be determined at the time of the offering.
There have been no securities issued, and no determination by the Company
to issue any securities, under this shelf registration. Neither the filing
nor the anticipated effectiveness of the shelf registration statement
obligates the Company to issue any securities.
4. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS No. 128) effective December 15, 1997. This
pronouncement requires restatement of earnings per share for all prior
periods presented. As a result, the Company's reported earnings per share
for the three months ended March 31, 1997 has been restated.
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The following data show 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.
For the three months ended March 31,
(in thousands) 1998 1997
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Income available to common stockholders $ 6,214 $ 9,913
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Weighted average number of common shares used in
basic EPS 31,418 31,339
Effect of dilutive securities:
Stock options 354 605
Written put option 150 --
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Weighted number of common shares and dilutive
potential common stock used in EPS
assuming dilution 31,922 31,914
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5. ACQUISITION
On March 31, 1998, the Company issued 260,917 shares of its common stock to
acquire Advantage Resources International, Inc.-Peru, whose sole asset is a
15 percent interest in an oil and gas license covering an area denominated
as Block 67 located in the Republic of Peru. This transaction was accounted
for as a purchase.
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BARRETT RESOURCES CORPORATION
For the Quarter Ended
March 31, 1998
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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Liquidity and Capital Resources
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For the three months ended March 31, 1998, total assets increased $19.1
million, or two percent, to $891.8 million as compared with total assets of
$872.7 million at December 31, 1997. Cash and cash equivalents decreased
$2.4 million to $12.1 million, working capital decreased to a negative
$26.8 million, and property and equipment increased $38.3 million to $785.5
million.
Operating cash flows before working capital adjustments totaled $34.2
million in the first quarter of 1998 compared with $29.3 million in the
first quarter of 1997. After working capital adjustments, cash flow
provided by operations increased by $5.9 million to $49.9 million as
compared with the same period in 1997.
On May 6, 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission that would permit the issuance of up to
$500 million in unsecured debt and/or equity securities, including common
stock, preferred stock, warrants and depositary shares. Net proceeds,
terms and pricing of offerings of securities issued under the shelf
registration statement will be determined at the time of the offering.
There have been no securities issued, and no determination by the Company
to issue any securities, under this shelf registration. Neither the filing
nor the anticipated effectiveness of the shelf registration statement
obligates the Company to issue any securities.
On March 31, 1998, the Company issued 260,917 shares of common stock in an
acquisition of a company whose sole asset is a 15 percent interest in an
oil and gas license covering an area denominated as Block 67 located in the
Republic of Peru. The Company has a 70 percent interest in Block 67.
Capital expenditures of $64.7 million for the quarter represent a decrease
of $16.8 million from the same period in 1997. These expenditures, funded
by operating cash flows and issuance of the Company's common stock,
consisted principally of drilling and development activities and
acquisitions of oil and gas properties. Of these capital expenditures,
approximately 53 percent was invested in the Rocky Mountain Region,
principally in the Piceance, Powder River and Wind River Basins, 13 percent
in the Mid-Continent Region, 25 percent in the Gulf Coast Region and 15
percent in international activities in the Republic of Peru.
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The Company plans to continue actively acquiring, exploring and developing
oil and gas properties. 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 is evaluating its information technology infrastructure for
Year 2000 compliance. The Company does not expect that the cost, if any, to
modify its information technology infrastructure to become Year 2000
compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company, its customers or
suppliers to be in compliance.
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
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Net income for the quarters ended March 31, 1998 and 1997 was $6.2 million
($.19 per share, assuming dilution) and $9.9 million ($.31 per share,
assuming dilution), respectively. This decrease is primarily due to lower
prices for oil and gas, and to increased depreciation, depletion and
amortization and interest expense.
Total revenues for the quarter were $131.7 million, up 72 percent compared
to $76.6 million for the same period in 1997. This increase is principally
attributed to a $52.6 million increase in trading revenues.
Production revenue for the first quarter of 1998 increased 2.2 percent from
$53.0 million to $54.2 million. Production revenues and related volumes
and average prices during the periods presented were as follows:
Quarter Ended
March 31,
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1998 1997
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Gas Revenues (000's) $45,620 $42,928
Gas Production (Bcf) 22.9 17.3
Average Price per Mcf $ 1.99 $ 2.49
Oil Revenues (000's) $ 8,607 $10,107
Oil Production (MBbls) 648 501
Average Price per Barrel $ 13.28 $ 20.17
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls =
thousand barrels.)
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First quarter gas revenues increased 6.3 percent as compared with the same
period in 1997, principally due to a 32.4 percent increase in production
volumes.
The 14.8 percent decrease in first quarter 1998 oil revenues from the same
period in 1997 is attributed to a 34.2 percent decrease in average oil
prices partially offset by a 29.3 percent increase in production volumes.
For the quarter ended March 31, 1998, revenues from trading were $74.9
million compared to $22.3 million for the same period in 1997. The
associated costs of trading increased to $69.9 million from $21.8 million.
Gross profit from trading was $4.9 million and $447,000 for the respective
quarters ended March 31, 1998 and 1997.
To reduce its exposure to volatile gas prices fluctuations, the Company
enters into hedging arrangements for both trading and producing activities.
During the first quarter ended March 31, 1998, the Company recognized net
producing hedging expenses of approximately $335,000 which was recorded in
the consolidated statements of income as adjustments to gas production
revenue. The Company realized net hedging income on its trading activities
of approximately $2.7 million.
Production costs decreased in the first quarter of 1998 compared with the
same period in 1997 primarily as a result of an improvement to the high
operating costs of oil properties located in the Uinta Basin of Utah. In
1997, the Company experienced additional start-up cost associated with
restoring and/or improving the productive capabilities of these wells.
Depreciation, depletion and amortization increased to $24.3 million from
$14.1 million due to both a 32.1 percent increase in oil and gas equivalent
production and an increase of the depletion rate from $.65 to $.87 per
Mcfe.
Interest expense for the first quarter increased from $2.2 million in 1997
to $4.7 million in 1998 due to higher debt levels for the first quarter of
1998 compared with the same period in 1997.
The Company's largest source of operating income is from sales of its gas
and oil production. Therefore, the levels of the Company's revenues and
earnings 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 84.1 percent of the Company's production
revenue for the first quarter of 1998. 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.
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This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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On April 3, 1998, Paul M. Rady filed a lawsuit against the Company in
the District Court in and for Tulsa County, State of Oklahoma. Mr.
Rady was the Chief Executive Officer and President of the Company
until March 23, 1998, at which time the Company's Board of Directors
replaced Mr. Rady in these positions. Mr. Rady also was a director and
employee of the Company until April 30, 1998. In his complaint, Mr.
Rady makes various allegations and claims concerning the Company and
Mr. Rady's employment. Mr. Rady claims damages in excess of $10,000 on
each of his three causes of action, which he requests be determined at
a trial, as well as punitive and exemplary damages. The Company
believes that Mr. Rady's claims are without merit.
For information regarding certain other legal proceedings, reference
is made to the Company's Form 10-K for the year ended December 31,
1997, which is incorporated by reference, and to Note 2 in Part I of
this Form 10-Q Report.
Item 6. Exhibits and Reports on Form 8-K
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(a) The following Exhibit is filed as part of this Quarterly Report
on Form 10-Q:
27.1 Financial Data Schedule
27.2 Financial Data Schedule Restated for quarters ending
March 31, June 30 and September 30, 1997
27.3 Financial Data Schedule Restated for quarter ended June 30,
1996 and for the twelve month period ended December 31,
1996
(b) During the quarter ended March 31, 1998, the Registrant filed one
report on Form 8-K reporting events occurring on March 23, 1998.
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SIGNATURES
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Pursuant to the requirements of the Securities and 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
May 11, 1998 By /s/ A. Ralph Reed
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A. Ralph Reed
President and
Chief Operating Officer
May 11, 1998 By /s/ J. Frank Keller
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J. Frank Keller
Chief Financial Officer
14