UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
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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
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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
----- -----
There were 31,866,209 shares of the registrant's $.01 par value common stock
outstanding as of August 11, 1998.
BARRETT RESOURCES CORPORATION
-----------------------------
INDEX
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PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Condensed Balance
Sheets - June 30, 1998 and
December 31, 1997.............................. 3
Consolidated Condensed Statements of
Income - Three Months Ended
June 30, 1998 and 1997......................... 4
Consolidated Condensed Statements of
Income - Six Months Ended
June 30, 1998 and 1997......................... 5
Consolidated Condensed Statements of
Cash Flows - Six Months Ended
June 30, 1998 and 1997......................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................. 17
Item 4. Submission of Matters to a
Vote of Security Holders....................... 17
Item 5. Other Information.............................. 18
Item 6. Exhibits and Reports on Form 8-K............... 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
1998 1997
----------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,731 $ 14,479
Receivables, net 86,895 102,934
Inventory 7,674 2,579
Other current assets 2,767 1,701
-------- --------
Total current assets 100,067 121,693
Property and equipment, net 811,591 747,175
Other assets, net 3,766 3,833
-------- --------
$915,424 $872,701
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,577 $ 61,870
Amounts payable to oil and gas property
owners 26,845 27,174
Production taxes payable 23,589 17,945
Accrued and other liabilities 15,676 17,917
-------- --------
Total current liabilities 125,687 124,906
Long-term debt 281,806 266,437
Deferred income taxes 74,174 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; 31,839,439 issued
(31,415,528 at December 31, 1997) 318 314
Additional paid-in capital 259,953 247,390
Retained earnings 173,504 164,677
Treasury stock, at cost (18) --
-------- --------
Total stockholders' equity 433,757 412,381
-------- --------
$915,424 $872,701
======== ========
See accompanying notes.
3
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
------------------
June 30, June 30,
1998 1997
-------- --------
Revenues:
Oil and gas production $ 52,146 $44,743
Trading revenues 76,261 25,264
Interest income 98 549
Natural gas liquids and other 3,427 664
-------- -------
131,932 71,220
Operating expenses:
Lease operating expenses 12,863 12,926
Cost of trading 75,831 24,124
Depreciation, depletion and amortization 24,975 17,825
General and administrative 7,485 6,173
Interest expense 4,708 3,095
Other expense 1,855 --
-------- -------
127,717 64,143
-------- -------
Income before income taxes 4,215 7,077
Provision for income taxes 1,602 2,690
-------- -------
Net income $ 2,613 $ 4,387
======== =======
Earnings per common share:
Basic $ .08 $ .14
Assuming dilution $ .08 $ .14
See accompanying notes.
4
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Six Months Ended
-------------------
June 30, June 30,
1998 1997
--------- --------
Revenues:
Oil and gas production $106,373 $ 97,778
Trading revenues 151,118 47,531
Interest income 355 1,189
Natural gas liquids and other 5,805 1,274
-------- --------
263,651 147,772
Operating expenses:
Lease operating expenses 28,537 29,403
Cost of trading 145,776 45,944
Depreciation, depletion and amortization 49,236 31,892
General and administrative 14,288 12,150
Interest expense 9,417 5,318
Other expense 2,160 --
-------- --------
249,414 124,707
-------- --------
Income before income taxes 14,237 23,065
Provision for income taxes 5,410 8,765
-------- --------
Net income $ 8,827 $ 14,300
======== ========
Earnings per common share:
Basic $ .28 $ .46
Assuming dilution $ .27 $ .45
See accompanying notes.
5
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
---------------------
June 30, June 30,
1998 1997
--------- ---------
Cash flows from operations:
Net income $ 8,827 $ 14,300
Adjustments needed to reconcile to
net cash provided by operations:
Depreciation, depletion, and amortization 49,450 32,043
Deferred income taxes 5,197 7,611
Other (1,026) --
--------- ---------
62,448 53,954
Change in current assets and liabilities:
Accounts receivable 16,039 12,268
Other current assets (6,014) (1,544)
Accounts payable (2,293) 1,070
Amounts due oil and gas owners (329) 982
Production taxes payable 5,644 3,627
Accrued and other liabilities (5,461) 5,507
--------- ---------
Net cash flow provided by operations 70,034 75,864
--------- ---------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties 3,464 8,030
Acquisition of property and equipment (108,147) (157,487)
--------- ---------
Net cash flow used in investing activities (104,683) (149,457)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit 46,000 15,000
Repayments of line of credit (26,000) (85,000)
Proceeds from issuance of common stock 3,433 366
Proceeds from issuance of Senior Notes, net of
offering costs -- 145,978
Payments on other long-term debt (385) (753)
Treasury stock purchased -- (1)
Other (147) --
--------- ---------
Net cash flow provided by financing activities 22,901 75,590
--------- ---------
(Decrease) increase in cash and cash equivalents (11,748) 1,997
Cash and cash equivalents at beginning of period 14,479 14,539
--------- ---------
Cash and cash equivalents at end of period $ 2,731 $ 16,536
========= =========
See accompanying notes.
6
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 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
June 30, 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. Certain
reclassifications have been made to 1997 amounts to conform to the 1998
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 June 30,
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 unused 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. A trial of this matter was
conducted in May. A decision is not expected until the first quarter of
1999.
7
3. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
Line of Credit $120,000 $100,000
7.55% Senior Notes 150,000 150,000
Production Payments 15,843 17,231
-------- --------
Total 285,843 267,231
Less: current portion 4,037 794
-------- --------
Long-term debt $281,806 $266,437
======== ========
As of June 30, 1998, the Company's effective interest rate, on an
outstanding balance of $120 million on its line of credit, was 6.0125% per
annum.
Total interest paid for the six months ended June 30, 1998 was $8.9
million.
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 six months ended June 30, 1997 has been restated.
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 June 30,
(in thousands) 1998 1997
-------- -------
(unaudited)
Income available to common stockholders $ 2,613 $ 4,387
======= =======
Weighted average number of common shares used in basic EPS
31,783 31,346
Effect of dilutive securities:
Stock options 549 454
Written put option 150 125
------- -------
Weighted number of common shares and dilutive
Potential common stock used in EPS -
assuming dilution 32,482 31,925
======= =======
8
For the six months ended June 30,
(in thousands) 1998 1997
------- -------
(unaudited)
Income available to common stockholders $ 8,827 $14,300
======= =======
Weighted average number of common shares used in basic EPS 31,602 31,342
Effect of dilutive securities:
Stock options 414 525
Written put option 150 63
------- -------
Weighted number of common shares and dilutive
Potential common stock used in EPS - assuming dilution 32,166 31,930
======= =======
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's non-cash investing and financing activities for the six
months ending June 30 were as follows:
1998 1997
------ ------
Issuance/commitment of common stock for
property acquisitions $9,116 $4,219
Common stock/treasury share options exercised 17 --
Reduction of debt through
utilization of tax benefits 1,026 --
Assumption of debt with property acquisitions -- 2,785
6. RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities". 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. 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. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company has not yet quantified the
impacts of adopting SFAS 133 on its financial statements and has not
determined the timing of or method of adoption of SFAS 133. However, SFAS
133 could increase volatility in earnings and other comprehensive income.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
9
Segments of an Enterprise and Related Information" effective for fiscal
years beginning after December 15, 1997. This statement requires a public
company to report financial and descriptive information regarding its
reportable operating segments on the same basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company expects to adopt SFAS 131 for the year ending
December 31, 1998.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5") effective for financial statements for fiscal years beginning
after December 15, 1998. This statement requires costs of start-up
activities and organization costs to be expensed as incurred. The
application of SOP 98-5 will be reported as a cumulative effect of a change
in accounting principle. Management believes that adoption of SOP 98-5
will not have a material impact on the financial statements.
10
BARRETT RESOURCES CORPORATION
For the Quarter and Six Months Ended
June 30, 1998
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
- -------------------------------
For the six months ended June 30, 1998, total assets increased $42.7
million, or five percent, to $915.4 million as compared with total assets
of $872.7 million at December 31, 1997. Cash and short term investments
decreased $11.7 million to $2.7 million, working capital decreased $22.4
million to a negative $25.6 million and net property and equipment
increased $64.4 million to $811.6 million. During the six month period, the
Company invested in oil and gas properties in its areas of activity, which
increased both property and equipment and long-term debt.
Operating cash flows before working capital adjustments totaled $62.4
million for the six month period ended June 30, 1998 compared with $54.0
million for the comparable period in 1997. After working capital
adjustments, cash flow provided by operations decreased by $5.8 million to
$70.0 million as compared with the same six month period in 1997.
Capital expenditures of $117.3 million for the six month period decreased
$47.2 million from the same period in 1997. These expenditures, funded by
operating cash flows and borrowings, consisted principally of drilling and
development activities of oil and gas properties. Of these capital
expenditures, approximately 50 percent were invested in the Rocky Mountain
Region, six percent in the Mid-Continent Region, 20 percent in the Gulf of
Mexico Region and 18 percent in the Republic of Peru.
The Company is evaluating its information technology infrastructure for
Year 2000 compliance. The Company does not expect that the cost 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. For purposes of determining the "ceiling test",
the Company performs a comprehensive engineering
11
study of its proved reserves each year end. For quarterly reporting, the
Company updates this annual study through the utilization of reasonable
estimates and approximations which consider the effects of price changes,
production rate changes and revisions to reserves. Oil and gas prices at
June 30, 1998 were lower by 30 and 10 percent, respectively, from the
December 31, 1997 levels. A further decline in oil and gas sales prices
could possibly result in the recognition of an impairment expense in future
periods.
Exploration and Development Activities
- --------------------------------------
Following is a description of significant activities of the Company's
exploration and development activities for the first six months of 1998.
Rocky Mountain Region
In the Wind River Basin, the Company drilled the Cave Gulch 1-29 LAK well
to the Muddy Formation at 18,175 feet. The well produced from February 1998
through August 12, 1998. On August 13, 1998, the well blew out due to what
the Company believes was a downhole failure of the well casing. The Company
believes it has adequate insurance to cover the costs of controlling the
well and costs of drilling a relief well, if attempted. For more detailed
information regarding the blowout, see "Item 5. Other Information - Press
Releases" and related exhibits of this 10-Q. The Company has a 70 percent
working interest in this well. The Company's ultra deep exploratory well,
the Cave Gulch 3-29 MAD, reached a total depth of 21,965 feet in the
Madison Formation in June. Testing of this well is expected to commence
after blowout conditions of the 1-29LAK well are resolved and stabilized.
The Company has 97 percent working interest in this well. In late July, two
additional deep wells were spud and are expected to reach total depth by
the end of 1998.
Four wells were completed in the shallow Ft. Union-Lance formations of the
Cave Gulch field. Two additional shallow wells are planned for the last
half of 1998.
The Company currently is operating three drilling rigs in the Piceance
Basin area and has successfully drilled and completed 14 gas wells in the
first six months of 1998. An additional 107 potential drilling locations
were approved on 20 acre well density following the Colorado Oil and Gas
Commission's approval on portions of the Company's acreage in the Piceance
Basin in January 1998. To improve production and to reduce operating
costs, the Company installed well automation equipment on approximately 200
wells and added a new 16" gathering system equipped with compressors.
In late 1997, the Company entered into a coal bed methane (CBM) development
project located in the Powder River Basin of Wyoming. The project has
resulted in adding 18 MMcfd net to the Company through the first half of
1998. Approximately 400 wells are planned to be drilled in 1998. However,
the Company and its project partner are currently evaluating the impact of
a U.S. Tenth Circuit Court of Appeals decision regarding ownership of the
gas produced from the coal under certain lands. Pending possible appeals
of this decision, the Company and its partner will shift activity away from
lands that could be impacted by this decision.
12
Mid-Continent Region
In the Arkoma Basin, during the first six months of 1998, the Company
participated in drilling three wells, all of which are producing.
In the Anadarko Basin, the Company participated in the drilling of 19
wells, principally in three key areas: the Mountain View/Carnegie, and the
Mountain Front Granite Wash areas. Six of these wells were successfully
completed as gas wells, one well is waiting on completion, and four wells
were dry holes.
Gulf of Mexico
During the first six months of 1998, the Company focused its efforts on
identifying its top prospects from its inventory in the Gulf of Mexico. In
March, production from the Ship Shoal Block 45 field came on line adding 2
MMcfd and 133 BOPD net to the Company. During the third quarter of 1998,
the Company anticipates production from four completed wells to come on
line, adding production of 6,540 MMcfd net to the Company.
International - Peru
During the first six months of 1998, the Company drilled two of three well
locations identified from data of an extensive seismic program conducted in
1997 on Block 67 located in the Republic of Peru. Preliminary test results
of the first two wells indicated significant accumulations of heavy oil.
The Company is currently drilling the third well, a 6,975 foot pre-
Cretaceous test. Upon completion and testing of the third well, the
Company plans to conduct a study to determine the commercial viability of
the project. The Company has a 70 percent working interest in the project.
Results of Operations
- ---------------------
For the second quarter ended June 30, 1998 net income of $2.6 million or
$.08 per share was $1.8 million lower than net income of $4.4 million or
$.14 per share in the second quarter 1997. The decrease in net income is
due to a combination of lower oil prices, lower oil production volumes,
lower gross margins from trading activities, higher depreciation, depletion
and amortization and interest expense and additional ad valorem expense.
These factors were partially offset by increased gas production. Net income
for the six months ended June 30, 1998 was $8.8 million or $.27 per share,
a decrease of $5.5 million compared to net income of $14.3 million or $.45
per share for the first six months of 1997.
Total revenues for the second quarter of 1998 were $131.9 million, up 85
percent compared to $71.2 million for the same period in 1997. For the six
months ended June 30, 1998, total revenues were $263.7 million as compared
to $147.8 for the respective 1997 period. Increased gas
13
production and trading revenues were the primary factors contributing to
the second quarter and six-month total revenue increases.
Oil and gas production revenues for the second quarter of 1998 increased 17
percent from $44.7 million in 1997 to $52.1 million. For the six months
ended June 30, 1998, oil and gas production revenues were up nine percent
to $106.4 million compared with revenues of $97.8 million for the same
period in 1997. Production revenues and related volumes and average prices
during the periods presented were as follows:
Quarter Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Gas Revenues (000's) $46,774 $33,582 $92,394 $76,510
Gas Production (Bcf) 24.6 18.7 47.5 36.0
Average Price per Mcf $ 1.90 $ 1.79 $ 1.94 $ 2.13
Oil Revenues (000's) $ 5,372 $11,161 $13,979 $21,268
Oil Production (Mbbls) 479 635 1,127 1,136
Average Price per Barrel $ 11.22 $ 17.58 $ 12.40 $ 18.72
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; Mbbls =
thousand barrels)
Second quarter gas revenues increased 39 percent as compared with the same
period in 1997, principally due to a 32 percent increase in production
volumes and a six percent increase in average gas prices. A 32 percent
increase in production volumes resulted in gas revenues for the six-month
period ended June 30, 1998 to be 21 percent higher than the same period in
1997.
The second quarter 1998 oil revenues are 52 percent below the same period
in 1997. This decrease is due, in part, to a 25 percent decrease in
production volumes which resulted primarily from the Company's decision to
shut-in certain oil operations due to low oil prices and from expected
production declines. The decrease in oil revenues also resulted from a 36
percent decline in average oil prices for the quarter as compared with the
comparable quarter of 1997. Oil revenues decreased 34 percent for the first
six months of 1998 as compared with 1997 due principally to prices, which
were on average 34 percent lower for the first six months of 1998 compared
to the same period of 1997.
To reduce its exposure to volatile gas price fluctuations, the Company
enters into hedging arrangements for both trading and producing activities.
Gains or losses on these hedging arrangements are generally offset by
opposite changes in the realized price of natural gas and are recognized in
revenues for the periods to which the hedge relates. As of June 30, 1998,
the Company held positions to hedge Rocky Mountain natural gas production
of 11.0 Bcf for July through December 1998 and 104 Bcf for the period of
January 1999 through 2003. Fixed prices associated with these positions
range from $1.71 to $1.79 per MMBtu.
14
For the quarter ended June 30, 1998, revenues from trading activities were
$76.3 million on 39.6 Bcf of gas compared to $25.2 million on 15.2 Bcf of
gas for the same period in 1997. The associated costs of trading increased
to $75.8 million from $24.1 million. The gross margin from trading
activities was $.4 million and $1.1 million for the respective quarters
ended June 30, 1998 and 1997. The gross margin from trading activities for
the first six months of 1998 was $5.3 million on 77.1 Bcf with revenues of
$151.1 compared to a gross margin of $1.6 million on 24.2 Bcf with revenues
of $47.5 million for the first six months of 1997.
Revenues from natural gas liquids ("NGLs") and other income increased
approximately $2.8 million and $4.5 million for the second quarter and six
months ended June 30, 1998, respectively. New NGL production in the Wind
River Basin increased NGL revenues by $1.6 million and $2.4 million for the
quarter and six month period, respectively. The Company recognized other
income of $1.0 million attributed to the utilization of various tax credits
by the holder of the Company's non-recourse production payment. The
utilization of these credits also reduced the Company's production payment
liability and associated interest obligation.
Per unit production costs averaged $.47 and $.53 per Mcfe produced for the
second quarter and six months ended June 30, 1998, respectively,
compared with $.57 and $.69 per Mcfe produced for the second quarter and
six months ended June 30, 1997, respectively.
Depreciation, depletion and amortization increased to $25.0 million from
$17.8 million for the quarter and to $49.2 million from $31.9 million for
the six-month period. These increases are attributed to increases in
equivalent production and higher depletion rates. For the six month
periods in 1998 and 1997, depletion on oil and gas production was recorded
at $.87 and $.70 per Mcfe, respectively. For the three months ended June
30, 1998 and 1997, depletion was recorded at $.87 and $.76 per Mcfe,
respectively. The increase in the depletion rate is principally due to
higher finding costs during 1997.
Interest expense increased from $3.1 million to $4.7 million for the
quarter ending June 30, 1997 and 1998, respectively, and from $5.3 million
to $9.4 million for the six-month period for 1997 and 1998, respectively.
Increases are directly attributed to higher debt levels.
Other expense consists of an ad valorem expense described in the Company's
1997 Form 10-K. As of June 30, 1998, based on an August 3, 1998 order from
Federal Energy Regulatory Commission ("FERC") requiring the Company to
refund for Kansas ad valorem tax reimbursements relating to the period of
October 1984 through September 1985, the Company recorded an expense and
related liability of $2.1 million, of which $1.8 million was
recorded in the second quarter.
15
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 87 percent of the Company's production revenue
for the first six months 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.
__________________________________________________________________________
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. These factors include
but are not limited to fluctuations in gas and crude oil prices, the
success rate of exploration efforts, the timeliness of development
activities, and changes in the political and economic environment of Peru.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
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 made various allegations and claims
concerning the Company and Mr. Rady's employment. On May 27, 1998, the District
Court granted the Company's motion to dismiss the lawsuit based on the grounds
of forum non-conveniens. The ruling does not preclude Mr. Rady from filing
--------------------
another lawsuit in Colorado.
Pursuant to an adverse ruling by the FERC, the Company is required to pay $2.1
million (pre-tax) to refund Kansas ad valorem taxes received in 1985, plus
-- -------
interest. An expense of $1.8 million (pre-tax) for this refund was recorded in
second quarter of 1998.
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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 30, 1998, the Annual Meeting of Stockholders of Barrett Resources
Corporation was held. At that meeting, the following matters were approved by
the stockholders by the votes indicated below.
(1) The following directors were re-elected with these directors
constituting the entire Board of Directors:
For Against
---------- -------
William J. Barrett 27,965,525 193,508
C. Robert Buford 27,971,821 187,212
Derrill Cody 27,971,521 187,512
James M. Fitzgibbons 27,966,671 192,362
William W. Grant, III 27,966,321 192,712
J. Frank Keller 27,967,721 191,312
A. Ralph Reed 27,966,271 192,762
James T. Rodgers 27,971,921 187,112
Philippe S.E. Schreiber 27,971,428 187,605
17
(2) A proposal to ratify the selection by the Board of Directors of
Arthur Andersen LLP as the independent certified public
accountants for the Company for the fiscal year ending December
31, 1998 was approved with a total of 28,112,069 shares voting in
favor, 14,829 shares voting against and 32,135 shares abstaining.
Item 5. Other Information
-----------------
Proxy Voting
- ------------
Pursuant to Rule 14a-4(c) under the Securities Exchange Act of 1934,
as amended, the Company hereby notifies its stockholders that the proxies
solicited by the Company in connection with the Company's annual meeting to be
held in 1999 will confer discretionary authority to vote on matters raised by
stockholders for which the Company did not have notice on or before February 18,
1999. In addition, if the Company receives notice on or before February 18, 1999
of a matter that a stockholder intends to raise at the annual meeting of
stockholders to be held in 1999, the proxies solicited by the Company may
exercise discretion to vote on each such matter if the Company includes in its
proxy statement advice on the nature of the matter raised and how the Company
intends to exercise its discretion to vote on each such matter. However, the
Company may not exercise discretionary voting authority on a particular proposal
if the proponent of that proposal provides the Company with a written statement,
on or before February 18, 1999, that the proponent intends to deliver a proxy
statement and form of proxy to holders of at least the percentage of the
Company's voting shares required under applicable law to carry the proposal (the
"Required Percentage"), which would be a majority of the Company's outstanding
common stock or a majority of the shares of common stock represented at the
meeting, depending on the nature of the proposal, if the proponent includes the
same statement in its proxy materials filed under Rule 14a-6, and if the
proponent, immediately after soliciting the holders of the Required Percentage,
provides the Company with a statement from any solicitor or any other person
with knowledge that the necessary steps have been taken to deliver a proxy
statement and form of proxy to the holders of the Required Percentage.
Press Releases
- --------------
The information set forth in two press releases of the Company dated
August 13 and August 14, 1998, which are filed as Exhibits 99.1 and 99.2,
respectively, to this Form 10-Q, is incorporated into this Form 10-Q by this
reference.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this Quarterly Report
on Form 10-Q:
27. Financial Data Schedule
99.1 Press Release dated August 13, 1998
99.2 Press Release dated August 14, 1998
(b) During the quarter ended June 30, 1998, the Registrant filed one
report on Form 8-K reporting an event occurring on May 8, 1998.
18
SIGNATURES
----------
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
August 14, 1998 By /s/ A. Ralph Reed
---------------------------
A. Ralph Reed
Chief Operating Officer
and President
August 14, 1998 By /s/ J. Frank Keller
---------------------------
J. Frank Keller
Chief Financial Officer
19