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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 March 31, 1999
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 32,137,162 shares of the registrant's $.01 par value common stock
outstanding as of May 7, 1999.
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BARRETT RESOURCES CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--March 31, 1999 and
December 31, 1998............................................ 3
Consolidated Condensed Statements of Income--Three Months
Ended March 31, 1999 and 1998............................... 4
Consolidated Condensed Statements of Cash Flows--Three Months
Ended March 31, 1999 and 1998............................... 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations.................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 13,456 $ 14,339
Receivables, net.................................... 91,782 127,798
Inventory........................................... 5,108 8,968
Other current assets................................ 2,365 2,053
-------- --------
Total current assets.............................. 112,711 153,158
Property and equipment, net........................... 676,794 682,168
Other assets, net..................................... 3,444 3,553
-------- --------
$792,949 $838,879
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 85,330 $104,799
Amounts payable to oil and gas property owners...... 13,098 16,020
Production taxes payable............................ 21,514 20,400
Accrued and other liabilities....................... 14,585 17,047
-------- --------
Total current liabilities......................... 134,527 158,266
Long-term debt........................................ 298,523 334,067
Deferred income taxes................................. 17,764 13,294
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized, none outstanding....................... -- --
Common stock, $.01 par value: 45,000,000 shares
authorized; 32,118,801 issued (32,002,304 at
December 31, 1998)................................. 321 320
Additional paid-in capital.......................... 263,541 261,998
Retained earnings................................... 78,633 70,934
Treasury stock...................................... (360) --
-------- --------
Total stockholders' equity........................ 342,135 333,252
-------- --------
$792,949 $838,879
======== ========
See Accompanying Notes.
3
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
-------------------
March 31, March 31,
1999 1998
--------- ---------
Revenues:
Oil and gas production.................................... $ 43,801 $ 54,986
Trading revenues.......................................... 176,367 74,857
Interest income........................................... 195 257
Other income.............................................. 828 1,619
-------- --------
221,191 131,719
Operating expenses:
Lease operating expenses.................................. 13,367 15,674
Cost of trading........................................... 161,282 69,945
Depreciation, depletion and amortization.................. 23,691 24,261
General and administrative................................ 5,068 6,803
Interest expense.......................................... 5,366 4,709
Other..................................................... -- 305
-------- --------
208,774 121,697
-------- --------
Income for the period before income taxes................... 12,417 10,022
Provision for income taxes.................................. 4,718 3,808
-------- --------
Net income for the period................................... $ 7,699 $ 6,214
======== ========
Earnings per common share
Basic..................................................... $ 0.24 $ 0.20
======== ========
Assuming dilution......................................... $ 0.24 $ 0.19
======== ========
See Accompanying Notes.
4
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended
--------------------
March 31, March 31,
1999 1998
--------- ---------
Cash flows from operations:
Net income............................................... $ 7,699 $ 6,214
Adjustments needed to reconcile to net cash provided by
operations:
Depreciation, depletion and amortization................ 23,800 24,362
Deferred income taxes................................... 4,470 3,658
-------- --------
35,969 34,234
Change in current assets and liabilities:
Accounts receivable.................................... 36,016 14,976
Other current assets................................... 3,633 502
Accounts payable....................................... (19,469) 12,372
Amounts due oil and gas owners......................... (2,922) (5,828)
Production taxes payable............................... 1,114 1,753
Accrued and other liabilities.......................... (2,108) (8,075)
-------- --------
Net cash flow provided by operations....................... 52,233 49,934
-------- --------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties............... 185 3,344
Acquisition of property and equipment...................... (18,587) (55,555)
-------- --------
Net cash flow used in investing activities................. (18,402) (52,211)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................... 1,183 43
Net payments under line of credit........................ (35,000) --
Payments on other long-term debt......................... (897) (190)
-------- --------
Net cash flow used in financing activities................. (34,714) (147)
-------- --------
Decrease in cash and cash equivalents...................... (883) (2,424)
Cash and cash equivalents at beginning of period........... 14,339 14,479
-------- --------
Cash and cash equivalents at end of period................. $ 13,456 $ 12,055
======== ========
Non-cash investing and financing activities:
Issuance of common stock for property acquisition........ -- $ 9,116
See Accompanying Notes.
5
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
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, 1999
and the results of operations and cash flows for the periods presented. All of
the Company's subsidiaries are wholly owned, except Barrett Piceance, LLC in
which the Company owns 99 percent of the equity. 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, 1998. 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, 1999, 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, of which $28 million has been used in subsequent income tax
returns. 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 was held in May 1998, and all post-trial briefs have been
filed. A decision is expected by the third quarter of 1999.
3. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
March 31, December 31,
1999 1998
--------- ------------
Line of Credit........................................ $140,000 $175,000
7.55% Senior Notes.................................... 150,000 150,000
Production Payments................................... 13,502 14,399
-------- --------
Total............................................... 303,502 339,399
Less: current portion................................. 4,979 5,332
-------- --------
Long-term debt........................................ $298,523 $334,067
======== ========
6
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1999
As of March 31, 1999 the Company's effective interest rate, on an outstanding
balance of $140 million on its line of credit, was 5.35% per annum.
Total interest expense paid for the quarter ended March 31, 1999 was $8.3
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. 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.
Three Months
Ended March 31,
---------------
1999 1998
------- -------
(in thousands)
Income available to common stockholders..................... $ 7,699 $ 6,214
======= =======
Weighted average number of common shares used in basic EPS.. 32,032 31,418
Effect of dilutive securities:
Stock options............................................. 43 354
Written put option........................................ 150 150
------- -------
Weighted number of common shares and dilutive potential
common stock used in EPS--assuming dilution................ 32,225 31,922
======= =======
5. RECENTLY ISSUED ACCOUNTING STANDARDS
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 and cannot be applied
retroactively. 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.
6. BUSINESS SEGMENT INFORMATION
The Company operates principally in two business segments: natural gas
trading and oil and gas exploitation and production. In addition to marketing
its own gas, the Company engages in natural gas trading activities,
7
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
March 31, 1999
which involves purchasing natural gas from third parties and selling natural
gas to other 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, 1999
---------------------------------------------------------
Natural Oil & Gas Segment Corporation &
Gas Trading E&P Total Unallocated Consolidated
----------- --------- -------- ------------- ------------
(in thousands)
Revenues................ $176,367 $43,835 $220,202 $ 794 $220,996
Interest Income......... 0 0 0 195 195
-------- ------- -------- -------- --------
Total Revenues........ 176,367 43,835 220,202 989 221,191
DD&A.................... 0 22,603 22,603 1,088 23,691
Profit (loss)........... 15,085 7,865 22,950 (10,533) 12,417
Expenditures for assets. 0 18,140 18,140 262 18,402
8
BARRETT RESOURCES CORPORATION
For the Quarter Ended
March 31, 1999
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, 1999, total assets decreased $46.0
million, or five percent, to $792.9 million as compared with total assets of
$838.9 million at December 31, 1998. This decrease in assets is attributable
to the Company utilizing its cash flows to pay down long-term debt by $35
million and reduce other liabilities. Cash and cash equivalents decreased $0.9
million to $13.5 million, working capital decreased $16.7 million to a
negative $21.8 million, and net property and equipment decreased $5.4 million
to $676.8 million.
Operating cash flows before working capital adjustments totaled $36.0
million in the first quarter of 1999 compared with $34.2 million in the first
quarter of 1998. After working capital adjustments, cash flow provided by
operations increased by $2.3 million to $52.2 million as compared with the
same period in 1998.
Capital expenditures of $18.6 million for the quarter represent a decrease
of $46.1 million from the same period in 1998. These expenditures, funded by
operating cash flows, consisted principally of drilling and development
activities and acquisitions of oil and gas properties. Of these capital
expenditures, approximately 75 percent was invested in the Rocky Mountain
Region, principally in the Piceance, Powder River and Wind River Basins, and
20 percent in the Mid-Continent Region. In response to low product prices and
a desire to limit debt levels, the Company set its 1999 capital expenditures
budget at $92 million compared with approximately $206 million in 1998. In an
effort to maintain debt levels, management continues to be sensitive to
fluctuations in product prices and will reassess the capital expenditure
levels relative to such fluctuations and the Company's cash flows.
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.
Information regarding the Company's Year 2000 readiness is contained in the
Company's annual report on Form 10-K for the year ended December 31, 1998 and
reference is made to the information contained there. There has been no
material change in the status of the Company's Year 2000 readiness program. A
Company-wide test will be made in June of 1999 to verify that all IT systems
are Year 2000 compliant. Costs associated with completing this project are not
expected to exceed $250,000. Costs incurred to date are nominal and are
included in normal operating expense.
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.
9
Results of Operations
Net income for the quarters ended March 31, 1999 and 1998 was $7.7 million
($.24 per share, assuming dilution) and $6.2 million ($.19 per share, assuming
dilution), respectively. This increase is primarily due to an increase in
trading volumes along with a higher gross trading margin.
Total revenues for the quarter were $221.2 million, up 68 percent compared
to $131.7 million for the same period in 1998. This increase is principally
attributed to a $101.5 million increase in trading revenues.
Production revenue for the first quarter of 1999 decreased 22 percent from
$55.0 million to $43.8 million. Production revenues and related volumes and
average prices during the periods presented were as follows:
Quarter Ended
-------------------
March 31, March 31,
1999 1998
--------- ---------
Gas Revenues (000's)..................................... $39,661 $46,379
Gas Production (Bcf)..................................... 23.2 22.9
Average Price per Mcf.................................... $ 1.71 $ 2.03
Oil Revenues (000's)..................................... $ 4,140 $ 8,607
Oil Production (MBbls)................................... 418 648
Average Price per Barrel................................. $ 9.90 $ 13.28
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls = thousand
barrels.)
First quarter gas revenues decreased 14 percent as compared with the same
period in 1998, principally due to a 16 percent decrease in average prices.
The 52 percent decrease in first quarter 1999 oil revenues from the same
period in 1998 is attributed to a 25 percent decrease in average oil prices
and a 35 percent decrease in production volumes.
For the quarter ended March 31, 1999, revenues from trading were $176.4
million compared to $74.9 million for the same period in 1998. The associated
costs of trading increased to $161.3 million from $69.9 million. Gross profit
from trading was $15.1 million and $4.9 million for the respective quarters
ended March 31, 1999 and 1998.
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, 1999, the Company recognized net
producing hedging income of approximately $2.0 million which was recorded in
the consolidated statements of income as adjustments to gas production
revenue.
Depreciation, depletion and amortization decreased in 1999 to $23.7 million
from $24.3 million in 1998.
Interest expense for the first quarter increased from $4.7 million in 1998
to $5.4 million in 1999 due to higher debt levels for the first quarter of
1999 compared with the same period in 1998.
The Company's largest source of operating income is from trading activities.
The levels of the Company's revenues and earnings from gas and oil production
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 90 percent of the Company's production revenue for the first
quarter of 1999. 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.
10
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in "Quantitative and Qualitative Disclosures About
Market Risk" in Item 7A of the Company's 1998 Annual Report on Form 10-K is
incorporated herein by reference. This disclosure included a description of
the Company's potential exposure to market risks, including commodity price
risk and interest rate risk. As of March 31, 1999, there have been no material
changes in the Company's market risk exposure from that disclosed in the 1998
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.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibit is filed as part of this Quarterly Report on Form
10-Q:
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended March
31, 1999.
12
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
/s/ A. Ralph Reed
May 11, 1999 By __________________________________
A. Ralph Reed
President and Chief Operating
Officer
/s/ J. Frank Keller
May 11, 1999 By __________________________________
J. Frank Keller
Chief Financial Officer
13