UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 1-10578
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VINTAGE PETROLEUM, INC.
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(Exact name of registrant as specified in charter)
Delaware 73-1182669
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
110 West Seventh Street Tulsa, Oklahoma 74119-1029
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(918) 592-0101
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 3, 2000
- ----------------------------- --------------------------
Common Stock, $.005 Par Value 62,489,866
-1-
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except shares
and per share amounts)
(Unaudited)
ASSETS
------
March 31, December 31,
2000 1999
---------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 6,737 $ 42,687
Accounts receivable -
Oil and gas sales 84,574 87,484
Joint operations 5,073 5,211
Prepaids and other current assets 18,551 19,109
---------- ----------
Total current assets 114,935 154,491
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, successful efforts method 1,539,559 1,521,672
Oil and gas gathering systems and plants 18,974 15,453
Other 17,652 17,287
---------- ----------
1,576,185 1,554,412
Less accumulated depreciation, depletion and amortization 605,494 583,060
---------- ----------
970,691 971,352
---------- ----------
OTHER ASSETS, net 43,379 42,291
---------- ----------
TOTAL ASSETS $1,129,005 $1,168,134
========== ==========
See notes to unaudited consolidated financial statements.
-3-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2000 1999
---------- ------------
CURRENT LIABILITIES:
Revenue payable $ 26,684 $ 25,899
Accounts payable - trade 27,645 26,118
Current taxes payable 20,413 5,875
Other payables and accrued liabilities 38,630 36,010
---------- ----------
Total current liabilities 113,372 93,902
---------- ----------
LONG-TERM DEBT 519,246 625,318
---------- ----------
DEFERRED INCOME TAXES 21,957 15,780
---------- ----------
OTHER LONG-TERM LIABILITIES 3,612 2,005
---------- ----------
STOCKHOLDERS' EQUITY, per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding - -
Common stock, $.005 par, 80,000,000 shares authorized,
62,435,866 and 62,407,866 shares issued and
outstanding, respectively 312 312
Capital in excess of par value 314,622 314,490
Retained earnings 155,884 116,327
---------- ----------
470,818 431,129
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,129,005 $1,168,134
========== ==========
See notes to unaudited consolidated financial statements.
-4-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
REVENUES:
Oil and gas sales $144,455 $ 53,494
Gas marketing 18,462 10,318
Oil and gas gathering and processing 3,418 1,580
Other income 987 612
-------- --------
167,322 66,004
-------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes 35,000 23,847
Exploration costs 2,304 5,887
Gas marketing 17,527 9,794
Oil and gas gathering and processing 2,668 1,194
General and administrative 9,003 7,933
Depreciation, depletion and amortization 22,505 32,205
Interest 13,415 14,560
-------- --------
102,422 95,420
-------- --------
Income (loss) before income taxes 64,900 (29,416)
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 15,926 28
Deferred 6,297 (11,323)
-------- --------
NET INCOME (LOSS) $ 42,677 $(18,121)
======== ========
EARNINGS (LOSS) PER SHARE:
Basic $.68 $(.34)
======== ========
Diluted $.67 $(.34)
======== ========
Weighted average common shares outstanding:
Basic 62,412 53,107
======== ========
Diluted 63,788 53,107
======== ========
See notes to unaudited consolidated financial statements.
-5-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------
(In thousands)
(Unaudited)
Capital
Common Stock In Excess
---------------- of Par Retained
Shares Amount Value Earnings Total
-------- ------ --------- -------- ---------
Balance at December 31, 1999 62,408 $312 $314,490 $116,327 $431,129
Net income - - - 42,677 42,677
Exercise of stock options
and resulting tax effects 28 - 132 - 132
Cash dividends declared
($.05 per share) - - - (3,120) (3,120)
-------- ---- -------- -------- --------
Balance at March 31, 2000 62,436 $312 $314,622 $155,884 $470,818
======== ==== ======== ======== ========
See notes to unaudited consolidated financial statements.
-6-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 42,677 $ (18,121)
Adjustments to reconcile net income (loss) to
cash provided by operating activities -
Depreciation, depletion and amortization 22,505 32,205
Exploration costs 2,304 5,887
Provision (benefit) for deferred income taxes 6,297 (11,323)
--------- ---------
73,783 8,648
Decrease in receivables 3,048 11,451
Increase (decrease) in payables and accrued liabilities 14,982 (1,874)
Other 2,188 (3,283)
--------- ---------
Cash provided by operating activities 94,001 14,942
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas expenditures (23,674) (18,646)
Other property and equipment additions (386) (865)
Proceeds from sales of oil and gas properties - 63
Other (1,171) 1,082
--------- ---------
Cash used by investing activities (25,231) (18,366)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 132 -
Sale of 9 3/4% Senior Subordinated Notes - 146,000
Advances on revolving credit facility and other borrowings 7,032 9,624
Payments on revolving credit facility and other borrowings (110,324) (148,896)
Dividends paid (1,560) (1,328)
--------- ---------
Cash provided (used) by financing activities (104,720) 5,400
--------- ---------
Net increase (decrease) in cash and cash equivalents (35,950) 1,976
Cash and cash equivalents, beginning of period 42,687 5,245
--------- ---------
Cash and cash equivalents, end of period $ 6,737 $ 7,221
========= =========
See notes to unaudited consolidated financial statements.
-7-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
March 31, 2000 and 1999
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of the Company and its wholly- and
majority-owned subsidiaries. In addition, the Company's interests in various
joint ventures have been proportionately consolidated, whereby the Company's
proportionate share of each joint venture's assets, liabilities, revenues and
expenses is included in the appropriate accounts in the consolidated financial
statements. Management believes that all material adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation have been
made. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain 1999 amounts have been reclassified to
conform with the 2000 presentation. These reclassifications have no impact on
net income (loss). These financial statements and notes should be read in
conjunction with the 1999 audited financial statements and related notes
included in the Company's 1999 Annual Report on Form 10-K, Item 8, Notes to
Consolidated Financial Statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
Under the successful efforts method of accounting, the Company capitalizes all
costs related to property acquisitions and successful exploratory wells, all
development costs and the costs of support equipment and facilities. All costs
related to unsuccessful exploratory wells are expensed when such wells are
determined to be non-productive; other exploration costs, including geological
and geophysical costs, are expensed as incurred. The Company recognizes gain or
loss on the sale of properties on a field basis.
Unproved leasehold costs are capitalized and are reviewed periodically for
impairment. Costs related to impaired prospects are charged to expense. If oil
and gas prices decline in the future, some of these unproved prospects may not
be economic to develop which could lead to increased impairment expense.
Costs of development dry holes and proved leaseholds are amortized on the
unit-of-production method based on proved reserves on a field basis. The
depreciation of capitalized production equipment and drilling costs is based on
the unit-of-production method using proved developed reserves on a field basis.
Estimated abandonment costs, net of salvage value, are included in the
depreciation and depletion calculation.
-8-
The Company reviews its proved oil and gas properties for impairment on a
field basis. For each field, an impairment provision is recorded whenever
events or circumstances indicate that the carrying value of those properties may
not be recoverable. The impairment provision is based on the excess of carrying
value over fair value. Fair value is defined as the present value of the
estimated future net revenues from production of total proved oil and gas
reserves over the economic life of the reserves, based on the Company's
expectations of future oil and gas prices and costs. No impairment provision
was required for the first three months of either 2000 or 1999. Due to the
volatility of oil and gas prices, it is possible that the Company's assumptions
regarding oil and gas prices may change in the future and may result in future
impairment provisions.
Statements of Cash Flows
Cash payments for interest totaled $8,899,764 and $10,733,050 for the three
months ended March 31, 2000 and 1999, respectively. Cash payments for U.S.
Federal and state income taxes were $425,000 during the three months ended March
31, 2000. There were no cash payments made for U.S. income taxes in the first
three months of 1999. During the three months ended March 31, 2000 and 1999,
the Company made cash payments of $1,320,146 and $28,366, respectively, for
foreign taxes.
Earnings Per Share
The Company applies Financial Accounting Standards Board Statement No. 128,
Earnings Per Share ("SFAS No. 128"). Basic earnings (loss) per common share
were computed by dividing net income (loss) by the weighted average number of
shares outstanding during the period. For the three months ended March 31,
1999, the computation of diluted loss per share was antidilutive; therefore, the
amounts reported for basic and diluted loss per share were the same. Had the
Company been in a net income position for this period, the Company's diluted
weighted average outstanding common shares as calculated under SFAS No. 128
would have been 55,694,353. In addition, for the three months ended March 31,
2000 and 1999, the Company had outstanding stock options for 1,584,000 and
3,531,322 additional shares of the Company's common stock, respectively, with
average exercise prices of $17.82 and $13.22, respectively, which were
antidilutive.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("SFAS No. 130"), establishing standards for
reporting and display of comprehensive income and its components in financial
statements. SFAS No. 130 defines comprehensive income as the total of net
income and all other non-owner changes in equity. During the three month
periods ended March 31, 2000 and 1999, the Company had no non-owner changes in
equity other than net income or loss.
-9-
Hedging
The Company periodically uses hedges (swap agreements) to reduce the impact of
oil and natural gas price fluctuations. Gains or losses on swap agreements are
recognized as an adjustment to sales revenue when the related transactions being
hedged are finalized. Gains or losses from swap agreements that do not qualify
for accounting treatment as hedges are recognized currently as other income or
expense. The cash flows from such agreements are included in operating
activities in the consolidated statements of cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). In June 1999, the FASB
issued Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
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. SFAS No. 133 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. Companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133, as amended, is effective for fiscal years beginning after June
15, 2000; however, beginning June 16, 1998, companies may implement the
statement as of the beginning of any fiscal quarter. SFAS No. 133 cannot be
applied retroactively and must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts. The Company has
not yet quantified the impact of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of the adoption of
SFAS No. 133.
3. SEGMENT INFORMATION
The Company's reportable business segments have been identified based on the
differences in products or services provided. Revenues for the exploration and
production segment are derived from the production and sale of natural gas and
crude oil. Revenues for the gathering/plant segment arise from the
transportation, processing and sale of natural gas, crude oil and plant
products. The gas marketing segment generates revenue by earning fees through
the marketing of Company produced gas volumes and the purchase and resale of
third party produced gas volumes. The Company evaluates the performance of its
operating segments based on operating income before corporate general and
administrative costs and interest costs.
-10-
Operations in the gathering/plant and gas marketing segments are in the United
States. The Company operates in the oil and gas exploration and production
segment in the United States, South America and Yemen. Summarized financial
information for the Company's reportable segments for the first quarters of 2000
and 1999 is shown in the following table:
Exploration and Production
-----------------------------------------
Other
U.S. Argentina Bolivia Foreign
-------- --------- -------- -------
2000 - 1/st/ Quarter
- ----------------------------------
Revenues from external customers... $ 74,871 $ 61,152 $ 1,878 $ 6,971
Intersegment revenues.............. - - - -
Depreciation, depletion and
amortization expense......... 12,384 7,520 1,287 476
Operating income (loss)............ 38,828 42,647 (1,401) 5,827
Total assets....................... 517,799 379,879 113,748 70,906
Capital investments................ 7,062 6,987 6,060 3,565
Long-lived assets.................. 466,770 341,664 91,415 59,392
1999 - 1/st/ Quarter
- ----------------------------------
Revenues from external customers... $ 38,100 $ 14,657 $ 464 $ 721
Intersegment revenues.............. - - - -
Depreciation, depletion and
amortization expense......... 23,737 6,958 367 293
Operating income (loss)............ (5,709) 2,650 (211) (3,902)
Total assets....................... 555,508 252,948 79,126 44,438
Capital investments................ 5,168 539 8,664 4,277
Long-lived assets.................. 521,257 240,944 69,816 39,054
Gathering/ Gas
Plant Marketing Corporate Total
---------- --------- --------- ----------
2000 - 1/st/ Quarter
- ----------------------------------
Revenues from external customers... $ 3,418 $18,462 $ 570 $ 167,322
Intersegment revenues.............. 550 490 - 1,040
Depreciation, depletion and
amortization expense......... 369 - 469 22,505
Operating income (loss)............ 381 934 102 87,318
Total assets....................... 10,430 7,693 28,550 1,129,005
Capital investments................ 21 - 365 24,060
Long-lived assets.................. 6,781 - 4,669 970,691
1999 - 1/st/ Quarter
- ----------------------------------
Revenues from external customers... $ 1,580 $10,317 $ 165 $ 66,004
Intersegment revenues.............. 306 524 - 830
Depreciation, depletion and
amortization expense......... 275 - 575 32,205
Operating income (loss)............ 111 524 (386) (6,923)
Total assets....................... 7,268 7,158 56,044 1,002,490
Capital investments................ 637 - 226 19,511
Long-lived assets.................. 4,712 - 4,054 879,837
Intersegment sales are priced in accordance with terms of existing contracts
and current market conditions. Capital investments include expensed exploratory
costs. Corporate general and administrative costs and interest costs are not
allocated to the operating income (loss) of the segments.
-11-
4. COMMITMENTS AND CONTINGENCIES
The Company committed to perform 17,728 work units related to its concession
rights in the Naranjillos field in Santa Cruz Province, Bolivia awarded in late
1997. The total work unit commitment is guaranteed by the Company through a
letter of credit (currently $56.4 million). The Company anticipates a $22.6
million reduction in this letter of credit in the second or third quarter of
2000 upon approval by the Bolivian government of work performed in late 1999 and
early 2000. Approximately $33 million has been budgeted to be spent in 2000,
thereby fulfilling the Company's Naranjillos field commitment.
During July 1999, the Company committed to perform an additional 1,068 work
units in its Chaco field located in Bolivia over the next two years. This work
commitment was secured by a $5.3 million letter of credit. The Company has
completed the work units necessary to fulfill this commitment and its letter of
credit was released in early April 2000.
The Company is also committed to spend approximately $11 million in the
Republic of Yemen over a two and one-half year period which began in July 1998.
This work commitment is guaranteed by an $11 million letter of credit. The
planned expenditures include the acquisition and interpretation of 150 square
kilometers of seismic and the drilling of three exploration wells. To date, the
seismic work had been completed and the first exploratory well had been drilled
and is currently being tested. The Company plans to drill the remaining two
exploration wells under its commitment during the second and third quarters of
2000, thereby fulfilling its initial $11 million commitment. At the end of the
first two and one-half years, the Company has the option to extend the work
program for a second two and one-half year period with similar work and capital
commitments required.
The Company had $79.8 million in letters of credit (including the $72.7
million in letters of credit discussed above) outstanding at March 31, 2000.
These letters of credit relate primarily to various obligations for acquisition
and exploration activities in South America and bonding requirements of various
state regulatory agencies for oil and gas operations. The Company's
availability under its revolving credit facility is reduced by the outstanding
balance of letters of credit (excluding the $56.4 million Bolivia letter of
credit discussed above).
Under the Company's exploration contract on Block 19 in Ecuador, the
Company is required to drill one additional well. The Company expects to drill
this well during the third quarter of 2000 at a cost of approximately $4
million.
On November 4, 1998, the Company issued 1,325,000 shares of common stock to
Elf Aquitaine as partial consideration for the acquisition of its French
subsidiary, Elf Hydrocarbures Equateur, S.A., which owns producing oil
properties and undeveloped acreage in Ecuador. The 1,325,000 shares of common
stock of the Company is valued at a guaranteed amount of $20 per share, or $26.5
million. If the Company's prevailing share price is not equal to at least $20
per share after two years from the date of closing, the Company will be required
to deliver additional consideration under the price guarantee provision of the
agreement. Such additional consideration, if any, is payable, at the Company's
option, in cash or additional shares of the Company's common stock. Had the
Company been required to fulfill its commitment under the price guarantee at
March 31, 2000 (based on the average price for the preceding 60 trading days of
$14.64), it would have had to pay an additional $7.1 million in cash or issue an
additional 485,000 shares of its common stock.
-12-
Rent expense was $0.5 million and $0.4 million for the first quarters of
2000 and 1999, respectively. The future minimum commitments under long-term,
non-cancellable leases for office space are $0.9 million for the last three
quarters of 2000 and $1.1 million, $1.3 million, $1.4 million and $1.5 million
for the calendar years 2001 through 2004, respectively with $3.6 million
remaining in years thereafter.
On November 5, 1996, the Province of Santa Cruz, Argentina brought suit
against the Company's subsidiary Cadipsa S.A. in the Corte Suprema de Justicia
de la Nacion (the Supreme Court of Justice of the Argentine Republic, Buenos
Aires, Argentina), Dossier No. s-1451, seeking to recover approximately $10.6
million (which sum includes interest) allegedly due as additional royalties on
four concessions granted in 1990 in which the Company currently owns a 100
percent working interest. The Company and its predecessors in title have been
paying royalties at an eight percent rate; the Province of Santa Cruz claims the
rate should be 12 percent. The amount of such claim will increase at the
differential of these royalty rates until this claim is resolved. With respect
to the 50 percent interest in the two concessions that the Company acquired from
British Gas, plc, the Company believes that it is entitled to indemnification by
British Gas, plc for any loss sustained by the Company as a result of this
claim. Such indemnification equals approximately $22.0 million of the current
$5.1 million claim as of March 31, 2000. The Company has no indemnification
from its predecessors in title with respect to the payment of royalties on the
other two concessions. The Company expects the outcome of this litigation to be
decided during 2000 and although the Company cannot predict the outcome, based
upon the advice of counsel, the Company does not expect this claim to have a
material adverse impact on the Company's financial position, results of
operations, or total proved reserves.
The Company is a defendant in various other lawsuits and is a party in
governmental proceedings from time to time arising in the ordinary course of
business. In the opinion of management, none of the various other pending
lawsuits and proceedings should have a material adverse impact on the Company's
financial position or results of operations.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. The following table reflects the Company's oil and gas
production and its average oil and gas sales prices for the periods presented:
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ----------
Production:
Oil (MBbls) -
U.S.......... 2,223 2,105
Argentina.... 2,218 1,551
Ecuador...... 305 118
Bolivia...... 19 13
Total........ 4,765 3,787
Gas (MMcf) -
U.S.......... 8,642 10,131
Argentina.... 1,483 70
Bolivia...... 1,126 683
Total........ 11,251 10,884
Total MBOE....... 6,640 5,601
Average prices:
Oil (per Bbl) -
U.S.......... $ 24.32(a) $ 10.07
Argentina.... 26.31 9.41
Ecuador...... 22.86 6.10
Bolivia...... 29.85 8.60
Total........ 25.18(a) 9.67
Gas (per Mcf) -
U.S.......... $ 2.36 $ 1.62
Argentina.... 1.90 .97
Bolivia...... 1.15 .51
Total........ 2.18 1.55
(a) The impact of oil hedges reduced the Company's U.S. and total average oil
prices per Bbl for the three months ended March 31, 2000, by $1.18 and
$.55, respectively.
-14-
Average U.S. oil prices received by the Company fluctuate generally with
changes in the NYMEX reference price ("NYMEX") for oil. The Company's Argentina
oil production is sold at WTI spot prices as quoted on the Platt's Crude Oil
Marketwire (approximately equal to the NYMEX) less a specified differential.
The Company experienced a 160 percent increase in its average oil price in the
first quarter of 2000 compared to the first quarter of 1999. The Company's
average realized oil price (before the impact of hedges) increased to 89 percent
of the NYMEX in the first quarter of 2000 compared to 74 percent of NYMEX in the
year-earlier period. The Company's U.S. and overall average oil prices for the
first three months of 2000 were decreased by $1.18 and 55 cents, respectively,
as a result of oil hedges. The Company was not party to any oil hedge contracts
for the first quarter of 1999.
Average U.S. gas prices received by the Company fluctuate generally with
changes in spot market prices, which may vary significantly by region. The
Company's Bolivia average gas price is tied to a long-term contract under which
the base price is adjusted for changes in specified fuel oil indexes. During the
first quarter of 2000, these fuel oil indexes increased in conjunction with the
current higher oil price environment. In Argentina, the Company's average gas
price is primarily determined by the realized price of oil from its El Huemul
concession. The Company's overall average gas price for the first three months
of 2000 was 41 percent higher than 1999's first three months.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. Currently, oil hedges (swap
agreements) for the last three quarters of 2000 cover 4.1 MMBbls at an average
NYMEX reference price of $23.74 per Bbl. The following table reflects the
barrels hedged and the corresponding weighted average NYMEX reference prices by
quarter for the remainder of the year:
NYMEX
Reference
Price
Quarter Ending Barrels Per Bbl
- ------------------ ------------- ---------
(in thousands)
June 30, 2000 1,365 $25.19
September 30, 2000 1,380 23.61
December 31, 2000 1,380 22.44
Relatively modest changes in either oil or gas prices significantly impact
the Company's results of operations and cash flow. However, the impact of
changes in the market prices for oil and gas on the Company's average realized
prices may be reduced from time to time based on the level of the Company's
hedging activities. Based on first quarter 2000 oil production, a change in the
average oil price realized by the Company of $1.00 per Bbl would result in a
change in net income and cash flow before income taxes on a quarterly basis
(before the impact of hedges) of approximately $3.0 million and $4.7 million,
respectively. A 10 cent per Mcf change in the average price realized by the
Company for gas would result in a change in net income and cash flow before
income taxes on a quarterly basis of approximately $0.7 million and $1.1
million, respectively, based on first quarter 2000 gas production.
-15-
Period to Period Comparison
Period ended March 31, 2000, Compared to Period ended March 31, 1999
The Company reported net income of $42.7 million for the quarter ended
March 31, 2000, compared to a net loss of $18.1 million for the year-earlier
quarter. The increase in the Company's net income is primarily due to a 160
percent increase in average oil prices and a 41 percent increase in average gas
prices combined with a 19 percent increase in production on an equivalent barrel
basis to result in an additional $91.0 million in oil and gas revenues. The 19
percent increase in production is as a result of the acquisition of certain
producing domestic oil and gas properties from Nuevo Energy Company (the "Nuevo
Acquisition") in December 1999, the acquisition of additional interests in the
Company's producing Ecuador concessions from Petrobras in December 1999 and the
acquisition of the producing El Huemul concession in Argentina in July 1999
(collectively, the "1999 Acquisitions"). Total costs before gathering and
marketing activities decreased three percent.
Oil and gas sales increased $91.0 million (170 percent), to $144.5 million
for the first quarter of 2000 from $53.5 million for the first quarter of 1999.
A 160 percent increase in average oil prices, coupled with a 26 percent increase
in oil production, accounted for an increase in oil sales of $83.4 million. A 41
percent increase in average gas prices, coupled with a three percent increase in
gas production, accounted for a $7.6 million increase in gas sales for the 2000
first quarter as compared to the year-earlier quarter. The 26 percent increase
in oil production and the three percent increase in gas production are primarily
the result of the 1999 Acquisitions and the increase in the Company's Bolivian
gas sales through the Bolivia-to-Brazil gas pipeline which opened in July 1999.
Oil and gas gathering and plant processing net margins increased $364,000
(94 percent), to $750,000 for the first quarter of 2000 from $386,000 for the
first quarter of 1999, due primarily to plant processing margins generated from
the Santa Clara Valley Gas Plant located in Ventura County, California, which
was acquired as part of the Nuevo Acquisition made by the Company in December
1999.
Lease operating expenses, including production taxes, increased $11.2
million (47 percent), to $35.0 million for the first quarter of 2000 from $23.8
million for the first quarter of 1999. Lease operating expenses per equivalent
barrel produced increased 24 percent to $5.27 in the first quarter of 2000 from
$4.26 for the same period in 1999, benefitting from the 19 percent higher
production. These cost increases resulted from the 1999 Acquisitions, the return
of certain higher-cost production which was shut in during the first quarter of
last year due to low oil prices, increased well work this quarter which had been
deferred during the low price periods of 1999 and higher production taxes as a
result of higher U.S. oil and gas sales.
Exploration costs decreased $3.6 million (61 percent), to $2.3 million for
the first quarter of 2000 from $5.9 million for same period of 1999. During the
first quarter of 2000, the Company's exploration costs consisted of $2.1 million
for unsuccessful exploratory drilling, primarily in Bolivia, and $0.2 million of
lease impairments. The Company's 1999 first quarter exploration costs consisted
of $4.3 million in 3-D seismic acquisition costs primarily in Yemen, $0.8
million in unsuccessful exploratory drilling, $0.4 million for lease expirations
and $0.4 million in other geological and geophysical costs.
-16-
General and administrative expenses increased $1.1 million (14 percent), to
$9.0 million for the first quarter of 2000 from $7.9 million for the first
quarter of 1999 due primarily to increased personnel costs associated with the
1999 Acquisitions and the impact of deferring 1999 annual salary adjustments to
the third quarter of 1999. Despite the 14 percent increase in costs, general
and administrative expenses per equivalent barrel produced for the first quarter
of 2000 decreased four percent to $1.36 from the $1.42 seen in the prior-year
quarter as a result of the 19 percent increase in the Company's oil and gas
production.
Depreciation, depletion and amortization ("DD&A") decreased $9.7 million
(30 percent), to $22.5 million for the first quarter of 2000 from $32.2 million
for the first quarter of 1999, despite the 19 percent increase in production due
to the 42 percent decrease in the Company's average amortization rate per
equivalent barrel produced. The average amortization rate per equivalent barrel
of the Company's oil and gas properties decreased from $5.60 in the first
quarter of 1999 to $3.25 in the first quarter of 2000 primarily as a result of
the reversal of the adverse impact that the year-ago historically low oil and
gas prices had on the reserve volumes used to calculate the 1999 first quarter
amortization rate and the new production from the Company's El Huemul
concession which has a low amortization rate.
Interest expense decreased $1.2 million (8 percent), to $13.4 million for
the first quarter of 2000 from $14.6 million for the first quarter of 1999, due
primarily to a 15 percent decrease in the Company's total average outstanding
debt as a result of the Company's use of $88 million of proceeds from property
sales in 1999 and its significantly increased cash flow to repay outstanding
debt. The Company's overall average interest rate increased to 8.59% in the
first quarter of 2000 as compared to 7.84% in the first quarter of 1999. The
Company had $10.2 million and $5.9 million of accrued interest payable at March
31, 2000, and December 31, 1999, respectively, included in other payables and
accrued liabilities.
Capital Expenditures
During the first quarter of 2000, the Company's domestic oil and gas
capital expenditures totaled $7.1 million. Exploratory activities accounted for
$0.7 million of these expenditures with exploitation activities contributing the
other $6.4 million. During the first quarter of 2000, the Company's
international oil and gas capital expenditures totaled $16.6 million, including
$5.9 million and $3.0 million of exploratory drilling expenditures in Bolivia
and Yemen, respectively. International exploitation activities accounted for
$7.7 million, primarily on development drilling in Argentina.
The Company committed to perform 17,728 work units related to its
concession rights in the Naranjillos field in Santa Cruz Province, Bolivia
awarded in late 1997. The total work unit commitment is guaranteed by the
Company through a letter of credit (currently $56.4 million). The Company
anticipates a $22.6 million reduction in this letter of credit in the second or
third quarter of 2000 upon approval by the Bolivian government of work performed
by the Company in late 1999 and early 2000. Approximately $33 million has been
budgeted to be spent in 2000, fulfilling the Company's Naranjillos field
commitment.
During July 1999, the Company committed to perform an additional 1,068 work
units in its Chaco field located in Bolivia over the next two years. This work
commitment was secured by a $5.3 million letter of credit. The Company has
completed the work units necessary to fulfill this commitment and its letter of
credit was released in early April 2000.
-17-
The Company is also committed to spend approximately $11 million in the
Republic of Yemen over a two and one-half year period which began in July 1998.
The planned expenditures include the acquisition and interpretation of 150
square kilometers of seismic and the drilling of three exploration wells. As of
the end of the first quarter of 2000, the seismic work had been completed and
the first exploratory well had been drilled and is currently being tested. The
Company plans to drill the remaining two exploration wells under its commitment
during the second and third quarters of 2000, thereby fulfilling its initial $11
million commitment. At the end of the first two and one-half years, the Company
has the option to extend the work program for a second two and one-half year
period with similar work and capital commitments required.
Except for the commitments discussed above, the timing of most of the
Company's capital expenditures is discretionary with no material long-term
capital expenditure commitments. Consequently, the Company has a significant
degree of flexibility to adjust the level of such expenditures as circumstances
warrant. The Company uses internally generated cash flow, coupled with advances
under its revolving credit facility, to fund capital expenditures other than
significant acquisitions and anticipates that its cash flow, net of debt service
obligations, will be sufficient to fund its budget of $146 million for non-
acquisition capital expenditures during 2000 and to further reduce its debt. The
Company's planned 2000 non-acquisition capital expenditure budget is currently
allocated 54 percent to exploitation activities, including development and
infill drilling, and 46 percent to exploration activities. The Company does not
have a specific acquisition budget since the timing and size of acquisitions are
difficult to forecast. The Company is actively pursuing additional acquisitions
of oil and gas properties. In addition to internally generated cash flow and
advances under its revolving credit facility, the Company may seek additional
sources of capital to fund any future significant acquisitions (see "-
Liquidity"), however, no assurance can be given that sufficient funds will be
available to fund the Company's desired acquisitions.
Liquidity
Internally generated cash flow and the borrowing capacity under its
revolving credit facility are the Company's major sources of liquidity. In
addition, the Company may use other sources of capital, including the issuance
of additional debt securities or equity securities, to fund any major
acquisitions it might secure in the future and to maintain its financial
flexibility. The Company funds its capital expenditures (excluding acquisitions)
and debt service requirements primarily through internally generated cash flows
from operations. Any excess cash flow is used to reduce outstanding advances
under the revolving credit facility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. The
Company has completed five public equity offerings, as well as two public debt
offerings and one privately placed debt offering under Rule 144A, which have
provided the Company with aggregate net proceeds of approximately $648 million.
The Company's unsecured revolving credit facility under the Amended and
Restated Credit Agreement dated October 21, 1998, as amended (the "Credit
Agreement"), establishes a borrowing base (currently $545 million) determined by
the banks' evaluation of the Company's oil and gas reserves. The amount
available to be borrowed under the Bank Facility is limited to the lesser of the
borrowing base or the facility size, which is currently set at $535 million.
The Company may increase the facility size up to $625 million without further
approvals from the existing bank group if additional banks agree to join the
group.
-18-
Outstanding advances under the Credit Agreement bear interest payable
quarterly at a floating rate based on Bank of Montreal's alternate base rate (as
defined) or, at the Company's option, at a fixed rate for up to six months based
on the eurodollar market rate ("LIBOR"). The Company's interest rate increments
above the alternate base rate and LIBOR vary based on the level of outstanding
senior debt to the borrowing base. As of March 31, 2000, the Company had
elected a fixed rate based on LIBOR for a substantial portion of its outstanding
advances, which resulted in an average interest rate of approximately 7.3
percent per annum. In addition, the Company must pay a commitment fee ranging
from 0.25 to 0.375 percent per annum on the unused portion of the banks'
commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's oil and gas reserves. If the sum
of outstanding senior debt exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding under the
Credit Agreement at September 11, 2001, will be payable in eight equal
consecutive quarterly installments commencing December 1, 2001, with maturity at
September 11, 2003.
The unused portion of the Credit Agreement was approximately $420 million
at April 30, 2000. The unused portion of the Credit Agreement and the Company's
internally generated cash flow provide liquidity which may be used to finance
future capital expenditures, including acquisitions. As additional acquisitions
are made and properties are added to the borrowing base, the banks'
determination of the borrowing base and their commitments may be increased.
The Company's internally generated cash flow, results of operations and
financing for its operations are dependent on oil and gas prices. Although the
Company has seen significant improvements in its commodity prices during the
third and fourth quarters of 1999 and the first quarter of 2000, should these
improvements not be sustained, its earnings and cash flow from operations will
be adversely impacted. The Company believes that its cash flows and unused
availability under the Credit Agreement are sufficient to fund its planned
capital expenditures for the foreseeable future.
Inflation
In recent years, U.S. inflation has not had a significant impact on the
Company's operations or financial condition. For discussion on the Company's
international operations and the impact of inflation, see the section "Foreign
Currency and Operations Risk" under "Item 3. Quantitative and Qualitative
Disclosures About Market Risk" located elsewhere in this Form 10-Q.
Income Taxes
The Company incurred current provisions for income taxes of approximately
$15.9 million and $28,000 for the first three months of 2000 and 1999,
respectively. The current income tax provision for the first quarter of 2000
primarily relates to Argentina income tax as all Argentina net operating losses
were fully utilized in 1999. The total provision for U.S. income taxes is based
on the Federal corporate statutory income tax rate plus an estimated average
rate for state income taxes. Earnings of the Company's foreign subsidiaries are
subject to foreign income taxes. No U.S. deferred tax liability will be
recognized related to the unremitted earnings of these foreign subsidiaries as
it is the Company's intention, generally, to reinvest such earnings permanently.
-19-
The Company has a U.S. Federal alternative minimum tax ("AMT") credit
carryforward of approximately $4.8 million which does not expire and is
available to offset U.S. Federal regular income taxes in future years, but only
to the extent that U.S. Federal regular income taxes exceed the AMT in such
years. The Company also has a regular tax NOL of $57.0 million for U.S. Federal
income tax purposes which it is able to carry forward up to 20 years to offset
future income taxes to be paid. The Company expects to fully utilize its NOL
carryforward in 2000.
Forward-Looking Statements
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements in this Form 10-Q, other than
statements of historical facts, that address activities, events or developments
that the Company expects, believes or anticipates will or may occur in the
future, including production, operating costs and product price realization
targets, future capital expenditures (including the amount and nature thereof),
the drilling of wells, reserve estimates, future production of oil and gas,
future cash flows, future reserve activity and other such matters are forward-
looking statements. Although the Company believes the expectations expressed in
such forward-looking statements are based on reasonable assumptions within the
bounds of its knowledge of its business, such statements are not guarantees of
future performance and actual results or developments may differ materially from
those in the forward-looking statements.
Factors that could cause actual results to differ materially from those in
forward-looking statements include: oil and gas prices; exploitation and
exploration successes; continued availability of capital and financing; general
economic, market or business conditions; acquisition opportunities (or lack
thereof); changes in laws or regulations; risk factors listed from time to time
in the Company's reports filed with the Securities and Exchange Commission; and
other factors. The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
-20-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company's operations are exposed to market risks primarily as a result
of changes in commodity prices, interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.
Commodity Price Risk
The Company produces, purchases and sells crude oil, natural gas,
condensate, natural gas liquids and sulfur. As a result, the Company's financial
results can be significantly impacted as these commodity prices fluctuate widely
in response to changing market forces. The Company has previously engaged in oil
and gas hedging activities and intends to continue to consider various hedging
arrangements to realize commodity prices which it considers favorable.
Currently, the Company has entered into various hedges (swap agreements)
for a total of 4.1 MMBbls of oil at a weighted average price of $23.74 per Bbl
(NYMEX reference price) for 2000. The fair value of commodity swap agreements is
the amount at which they could be settled, based on quoted market prices. At
March 31, 2000, the Company would have been required to pay approximately $6.8
million to terminate its oil swap agreements then in place. The Company
continues to monitor oil and gas prices and may enter into additional oil and
gas hedges or swaps in the future.
Interest Rate Risk
The Company's interest rate risk exposure results primarily from short-term
rates, mainly LIBOR based borrowings from its commercial banks. To reduce the
impact of fluctuations in interest rates the Company maintains a portion of its
total debt portfolio in fixed rate debt. At March 31, 2000, the amount of the
Company's fixed rate debt was approximately 77 percent of total debt. In the
past, the Company has not entered into financial instruments such as interest
rate swaps or interest rate lock agreements. However, it may consider these
instruments to manage the impact of changes in interest rates based on
management's assessment of future interest rates, volatility of the yield curve
and the Company's ability to access the capital markets in a timely manner. The
following table provides information about the Company's long-term debt cash
flows and weighted average interest rates by expected maturity dates:
Fair Value
There- at
2000 2001 2002 2003 after Total 3/31/00
------ ------- ------- -------- -------- -------- ----------
Long-Term Debt:
Fixed rate (in thousands)..... - - - - $399,146 $399,146 $383,705
Average interest rate......... - - - - 9.2% 9.2% -
Variable rate (in thousands).. - $15,013 $60,050 $45,037 - $120,100 $120,100
Average interest rate......... - (a) (a) (a) - (a) -
(a) LIBOR plus an increment, based on the level of outstanding senior debt to
the borrowing base, up to a maximum increment of 2.0 percent. The increment
above LIBOR at March 31, 2000, was 0.875 percent.
-21-
Foreign Currency and Operations Risk
International investments represent, and are expected to continue to
represent, a significant portion of the Company's total assets. The Company has
international operations in Argentina, Bolivia, Ecuador and Yemen. For the
first three months of 2000, the Company's operations in Argentina accounted for
approximately 37 percent of the Company's revenues, 49 percent of its operating
profit and 34 percent of its total assets. During such period, the Company's
operations in Argentina represented its only foreign operations accounting for
more than 10 percent of its revenues and operating income. For this same
period, the Company's Bolivia operations represented 10 percent of its total
assets, but did not exceed 10 percent of the Company's revenues or operating
income. The Company continues to identify and evaluate international
opportunities but currently has no binding agreements or commitments to make any
material international investment. As a result of such significant foreign
operations, the Company's financial results could be affected by factors such as
changes in foreign currency exchange rates, weak economic conditions or changes
in the political climate in these foreign countries.
The Company believes Argentina offers a relatively stable political
environment and does not anticipate any significant change in the near future.
The current democratic form of government has been in place since 1983 and,
since 1989, has pursued a steady process of privatization, deregulation and
economic stabilization and reforms involving the reduction of inflation and
public spending. Argentina's 12-month trailing inflation rate as measured by the
Argentine Consumer Price Index declined from 200.7 percent as of June 1991 to
5.1 percent as of March 2000.
All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are denominated in Argentine pesos. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur,
its revenues would be unaffected and its operating costs would not be
significantly increased. At the present time, there are no foreign exchange
controls preventing or restricting the conversion of Argentine pesos into
dollars.
Since the mid-1980's, Bolivia has been undergoing major economic reform,
including the establishment of a free-market economy and the encouragement of
foreign private investment. Economic activities that had been reserved for
government corporations were opened to foreign and domestic private investments.
Barriers to international trade have been reduced and tariffs lowered. A new
investment law and revised codes for mining and the petroleum industry, intended
to attract foreign investment, have been introduced.
On February 1, 1987, a new currency, the Boliviano ("Bs"), replaced the
peso at the rate of one million pesos to one Boliviano. The exchange rate is set
daily by the Government's exchange house, the Bolsin, which is under the
supervision of the Bolivian Central Bank. Foreign exchange transactions are not
subject to any controls. The US$:Bs exchange rate at March 31, 2000, was US$1:Bs
6.10. The Company believes that any currency risk associated with its Bolivian
operations would not have a material impact on the Company's financial position
or results of operations.
-22-
Prior to the Company's acquisition of Elf Ecuador in November 1998, its
previous operations in Ecuador were through a farm-in exploration joint venture
with two other companies in Block 19. Since 1992, the Government has generally
sought to reduce its participation in the economy and has implemented certain
macroeconomic reforms which were designed to reduce inflation. The Company
believes the current Government has a favorable attitude toward foreign
investment and has strong international relationships with the U.S.
Due to economic crisis, the sucre (Ecuador's monetary unit) exchange rate
against the US dollar increased from approximately 7,000:1 in January 1999 to
almost 21,000:1 in December 1999. During the same period, inflation reached
nearly 61 percent. The exchange rate has deteriorated further during 2000
reaching 25,000:1, while inflation for the year has reached 35 percent. The
crisis has resulted in President Jamil Mahaud being replaced by Gustavo Naboa
during a peaceful coup d etat carried out on January 21, 2000. The new
government, following proposals made by President Mahaud, has adopted a plan to
dollarize the sucre at 25,000:1. While significant protests are being made by
the rural population against dollarization, the plan has been initiated and is
expected to proceed to completion. Although the Company believes any currency
risk associated with its operations in Ecuador would not have a material impact
on its financial position or results of operations, it has policies in place
that reduce its exposure to currency risk related to the sucre including
maintaining essentially all of its cash in US dollar accounts primarily in U.S.
bank accounts. All of the Company's revenues in Ecuador are US dollar based.
-23-
PART II
OTHER INFORMATION
-24-
Item 1. Legal Proceedings
-----------------
For information regarding legal proceedings, see the Company's Form 10-
K for the year ended December 31, 1999.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
not applicable
Item 5. Other Information
-----------------
not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
The following documents are included as exhibits to this
Form 10-Q. Those exhibits below incorporated by reference herein
are indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after an
exhibit, such exhibit is filed herewith.
27. Financial data schedule.
b) Reports on Form 8-K
Form 8-K dated October 21, 1999, was filed January 4, 2000, to
report under Item 5 certain matters of the Company including
various Company press releases.
Form 8-K dated January 11, 2000, was filed January 11, 2000, to
report under Item 5 the Company's press release dated January 11,
2000, announcing declaration of cash dividend.
Form 8-K dated February 17, 2000, was filed February 23, 2000, to
report under Item 5 the Company's press releases dated February
17, 2000, and February 21, 2000, regarding 1999 reserves and
financial matters.
-25-
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.
VINTAGE PETROLEUM, INC.
-----------------------
(Registrant)
DATE: May 3, 2000 \s\ Michael F. Meimerstorf
------------- ----------------------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
-26-
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
- ------ -----------
27. Financial Data Schedule.
-27-