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, 1996
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 No. 0-10727
TIDE WEST OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 84-0846048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6666 South Sheridan Road
Suite 250
Tulsa, Oklahoma 74133
(Address of principal executive offices)
(918) 488-8962
(Registrant's telephone number)
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 ___
---
As of May 8, 1996, 9,795,128 shares of the registrant's Common Stock,
par value $.01 per share, were outstanding.
TIDE WEST OIL COMPANY
Index to Quarterly Report on Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements PAGE
Consolidated Balance Sheets (Unaudited) - 3
December 31, 1995 and March 31, 1996
Consolidated Statements of Income 4
(Unaudited) - three months ended March 31, 1995 and 1996
Consolidated Statements of Cash Flows 5
(Unaudited) - Three months ended March 31, 1995 and 1996
Notes to Consolidated Financial Statements 6-9
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 10-14
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings 15
Item 2. Changes in securities 15
Item 3. Defaults upon senior securities 15
Item 4. Submission of matters to a vote of security-holders 15
Item 5. Other information 15
Item 6. Exhibits and reports on Form 8-K 15
Signatures 16
2
Part I. Financial Information
Item 1. Financial Statements
Tide West Oil Company
Consolidated Balance Sheets
(UNAUDITED)
December 31, March 31,
(In thousands, except shares and per share amounts) 1995 1996
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents 3,744 6,812
Accounts receivable:
Revenues 16,692 22,876
Other 2,763 2,004
Other current assets 1,509 1,427
--------------------------
Total current assets 24,708 33,119
Property and Equipment:
Oil and gas properties (successful efforts method) 149,734 151,560
Other property and equipment 1,802 1,897
--------------------------
151,536 153,457
Accumulated depreciation, depletion and amortization (33,090) (35,932)
--------------------------
Property and equipment, net 118,446 117,525
Investments 980 965
Other Assets - Net 263 244
--------------------------
144,397 151,853
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Gas purchases 10,281 13,514
Other 3,345 3,797
Revenues payable 3,788 5,217
Accrued liabilities 2,924 2,536
--------------------------
Total current liabilities 20,338 25,064
Long-term Debt - Net of Current Maturities 40,800 39,600
Deferred Tax Liability 8,636 9,457
Minority Interest 117 (45)
Commitments and Contingencies --- ---
Stockholders' Equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized, none outstanding --- ---
Common stock, $.01 par value, 20,000,000 shares authorized, 9,787,628
shares outstanding 98 98
Additional paid-in capital 58,062 58,062
Retained earnings 16,346 19,617
--------------------------
Total stockholders' equity 74,506 77,777
--------------------------
144,397 151,853
==========================
See notes to the unaudited consolidated financial statements.
3
Tide West Oil Company
Consolidated Statements of Income
(UNAUDITED)
Three months Three months
ended ended
(In thousands, except per share amounts) March 31, 1995 March 31, 1996
- --------------------------------------------------------------------------------------------------------
Revenues:
Oil and gas $8,447 $11,772
Trading and transportation 19,239 27,344
--------------------------------------
Total revenues 27,686 39,116
Operating Expenses:
Cost of trading and transportation 18,738 25,952
General and administrative - trading and transportation 139 118
Lease operating 1,914 2,067
Severance taxes 584 763
General and administrative 904 1,088
Compensation expense - stock options 45 ----
Depreciation, depletion and amortization 3,607 2,876
--------------------------------------
Total operating expenses 25,931 32,864
--------------------------------------
Operating Income 1,755 6,252
--------------------------------------
Other Income (Expense):
Interest income 56 60
Interest expense (728) (724)
Gain on sale of assets 2 50
Gain on commodities transactions, net 2,902 ----
Other income (expense) 2 (185)
--------------------------------------
Total other income (expense) 2,234 (799)
Income Before Income Taxes 3,989 5,453
Provision for Income Taxes 1,397 2,182
--------------------------------------
Net Income $2,592 $3,271
======================================
Weighted Average Common Shares - Primary 9,830 10,142
Weighted Average Common Shares - Fully Diluted 9,830 10,199
Primary Earnings per share $0.26 $0.32
Fully Diluted Earnings per share $0.26 $0.32
See notes to the unaudited consolidated financial statements.
4
Tide West Oil Company
Consolidated Statements of Cash Flows
(UNAUDITED)
Three months Three months
ended ended
(In thousands) March 31, 1995 March 31, 1996
- -------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income $2,592 $3,271
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 3,607 2,876
Gain from sale of assets (2) (50)
Unrealized gain on commodity transactions (2,449) --
Minority interest in earnings of Horizon 2 47
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 3,274 (5,426)
Decrease in income tax receivable 1,191 --
(Increase) decrease in other current assets (2,004) 82
Increase in other assets (453) (4)
Increase in income taxes payable -- 876
Increase (decrease) in accounts and revenues payable
and accrued liabilities (1,972) 3,851
Increase in deferred income taxes 200 821
------------------------------------
Total adjustments 1,394 3,073
------------------------------------
Net cash provided by operating activities 3,986 6,344
Investing Activities:
Capital expenditures (12,989) (1,959)
Proceeds from sale of assets 156 73
Collections on note receivable 89 19
Distributions by Horizon -- (209)
------------------------------------
Net cash used in investing activities (12,744) (2,076)
Financing Activities:
Borrowings of long-term debt 14,584 16,800
Principal payments on long-term debt (1,000) (18,000)
Common stock repurchased (1,123) --
------------------------------------
Net cash provided by (used in) financing activities 12,461 (1,200)
------------------------------------
Net Increase in Cash and Cash Equivalents 3,703 3,068
Cash and Cash Equivalents, Beginning of Period 364 3,744
------------------------------------
Cash and Cash Equivalents, End of Period $4,067 $6,812
====================================
See notes to the unaudited consolidated financial statements.
5
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Note 1. Basis of Presentation
---------------------
The consolidated financial statements included in this Report have been
prepared by Tide West Oil Company (the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission for interim
reporting and include all adjustments (consisting of only normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation. These consolidated financial
statements have not been audited by an independent accountant. The
consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, Tide West Trading & Transport
Company ("Tide West Trading"), Draco Petroleum, Inc., and Horizon Gas
Partners, L.P. ("Horizon"). All significant intercompany accounts and
transactions have been eliminated. The consolidated balance sheet at
December 31, 1995, included in this Report, has been derived from the
audited consolidated balance sheet.
On April 10, 1995, Killgore Investment, Inc. ("Killgore") was merged
with and into the Company, and 149,538 shares of the Company's common
stock were issued in exchange for all of the outstanding common stock
of Killgore. The merger was accounted for as a pooling of interests.
Prior periods financial statements were not restated because the effect
of this business combination was not material.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. The financial data for the interim
periods presented may not necessarily reflect the results to be
anticipated for the complete year.
Note 2. Summary of Significant Accounting Policies
------------------------------------------
Management Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
6
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Note 2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Commodity Transactions
----------------------
Tide West Oil Company
From time to time, Tide West Oil Company hedges the price of a portion
of its future oil and gas production with commodity price swap
contracts and futures contracts. Gains and losses on contracts which
effectively hedge the price of future production are deferred and
included in income in the month that was hedged.
Tide West Trading
Tide West Trading enters into natural gas future and swap contracts in
order to hedge against changes in the price of physical quantities sold
or to be purchased. Natural gas futures and swap prices are based on
NYMEX future prices or other published indices for the month. Gains and
losses on contracts which effectively hedge the price of future
physical quantities sold or to be delivered are deferred and included
in income in the month that was hedged.
General
Commodity contracts that do not qualify as hedges are recorded at
market value and gains or losses are recognized currently. Margin
deposits on futures are recorded as other current assets.
The Company's commodity transactions, that do not qualify as hedges,
fix the quantity sold with the quantity purchased so that market value
gains or losses are recorded based on the monthly closing price of the
index at the balance sheet date.
Investments
-----------
Investments consist of a 17.9 percent limited partnership interest in
an oil and gas partnership accounted for under the cost method.
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
During the three months ended March 31, 1995 and 1996, cash payments
for interest totaled $761,000 and $739,000 respectively of which
$46,000 and $15,000 was capitalized. Cash payments for income taxes
totaled $6,000 and $485,000 for the three months ended March 31, 1995
and 1996, respectively.
7
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Note 2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Depreciation, Depletion, and Amortization
-----------------------------------------
Depreciation, depletion and amortization per equivalent barrel of
production from the Company's oil and gas properties for the three
months ended March 31, 1995 and 1996, was $4.25 and $3.20,
respectively.
Note 3. Earnings per Share
------------------
Earnings per common share for the periods presented have been computed
using the weighted average number of common shares outstanding.
Outstanding stock options and warrants are included in the weighted
average shares outstanding for all periods in which their effect on
earnings per share is dilutive.
Note 4. Recent Accounting Pronouncements
--------------------------------
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 ("FAS 121"), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed". FAS 121
attempts to standardize methods used to determine whether the costs of
long-lived assets will be recovered, and how such cost should be tested
for value impairment. The effect of this pronouncement on the Company's
financial statements was not material.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation." FAS 123 establishes a fair value method and disclosure
standards for stock-based employee compensation arrangements, such as
stock purchase plans and stock options. As allowed by FAS 123, the
Company will continue to follow the provisions of Accounting Principles
Board Opinion No. 25 for such stock-based compensation arrangements,
and disclose the pro forma effects of applying FAS 123 in its annual
report to stockholders.
Note 5. Merger Developments
-------------------
On February 25, 1996, the Company entered into an agreement (which was
amended and restated as of April 29, 1996) with HS Resources, Inc., a
Delaware corporation ("HS Resources"), whereby the Company is to be
merged with and into a subsidiary of HS Resources (the "Merger"). In
the Merger, each share of the Company's common stock will be converted
into .6295 of a share of HS Resources common stock and the right to
receive a cash payment of $8.75 less 3% of the amount by which the
average of the per share closing sales prices of HS Resources common
8
TIDE WEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Note 5. Merger Developments (continued)
-------------------------------
stock for the 10 trading days ending five business days preceding the
closing date of the Merger exceeds $10.50, subject to adjustments in
certain events. The Merger is subject to approval by the stockholders
of the Company, and the issuance of HS Resources common stock pursuant
to the Merger is subject to approval of the stockholders of HS
Resources. Certain stockholders of the Company (holding, in the
aggregate, more than 50% of the outstanding shares of common stock of
the Company) have agreed with HS Resources to vote their shares in
favor of the Merger.
At the time the Company's Board of Directors (the "Board") determined
and publicly announced that the Company would be sold, the Board
decided, and it was announced to the employees of the Company, that the
Company would pay to each employee who is still employed by the Company
at the closing a completion bonus, payable immediately prior to the
closing (whether or not the employee is employed by the surviving
corporation), in order to provide such employees with an incentive to
remain in the employ of the Company and to help prepare the Company for
sale. The amount of such bonuses are, in the case of certain employees,
measured in part by the market price of HS Resources common stock. The
Board also decided to pay to Natural Gas Partners, L.P. ("NGP") (which
is the Company's largest stockholder and also acts as financial advisor
to the Company) a fixed completion bonus in recognition of the extra
effort required of NGP to prepare the Company for sale. A financial
advisor fee to Merrill Lynch & Co. (which acts as financial advisor to
the Company in connection with the Merger) and a cash conversion of the
Company's employee stock options, pursuant to the Merger, is also
payable upon closing. Assuming a $13.00 per share price for HS
Resources common stock, the sum of all of the above amounts that would
be payable at closing are approximately $13.1 million. Since these
amounts are payable only upon successful completion of the merger with
HS Resources, these amounts are not recorded in the Company's financial
statements as of March 31, 1996.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Merger Developments
On February 25, 1996, the Company entered into an agreement (which was amended
and restated as of April 29, 1996) with HS Resources, Inc., a Delaware
corporation ("HS Resources"), whereby the Company is to be merged with and into
a subsidiary of HS Resources (the "Merger"). In the Merger, each share of the
Company's common stock will be converted into .6295 of a share of HS Resources
common stock and the right to receive a cash payment of $8.75 less 3% of the
amount by which the average of the per share closing sales prices of HS
Resources common stock for the 10 trading days ending five business days
preceding the closing date of the Merger exceeds $10.50, subject to adjustments
in certain events. The Merger is subject to approval by the stockholders of the
Company, and the issuance of HS Resources common stock pursuant to the Merger is
subject to approval of the stockholders of HS Resources. Certain stockholders of
the Company (holding, in the aggregate, more than 50% of the outstanding shares
of common stock of the Company) have agreed with HS Resources to vote their
shares in favor of the Merger.
Results of Operations
General
- -------
The factors that most significantly affect the Company's operating results are
(i) the sales prices of oil and natural gas; (ii) the amount of oil and gas
sold; (iii) the amount of operating expenses; (iv) the interest rates on, and
amounts of, borrowing; and (v) fluctuations in net margins on the Company's gas
marketing subsidiary. Sales of oil and gas are significantly affected by the
Company's ability to complete producing property acquisitions and to maintain or
increase production from existing properties through development drilling and
production enhancement activities. The following table reflects certain
operating data for the periods presented.
Three Months Ended
--------------------------
March 31,
--------------------------
1995 1996
------ ------
Net Sales Volumes:
Oil (MBbls) 125 145
Natural gas (MMcf) 4,342 4,514
Oil equivalent (MBOE) 848 898
Average Sales Prices:
Oil (per Bbl) $15.90 $18.52
Natural gas (per Mcf) 1.40 1.83
Operating Expenses per BOE of Net Sales:
Lease operating $ 2.26 $ 2.30
Severance tax .69 .85
General and administrative(1) 1.23 1.34
- ----------------------------------------------------------
(1) Includes general and administrative for trading and transportation.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The comparability of results during the periods presented is impacted by the
fact that, during the period from October 1989 through March 31, 1996, the
Company completed 59 property acquisitions involving total acquisition and
development costs of approximately $142.0 million that added substantial proved
oil and gas reserves and increased production levels. As a result, the
Company's equivalent reserves increased 63% in 1993, 22% in 1994, and 40% in
1995, while production and revenues have also increased.
Prices received by the Company for sales of oil and natural gas fluctuate
significantly from period to period. Relatively modest changes in either oil or
gas prices can significantly impact the Company's results of operations and cash
flows. The prices for natural gas are influenced by weather conditions and
supply imbalances, particularly in the domestic market, and by world wide-oil
price levels. Declines in natural gas or oil prices could adversely affect the
semi-annual borrowing base determination under the Company's current credit
agreement.
Since 1991, the Company has engaged in some hedging activities through commodity
swaps and futures transactions in order to reduce the effects of the volatility
of oil and gas prices. Since March 31, 1996, Tide West Oil Company has hedged
13,000 Mcf per day from June 1996 to May 1997 at an average price of $1.98 per
Mcf on natural gas and 400 Bbls per day from June 1996 to May 1997 at an average
price of $18.50 per Bbl on oil. In addition, Tide West Trading amd Transport
Company ("Tide West Trading") has hedged 5.8 Bcf, 1.8 Bcf, and .2 Bcf for 1996,
1997, and 1998, respectively, at settlement prices which are based upon NYMEX
future prices or other published indices. Gains or losses on contracts which
hedge the price of future production are deferred and included in income in the
month that was hedged.
Through Tide West Trading, the Company actively markets its own natural gas
production as well as that of third parties. The Company believes that this
activity gives it more control over the marketing of its product and, thus
generates value that it would not otherwise receive if its gas were marketed by
a third party. The revenues and the associated expenses of this activity are
recognized under the heading "Trading and transportation" in the Company's
financial statements after elimination of intercompany transactions. The results
of the Company's operations vary due to seasonal fluctuations in the sales
prices and volumes of natural gas. Due to these seasonal fluctuations, results
of operations for individual quarterly periods may not be indicative of the
results which may be realized on an annual basis.
Three Months Ended March 31, 1996
Compared to Three Months Ended March 31, 1995
Oil and gas revenues increased $3.3 million, or 39%, during the three months
ended March 31, 1996 compared to the same period in 1995. This increase was
due, in part, to a 17% increase in crude oil sales volumes and a 4% increase in
natural gas sales volumes, while average sales prices received for crude oil
increased by $2.62 per Bbl, or 16%, and natural gas increased by $0.43 per Mcf,
or 31%. The increase in production is due to the Company's oil and gas property
acquisitions and developmental drilling and workover program during 1995.
Trading and transportation net margins increased by $891,000 in the first
quarter of 1996 as compared to the same period of 1995. The net margin per MMBTU
was $0.14 in the first quarter of 1996 compared to $0.03 per MMBTU for the same
period in 1995, due to the increase in natural gas price volatility during the
first quarter of 1996 compared to the first quarter of 1995. Natural gas
marketed on the Company's behalf amounted to 20% of the total gas sold by Tide
West Trading in the first quarter of 1996, as compared to 17% in the first
quarter of 1995.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Tide West Trading enters into natural gas futures and swap contracts in order to
hedge against changes in the price of physical quantities sold or to be
purchased. Natural gas futures and swap prices are based on NYMEX future prices
or other published indices for the month. In the first quarter of 1996, Tide
West Trading's hedging activity yielded a gain of $309,000, as compared to a
loss of $116,000 in the first quarter of 1995.
In addition, Tide West Trading recorded an unrealized gain of $364,000 on
commodity contracts on 25.0 Bcf of natural gas that do not qualify as a hedge.
The commodity transactions, which do not qualify as hedge, fix the quantity sold
with the quantity purchasd so that market value gains or losses are recorded
based on the monthly closing price of the index at the balance sheet date. There
were no comparable transactions included in trading and transportation revenues
for 1995.
Lease operating expenses increased $153,000, or 8% for the first quarter of 1996
compared to the first quarter of 1995. The increase in lease operating expense
is due to the property acquisitions, developmental drilling and workover
activities during 1995.
Severance taxes increased $179,000, or 31% as a result of a 39% increase in oil
and gas revenues.
General and administrative expenses increased $163,000, or 16%, for the first
quarter of 1996 compared to the first quarter of 1995, due primarily to the
expansion of the Company's developmental drilling and workover activities and
the acquisition of oil and gas properties during 1995.
Depreciation, depletion and amortization decreased $731,000, or 20%, primarily
as a result of the revisions to the unit of production rates based upon
revisions to the estimated reserve quantities.
During the first quarter of 1995, the Company recorded an unrealized mark-to-
market gain of $2.9 million on 20.0 Bcf of natural gas commodity contracts, at
an average price of $1.81, which do not qualify as hedges. These contracts
expire at various dates through September 1996. In December 1995, the Company
sold sufficient quantities under commodity contracts to offset the 20.0 Bcf
purchased during the first quarter of 1995. The Company did not have any such
contracts in the comparable period of 1996.
Other expenses increased $187,000 in the first quarter of 1996 as compared to
1995. Other expenses in the first quarter of 1996 consisted primarily of merger
expenses, in the amount of $123,000, for costs associated with the proposed
Merger with HS Resources.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Subject to change in the event the proposed Merger with HS Resources is
consummated, the Company intends to continue to expand its reserve base through
acquisitions of producing oil and gas properties, developmental drilling and
workover programs. Sources of capital for such expansion include internally
generated cash flow and borrowing capacity under the Company's revolving credit
facility. At March 31, 1996, the Company had positive working capital of $8.1
million, long-term debt of $39.6 million, and stockholders' equity was $77.8
million.
The Company's principal source of cash flow is the production and sale of its
crude oil and natural gas reserves, which are depleting assets. Cash flow from
oil and gas sales depends upon the quantity of production and the price obtained
for such production. An increase in prices permits the Company to finance its
operations to a greater extent with internally generated funds. A decline in
prices reduces the cash flow generated by operations, which in turn reduces the
funds available for servicing debt, acquiring additional properties and
exploring for and developing new reserves.
Net cash provided by operating activities was $4.0 million and $6.3 million for
the three months ended March 31, 1995 and 1996, respectively. The increase was
primarily due to an increase in operating income and the realization of the gain
on commodity transactions.
Capital Expenditures
The Company's ability to finance its oil and gas acquisitions is determined by
its cash flow from operations and sources of debt financing. Subject to change
in the event the proposed Merger is consummated, the Company presently budgets
capital expenditures in 1996 of approximately $10.0 million for oil and gas
property acquisitions and approximately $17.0 million for drilling and
enhancement activities. The timing of most capital expenditures is
discretionary because the Company has no material long-term commitments. Thus,
the Company has the flexibility to adjust expenditure levels as conditions
warrant. The Company primarily uses internally generated cash flow to fund
capital expenditures associated with development and enhancement of existing
properties. In the event the Company's internally generated cash flow should be
otherwise insufficient to meet its debt service or other obligations, the
Company may reduce the level of discretionary capital expenditures in order to
meet such obligations. The level of the Company's capital expenditures will
vary in future periods, depending on energy market conditions, potential return
on investment and other related economic factors. The Company believes that
cash flow and available credit capacity will be sufficient to fund budgeted
capital expenditures and debt service during the remainder of 1996.
Net cash used in investing activities was $12.7 million and $2.1 million for the
three month periods ended March 31, 1995 and 1996, respectively. The decrease in
net cash used in investing activities for 1996 was primarily due to the decrease
in acquisition activities of oil and gas
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
properties in the first quarter of 1996 compared to 1995. Of the $2.0 million
in capital expenditures for the first quarter of 1996, $1.4 million was spent on
developmental drilling and workover programs and $600,000 on producing property
acquisitions.
Financing Arrangements
Certain banks have provided the Company with a revolving credit facility, which
is secured by substantially all of the Company's oil and gas assets, and is
renewable on July 1 of each year. At March 31, 1996, the outstanding principal
balance under the facility was $39.6 million. On a semi-annual basis, the banks
redetermine the Company's borrowing base based upon their review of the
Company's reserves. In the event of non-renewal, the outstanding advances will
be converted into a three-year loan. The unused and available portion of the
revolving commitment under the Company's bank credit facility was $40.4 million
at March 31, 1996 and $48.0 million on May 8, 1996. The unused portion of the
Company's revolving credit facility provides liquidity to finance future
acquisitions, developmental drilling and workover programs. The Company expects
that cash flow from operations which is not utilized for capital expenditures
will be used to reduce indebtedness.
At March 31, 1996, the borrowing base under the revolving facility was $80.0
million. Advances under the revolving credit facility bear interest, payable
monthly, at a floating rate based on the prime rate 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 LIBOR vary based on
the level of outstanding advances and the borrowing base at the time. In
addition, the Company must pay a quarterly standby commitment fee of .25% to
.375%, depending upon the relationship of outstanding borrowing to the borrowing
base.
The Company has a total of $40.0 million notional amount hedged through interest
rate swaps for a four year period beginning in 1996 and continuing through 1999.
The effective interest rates to be paid by the Company on its interest rate
swaps are 8.7% for 1996 and 8.8% for 1997 through 1999.
The Company's wholly-owned subsidiary, Tide West Trading, has a $5.0 million
letter of credit facility, all of which was available at March 31, 1996.
Net cash provided by (used in) financing activities was $12.5 million and ($1.2)
million for the three month period ended March 31, 1995 and 1996, respectively.
The cash financing activities for the three months ended March 31, 1995
consisted primarily of a $13.6 million net increase in long-term debt, compared
with a $1.2 million net decrease in long-term debt for the comparable period in
1996.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
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:
2.0 Amended and Restated Agreement and Plan of Merger
dated as of April 29, 1996, by and among HS
Resources, HSR Acquisition, Inc., and the Company
(incorporated by reference to Annex A to the Joint
Proxy Statement/Prospectus forming a part of HS
Resources' Registration Statement on Form S-4,
No. 333-01991, as amended).
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
15
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.
TIDE WEST OIL COMPANY
---------------------
Registrant
By: /S/ Peggy E. Gwartney
--------------------------
Peggy E. Gwartney
Chief Financial Officer
Duly Authorized Officer and
Principal Accounting Officer
Date: May 15, 1996
16
INDEX TO 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.
2.0 Amended and Restated Agreement and Plan of Merger dated as of April 29,
1996, by and among HS Resources, HSR Acquisition, Inc., and the Company
(filed as Annex A to the Joint Proxy Statement/Prospectus forming a part
of HS Resources' Registration Statement on Form S-4, No. 333-01991, as
amended).
27.0 Financial Data Schedule