Total 13 Pages
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
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OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________________ to _____________________
Commission file number 1-13446
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Barrett Resources Corporation
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(Exact name of registrant as specified in its charter)
Delaware 84-0832476
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Arapahoe Street, Tower 3, Suite 1000 Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
(303) 572-3900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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There were 25,572,507 shares of the registrant's $.01 par value common
stock outstanding as of May 13, 1996.
BARRETT RESOURCES CORPORATION
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INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Condensed Balance
Sheets - March 31, 1996 and
December 31, 1995.............................. 3
Consolidated Condensed Statements of
Income - Three Months Ended
March 31, 1996 and 1995........................ 4
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
March 31, 1996 and 1995........................ 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................. 8
PART II. OTHER INFORMATION
Item 5. Other Information.............................. 11
Item 6. Exhibits and Reports on Form 8-K .............. 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1996 1995
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 10,945 $ 7,529
Receivables, net 36,290 31,434
Inventory 598 657
Other current assets 535 470
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Total current assets 48,368 40,090
Property and equipment, net 313,359 300,666
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$ 361,727 $ 340,756
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,522 $ 14,403
Amounts payable to oil and gas property
owners 9,656 8,874
Production taxes payable 12,082 8,047
Accrued and other liabilities 3,592 5,080
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Total current liabilities 39,852 36,404
Long-term debt 100,000 89,000
Deferred income taxes 25,362 23,524
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000
shares authorized, none outstanding -- --
Common stock, $.01 par value: 35,000,000
shares authorized; 25,153,666 issued
(25,092,246 at December 31, 1995) 252 251
Additional paid-in capital 87,382 86,154
Retained earnings 109,346 105,890
Treasury stock, at cost: 20,439 shares (467) (467)
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Total stockholders' equity 196,513 191,828
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$ 361,727 $ 340,756
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See accompanying notes.
3
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
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March 31, March 31,
1996 1995
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Revenues:
Oil and gas production $ 29,544 $ 24,981
Trading revenues 11,993 7,788
Revenue from gas gathering 448 291
Interest income 197 153
Other income 125 258
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42,307 33,471
Operating expenses:
Lease operating expenses 10,947 8,897
Cost of trading 11,214 7,452
Depreciation, depletion and amortization 9,404 8,100
General and administrative 3,618 3,629
Interest expense 1,551 941
Other expense -- 125
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36,734 29,144
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Income for the period before income taxes 5,573 4,327
Provision for income taxes 2,117 1,313
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Net income for the period $ 3,456 $ 3,014
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Net income per common share and common
share equivalent $ .14 $ .11
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Weighted average number of shares of
common stock and common stock
equivalents 25,234 24,952
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See accompanying notes.
4
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended
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March 31, March 31,
1996 1995
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Cash flows from operations:
Net income $ 3,456 $ 3,014
Adjustments needed to reconcile to
net cash provided by operations:
Depreciation, depletion, and amortization 9,404 8,100
Amortization of unrealized hedging gains/
(losses) (1,138) --
Deferred income taxes 1,838 1,213
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13,560 12,327
Change in current assets and liabilities:
Accounts receivable (4,856) 6,185
Other current assets (65) 265
Accounts payable 119 (14,133)
Amounts due oil and gas owners 782 401
Production taxes payable 4,035 --
Accrued and other liabilities (350) 1,933
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Net cash flow provided by operations 13,225 6,978
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Cash flows from investing activities:
Proceeds from sale of oil and gas properties 135 5
Acquisition of property and equipment (22,173) (18,252)
Other -- (264)
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Net cash flow used in investing activities (22,038) (18,511)
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Cash flows from financing activities:
Proceeds from issuance of common stock 1,229 323
Borrowings on line of credit 11,000 15,000
Payments on line of credit -- (2,500)
Dividends paid -- (590)
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Net cash flow provided by financing activities 12,229 12,233
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Increase in cash and cash equivalents 3,416 700
Cash and cash equivalents at beginning of period 7,529 12,348
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Cash and cash equivalents at end of period $ 10,945 $ 13,048
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See accompanying notes.
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BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1996
1. UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the financial position of Barrett Resources Corporation and its
wholly owned subsidiaries, collectively referred to as the "Company", as of
March 31, 1996 and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The
results of operations for the periods presented are not necessarily
indicative of the results for the full year.
On July 18, 1995, Plains Petroleum Company ("Plains") was merged with a
subsidiary of the Company and thereby became a wholly owned subsidiary. The
merger was accounted for using the pooling of interests method, and
accordingly, the accompanying financial statements have been restated to
include the accounts and operations of Plains for all periods prior to the
merger. Due to this restatement, the financial statements included in this
Form 10-Q are not comparable to the financial statements for the same
periods as presented in previously filed documents.
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, 1995. 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,
1996, the Company used an estimated effective tax rate of thirty-eight
percent.
The Internal Revenue Service (IRS) has examined the federal tax returns of
Plains for the calendar years 1991, 1992 and 1993. In a report to the
Company, transmitted by a "30-day letter" that requests a response by the
Company within a 30 day period, the IRS has proposed a tax deficiency of
$5.3 million together with penalties of $1.1 million, and an undetermined
amount of interest. The IRS proposed deficiency resulted primarily from
the disallowance of certain net operating loss deductions claimed during
the periods under examination. These net operating losses originally were
incurred by a company that was acquired by Plains in 1986. The Company
currently has additional unused net operating loss carryforwards of
approximately $30 million related to the same acquisition.
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Management disagrees with the IRS position, and the Company has rejected
the IRS's position by refusing to accept the adjustments proposed in the
30-day letter. In management's opinion, the federal tax returns of Plains
under examination reflect the proper federal income tax liability and the
existing net operating loss carryforwards are appropriate as supported by
relevant authority. The Company will vigorously contest these proposed
adjustments and believes it will prevail in its positions. It is
anticipated that the final determination of this matter will involve a
lengthy process.
3. LONG-TERM DEBT
Subsequent to December 31, 1995, the Company increased the borrowing limit
on its reserved-based line of credit to $110 million. The Company
currently has a borrowing base of $160 million and may, at its option,
increase the borrowing limit to the amount of the borrowing base.
As of March 31, 1996 the Company's effective interest rate, on an
outstanding balance of $100 million, was approximately 6.3% per annum.
Total interest costs incurred for the quarter ended March 31, 1996 were
$1.6 million. Of this amount, $8,000 was capitalized for specific
projects.
4. SUBSEQUENT EVENT
In April 1996, the Company acquired additional interests in oil and gas
properties and in a gas gathering system located in the Piceance Basin of
Colorado. Please refer to Item 5 of this Form 10-Q for additional
information regarding this transaction.
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BARRETT RESOURCES CORPORATION
For the Quarter Ended
March 31, 1996
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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Liquidity and Capital Resources
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For the three months ended March 31, 1996, total assets increased $20.9
million, or 5.8 percent, to $361.7 million as compared with total assets of
$340.8 million at December 31, 1995. Cash and short term investments
increased $3.4 million, working capital increased $4.8 million and property
and equipment increased $12.7 million. During the quarter, the Company
actively invested in oil and gas properties in its areas of activity, which
increased both property and equipment and long-term debt.
At the end of the quarter, total long-term debt was $100 million, an
increase of $11 million from year-end 1995. These funds were utilized to
fund the Company's drilling programs and acquire additional interests in
oil and gas properties. The Company's unsecured line of credit of $200
million has a current borrowing base of $160 million.
Operating cash flows before working capital adjustments totaled $13.6
million in the first quarter of 1996 compared with $12.3 million in the
first quarter of 1995. After working capital adjustments, cash flow
provided by operations increased by 90 percent to $13.2 million as compared
with the same period in 1995.
Capital expenditures of $22.2 million for the quarter increased $3.7
million over the same period in 1995. These expenditures, funded by
operating cash flows and borrowings, consisted principally of drilling and
development activities of oil and gas properties, and acquisition and
development of producing properties. Of these capital investments,
approximately $16.1 million was invested in development and expansion
activities in the Piceance, Wind River and Anadarko Basins.
In April, the Company expended $2.7 million and issued 350,000 shares of
its common stock to acquire additional interests in oil and gas properties
and a gas gathering system located in the Piceance Basin of Colorado. See
Item 5 of this Form 10-Q for additional information regarding this
transaction.
In May 1996, the Company announced its intent to undertake a public
offering of four million shares of its common stock. Proceeds from this
offering are intended to be used to reduce the Company's current
outstanding debt and thereby enable the Company to utilize its line of
credit, together with operating cash flow, to fund its planned oil and gas
exploration and development activities. If the offering is not completed
for any reason, management believes that the Company's borrowing capacities
and cash flow are sufficient to fund its planned exploration and
development activities, albeit at a higher debt level.
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Results of Operations
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The following discussion of operating results is based on historical
consolidated financial information that has been restated as though the
companies of the merger of the Company and Plains on July 18, 1995 had been
combined from inception.
Net income for the quarters ended March 31, 1996 and 1995 was $3.5 million
($.14 per share) and $3.0 million ($.11 per share), respectively. This
increase is primarily due to increased oil and gas production revenue and a
6 percent increase in the average oil and gas sales prices for the quarter.
Total revenues for the quarter were $42.3 million, up 26 percent compared
to $33.5 million for the same period in 1995. This increase is attributed
to higher production revenues and a 54 percent increase in trading
revenues.
Production revenue for the first quarter of 1996 increased 18 percent from
$25.0 million to $29.5 million. Production revenues and related volumes
and average prices during the periods presented were as follows:
Quarter Ended
March 31,
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1996 1995
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Gas Revenues (000's) $ 22,444 $ 18,296
Gas Production (Bcf) 13.5 11.7
Average Price per Mcf $ 1.67 $ 1.57
Oil Revenues (000's) $ 7,100 $ 6,685
Oil Production (Mbbls) 430 430
Average Price per Barrel $ 16.51 $ 15.55
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls =
thousand barrels)
First quarter gas revenues increased 23 percent as compared with the same
period in 1995, principally due to a 15 percent increase in production
volumes and a 6 percent increase in average gas prices.
The 6 percent increase in first quarter 1996 oil revenues from the same
period in 1995 is directly attributed to a 6 percent increase in average
oil prices.
9
For the quarter ended March 31, 1996, revenues from trading were $12.0
million compared to $7.8 million for the same period in 1995. The
associated costs of trading increased to $11.2 million from $7.5 million.
Gross profit from trading was $779,000 and $336,000 for the respective
quarters ended March 31, 1996 and 1995.
To reduce its exposure to volatile oil and gas price fluctuations, the
Company enters into hedging arrangements for both trading and producing
activities. During the first quarter ending March 31, 1996, the Company
recognized net producing hedging expenses of $812,000 which was recorded in
the consolidated statements of income as adjustments of oil and gas
production revenue. As of March 31, 1996, the Company held positions to
hedge production of 0.075 Bcf of gas and 91,000 barrels of oil.
Production costs increased due to increases in sales and higher operating
costs in the winter months in the first quarter.
Depreciation, depletion and amortization increased to $9.4 million from
$8.1 million due to a 13 percent increase in oil and gas equivalent
production. During the 1996 and 1995 quarters, depletion on oil and gas
production was recorded at $3.36 and $3.22 per BOE, respectively.
Interest expenses for the first quarter increased from $.9 million in 1995
to $1.6 million in 1996. Increases are directly attributed to additional
borrowing used principally to fund exploration, development and acquisition
of oil and gas properties.
The Company's largest source of operating income is from sales of its gas
and oil production. Therefore, the levels of the Company's revenues and
earnings are affected by prices at which natural gas and oil are being
sold. This is particularly true with respect to natural gas, which
accounted for approximately 76 percent of the Company's production revenue
for the first quarter 1996. As a result, the Company's operating results
for any prior period are not necessarily indicative of future operating
results because of the fluctuations in gas and oil prices and the lack of
predictability of those fluctuations as well as changes in production
levels.
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PART II. OTHER INFORMATION
Item 5. Other Information
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(i) On April 10, 1996, the Company acquired for $2.7 million from Zenith
Drilling Corporation ("Zenith") all of Zenith's oil and gas
interests located in the Piceance Basin of Colorado. Also on April
10, 1996, the Company acquired all the stock of Grand Valley
Corporation ("GVC") in exchange for 350,000 shares of the Company's
common stock. This transaction consisted of a merger of GVC into a
subsidiary of the Company. The sole asset of GVC was an approximate
10 percent interest in the Grand Valley Gathering System. The
Company is the operator and previously had owned interests in both
the gathering system and the oil and gas assets in which it acquired
interests as a result of these transactions. Pursuant to the
respective agreements with Zenith and GVC, Zenith is responsible for
all liabilities related to the interests transferred by Zenith, and
the shareholders of GVC are responsible for certain liabilities of
GVC that accrue on or before March 1, 1996. The Company is
responsible for liabilities accruing after March 1, 1996.
The terms of these transactions were negotiated on behalf of the
Company by a Special Committee of the Board of Directors of the
Company, consisting of four independent outside directors (Messrs.
Grant, Rodgers, Schreiber and Welch.) The Company also obtained an
opinion from an investment banking firm that the terms of these
transactions are fair to the Company. Mr. C. Robert Buford, a
director of the Company, owns 89 percent of Zenith. In addition, at
the time of the transaction, Mr. Buford served as a director of GVC
and owned 10 percent of GVC. The other 90 percent of GVC was owned
at that time by Mr. Buford's three adult children.
(ii) At the April 24, 1996 Federal OCS lease sale for the Central Gulf of
Mexico, the Company joined United Meridian Corporation in submitting
high bids on nine tracts in the West Cameron, East Cameron,
Vermilion, South Monarch Island and Eugene Island areas. The Company
will have a 22.22 percent working interest in each of these nine
tracts. Separately, the Company joined with Norcen Explorer, Inc.
with a 50 percent working interest, in submitting the high bid for
the Ship Shoal Block 235 tract. Finally, the Company independently
submitted the high bid for the West Cameron Block 211 tract. Total
bonus payments, net to the Company, for these lease interests will
be $2.28 million. All bids are subject to approval by the Minerals
Management Service.
(iii) The Compensation Committee of the Company's Board of Directors has
agreed with William J. Barrett that Mr. Barrett will continue as
Chairman of the Board until the Company's 1999 Annual Meeting of
Stockholders and as Chief Executive Officer until the 1997 Annual
Meeting of Stockholders.
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(iv) See "Note 2. Income Taxes" in Notes to Consolidated Condensed
Financial Statements in this Form 10-Q for description of a dispute
with the Internal Revenue Service.
(v) Two putative class actions filed in Delaware Chancery Court, Miller
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v. Cody and Crandon Capital Partners v. Miller, against Plains and
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certain of its former directors were dismissed without prejudice in
March. No defendent paid any consideration for such dismissals.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this Quarterly
Report on Form 10-Q:
10.1 Employment Agreement dated August 7, 1994 between Plains
Petroleum Operating Company and William F. Wallace is
incorporated by reference from Plains Petroleum Company's
Quarterly Report on Form 10-Q dated November 11, 1994.
10.2 Amendment of Employment Agreement dated October 3, 1994
between Plains Petroleum Operating Company and William F.
Wallace is incorporated by reference from Plains Petroleum
Company's Quarterly Report on Form 10-Q dated November 11,
1994.
10.3 Employment Agreement dated as of July 19, 1995 between the
Registrant and William F. Wallace.
10.4 Severance Agreement dated September 26, 1990 between
Plains Petroleum Company and Eugene A. Lang, Jr. is
incorporated by reference from Plains Petroleum Company's
Quarterly Report on Form 10-Q dated November 13, 1990.
10.5 Letter agreement dated September 18, 1995 between the
Registrant and Eugene A. Lang, Jr. concerning the
Severance Agreement dated September 26, 1990.
10.6 Agreement and Plan of Reorganization between and among
Registrant, Bargath Inc., and Grand Valley Corporation
dated April 10, 1996.
10.7 Purchase And Sale Agreement dated April 10, 1996 between
the Registrant and Zenith Drilling Corporation.
27. Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the quarter
ended March 31, 1996.
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BARRETT RESOURCES CORPORATION
May 14, 1996 By /s/ Paul M. Rady
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Paul M. Rady
President
May 14, 1996 By /s/ J. Frank Keller
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J. Frank Keller
Chief Financial Officer
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