UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9971
BURLINGTON RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1413284
(State or other jurisdiction of (I.R.S. Employer
incorporation ororganization) Identification Number)
5051 Westheimer, Suite 1400, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 624-9500
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 issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding
Common Stock, par value $.01 per share,
as of March 31, 2002 201,154,419
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
FIRST QUARTER
---------------------
2002 2001
------ ------
(In Millions, Except per Share Amounts)
Revenues........................................................................ $ 683 $ 1,152
------- -------
Costs and Expenses
Taxes Other than Income Taxes................................................. 33 67
Transportation Expense........................................................ 67 72
Production and Processing..................................................... 136 118
Depreciation, Depletion and Amortization...................................... 220 170
Exploration Costs............................................................. 57 70
Administrative................................................................ 38 44
------- -------
Total Costs and Expenses........................................................ 551 541
------- -------
Operating Income................................................................ 132 611
Interest Expense................................................................ 72 45
Other Expense (Income) - Net.................................................... (1) 9
------- -------
Income Before Income Taxes...................................................... 61 557
Income Tax Expense.............................................................. 13 224
------- -------
Income Before Cumulative Effect of Change in Accounting Principle............... 48 333
Cumulative Effect of Change in Accounting Principle - Net....................... - 3
------- -------
Net Income...................................................................... $ 48 $ 336
======= =======
Earnings per Common Share
Basic
Before Cumulative Effect of Change in Accounting Principle................. $ 0.24 $ 1.56
Cumulative Effect of Change in Accounting Principle - Net.................. - 0.01
------- -------
Net Income................................................................. $ 0.24 $ 1.57
======= =======
Diluted
Before Cumulative Effect of Change in Accounting Principle................. $ 0.24 $ 1.55
Cumulative Effect of Change in Accounting Principle - Net.................. - 0.01
------- -------
Net Income................................................................. $ 0.24 $ 1.56
======= =======
See accompanying Notes to Consolidated Financial Statements.
2
BURLINGTON RESOURCES INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
2002 2001
----------- -------------
(In Millions, Except Share Data)
ASSETS
Current Assets
Cash and Cash Equivalents....................................... $ 56 $ 116
Accounts Receivable............................................. 399 398
Commodity Hedging Contracts and Other Derivatives............... 20 118
Inventories..................................................... 56 50
Other Current Assets............................................ 43 33
-------- --------
574 715
-------- --------
Oil & Gas Properties (Successful Efforts Method).................. 16,668 16,038
Other Properties.................................................. 1,449 1,416
-------- --------
18,117 17,454
Accumulated Depreciation, Depletion and Amortization............ 8,804 8,623
-------- --------
Properties - Net.............................................. 9,313 8,831
-------- --------
Goodwill.......................................................... 782 782
-------- --------
Other Assets...................................................... 247 254
-------- --------
Total Assets................................................ $ 10,916 $ 10,582
======== ========
LIABILITIES
Current Liabilities
Accounts Payable................................................ $ 552 $ 599
Taxes Payable................................................... 55 6
Accrued Interest................................................ 80 61
Dividends Payable............................................... 28 28
Other Current Liabilities....................................... 23 17
-------- --------
738 711
-------- --------
Long-term Debt.................................................... 4,692 4,337
-------- --------
Deferred Income Taxes............................................. 1,379 1,403
-------- --------
Other Liabilities and Deferred Credits............................ 611 606
-------- --------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, Par Value $.01 Per Share
(Authorized 75,000,000 Shares; One Share Issued)............... - -
Common Stock, Par Value $.01 Per Share
(Authorized 325,000,000 Shares; Issued 241,188,688 Shares)..... 2 2
Paid-in Capital................................................... 3,942 3,944
Retained Earnings................................................. 1,352 1,332
Deferred Compensation - Restricted Stock.......................... (15) (9)
Accumulated Other Comprehensive Loss.............................. (161) (106)
Cost of Treasury Stock
(40,034,269 and 40,395,695 Shares for 2002 and 2001, respectively) (1,624) (1,638)
-------- --------
Stockholders' Equity.............................................. 3,496 3,525
-------- --------
Total Liabilities and Stockholders' Equity.................. $ 10,916 $ 10,582
======== ========
See accompanying Notes to Consolidated Financial Statements.
3
BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
FIRST QUARTER
---------------
2002 2001
------ ------
(In Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income....................................................... $ 48 $ 336
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation, Depletion and Amortization......................... 220 170
Deferred Income Taxes............................................ (1) 110
Exploration Costs................................................ 57 70
Changes in Derivative Fair Values................................ 25 (11)
Working Capital Changes
Accounts Receivable.............................................. - 108
Inventories...................................................... (6) (19)
Other Current Assets............................................. (10) 4
Accounts Payable................................................. (25) 25
Taxes Payable.................................................... 50 94
Accrued Interest................................................. 19 8
Other Current Liabilities........................................ (4) (5)
Changes in Other Assets and Liabilities........................... (12) (17)
------- -------
Net Cash Provided By Operating Activities...................... 361 873
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Properties........................................... (762) (371)
Other............................................................. 5 (1)
------- -------
Net Cash Used In Investing Activities.......................... (757) (372)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Borrowings.......................................... 355 400
Reduction in Borrowings........................................... - (320)
Dividends Paid.................................................... (28) (30)
Common Stock Purchases............................................ - (224)
Common Stock Issuances............................................ 4 31
Other............................................................. 5 14
------- -------
Net Cash Provided by (Used In) Financing Activities............ 336 (129)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (60) 372
CASH AND CASH EQUIVALENTS
Beginning of Year................................................. 116 132
------- -------
End of Period..................................................... $ 56 $ 504
======= =======
See accompanying Notes to Consolidated Financial Statements.
4
BURLINGTON RESOURCES INC.
Notes TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The 2001 Annual Report on Form 10-K (Form 10-K) of Burlington Resources
Inc. (the Company), includes certain definitions and a summary of significant
accounting policies and should be read in conjunction with this Quarterly Report
on Form 10-Q (Quarterly Report). The financial statements for the periods
presented herein are unaudited and do not contain all information required by
generally accepted accounting principles to be included in a full set of
financial statements. In the opinion of management, all material adjustments
necessary to present fairly the results of operations have been included. All
such adjustments are of a normal, recurring nature. The results of operations
for any interim period are not necessarily indicative of the results of
operations for the entire year. The consolidated financial statements include
certain reclassifications that were made to conform to current period
presentation.
Basic earnings per common share (EPS) is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. The weighted average number of common shares
outstanding for computing basic EPS was 201 million and 214 million for the
first quarter of 2002 and 2001, respectively. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. The weighted average number of
common shares outstanding for computing diluted EPS, including dilutive stock
options, was 202 million and 215 million for the first quarter of 2002 and 2001,
respectively. No adjustments were made to reported net income in the computation
of EPS.
5
2. COMPREHENSIVE INCOME (LOSS)
The following table presents comprehensive income (loss).
FIRST QUARTER FIRST QUARTER
---------------------------------------------
(In Millions) 2002 2001
--------------- ---------------------------------------------
Accumulated other comprehensive loss - Beginning of Period........... $ (106) $ (70)
Net income........................................................... $ 48 $ 336
--------- ----------
Other comprehensive loss - net of tax
Hedging activities
Cumulative effect of change in accounting principle -
January 1, 2001................................................. - (366)
Current period changes in fair value of settled contracts.......... 14 54
Reclassification adjustments for settled contracts................. (43) 186
Changes in fair value of outstanding hedging positions............. (31) (17)
--------- ----------
Hedging activities........................................ (60) (143)
Foreign currency translation
Foreign currency translation adjustments........................... 5 (42)
--------- ----------
Total other comprehensive loss....................................... (55) (55) (185) (185)
--------- -------- ---------- ---------
Comprehensive income ................................................ $ (7) $ 151
========= ==========
Accumulated other comprehensive loss - End of Period................. $ (161) $ (255)
============ ===========
3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company enters into gas swap agreements to fix the prices of
anticipated future natural gas production and enters into gas swap agreements
that convert its production back to market sensitive positions when matched
against fixed-price gas sales. The Company enters into natural gas basis swap
agreements to fix the sales price differential between the Company's marketing
locations and Henry Hub. The Company enters into natural gas option agreements
to establish floor and ceiling prices on anticipated future natural gas
production. The Company also enters into natural gas option agreements to
establish floor and ceiling prices on anticipated future natural gas production
while allowing the Company to participate in upward price movements above a
specified non-participation range. There were no net premiums received on the
hedging contracts that allow the Company to participate in upward price
movements above a specified non-participation price range.
6
The Company also enters into crude oil swap agreements to fix the price of
anticipated future crude oil production and purchases call options agreements
that allow the Company to participate in market price increases that exceed
hedge prices established when the Company enters into a swap.
As of March 31, 2002, the Company had the following natural gas volumes
hedged.
Natural Gas Fixed-price Swaps
Average Fair Value
Production Volumes Fixed Liability
Period (MMBTU) Price (In Millions)
--------------- ------------------ ---------------- --------------------
2002 33,422,560 $2.70 $(3)
2003 15,570,630 3.11 (8)
2004 15,613,289 3.23 (6)
2005 10,513,930 3.18 (4)
2006 to 2007 1,672,500 $3.21 $(1)
Natural Gas Basis Swaps
Average Fair Value
Production Volumes Basis Asset
Period (MMBTU) Differential (In Millions)
--------------- ------------------ ---------------- --------------------
2002 33,422,560 $(.25) $1
2003 15,570,630 (.28) -
2004 15,613,289 (.27) -
2005 10,513,930 (.28) -
2006 to 2007 1,672,500 $(.15) $-
Natural Gas Options
Average Fair Value
Production Volumes Strike Asset/(Liability)
Period Option Type (MMBTU) Price (In Millions)
- --------------- ------------------- ------------------- --------------- ---------------------
2002 Puts purchased 139,670,000 $2.82 $ 38
2002 Puts sold 113,795,000 2.09 (4)
2002 Calls sold 139,670,000 4.42 (20)
2002 Calls purchased 9,100,000 10.80 -
2003 Puts Purchased 91,250,000 2.84 27
2003 Puts Sold 91,250,000 2.08 (7)
2003 Call Sold 91,250,000 $4.71 $(20)
As of March 31, 2002, the fair value of the swap agreements the Company had
entered into in order to convert the Company's fixed-price gas sales contracts
to market sensitive positions was a $4 million asset offset by a $4 million
liability basis adjustment to the carrying value of the fixed-price gas sales
contracts.
7
Crude Oil Options
Average Fair Value
Production Volumes Strike Asset
Period Option Type (Barrels) Price (In Millions)
- --------------- ------------------- ------------------- --------------- ----------------------
2002 Puts purchased 910,000 $25.00 $1
2002 Puts sold 910,000 20.00 -
2002 Calls sold 910,000 32.17 -
2002 Calls purchased 910,000 $38.00 $-
The derivative assets and liabilities represent the difference between
hedged prices and market prices on hedged volumes of the commodities as of March
31, 2002. Hedging activities increased natural gas and crude oil revenues by $69
million and $3 million, respectively, in the first quarter of 2002. In addition,
during the quarter, non-cash losses of $25 million were recorded in revenues
associated with ineffectiveness of cash-flow and fair-value hedges and changes
in the fair value of derivative instruments that do not qualify for hedge
accounting.
In addition to hedges of commodity prices, the Company also has foreign
currency swaps to hedge its exposure to exchange rate fluctuations related to
its Canadian subsidiaries. As of March 31, 2002, the Company had $10 million of
liabilities related to foreign currency exchange rate hedges.
Based on commodity prices and foreign exchange rates as of March 31, 2002,
the Company expects to reclassify gains of $4 million ($3 million after tax) to
earnings from the balance in accumulated other comprehensive loss during the
next twelve months. As of March 31, 2002, the Company had cash-flow hedge
derivative assets of $19 million and derivative liabilities of $26 million. The
Company also had liabilities and assets related to fair-value hedges of $6
million and $8 million, respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company and numerous other oil and gas companies have been named as
defendants in various lawsuits alleging violations of the civil False Claims
Act. These lawsuits have been consolidated by the United States Judicial Panel
on Multidistrict Litigation for pre-trial proceedings in the matter of In re
Natural Gas Royalties Qui Tam Litigation, MDL-1293, United States District Court
for the District of Wyoming (MDL-1293). The plaintiffs contend that defendants
underpaid royalties on natural gas and NGLs produced on federal and Indian lands
through the use of below-market prices, improper deductions, improper
measurement techniques and transactions with affiliated companies. Plaintiffs
allege that the royalties paid by defendants were lower than the royalties
required to be paid under federal regulations and that the forms filed by
defendants with the Minerals Management Service (MMS) reporting these royalty
payments were false, thereby violating the civil False Claims Act. The United
States has intervened in certain of the MDL-1293 cases as to some of the
defendants, including the Company.
Various administrative proceedings are also pending before the MMS of the
United States Department of the Interior with respect to the valuation of
natural gas produced by the Company on federal and Indian lands. In general,
these proceedings stem from regular MMS audits of the Company's royalty payments
over various periods of time and involve the interpretation of the relevant
federal regulations.
8
Based on the Company's present understanding of the various governmental
and False Claims Act proceedings described above, the Company believes that it
has substantial defenses to these claims and intends to vigorously assert such
defenses. However, in the event that the Company is found to have violated the
civil False Claims Act, the Company could be subject to monetary damages and a
variety of sanctions, including double damages, substantial monetary fines,
civil penalties and a temporary suspension from entering into future federal
mineral leases and other federal contracts for a defined period of time. While
the ultimate outcome and impact on the Company cannot be predicted with
certainty, management believes that the resolution of these proceedings through
settlement or adverse judgment will not have a material adverse effect on the
consolidated financial position of the Company, although results of operations
and cash flow could be significantly impacted in the reporting periods in which
such matters are resolved.
The Company has also been named as a defendant in the lawsuit styled UNOCAL
Netherlands B.V., et al v. Continental Netherlands Oil Company B.V., et al, No.
98-854, in the Court of Appeal in The Hague in the Netherlands. Plaintiffs, who
are working interest owners in the Q-1 Block in the North Sea, have alleged that
the Company and other former working interest owners in the adjacent Logger
Field in the L16a Block unlawfully trespassed or were otherwise unjustly
enriched by producing part of the oil from the adjoining Q-1 Block. The
plaintiffs claim that the defendants infringed upon plaintiffs' right to produce
the minerals present in its license area and acted in violation of generally
accepted standards by failing to inform plaintiffs of the overlap of the Logger
Field into the Q-1 Block. For all relevant periods, the Company owned a 37.5%
working interest in the Logger Field. Following a trial, the District Court in
The Hague rendered a Judgment in favor of the defendants, including the Company,
dismissing all claims. Plaintiffs thereafter appealed. On October 19, 2000, the
Court of Appeal in The Hague issued an interim Judgment in favor of the
plaintiffs and ordered that additional evidence be presented to the court
relating to issues of both liability and damages. The Company and the other
defendants are continuing to vigorously assert defenses against these claims.
The Company has also asserted claims of indemnity against two of the defendants
from whom it had acquired a portion of its working interest share. The Company
is unable at this time to reasonably predict the outcome, or, in the event of an
unfavorable outcome, to reasonably estimate the possible loss or range of loss,
if any, in this lawsuit.
In addition to the foregoing, the Company and its subsidiaries are named
defendants in numerous other lawsuits and named parties in numerous governmental
and other proceedings arising in the ordinary course of business. While the
outcome of these other lawsuits and proceedings cannot be predicted with
certainty, management believes these other matters will not have a material
adverse effect on the consolidated financial position, results of operations or
cash flows of the Company.
5. LONG-TERM DEBT
In February 2002, Burlington Resources Finance Company (BRFC) issued $350
million of 5.7% Notes due March 1, 2007. During the first quarter of 2002, the
Company also issued $5 million of net commercial paper. Commercial paper
outstanding at March 31, 2002 was $680 million at an average interest rate of
approximately 2 percent.
6. PROPERTY TRANSACTIONS
On January 3, 2002, the Company consummated a property acquisition from
ATCO Gas and Pipeline Ltd., a Canadian regulated gas utility, for approximately
$344 million.
9
During the fourth quarter of 2001, the Company announced its intent to sell
certain non-core, non-strategic properties in order to improve the overall
quality of its portfolio. The Company intends to complete property sales by the
end of 2002 and expects to use the estimated proceeds of over $750 million
generated from property sales to repay debt. Included in these property sales
are assets recorded as held for sale at December 31, 2001. In connection with
the divestiture program, in the fourth quarter of 2001, the Company also
recorded restructuring liabilities of $10 million. As of March 31, 2002, $5
million of the restructuring liabilities remained outstanding as Accounts
Payable on the Consolidated Balance Sheet.
7. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's reportable segments are USA, Canada and Other International.
The segments are engaged principally in the exploration, development, production
and marketing of oil and gas. The accounting policies for the segments are the
same as those disclosed in Note 1 of Notes to Consolidated Financial Statements
included in the Company's Form 10-K. Intersegment sales were $14 million and $72
million during the first quarter of 2002 and 2001, respectively.
The following tables present information about reported segment operations.
First Quarter 2002
--------------------------------------------------
Other
USA Canada International Total
--------------------------------------------------
(In Millions)
Revenues.............................. $ 392 $ 243 $ 48 $ 683
Operating income...................... $ 137 $ 34 $ 4 $ 175
First Quarter 2001
--------------------------------------------------
Other
USA Canada International Total
--------------------------------------------------
(In Millions)
Revenues.............................. $ 752 $ 345 $ 55 $1,152
Operating income...................... $ 397 $ 238 $ 24 $ 659
The following is a reconciliation of segment operating income to
consolidated income before income taxes.
First Quarter
---------------------------
2002 2001
----------- ------------
(In Millions)
Total operating income for reportable segments......... $ 175 $ 659
Corporate expenses..................................... 43 48
Interest expense....................................... 72 45
Other expense (income)- net............................ (1) 9
----------- ------------
Consolidated income before income taxes................ $ 61 $ 557
=========== ============
10
8. ACCOUNTING PRONOUNCEMENT
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred and a corresponding increase in the carrying amount of the
related long-live asset. Subsequently, the asset retirement cost should be
allocated to expense using a systematic and rational method. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact of SFAS No. 143 and therefore, at this time,
cannot reasonably estimate the effect of this statement on its consolidated
financial position, results of operations or cash flows.
9. PRO FORMA SUMMARY FINANCIAL INFORMATION
The following table presents the unaudited pro forma results of the Company
as though the acquisition of Canadian Hunter Exploration Ltd. had occurred on
January 1, 2001. Pro forma results are not necessarily indicative of actual
results.
First Quarter
2001
----------------
(In Millions, Except per Share Amounts)
Revenues................................................. $ 1,393
Net income............................................... 414
Basic earnings per share................................. 1.93
Diluted earnings per share............................... $ 1.92
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Financial Condition and Liquidity
- ---------------------------------
The Company's long-term debt to total capital (total capital is defined as
long-term debt and stockholders' equity) ratio at March 31, 2002 and December
31, 2001 was 57 percent and 55 percent, respectively. In February 2002, BRFC
issued $350 million of 5.7 % Notes due March 1, 2007 (February Notes). This
issuance reduced the Company's amount available under its shelf registration
statement on file with the Securities and Exchange Commission to $397 million.
On October 8, 2001, the Company's Board of Directors authorized the Company to
restore its shelf registration statement to $1,500 million. The Company expects
to file such registration statement in the second quarter of 2002.
Effective January 2, 2002, the Company entered into a $350 million bridge
revolving credit facility (Facility) in order to finance the acquisition of
certain assets from ATCO Gas and Pipelines Ltd. On January 2, 2002, the Company
issued commercial paper under the Facility to fund the acquisition. The proceeds
from the February Notes were used to retire such commercial paper and the
Company terminated the Facility.
During the first quarter of 2002, the Company also issued $5 million of net
commercial paper. Commercial paper outstanding at March 31, 2002 was $680
million at an average interest rate of approximately 2 percent.
11
The Company had credit commitments in the form of revolving credit
facilities (revolvers) as of March 31, 2002. The revolvers, which are comprised
of agreements for $600 million, $400 million and $300 million, are available to
cover debt due within one year. Therefore, commercial paper, credit facility
notes and fixed-rate debt due within one year are classified as long-term debt.
Currently, there are no amounts outstanding under the revolvers, however, the
Company's outstanding commercial paper reduces the amount of credit available
under the revolvers. The $600 million revolver expires in December 2006 and the
$400 million and $300 million revolvers expire in December 2002 unless renewed
by mutual consent. The Company has the option to convert the outstanding
balances on the $400 million and $300 million revolvers to one-year and
five-year plus one day term notes, respectively. Under the covenants of the
revolvers, Company debt cannot exceed 60 percent of capitalization (as defined
in the agreements).
Net cash provided by operating activities during the first quarter of 2002
was $361 million compared to $873 million in 2001. The decrease was primarily
due to lower operating income and higher working capital needs. Lower operating
income is principally the result of lower commodity prices partially offset by
higher natural gas production sales volumes.
The Company and its subsidiaries are named defendants in numerous lawsuits
and named parties in numerous governmental and other proceedings arising in the
ordinary course of business. While the outcome of lawsuits and other proceedings
cannot be predicted with certainty, management believes these matters will not
have a material adverse effect on the consolidated financial position of the
Company, although results of operations and cash flows could be significantly
impacted in the reporting periods in which such matters are resolved.
The Company has certain other commitments and uncertainties related to its
normal operations. Management believes that there are no other commitments or
uncertainties that will have a material adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.
Capital Expenditures
- --------------------
Capital expenditures for the first quarter of 2002 totaled $736 million
compared to $413 million in 2001. The Company invested $285 million on internal
development and exploration of oil and gas properties during the first quarter
of 2002 compared to $278 million in 2001. The Company invested $405 million for
property acquisitions in first quarter 2002 compared to $90 million in 2001.
Property acquisitions include the purchase of certain assets on January 3, 2002
from ATCO Gas and Pipelines Ltd., a Canadian regulated gas utility, for
approximately $344 million.
During the fourth quarter of 2001, the Company announced its intent to sell
certain non-core, non-strategic properties in order to improve the overall
quality of its portfolio. The Company intends to complete property sales by the
end of 2002 and expects to use the estimated proceeds of over $750 million
generated from property sales to repay debt. Included in these property sales
are assets recorded as held for sale at December 31, 2001. In connection with
the divestiture program, in the fourth quarter of 2001, the Company also
recorded restructuring liabilities of $10 million. As of March 31, 2002, $5
million of the restructuring liabilities remained outstanding as Accounts
Payable on the Consolidated Balance Sheet.
12
Dividends
- ---------
On April 17, 2002, the Board of Directors declared a quarterly common stock
cash dividend of $0.1375 per share, with record and payment dates of June 7,
2002 and July 2, 2002, respectively.
Results of Operations - First Quarter 2002 Compared to First Quarter 2001
- -------------------------------------------------------------------------
The Company reported net income of $48 million or $0.24 diluted earnings
per common share in first quarter 2002 compared to net income of $336 million or
$1.56 diluted earnings per common share in 2001. Net income in first quarter
2001 included a non-cash after tax gain of $7 million or $0.03 per diluted share
consisting of the cumulative effect of change in accounting principle,
ineffectiveness related to cash-flow and fair-value hedges and changes in the
fair value of derivative instruments that do not qualify for hedge accounting.
Revenues decreased $469 million to $683 million in 2002 compared to $1,152
million in 2001. Revenues in 2002 decreased $585 million compared to 2001 as a
result of lower commodity prices. Including a $0.38 realized gain per MCF
related to hedging activities, average gas prices decreased $2.83 per MCF in
2002 to $2.88 per MCF from $5.71 per MCF in 2001 which decreased revenues $514
million. Including a $0.58 realized gain per barrel related to hedging
activities, average oil prices decreased $4.13 per barrel in 2002 to $21.68 per
barrel from $25.81 per barrel in 2001 resulting in reduced revenues of $22
million. Average NGL prices decreased $9.60 per barrel in 2002 to $12.45 per
barrel from $22.05 per barrel in 2001, resulting in reduced revenues of $49
million. In first quarter 2002, revenues also included a $25 million loss
related to ineffectiveness of cash-flow and fair-value hedges and changes in the
fair value of derivative instruments that do not qualify for hedge accounting.
An increase in gas and NGL sales volumes, partially offset by a decline in
oil sales volumes, resulted in higher revenues of $151 million in 2002 compared
to 2001. Gas sales volumes increased 263 MMCF per day in 2002 to 2,019 MMCF per
day from 1,756 MMCF per day in 2001 resulting in increased revenues of $135
million. NGL sales volumes increased to 56.3 MBbls per day in 2002 from 41.4
MBbls per day in 2001, resulting in higher revenues of $30 million from quarter
to quarter. Oil sales volumes decreased 6.1 MBbls per day in 2002 to 59.9 MBbls
per day from 66.0 MBbls per day in 2001 reducing revenues $14 million. Gas sales
volumes increased primarily due to the acquisition of Canadian Hunter
Exploration Ltd. (Hunter) in late 2001. Oil sales volumes decreased primarily
due to natural declines in the Gulf of Mexico and North Sea.
Costs and Expenses were $551 million in 2002 compared to $541 million in
2001. The $10 million increase was primarily due to a $50 million increase in
depreciation, depletion and amortization (DD&A) and an $18 million increase in
production and processing expenses partially offset by a $34 million decrease in
taxes other than income taxes, a $13 million decrease in exploration costs, a $6
million decrease in transportation expenses and a $5 million decrease in general
and administrative (G&A) expenses.
DD&A increased primarily due to a higher unit-of-production rate related to
changes in production mix and higher gas production volumes. Production and
processing expenses increased primarily due to higher gas volumes. Taxes other
than income taxes decreased primarily due to lower oil and gas revenues.
Exploration costs decreased primarily due to lower exploratory dry hole costs of
$32 million partially offset by higher amortization of undeveloped lease costs
13
of $13 million. Transportation expenses decreased primarily due to lower
contract rates and G&A expenses were lower in 2002 compared to 2001 due to
non-recurring payroll related costs recorded in 2001.
Interest Expense was $72 million in first quarter 2002 compared to $45
million in 2001. The increase was primarily due to higher debt balances during
2002 resulting from the Hunter acquisition in late 2001 and other property
acquisitions made in early 2002.
Other Expense (Income) -- Net was income of $1 million in first quarter
2002 compared to expense of $9 million in 2001. The change was primarily related
to foreign currency exchange rate transactions and lower miscellaneous expenses.
Income taxes were an expense of $13 million in first quarter 2002 as
compared to $224 million in 2001. The decrease in tax expense was primarily due
to lower pretax income. The Company also recorded benefits of $13 million in
first quarter 2002 compared to $2 million in 2001 related to interest deductions
associated with structured debt financing. Section 29 Tax Credits were $3
million in 2002 compared to $5 million in 2001.
Accounting Pronouncement
- ------------------------
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred and a corresponding increase in the carrying amount of the
related long-live asset. Subsequently, the asset retirement cost should be
allocated to expense using a systematic and rational method. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact of SFAS No. 143 and therefore, at this time,
cannot reasonably estimate the effect of this statement on its consolidated
financial position, results of operations or cash flows.
ITEM 3. Quantitative and Qualitative Disclosures about Commodity Risk
-------------------------------------------------------------
Substantially all of the Company's crude oil and natural gas production is
sold on the spot market or under short-term contracts at market sensitive
prices. Spot market prices for domestic crude oil and natural gas are subject to
volatile trading patterns in the commodity futures market, including among
others, the New York Mercantile Exchange (NYMEX). Quality differentials,
worldwide political developments and the actions of the Organization of
Petroleum Exporting Countries also affect crude oil prices.
There is also a difference between the NYMEX futures contract price for a
particular month and the actual cash price received for that month in a U.S.
producing basin or at a U.S. market hub, which is referred to as the "basis
differential."
The Company utilizes over-the-counter price and basis swaps as well as
options to hedge its production in order to decrease its price risk exposure.
The gains and losses realized as a result of these price and basis derivative
transactions are substantially offset when the hedged commodity is delivered. In
order to accommodate the needs of its customers, the Company also uses variable
price swaps to convert natural gas sold under fixed-price contracts to market
sensitive prices.
14
The Company uses a sensitivity analysis technique to evaluate the
hypothetical effect that changes in the market value of crude oil and natural
gas may have on the fair value of the Company's derivative instruments. For
example, at March 31, 2002, the potential decrease in fair value of derivative
instruments assuming a 10 percent adverse movement (an increase in the
underlying commodities prices) would result in an $85 million increase in the
fair value of the net liabilities related to commodity hedging activities.
For purposes of calculating the hypothetical change in fair value, the
relevant variables include the type of commodity, the commodity futures prices,
the volatility of commodity prices and the basis and quality differentials. The
hypothetical change in fair value is calculated by multiplying the difference
between the hypothetical price (adjusted for any basis or quality differentials)
and the contractual price by the contractual volumes.
Based on commodity prices and foreign exchange rates as of March 31, 2002,
the Company expects to reclassify gains of $4 million ($3 million after tax) to
earnings from the balance in accumulated other comprehensive loss during the
next twelve months. As of March 31, 2002, the Company had cash-flow hedge
derivative assets of $19 million and derivative liabilities of $26 million. The
Company also had liabilities and assets related to fair-value hedges of $6
million and $8 million, respectively.
Forward-looking Statements
- --------------------------
This Quarterly Report contains projections and other forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These projections and statements reflect the Company's current views with
respect to future events and financial performance. No assurances can be given,
however, that these events will occur or that these projections will be achieved
and actual results could differ materially from those projected as a result of
certain factors. A discussion of these factors is included in the Company's 2001
Form 10-K.
15
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
See Note 4 of Notes to Consolidated Financial Statements.
ITEM 6. Exhibits and Reports on Form 8-K
---------------------------------
A. Exhibits
The following exhibits are filed as part of this report.
Exhibit Nature of Exhibit
------- -----------------
4.1* The Company and its subsidiaries either have filed
with the Securities and Exchange Commission or upon
request will furnish a copy of any instrument with
respect to long-term debt of the Company.
10.1 Amendment No.1, dated January 9, 2002 to
Burlington Resources Inc. Incentive Compensation Plan
10.2 Amendment No.1, dated January 9, 2002, to
Burlington Resources Inc. 2001 Performance Share Unit
Plan
10.3* Burlington Resources Inc. 2002 Stock Incentive
Plan (Exhibit A to the Proxy Statement, filed March
2002)
* Exhibit incorporated by reference.
B. Reports on Form 8-K
On February 21, 2002, the Company filed Form 8-K in connection
with its February 2002 issuance of $350 million of 5.7% Notes.
Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
16
Pursuant to the requirements of Section 13 or 15(d) 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.
BURLINGTON RESOURCES INC.
-------------------------
(Registrant)
By /s/ STEVEN J. SHAPIRO
------------------------------------
Steven J. Shapiro
Senior Vice President and
Chief Financial Officer
By /s/JOSEPH P. McCOY
------------------------------------
Joseph P. McCoy
Vice President, Controller and
Chief Accounting Officer
Date: April 26, 2002
17
EXHIBIT INDEX
Exhibit Nature of Exhibit
------- -----------------
4.1* The Company and its subsidiaries either have filed
with the Securities and Exchange Commission or upon
request will furnish a copy of any instrument with
respect to long-term debt of the Company.
10.1 Amendment No.1, dated January 9, 2002 to
Burlington Resources Inc. Incentive Compensation Plan
10.2 Amendment No.1, dated January 9, 2002, to
Burlington Resources Inc. 2001 Performance Share Unit
Plan
10.3* Burlington Resources Inc. 2002 Stock Incentive
Plan (Exhibit A to the Proxy Statement, filed March
2002)