================================================================================
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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-22433
Brigham Exploration Company
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1311 75-2692967
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
6300 Bridgepoint Parkway
Building Two, Suite 500
Austin, Texas 78730
(512) 427-3300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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 twelve 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 15, 2000, 16,712,908 shares of Common Stock, $.01 per share, were
outstanding.
================================================================================
<PAGE>
Brigham Exploration Company
First Quarter 2000 Form 10-Q Report
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements of Brigham Exploration
Company
Balance Sheets - December 31, 1999 and March 31, 2000........... 1
Statements of Operations - Three months ended
March 31, 1999 and 2000........................................2
Statements of Cash Flows - Three months ended
March 31, 1999 and 2000........................................3
Statement of Changes in Stockholders' Equity -
Three months ended March 31, 2000..............................4
Notes to Condensed Consolidated Financial Statements.............5
Condensed Financial Statements of Certain Brigham Exploration
Company Subsidiaries
Balance Sheets - March 31, 2000..................................8
Balance Sheets - December 31, 1999...............................9
Statements of Operations - Three months ended March 31, 2000....10
Statements of Operations - Three months ended March 31, 1999....11
Statements of Cash Flows - Three months ended March 31, 2000....12
Statements of Cash Flows - Three months ended March 31, 1999....13
Statements of Changes in Equity - Three months ended
March 31, 2000..................................................14
Notes to Condensed Financial Statements.........................15
As all significant Brigham Exploration Company subsidiaries fully
and unconditionally guarantee the Senior Subordinated Secured
Notes and the Company has no significant assets other than its
investments in its subsidiaries, the consolidated financial
statements are substantially the same as the financial statements
of the subsidiary guarantors and separate financial statements
have been omitted as they would not be meaningful to investors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION..................................18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...................................................26
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................28
SIGNATURES...................................................................29
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
--------------- ----------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,742 $ 1,659
Accounts receivable 4,945 5,166
Other current assets 577 387
--------------- ----------------
Total current assets 8,264 7,212
--------------- ----------------
Natural gas and oil properties, at cost, net 112,066 114,675
Other property and equipment, at cost, net 1,686 1,572
Drilling advances paid 23 433
Deferred loan fees 3,481 3,449
Other noncurrent assets 163 120
--------------- ----------------
$ 125,683 $ 127,461
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,851 $ 8,418
Accrued drilling costs 541 1,161
Participant advances received 850 1,977
Other current liabilities 1,502 1,976
--------------- ----------------
Total current liabilities 17,744 13,532
--------------- ----------------
Notes payable 56,000 58,000
Senior subordinated notes, net 41,341 42,898
Other noncurrent liabilities 1,600 1,741
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10 million shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 30 million shares
authorized, 14,517,786 and 16,712,908 issued and
outstanding at December 31, 1999 and March 31, 2000,
respective1y 145 167
Additional paid-in capital 64,171 68,591
Unearned stock compensation (290) (242)
Accumulated deficit (55,028) (57,226)
---------------- ----------------
Total stockholders' equity 8,998 11,290
---------------- ----------------
$ 125,683 $ 127,461
================ ================
</TABLE>
Natural gas and oil properties are accounted for using the
full cost method.
See accompanying notes to the consolidated financial statements.
1
<PAGE>
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------------------
1999 2000
--------------- ----------------
<S> <C> <C>
Revenues:
Natural gas and oil sales $ 3,191 $ 4,505
Workstation revenue 90 33
--------------- ----------------
3,281 4,538
--------------- ----------------
Costs and expenses:
Lease operating 535 459
Production taxes 169 304
General and administrative 918 740
Depletion of natural gas and oil properties 1,361 1,764
Depreciation and amortization 127 123
Amortization of stock compensation 58 12
--------------- ----------------
3,168 3,402
--------------- ----------------
Operating income 113 1,136
--------------- ----------------
Other income (expense):
Interest income 24 37
Interest expense, net (2,081) (2,775)
Other expense - (596)
--------------- ----------------
(2,057) (3,334)
--------------- ----------------
Net loss before income taxes (1,944) (2,198)
Income tax expense - -
--------------- ----------------
Net loss $ (1,944) $ (2,198)
=============== ================
Net loss per share:
Basic/Diluted $ (0.15) $ (0.14)
Weighted average common shares outstanding:
Basic/Diluted 13,317 15,279
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,944) $ (2,198)
Adjustments to reconcile net loss to cash provided by operating activities:
Depletion of natural gas and oil properties 1,361 1,764
Depreciation and amortization 127 123
Amortization of stock compensation 58 12
Interest paid through issuance of additional senior subordinated notes 1,300 1,477
Amortization of deferred loan fees and debt issuance costs 262 391
Amortization of discount on senior subordinated notes 92 180
Amortization of deferred loss on derivatives instruments - 280
Market value adjustment for derivatives instruments - 443
Changes in working capital and other items:
(Increase) decrease in accounts receivable 3,339 (221)
(Increase) decrease in other current assets 33 (90)
Increase (decrease) in accounts payable 2,543 (6,433)
Increase (decrease) in participant advances received (103) 1,127
Increase (decrease) in other current liabilities (150) 138
Other noncurrent assets (169) 43
Other noncurrent liabilities (1,649) (8)
------------ ------------
Net cash provided (used) by operating activities 5,100 (2,972)
------------ ------------
Cash flows from investing activities:
Additions to natural gas and oil properties (10,195) (3,738)
Proceeds from sale of natural gas and oil properties 10,000 -
Additions to other property and equipment (15) (9)
Increase in drilling advances paid (80) (410)
------------ ------------
Net cash used by investing activities (290) (4,157)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 4,205
Proceeds from issuance of warrants - 260
Increase in notes payable - 2,000
Principal payments on capital lease obligations (63) (58)
Deferred loan fees paid (298) (361)
------------ ------------
Net cash provided (used) by financing activities (361) 6,046
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,449 (1,083)
Cash and cash equivalents, beginning of period 2,569 2,742
------------ ------------
Cash and cash equivalents, end of period $ 7,018 $ 1,659
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,174 $ 762
============ ============
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 51 $ -
============ ============
Decrease in accounts payable and other noncurrent liabilities in
exchange for issuance of common stock $ 3,510 $ -
============ ============
Increase in accounts payable for deferred loan fees to be paid
in future periods $ 450 $ -
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
BRIGHAM EXPLORATION COMPANY
CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Additional Unearned
Common Stock Paid-in Stock Accumulated
---------------------------
Shares Amounts Capital Compensation Deficit Total
---------------- --------- -------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 14,517,786 $ 145 $ 64,171 $ (290) $ (55,028) $ 8,998
Net loss - - - - (2,198) (2,198)
Issuance of common stock 2,195,122 22 4,183 - - 4,205
Forfeiture of stock options - - (23) - - (23)
Issuance of warrants - - 260 - - 260
Amortization of unearned
stock compensation - - - 48 - 48
---------------- --------- -------------- ------------ ------------- -------------
Balance,
March 31, 2000 16,712,908 $ 167 $ 68,591 $ (242) $ (57,226) $ 11,290
================ ========= ============== ============ ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
Brigham Exploration Company (the "Company") is a Delaware corporation
formed on February 25, 1997 for the purpose of exchanging its common
stock for the common stock of Brigham, Inc. and the partnership interests
of Brigham Oil & Gas, L.P. The Company explores and develops onshore
domestic natural gas and oil properties using 3-D seismic imaging and
other advanced technologies. The Company focuses its exploration and
development of natural gas and oil properties primarily in West Texas,
the Anadarko Basin and the onshore Gulf Coast.
2. BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, and its proportionate share of assets,
liabilities and income and expenses of the limited partnerships in which
the Company, or any of its subsidiaries, has a participating interest.
All significant intercompany accounts and transactions have been
eliminated.
The accompanying condensed consolidated financial statements are
unaudited, and in the opinion of management, reflect all adjustments that
are necessary for a fair presentation of the financial position and
results of operations for the periods presented. All such adjustments are
of a normal and recurring nature. The results of operations for the
periods presented are not necessarily indicative of the results to be
expected for the entire year. The unaudited condensed consolidated
financial statements should be read in conjunction with the Company's
1999 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
3. AMENDMENT TO REVOLVING CREDIT FACILITY AND SENIOR SUBORDINATED NOTES
In February 2000, the Company entered into an amended and restated Credit
Facility with its existing lenders and a new lender. This amended and
restated Credit Facility provides the Company with $70 million in
borrowing availability for a three-year term. If the Company exceeds
certain asset value and interest coverage tests in the second or third
quarters of 2000, the total borrowing availability under the Credit
Facility will increase to $75 million. The Credit Facility includes a
provision whereby certain amounts, not to exceed $30 million of the
outstanding borrowings, are convertible into shares of the Company's
common stock (the "Convertible Notes") to the extent total borrowings
under the Credit Facility exceed $45 million. As of March 31, 2000, the
Company had $58 million in borrowings outstanding under the Credit
Facility, of which the Convertible Notes approximate $15 million (the
minimum under the Credit Facility). The Credit Facility provides that the
Convertible Notes will be convertible as follows: (i) the first $10
million of borrowings is convertible at $3.90 per share, (ii) the second
$10 million is convertible at $6.00 per share, and (iii) the final $10
million is convertible at $8.00 per share. The Convertible Notes could
result in a beneficial conversion feature based on the relationship
between the Company's stock price at the time of a borrowing and the
strike price of the relative portion of the convertible debt. The value
assigned to the beneficial conversion feature would be recorded as a
component of interest expense to the extent the Convertible Notes are
immediately convertible. Due to the fact that the strike price of the
Convertible Notes at February 17, 2000 was in excess of the market price
of the Company's common stock at that date, no beneficial conversion
feature was recorded. If the Credit Facility is repaid at maturity or is
prepaid prior to maturity without payments of cash premiums, the warrants
issued to the new participant in the Credit Facility to purchase Brigham
common stock become exercisable. Further, to the extent the Company
chooses to prepay any of the Convertible Notes without the warrants
becoming exercisable, and also assuming the Lender chooses not to convert
to equity upon notice of such prepayment, the Company will be required to
pay a premium above the face value of the Convertible Notes to the
lender. Such premium amounts would range from 150% to 110%, depending on
the timing of the prepayment. Such prepayment, however, would require the
5
<PAGE>
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
prior approval of the original lenders to the Credit Facility. In
addition, certain financial covenants of the Credit Facility were amended
or added. In connection with this most recent amendment, the Company
reset the price of the warrants previously issued to its existing senior
lenders to purchase one million shares of the Company's common stock from
an exercise price of $2.25 per share to $2.02 per share.
In February 2000, the indenture governing the Notes was amended. In this
amendment, the holders of the Notes waived the minimum consolidated
interest coverage ratio covenant through June 30, 2000, and adjusted
subsequent levels under this test. In addition, the amendment provides
the Company with an extension of its right to pay interest through the
issuance of additional Notes in lieu of cash (or "in kind") through the
third quarter of 2000 and potentially through the fourth quarter of 2000
if certain conditions are met. In exchange for granting these amendments,
the Company (i) reset the price of the warrants previously issued to the
holders of the Notes to purchase one million shares of the Company's
common stock from an exercise price of $3.50 per share to $2.43 per
share, and (ii) granted to the holders of the Notes a term overriding
royalty interest that provides for the limited right to receive 4%, or 3%
if certain conditions are met, of the Company's net production revenue to
reduce any outstanding Notes issued as interest paid in kind. As payments
are made pursuant to the term overriding royalty interest, they will be
recorded by the Company as a reduction of the balance payable pursuant to
the Notes.
The modification of these agreements did not result in any material
adjustment to debt issuance costs.
4. ISSUANCE OF COMMON STOCK
In February 2000, the Company entered into an agreement to issue
2,195,122 shares of common stock and 731,707 warrants to purchase the
Company's common stock for total net proceeds of $4.2 million in a
private placement to a group of institutional investors led by affiliates
of two members of the Company's board of directors. The equity sale
consisted of units that included one share of common stock and one-third
of a warrant to purchase the Company's common stock at an exercise price
of $2.5625 per share with a three-year term.
5. HEDGING ACTIVITIES
In March 2000, the Company entered into new fixed price cap and fixed
price floor hedging contracts with a counterparty for certain future oil
and natural gas production. Under the terms of the fixed price cap
contracts, for any month where the average index price (NYMEX) is greater
than the strike price per the contract, the Company is required to pay to
the counterparty the absolute value of that difference times the
production volumes covered under the contract. If the average index price
is less than the strike price for a given month, no settlement is
required. Under the terms of the fixed price floor contracts, for any
month where the average index price (NYMEX or ANR - Oklahoma) is less
than the strike price per the contract, the counterparty is required to
pay to the Company the absolute value of that difference times the
production volumes covered under the contract. If the average index price
is greater than the strike price for a given month, no settlement is
required. Additionally in March 2000, the Company effectively modified
its existing fixed price swap contracts so that a portion of the volumes
were associated with new index prices (Houston Ship Channel and TETCO
South Texas).
6
<PAGE>
BRIGHAM EXPLORATION COMPANY
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The new contracts are summarized as follows:
<TABLE>
<CAPTION>
Daily Average
Volumes Total Volumes Hedged Fixed
--------------------
Hedged Monthly Term 2000 2001 Contract Price
------ ------------ ---- ---- --------------
Fixed Price Cap:
<S> <C> <C> <C> <C> <C>
Contract #1 600 July 2000 - 110,400 - $31.75
Bbls December 2000 Bbls per Bbl
Contract #2 400 January 2001 - - 72,400 $26.60
Bbls June 2001 Bbls per Bbl
Contract #3 200 June 2001 - - 36,800 $25.25
Bbls December 2001 Bbls per Bbl
Fixed Price Floor:
Contract #4 600 March 2000 - 183,600 - $18.00
Bbls December 2000 Bbls per Bbl
Contract #5 400 January 2001 - - 72,400 $18.00
Bbls June 2001 Bbls per Bbl
Contract #6 200 July 2001 - - 36,800 $16.10
Bbls December 2001 Bbls per Bbl
Contract #7 5,000 May 2001 - - 305,000 $1.80
MMBtu June 2001 MMBtu per MMBtu
Contract #8 2,500 July 2001 - - 460,000 $1.80
MMBtu December 2001 MMBtu per MMBtu
</TABLE>
7
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED BALANCE SHEETS
AS OF MARCH 31, 2000
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,646 $ 1,656 $ 3 $ 4
Accounts receivable 5,166 5,166 - -
Other current assets 387 387 - -
-------------- -------------- ------------ -------------
Total current assets 7,199 7,209 3 4
-------------- -------------- ------------ -------------
Natural gas and oil properties, at cost, net 114,675 114,675 - -
Other property and equipment, at cost, net 1,572 1,572 - -
Investment in subsidiaries
and intercompany advances 190 27 3,046 50,079
Drilling advances paid 433 433 - -
Deferred loan fees 2,085 2,085 - -
Other noncurrent assets 120 120 - -
-------------- -------------- ------------ -------------
$ 126,274 $ 126,121 $ 3,049 $ 50,083
============== ============== ============ =============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 8,418 $ 8,418 $ - $ -
Accrued drilling costs 1,161 1,161 - -
Participant advances received 1,977 1,977 - -
Other current liabilities 1,784 1,784 - -
-------------- -------------- ------------ -------------
Total current liabilities 13,340 13,340 - -
-------------- -------------- ------------ -------------
Notes payable 58,000 58,000 - -
Other noncurrent liabilities 1,741 1,741 - -
Intercompany accounts payable 1,773 1,642 - 1,799
Intercompany notes payable 46,936 46,936 - 46,936
Commitments and contingencies
Minority interest - 3,072 - -
Equity
Partners' capital 4,484 - 3,049 1,348
Common stock, $1.00 par value, 1,000
shares authorized, issued and
outstanding - 1 - -
Additional paid-in capital - 19,238 - -
Accumulated deficit - (17,849) - -
-------------- -------------- ------------ -------------
Total equity 4,484 1,390 3,049 1,348
-------------- -------------- ------------ -------------
$ 126,274 $ 126,121 $ 3,049 $ 50,083
============== ============== ============ =============
</TABLE>
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the condensed financial statements.
8
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,718 $ 2,736 $ 6 $ 6
Accounts receivable 4,945 4,945 - -
Other current assets 577 577 - -
--------------- -------------- ------------ -------------
Total current assets 8,240 8,258 6 6
--------------- -------------- ------------ -------------
Natural gas and oil properties, at cost, net 112,066 112,066 - -
Other property and equipment, at cost, net 1,686 1,686 - -
Investment in subsidiaries
and intercompany advances 130 26 1,299 47,802
Drilling advances paid 23 23 - -
Deferred loan fees 2,108 2,108 - -
Other noncurrent assets 164 164 - -
--------------- -------------- ------------ -------------
$ 124,417 $ 124,331 $ 1,305 $ 47,808
=============== ============== ============ =============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 14,851 $ 14,851 $ - $ -
Accrued drilling costs 541 541 - -
Participant advances received 850 850 - -
Other current liabilities 1,429 1,429 - -
--------------- -------------- ------------ -------------
Total current liabilities 17,671 17,671 - -
--------------- -------------- ------------ -------------
Notes payable 56,000 56,000 - -
Other noncurrent liabilities 1,600 1,600 - -
Intercompany accounts payable 1,752 1,687 - 1,779
Intercompany notes payable 45,459 45,459 - 45,459
Commitments and contingencies
Minority interest - 1,325 - -
Equity
Partners' capital 1,935 - 1,305 570
Common stock, $1.00 par value, 1,000
shares authorized, issued and
outstanding - 1 - -
Additional paid-in capital - 17,832 - -
Accumulated deficit - (17,244) - -
--------------- -------------- ------------ -------------
Total equity 1,935 589 1,305 570
--------------- -------------- ------------ -------------
$ 124,417 $ 124,331 $ 1,305 $ 47,808
=============== ============== ============ =============
</TABLE>
Natural gas and oil properties are accounted for using the full cost method.
See accompanying notes to the condensed financial statements.
9
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 4,505 $ 4,505 $ - $ -
Workstation revenue 33 33 - -
------------ ----------- ------------ ------------
4,538 4,538 - -
------------ ----------- ------------ ------------
Costs and expenses:
Lease operating 459 459 - -
Production taxes 304 304 - -
General and administrative 735 737 2 2
Depletion of natural gas and oil properties 1,764 1,764 - -
Depreciation and amortization 123 123 - -
Amortization of stock compensation 12 12 - -
------------ ----------- ------------ ------------
3,397 3,399 2 2
------------ ----------- ------------ ------------
Operating income (loss) 1,141 1,139 (2) (2)
------------ ----------- ------------ ------------
Other income (expense):
Interest income 37 37 - -
Interest expense, net (1,000) (1,000) - -
Interest expense - intercompany (1,497) (1,497) - (1,497)
Other expense (596) (596) - -
------------ ----------- ------------ ------------
(3,056) (3,056) - (1,497)
------------ ----------- ------------ ------------
Minority interest in net loss - (1,312) - -
------------ ----------- ------------ ------------
Net loss before income taxes (1,915) (605) (2) (1,499)
Income tax benefit - - - -
Equity in net income (loss) of investee - - (1,312) 913
------------ ----------- ------------ ------------
Net loss $ (1,915) $ (605) $ (1,314) $ (586)
============ =========== ============ ============
</TABLE>
See accompanying notes to the condensed financial statements.
10
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Revenues:
Natural gas and oil sales $ 3,191 $ 3,191 $ - $ -
Workstation revenue 90 90 - -
----------- ----------- ----------- -----------
3,281 3,281 - -
----------- ----------- ----------- -----------
Costs and expenses:
Lease operating 535 535 - -
Production taxes 169 169 - -
General and administrative 918 918 - -
Depletion of natural gas and oil properties 1,361 1,361 - -
Depreciation and amortization 127 127 - -
Amortization of stock compensation 58 58 - -
----------- ----------- ----------- -----------
3,168 3,168 - -
----------- ----------- ----------- -----------
Operating income 113 113 - -
----------- ----------- ----------- -----------
Other income (expense):
Interest income 24 24 - -
Interest expense, net (1,315) (1,315) - -
Interest expense - intercompany (581) (581) - (1,317)
----------- ----------- ----------- -----------
(1,872) (1,872) - (1,317)
----------- ----------- ----------- -----------
Minority interest in net loss - (1,205) - -
----------- ----------- ----------- -----------
Net loss before income taxes (1,759) (554) - (1,317)
Income tax benefit - - - -
Equity in net income (loss) of investee - - (1,205) 780
----------- ----------- ----------- -----------
Net loss $ (1,759) $ (554) $ (1,205) $ (537)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
11
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,915) $ (605) $ (1,314) $ (586)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion of natural gas and oil properties 1,764 1,764 - -
Depreciation and amortization 123 123 - -
Amortization of stock compensation 12 12 - -
Amortization of deferred loan fees and debt issuance costs 292 292 - -
Amortization of deferred loss on derivatives instruments 280 280 - -
Market value adjustment for derivatives instruments 443 443 - -
Minority interest in net loss - (1,312) - -
Equity in net (income) loss of investee - - 1,312 (913)
Changes in working capital and other items:
Increase in accounts receivable (221) (221) - -
Increase in other current assets (90) (90) - -
Decrease in accounts payable (6,433) (6,433) - -
Increase in participant advances received 1,127 1,127 - -
Increase in other current liabilities 92 92 - -
Increase (decrease) in intercompany accounts payable 21 (45) - 20
Other noncurrent assets 43 43 - -
Other noncurrent liabilities (8) (8) - -
----------- ----------- ---------- ----------
(4,470) (4,538) (2) (1,479)
----------- ----------- ---------- ----------
Cash flows from investing activities:
Additions to natural gas and oil properties (3,738) (3,738) - -
Additions to other property and equipment (9) (9) - -
Investment in subsidiaries and intercompany advances 4,405 4,465 (1) -
Increase in drilling advances paid (410) (410) - -
----------- ----------- ---------- ----------
248 308 (1) -
----------- ----------- ---------- ----------
Cash flows from financing activities:
Increase in notes payable 2,000 2,000 - -
Increase in intercompany notes payable 1,477 1,477 - 1,477
Principal payments on capital lease obligations (58) (58) - -
Deferred loan fees paid (269) (269) - -
----------- ----------- ---------- ----------
3,150 3,150 - 1,477
----------- ----------- ---------- ----------
Net decrease in cash and cash equivalents (1,072) (1,080) (3) (2)
Cash and cash equivalents, beginning of year 2,718 2,736 6 6
----------- ----------- ---------- ----------
Cash and cash equivalents, end of period $ 1,646 $ 1,656 $ 3 $ 4
=========== =========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 761 $ 761 $ - $ -
Supplemental disclosure of cash flow information:
Intercompany capital contributions $ - $ 1,406 $ 3,058 $ 1,364
</TABLE>
See accompanying notes to the condensed financial statements.
12
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
BRIGHAM BRIGHAM BRIGHAM
OIL & BRIGHAM, HOLDINGS HOLDINGS
GAS, L.P. INC. I, LLC II, LLC
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,759) $ (554) $ (1,205) $ (537)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depletion of natural gas and oil properties 1,361 1,361 - -
Depreciation and amortization 127 127 - -
Amortization of stock compensation 58 58 - -
Amortization of deferred loan fees and debt issuance costs 168 168 - -
Minority interest in net loss - (1,205) - -
Equity in net (income) loss of investee - - 1,205 (780)
Changes in working capital and other items:
Decrease in accounts receivable 3,339 3,339 - -
Decrease in prepaid expenses 33 33 - -
Increase in accounts payable 2,543 2,543 - -
Decrease in participant advances received (103) (103) - -
Decrease in other current liabilities (167) (167) - -
Increase in intercompany accounts payable 17 18 - 17
Other noncurrent assets (169) (169) - -
Other noncurrent liabilities (1,649) (1,649) - -
---------- ----------- ---------- ----------
3,799 3,800 - (1,300)
---------- ----------- ---------- ----------
Cash flows from investing activities:
Additions to natural gas and oil properties (10,195) (10,195) - -
Proceeds from sale of natural gas and oil properties 10,000 10,000 - -
Additions to other property and equipment (15) (15) - -
Increase in drilling advances paid (79) (79) - -
---------- ----------- ---------- ----------
(289) (289) - -
---------- ----------- ---------- ----------
Cash flows from financing activities:
Increase in intercompany notes payable 1,300 1,300 - 1,300
Principal payments on capital lease obligations (63) (63) - -
Deferred loan fees paid (298) (298) - -
---------- ----------- ---------- ----------
939 939 - 1,300
---------- ----------- ---------- ----------
Net increase in cash and cash equivalents 4,449 4,450 - -
Cash and cash equivalents, beginning of year 2,549 2,563 5 6
---------- ----------- ---------- ----------
Cash and cash equivalents, end of year $ 6,998 $ 7,013 $ 5 $ 6
========== =========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,343 $ 1,343 $ - $ -
Supplemental disclosure of noncash investing and financing activities:
Capital lease asset additions $ 51 $ 51 $ - $ -
Increase in accounts payable for deferred loan fees to be
paid in future periods $ 450 $ 450 $ - $ -
Capital contributions received in exchange for accounts
payable and other noncurrent liabilities $ 3,510 $ - $ - $ -
Intercompany capital contributions $ - $ 1,106 $ 2,404 $ 1,071
</TABLE>
See accompanying notes to the condensed financial statements.
13
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
CONDENSED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except shares)
(unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings/
--------------------- Paid-in Accumulated Partners'
Shares Amounts Capital Deficit Capital Total
-------- -------- ------------- ------------- ------------- ------------
BRIGHAM OIL & GAS, L.P.
Balance,
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 - $ - $ - $ - $ 1,935 $ 1,935
Capital contribution - - - - 4,464 4,464
Net loss - - - - (1,915) (1,915)
------- --------- ------------- ------------- ------------- ------------
Balance,
March 31, 2000 - $ - $ - $ - $ 4,421 $ 4,421
======= ========= ============= ============= ============= ============
BRIGHAM INC.
Balance,
December 31, 1999 1,000 $ 1 $ 17,832 $ (17,244) $ - $ 589
Capital contribution - - 1,406 - - 1,406
Net loss - - - (605) - (605)
------- --------- ------------- ------------- ------------- ------------
Balance,
March 31, 2000 1,000 $ 1 $ 19,238 $ (17,849) $ - $ 1,390
======= ========= ============= ============= ============= ============
BRIGHAM HOLDING I, LLC
Balance,
December 31, 1999 - $ - $ - $ - $ 1,305 $ 1,305
Capital contribution - - - - 3,058 3,058
Net loss - - - - (1,314) (1,314)
------- --------- ------------- ------------- ------------- ------------
Balance,
March 31, 2000 - $ - $ - $ - $ 3,049 $ 3,049
======= ========= ============= ============= ============= ============
BRIGHAM HOLDINGS II, LLC
Balance,
December 31, 1999 - $ - $ - $ - $ 570 $ 570
Capital contribution - - - - 1,364 1,364
Net loss - - - - (586) (586)
------- --------- ------------- ------------- ------------- ------------
Balance,
March 31, 2000 - $ - $ - $ - $ 1,348 $ 1,348
======= ========= ============= ============= ============= ============
</TABLE>
See accompanying notes to the condensed financial statements.
14
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BACKGROUND
In August 1998, upon the filing of a registration statement with the SEC,
Brigham Exploration Company, a Delaware corporation, (the "Company")
issued $50 million of debt and equity securities to two affiliated
institutional investors. The financing transaction consisted of the
issuance of $40 million of senior subordinated secured notes (the
"Notes"). The Notes are fully and unconditionally guaranteed, on a joint
and several basis, by each of the Company's directly or indirectly
wholly-owned subsidiaries which are Brigham Oil & Gas, L.P. (the
"Partnership"), Brigham Inc., Brigham Holdings I LLC ("Holdings I"), and
Brigham Holdings II LLC ("Holdings II"). Furthermore, these subsidiaries
have pledged their respective stock and partnership interests as
collateral for the Notes. These financial statements include the
financial statements for the wholly owned subsidiaries whose securities
and partnership interests comprise substantially all of the collateral
pledged for the Notes.
The Partnership explores and develops onshore domestic natural gas and
oil properties using 3-D seismic imaging and other advanced technologies.
The Partnership focuses its exploration and development of natural gas
and oil properties primarily in West Texas, the Anadarko Basin and the
onshore Gulf Coast. Brigham, Inc. is a Nevada corporation whose only
asset prior to the Exchange was its less than 1% ownership interest in
the Partnership. Brigham, Inc. is the managing general partner of the
Partnership.
The Company is a Delaware corporation formed on February 25, 1997 for the
purpose of exchanging its common stock for the common stock of Brigham,
Inc. and the partnership interests of Brigham Oil & Gas, L.P. Subsequent
to the Exchange and the Offering, the Company owned a 68.5% interest in
the Partnership and Brigham, Inc. owned a 31.50% interest in the
Partnership. Effective January 1, 1998, Brigham, Inc. contributed 30.5%
of its 31.5% interest in the Partnership to Holdings II, a newly formed
Nevada LLC and wholly owned subsidiary of Brigham, Inc., whose only asset
is its investment in the Partnership. Also effective January 1, 1998 the
Company contributed its 68.5% interest in the Partnership to Brigham
Holdings I, a newly formed Nevada LLC and wholly owned subsidiary of the
Company whose only asset is its investment in the Partnership.
2. BASIS OF PRESENTATION
The accompanying financial condensed financial statements are unaudited,
and in the opinion of management, reflect all adjustments that are
necessary for a fair presentation of the financial position and results
of operations for the periods presented. All such adjustments are of a
normal and recurring nature. The results of operations for the periods
presented are not necessarily indicative of the results to be expected
for the entire year. The unaudited condensed financial statements should
be read in conjunction with the Company's 1999 Annual Report on Form 10-K
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934.
3. AMENDMENT TO REVOLVING CREDIT FACILITY
In February 2000, the Partnership entered into an amended and restated
Credit Facility with its existing lenders and a new lender. This amended
and restated Credit Facility provides the Partnership with $70 million in
borrowing availability for a three-year term. If the Company exceeds
certain asset value and interest coverage tests in the second or third
quarters of 2000, the total borrowing availability under the Credit
Facility will increase to $75 million. The Credit Facility includes a
provision whereby certain amounts, not to exceed $30 million of the
outstanding borrowings, are convertible into shares of the Company's
common stock (the "Convertible Notes") to
15
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
the extent total borrowings under the Credit Facility exceed $45 million.
As of March 31, 2000, the Company had $58 million in borrowings
outstanding under the Credit Facility, of which the Convertible Notes
approximate $15 million (the minimum under the Credit Facility). The
Credit Facility provides that the Convertible Notes will be convertible
as follows: (i) the first $10 million of borrowings is convertible at
$3.90 per share, (ii) the second $10 million is convertible at $6.00 per
share, and (iii) the final $10 million is convertible at $8.00 per share.
The Convertible Notes could result in a beneficial conversion feature
based on the relationship between the Company's stock price at the time
of a borrowing and the strike price of the relative portion of the
convertible debt. The value assigned to the beneficial conversion feature
would be recorded as a component of interest expense to the extent the
Convertible Notes are immediately convertible. Due to the fact that the
strike price of the Convertible Notes at February 17, 2000 was in excess
of the market price of the Company's common stock at that date, no
beneficial conversion feature was recorded. If the Credit Facility is
repaid at maturity or is prepaid prior to maturity without payments of
cash premiums, the warrants issued to the new participant in the Credit
Facility to purchase Brigham common stock become exercisable. Further, to
the extent the Partnership chooses to prepay any of the Convertible
Notes, without the warrants becoming exercisable, and also assuming the
Lender chooses not to convert to equity upon notice of such prepayment,
the Company will be required to pay a premium above the face value of the
Convertible Notes to the lender. Such premium amounts would range from
150% to 110%, depending on the timing of the prepayment. Such prepayment,
however, would require the prior approval of the original lenders to the
Credit Facility. In addition, certain financial covenants of the Credit
Facility were amended or added. In connection with this most recent
amendment, the Partnership reset the price of the warrants previously
issued to its existing senior lenders to purchase one million shares of
the Company's common stock from an exercise price of $2.25 per share to
$2.02 per share.
The modification of this agreement did not result in any material
adjustment to debt issuance costs.
4. HEDGING ACTIVITIES
In March 2000, the Partnership entered into new fixed price cap and fixed
price floor hedging contracts with a counterparty for certain future oil
and natural gas production. Under the terms of the fixed price cap
contracts, for any month where the average index price (NYMEX) is greater
than the strike price per the contract, the Partnership is required to
pay to the counterparty the absolute value of that difference times the
production volumes covered under the contract. If the average index price
is less than the strike price for a given month, no settlement is
required. Under the terms of the fixed price floor contracts, for any
month where the average index price (NYMEX or ANR - Oklahoma) is less
than the strike price per the contract, the counterparty is required to
pay to the Partnership the absolute value of that difference times the
production volumes covered under the contract. If the average index price
is greater than the strike price for a given month, no settlement is
required. Additionally in March 2000, the Partnership effectively
modified its existing fixed price swap contracts so that a portion of the
volumes were associated with new index prices (Houston Ship Channel and
TETCO South Texas).
16
<PAGE>
BRIGHAM EXPLORATION COMPANY SUBSIDIARIES
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(unaudited)
The new contracts are summarized as follows:
<TABLE>
<CAPTION>
Daily Average
Volumes Total Volumes Hedged Fixed
--------------------
Hedged Monthly Term 2000 2001 Contract Price
------ ------------ ---- ---- --------------
Fixed Price Cap:
<S> <C> <C> <C> <C> <C>
Contract #1 600 July 2000 - 110,400 - $31.75
Bbls December 2000 Bbls per Bbl
Contract #2 400 January 2001 - - 72,400 $26.60
Bbls June 2001 Bbls per Bbl
Contract #3 200 June 2001 - - 36,800 $25.25
Bbls December 2001 Bbls per Bbl
Fixed Price Floor:
Contract #4 600 March 2000 - 183,600 - $18.00
Bbls December 2000 Bbls per Bbl
Contract #5 400 January 2001 - - 72,400 $18.00
Bbls June 2001 Bbls per Bbl
Contract #6 200 July 2001 - - 36,800 $16.10
Bbls December 2001 Bbls per Bbl
Contract #7 5,000 May 2001 - - 305,000 $1.80
MMBtu June 2001 MMBtu per MMBtu
Contract #8 2,500 July 2001 - - 460,000 $1.80
MMBtu December 2001 MMBtu per MMBtu
</TABLE>
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Comparison of three month periods ended March 31, 1999 and 2000
NATURAL GAS AND OIL SALES. Natural gas and oil sales increased 41% from
$3.2 million in the first quarter of 1999 to $4.5 million in the first quarter
of 2000. Of this net increase, $1.4 million was attributable to a 45% increase
in the average realized equivalent oil and natural gas sales price, partially
offset by $99,000 attributable to a 3% decrease in net equivalent production
volumes. Net natural gas production volumes decreased 10% from 1,047 MMcf in the
first quarter of 1999 to 940 MMcf in the first quarter of 2000. Net natural gas
volumes for the first quarter of 1999 included approximately 229 MMcf
attributable to properties sold by Brigham in June 1999. Excluding production
attributable to these divested properties, net natural gas volumes increased 15%
in the first quarter of 2000, compared to adjusted volumes produced during the
same period in 1999. This increase was principally due to the completion of
wells drilled late in 1999 and recompletion and workover projects performed on
certain producing wells. The average price received for natural gas decreased 8%
from $2.09 per Mcf in the first quarter of 1999 to $1.93 per Mcf in the first
quarter of 2000. Included in these realized prices were natural gas hedging
gains of $559,000 ($0.53 per Mcf) in the first quarter of 1999, and natural gas
hedging losses of $514,000 ($0.55 per Mcf) in the first quarter of 2000. Net oil
production volumes increased 12% from 88 MBbls in the first quarter of 1999 to
99 MBbls in the first quarter of 2000. Excluding 11 MBbls of net oil production
attributable to properties divested in June 1999, net oil volumes increased 29%
in the first quarter of 2000 as compared to the adjusted volumes produced during
the same period in 1999. This increase was principally due to the completion of
wells drilled late in 1999 and recompletion and workover projects performed on
certain producing wells. The average price received for oil increased 138% from
$11.39 per Bbl in the first quarter of 1999 to $27.16 per Bbl in the first
quarter of 2000. Oil hedging losses reduced realized average oil prices received
in the first quarter of 2000 by $2,000 ($0.02 per Bbl). Brigham did not have any
oil hedges in place during the first quarter of 1999.
WORKSTATION REVENUE. Workstation revenue decreased 63% from $90,000 in the
first quarter of 1999 to $33,000 in the first quarter of 2000. Brigham
recognizes workstation revenue as industry participants in the Company's seismic
programs are charged an hourly rate for the work performed by Brigham on its 3-D
seismic interpretation workstations. The decrease in the first quarter 2000 is
primarily attributable to a reduction in the volume of 3-D seismic
interpretation activity billable to industry participants as compared with the
prior year period.
LEASE OPERATING EXPENSES. Lease operating expenses decreased 14% from
$535,000 for the first quarter of 1999 to $459,000 for the first quarter of 2000
and, on a per unit of production basis, lease operating expenses for the same
periods decreased 12% from $0.34 per Mcfe to $0.30 per Mcfe. The decrease in
lease operating expenses was primarily due to a decrease in the number of
producing wells in the first quarter of 2000, as compared with the same period
in 1999, as a result of Brigham's June 1999 property divestitures.
PRODUCTION TAXES. Production taxes increased 80% from $169,000 ($0.11 per
Mcfe) for the first quarter of 1999 to $304,000 ($0.20 per Mcfe) for the first
quarter of 2000, primarily as a result of a 96% increase in the average
equivalent price received for natural gas and oil sales before the effects of
hedging gains and losses, partially offset by the 3% decrease in equivalent
natural gas and oil production volumes during the first quarter of 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 19% from $918,000 for the first quarter of 1999 to $740,000 for the
first quarter of 2000 primarily due to the reduction of various administrative
costs, including reduced employee payroll and benefits expenses, lower office
rent and reduced equipment rental and maintenance expenses. On a per unit of
production basis, general and administrative expenses decreased from $0.58 per
Mcfe for the first quarter of 1999 to $0.48 per Mcfe for the first quarter of
2000.
18
<PAGE>
DEPLETION OF NATURAL GAS AND OIL PROPERTIEs. Depletion of natural gas and
oil properties increased 30% from $1.4 million ($0.86 per Mcfe) in the first
quarter of 1999 to $1.8 million ($1.15 per Mcfe) in the first quarter of 2000.
Of this net increase, $450,000 was due to an increase in the depletion rate per
unit of production, partially offset by $47,000 due to a decrease in production
volumes. The increased depletion rate was principally the result of estimated
additions of proved natural gas and oil reserves at higher average capital costs
during the first quarter of 2000 as compared with estimated amounts for the
first quarter of 1999.
NET INTEREST EXPENSE. Net interest expense increased 33% from $2.1 million
in the first quarter of 1999 to $2.8 million in the first quarter of 2000. This
increase was due to a higher average debt balance with a higher average interest
rate in the first quarter of 2000 compared with the first quarter of 1999. The
weighted average outstanding debt balance increased from $99.6 million in the
first quarter of 1999 to $103.5 million in the first quarter of 2000. The
average effective annual interest rate on borrowings outstanding during the
first quarter of 1999 was 11.4% compared to 13.1% for the first quarter of 2000.
Interest expense in the first quarter of 2000 included $2 million of non-cash
charges, including (i) $1.5 million of interest expense related to the
Subordinated Notes that was paid through the issuance of additional Subordinated
Notes (or "paid-in-kind"), (ii) $391,000 for amortization of deferred financing
fees, and (iii) $180,000 for amortization of debt discounts related to the
issuance of the Subordinated Notes. See "Liquidity and Capital Resources -
Credit Facility; - Subordinated Notes".
OTHER EXPENSE. The Company recognized other expense of $596,000 in the
first quarter 2000 primarily related to the changes in the fair market values
and the related cash flows of certain oil and natural gas hedging contracts that
do not qualify for hedge accounting treatment. This expense in the first quarter
2000 included (i) $443,000 of non-cash expenses related to the changes in the
fair market values of these hedging contracts during the period, and (ii)
$148,000 of expenses related to cash settlements incurred during the period
pursuant to these hedging contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been credit facility and
other debt borrowings, public and private equity financings, the sale of
interests in projects and properties and funds generated by operations. The
Company's primary capital requirements are 3-D seismic acquisition, processing
and interpretation costs, land acquisition costs and drilling expenditures.
CREDIT FACILITY
In January 1998, the Company entered into a revolving credit agreement (the
"Credit Facility"), which provided for an initial borrowing availability of $75
million. The Credit Facility was amended in March 1999 to reduce the borrowing
availability, extend the date of borrowing base redetermination, modify certain
financial covenants, include certain additional covenants that place significant
restrictions on the Company's ability to incur certain capital expenditures, and
to increase the interest rate on outstanding borrowings.
As a result of the completion of the majority of the Company's strategic
initiatives to improve its capital resources, including its June 1999 property
divestitures and the application of the net sales proceeds to reduce borrowings
outstanding under the Credit Facility, the Company and its senior lenders
entered into an amendment to the Credit Facility in July 1999. This amendment
provided the Company with borrowing availability of $56 million principally to
fund its planned drilling activities and anticipated working capital
requirements through the end of 1999. As consideration for this amendment to the
Credit Facility, in July 1999 the Company issued to its senior lenders one
million warrants to purchase the Company's common stock at an exercise price of
$2.25 per share. The warrants have a seven-year term from the date of issuance
and are exercisable at the holders' option at any time. An estimated value of
$1.2 million was attributed to these warrants by the Company and was recognized
as additional deferred loan fees that will be amortized and included in interest
expense over the remaining period to maturity of the Credit Facility.
In February 2000, Brigham entered into an amended and restated Credit
Facility with its existing lenders and a new lender. This amended and restated
Credit Facility provides the Company with $70 million in borrowing availability
for a three-year term, an increase from the $56 million previously available. If
Brigham exceeds certain asset value and
19
<PAGE>
interest coverage tests in the second or third quarters of 2000, the total
borrowing availability under the Credit Facility will increase to $75 million.
The Company's lenders have indicated that the borrowing availability provided
under the amended Credit Facility exceeded that which would otherwise have been
made available under a more traditional conforming borrowing base calculation
based on the estimated value of the Company's current net proved reserves and
its cash flow.
The Credit Facility includes a provision whereby certain amounts, not to
exceed $30 million, are convertible into shares of Brigham common stock (the
"Convertible Notes") to the extent total borrowings under the Credit Facility
exceed $45 million. The Credit Facility provides that any outstanding
Convertible Notes will be convertible into shares of Brigham common stock in the
following amounts: (i) the first $10 million of borrowings is convertible at
$3.90 per share, (ii) the second $10 million is convertible at $6.00 per share
and (iii) the final $10 million is convertible at $8.00 per share. As of March
31, 2000, the Company had $58 million in borrowings outstanding under the Credit
Facility, of which the Convertible Notes approximate $15 million (the minimum
under the Credit Facility). The Convertible Notes could result in a beneficial
conversion feature based on the relationship between Brigham's stock price at
the time of a borrowing and the strike price of the relative portion of the
Convertible Notes. The value assigned to the beneficial conversion feature would
be recorded as a component of interest expense to the extent the applicable
Convertible Notes are immediately convertible. Due to the fact that the strike
price of the Convertible Notes at February 17, 2000 was in excess of the market
price of Brigham's common stock at that date, no beneficial conversion feature
was recorded. If the Credit Facility is repaid at maturity or is prepaid prior
to maturity without payment of cash premiums, the warrants issued to the new
participant in the Credit Facility to purchase Brigham common stock become
exercisable. Further, to the extent Brigham chooses to prepay any of the
Convertible Notes without the warrants becoming exercisable, and also assuming
the Lender chooses not to convert to equity upon notice of such prepayment, the
Company will be required to a pay a premium above the face value of the
Convertible Notes to the lender. Such premium amounts would range from 150% to
110%, depending upon the timing of the prepayment. Such prepayment, however,
would require prior approval of the original lenders to the Credit Facility. In
addition, certain financial covenants of the Credit Facility were amended or
added. In connection with this most recent amendment, the Company reset the
price of the warrants previously issued to its existing senior lenders to
purchase one million shares of Brigham common stock from the then current
exercise price of $2.25 per share to $2.02 per share.
Principal outstanding under the Credit Facility is due at maturity on
December 31, 2002, with interest due monthly for base rate tranches or
periodically as LIBOR tranches mature. The annual interest rate for borrowings
under the Credit Facility is either the lender's base rate or LIBOR plus 3.00%,
at the Company's option. The Company's obligations under the Credit Facility are
secured by substantially all of the natural gas and oil properties and other
tangible assets of the Company. At May 15, 2000, the Company had $60 million in
borrowings outstanding under the Credit Facility, which currently bear interest
at an annual rate of approximately 9.1%.
The Credit Facility has certain financial covenants, including current and
interest coverage ratios, as defined. The Company and its lenders effected the
amendments to the Credit Facility in March 1999, July 1999 and February 2000, in
part to enable the Company to comply with certain financial covenants of the
Credit Facility, including the minimum current ratio (as defined), minimum
interest coverage ratio (as defined) and the limitation on capital expenditures
related to seismic and land activities. Should the Company be unable to comply
with certain of the financial or other covenants, its senior lenders may be
unwilling to waive compliance or amend the covenants in the future. In such
instance, the Company's liquidity may be adversely affected, which could in turn
have an adverse impact on the Company's future financial position and results of
operations.
SUBORDINATED NOTES
In August 1998, the Company issued $50 million of debt and equity
securities to affiliates of Enron Corp. Securities issued by the Company in
connection with this financing transaction included: (i) $40 million of
Subordinated Notes, (ii) warrants to purchase one million shares of the
Company's common stock at a price of $10.45 per share (the "Subordinated Note
Warrants"), and (iii) 1,052,632 shares of the Company's common stock at a price
of $9.50 per share. The approximate $47.5 million in net proceeds received by
the Company from this financing transaction were used to repay a portion of
outstanding borrowings under its senior credit facility, which at the time
increased the Company's borrowing availability under its credit facility to fund
capital expenditures.
20
<PAGE>
In March 1999, the Company and Chase Bank of Texas, National Association,
as trustee (the "Trustee") for the holders of the Subordinated Notes, entered
into an amendment to the indenture governing the Subordinated Notes. This
amendment provided the Company with the option to pay interest due on the
Subordinated Notes in kind, for any reason, through the second quarter of 2000.
In addition, certain financial and other covenants were amended. The amendment
also provided for a reduction in the exercise price per share of the
Subordinated Note Warrants from $10.45 per share to $3.50 per share and extended
the term of the Subordinated Note Warrants from seven to ten years.
In February 2000, Brigham entered into another amendment to the terms of
the indenture governing the Subordinated Notes. In this amendment, the holders
of the Subordinated Notes waived the minimum consolidated interest coverage
ratio covenant through June 30, 2000 and adjusted subsequent levels under this
test. In addition, the amendment provides the Company with an extension of its
right to pay interest in kind through the issuance of additional Subordinated
Notes in lieu of cash through the third quarter of 2000 and potentially through
the fourth quarter of 2000 if certain conditions are met. In exchange for
granting these amendments, the Company (i) reset the price of the Subordinated
Note Warrants from a then current exercise price of $3.50 per share to $2.43 per
share, and (ii) granted to the holders of the Subordinated Notes a term
overriding royalty interest that provides for the limited right to receive 4%,
or 3% if certain conditions are met, of the Company's net production revenue to
reduce any outstanding Subordinated Notes issued as interest paid in-kind.
Payments made pursuant to the term overriding royalty interest will be recorded
as a reduction of the balance payable pursuant to the Subordinated Notes.
Principal outstanding under the Subordinated Notes is due at maturity on
August 20, 2003. Interest on the Subordinated Notes is payable quarterly at
rates that vary depending upon whether accrued interest is paid in cash or "in
kind" through the issuance of additional Subordinated Notes. Interest is payable
in cash at interest rates of 12%, 13% and 14% per annum during years one through
three, year four and year five, respectively, of the term of the Subordinated
Notes; provided, however, that the Company may pay interest in kind for a
cumulative total of seven quarterly interest payments (potentially increasing to
eight if certain conditions are met) at interest rates of 13%, 14% and 15% per
annum during years one through three, year four and year five, respectively, of
the term of the Subordinated Notes. As of May 15, 2000, the Company had made a
cumulative total of five quarterly interest payments in kind and expects to make
at least the next two quarterly interest payments (due May 20, 2000 and August
20, 2000) in kind.
The Subordinated Notes rank subordinate in right of payment to Senior
Indebtedness (as defined) and senior to all other financings (other than any
allowed capital leases and purchase money financings) of the Company. The
Subordinated Notes are secured by a second lien against substantially all of the
natural gas and oil properties and other tangible assets of the Company. The
Subordinated Notes may be prepaid at any time, in whole or in part, without
premium or penalty, provided that all partial prepayments must be pro rata to
the various holders of the Subordinated Notes. The Subordinated Notes were
issued pursuant to an indenture that contains certain covenants that, among
other things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends, make distributions, enter into certain
sale and leaseback transactions, enter into certain transactions with
affiliates, dispose of certain assets, incur liens, reborrow funds utilized to
prepay the Senior Indebtedness and engage in most types of mergers and
consolidations.
The indenture governing the Subordinated Notes has certain financial
covenants, including current and interest coverage ratios, as defined. The
Company and the holders of the Subordinated Notes effected the March 1999 and
February 2000 amendments to the indenture to enable the Company to comply with
certain financial covenants of the indenture, including the minimum current
ratio and the minimum interest coverage ratio, as defined. Should the Company be
unable to comply with certain of the financial covenants, the holders of the
Subordinated Notes may be unwilling to waive compliance or amend the covenants
in the future. In such instance, the Company's liquidity may be adversely
affected, which could in turn have an adverse impact on the Company's future
financial position and results of operations.
At March 31, 2000 and May 15, 2000, the Company had $46.9 million,
respectively, principal amount of Subordinated Notes outstanding.
21
<PAGE>
SALES OF INTERESTS IN PROJECTS AND NATURAL GAS AND OIL PROPERTIES
DUKE PROJECT FINANCING. In February 1999, the Company entered into a
project financing arrangement with Duke Energy Financial Services, Inc. ("Duke")
to fund the continued exploration of five Anadarko Basin projects covered by
approximately 200 square miles of 3-D seismic data acquired in 1998. In this
transaction, the Company conveyed 100% of its working interest (land and
seismic) in these project areas to a newly formed limited liability company (the
"Duke LLC") for total consideration of $10 million. The Company is the managing
member of the Duke LLC with a 1% interest, and Duke is the sole remaining member
with a 99% interest. Pursuant to the terms of the Duke LLC agreement, Brigham
pays 100% of the drilling and completion costs for all wells drilled by the Duke
LLC within the designated project areas in exchange for a 70% working interest
in the wells (and their allocable drilling and spacing units), with the
remaining 30% working interest remaining in the Duke LLC, subject in each
instance to proportionate reduction by any ownership rights held by third
parties. Upon 100% project payout, the Company has the right to back-in for 80%
of the Duke LLC's working interest in all of the then producing wells (and their
allocable drilling and spacing units) and a 94% working interest in any wells
(and their allocable drilling and spacing units) drilled after payout within the
designated project areas governed by the Duke LLC agreement, thereby increasing
the Company's effective working interest in the Duke LLC wells from 70% to 94%.
The Company believes this project financing arrangement to be beneficial as it
enabled Brigham to recoup substantially all of its pre-seismic land and seismic
data acquisition costs incurred in these project areas and provided capital to
fund the drilling of the first six wells within these projects.
MID-1999 PROPERTY SALES. In June 1999, Brigham sold certain producing and
non-producing natural gas and oil properties located in its Anadarko Basin
province to two separate parties for a total of $17.1 million. The divested
properties were located in two fields operated by third parties - the Chitwood
Field in Grady County, Oklahoma (originally acquired by the Company for $13.4
million in the Chitwood Acquisition in November 1997), and the Red Deer Creek
Field in Roberts County, Texas. Brigham's independent reservoir engineers
estimated net proved reserve volumes attributable to the properties as of June
1, 1999 of approximately 36 Bcfe, of which 33% were classified as proved
developed producing reserves and 59% were natural gas. The Company estimated
that net production volumes from the divested properties were 2.8 MMcfe per day
at the time of the sales. The Company used the proceeds from these transactions
to reduce borrowings under its credit facility, which contributed to provide the
Company with $8 million in borrowing availability under its then existing credit
facility that was used to fund working capital needs and capital expenditures
during the second half of 1999. The effective date of each transaction was June
30, 1999.
EQUITY PLACEMENTS
VERITAS EQUITY ISSUANCES. On March 30, 1999, the Company entered into an
agreement with Veritas DGC Land, Inc. to exchange 1,002,865 shares of newly
issued Brigham common stock valued at $3.50 per share for approximately $3.5
million of payment obligations due to Veritas in 1999 for certain seismic
acquisition and processing services previously performed. In addition, this
agreement provided for the payment by Brigham of up to $1 million in future
seismic processing services to be performed by Veritas in newly issued shares of
Brigham common stock valued at $3.50 per share, in the event that the Company
did not elect to pay for such services in cash. The settlement of these future
seismic processing services was determined on a quarterly basis through
September 30, 1999. Pursuant to this agreement, Brigham issued a total of
1,211,580 shares of common stock to Veritas to satisfy $4.2 million in aggregate
payment obligations due to Veritas for seismic acquisition and processing
services performed prior to 1999 and certain seismic processing services
performed during 1999.
PRIVATE EQUITY PLACEMENT. On February 22, 2000, Brigham entered into an
agreement to issue 2,195,122 shares of common stock and 731,707 warrants to
purchase common stock for total consideration of $4.5 million in a private
placement to a group of institutional investors led by affiliates of two members
of the Company's board of directors. The equity sale consisted of units that
included one share of common stock priced at $2.0525 per share and one-third of
a warrant to purchase Brigham common stock at an exercise price of $2.5625 per
share with a three-year term. Pricing of this private equity placement was based
on the average market price of Brigham common stock during a twenty trading day
period prior to issuance. Net proceeds from this equity placement will be used
to fund a portion of the Company's planned 2000 capital expenditures and working
capital obligations.
22
<PAGE>
CASH FLOW ANALYSIS
CASH FLOWS FROM OPERATING ACTIVITIES. Cash flows used by operating
activities were $3 million in the first quarter of 2000, which consisted of $2.5
million in net operating cash flow (total revenues less lease operating
expenses, production taxes, net general and administrative expenses and cash
interest expenses) and $5.4 million in cash flow used for working capital items.
This compares to cash flows provided by operating activities of $5.1 million in
the first quarter of 1999, which consisted of $1.3 million in net operating cash
flow and $3.8 million in cash flow provided by working capital items.
CASH FLOWS FROM INVESTING ACTIVITIES. Cash flows used by investing
activities were $4.2 million in the first quarter of 2000 as compared with
$290,000 in the first quarter of 1999. This increase in net cash flows used by
investing activities was due to the combined effects of (i) reduced capital
expenditures in the current year quarter ($3.7 million) as compared with the
prior year period ($10.2 million), and (ii) $10 million of proceeds received
from the sales of interests in certain seismic projects during the first quarter
of 1999.
CASH FLOWS FROM FINANCING ACTIVITIES. Cash flows provided by financing
activities were $6 million in the first quarter of 2000 as compared with cash
flows used by financing activities of $361,000 in the first quarter of 1999.
This increase in cash flows provided by financing activities resulted primarily
from a $2 million increase in borrowings under the Credit Facility and the
February 2000 placement of common stock and warrants that generated proceeds of
$4.5 million before transaction expenses.
CAPITAL EXPENDITURES
Continuing its strategy implemented during 1999, Brigham intends to focus
substantially all of its efforts and available capital resources in 2000 to the
drilling and monetization of its highest grade prospects within its over 5,000
square mile inventory of 3-D seismic data. The Company's current 2000 capital
expenditure budget is estimated to be $25 million, which includes approximately
$20 million for drilling projects and $5 million for non-drilling activities
(primarily acreage acquisition and capitalized overhead costs). Brigham's
planned 2000 drilling program consists of a balanced blend of exploration and
development drilling projects with approximately 54% of budgeted drilling
expenditures targeted for exploratory prospects, 28% for development locations
and the remaining 18% for development locations that are contingent upon
drilling success during the year. In addition, the Company's 2000 budgeted
drilling expenditures have been allocated approximately 75% to its Gulf Coast
province and 25% to its Anadarko Basin province, concentrated within trends
where the Company has experienced exploration success to date. The Company
intends to fund these budgeted capital expenditures through a combination of
cash flow from operations, available borrowings under its senior credit facility
and the proceeds from its February 2000 private equity placement. Additionally,
the Company intends to supplement its available capital resources through
selective sales of interests in non-producing assets, including interests in its
3-D seismic projects and promoted interests in future drilling prospects or
locations.
Due to the Company's active exploration and development activities, Brigham
has experienced and expects to continue to experience substantial working
capital requirements. While the Company believes that cash flow from operations
and borrowings under its senior credit facility should allow Brigham to finance
its planned operations through 2000 based on current conditions and
expectations, additional financing will be required in the future to fund the
Company's exploration and development activities. In the event additional
financing is not available, the Company may be required to curtail or delay its
planned activities.
OTHER MATTERS
HEDGING ACTIVITIES
The Company believes that hedging, although not free of risk, allows the
Company to reduce its exposure to natural gas and oil sales price fluctuations
and thereby to achieve more predictable cash flows. However, hedging
23
<PAGE>
arrangements, when utilized, limit the benefit to the Company of increases in
the prices of the hedged commodity. Moreover, the Company's hedging arrangements
apply only to a portion of its production and provide only partial price
protection against declines in commodity prices. The Company expects that the
amount of its hedges will vary from time to time.
In 1998, Brigham began using natural gas swap arrangements in an attempt to
reduce its sensitivity to volatile commodity prices as its production base
became increasingly weighted toward natural gas. Pursuant to these arrangements
the Company exchanges a floating market price for a fixed contract price. The
Company makes payments when the floating price exceeds the fixed price for a
contract month and the Company receives payments when the fixed price exceeds
the floating price. Settlements of these swaps are based on the difference
between regional market index prices for a contract month and the fixed contract
price for the same month. The Company accounts for substantially all of these
transactions as hedging activities and, accordingly, adjusts the price received
for natural gas and oil production during the period the hedged transactions
occurred.
In September 1999, Brigham sold call options on a portion of its future oil
and natural gas production. The Company applied the proceeds from the sale of
these call options to increase the effective fixed swap price on its then
existing natural gas hedging contracts during the months of October 1999 through
January 2000 by an average of $0.57 per MMBtu. For accounting purposes, the
improvement in the Company's fixed natural gas swap price attributable to these
transactions is not reflected in reported revenues. Rather, it is reflected in
(i) other income (expense) on the income statement, and (ii) amortization of
deferred loss on derivatives instruments and market value adjustment for
derivatives instruments on the cash flow statement.
In March 2000, Brigham purchased put options on a portion of its future oil
and natural gas production. These transactions effectively converted a portion
of its existing call options into collars, thus providing a hedge to future
changes in oil and natural gas prices. Brigham also entered into costless
collars on additional future oil and natural gas production thus providing
further protection to the Company's exposure to potential oil and natural gas
price declines.
24
<PAGE>
The following tables summarize the Company's outstanding natural gas and
oil hedging arrangements as of May 15, 2000:
<TABLE>
<CAPTION>
NATURAL GAS HEDGES 2000 2001 2002
---------------------- --------------------- ---------------------
Average
Contract Average Average
Volumes Price Volumes Contract Volumes Contract
Monthly Hedged Price Hedged Price Hedged Price
Pricing Basis Contract Term (MMBtu) ($/MMBtu) (MMBtu) ($/MMBtu) (MMBtu) ($/MMBtu)
------------ -------------- ----------- --------- ---------- --------- -------- -----------
Fixed Price Swaps:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract #1 ANR November 1999 - 2,740,000 $2.1690 600,000 $2.0650 -- --
Oklahoma April 2001
Contract #2 Houston April 2000 - 1,375,000 $2.1500 600,000 $2.1500 -- --
Ship Channel April 2001
Contract #3 TETCO April 2000 - 1,375,000 $2.0575 600,000 $2.0575 -- --
South Texas April 2001
Fixed Price Cap ANR May 2001 - -- -- 2,450,000 $2.5498 1,810,000 $2.6326
Oklahoma June 2002
Fixed Price Floor ANR May 2001 - -- -- 765,000 $1.8000 -- --
Oklahoma December 2001
<CAPTION>
CRUDE OIL HEDGES 2000 2001 2002
---------------------- --------------------- ---------------------
Average
Contract Average Average
Volumes Price Volumes Contract Volumes Contract
Monthly Hedged Price Hedged Price Hedged Price
Pricing Basis Contract Term (Bbls) ($/Bbl) (Bbls) ($/Bbl) (Bbls) ($/Bbl)
------------ -------------- ----------- --------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Price Cap NYMEX October 1999 - 219,600 $27.40 109,200 $26.15 -- --
December 2001
Fixed Price Floor NYMEX March 2000 - 183,600 $18.00 109,200 $17.36 -- --
December 2001
</TABLE>
EFFECTS OF INFLATION AND CHANGES IN PRICES
The Company's results of operations and cash flows are affected by changing
oil and gas prices. If the price of oil and gas increases (decreases), there
could be a corresponding increase (decrease) in revenues as well as the
operating costs that the Company is required to bear for operations. Inflation
has had a minimal effect on the Company.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's business is subject to certain federal, state and local laws
and regulations relating to the exploration for and the development, production
and marketing of natural gas and oil, as well as environmental and safety
matters. Many of these laws and regulations have become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Although the Company believes it is in substantial
compliance with all applicable laws and regulations, the requirements imposed by
laws and regulations are frequently changed and subject to interpretation, and
the Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. Any suspensions, terminations or
inability to meet applicable bonding requirements could materially adversely
affect the Company's financial condition and operations. Although significant
expenditures may be required to comply with governmental laws and regulations
applicable to the Company, compliance has not had a material adverse effect on
the earnings or competitive position of the Company. Future regulations may add
to the cost of, or significantly limit, drilling activity.
25
<PAGE>
YEAR 2000 ISSUE
The Company has initially incurred no significant problems related to the
Year 2000 issue. However, the Company has not yet fully utilized all functions
and processes of its systems and accordingly cannot be sure that all its systems
will be free of Year 2000 issues. Also, the Company has no assurance that its
critical business partners, governmental agencies or other key third parties
have not incurred Year 2000 issues that may affect the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company must adopt SFAS No. 133, as
amended by SFAS No. 137, effective January 1, 2001. The Company is currently
assessing the impact adoption of this standard will have on its financial
statement presentation.
FORWARD LOOKING INFORMATION
Brigham or its representatives may make forward looking statements, oral or
written, including statements in this report, press releases and filings with
the SEC, regarding estimated future net revenues from oil and natural gas
reserves and the present value thereof, planned capital expenditures (including
the amount and nature thereof), increases in oil and gas production, the number
of wells the Company anticipates drilling through 2000 and the Company's
financial position, business strategy and other plans and objectives for future
operations. Although the Company believes that the expectations reflected in
these forward looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effects on
its business or operations. Among the factors that could cause actual results to
differ materially from the Company's expectations are general economic
conditions, inherent uncertainties in interpreting engineering data, operating
hazards, delays or cancellations of drilling operations for a variety of
reasons, competition, fluctuations in oil and gas prices, availability of
sufficient capital resources to the Company and its project participants,
government regulations and other factors detailed herein and in the Company's
1999 Form 10-K report and other SEC filings. All subsequent oral and written
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these factors. The Company
assumes no obligation to update any of these statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In Part II, Item 7A of Brigham's Form 10-K report for the year ended
December 31, 1999 (see page 41 of Brigham's 1999 Form 10-K), Brigham provided a
discussion of its market risk. There were no material changes during the first
quarter of 2000 in Brigham's exposures to loss from possible future changes in
the prices of oil and natural gas or in interest rates, other than those
described in Brigham's 1999 Form 10-K report.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 22, 2000, Brigham announced that it entered into a series of
financing agreements to provide funding for its planned 2000 capital expenditure
program and working capital obligations. These transactions included: (i) a
restructuring of its senior credit facility to provide from $14 million to $19
million in borrowing availability, (ii) amendments to the terms of its senior
subordinated notes to provide for the restructured credit facility and
additional financial flexibility, and (iii) the issuance of $4.5 million of
common stock and warrants to purchase common stock in a private placement. No
underwriters were involved, and therefore no underwriting commissions or
discounts were paid in connection with the privately placed notes, common stock
and warrants. The sales of these securities were made in reliance upon the
exemption from the registration provisions of the Securities Act of 1933, as
amended, provided by Section 4(2) thereof for transactions not involving a
public offering.
AMENDED CREDIT FACILITY. On February 17, 2000, Brigham entered into an
amended senior credit facility with its existing lenders, Bank of Montreal and
Societe Generale, and a new lender, Shell Capital Inc. This amended facility
provides the Company with $70 million in borrowing availability for a three-year
term, an increase from the $56 million in availability under the existing
facility. If Brigham exceeds certain asset value and interest coverage tests in
the second or third quarters of 2000, the total borrowing availability under
this credit facility will increase to $75 million. Borrowings under the senior
credit facility in excess of $45 million are convertible into shares of Brigham
common stock in the following amounts: (i) the first $10 million of borrowings
is convertible at $3.90 per share, (ii) the second $10 million is convertible at
$6.00 per share and (iii) the final $10 million is convertible at $8.00 per
share. If the credit facility is repaid at maturity or is prepaid prior to
maturity without payment of cash premiums, the warrants issued to Shell Capital
to purchase Brigham common stock become exercisable. All borrowings under the
senior credit facility bear interest at annual rates of LIBOR plus 3.00%, or
approximately 8.875% based on current LIBOR rates. In addition, certain
financial covenants of the senior credit facility were amended or added. In
connection with this amendment, the Company has agreed to reset the price of the
warrants to purchase one million shares of Brigham common stock previously
issued to the Bank of Montreal and Societe Generale from a current exercise
price of $2.25 per share to $2.02 per share.
AMENDED SENIOR SUBORDINATED NOTES. On February 17, 2000, Brigham entered
into an amendment to the terms of the indenture related to its outstanding
senior subordinated notes due 2003 (the "Notes"). In this amendment, the holders
of the Notes waived the minimum consolidated interest coverage ratio covenant
through June 30, 2000 and adjusted subsequent levels under this test. In
addition, the amendment to the Notes provides the Company with an extension of
its right to pay interest through the issuance of additional Notes in lieu of
cash (or "in-kind") through the third quarter of 2000 and potentially through
the fourth quarter of 2000 if certain conditions are met. In exchange for
granting these amendments, the Company (i) reset the price of the warrants to
purchase one million shares of Brigham common stock previously issued to the
holders of the Notes from a then current exercise price of $3.50 per share to
$2.43 per share, and (ii) granted to the holders of the Notes a term overriding
royalty interest that provides for the limited right to receive 4%, or 3% if
certain conditions are met, of the Company's net production revenue to reduce
any outstanding Notes issued as interest paid in-kind.
PRIVATE EQUITY PLACEMENT. On February 22, 2000, Brigham entered into an
agreement to issue 2,195,122 shares of common stock and 731,707 warrants to
purchase common stock for total consideration of $4.5 million in a private
placement to a group of institutional investors led by affiliates of two members
of the Company's board of directors. The equity sale consists of units that
include one share of common stock priced at $2.0525 per share and one-third of a
warrant to purchase Brigham common stock at an exercise price of $2.5625 per
share with a three-year term. Pricing of this private equity placement was based
on the average market price of Brigham common stock during a twenty trading day
period prior to issuance.
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on February 29, 2000, to report the
announcement on February 22, 2000, that it had entered into a series of
financing agreements that provide funding for its planned 2000 capital
expenditure program and working capital obligations. These transactions included
(i) a restructuring of its senior credit facility to provide from $14 million to
$19 million in borrowing availability, (ii) amendments to the terms of its
senior subordinated notes to provide for the restructured credit facility and
additional financial flexibility, and (iii) the issuance of $4.5 million of
common stock and warrants to purchase common stock in a private placement. The
Form 8-K included a copy of the Company's press release that provided this
announcement.
The Company filed a report on Form 8-K on March 9, 2000, to report the
announcements on March 7, 2000, of (i) initial production results from two wells
completed in its Gulf Coast exploration projects, and (ii) its proved reserve
estimates as of December 31, 1999, finding costs and drilling results for 1999,
capital budget for 2000, and operational and financial results for the fourth
quarter and fiscal year ended December 31, 1999. The Form 8-K included copies of
the Company's press releases that provided these announcements.
28
<PAGE>
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 on May 15, 2000.
BRIGHAM EXPLORATION COMPANY
By: /s/ BEN M. BRIGHAM
--------------------------------------
Ben M. Brigham
Chief Executive Officer, President and
Chairman of the Board
By: /s/ CURTIS F. HARRELL
--------------------------------------
Curtis F. Harrell
Chief Financial Officer
29
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,659
<SECURITIES> 0
<RECEIVABLES> 5,166
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,212
<PP&E> 116,247
<DEPRECIATION> 0
<TOTAL-ASSETS> 127,461
<CURRENT-LIABILITIES> 13,532
<BONDS> 100,898
0
0
<COMMON> 167
<OTHER-SE> 11,123
<TOTAL-LIABILITY-AND-EQUITY> 127,461
<SALES> 4,505
<TOTAL-REVENUES> 4,538
<CGS> 0
<TOTAL-COSTS> 3,402
<OTHER-EXPENSES> 596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,775
<INCOME-PRETAX> (2,198)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,198)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,198)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
