<PAGE>
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 September 30, 1996
-----------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------- SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
---------------------- -----------------------
Commission file number 1-13446
-------------------------------------------------------
Barrett Resources Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0832476
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Arapahoe Street, Tower 3, Suite 1000 Denver, Colorado 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 572-3900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
There were 31,329,361 shares of the registrant's $.01 par value common stock
outstanding as of November 11, 1996.
<PAGE>
BARRETT RESOURCES CORPORATION
-----------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Condensed Balance
Sheets - September 30, 1996 and
December 31, 1995.............................. 3
Consolidated Condensed Statements of
Income - Three Months Ended
September 30, 1996 and 1995.................... 4
Consolidated Condensed Statements of
Income - Nine Months Ended
September 30, 1996 and 1995.................... 5
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended
September 30, 1996 and 1995 ................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............. 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,446 $ 7,529
Receivables, net 38,680 31,434
Inventory 962 657
Other current assets 886 470
--------- ---------
Total current assets 49,974 40,090
Property and equipment, net 422,168 300,666
--------- ----------
$ 472,142 $ 340,756
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,860 $ 14,403
Amounts payable to oil and gas property
owners 16,199 8,874
Production taxes payable 14,764 8,047
Accrued and other liabilities 2,149 5,080
--------- ---------
Total current liabilities 47,972 36,404
Long-term debt 12,000 89,000
Deferred income taxes 48,595 23,524
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000
shares authorized, none outstanding -- --
Common stock, $.01 par value: 35,000,000
shares authorized; 31,319,193 issued
(25,092,246 at December 31, 1995) 313 251
Additional paid-in capital 241,407 86,154
Retained earnings 122,849 105,890
Treasury stock, at cost: 38,754 shares
(20,439 at December 31, 1995) (994) (467)
--------- ---------
Total Stockholders' equity 363,575 191,828
--------- ---------
$ 472,142 $ 340,756
========= ==========
</TABLE>
See accompanying notes.
3
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
September 30, September 30,
1996 1995
------------- -------------
Revenues:
Oil and gas production $ 37,838 $ 21,963
Trading revenues 7,678 4,846
Revenue from gas gathering 544 408
Interest income 177 190
Other income 104 170
------------- -------------
46,341 27,577
Operating expenses:
Lease operating expenses 12,430 8,379
Cost of trading 7,025 4,670
Depreciation, depletion & amortization 11,595 7,692
General and administrative 4,146 3,561
Interest expense 17 1,273
Other -- 184
Merger costs -- 13,207
------------- -------------
35,213 38,966
------------- -------------
Income for the period before income taxes 11,128 (11,389)
Provision for income taxes 4,230 459
------------- -------------
Net income for the period $ 6,898 $ (11,848)
============= =============
Net income per common share and common
share equivalent $ 0.22 $ (0.47)
============= =============
Weighted average number of shares of
common stock and common stock equivalents 31,354 25,081
============= =============
See accompanying notes.
4
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Oil and gas production $ 102,412 $ 70,481
Trading revenues 30,547 20,156
Revenue from gas gathering 1,996 917
Interest income 633 529
Other income 465 594
---------- ----------
136,053 92,677
Operating expenses:
Lease operating expenses 34,027 25,418
Cost of trading 28,449 19,385
Depreciation, depletion &
amortization 31,859 23,625
General and administrative 11,212 10,255
Interest expense 3,154 3,284
Other expense -- 568
Merger costs -- 13,207
---------- ----------
108,701 95,742
---------- ----------
Income (loss) for the period before
income taxes 27,352 (3,065)
Provision for income taxes 10,393 2,812
--------- ----------
Net (loss) income for the period $ 16,959 $ (5,877)
========= ==========
Net (loss) income per common share
and common share equivalent $ 0.62 $ (0.23)
========= ==========
Weighted average number of shares
of common stock and common
stock equivalents 27,554 25,020
========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended
September 30, September 30,
1996 1995
------------- -------------
Cash flows from operations:
Net income $ 16,959 $ (5,877)
Adjustments needed to reconcile to net
cash provided by operations:
Depreciation, depletion and amortization 31,859 23,625
Unrealized hedging gains/(losses) (1,138) --
Deferred income taxes 9,778 2,543
Other -- (770)
------------- ------------
57,458 19,521
Change in current assets and liabilities:
Accounts receivable (7,246) 9,505
Other current assets (416) 432
Accounts payable 457 (15,305)
Amounts due oil and gas owners 7,325 (942)
Production taxes payable 6,717 --
Accrued and other liabilities (1,585) 3,242
------------- ------------
Net cash flow provided by operations 62,710 16,453
------------- ------------
Cash flows from investing activities:
Proceeds from sale of oil and gas
properties 1,992 209
Acquisition of property and equipment (124,054) (46,945)
------------- ------------
Net cash flow used in investing activities (122,062) (46,736)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 138,269 6,413
Borrowings on line of credit 33,000 69,000
Payments on line of credit (110,000) (37,000)
Dividends paid -- (1,179)
Other -- (767)
------------- ------------
Net cash flow provided by financing activities 61,269 36,467
------------- ------------
Increase in cash and cash equivalents 1,917 6,184
Cash and cash equivalents at beginning of
period 7,529 12,348
------------- ------------
Cash and cash equivalents at end of period $ 9,446 $ 18,532
============= ============
Noncash investing and financing activities:
Issuance of common stock for property
and related deferred taxes $ 31,603 $ --
Treasury shares purchased in option
transactions 527 --
See accompanying notes.
6
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
September 30, 1996
1. UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the financial position of Barrett Resources Corporation and its
wholly owned subsidiaries, collectively referred to as the "Company", as of
September 30, 1996 and the results of operations and cash flows for the
periods presented. All such adjustments are of a normal recurring nature.
Certain reclassifications have been made to 1995 amounts to conform to the
1996 presentation.
On July 18, 1995, Plains Petroleum Company ("Plains") was merged with and
into a subsidiary of the Company and thereby became a wholly owned
subsidiary. The merger was accounted for using the pooling of interests
method, and accordingly, the accompanying financial statements have been
restated to include the accounts and operations of Plains for all periods
prior to the merger.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in Form 10-K for the year ended December
31, 1995. These financial statements should be read in conjunction with the
financial statements and notes included in the Form 10-K.
2. INCOME TAXES
Provisions for income taxes were calculated in accordance with Statement of
Financial Accounting Standards No. 109 which provides that a deferred tax
liability or asset be determined based on the timing differences between the
basis used for financial versus tax reporting of assets and liabilities as
measured by the effective tax rates. For the quarter and nine months ended
September 30, 1996, the Company used an estimated effective tax rate of
thirty-eight percent.
The Internal Revenue Service (IRS) has examined the federal tax returns of
Plains, a subsidiary of Barrett Resources Corporation, for pre-merger
calendar years 1991, 1992 and 1993. The IRS issued a "Notice of Deficiency"
of $5.3 million together with penalties of $1.1 million, and an undetermined
amount of interest. The IRS notice of deficiency resulted primarily from the
IRS's disallowance of certain net operating loss deductions claimed during
the periods under examination. These net operating losses originally had
been incurred by a company that was acquired by Plains in 1986. The Company
currently has additional unused net operating loss carryforwards of
approximately $30 million related to the same acquisition.
7
<PAGE>
2. INCOME TAXES (continued)
Management disagrees with the IRS position. In management's opinion, the
federal tax returns of Plains reflect the proper federal income tax
liability and the existing net operating loss carryforwards are appropriate
as supported by relevant authority. The Company will vigorously contest
these proposed adjustments and believes it will prevail in its positions.
It is anticipated that the final determination of this matter will involve
a lengthy process.
During the quarter ended September 30, 1996 the Company acquired oil and
gas properties in purchase transactions that qualify as tax-free exchanges
for tax purposes. The Company provided deferred income taxes payable of
$10.1 million for the estimated income tax effect of the difference between
the financial and tax basis of the properties acquired.
3. LONG-TERM DEBT
Effective August 1, 1996, the Company decreased the borrowing limit on its
reserved-based line of credit to $75 million. Under the terms of the
Credit Agreement, the Company may borrow up to the $200 million limit.
As of September 30, 1996, the Company's effective interest rate, on an
outstanding balance of $12 million, was approximately 6.0 percent per
annum.
Total interest expense incurred for the nine months ended September 30,
1996 was $3.6 million. For the nine month period, $8,000 of interest
expense was capitalized for specific projects.
8
<PAGE>
BARRETT RESOURCES CORPORATION
For the Quarter Ended
September 30,1996
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1996, total assets were $472.1 million compared to $340.8
million at December 31, 1995, an increase of $131.3 million or 39 percent. Cash
and short term investments increased $1.9 million, working capital decreased
$1.7 million and property and equipment increased $121.5 million. Operating cash
flows before working capital adjustments totaled $57.5 million in the nine
months ended September 1996 compared with $19.5 million in the same period of
1995. After working capital adjustments, cash flow provided by operations
increased by $46.3 million to $62.7 million as compared with 1995.
Capital expenditures of $155.7 million, including acquisitions and related tax
adjustments, for the nine month period, increased $108.7 million over the same
period in 1995. These expenditures, funded by operating cash flows and issuance
of the Company's common stock, consisted principally of drilling and development
activities of oil and gas properties, and acquisition and development of
producing properties. Development and expansion activities were focused in the
Piceance, Wind River and Anadarko Basins. Acquisitions of oil and gas property
interests and related facilities were concentrated principally in the Piceance
Basin of Colorado, the Gulf of Mexico, and the Uinta Basin of Utah. Exploration
activities consisting of acquiring lease positions and development of prospects
were centered in the Anadarko and Arkoma basins and the Gulf Coast region.
On September 26, 1996, the Company announced that it was the high bidder on 19
blocks in a Federal Offshore Lease Sale. All bids are subject to approval by
the Minerals Management Service ("MMS"). Upon acceptance of the bids, the
Company will own a 100 percent working interest in fifteen of the blocks and a
50 percent working interest in four of the blocks. Total bonus payments payable
by the Company for these block interests will be $34.8 million once approval is
received from the MMS.
On November 1, 1996, the Company traded interests in certain properties located
in the Permian Basin of Texas and the Green River Basin of Wyoming, issued
50,000 shares of its Common Stock and paid $13.8 million in cash to acquire
producing and non-producing oil and gas interests in the Altamont-Bluebell Field
in the Uinta Basin of Utah.
The Company has entered into an international venture to evaluate, explore and
develop property encompassing approximately 820,000 acres located in the Maranon
Basin of Peru. The Company has a 55 percent interest in the acreage and as
operator, may drill a well in mid-1997 following an evaluation study.
9
<PAGE>
The Company plans to continue actively acquiring, exploring and developing oil
and gas properties. Based on the June 30, 1996 reserve estimates, the Company
has a borrowing capacity of up to the $200 million limit of its line of credit.
The Company expects cash flow from its producing properties and its borrowing
capacity to be sufficient to fund its anticipated activities.
Results of Operations
- ---------------------
Net income for the third quarter ending September 30, 1996 was $6.9 million or
$.22 per share compared with a net loss of $11.8 million ($.47 loss per share)
for the same period in 1995. The increase in net income is partially the result
of an increase of $15.9 million in oil and gas production revenue primarily
attributed to higher production volumes and increased average oil and gas sales
prices. Net income for the nine months ended September 30, 1996 was $17.0
million or $.62 per share, as compared with a net loss of $5.9 million ($.23
loss per share) for the nine month period in 1995. The third quarter and nine
month period loss in 1995 was directly attributed to pre-tax merger costs of
$13.2 million associated with the Company's merger with Plains.
Total revenues for the third quarter of 1996 were $46.3 million, an increase of
$18.8 million or 68 percent over the same period in 1995. A 72 percent
increase in production revenues and a 58 percent increase in trading revenues
were the primary contributing factors to the higher total revenue. Total
revenues for the nine month period of 1996 were 47 percent higher than the same
period in 1995.
Production revenue for the third quarter of 1996 increased 72 percent to $37.8
million from $22.0 million in 1995. For the nine months ended September 30,
1996, production revenues were up 45 percent to $102.4 million compared with
revenues of $70.5 for the nine months ended September 30, 1995. Production
revenues and related volumes and average prices during the periods presented
were as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
Gas Revenues (000's) $27,793 $15,332 $76,415 $50,095
Gas Production (Bcf) 15.5 11.0 44.1 33.9
Average Price per Mcf $ 1.80 $ 1.40 $ 1.73 $ 1.48
Oil Revenues (000's) $10,045 $ 6,631 $25,997 $20,386
Oil Production (Mbbls) 511 436 1,397 1,288
Average Price per Barrel $ 19.66 $ 15.21 $ 18.61 $ 15.84
</TABLE>
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; Mbbls = thousand
barrels)
Third quarter gas revenues increased 81 percent as compared with the same period
in 1995, principally due to a 41 percent increase in production volumes and an
29 percent increase in average gas prices. A 30 percent increase in production
volumes accompanied by a 25 cent per Mcf (17 percent) increase in average gas
prices caused gas revenues for the nine month period ended September 30, 1996 to
be 53 percent higher than the same period in 1995.
10
<PAGE>
Oil revenues for the third quarter of 1996 were higher by $3.4 million over
1995. This increase is attributed to higher production volumes, up 17 percent,
and a $4.45 per barrel (29 percent) increase in average oil prices. For the
nine months ended September 30, 1996 oil revenues were up $5.6 million from 1995
due to an eight percent increase in production volumes and a $2.77 per barrel
increase in average oil prices.
In 1996, trading revenues were $7.7 million for the third quarter ($4.8 million
in 1995) and $30.5 million for the nine month period ($20.1 million in 1995).
The associated costs of trading were $7.0 million and $4.7 million for the
quarter ended September 30, 1996 and 1995, respectively, and $28.4 million and
$19.4 million for the respective nine months in 1996 and 1995. Gross profit
from trading increased to $653,000 from $176,000 for the quarter and to $2.1
million from $771,000 for the nine months as compared to the prior year.
Production hedging expenses totaled $57,000 for the quarter and $1.5 million
for the first nine months of 1996 as compared to hedging income of $1.1 million
and $1.8 million for the 1995 three and nine month periods, respectively. These
expenses are recorded in the consolidated statements of income as adjustments of
oil and gas production revenue. Currently, the Company holds positions to hedge
production of approximately 11.5 Bcf of gas through October 1997.
Production costs averaged 67 and 62 cents per Mcf of gas equivalent for the
third quarters of 1996 and 1995, respectively, and 65 cents and 61 cents for the
nine months of 1996 and 1995, respectively. The increase is attributed to the
Company's increased interests in properties which have higher operating
costs.
Depreciation, depletion and amortization increased to $11.6 million from $7.7
million for the quarter and to $31.9 million from $23.6 million for the nine
month period. The increase is principally due to production volume increases.
During the nine month periods in 1996 and 1995, depletion on oil and gas
production averaged $.58 and $.53 per Mcf of gas equivalent, respectively.
With increased exploration activities, general and administrative costs rose
$585,000 (16 percent) in the third quarter and $957,000 (9 percent) in the first
nine months of 1996 as compared to the same periods in 1995. These costs
approximate nine percent and eight percent of total revenues for the three and
nine month periods in 1996 versus 13 percent and 11 percent for the three and
nine month periods in 1995.
Interest expense decreased to $17,000 from $1.3 million for the quarter and to
$3.2 million from $3.3 million for the nine month period. The decrease for the
quarter is directly attributed to repayment of all of the Company's outstanding
long-term debt in June. The Company did not borrow additional funds until late
September.
The Company's largest source of operating income is from sales of its gas and
oil production. Therefore, the levels of the Company's revenues and earnings
are affected by prices at which natural gas and oil are being sold. This is
particularly true with respect to natural gas, which accounted for approximately
75 percent of the Company's production revenue for the nine
11
<PAGE>
month period in 1996. As a result, the Company's operating results for any
prior period are not necessarily indicative of future operating results because
of the fluctuations in gas and oil prices and the lack of predictability of
those fluctuations as well as changes in production levels.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibit is filed as part of this Quarterly Report on
Form 10-Q:
27. Financial Data Schedule.
(b) During the quarter ended September 30, 1996, the Registrant did not
file any reports on Form 8-K.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRETT RESOURCES CORPORATION
November 12, 1996 By /s/ Paul M. Rady
-----------------
Paul M. Rady
President
November 12, 1996 By /s/ J. Frank Keller
--------------------
J. Frank Keller
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 9,446 9,446
<SECURITIES> 0 0
<RECEIVABLES> 38,680 38,680
<ALLOWANCES> 0 0
<INVENTORY> 962 962
<CURRENT-ASSETS> 49,974 49,974
<PP&E> 602,957 602,957
<DEPRECIATION> 180,789 180,789
<TOTAL-ASSETS> 472,142 472,142
<CURRENT-LIABILITIES> 47,972 47,972
<BONDS> 0 0
0 0
0 0
<COMMON> 313 313
<OTHER-SE> 363,262 363,262
<TOTAL-LIABILITY-AND-EQUITY> 472,142 472,142
<SALES> 45,516 132,959
<TOTAL-REVENUES> 46,341 136,053
<CGS> 19,455 62,476
<TOTAL-COSTS> 31,050 94,335
<OTHER-EXPENSES> 4,146 11,212
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 3,154
<INCOME-PRETAX> 11,128 27,352
<INCOME-TAX> 4,230 10,393
<INCOME-CONTINUING> 6,898 16,959
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,898 16,959
<EPS-PRIMARY> .22 .62
<EPS-DILUTED> .22 .62
</TABLE>
