<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 June 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 31,232,888 shares of the registrant's $.01 par value common stock
outstanding as of August 9, 1996.
<PAGE>
BARRETT RESOURCES CORPORATION
-----------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Condensed Balance
Sheets - June 30, 1996 and
December 31, 1995.............................. 3
Consolidated Condensed Statements of
Income - Three Months Ended
June 30, 1996 and 1995......................... 4
Consolidated Condensed Statements of
Income - Six Months Ended
June 30, 1996 and 1995......................... 5
Consolidated Condensed Statements of
Cash Flows - Six Months Ended
June 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 4. Submission of Matters to a Vote
of Security Holders............................ 12
Item 5. Other Information ............................ 12
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)
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 40,395 $ 7,529
Receivables, net 34,644 31,434
Inventory 690 657
Other current assets 1,061 470
---------- ---------
Total current assets 76,790 40,090
Property and equipment, net 347,666 300,666
---------- ---------
$424,456 $340,756
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,159 $ 14,403
Amounts payable to oil and gas property owners 12,120 8,874
Production taxes payable 11,420 8,047
Accrued and other liabilities 2,982 5,080
--------- --------
Total current liabilities 41,681 36,404
Long-term debt - 89,000
Deferred income taxes 33,858 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; 31,009,650 issued (25,092,246 at
December 31, 1995) 310 251
Additional paid-in capital 233,449 86,154
Retained earnings 115,951 105,890
Treasury stock, at cost; 33,293 shares (793) (467)
--------- --------
Total stockholders' equity 348,917 191,828
--------- --------
$424,456 $340,756
========= =========
See accompanying notes.
3
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
June 30, June 30,
1996 1995
-------- --------
Revenues:
Oil and gas production $ 35,030 $ 23,538
Trading revenues 10,876 7,522
Revenue from gas gathering 1,004 218
Interest income 259 186
Other income 236 165
-------- --------
47,405 31,629
Operating expenses:
Lease operating expenses 10,650 8,142
Cost of trading 10,210 7,263
Depreciation, depletion & amortization 10,860 7,833
General and administrative 3,448 3,064
Interest expense 1,586 1,071
Other expense - 259
-------- --------
36,754 27,632
-------- --------
Income for the period before income taxes 10,651 3,997
Provision for income taxes 4,046 1,040
-------- --------
Net income for the period $ 6,605 $ 2,957
======== ========
Net income per common share and common share
equivalent $ 0.25 $ 0.13
======== ========
Weighted average number of shares of common
stock and common stock equivalents 26,039 23,585
======== ========
See accompanying notes.
4
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
Six Months Ended
June 30, June 30,
1996 1995
-------- --------
Revenues:
Oil and gas production $ 64,574 $ 48,519
Trading revenues 22,869 15,310
Revenue from gas gathering 1,452 509
Interest income 456 339
Other income 361 423
-------- --------
89,712 65,100
Operating expenses:
Lease operating expenses 21,597 17,039
Cost of trading 21,424 14,715
Depreciation, depletion & amortization 20,264 15,933
General and administrative 7,066 6,693
Interest expense 3,137 2,012
Other expense - 384
-------- --------
73,488 56,776
-------- --------
Income for the period before income taxes 16,224 8,324
Provision for income taxes 6,163 2,353
-------- --------
Net income for the period $ 10,061 $ 5,971
======== ========
Net income per common share and common share
equivalent $ 0.39 $ 0.24
======== ========
Weighted average number of shares of common
stock and common stock equivalents 25,638 24,879
======== ========
See accompanying notes.
5
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operations:
Net income $ 10,061 $ 5,971
Adjustments needed to reconcile to net
cash provided by operations:
Depreciation, depletion and amortization 20,264 15,933
Unrealized hedging gains/(losses) (1,138) -
Deferred income taxes 5,351 2,063
-------- --------
34,538 23,967
Change in current assets and liabilities
Accounts receivable (3,210) 6,543
Other current assets (591) (426)
Accounts payable 756 (10,617)
Amounts due oil and gas owners 3,246 (3,033)
Production taxes payable 3,373 -
Accrued and other liablilities (960) 796
-------- --------
Net cash flow provided by operations 37,152 17,230
-------- --------
Cash flows from investing activities
Proceeds from sale of oil and gas properties 1,375 17
Acquisition of property and equipment (54,064) (32,722)
-------- --------
Net cash flow used in investing activities (52,689) (32,705)
Cash flows from financing activities:
Proceeds from issuance of common stock 137,403 1,546
Borrowings on line of credit 21,000 20,000
Payments on line of credit (110,000) (5,000)
Dividends paid - (1,174)
-------- --------
Net cash flow provided by financing activities 48,403 15,372
-------- --------
Increase (decrease) in cash and cash equivalents 32,866 (103)
Cash and cash equivalents at beginning of period 7,529 12,348
-------- --------
Cash and cash equivalents at end of period $ 40,395 $ 12,245
======== ========
Noncash investing and financing activities:
Issuance of common stock for property $ 9,625 $ -
Common stock/treasury share options exercised 326 -
</TABLE>
See accompanying notes.
6
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 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
June 30, 1996 and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature.
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. Due to this restatement, the financial statements
included in this Form 10-Q are not comparable to the financial statements
for the same periods as presented in previously filed documents.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in Form 10-K for the year ended December
31, 1995. These financial statements should be read in conjunction with the
financial statements and notes included in the Form 10-K.
2. INCOME TAXES
Provisions for income taxes were calculated in accordance with Statement of
Financial Accounting Standards No. 109 which provides that a deferred tax
liability or asset be determined based on the timing differences between the
basis used for financial versus tax reporting of assets and liabilities as
measured by the effective tax rates. For the quarter and six months ended
June 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 for the calendar years 1991, 1992 and 1993. In a report to the
Company, transmitted by a "30-day letter" that requests a response by the
Company within a 30 day period, the IRS has proposed a tax deficiency of
$5.3 million together with penalties of $1.1 million, and an undetermined
amount of interest. The IRS proposed deficiency resulted primarily from the
disallowance of certain net operating loss deductions claimed during the
periods under examination. These net operating losses originally were
incurred by a company that was acquired by Plains in 1986. The Company
currently has additional unused net operating loss carryforwards of
approximately $30 million related to the same acquisition.
7
<PAGE>
2. INCOME TAXES (continued)
Management disagrees with the IRS position, and the Company has rejected
the IRS's position by refusing to accept the adjustments proposed in the
30-day letter. In management's opinion, the federal tax returns of Plains
under examination reflect the proper federal income tax liability and the
existing net operating loss carryforwards are appropriate as supported by
relevant authority. The Company will vigorously contest these proposed
adjustments and believes it will prevail in its positions. It is
anticipated that the final determination of this matter will involve a
lengthy process.
During the quarter ended June 30, 1996 the Company acquired oil and gas
properties in a purchase transaction that qualifies as tax-free exchange
for tax purposes. The Company provided deferred income taxes payable of
$5.0 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. The Company currently has a
borrowing base of $175 million and may, at its option, increase the
borrowing limit to the amount of the borrowing base.
During June 1996, the Company repaid all outstanding borrowings of $110
million under this line of credit with proceeds from its public offering of
common stock (See Note 4). As of June 30, 1996, the Company had no
outstanding borrowings.
Total interest expense incurred for the quarter and six months ended June
30, 1996 were $2.0 million and $3.6 million, respectively. For the six
month period, $8,000 of interest expense was capitalized for specific
projects.
4. STOCKHOLDERS' EQUITY
In June 1996, the Company issued 5,400,000 shares of its common stock at
$26.375 per share in a public common stock offering. Proceeds from the
offering, net of commissions and other related expenses totaling $7.4
million, were $135 million. The proceeds were used to eliminate the
Company's outstanding long term debt and to provide additional capital for
future capital expenditures.
8
<PAGE>
BARRETT RESOURCES CORPORATION
For the Quarter Ended
June 30, 1996
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1996, total assets were $424.5 million compared to $340.8 million
at December 31, 1995, an increase of $83.7 million or 25 percent. Cash and
short term investments increased $32.9 million, working capital increased $31.4
million and property and equipment increased $47.0 million. These increases are
attributed to the Company's public offering of common stock and capital
expenditures and acquisitions.
In June 1996, the Company completed a public equity offering of 5.4 million
shares of common stock priced at $26.375 per share. The proceeds of
approximately $135 million, net of offering costs and expenses, were used to
repay the Company's outstanding long-term debt of $110 million with the balance
available to fund the Company's capital expenditures program.
Operating cash flows before working capital adjustments totaled $34.5 million in
the first six months of 1996 compared with $24.0 million in the same period of
1995. After working capital adjustments, cash flow provided by operations
increased by $19.9 million to $37.1 million as compared with 1995.
Capital expenditures of $63.7 million , including acquisitions, for the first
six months, increased $31 million over the same period in 1995. These
expenditures were funded by operating cash flows, borrowings and issuance of the
Company's common stock and 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 for the second quarter
concentrated on the purchase of additional oil and gas property and gas
gathering interests in the Piceance Basin.
During the year the Company has continued to actively pursue acquisition of
interests in the oil and gas properties and the gathering system that it
operates in the Piceance Basin. During the second quarter the Company completed
one transaction in which it acquired additional interests in the Piceance
properties from two entities for a combination of cash and common stock.
Subsequent to June 30, 1996 the Company issued shares of its common stock to
complete another acquisition of Piceance properties from a group of three
entities. Also during the second quarter, the Company entered into a letter of
intent for acquisition of additional interests in the Piceance properties from a
third set of entities. Although no definitive agreement has been entered into,
this transaction is expected to close in August 1996 as a cash purchase. After
considering anticipated participation in the acquisitions by an industry partner
pursuant to a right of first refusal, and the successful completion of these
transactions, the Company expects to increase its working interest in the
Piceance Basin properties to approximately 62.5 percent.
The Company plans to continue actively acquiring, exploring and developing oil
and gas properties. Based on the December 31, 1995 reserve estimates, the
borrowing base under the Company's line of credit is $175 million. The Company
expects cash flow from its producing properties and its borrowing capacity will
be sufficient to fund its anticipated activities.
9
<PAGE>
Results of Operations
- ---------------------
The following discussion of operating results is based on historical
consolidated financial information that has been restated to reflect the merger
of the Company and Plains on July 18, 1995 under the pooling of interests method
of accounting.
For the second quarter ending June 30, 1996 net income of $6.6 million or $.25
per share was $3.6 million higher than net income of $3.0 million or $.13 per
share in the second quarter 1995. The increase in net income is the result of
an increase of $11.5 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 six months ended June 30, 1996 was $10.1 million or
$.39 per share, an increase of $4.1 million over net income of $6.0 million or
$.24 per share for the first six months of 1995.
Total revenues for the second quarter of 1996 were $47.4 million, an increase of
$15.8 million or 50 percent over the same period in 1995. A 49 percent
increase in production revenues and a 45 percent increase in trading revenues
were the primary contributing factors to the higher total revenue. Total
revenues for the first six month period of 1996 were 38 percent higher than the
same period in 1995.
Production revenue for the second quarter of 1996 increased 49 percent to $35.0
million from $23.5 million in 1995. For the six months ended June 30, 1996,
production revenues were up 33 percent to $64.6 million compared with revenues
of $48.5 for the six months ended June 30, 1995. Production revenues and related
volumes and average prices during the periods presented were as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months
June 30, June 30, Ended
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Gas Revenues (000's) $26,178 $16,467 $48,622 $34,763
Gas Production (Bcf) 15.2 11.3 28.6 22.9
Average Price per Mcf $ 1.73 $ 1.46 $ 1.70 $ 1.52
Oil Revenues (000's) $ 8,852 $ 7,071 $15,952 $13,756
Oil Production (Mbbls) 456 421 886 851
Average Price per Barrel $ 19.41 $ 16.80 $ 18.02 $ 16.16
</TABLE>
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; Mbbls = thousand
barrels)
Second quarter gas revenues increased 59 percent as compared with the same
period in 1995, principally due to a 35 percent increase in production volumes
and an 18 percent increase in average gas prices. A 25 percent increase in
production volumes accompanied by a 18 cent per Mcf increase in average gas
prices caused gas revenues for the six month period ended June 30, 1996 to be 40
percent higher than the same period in 1995.
Oil revenues for the second quarter of 1996 were higher by $1.8 million over
1995. This increase is attributed to higher production volumes, up 8 percent
and a $2.61 per barrel increase in average oil prices. For the six months ended
June 30, 1996 oil revenues were up $2.2 million from 1995 due to a 4 percent
increase in production volumes and a $1.84 per barrel increase in average oil
prices.
10
<PAGE>
In 1996, trading revenues were $10.9 million for the second quarter ($7.5
million in 1995) and $22.9 million for the six month period ($15.3 million in
1995). The associated costs of trading were $10.2 million and $7.3 million for
the quarter ended June 30, 1996 and 1995, respectively, and $21.4 million and
$14.7 million for the respective six months in 1996 and 1995. Gross profit from
trading increased to $.7 million from $.3 million for the quarter and to $1.4
million from $.6 million for the six months as compared to the prior year.
Production hedging expenses totaled $607,000 for the quarter and $1.4 million
for the first six months of 1996 as compared to hedging income of $.5 million
and $.7 million for the 1995 three and six month periods, respectively. These
expenses are recorded in the consolidated statements of income as adjustments of
oil and gas production revenue. As of June 30, 1996, the Company held positions
to hedge production of 4.8 Bcf of gas.
Production costs averaged 59 cents per Mcf of gas equivalent for the second
quarters of 1996 and 1995 and 63 cents and 61 cents for the six months of 1996
and 1995, respectively.
Depreciation, depletion and amortization increased to $10.9 million from $7.8
million for the quarter and to $20.3 million from $15.9 million for the six
month period. The increase is principally due to production volume increases.
During the six month periods in 1996 and 1995, depletion on oil and gas
production was recorded at $.56 per Mcf of gas equivalent.
With increased exploration activities, general and administrative costs rose $.4
million in the second quarter and the first six months of 1996 as compared to
the same periods in 1995. These costs are approximately 7 percent and 8 percent
of total revenues for the three and six month periods in 1996 versus 10 percent
for the three and six month periods in 1995.
Interest expense increased from $1.1 million to $1.5 million for the quarter and
from $2.0 to $3.1 million for the six month period. Increases are directly
attributed to additional borrowing used principally to fund exploration,
development and acquisition of oil and gas properties.
The Company's largest source of operating income is from sales of its gas and
oil production. Therefore, the levels of the Company's revenues and earnings
are affected by prices at which natural gas and oil are being sold. This is
particularly true with respect to natural gas, which accounted for approximately
75 percent of the Company's production revenue for the six 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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 5, 1996, the Annual Meeting of the Stockholders of Barrett
Resources Corporation was held. At that meeting, the following
matters were approved by the stockholders by the votes indicated
below.
(1) The following directors were re-elected with these directors
constituting the entire Board of Directors: William J. Barrett,
C. Robert Buford, Derrill Cody, James M. Fitzgibbons, Hennie
L.J.M. Gieskes, William W. Grant, III, J. Frank Keller, Paul M.
Rady, A. Ralph Reed, James T. Rodgers, Philippe S.E. Schreiber,
and Harry S. Welch.
(2) A proposal to amend the 1994 Stock Option Plan to increase from
400,000 to 1,000,000 the number of shares of Common Stock
issuable pursuant to options granted under that Plan received
19,862,291 shares voting in favor of the proposal, 1,471,498
shares voting against the proposal, and 228,415 shares
abstaining.
(3) A proposal to amend the Non-Discretionary Stock Option Plan to
increase from 100,000 to 200,000 the number of shares of Common
Stock issuable pursuant to options granted under that Plan
received 19,786,176 shares voting in favor of the proposal,
1,549,633 shares voting against the proposal, and 226,395 shares
abstaining.
(4) A proposal to ratify the selection by the Board of Directors of
Arthur Andersen LLP as the independent certified public
accountants for the Company for the fiscal year ending December
31, 1996 was approved with a total of 21,495,117 shares voting in
favor, 26,706 shares voting against and 40,381 shares abstaining.
Item 5. Other Information
-----------------
On July 30, 1996 the Company acquired all the outstanding stock of two
corporations that own oil and gas interests located in the Piceance Basin of
Colorado. Also on that date, a third corporation which owns interests in the
Grand Valley Gathering Systems in the Piceance Basin of Colorado was merged into
a subsidiary of the Company. As consideration for these transactions, the
Company issued 235,661 shares of its Common Stock.
The Company is the operator and previously had owned interests in both
the oil and gas assets and the gathering system in which it acquired interests
as a result of these transactions. Prior to the transactions, the Company owned
an approximate 40 percent interest in both the oil and gas interests and the
gathering systems that are the subject of the transactions. The interests being
acquired represent an approximate five percent interest in these assets. The
effective date of the transactions is April 1, 1996.
12
<PAGE>
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 June 30, 1996, the Registrant filed a report
on Form 8-K reporting events occurring on June 20, 1996 and June 24, 1996,
respectively.
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
August 13, 1996 By /s/ Paul M. Rady
-----------------
Paul M. Rady
President
August 13, 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 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 40,395 40,395
<SECURITIES> 0 0
<RECEIVABLES> 34,644 34,644
<ALLOWANCES> 0 0
<INVENTORY> 690 690
<CURRENT-ASSETS> 76,790 76,790
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 424,456 424,456
<CURRENT-LIABILITIES> 41,681 41,681
<BONDS> 0 0
0 0
0 0
<COMMON> 310 310
<OTHER-SE> 348,607 348,607
<TOTAL-LIABILITY-AND-EQUITY> 424,456 424,456
<SALES> 45,906 87,443
<TOTAL-REVENUES> 47,405 89,712
<CGS> 20,860 43,021
<TOTAL-COSTS> 31,720 63,285
<OTHER-EXPENSES> 3,448 7,066
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,586 3,137
<INCOME-PRETAX> 10,651 16,224
<INCOME-TAX> 4,046 6,163
<INCOME-CONTINUING> 6,605 10,061
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,605 10,061
<EPS-PRIMARY> .25 .39
<EPS-DILUTED> .25 .39
</TABLE>
