<PAGE>
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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, 1999
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
(Address of principal executive offices)
80202
(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 32,460,060 shares of the registrant's $.01 par value common stock
outstanding as of August 10, 1999.
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<PAGE>
BARRETT RESOURCES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--June 30, 1999 and
December 31, 1998............................................ 3
Consolidated Condensed Statements of Income--Three Months
Ended June 30, 1999
and 1998..................................................... 4
Consolidated Condensed Statements of Income--Six Months Ended
June 30, 1999
and 1998..................................................... 5
Consolidated Condensed Statements of Cash Flows--Six Months
Ended June 30, 1999 and 1998................................. 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations.................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 17,101 $ 14
,339
Receivables, net.................................... 109,974 127,798
Inventory........................................... 13,721 8,968
Other current assets................................ 5,051 2,053
-------- --------
Total current assets.............................. 145,847 153,158
Property and equipment, net........................... 674,451 682,168
Other assets, net..................................... 3,336 3,553
-------- --------
$823,634 $838,879
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 90,442 $104,799
Amounts payable to oil and gas property owners...... 24,179 16,020
Productio
n taxes payable............................ 22,263 20,400
Accrued and other liabilities....................... 14,589 17,047
-------- --------
Total current liabilities......................... 151,473 158,266
Long-term debt........................................ 302,440 334,067
Deferred income taxes................................. 20,166 13,294
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized, none outstanding....................... -- --
Common stock, $.01 par value: 45,000,000 shares
authorized; 32,256,342 issued (32,002,304 at
December 31, 1998)................................. 322 320
Additional paid-in capital.......................... 267,099 261,998
Retained earnings................................... 82,759 70,934
Treasury stock, at cost............................. (625) --
-------- --------
Total stockholders' equity........................ 349,555 333,252
-------- --------
$823,634 $838,879
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
June 30, June 30,
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Oil and gas production...................
................ $ 52,247 $ 52,146
Trading revenues......................................... 172,101 76,261
Interest income.......................................... 263 98
Other income............................................. 1,659 3,427
--------- ---------
226,270 131,932
Operating expenses:
Lease operating expenses................................. 14,284 12,863
Cost of trading.......................................... 169,116 75,831
Depreciation, depletion and amortization................. 23,774 24,975
General and administrative............................... 7,052 7,485
Interest expense......................................... 5,214 4,708
Other.................................................... 157 1,855
--------- ---------
219,597 127,717
--------- ---------
Income for the period before income taxes.................. 6,673 4,215
Provision for income taxes................................. 2,546 1,602
--------- ---------
Net income for the period.................................. $ 4,127 $ 2,613
========= =========
Earnings per common share
Basic.................................................... $ 0.13 $ 0.08
========= =========
Assuming dilution........................................ $ 0.13 $ 0.08
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
-----------------
June 30, June 30,
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Oil and gas production................
..................... $ 96,048 $107,132
Trading revenues........................................... 348,468 151,118
Interest income............................................ 458 355
Other income............................................... 2,487 5,046
-------- --------
447,461 263,651
Operating expenses:
Lease operating expenses................................... 27,651 28,537
Cost of trading............................................ 330,398 145,776
Depreciation, depletion and amortization................... 47,465 49,236
General and administrative................................. 12,120 14,288
Interest expense........................................... 10,580 9,417
Other...................................................... 157 2,160
-------- --------
428,371 249,414
-------- --------
Income for the period before income taxes.................... 19,090 14,237
Provision for income taxes................................... 7,264 5,410
-------- --------
Net income for the period.................................... $ 11,826 $ 8,827
======== ========
Earnings per common share
Basic...................................................... $ 0.37 $ 0.28
======== ========
Assuming dilution.......................................... $ 0.36 $ 0.27
======== ========
</TABLE>
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,
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operations:
Net income.............................
................. $ 11,826 $ 8,827
Adjustments needed to reconcile to net cash provided by
operations:
Depreciation, depletion and amortization............... 47,683 49,450
Deferred income taxes.................................. 6,872 5,197
Other.................................................. (384) (1,026)
-------- ---------
65,997 62,448
Change in current assets and liabilities:
Accounts receivable................................... 17,824 16,039
Other current assets.................................. (7,767) (6,014)
Accounts payable...................................... (14,357) (2,293)
Amounts due oil and gas owners........................ 8,159 (329)
Production taxes payable.............................. 1,863 5,644
Accrued and other liabilities......................... (1,469)
(5,461)
-------- ---------
Net cash flow provided by operations...................... 70,250 70,034
-------- ---------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties............ 3,680 3,464
Acquisition of property and equipment................... 43,414) (108,147)
-------- ---------
Net cash flow used in investing activities................ (39,734) (104,683)
-------- ---------
Cash flows from financing activities:
Borrowings under line of credit......................... 15,000 46,000
Proceeds from issuance of common stock.................. 4,478 3,433
Payments under line of credit........................... (45,000) (26,000)
Payments on other long-term debt........................
(2,232) (385)
Other................................................... -- (147)
-------- ---------
Net cash flow provided by (used in) financing activities.. (27,754) 22,901
-------- ---------
Increase (decrease) in cash and cash equivalents.......... 2,762 (11,748)
Cash and cash equivalents at beginning of period.......... 14,339 14,479
-------- ---------
Cash and cash equivalents at end of period................ $ 17,101 $ 2,731
======== =========
Non-cash investing and financing activities:
Issuance of common stock for property acquisition....... $ -- $ 9,116
Common Stock/treasury share options exercised........... $ 625 $ 17
</TABLE>
See accompanying notes.
6
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
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
subsidiaries, collectively referred to as the "Company", as of June 30, 1999
and the results of operations and cash flows for the periods presented. All of
the Company's subsidiaries are wholly owned. All such adjustments are of a
normal recurring nature. The results of operations for the periods presented
are no
t necessarily indicative of the results for the full year.
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, 1998. These financial statements should be read in conjunction with the
financial statements and notes included in the Form 10-K.
2. INCOME TAXES
Provisions for income taxes were calculated in accordance with Statement of
Financial Accounting Standards No. 109 which provides that a deferred tax
liability or asset be determined based on the timing differences between the
basis used for financial versus tax reporting of assets and liabilities as
measured by the effective tax rates. For the quarter ended June 30, 1999, the
Company used an estimated effective tax rate of 38 percent.
In July 1999, Plains Petroleum Company, a wholly owned subsidiary of the
Company, received a favorable ruling from the United States Tax Court in a
case stemming from an Internal Revenue Service ("IRS") ex
amination of Plains'
federal tax returns filed for the years 1991 through 1993. As a result of its
examination, the IRS issued a "Notice of Deficiency" of $5.3 million with
penalties and an undetermined amount of interest. The deficiency resulted
primarily from the IRS's disallowance of certain net operating loss deductions
claimed during the periods under examination.
The IRS has also examined the federal tax returns of the Company for the
periods ended July 1995, December 1995 and December 1996. The IRS issued a
letter proposing changes to tax for those periods totaling $5.7 million. The
proposed tax changes resulted primarily from the disallowance of net operating
loss and merger related deductions claimed for the periods ended December 1995
and 1996. These net operating losses are the primary issue involved with the
earlier examination of the Plains' tax returns for the calendar years 1991
through 1993.
3. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Line of Credit......................................... $145,000 $175,000
7.55% Senior Notes..................................... 150,000 150,000
Production Payments.................................... 12,167 14,399
-------- --------
Total................................................ 307,167 339,399
Less: current portion.................................. 4,727 5,332
-------- --------
Long-term debt......................................... $302,440 $334,067
======== ========
</TABLE>
7
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
As of June 30, 1999 the Company's effective interest rate, on an outstanding
balance of $145.0 million on its line of credit, was 5.38% per annum.
Total interest expense paid for the six months ended June 30, 1999 was $10.5
million compared to $8.9 million for the six months ended June 30, 1998.
4. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock.
<TABLE>
<CAPTION>
Three Months Ended
--------------------
June 30, June 30,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Income available to common stockholders................. $ 4,127 $ 2,613
========= ========
Weighted average number of common shares used in basic
EPS.................................................... 32,199 31,783
Effect of dilutive securities:
Stock options......................................... 502 549
Written put option.................................... 150 150
--------- --------
Weighted number of common shares and dilutive potential
common stock used in EPS--assuming dilution............ 32,851 32,482
========= ========
<CAPTION>
Six Months Ended
--------------------
June 30, June 30,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Income available to common stockholders................. $ 11,826 $ 8,827
========= ========
Weighted average nu
mber of common shares used in basic
EPS.................................................... 32,102 31,602
Effect of dilutive securities:
Stock options......................................... 256 414
Written put option.................................... 150 150
--------- --------
Weighted number of common shares and dilutive potential
common stock used in EPS--assuming dilution............ 32,508 32,166
========= ========
</TABLE>
On August 3, 1999, the holder of the written put option elected to exercise
such option and, accordingly, the Company issued 150,000 shares of its common
stock. In conjunction with the exercise of this option, the Company received
the holders' one percent interest in a subsidiary of the Company. In addition,
with the exercise of the put option, the Company's written call option, as
descri
bed in the financial statements and notes of the Company's Form 10-K,
was terminated.
8
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133". FASB Statement No. 133 (" SFAS 133") establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. FASB Statement No.
133 is effective for fiscal years beginning after June 15, 2000, as amended in
SFAS 137, and cannot be applied retroactively. The Company has not yet
quantified the impacts of adopting SFAS 133 on its financial statements and has
not determined the timing of or method of adoption of SFAS 133. However, SFAS
133 could increase volatility in earnings and other comprehensive income.
6. BUSINESS SEGMENT INFORMATION
The Company operates principally in two business segments: natural gas
trading and oil and gas exploration, development and production. In addition to
marketing its own gas, the Company engages in natural gas trading activities,
which involves purchasing natural gas from third parties and selling natural
gas to other parties at prices and volumes that management anticipates will
result in profits to the Company.
The Company evaluates segment performance based on the profit or loss from
operations before income taxes. Corporate general and administrative expenses
are unallocated except for certain direct costs associated with the Company's
trading activity. Consolidated and segment financial information is as follows:
<TABLE>
<CAPTION>
Quarter ended June 30, 1999
------------------------------------------------------
Natural
Gas Oil & Gas Segment Corporation
Trading E&P Total & Unallocated Consolidated
-------- --------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $172,101 $52,299 $224,400 $ 1,607 $226,007
Interest Income ........ 263 263
-------- ------- -------- -------- --------
Total Revenues........ 172,101 52,299 224,400 1,870 226,270
DD&A.................... 0 22,682 22,682 1,092 23,774
Profit (loss)........... 2,985 15,333 18,318 (11,645) 6,673
Expenditures for assets. 0 20,893 20,893 441 21,334
</TABLE>
9
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
<TABLE>
<CAPTION>
Quarter ended June 30, 1998
------------------------------------------------------
Natural
Gas Oil & Gas Segment Corporation
Trading E&P Total & Unallocated Consolidated
-------- --------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues...........
..... $ 76,261 $ 53,808 $130,069 $ 1,765 $131,834
Interest Income......... 98 98
-------- -------- -------- -------- --------
Total Revenues........ 76,261 53,808 130,069 1,863 131,932
DD&A.................... 0 23,893 23,893 1,082 24,975
Profit (loss)........... 430 17,054 17,484 (13,269) 4,215
Expenditures for assets. 0 49,502 49,502 1,806 51,308
<CAPTION>
Six Months ended June 30, 1999
------------------------------------------------------
Natural
Gas Oil & Gas Segment Corporation
Trading E&P Total & Unallocated Consolidated
-------- --------- -------- ------------- ------------
(in thousands)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues................ $348,468 $ 96,134 $444,602 $ 2,401 $447,003
Interest Income......... 458 458
-------- -------- -------- -------- --------
Total Revenues........ 348,468 96,134 444,602 2,859 447,461
DD&A.................... 0 45,285 45,285 2,180 47,465
Profit (loss)........... 18,070 23,198 41,268 (22,178) 19,090
Expenditures for assets. 0 39,034 39,034 700 39,734
<CAPTION>
Six Months ended June 30, 1998
------------------------------------------------------
Natural
Gas Oil & Gas Segment Corporation
Trading E&P Tot
al & Unallocated Consolidated
-------- --------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $151,118 $109,206 $260,324 $ 2,972 $263,296
Interest Income......... 355 355
-------- -------- -------- -------- --------
Total Revenues........ 151,118 109,206 260,324 3,327 263,651
DD&A.................... 0 47,175 47,175 2,061 49,236
Profit (loss)........... 5,342 33,495 38,837 (24,600) 14,237
Expenditures for assets. 0 102,560 102,560 2,123 104,683
</TABLE>
10
<PAGE>
BARRETT RESOURCES CORPORATION
For the Quarter Ended and Six Months Ended
June 30, 1999
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
For the six months ended June 30, 1999, total assets decreased $15.3
million, or 2 percent, to $823.6 million as compared with total assets of
$838.9 million at December 31, 1998. This decrease in assets is attributable
to the Company utilizing its cash flows to pay down long-term debt by $31.6
million and reduce other liabilities. Cash and cash equivalents increased $2.7
million to $17.1 million, working capital decreased $0.5 million to a negative
$5.6
million, and net property and equipment decreased $7.7 million to $674.5
million.
Operating cash flows before working capital adjustments totaled $30.0
million in the second quarter of 1999 compared with $28.2 million in the
second quarter of 1998. After working capital adjustments, cash flow provided
by operations decreased by $0.9 million to $18.0 million as compared with the
same period in 1998.
Capital expenditures of $24.8 million for the quarter represent a decrease
of $26.6 million from the same period in 1998. These expenditures, funded by
operating cash flows, consisted principally of drilling and development
activities and acquisitions of oil and gas properties. Of these capital
expenditures, approximately 86 percent was invested in the Rocky Mountain
Region, principally in the Piceance, Powder River and Wind River Basins, and
10 percent in the Mid-Continent Region. In response to low product prices and
a desire to limit debt levels, the Company set its 1999 capital expenditures
budget
at $111 million compared with approximately $206 million in 1998. In an
effort to maintain debt levels, management continues to be sensitive to
fluctuations in product prices and will reassess the capital expenditure
levels relative to such fluctuations and the Company's cash flows.
The Company plans to continue actively acquiring, exploring and developing
oil and gas properties. The Company expects cash flow from its producing
properties and its borrowing capacity to be sufficient to fund its anticipated
capital and operating requirements, including any contingencies.
The Company has initiated a process to divest its remaining oil and gas
properties in the Gulf of Mexico. As of December 31, 1998, such properties
accounted for 39 Bcfe (4 percent) of the Company's proved oil and gas
reserves, and in the second quarter of 1999 these properties accounted for 12
percent of the Company's production. Assuming the Company receives an
acceptable offer, and completes a sale proceeds will be used to pay d
own debt.
The Company expects that its borrowing base under its bank credit line will be
adjusted down as a result of this sale.
Information regarding the Company's Year 2000 readiness is contained in the
Company's annual report on Form 10-K for the year ended December 31, 1998 and
reference is made to the information contained there. There has been no
material change in the status of the Company's Year 2000 readiness program. As
of July 1999, the Company verified that all IT hardware systems, including
network and embedded systems, are Year 2000 compliant. All software systems
utilized by the Company are Year 2000 compliant with the exception of one
program used to access an outside database. The vendor providing this program
is currently performing a Beta test on its updated software. The Company's
costs associated with completing its Year 2000-readiness program are not
expected to exceed $250,000. Costs incurred to date are nominal and are
included in normal operating expense.
11
<PAGE>
The Company's operating results are directly affected by oil and gas prices.
Oil and gas prices also affect the reserve values used in determining the
"ceiling test" limitation for the Company's capitalized oil and gas property
costs accounted for under the full cost method. Should the net capitalized
costs of the Company's oil and gas properties exceed the estimated present
value of future net cash flows from proved oil and gas reserves, such excess
costs would be recognized as an impairment and charged to current expense. A
decline in oil and gas sales prices could possibly result in the recognition
of an impairment expense in future periods.
Results of Operations
Net income for the quarters ended June 30, 1999 and 1998 was $4.1 million
($.13 pe
r share, assuming dilution) and $2.6 million ($.08 per share, assuming
dilution), respectively. This increase is primarily due to an increase in
trading volumes along with a higher gross trading margin.
Total revenues for the quarter were $226.3 million, up 72 percent compared
to $131.9 million for the same period in 1998. This increase is principally
attributed to a $95.8 million increase in trading revenues.
Production revenue for the second quarter of 1999 increased slightly from
$52.1 million to $52.2 million. Production revenues and related volumes and
average prices during the periods presented were as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
--------------- -----------------
1999 1998 1999 1998
-------
- ------- -------- --------
<S> <C> <C> <C> <C>
Gas Revenues (000's)...................... $47,788 $46,774 $ 87,449 $ 93,153
Gas Production (Bcf)...................... 23.7 24.6 46.9 47.5
Average Price per Mcf..................... $ 2.02 $ 1.90 $ 1.87 $ 1.96
Oil Revenues (000's)...................... $ 4,459 $ 5,372 $ 8,599 $ 13,979
Oil Production (MBbls).................... 349 479 767 1,127
Average Price per Barrel.................. $ 12.78 $ 11.22 $ 11.21 $ 12.40
</TABLE>
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls = thousand
barrels.)
Second quarter gas revenues increased 2 percent as compared with the same
period in 1998, principally due to a 6 percent increase in average prices
partially offset by a 4 percent decrease in production volumes.
The 17 percent decrease in second quarter 1999 oil revenues from the same
period in 1998 is attributed to a 27 percent
decrease in production volumes
partially offset by a 14 percent increase in average oil prices. The decline
in oil production is primarily due to the selling of various Gulf of Mexico
wells and lower capital spending on oil projects in the first half of 1999.
For the quarter ended June 30, 1999, revenues from trading were $172.1
million compared to $76.3 million for the same period in 1998. The associated
costs of trading increased to $169.1 million from $75.8 million. Gross profit
from trading was $3.0 million and $0.4 million for the respective quarters
ended June 30, 1999 and 1998.
To reduce its exposure to volatile oil and gas price fluctuations, the
Company enters into hedging arrangements for both trading and producing
activities. During the second quarter ended June 30, 1999, the Company
recognized net producing hedging losses of approximately $0.7 million for oil
and $0.5 million for gas. These hedging losses were recorded in the
consolidated statements of income as adjustments to oil an
d gas production
revenue. The Company realized net hedging income on its trading activities of
approximately $3.3 million during the second quarter.
12
<PAGE>
Depreciation, depletion and amortization decreased in 1999 to $23.8 million
from $25 million in 1998.
Interest expense for the second quarter increased from $4.7 million in 1998
to $5.2 million in 1999 due to higher debt levels for the second quarter of
1999 compared with the same period in 1998.
The Company's largest source of operating income is from trading activities
and oil and gas production. The levels of the Company's revenues and earnings
from gas and oil production and trading activities 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 91 percent of the
Company's production revenue and all of its trading activities for the second
quarter of 1999. 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
The Company uses commodity derivative financial instruments, including
futures and swaps, to reduce the effect of natural gas price volatility on a
portion of its natural gas and crude oil production. Natural gas commodity
swap agreements are generally used to fix a price at the natural gas market
location or to fix a price differential between the price of natural gas at
Henry Hub and the price of gas at its market location. Settlements are based
on the difference between a fixed and a variable price as specified in the
agreement. The following table summarizes the Company's derivative financial
instrument position on its natur
al gas and crude oil production as of June 30,
1999. The fair value of these instruments reflects the estimated amounts that
the Company would receive or pay to settle the contracts as of June 30, 1999.
Actual settlement of these instruments as they mature will differ from these
estimates. Gains or losses realized from these instruments hedging the
Company's production are expected to be offset by corresponding changes in the
sales value of the Company's natural gas and crude oil production.
<TABLE>
<CAPTION>
Price Range
Natural Gas For the period MMBtu Per MMBtu Fair Value
-------------------------- ------------ ------------- ---------------
<S> <C> <C> <C>
6/1999-2/2003......................... 88.7 million $1.71-$2.03 $(34.1) million
<CAPTION>
Price Range
Crude Oil For the period
Barrels Per Barrel Fair Value
------------------------ ------------ ------------- ---------------
<S> <C> <C> <C>
6/1999-12/1999........................ 2.7 million $13.98-$17.15 $(2.2) million
The Company also uses commodity derivative financial instruments in its
trading activities to hedge price fluctuations, to hedge the value of stored
gas and to lock in margins on all of its fixed price-trading positions. The
following table summarizes the Company's derivative financial instrument
position on its natural gas trading activities as of June 30, 1999. The fair
value of these instruments reflects the estimated amounts that the Company
would receive or pay to settle the contracts as of June 30, 1999. Actual
settlement of these instruments as they mature will differ from these
estimates. Gains or losses realized from these instruments hedging the
Company's production are expected to be offset by corresp
onding changes in the
settlement value of actual natural gas traded.
<CAPTION>
Price Range
Natural Gas For the period MMBtu Per MMBtu Fair Value
-------------------------- ------------ ------------- ---------------
<S> <C> <C> <C>
6/1999-12/2004........................ 561 million $1.48-$2.55 $9.8 million
</TABLE>
13
<PAGE>
Interest Rate Risk
The Company's use of fixed and variable rate long-term debt to partially
finance capital expenditures exposes the Company to market risk related
changes in interest rates. As of June 30, 1999, there have been no material
changes in the Company's interest rate risk exposure, from that disclosed in
the 1998 Form 10-K.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in the forward-looking statements and the assumptions upon which
such forward-looking statements are based are reasonable, it can give no
assurance that such expectations and assumptions wil
l prove to have been
correct. See the Company's Annual Report on Form 10-K for additional
statements concerning important factors that could cause actual results to
differ materially from the Company's expectations.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 6, 1999, the Company's Annual Meeting of Stockholders was held. At
that meeting, the following matters were approved by the stockholders by the
votes indicated below.
(1) The following directors, constituting the entire Board of Directors,
were re-elected:
<TABLE>
<CAPTION>
For Withheld
---------- ---------
<S> <C> <C>
William J. Barrett...................................... 28,864,580 374,143
C. Robert Buford.......................
................. 28,865,535 373,188
Derrill Cody............................................ 28,866,344 372,379
James M. Fitzgibbons.................................... 28,865,414 373,909
William W. Grant, III................................... 26,400,519 2,838,204
J. Frank Keller......................................... 28,866,426 372,261
A. Ralph Reed........................................... 28,865,261 373,461
James T. Rodgers........................................ 27,730,658 1,508,065
Philippe S.E. Schreiber................................. 28,866,382 372,341
</TABLE>
(2) 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, 1999 was approved with a total of
29,187,020 shares voting in favor, 25,810 shares voting against and 25,892
shares abstaining.
(3) A proposal to adopt the Company's 1999 Stock Option Plan was approved
wi
th a total of 27,224,327 shares voting in favor, 1,473,879 shares voting
against and 540,515 shares abstaining.
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:
27.1 Financial Data Schedule
(b)There were no reports on Form 8-K filed during the quarter ended June 30,
1999.
15
<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
/s/ A. Ralph Reed
August 13, 1999 By __________________________________
A. Ralph Reed
President and Chief Operating
Officer
/s/ J. Frank Keller
August 13, 1999 By __________________________________
J. Frank Keller
Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 17,101 0
<SECURITIES> 0 0
<RECEIVABLES> 110,750 0
<ALLOWANCES> 776 0
<INVENTORY> 13,721 0
<CURRENT-ASSETS> 145,847 0
<PP&E> 1,256,985 0
<DEPRECIATION> 582,534 0
<TOTAL-ASSETS> 823,634 0
<CURRENT-LIABILITIES> 151,473 0
<BONDS> 302,440 0
0 0
0 0
<COMMON> 322 0
<OTHER-SE> 349,233 0
<TOTAL-LIABILITY-AND-EQUITY> 823,634 0
<SALES> 444,516 224,348
<TOTAL-REVENUES> 447,461 226,270
<CGS> 405,514 207,174
<TOTAL-COSTS> 405,514 207,174
<OTHER-EXPENSES> 12,277 7,209
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,580 5,214
<INCOME-PRETAX> 19,090 6,673
<INCOME-TAX> 7,264 2,546
<INCOME-CONTINUING> 11,826 4,127
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,826 4,127
<EPS-BASIC> .37 .13
<EPS-DILUTED> .36 .13
</TABLE>
