<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, 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 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 32,974,811 shares of the registrant's $.01 par value common stock
outstanding as of August 9, 2000.
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<PAGE>
BARRETT RESOURCES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Condensed Balance Sheets--June 30, 2000 and December 31,
1999................................................................ 3
Consolidated Condensed Statements of Income--Three Months Ended June
30, 2000 and 1999.................................................... 4
Consolidated Condensed Statements of Income--Six Months Ended June
30, 2000 and 1999.................................................... 5
Consolidated Condensed Statements of Cash Flows--Six Months Ended
June 30, 2000 and 1999............................................... 6
Item 2.Management's Discussion and Analysis of Financial Condition 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,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 12,938 $ 20,634
Receivables, net.................................... 186,677 99,906
Inventory........................................... 11,736 22,934
Other current assets................................ 54,582 11,048
---------- --------
Total current assets.............................. 265,933 154,522
Property and equipment, net........................... 765,683 726,489
Other assets, net..................................... 2,823 3,290
---------- --------
$1,034,439 $884,301
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 161,003 $ 94,293
Amounts payable to oil and gas property owners...... 8,978 5,879
Production taxes payable............................ 29,652 22,981
Accrued and other liabilities....................... 15,524 16,610
Unrealized losses on mark to market transactions.... 13,748 --
---------- --------
Total current liabilities......................... 228,905 139,763
Long-term debt........................................ 383,810 355,250
Unrealized losses on mark to market transactions...... 18,593 --
Deferred income taxes................................. 27,197 25,640
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized, none outstanding....................... -- --
Common stock, $.01 par value: 45,000,000 shares
authorized; 33,094,269 issued (32,589,774 at
December 31, 1999)................................. 331 326
Additional paid-in capital.......................... 284,438 271,560
Retained earnings................................... 95,565 91,762
Treasury stock, at cost............................. (4,400) --
---------- --------
Total stockholders' equity........................ 375,934 363,648
---------- --------
$1,034,439 $884,301
========== ========
</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
June 30, 30,
2000 1999
-------- -------
<S> <C> <C> <C>
Operating revenues:
Oil and gas production................................. $ 78,805 $52,247
Other income........................................... 1,279 1,659
-------- -------
80,084 53,906
Operating expenses:
Lease operating expenses............................... 15,768 14,284
Depreciation, depletion and amortization............... 25,093 23,774
General and administrative............................. 5,888 7,052
Other.................................................. -- 157
-------- -------
46,749 45,267
-------- -------
Operating income......................................... 33,335 8,639
Other income and (expenses):
Interest income........................................ 269 263
Interest expense....................................... (6,006) (5,214)
Trading activities, net................................ (34,086) 2,985
-------- -------
(39,823) (1,966)
-------- -------
Income (loss) for the period before income taxes......... (6,488) 6,673
Provision (benefit) for income taxes..................... (2,465) 2,546
-------- -------
Net income (loss) for the period......................... $ (4,023) $ 4,127
======== =======
Earnings (loss) per common share
Basic.................................................. $ (0.12) $ 0.13
======== =======
Assuming dilution...................................... $ (0.12) $ 0.13
======== =======
</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,
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Oil and gas production.................................... $142,168 $ 96,048
Other income.............................................. 3,186 2,487
-------- --------
145,354 98,535
Operating expenses:
Lease operating expenses.................................. 29,787 27,651
Depreciation, depletion and amortization.................. 50,304 47,465
General and administrative................................ 13,713 12,120
Other..................................................... -- 157
-------- --------
93,804 87,393
-------- --------
Operating income............................................ 51,550 11,142
Other income and (expenses):
Interest income........................................... 476 458
Interest expense.......................................... (12,103) (10,580)
Trading activities, net................................... (33,788) 18,070
-------- --------
(45,415) 7,948
-------- --------
Income for the period before income taxes................... 6,135 19,090
Provision for income taxes.................................. 2,332 7,264
-------- --------
Net income for the period................................... $ 3,803 $ 11,826
======== ========
Earnings per common share
Basic..................................................... $ 0.11 $ 0.37
======== ========
Assuming dilution......................................... $ 0.11 $ 0.36
======== ========
</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,
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operations:
Net income.............................................. $ 3,803 $ 11,826
Adjustments needed to reconcile to net cash provided by
operations:
Depreciation, depletion and amortization............... 50,507 47,683
Deferred income taxes.................................. 1,557 6,872
Unrealized losses on mark to market transactions....... 33,720 --
Other.................................................. 148 (384)
--------- --------
89,735 65,997
Change in current assets and liabilities:
Accounts receivable.................................... (78,968) 17,824
Other current assets................................... (32,236) (7,767)
Accounts payable....................................... 66,710 (14,357)
Amounts due oil and gas owners......................... (4,704) 8,159
Production taxes payable............................... 6,671 1,863
Accrued and other liabilities.......................... (314) (1,853)
--------- --------
Net cash flow provided by operations...................... 46,894 69,866
--------- --------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties............ 42,046 3,680
Acquisition of property and equipment................... (132,760) (43,414)
--------- --------
Net cash flow used in investing activities................ (90,714) (39,734)
--------- --------
Cash flows from financing activities:
Borrowings under line of credit......................... 103,500 15,000
Borrowing on other long-term debt....................... 9,560 --
Proceeds from issuance of common stock.................. 8,483 4,478
Payments under line of credit........................... (83,500) (45,000)
Payments on other long-term debt........................ (1,919) (1,848)
--------- --------
Net cash flow provided by (used in) financing activities.. 36,124 (27,370)
--------- --------
(Decrease) increase in cash and cash equivalents.......... (7,696) 2,762
Cash and cash equivalents at beginning of period.......... 20,634 14,339
--------- --------
Cash and cash equivalents at end of period................ $ 12,938 $ 17,101
========= ========
Non-cash investing and financing activities:
Common Stock/treasury share options exercised........... $ 4,400 $ 625
</TABLE>
See accompanying notes.
6
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2000
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, 2000
and the results of operations and cash flows for the periods presented. All
such adjustments are of a normal recurring nature. The results of operations
for the periods presented are not 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, 1999. These financial statements should be read in conjunction with the
financial statements and notes included in the Form 10-K.
Certain reclassifications have been made to 1999 amounts to conform to the
2000 presentation.
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, 2000, the
Company used an estimated effective tax rate of 38 percent.
3. LONG-TERM DEBT
The Company's long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Line of Credit......................................... $220,000 $200,000
7.55% Senior Notes..................................... 150,000 150,000
Production Payments.................................... 17,157 9,369
-------- --------
Total................................................ 387,157 359,369
Less: current portion.................................. 3,347 4,119
-------- --------
Long-term debt......................................... $383,810 $355,250
======== ========
</TABLE>
As of June 30, 2000 the Company's effective interest rate, on an outstanding
balance of $220.0 million on its line of credit, was 7% per annum.
The Company's outstanding letters of credit totaled $21.6 million and $2.8
million at June 30, 2000 and December 31, 1999, respectively.
Total interest expense paid for the six months ended June 30, 2000 was $13.9
million of which $2.2 million was capitalized.
7
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
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 June
30, 30,
2000 1999
------- -------
(in thousands)
<S> <C> <C>
(Loss) Income available to common stockholders............ $(4,023) $ 4,127
======= =======
Weighted average number of common shares used in basic
EPS...................................................... 32,799 32,199
Effect of dilutive securities:
Stock options........................................... -- 502
Written put option...................................... -- 150
------- -------
Weighted number of common shares and dilutive potential
common stock used in EPS--assuming dilution.............. 32,799 32,851
======= =======
<CAPTION>
Six Months
Ended
----------------
June June
30, 30,
2000 1999
------- -------
(in thousands)
<S> <C> <C>
Income available to common stockholders................... $ 3,803 $11,826
======= =======
Weighted average number of common shares used in basic
EPS...................................................... 32,688 32,102
Effect of dilutive securities:
Stock options........................................... 400 256
Written put option...................................... -- 150
------- -------
Weighted number of common shares and dilutive potential
common stock used in EPS--assuming dilution.............. 33,088 32,508
======= =======
</TABLE>
5. Trading and Hedging Activity
The Company uses both commodity futures contracts and price swaps to hedge
the impact of price fluctuations on a portion of its production and trading
activities. The Company enters into a hedging position for specific
transactions that, in management's opinion, may expose the Company to an
unacceptable market price risk. Price swaps or commodities transactions
without corresponding scheduled physical transactions (scheduled physical
transactions include committed trading activities or production from producing
wells) do not qualify for hedge accounting and are recorded at fair value. As
of June 30, 2000, the Company, utilizing appropriate mark to market criteria,
recorded an unrealized loss on these contracts of approximately $32.7 million
for the second quarter and $33.7 million for the first six months of 2000.
These unrealized losses, associated primarily with the Company's trading
activities, are included in trading activities which are presented on a net
basis in the accompanying financial statements. Gross trading activities are
summarized in the table below.
<TABLE>
<CAPTION>
Three Months ended June 30
----------------------------
Trading Activities 2000 1999
------------------ ------------- -------------
(in thousands)
<S> <C> <C>
Revenues, gross.............................. $ 315,982 $ 172,101
Operating expenses, gross.................... (317,377) (169,116)
Unrealized losses on mark to market
transactions................................ (32,691) --
------------- -------------
Net trading (expenses) income................ $ (34,086) $ 2,985
============= =============
</TABLE>
8
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
<TABLE>
<CAPTION>
Six Months ended
June 30
--------------------
Trading Activities 2000 1999
------------------ --------- ---------
(in thousands)
<S> <C> <C>
Revenues, gross........................................ $ 590,671 $ 348,468
Operating expenses, gross.............................. (590,739) (330,398)
Unrealized losses on mark to market transactions....... (33,720) --
--------- ---------
Net trading (expenses) income.......................... $ (33,788) $ 18,070
========= =========
</TABLE>
Due to the impact of rising natural gas prices on the fair value of
derivative positions held with various counterparties, the Company was
required to pay margin deposits or issue letters of credit to certain
counterparties. As of June 30, 2000, the Company had outstanding letters of
credit of $20.3 million and a balance of $47.6 million in margin deposits held
by counterparties. These letters of credit and margin calls will be released
or refunded, respectively, to the Company as the derivatives settle, natural
gas prices decline or through other arrangements. Margin deposits are
reflected as other current assets in the balance sheet.
6. BUSINESS SEGMENT INFORMATION
The Company operates principally in two business segments: oil and gas
exploration, development and production and natural gas trading. 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. Trading revenues, expenses
and unrealized losses and gains are presented on a net basis.
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, 2000
-------------------------------------------------------
Natural
Oil & Gas Gas Segments Corporation
E&P Trading Total & Unallocated Consolidated
--------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $78,897 0 $78,897 $ 1,187 $ 80,084
DD&A.................... 23,931 0 23,931 1,162 25,093
Unrealized losses on
mark to market
transactions........... 0 (32,691) (32,691) 0 (32,691)
Profit (loss)........... 39,198 (34,445) 4,753 (11,241) (6,488)
Expenditures for assets,
net.................... 17,437 0 17,437 (1) 17,436
<CAPTION>
Quarter ended June 30, 1999
-------------------------------------------------------
Natural
Oil & Gas Gas Segments Corporation
E&P Trading Total & Unallocated Consolidated
--------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $52,299 0 $52,299 $ 1,607 $ 53,906
DD&A.................... 22,682 0 22,682 1,092 23,774
Profit (loss)........... 15,333 2,676 18,009 (11,336) 6,673
Expenditures for
assets,net............. 20,893 0 20,893 441 21,334
</TABLE>
9
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
<TABLE>
<CAPTION>
Six Months ended June 30, 2000
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $142,352 0 $142,352 $ 3,002 $145,354
DD&A.................... 48,037 0 48,037 2,267 50,304
Unrealized losses on
mark to market
transactions........... 0 (33,720) (33,720) 0 (33,720)
Profit (loss)........... 64,528 (34,549) 29,979 (23,844) 6,135
Expenditures for assets,
net.................... 90,440 0 90,440 274 90,714
<CAPTION>
Six Months ended June 30, 1999
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 96,134 0 $ 96,134 $ 2,401 $ 98,535
DD&A.................... 45,285 0 45,285 2,180 47,465
Profit (loss)........... 23,198 17,402 40,600 (21,510) 19,090
Expenditures for assets,
net.................... 39,034 0 39,034 700 39,734
</TABLE>
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities" which was amended by Financial
Accounting Standard No. 137 ("SFAS 137") in June 1999. 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. The Company will
adopt SFAS 133 in January 1, 2001, the effective date as amended by SFAS 137.
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.
10
<PAGE>
BARRETT RESOURCES CORPORATION
For the Quarter Ended and Six Months Ended
June 30, 2000
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, 2000, total assets increased $150.1
million, or 17 percent, to $1,034.4 million as compared with total assets of
$884.3 million at December 31, 1999. This increase in assets is attributable
to an 1) acquisition of additional working interest in certain Piceance Basin
gas properties and all of the outstanding joint venture interest in a related
gas gathering system, processing plant and pipeline from general industry
partners, 2) an increase in receivables of $86.8 million and 3) an increase of
$44.3 million in collateral margin cash calls associated with the Company's
gas hedging and derivative positions. Pursuant to the terms of various hedging
agreements with counterparties and based on the fair value of the Company's
exposure, the Company is subject to margin deposit or letter of credit
requirements. During the second quarter of 2000, as the rise in natural gas
prices increased the fair value of the derivatives held by certain
counterparties, margin deposits were required and paid. As of June 30, 2000,
the balance of the margin deposits, reflected as current assets in the balance
sheet, was $47.6 million. In addition to paying margin deposits, the Company
issued letters of credit totaling $20.3 million to certain counterparties.
These letters of credit and margin deposits will be released or refunded,
respectively, to the Company as the related derivatives settle, natural gas
prices decline or alternative arrangements are made. The $7.7 million decrease
in cash and cash equivalents to $12.9 million and the $22.2 million increase
in working capital to $37.0 million are partially attributed to the margin
deposits paid. Net property and equipment increased $39.2 million to $765.7
million.
In July 2000, in an effort to release various margin deposits and to reduce
the Company's exposure to future margin deposit requirements, the Company
transferred certain derivative positions to other counterparties not requiring
margin deposits at a cost of $0.05 per Mcf to be paid as the positions settle.
As a result, $30.8 million in cash margin has been returned to the Company.
Operating cash flows before working capital adjustments totaled $51.0
million in the second quarter of 2000 and $89.7 million for the six months
ended June 30, 2000 compared with $30.0 million in the second quarter of 1999
and $66.0 million for the six months ended June 30, 1999. After working
capital adjustments, cash flow provided by operations decreased by $1.8
million for the second quarter of 2000 to $15.8 million as compared with the
same period in 1999. For the six months ended June 30, 2000, after working
capital adjustments, cash flow provided by operations decreased by $23.0
million to $46.9 million as compared with the same period in 1999. This change
in cash flow after working capital adjustments between comparable periods is
principally attributed to increases in the Company's receivables that are
associated with higher production levels and higher natural gas and crude oil
prices.
Capital expenditures of $132.8 million (gross) for the year represent an
increase of $89.3 million from the same period in 1999. These expenditures
consisted principally of $97.6 million of drilling and development activities
and $33.7 million associated with the acquisitions of oil and gas properties
located at Piceance Basin. Of these expenditures, $72.7 million (55 percent)
was invested in the Piceance Basin (including acquistions), $28.4 million (21
percent) in the Powder River Basin--Coal Bed Methane project and $19.3 million
(15 percent) in the Wind River Basin. In the first six months of 2000 the
Company received $42.0 million from the sale of its interest in certain oil
and gas properties located principally in the Permian and Arkoma Basins. The
capital expenditure budget for 2000 is forecast at approximately $166 million
net of sales proceeds for property divestitures. Management continues to be
sensitive to fluctuations in natural gas and oil prices and the Company's cash
flow and its level of debt and will reassess the future capital expenditure
levels relative to such fluctuations.
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. Additional
funding alternatives,
11
<PAGE>
including sales of non-core properties, will be considered to secure other
funds for capital development. The Company intends to continue to use
financial leverage to fund its operations as investment opportunities become
available on terms that management believes warrant investment of the
Company's capital resources.
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 (loss) for the quarters ended June 30, 2000 and 1999 was ($4.0)
million, or ($.12) per share (diluted), and $4.1 million or $.13 per share
(diluted), respectively. Included in net income for the quarter ended June 30,
2000 is a $20.3 million after-tax unrealized loss on the fair value of certain
derivatives ($32.7 million before tax). Excluding the negative effects of this
non-cash derivative fair value unrealized loss, the Company's net income for
the 2nd quarter 2000 was $16.2 million, or $.49 per share (diluted).
For the six months ended June 30, 2000 and 1999, net income after taxes was
$3.8 million, or $.11 per share (diluted), and $11.8 million, or $.36 per
share (diluted). Excluding the negative effects of the non-cash fair value
unrealized loss, the Company's net income for the six months ended June 30,
2000 was $24.7 million or $.75 per share, (diluted).
Operating income for the quarter was $33.3 million, up 285 percent compared
to $8.6 million for the same period in 1999. Operating income for the first
six months of 2000 was $51.6 million, up 363 percent as compared to $11.1
million for the same period in 1999. This change is principally attributed to
increased production volumes and stronger commodity prices.
Gas and oil production revenues for the second quarter of 2000 increased 51
percent from $52.2 million to $78.8 million. For the six months ended June 30,
2000, production revenue increased 48 percent from $96.0 million to $142.2
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,
--------------- ----------------
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Gas Revenues (000's)....................... $73,045 $47,788 $130,596 $87,449
Gas Production (Bcf)....................... 28.0 23.7 56.8 46.9
Average Price per Mcf...................... $ 2.61 $ 2.02 $ 2.30 $ 1.87
Oil Revenues (000's)....................... $ 5,760 $ 4,459 $ 11,572 $ 8,599
Oil Production (MBbls)..................... 231 349 462 767
Average Price per Barrel................... $ 24.94 $ 12.78 $ 25.05 $ 11.21
</TABLE>
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls = thousand
barrels.)
Second quarter gas revenues increased 53 percent as compared with the same
period in 1999, principally due to a 29 percent increase in average prices and
an 18 percent increase in production volumes. For the six months ended June
30, 2000, gas revenues increased 49 percent as compared with the same period
in 1999, principally due to a 23 percent increase in average prices and a 21
percent increase in production volumes. During the second quarter and six
months ended June 30, 2000, the Company recognized net production hedging
losses of approximately $9.2 million and $13.9 million, respectively, which
were recorded in the consolidated statements of income as adjustments to gas
production revenue.
The 29 percent increase in second quarter 2000 oil revenues from the same
period in 1999 is attributed to a 95 percent increase in average oil prices
partially offset by a 34 percent decrease in oil production volumes. Oil
revenues for the six months ended June 30, 2000 increased 35 percent compared
with the same period in 1999, due to a 106 percent increase in average prices
partially offset by a 40 percent decrease in oil production. The decrease in
oil production volumes is principally attributable to property sales in the
Permian and Uinta Basins and lower production in the Gulf of Mexico.
12
<PAGE>
Effective for the year 2000, the Company commenced reporting its trading
activities on a net basis (trading revenues net of associated costs). Trading
activities for 1999 have been restated to conform to the 2000 presentation.
The Company marked to market certain of its derivative positions that did not
qualify for hedge accounting. Changes in the fair value, also referred to as
unrealized mark to market adjustments, are recognized in the income statement.
An after-tax fair value loss of $20.3 million ($32.7 million before tax) is
included in the Company's net trading expense for the second quarter of 2000.
The Company's net trading activities, before mark to market adjustments, for
the second quarter ending June 30, 2000 and 1999 were a loss of $1.4 million
and a gain of $3.0 million, respectively, on gross revenues of $316.0 million
and $172.1 million, respectively. Trading costs increased to $317.4 million in
the second quarter of 2000 compared with $169.1 million in the same period in
1999. The Company realized net hedging income on its trading activities of
approximately $3.8 million and $3.3 million in the second quarter of 2000 and
1999, respectively.
The Company's net trading activities, before a mark to market adjustment of
$33.7 million before tax, for the six months ended June 30, 2000 was a net
loss of $68,000 compared with net income of $18.1 million for the same period
in 1999, on gross revenues of $590.7 million and $348.5 million, respectively.
Trading costs were $590.7 million for the six month period in 2000 compared
with $330.4 million in 1999.
Depreciation, depletion and amortization increased for the quarter in 2000
to $25.1 million from $23.8 million in 1999 and for the six month period from
$47.5 million in 1999 to $50.3 million in 2000 due to increased production
volumes.
Interest expense, net of capitalized interest, for the second quarter of
2000 increased 15 percent to $6.0 million compared to $5.2 million for the
second quarter of 1999. For the first six months of 2000, interest expense,
net of capitalized interest, was $12.1 million, an increase of 14 percent
compared to $10.6 million for the same period in 1999. The increase in
interest expense is primarily due to higher levels of long-term debt in 2000
compared to 1999.
The Company's largest source of operating income is from gas and oil
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 93 percent of the Company's production
revenue. 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
Commodity financial instruments are intended to reduce the Company's
exposure to declines in the market price of natural gas and oil. Such
instruments may also limit the Company's gain from increases in the market
price of natural gas and oil. Fluctuations or changes in the settlement values
of commodity financial instruments are generally offset by similar changes in
the realized price of natural gas and oil.
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 production. Commodity swap agreements are generally
used to fix a price at the natural gas market location or to fix a price
differential between two pricing points. 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 natural gas production as of June 30, 2000. The Company does
not have in place as of June 30, 2000 any hedging position for its future oil
production. The fair value of these instruments reflected in the table below
is the estimated amount that the Company would receive or (pay) to settle the
contracts as of June 30, 2000. Actual settlement of these instruments when
they mature will differ from these estimates reflected in the table. Gains or
losses realized
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<PAGE>
from these instruments hedging the Company's production are expected to be
offset by changes in the actual sales price received by the Company for its
natural gas production.
<TABLE>
<CAPTION>
For the Price Range
year Bcf Per MMBtu Fair Value
---------- ---- ------------ ---------------
<S> <C> <C> <C> <C> <C>
2000 16.4 $1.71--$3.12 $(32.9) million
2001 27.7 $1.71--$2.84 $(36.5) million
2002 29.1 $1.71--$2.84 $(22.0) million
2003 6.3 $1.79--$2.39 $ (3.5) million
2004 1.9 $2.32 --
Thereafter 7.6 $2.32--$2.36 $ .1 million
</TABLE>
The Company also uses commodity derivative financial instruments and
contracts for the purchase and sale of natural gas at both fixed and indexed
based prices in its trading activities. The financial instruments seek to
reduce sensitivity to price movements, to lock in margins on its trading
positions and to hedge the value of stored gas. The following table summarizes
the Company's derivative positions on its natural gas trading activities as of
June 30, 2000. 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, 2000. Actual settlement of these instruments as they mature will
differ from these estimates.
<TABLE>
<CAPTION>
For the Price Range
year Bcf Per MMBtu Fair Value
---------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
2000 646.5 $1.87--$4.23 $(26.2) million
2001 446.6 $2.46--$4.57 $ (7.6) million
2002 167.3 $2.46--$3.54 $ (.6) million
2003 113.2 $2.46--$3.11 $ .7 million
2004 94.2 $2.46--$2.93 $ .5 million
Thereafter 115.5 $2.46--$2.93 $ .9 million
</TABLE>
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 to
changes in interest rates. As of June 30, 2000, there have been no material
changes in the Company's interest rate risk exposure, from that disclosed in
the 1999 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 will 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 4, 2000, 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 elected:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
C. Robert Buford......................................... 27,885,246 73,423
Derrill Cody............................................. 27,884,968 73,701
Peter A. Dea............................................. 27,884,733 73,936
James M. Fitzgibbons..................................... 27,885,058 73,611
Hennie L.J.M. Gieskes.................................... 27,884,963 73,706
William W. Grant, III.................................... 27,885,179 73,490
Philippe S.E. Schreiber.................................. 27,509,205 449,464
</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, 2000 was approved with a total of
27,905,870 shares voting in favor, 16,244 shares voting against and 36,554
shares abstaining.
(3) A proposal to adopt the Company's 2000 Stock Option Plan was approved
with a total of 19,568,243 shares voting in favor, 7,700,212 shares voting
against, and 689,714 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, 2000.
15
<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.
Barrett Resources Corporation
/s/ Peter A. Dea
August 14, 2000 By __________________________________
Peter A. Dea
Chairman of the Board and Chief
Executive Officer
/s/ J. Frank Keller
August 14, 2000 By __________________________________
J. Frank Keller
Chief Financial Officer
16
