<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 September 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 33,055,586 shares of the registrant's $.01 par value common stock
outstanding as of November 8, 2000.
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<PAGE>
BARRETT RESOURCES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Condensed Balance Sheets-- September 30, 2000 and
December 31, 1999............................................... 3
Consolidated Condensed Statements of Income--Three Months Ended
September 30, 2000 and 1999..................................... 4
Consolidated Condensed Statements of Income--Nine months ended
September 30, 2000 and 1999..................................... 5
Consolidated Condensed Statements of Cash Flows--Nine months
ended September 30, 2000 and 1999............................... 6
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 12
Item 3.Quantitative and Qualitative Disclosures About Market Risk... 15
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K............................. 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 28,256 $ 20,634
Receivables, net.......... 170,582 99,906
Inventory................. 19,407 22,934
Other current assets...... 25,143 11,048
---------- --------
Total current assets.... 243,388 154,522
Property and equipment,
net........................ 799,911 726,489
Other assets, net........... 2,722 3,290
---------- --------
$1,046,021 $884,301
========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......... $ 165,982 $ 94,293
Amounts payable to oil and
gas property owners...... 22,982 5,879
Production taxes payable.. 35,312 22,981
Accrued and other
liabilities.............. 16,646 16,610
Unrealized losses on mark
to market transactions... 10,420 --
---------- --------
Total current
liabilities............ 251,342 139,763
Long-term debt.............. 337,638 355,250
Unrealized losses on mark to
market transactions........ 20,936 --
Deferred income taxes....... 38,075 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; 33,141,494
issued (32,589,774 at
December 31, 1999).......... 332 326
Additional paid-in
capital.................. 285,570 271,560
Retained earnings......... 116,822 91,762
Treasury stock, at cost... (4,694) --
---------- --------
Total stockholders'
equity................. 398,030 363,648
---------- --------
$1,046,021 $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
---------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Operating revenues:
Oil and gas production............................ $ 92,625 $ 57,670
Other income...................................... 2,316 1,236
-------- --------
94,941 58,906
Operating expenses:
Lease operating expenses.......................... 21,273 16,517
Depreciation, depletion and amortization.......... 24,470 24,106
General and administrative........................ 6,232 5,816
Other............................................. -- 1
-------- --------
51,975 46,440
-------- --------
Operating income.................................... 42,966 12,466
Other income and (expenses):
Interest income................................... 615 151
Interest expense.................................. (5,870) (5,419)
Trading activities, net........................... (3,425) (222)
-------- --------
(8,680) (5,490)
-------- --------
Income for the period before income taxes........... 34,286 6,976
Provision for income taxes.......................... 13,029 2,652
-------- --------
Net income for the period........................... $ 21,257 $ 4,324
======== ========
Earnings per common share
Basic............................................. $ 0.64 $ 0.13
======== ========
Assuming dilution................................. $ 0.64 $ 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>
Nine Months Ended
---------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Operating revenues:
Oil and gas production............................ $ 234,793 $ 153,718
Other income...................................... 5,502 3,723
--------- ---------
240,295 157,441
Operating expenses:
Lease operating expenses.......................... 51,060 44,168
Depreciation, depletion and amortization.......... 74,774 71,572
General and administrative........................ 19,945 17,936
Other............................................. -- 158
--------- ---------
145,779 133,834
--------- ---------
Operating income.................................... 94,516 23,607
Other income and (expenses):
Interest income................................... 1,091 609
Interest expense.................................. (17,973) (16,000)
Trading activities, net........................... (37,213) 17,848
--------- ---------
(54,095) 2,457
--------- ---------
Income for the period before income taxes........... 40,421 26,064
Provision for income taxes.......................... 15,361 9,916
--------- ---------
Net income for the period........................... $ 25,060 $ 16,148
========= =========
Earnings per common share
Basic............................................. $ 0.76 $ 0.50
========= =========
Assuming dilution................................. $ 0.76 $ 0.49
========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operations
Net income....................................... $ 25,060 $ 16,148
Adjustments needed to reconcile to net cash
provided by operations:
Depreciation, depletion and amortization....... 75,078 71,898
Deferred income taxes.......................... 12,435 9,384
Unrealized losses on mark to market
transactions.................................. 32,735 --
Other.......................................... (120) (576)
--------- --------
145,188 96,854
Change in current assets and liabilities:
Accounts receivable............................ (70,676) (20,422)
Other current assets........................... (10,338) (16,031)
Accounts payable............................... 71,689 14,327
Amounts due oil and gas owners................. 17,103 8,326
Production taxes payable....................... 12,331 1,901
Accrued and other liabilities.................. (132) (5,542)
--------- --------
Net cash flow provided by operations............... 165,165 79,413
--------- --------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties..... 43,835 12,550
Additions to properties and equipment............ (193,377) (72,523)
--------- --------
Net cash flow used in investing activities......... (149,542) (59,973)
--------- --------
Cash flows from financing activities:
Borrowings under line of credit.................. 149,500 35,000
Borrowing on other long-term debt................ 9,560 --
Proceeds from issuance of common stock........... 9,324 9,285
Treasury stock purchased......................... (2) (1)
Payments under line of credit.................... (174,500) (60,000)
Payments on other long-term debt................. (1,883) (3,459)
--------- --------
Net cash flow used in financing activities......... (8,001) (19,175)
--------- --------
Increase in cash and cash equivalents.............. 7,622 265
Cash and cash equivalents at beginning of period... 20,634 14,339
--------- --------
Cash and cash equivalents at end of period......... $ 28,256 $ 14,604
========= ========
</TABLE>
See accompanying notes.
6
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 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 September 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 September 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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Line of Credit.................................... $ 175,000 $ 200,000
7.55% Senior Notes................................ 150,000 150,000
Production Payments............................... 16,926 9,369
--------- ---------
Total........................................... 341,926 359,369
Less: current portion............................. 4,288 4,119
--------- ---------
Long-term debt.................................... $ 337,638 $ 355,250
========= =========
</TABLE>
In May 2000, the Company entered into a $15 million revolving line of
credit. In October 2000, the credit facility was increased to $50 million and
was used to finance an acquisition described in Note 8. This revolving line of
credit expires December 31, 2000.
As of September 30, 2000 the Company's effective interest rate, on an
outstanding balance of $175 million on its line of credit averaged 7% per
annum.
The Company's outstanding letters of credit totaled $22.6 million and $2.8
million at September 30, 2000 and December 31, 1999, respectively.
7
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 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
---------------------------
September 30, September 30,
2000 1999
------------- -------------
(in thousands)
<S> <C> <C>
Income available to common stockholders......... $21,257 $4,324
======= ======
Weighted average number of common shares used in
basic EPS...................................... 32,977 32,431
Effect of dilutive securities:
Stock options................................. 334 778
Written put option............................ -- 56
------- ------
Weighted number of common shares and dilutive
potential common stock used in EPS - assuming
dilution....................................... 33,311 33,265
======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 30, September 30,
2000 1999
------------- -------------
(in thousands)
<S> <C> <C>
Income available to common stockholders......... $25,060 $16,148
======= =======
Weighted average number of common shares used in
basic EPS...................................... 32,786 32,212
Effect of dilutive securities:
Stock options................................. 379 357
Written put option............................ -- 118
------- -------
Weighted number of common shares and dilutive
potential common stock used in EPS - assuming
dilution....................................... 33,165 32,687
======= =======
</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 in order to mitigate
for the effect of certain 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 September 30, 2000, the Company had total
liabilities recorded of $31.4 million related to the fair value of written
options and trading items marked to market as defined in EITF 98-10. Utilizing
appropriate mark to market criteria, the Company recorded an unrealized gain
on these contracts of approximately $1.0 million for the third quarter and an
unrealized loss of $32.7 million for the nine months ended September 30, 2000.
These
8
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 2000
unrealized gains and losses associated 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 September 30
--------------------------------
Trading Activities 2000 1999
------------------ --------------- ---------------
(in thousands)
<S> <C> <C>
Revenues, gross.......................... $ 332,021 $ 219,869
Operating expenses, gross................ (336,431) (220,091)
Unrealized gains on mark to market
transactions............................ 985 --
--------------- ---------------
Net trading (expenses) income............ $ (3,425) $ (222)
=============== ===============
<CAPTION>
Nine Months ended September 30
--------------------------------
Trading Activities 2000 1999
------------------ --------------- ---------------
(in thousands)
<S> <C> <C>
Revenues, gross.......................... $ 922,692 $ 568,337
Operating expenses, gross................ (927,170) (550,489)
Unrealized losses on mark to market
transactions............................ (32,735) --
--------------- ---------------
Net trading (expenses) income............ $ (37,213) $ 17,848
=============== ===============
</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 September 30, 2000, the Company had outstanding letters
of credit of $20.3 million and a balance of $16.5 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 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:
9
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 2000
<TABLE>
<CAPTION>
Quarter ended September 30, 2000
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 92,746 $ 0 $ 92,746 $ 2,195 $ 94,941
DD&A.................... 22,013 0 22,013 2,457 24,470
Unrealized gains on mark
to market
transactions........... 0 985 985 0 985
Profit (loss)........... 49,460 (3,763) 45,697 (11,411) 34,286
Expenditures for assets,
net.................... 57,940 0 57,940 888 58,828
<CAPTION>
Quarter ended September 30, 1999
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 57,742 $ 0 $ 57,742 $ 1,164 $ 58,906
DD&A.................... 22,997 0 22,997 1,109 24,106
Profit (loss)........... 18,228 (545) 17,683 (10,707) 6,976
Expenditures for assets,
net.................... 19,465 0 19,465 774 20,239
<CAPTION>
Nine months ended September 30, 2000
------------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $235,098 $ 0 $235,098 $ 5,197 $240,295
DD&A.................... 70,050 0 70,050 4,724 74,774
Unrealized losses on
mark to market
transactions........... 0 (32,735) (32,735) 0 (32,735)
Profit (loss)........... 113,988 (38,312) 75,676 (35,255) 40,421
Expenditures for assets,
net.................... 148,380 0 148,380 1,162 149,542
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
----------------------------------------------------
Natural
Oil & Gas Segments Corporation
Gas E&P Trading Total & Unallocated Consolidated
-------- ------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................. $153,876 $ 0 $153,876 $ 3,565 $157,441
DD&A..................... 68,282 0 68,282 3,290 71,572
Profit (loss)............ 41,426 16,857 58,283 (32,219) 26,064
Expenditures for
assets,net.............. 58,499 0 58,499 1,474 59,973
</TABLE>
10
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
September 30, 2000
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 and amended by SFAS 138
which was issued in July 2000. SFAS 133 and 138 establish 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. They
also require 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 on 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. However, SFAS 133 is expected to increase volatility in
earnings and other comprehensive income.
8. SUBSEQUENT EVENT
In October 2000, the Company acquired interests in 54,675 gross and net
acres of coal bed methane properties with 57 producing wells and a gas
gathering and compression system in southern Colorado for a purchase price of
approximately $52.9 million. The acquired properties have approximately 75
billion cubic feet of proved coal bed methane gas reserves. Approximately 80
percent of these proved reserves are undeveloped. The acquisition was financed
by a short-term credit facility.
9. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
Nine Months ended September 30
-------------------------------
2000 1999
--------------- ---------------
(in thousands)
<S> <C> <C>
Cash amounts paid for interest and income
taxes are as follows:
Interest.................................... $ 23,699 $ 18,768
Income Taxes................................ 326 3,764
Non-cash investing and financing activities:
Common Stock/treasury share options
exercised.................................. 4,692 627
</TABLE>
11
<PAGE>
BARRETT RESOURCES CORPORATION
For the Quarter Ended and Nine months ended
September 30, 2000
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
For the nine months ended September 30, 2000, total assets increased $161.7
million, or 18 percent, to $1.046 billion as compared with total assets of
$884.3 million at December 31, 1999. This increase in assets is principally
attributable to 1) the Company's drilling and development activities, 2) an
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
and 3) an increase in receivables of $70.7 million, caused by higher gas
prices.
During the third quarter of 2000, the Company reduced its margin deposits
held by various derivative counterparties from $47.6 million at June 30, 2000
to $16.5 million as of September 30, 2000 by transferring certain derivative
positions to counterparties not requiring margin deposits and through the
normal settlement of derivatives maturing. 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.
Cash and cash equivalents increased by $7.6 million to $28.3 million and
working capital decreased to a negative $8.0 million. Net property and
equipment increased $73.4 million to $799.9 million.
Operating cash flows before working capital adjustments totaled $55.5
million in the third quarter of 2000 and $145.2 million for the nine months
ended September 30, 2000 compared with $30.9 million in the third quarter of
1999 and $96.9 million for the nine months ended September 30, 1999. After
working capital adjustments, cash flow provided by operations increased by
$108.7 million for the third quarter of 2000 to $118.3 million as compared
with the same period in 1999. For the nine months ended September 30, 2000,
after working capital adjustments, cash flow provided by operations increased
by $85.8 million to $165.2 million as compared with the same period in 1999.
This change is principally attributed to stronger commodity prices together
with increased gas production in 2000 compared to 1999.
Capital expenditures of $193.4 million (gross) for the year represent an
increase of $120.9 million from the same period in 1999. These expenditures
consisted principally of $182.1 million of drilling and development activities
and $34.4 million associated with the acquisitions of oil and gas properties
located in the Piceance Basin and a related gas gathering system, processing
plant and pipeline. Of these expenditures, $98.5 million (51 percent) was
invested in the Piceance Basin (including acquisitions), $40.9 million (21
percent) in the Powder River Basin--Coal Bed Methane project and $29.7 million
(15 percent) in the Wind River Basin. In the first nine months of 2000, the
Company received proceeds of $43.8 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
$251.2 million, net of sales proceeds for property divestitures. Management
continues to be sensitive to fluctuations in natural gas and oil prices, the
Company's cash flow and its level of debt, and will reassess the future
capital expenditure levels relative to such fluctuations.
12
<PAGE>
In October, the Company acquired interests in 54,675 gross and net acres of
coal bed methane properties with 57 producing wells and a gas gathering and
compression system in southern Colorado for a purchase price of approximately
$52.9 million. The acquired properties have approximately 75 billion cubic
feet of proved coal bed methane gas reserves. Approximately 80 percent of
these proved reserves are undeveloped. This acquisition was funded through the
use of a short-term credit facility.
The Company is negotiating a five year bank credit facility to replace its
current line of credit facility and to provide long-term financing for future
growth opportunities and on-going operations. Management expects to have the
new bank facility in place by January 2001.
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, 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 for the quarters ended September 30, 2000 and 1999 was $21.3
million, or $.64 per share (diluted), and $4.3 million or $.13 per share
(diluted), respectively. Included in net income for the quarter ended
September 30, 2000 is a $0.6 million after-tax unrealized gain on the fair
value of certain derivatives ($1.0 million before tax). Excluding the positive
effects of this non-cash derivative fair value unrealized gain, the Company's
net income for the 3rd quarter 2000 was $20.7 million, or $.62 per share
(diluted).
For the nine months ended September 30, 2000 and 1999, net income after
taxes was $25.1 million, or $.76 per share (diluted), and $16.1 million, or
$.49 per share (diluted). For the nine months ended September 30, 2000, the
Company has recognized $20.3 million after tax unrealized losses on the fair
value of certain derivatives ($32.7 million before tax). Excluding the
negative effects of the non-cash fair value unrealized loss, the Company's net
income for the nine months ended September 30, 2000 was $45.4 million or $
1.37 per share, (diluted).
Operating income for the quarter was $43 million, up 245 percent compared to
$12.5 million for the same period in 1999. Operating income for the first nine
months of 2000 was $94.5 million, up 300 percent as compared to $23.6 million
for the same period in 1999. This change is principally attributed to stronger
commodity prices together with increased gas production in 2000 compared to
1999.
13
<PAGE>
Gas and oil production revenues for the third quarter of 2000 increased 61
percent from $57.7 million to $92.6 million. For the nine months ended
September 30, 2000, production revenue increased 53 percent from $153.7
million to $234.8 million. Production revenues and related volumes and average
prices during the periods presented were as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine months ended
September 30, September 30,
--------------- -----------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------- -------- --------
Gas Revenues (000's)...................... $86,642 $52,293 $217,238 $139,742
Gas Production (Bcf)...................... 27.3 24.3 84.1 71.2
Average Price per Mcf..................... $ 3.18 $ 2.15 $ 2.58 $ 1.96
Oil Revenues (000's)...................... $ 5,983 $ 5,377 $ 17,555 $ 13,976
Oil Production (MBbls).................... 217 358 679 1,125
Average Price per Barrel.................. $ 27.57 $ 15.02 $ 25.85 $ 12.42
</TABLE>
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls =
thousand barrels.)
Third quarter gas revenues increased 66 percent as compared with the same
period in 1999, principally due to a 48 percent increase in average prices and
a 12 percent increase in production volumes. For the nine months ended
September 30, 2000, gas revenues increased 55 percent as compared with the
same period in 1999, principally due to a 32 percent increase in average
prices and an 18 percent increase in production volumes. During the third
quarter and nine months ended September 30, 2000, the Company recognized net
production hedging losses of approximately $12.6 million and $26.6 million,
respectively, which were recorded in the consolidated statements of income as
adjustments to gas production revenue.
The 11 percent increase in third quarter 2000 oil revenues from the same
period in 1999 is attributed to an 84 percent increase in average oil prices
partially offset by a 39 percent decrease in oil production volumes. Oil
revenues for the nine months ended September 30, 2000 increased 26 percent
compared with the same period in 1999, due to a 108 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.
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 gain of $0.6 million ($1.0 million before tax) is
included in the Company's net trading expense for the third quarter of 2000.
The Company's net trading activities, before mark to market adjustments, for
the third quarter ending September 30, 2000 and 1999 were losses of $4.4
million and $0.2 million, respectively, on gross revenues of $332 million and
$219.9 million, respectively. Trading costs increased to $336.4 million in the
third quarter of 2000 compared with $220.1 million in the same period in 1999.
The Company realized net hedging income on its trading activities of
approximately $0.9 million and $2.3 million in the third quarter of 2000 and
1999, respectively.
The Company's net trading activities, before an after tax fair value loss of
$20.3 million ($32.7 million before tax), for the nine months ended September
30, 2000 was a net loss of $4.5 million compared with net income of $17.8
million for the same period in 1999, on gross revenues of $922.7 million and
$568.3 million, respectively. Trading costs were $927.2 million for the nine
month period in 2000 compared with $550.5 million in 1999.
14
<PAGE>
Depreciation, depletion and amortization increased for the third quarter of
2000 to $24.5 million from $24.1 million in 1999 and for the nine month period
from $71.6 million in 1999 to $74.8 million in 2000. The increase for both
periods is principally attributed to higher production volumes.
Interest expense, net of capitalized interest, for the third quarter of
2000, increased 8 percent to $5.9 million compared to $5.4 million for the
third quarter of 1999. For the nine months ended September 30, 2000, interest
expense, net of capitalized interest, was $18 million, an increase of 12
percent compared to $16 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 in 2000. 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 September 30, 2000. 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
September 30, 2000. Actual settlement of these instruments when they mature
will differ from these estimates reflected in the table. Gains or losses
realized 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 year Bcf Price Range Per MMBtu Fair Value
------------ ---- --------------------- ---------------
<S> <C> <C> <C>
2000 7.8 $1.6376--$1.72 $(22.7) million
2001 32.2 $1.6376--$1.72 $(72.1) million
2002 28.7 $1.6376--$1.74 $(47.2) million
2003 5.8 $1.6396--$1.72 $ (9.0) million
2004 0.9 $1.6996 $ (0.9) 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
15
<PAGE>
gas. The following tables summarize the Company's derivative positions on its
natural gas trading activities as of September 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 September 30, 2000. Actual
settlement of these instruments as they mature will differ from these
estimates.
CONTRACTS TO PURCHASE NATURAL GAS
<TABLE>
<CAPTION>
For the year Bcf Price Range Per MMBtu Fair Value
------------ ---- --------------------- --------------
<S> <C> <C> <C>
2000 52.5 $1.8425--$2.6375 $ 13.8 million
2001 78.3 $1.8425--$2.4550 $ 8.1 million
2002 27.5 Indexed Based $(3.3) million
2003 24.9 Indexed Based $(3.1) million
2004 22.1 Indexed Based $(3.1) million
Thereafter 30.2 Indexed Based $(6.4) million
</TABLE>
CONTRACTS TO SELL NATURAL GAS
<TABLE>
<CAPTION>
For the year Bcf Price Range Per MMBtu Fair Value
------------ ----- --------------------- ---------------
<S> <C> <C> <C>
2000 88.4 $1.6425--$3.770 $(15.4) million
2001 168.0 $1.9200--$3.770 $ (9.7) million
2002 74.0 $2.3725--$2.465 $ 3.6 million
2003 52.8 $2.3725--$2.465 $ 3.4 million
2004 45.7 $2.3725--$2.465 $ 3.5 million
Thereafter 55.2 $2.3725--$2.465 $ 9.2 million
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENT POSITIONS
<TABLE>
<CAPTION>
For the year Bcf Price Range Per MMBtu Fair Value
------------ ----- --------------------- ---------------
<S> <C> <C> <C>
2000 195.4 $1.8100--$5.055 $(11.2) million
2001 266.3 $1.9050--$5.055 $ (8.5) million
2002 42.9 $2.8400 $ (6.2) million
2003 36.8 Indexed Based $ (1.3) million
2004 26.8 Indexed Based $ (1.8) million
Thereafter 21.0 Indexed Based $ (6.2) 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 September 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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Quarterly Report on
Form 10-Q:
10.10 Severance Protection agreement dated July 10, 2000 between
Registrant and Joseph N. Jaggers.
27.1 Financial Data Schedule
(b) On July 10, 2000, the Company filed a form 8-K pertaining to a press
release issued by the Company, dated June 29, 2000, regarding an update
on the Company's gas marketing positions.
17
<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
November 13, 2000 By __________________________________
Peter A. Dea
Chairman of the Board and Chief
Executive Officer
/s/ J. Frank Keller
November 13, 2000 By __________________________________
J. Frank Keller
Chief Financial Officer
