UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-20125
BASIN EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1143307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 17TH STREET, SUITE 3400, DENVER, CO 80202
(Address of principal executive offices) (Zip Code)
(303) 685-8000
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the latest practicable date.
Outstanding at
CLASS July 31, 1997
------------------------------------ -----------------
Common stock, $.01 par value 10,779,000 shares
<PAGE>
BASIN EXPLORATION, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 and December 31,1996................................3
Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996 and
six months ended June 30, 1997 and 1996...........................5
Consolidated Statements of Changes in
Stockholders' Equity for the period from
January 1, 1996 through June 30, 1997.............................6
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996...........................7
Notes to Consolidated Financial Statements........................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...........15
Item 6. Exhibits and Reports on Form 8-K..............................15
SIGNATURES.................................................................18
EXHIBITS -
Index to Exhibits.....................................................19
2
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
(In thousands) June 30, December 31,
1997 1996
---------- -----------
CURRENT ASSETS:
Cash and equivalents $ 625 $ 22,023
Accounts receivable 7,250 5,108
Stockholder note receivable 559 559
Prepaids and other 3,426 2,203
---------- ----------
11,860 29,893
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, under the full
cost method of accounting
Proved 108,776 78,641
Unproved 14,747 9,822
Less accumulated depreciation,
depletion and amortization (38,523) (36,581)
--------- ----------
85,000 51,882
Furniture and equipment, net 2,346 2,918
---------- ----------
87,346 54,800
---------- ----------
OTHER ASSETS: 175 264
---------- ----------
$ 99,381 $ 84,957
========== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
3
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands, except share data) June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,146 $ 7,469
Accrued ad valorem taxes 2,753 2,040
Income taxes payable 42 1,000
Current portion of long-term debt 147 206
---------- ---------
12,088 10,715
---------- ---------
LONG-TERM DEBT, net of current portion 14,131 218
AD VALOREM TAXES AND OTHER 391 513
DEFERRED INCOME TAXES 4,458 4,760
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share; 10,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, par value $.01 per
share, 50,000,000 shares authorized,
10,757,000 shares issued 108 108
Additional paid-in capital 59,346 59,219
Retained earnings 8,995 9,556
Common stock held in treasury, at cost,
56,000 shares (136) (132)
---------- ---------
68,313 68,751
---------- ---------
$ 99,381 $ 84,957
========== =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
4
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(In thousands, except per share data) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Oil sales $ 1,828 $ 3,164 $ 3,983 $ 7,039
Gas sales 689 1,932 1,771 5,543
Gain on sale of assets - 22,472 - 22,472
Interest and other 49 112 224 202
-------- -------- -------- --------
2,566 27,680 5,978 35,256
-------- -------- -------- --------
COSTS AND EXPENSES:
Lease operating expenses 977 1,328 2,036 3,004
Production taxes 271 473 635 1,199
Depreciation, depletion and amortization 1,236 2,116 2,396 5,470
General and administrative, net 817 1,023 1,603 2,212
Interest expense 142 671 171 2,218
-------- -------- -------- --------
3,443 5,611 6,841 14,103
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (877) 22,069 (863) 21,153
Income tax benefit (provision) 307 (5,694) 302 (5,694)
-------- -------- -------- --------
NET INCOME (LOSS) $ (570) $16,375 $ (561) $15,459
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE $ (0.05) $ 1.53 $(0.05) $ 1.44
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING $10,701 $10,711 $10,701 $10,699
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
5
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON STOCK PAID -IN TREASURY STOCK EARNINGS STOCKHOLDERS'
(In Thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1996 10,724 $107 $59,288 (32) $(94) $(6,014) $53,287
Issuance and vesting of restricted
stock and stock options 33 1 181 - - - 182
Purchase of treasury stock and options - - (250) (24) (38) - (288)
Net income - - - - - 15,570 15,570
---------------------------------------------------------------------------------------------
BALANCES, December 31, 1996 10,757 108 59,219 (56) (132) 9,556 68,751
Issuance and vesting of restricted
stock - - 127 - - - 127
Purchase of treasury stock - - - - 4 - (4)
Net income (loss) - - - - - (561) (561)
---------------------------------------------------------------------------------------------
BALANCES, June 30, 1997 $10,757 $108 $59,346 (56) $(136) $8,995 $68,313
=============================================================================================
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
6
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) For the Six Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (561) $ 15,459
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Gain on sale of assets - (22,472)
Depreciation, depletion and amortization 2,396 5,470
Deferred income tax provision (benefit) (302) 3,694
Stock compensation expense 127 65
Other, net (4) 115
Changes in operating assets and liabilities -
Decrease (increase) in -
Restricted cash - (36)
Receivables (2,142) 2,893
Inventory and other (1,136) (593)
(Decrease) increase in -
Accounts payable and accrued expenses 746 (2,708)
Ad valorem taxes and other 591 (2,150)
Income taxes payable (958) 2,000
--------- ---------
Net cash provided by (used in) operating activities (1,243) 1,737
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (34,200) (10,107)
Proceeds from sale of property and equipment 195 120,977
--------- ---------
Net cash provided by (used in) investing activities (34,005) 110,870
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 14,500 8,089
Principal payments on notes payable and long-term debt (646) (84,736)
Purchase of treasury stock and options (4) (34)
Issuance of common stock - 84
--------- ---------
Net cash provided by (used in) financing activities 13,850 (76,597)
--------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (21,398) 36,010
CASH AND EQUIVALENTS, beginning of period 22,023 1,613
--------- ---------
CASH AND EQUIVALENTS, end of period $ 625 $ 37,623
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 56 $ 2,273
========= =========
Cash paid for income taxes $ 958 $ -
========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
7
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of Basin Exploration, Inc.
and its wholly-owned subsidiaries (collectively, "Basin" or the "Company") as of
June 30, 1997 and the results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations. The results of operations for the
periods presented are not necessarily indicative of the results to be expected
for the full year. Management believes the disclosures made are adequate to
ensure that the information is not misleading, and suggests that these financial
statements be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
8
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Basin Exploration, Inc. ("Basin" or the "Company") is an independent energy
company engaged in the acquisition, exploration and development of oil and gas
properties and marketing of the related oil and gas production in the United
States, including the Gulf of Mexico. Basin's revenue and results of operations
are significantly affected by changes in oil and gas prices. Assuming level
production, the Company's total revenue would generally be higher in the first
and fourth quarters due to higher natural gas prices typically resulting from
greater demand during colder months. The following discussion should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS
REVENUE. Excluding a $22,472,000 gain on sale of assets recognized during 1996,
revenue for the three and six months ended June 30, 1997, was $2,566,000 and
$5,978,000, representing decreases of $2,642,000, or 51%, and $6,806,000, or
53%, respectively, as compared to the same periods in 1996. The following table
reflects the Company's average oil and gas prices and its average daily oil and
gas production for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Average price:
Oil (per Bbl) $17.73 $20.84 (15) $19.09 $19.14 -
Gas (per Mcf) $ 1.73 $ 1.32 31 $ 2.21 $ 1.41 57
Average daily production:
Oil (Bbl) 1,133 1,668 (32) 1,153 2,021 (43)
Gas (Mcf) 4,384 16,103 (73) 4,428 21,558 (79)
</TABLE>
The decreases in average daily production were primarily attributable to sales
of producing properties during 1996. The Company consummated two transactions
during 1996 in which all of its assets in the D-J Basin were sold. As of
December 31, 1995, these assets represented approximately two-thirds of the
Company's producing wells and 70% of its proved oil and gas reserves. In
conjunction with the second transaction, which closed in June 1996, a
$22,472,000 gain was recognized. Excluding the production and sales from such
D-J Basin properties, average oil and gas prices and average daily oil and gas
production for the periods presented were:
9
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1997 1996 % CHANGE 1997 1996 % CHANGE
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Average price:
Oil (per Bbl) $17.73 $21.07 (16) $19.09 $20.01 (5)
Gas (per Mcf) $ 1.73 $ 1.06 63 $ 2.21 $ 1.17 89
Average daily production:
Oil (Bbl) 1,133 1,181 (4) 1,153 1,182 (2)
Gas (Mcf) 4,384 5,029 (13) 4,428 5,003 (11)
</TABLE>
LEASE OPERATING EXPENSES. Lease operating expenses for the three and six months
ended June 30, 1997, were $977,000 and $2,036,000, decreases of $351,000, or
26%, and $968,000, or 32%, respectively, compared to the same periods in 1996.
Production costs per Mcfe produced during the three and six months ended June
30, 1997, were $0.96 and $0.99, compared to $0.56 and $0.49, respectively, in
1996. The higher costs per Mcfe were caused primarily by the increased portion
of the Company's total active wells that are oil wells, with typically higher
unit operating costs, following the sale of the D-J Basin assets.
PRODUCTION TAXES. Production taxes for the three and six months ended June 30,
1997, were $271,000 and $635,000, decreases of $202,000, or 43%, and $564,000,
or 47%, respectively, compared to the same periods in 1996. Production taxes as
a percent of oil and gas sales for the three and six months ended June 30, 1997
were 10.8% and 11.0%, compared to 9.3% and 9.5%, respectively, in 1996. The
increased average tax rates were due to a greater portion of sales occurring in
higher-tax jurisdictions in 1997.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization expense for the three and six months ended June 30, 1997, was
$1,236,000 and $2,396,000, decreases of $880,000, or 42%, and $3,074,000, or
56%, respectively, compared to the same periods in 1996. The decreases are
attributable to lower production volumes in 1997 as compared to the same periods
in 1996. The depletion rate of $0.95 per Mcfe produced in the six months ended
June 30, 1997 compared to an $0.81 per Mcfe average depletion rate during the
same 1996 period. The higher rate in 1997 was largely due to higher-cost Gulf of
Mexico proved reserves acquired in the first quarter of 1997 which, although not
yet producing, were incorporated into the computation of the depletion rate for
the period.
GENERAL AND ADMINISTRATIVE, NET. General and administrative expenses for the
three and six months ended June 30, 1997 were $817,000 and $1,603,000,
reflecting decreases of $206,000, or 20%, and $609,000, or 28%, respectively,
compared to the same periods in 1996. The decreases resulted primarily from
staff reductions made during the first half of 1996 and related reductions in
office rent expense attributable to the Company's relocation to smaller space in
the second half of 1996.
INTEREST EXPENSE. Interest expense for the three and six months ended June 30,
1997 was $142,000 and $171,000, decreases of $529,000, or 79%, and $2,047,000,
or 92%, respectively, compared to the same
10
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
periods in 1996. The decreases were principally attributable to lower average
borrowings as a result of asset sales consummated during 1996, as summarized
below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average borrowings (in millions) $ 7 $ 33 $ 4 $ 52
Average interest rate on borrowings 6.8% 8.1% 6.8% 8.5%
</TABLE>
INCOME TAX BENEFIT (PROVISION). The income tax benefit for 1997 approximates the
amount that would be calculated by applying statutory income tax rates to the
loss before income taxes. The differences between the income tax provisions for
the three and six months ended June 30, 1996, and the amounts which would be
calculated by applying statutory income tax rates to income before income taxes
are due primarily to reversal of a previously established $2,196,000 deferred
tax asset valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company entered into two agreements pursuant to which it
sold all of its assets in the D-J Basin, effective January 1, 1996, for an
aggregate adjusted sales price of $123.5 million. The sale of approximately
one-third of these D-J Basin assets was closed in March 1996 and the sale of the
remainder was closed in June 1996. Combined, these transactions resulted in the
disposition of two-thirds of the Company's total wells and approximately 70% of
its estimated proved oil and gas reserves as of December 31, 1995. A portion of
the sales proceeds was used to repay all outstanding long-term debt and the
remainder, net of transaction costs, was initially invested in short-term,
interest-bearing cash equivalents pending redeployment into new oil and gas
investments. The Company's remaining producing properties after the sale were
primarily mature oil and gas fields in the Powder River Basin, Green River
Basin, and elsewhere in the Rocky Mountain region. Since the beginning of 1996,
the Company has been focusing its exploratory activities in the shallow waters
of the Gulf of Mexico, and its acquisition and exploitation efforts in the Gulf
Coast and Rocky Mountain areas. At the beginning of 1997, the Company had net
working capital of approximately $19.2 million, including $22.0 million of cash
equivalents, and had virtually no long-term debt. After investing approximately
$34.1 million in oil and gas activities during the first six months of 1997, the
Company ended the period with a long-term debt of approximately $14.1 million.
The Company has a line of credit established with its bank group that provides
for the interest rate on borrowings to be determined by reference to either the
prime rate or LIBOR, at the Company's election. A varying spread of 0% to 0.5%
is added to the prime rate, or 0.625% to 1.25% is applied to LIBOR, based upon
the Company's debt-to-capitalization ratio at the time. The credit agreement
provides for borrowings to be revolving loans until August 1, 1999, at which
time the outstanding balance will be converted into a four-year amortizing term
loan. The credit agreement contains various covenants, including ones that could
limit the Company's ability to incur other debt, dispose of assets, pay
dividends, or repurchase stock. The borrowing base under the revolving credit
facility was increased from $25.0 million to $32.5 million in June 1997 and is
11
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
scheduled to be redetermined as of November 1, 1997 and generally at six month
intervals thereafter until converted into a term loan. Because this recent
increase was based, in part, on Gulf of Mexico proved reserves that have not yet
commenced production, the interest rate that will be applied prior to the next
borrowing base redetermination will be 0.5% greater than would otherwise be
applicable whenever borrowings under the line of credit exceed $25 million. As
of June 30, 1997 there were $14.0 million of borrowings outstanding under the
facility.
The Company's capital expenditures are generally discretionary and activity
levels are determined by a number of factors, including oil and gas prices,
interest rates, availability of funds, quantity and character of identified
investment projects, availability of service providers, and competition. The
Company's capital budget for calendar 1997 is presently established at
approximately $55 million, allocated as follows: approximately $15 million is
provided for proved property acquisitions consummated in the first quarter;
approximately $20 million is provided for acquisitions of prospect leaseholds,
seismic data procurement, and exploratory drilling costs; approximately $15
million relates to anticipated development of the Company's existing property
base; and approximately $5 million is provided for other activities, including
current year development of assumed exploratory discoveries. Approximately $34.1
million was invested during the first six months of 1997. The remaining budget
for the year of approximately $20.9 million is partially uncommitted and is
dependent on future developments that are not entirely within the Company's
control, such as drilling rig availability, drilling results, and activities
conducted by other operators. Further, the Company intends to continue to pursue
acquisitions of proved properties, which, while not budgeted, could be very
significant. Therefore, the Company's actual capital expenditures may vary
significantly from these budgeted amounts. The Company had no extraordinary
capital expenditure commitments pending at June 30, 1997.
The Company has been awarded all 11 tracts for which it participated in winning
bids at the central Gulf of Mexico lease sale held on March 5, 1997 by the
federal government's Minerals Management Service (MMS). The Company's net share
of the related leasehold bonuses totaled approximately $5.7 million.
Approximately $31.0 million of investments made during the first six months of
1997 related to operations in the Gulf of Mexico. Such amounts were incurred
primarily for a $14.4 million acquisition of properties with proved and probable
reserves, the continuation drilling and completion of an exploratory well
commenced in 1996, the drilling and completion of a successful field delineation
well, leasehold bonuses, fabrication of an offshore platform, and acquisitions
of 3-D seismic data.
The successful field discovery and delineation wells drilled in the first half
of 1997 were located on Eugene Island (EI) Block 65. A production platform is
scheduled to be installed on the EI 65 property in the third quarter of 1997 to
commence production from two completed productive intervals in each of the two
wells. Through the $14.4 million acquisition consummated in the first quarter of
1997, the Company increased its interest in EI 65 and acquired interests in East
Cameron (EC) Block 378. A well on EC 378 was completed subsea in January 1997
and is waiting on pipeline installation to connect to a nearby third-party
production platform. Production from EC 378 is expected to commence during the
fourth quarter of 1997.
Management believes that the remainder of the current-year budget, as described
above, can be funded without new sources of capital by utilizing projected cash
flow and borrowings under the Company's revolving credit facility. The Company's
ability to fund investment activities in future periods may be significantly
affected by
12
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the results obtained from investments made in 1997. Cash flow is projected to
increase significantly during the latter part of the year when EI 65 and EC 378
are expected to be on-line. Forecasted combined initial production rates for the
three wells on these two properties would result in more than a 200% increase in
the Company's oil and gas production, in net equivalent units. However, these
properties have not produced before and the projected on-line dates and
production rates may not be achieved. Failure of these properties to perform as
expected could impair the Company's borrowing capacity as well as its cash flow.
If conditions warrant, the Company may consider raising additional capital
through issuance of debt or equity securities. Should the Company undertake a
large acquisition, issuing such securities or monetizing assets would likely be
required to fund the transaction.
Changes In Prices
The Company's revenue, cash flow, and the value of its oil and gas properties
have been, and will continue to be, affected by changes in oil and natural gas
prices. The Company's ability to maintain current borrowing capacity and to
obtain additional capital on attractive terms is also substantially dependent on
oil and natural gas prices. As such, changes in oil and gas prices can
significantly affect the amount of the Company's capital expenditures. Oil and
natural gas prices are subject to significant seasonal and other fluctuations
that are beyond the Company's ability to control or predict. The Company
periodically enters into derivatives transactions in order to hedge against the
volatility of product prices. Although the Company enters into such agreements
to limit exposure to price decreases, the agreements may also limit the
Company's ability to benefit from significant price increases on the contract
volumes. Effective July 1, 1996, the Company entered into a crude oil swap
agreement with a contract volume of 10,000 barrels per month through December
31, 1997. This agreement provides for cash settlement of the differential
between the $18.32 per barrel contract price and the average closing NYMEX crude
oil price during each month. The Company has also entered into a crude oil
collar arrangement effective for calendar 1997 on 10,000 barrels per month. This
agreement provides for the cash settlement of the differential between the
monthly average closing NYMEX price and the contract floor of $19.50 per barrel
or the contract ceiling of $24.35 per barrel, if the average monthly NYMEX price
falls outside of the range defined by such contract floor and contract ceiling.
The Company has also entered into a natural gas collar arrangement for the
seven-month period commencing October 1, 1997, for a contract volume of 450,000
MMBTU per month. Under this arrangement, the applicable NYMEX floor and ceiling
prices on which settlements will be based vary by month, and average $2.094 and
$2.536, respectively, over the contract term. In conjunction with entering into
this collar, the Company acquired call options on an equivalent volume of
natural gas for the contract period at varying strike prices $.29 above the
respective contract ceilings provided for under the collar. Any gain or loss
realized on these agreements is included as a component of sales in the month of
production.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements that are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, development and exploration expenditures (including the amount and
nature thereof), drilling of wells, future production of oil and gas, business
strategies, cash flow and anticipated liquidity, prospect development and
property acquisition, or marketing of oil and gas. Factors that could cause
actual results to differ materially ("Cautionary Disclosures") are described,
among other
13
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
places, in the Company's most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Without limiting the Cautionary Disclosures
so described, Cautionary Disclosures include, among others: general economic
conditions, the market price of oil and natural gas, the risks associated with
exploration, the Company's ability to find, acquire, market, develop and produce
new properties, operating hazards attendant to the oil and natural gas business,
downhole drilling and completion risks that are generally not recoverable from
third parties or insurance, the Company's inexperience in the Gulf of Mexico,
uncertainties in the estimation of proved reserves and in the projection of
future rates of production and timing of development expenditures, potential
mechanical failure of individually significant productive wells, the strength
and financial resources of the Company's competitors, the Company's ability to
find and retain skilled personnel, climatic conditions, labor relations,
availability and cost of material and equipment, delays in anticipated start-up
dates, environmental risks, the results of financing efforts, actions or
inactions of third-party operators of the Company's properties, and regulatory
developments. All written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Disclosures. The Company disclaims any obligation to
update or revise any forward-looking statement to reflect events or
circumstances occurring hereafter or to reflect the occurrence of anticipated or
unanticipated events.
14
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Proxies for the Company's annual meeting of shareholders held on April 28, 1997,
were solicited pursuant to Regulation 14A during the quarter ended June 30,
1997. There was no solicitation in opposition to the nominees listed in the
proxy statement and all such nominees were elected. The following is a summary
of the matters voted upon at such meeting and the number of votes cast for,
against and abstentions:
NUMBER OF VOTES CAST
FOR AGAINST ABSTAIN
Election of Directors
J. Paul Hellstrom 6,593,946 - 4,575
Howard L. Boigon 6,593,946 - 4,575
Ratify selection of Arthur
Andersen LLP as auditors 6,590,973 4,200 3,348
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
2.1 -- Agreement and Plan of Merger between Sterling Energy Corporation, Basin
Energy, Inc. and Basin Exploration, Inc. dated October 13, 1994/7/
2.2 -- Plan of Merger between Basin Sterling, Inc. and Basin Exploration, Inc.
dated November 22, 1994/8/
2.3 -- Plan of Merger between Basin Operating Company and Basin Exploration,
Inc. dated December 14, 1994/8/
3.1 -- Restated Certificate of Incorporation of Basin./2/
3.2 -- Restated Bylaws of Basin./2/
4.1 -- Common Stock Certificate of Basin./2/
10.1 -- Equity Incentive Plan as amended April 28, 1997./13/
10.3 -- Key Employee Participation Plan./2/
10.4 -- Employment Agreement dated March 31, 1992 by and between Basin and
Michael S. Smith./3/
10.5 -- Gulf Coast Geoscientist Overriding Royalty Interest Plan dated November
30, 1995./10/
10.6 -- Form of Rights Agreement dated as of February 24, 1996, between Basin
Exploration, Inc. and Corporate Stock Transfer, Inc. as Rights
Agent./9/
10.7 -- Performance Shares Plan approved February 4, 1997./12/
10.8 -- Change of Control Employment Agreement dated October 13, 1995 between
Basin Exploration, Inc. and Howard L. Boigon./10/
10.9 -- Employment Agreement dated August 28, 1995 between Basin Exploration,
Inc. and Samuel D. Winegrad./10/
10.10 -- Employment Agreement dated June 28, 1995 between Basin Exploration,
Inc. and Neil L. Stenbuck./10/
10.11 -- Employment Agreement dated November 10, 1995 between Basin Exploration,
Inc. and David A. Pustka./10/
10.12 -- Employment Agreement dated February 23, 1996 between Basin Exploration,
Inc. and Thomas J. Corley./12/
10.13 -- Assignment and Assumption of Lease dated December 18, 1995 by and
between Team, Inc., as original Tenant, Basin Exploration, Inc., as New
Tenant, and FC Tower Property Partners, L.P., as Landlord./9/
15
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
10.14 -- First Supplement to Amended Mortgage, Security Agreement,
Assignment, Financing Statement and Fixture Filing dated May 8, 1995 by
and between Basin Exploration, Inc. and Basin Gas Ltd. to NationsBank
of Texas, N.A., as successor collateral agent for the benefit of
Colorado National Bank, Union Bank and NationsBank of Texas, N.A./8/
10.15 -- Second Supplement to Amended Mortgage, Security Agreement,
Assignment, Financing Statement and Fixture Filing dated May 8, 1995 by
and between Basin Exploration, Inc., and Basin Gas Ltd. to NationsBank
of Texas, N.A. in its capacity as the successor collateral agent for
the benefit of Colorado National Bank, Union Bank and NationsBank of
Texas, N.A./10/
10.16 -- Agreement for Purchase and Sale of Assets (Monetization) dated
February 24, 1996 by and between Basin Exploration, Inc., HS Resources,
Inc. and Orion Acquisition, Inc./7/
10.17 -- Agreement for Purchase and Sale of Assets (Wattenberg), dated
February 24, 1996 by and between Basin Exploration, Inc., HS Resources,
Inc. and Orion Acquisition, Inc./7/
10.18 -- Lease of Office Space dated September 25, 1992, between Brookfield
Republic Inc. and Basin Operating Company, as amended/4/+/
10.19 -- First Lease of Additional Office Space dated as of December 1, 1994,
between Brookfield Republic, Inc. and Basin Operating Company./6/+/
10.20 -- Amended and Restated Credit Agreement dated August 6, 1996 between
the Company and Colorado National Bank, Union Bank of California, N.A.
and NationsBank of Texas, N.A./11/
10.21 -- Purchase and Sale Agreement dated February 13, 1997, between
Hall-Houston Oil Company et al as Sellers and Basin Exploration, Inc.
as Buyer./12/+/
10.22 -- First Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and Colorado National Bank, Union
Bank of California, N.A. and NationsBank of Texas, N.A. dated June 11,
1997/1/
21 -- Subsidiaries./12/
27 -- Financial Data Schedule/1/
- --------------
1 Filed herewith.
2 Filed as an Exhibit to Basin's Registration Statement on Form S-1 as filed
on March 17, 1992, Registration No. 33-46486, and incorporated herein by
reference.
3 Filed as an Exhibit to Amendment No. 1 to Basin's Registration Statement on
Form S-1 as filed on April 21, 1992, Registration No. 33-46486, and
incorporated herein by reference.
4 Filed as an Exhibit to Basin's Registration Statement on Form S-1 as filed
on October 25, 1993, Registration No. 33-70802, and incorporated herein by
reference.
5 Filed as an Exhibit to Form 8-K filed on December 10, 1994, and
incorporated herein by reference.
6 Filed as an Exhibit to Form 10-K/A-1 filed on June 26, 1995 and
incorporated herein by reference.
7 Filed as an Exhibit to Form 8-K filed on March 6, 1996, and incorporated
herein by reference.
8 Filed as an Exhibit to Form 10-K filed on March 28, 1995, and incorporated
herein by reference.
9 Filed as an Exhibit to Form 8-K filed on February 26, 1996, and
incorporated herein by reference.
10 Filed as an Exhibit to Form 10-K filed on March 28, 1996, and incorporated
herein by reference.
11 Filed as an Exhibit to Form 10-Q filed on August 14, 1996, and incorporated
herein by reference.
12 Filed as an Exhibit to Form 10-K filed on March 31, 1997, and incorporated
herein by reference.
16
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
13 Filed as an Exhibit to Form 10-Q filed on May 15, and incorporated herein
by reference.
+ Confidential treatment has been granted for portions of these Exhibits.
(b) Reports on Form 8-K
None
17
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
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.
BASIN EXPLORATION, INC.
(Registrant)
Date: August 12, 1997 By:/S/ NEIL L. STENBUCK
------------------------------------
Neil L. Stenbuck
Chief Financial Officer
Date: August 12, 1997 By:/S/ JAMES A. TUELL
------------------------------------
James A. Tuell
Controller
(Principal Accounting Officer)
18
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
Index to Exhibits
EXHIBIT NUMBERS EXHIBITS
10.22 First Amendment of Amended and Restated Credit
Agreement dated August 6, 1996 between the Company and
Colorado National Bank, Union Bank of California, N.A.
and NationsBank of Texas, N.A. dated June 11, 1997
27 Financial data schedule
19
FIRST AMENDMENT OF
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of June 11, 1997, is by and among BASIN EXPLORATION,
INC., a Delaware corporation ("Borrower"), COLORADO NATIONAL BANK ("CNB"), UNION
BANK OF CALIFORNIA, N.A. ("Union"), and NATIONSBANK OF TEXAS, N.A. ("NBT"), in
its capacity as a Lender and as Agent for Lenders. CNB, Union and NBT are herein
collectively referred to as "Lenders."
RECITALS
A. Borrower and Lenders entered into an Amended and Restated Credit
Agreement dated as of August 6, 1996 (the "Credit Agreement'), in order to set
forth the terms upon which Lenders would make loans to Borrower and issue
letters of credit at the request of Borrower and by which such loans and letters
of credit would be governed. Capitalized terms used herein without definition
shall have the same meanings as set forth in the Credit Agreement.
B. The parties hereto wish to enter into this Amendment in order to amend
certain terms and provisions of the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. CREDIT AGREEMENT. Effective as of the date of this Amendment, the Credit
Agreement shall be, and hereby is, amended as follows:
(a) The following new definitions shall be inserted in proper alphabetical
order in Section 1.1 of the Credit Agreement:
"REGULAR BORROWING BASE" means, at any time during the time period
from June 12, 1997 to the date as of which the November 1, 1997
redetermination of the Borrowing Base becomes effective, $25,000,000,
unless Borrower and Lenders hereafter mutually agree upon a different
amount.
"SUPPLEMENTAL BORROWING BASE" means, at any time during the time
period from June 12, 1997 to the date as of which the November 1, 1997
redetermination of the Borrowing Base becomes
<PAGE>
effective, the excess of the Borrowing Base over the Regular Borrowing
Base.
(b) The definition of "Base Rate Spread" in Section 1.1 on page 1 of the
Credit Agreement shall be deleted, and the following shall be substituted
therefor:
"BASE RATE SPREAD" means: (a) for any and all calendar months that the
Capitalization Ratio is greater than or equal to 50 percent, 0.25
percentage points per annum; and (b) for any and all calendar months that
the Capitalization Ratio is less than 50 percent, 0.00 percentage points
per annum; provided that, as to any time period during which the
then-outstanding principal balance of the Loan plus the face amount of all
Letters of Credit outstanding hereunder exceeds the Regular Borrowing Base,
the amount set forth in clause (a) above shall be increased to 0.75
percentage points per annum and the amount set forth in clause (b) above
shall be increased to 0.50 percentage points per annum.
(c) The definition of "Borrowing Base" in Section 1.1 on page 3 of the
Credit Agreement shall be deleted, and the following shall be substituted
therefor:
"BORROWING BASE" means, at any time, the aggregate loan value of the
Borrowing Base Properties, as determined by Lenders in accordance with the
provisions of Section 3.2 below; provided that, for the time period from
the date of this Agreement through June 11, 1997, the Borrowing Base shall
be $25,000,000; provided further that, for the time period from June 12,
1997 to the date as of which the November 1, 1997 redetermination of the
Borrowing Base becomes effective, the Borrowing Base shall be $32,500,000
unless Borrower and Lenders hereafter mutually agree upon a different
amount or unless the Borrowing Base is redetermined pursuant to Section 3.2
below prior to such redetermination date.
(d) The definition of "Fixed Rate Spread" in Section 1.1 on page 7 of the
Credit Agreement shall be deleted, and the following shall be substituted
therefor:
"FIXED RATE SPREAD" means: (a) for any and all calendar months that
the Capitalization Ratio is greater than or equal to 50 percent, 1.25
percentage points per annum; (b) for any and all calendar months that the
Capitalization Ratio is less than 50 percent but greater than or equal to
40 percent, 1.00 percentage point per annum; (c) for any
2
<PAGE>
and all calendar months that the Capitalization Ratio is less than 40
percent but greater than or equal to 30 percent, 0.75 percentage point per
annum; and (d) for any and all calendar months that the Capitalization
Ratio is less than 30 percent, 0.625 percentage point per annum; provided
that, as to any time period during which the then-outstanding principal
balance of the Loan plus the face amount of all Letters of Credit
outstanding hereunder exceeds the Regular Borrowing Base, the amount set
forth in clause (a) above shall be increased to 1.75 percentage points per
annum, the amount set forth in clause (b) above shall be increased to 1.50
percentage points per annum, the amount set forth in clause (c) above shall
be increased to 1.25 percentage points per annum and the amount set forth
in clause (d) above shall be increased to 1.125 percentage points per
annum.
(e) Section 3.6(a) on pages 22 and 23 of the Credit Agreement shall be
deleted, and the following shall be substituted therefor:
Section 3.6. FEES. (a) Borrower shall pay to Agent, on behalf of
Lenders (and Agent shall pay each Lender its respective Proportionate Share
thereof on the Business Day that any such payment is deemed to be received
from Borrower), within 30 days after the end of each three-month period
ending on the last day of January, April, July or October during the
Revolving Period, commencing with the three-month period ending October 31,
1996, a commitment fee, computed on a daily basis for such three-month
period, in an amount equal to: (i) the Commitment Fee Rate, times (ii) the
excess of the Commitment Amount over the sum of the outstanding principal
balance of the Loan plus the face amount of all Letters of Credit
outstanding hereunder; provided that, for the time period from June 12,
1997 to the date as of which the November 1, 1997 redetermination of the
Borrowing Base becomes effective, such fee shall be calculated as follows:
(1)(A) the Commitment Fee Rate, times (B) the excess of the Regular
Borrowing Base over the sum of the outstanding principal balance of the
Loan plus the face amount of all Letters of Credit outstanding hereunder;
plus (2) (A) 0.625 percentage points per annum, times (B) the excess of the
Commitment Amount over the greater of: (I) the sum of the outstanding
principal balance of the Loan plus the face amount of all Letters of Credit
outstanding hereunder; or (II) the Regular Borrowing Base.
3
<PAGE>
(f) The next-to-last sentence of Section 5.1(m) on page 30 of the Credit
Agreement shall be amended to read as follows: "Borrower has no subsidiaries
other than Basin Offshore Oil & Gas, Inc., wholly-owned subsidiary."
(g) In Borrower's address in Section 9.3 on page 53 of the Credit
Agreement, "Suite 1800" shall be changed to "Suite 3400".
(h) At the end of the paragraph numbered 4 on the Disclosure Schedule
(Schedule 2 of the Credit Agreement), the following shall be inserted: "On or
about August 31, 1996, a partial plan termination relating to accelerated
vesting occurred with respect to Borrower's 401(k) plan."
2. LOAN DOCUMENTS. All references in any document to the Credit Agreement
shall refer to the Credit Agreement, as amended and supplemented pursuant to
this Amendment.
3. CONDITIONS PRECEDENT. The obligations of the parties under this
Amendment are subject, at the option of Lenders, to the prior satisfaction of
the condition that Borrower shall have executed and/or delivered, or caused to
have been executed and/or delivered, to or for the benefit of Lenders, the
following (all documents to be satisfactory in form and substance to Lenders):
(a) This Amendment.
(b) Such certificates of officers of Borrower as may be required by
Lenders.
(c) Any and all other Loan Documents required by Lenders.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby certifies to Lenders
that as of the date of (and after giving effect to) this Amendment, except as
heretofore disclosed to and waived by Lenders: (a) all of Borrower's
representations and warranties contained in the Credit Agreement are true,
accurate and complete in all material respects, and (b) no Default or Event of
Default has occurred and is continuing under the Credit Agreement.
5. CONTINUATION OF THE CREDIT AGREEMENT. Except as specified in this
Amendment, the provisions of the Credit Agreement shall remain in full force and
effect, and if there is a conflict between the terms of this Amendment and those
of the Credit Agreement, the terms of this Amendment shall control. Borrower
hereby ratifies, confirms and adopts the Credit Agreement, as amended hereby.
4
<PAGE>
6. EXPENSES. Borrower shall pay all reasonable expenses incurred in
connection with the transactions contemplated by this Amendment, including
without limitation all reasonable fees and reasonable expenses of Lenders'
attorneys and all recording and filing fees, charges and expenses.
7. MISCELLANEOUS. This Amendment shall be governed by and construed under
the laws of the State of Colorado and shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns. This Amendment
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument. Delivery of
this Amendment and any and all documents to be delivered in connection herewith
by any party may be effected, without limitation, by faxing a signed counterpart
of this Amendment to NBT (any party that effects delivery in such manner hereby
agreeing to transmit promptly to NBT an actual signed counterpart).
EXECUTED as of the date first above written.
BASIN EXPLORATION, INC.
By: /s/ NEIL L. STENBUCK
----------------------------------------
Vice President/Chief Financial
Officer
COLORADO NATIONAL BANK
By: /s/ KATHRYN A. GAITER
----------------------------------------
Vice President
NATIONSBANK OF TEXAS, N.A., in its
capacity as a Lender and as Agent
for Lenders
By: /s/ DAVID A. RUBENKING
----------------------------------------
Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ RANDALL L. OSTERBERG
-----------------------------------------
Vice President
By /s/ MICHAEL E. TREGONING
-----------------------------------------
Senior Vice President
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 625
<SECURITIES> 0
<RECEIVABLES> 7,809
<ALLOWANCES> 0
<INVENTORY> 236
<CURRENT-ASSETS> 11,860
<PP&E> 129,391
<DEPRECIATION> (42,044)
<TOTAL-ASSETS> 99,381
<CURRENT-LIABILITIES> 12,088
<BONDS> 14,131
0
0
<COMMON> 108
<OTHER-SE> 68,205
<TOTAL-LIABILITY-AND-EQUITY> 99,381
<SALES> 5,754
<TOTAL-REVENUES> 5,978
<CGS> 2,671
<TOTAL-COSTS> 6,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> (863)
<INCOME-TAX> (302)
<INCOME-CONTINUING> (561)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (561)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
