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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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 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 October 31, 1999
---------------------------------------------------------------------
Common stock, $.01 par value 18,448,000 shares
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BASIN EXPLORATION, INC.
INDEX
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PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1999....................................... 3
Consolidated Statements of Operations for the
three and nine months ended September 30, 1998 and 1999....................... 5
Consolidated Statements of Changes in
Stockholders' Equity........................................................... 6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1999.................................. 7
Notes to Consolidated Financial Statements..................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risks............................................................. 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 22
Item 2. Changes in Securities and Use of Proceeds...................................... 22
Item 3. Defaults Upon Senior Securities................................................ 22
Item 4. Submission of Matters to a Vote of Security Holders............................ 22
Item 5. Other Information.............................................................. 22
Item 6. Exhibits and Reports on Form 8-K............................................... 23
SIGNATURES ............................................................................... 25
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ASSETS
(In thousands)
December 31, September 30,
1998 1999
------------------ -------------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 331 $ 534
Accounts receivable 10,036 16,056
Prepaids and other 2,752 4,324
------------------- --------------------
PROPERTY AND EQUIPMENT, at cost: 13,119 20,914
------------------- --------------------
Oil and gas properties, under the full cost
method of accounting
Proved 265,826 315,491
Unproved 34,039 30,548
Less accumulated depreciation,
depletion and amortization (113,462) (142,038)
------------------- --------------------
186,403 204,001
Furniture and equipment, net 1,408 1,396
------------------- --------------------
187,811 205,397
------------------- --------------------
OTHER ASSETS 233 537
------------------- --------------------
$ 201,163 $ 226,848
=================== ====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
December 31, September 30,
1998 1999
------------------- --------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 12,465 $ 6,768
Accrued liabilities 13,620 19,765
Current portion of long-term debt 258 21
------------------- -------------------
26,343 26,554
------------------- -------------------
LONG-TERM DEBT, net of current portion 80,000 29,000
OTHER LONG-TERM OBLIGATIONS 601 233
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,
14,151,000 and 18,697,000 shares
issued, respectively 142 187
Additional paid-in capital 113,136 183,870
Accumulated deficit (16,488) (9,022)
Common stock held in treasury, at cost,
186,000 and 257,000 shares, respectively (2,571) (3,974)
------------------- -------------------
Total stockholders' equity 94,219 171,061
------------------- -------------------
$ 201,163 $ 226,848
=================== ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
(In thousands, except per share data) September 30 September 30
1998 1999 1998 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUE:
Oil sales $ 2,545 $ 3,651 $ 7,932 $ 9,145
Gas sales 11,553 15,776 28,317 43,605
Interest and other, net 46 39 59 83
--------------- --------------- -------------- ---------------
14,144 19,466 36,308 52,833
--------------- --------------- -------------- ---------------
COST AND EXPENSES:
Lease operating expenses 1,976 2,874 6,569 8,352
Production taxes 190 270 628 537
Depreciation, depletion and amortization 8,413 9,951 21,140 29,130
General and administrative, net 1,012 1,296 2,795 3,756
Stock compensation, net 143 558 462 1,397
Interest expense 500 100 1,288 2,195
--------------- --------------- -------------- ---------------
12,234 15,049 32,882 45,367
--------------- --------------- -------------- ---------------
INCOME BEFORE INCOME TAXES 1,910 4,417 3,426 7,466
Income tax provision 668 - 1,199 -
--------------- --------------- -------------- ---------------
NET INCOME $ 1,242 $ 4,417 $ 2,227 $ 7,466
=============== =============== ============== ===============
BASIC:
Earnings per share $ 0.09 $ 0.24 $ 0.16 $ 0.48
=============== =============== ============== ===============
Weighted average shares outstanding 13,884 18,393 13,838 15,600
=============== =============== ============== ===============
DILUTED:
Earnings per share $ 0.09 $ 0.23 $ 0.16 $ 0.47
=============== ================ ============= ===============
Weighted average shares outstanding 14,199 19,009 14,320 15,943
=============== ================ ============= ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON STOCK PAID-IN TREASURY STOCK (ACCUM.
(In thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT) EQUITY
- ----------------------------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1998 13,833 $ 138 $ 110,627 (120) $ (1,412) $ 12,012 $ 121,365
Issuance of common stock 130 2 627 - - - 629
Exercise of warrants for
common stock 79 1 1,107 (62) (1,108) - -
Purchase of treasury stock - - - (4) (51) - (51)
Issuance and vesting of
restricted stock 109 1 775 - - - 776
Net income (loss) - - - - - (28,500) (28,500)
---------- ---------- ----------- ---------- ---------- ----------- ------------
BALANCES, December 31, 1998 14,151 142 113,136 (186) (2,571) (16,488) 94,219
Issuance of common stock 4,416 44 67,822 - - - 67,866
Common stock offering costs - - (465) - - - (465)
Purchase of treasury stock - - - (20) (355) - (355)
Issuance and vesting of
restricted stock 55 - 2,330 - - - 2,330
Exercise of warrants for
common stock 75 1 1,047 (51) (1,048) - -
Net income - - - - - 7,466 7,466
---------- ---------- ----------- ---------- ---------- ----------- ------------
BALANCES, September 30, 1999 18,697 $ 187 $ 183,870 (257) $ (3,974) $ (9,022) $ 171,061
========== ========== =========== ========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMEMTS OF CASH FLOWS
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<CAPTION>
For the Nine Months Ended
September 30,
(In thousands) 1998 1999
------------ ------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,227 $ 7,466
Adjustments to reconcile net income
to net cash provided by operating activities -
Depreciation, depletion and amortization 21,140 29,130
Deferred income tax provision 1,117 -
Stock compensation expense 462 1,397
Other (14) 22
------------ ------------
24,932 38,015
Changes in operating assets and liabilities -
Decrease (increase) in -
Receivables 676 (6,630)
Prepaids and other 927 (1,426)
(Decrease ) increase in -
Accounts payable and accrued liabilities 2,722 (889)
Ad valorem taxes and other (71) (50)
Income taxes payable (19) -
------------ ------------
Net cash provided by operating activities 29,167 29,020
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (87,585) (54,728)
Deposits on offshore leases (239) (65)
Proceeds from sale of property and equipment 52 10,608
------------ ------------
Net cash used in investing activities (87,772) (44,185)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 73,000 47,500
Principle payments on notes payable and long-term debt (13,614) (98,738)
Proceeds from sale of stock, net 441 67,149
Purchase of treasury stock (23) (103)
Debt issuance costs and other - (440)
------------ ------------
Net cash provided by financing activities 59,804 15,368
------------ ------------
INCREASE IN CASH AND EQUIVALENTS 1,199 203
CASH AND EQUIVALENTS, beginning of period 531 331
------------ ------------
CASH AND EQUIVALENTS, end of period $ 1,730 $ 534
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized $ 968 $ 2,465
============ ============
Cash paid for income taxes $ 119 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
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BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED 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 September 30, 1999, and the results of operations and
cash flows for the three and nine month 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, 1998.
(2) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument including certain
derivative instruments embedded in other contracts be recorded on the balance
sheet as either an asset or liability measured at its fair value and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Basin is required to adopt
the Statement as of January 1, 2001, but may implement the Statement as of
the beginning of any fiscal quarter prior to that date. Statement 133 cannot
be applied retroactively. Basin has not yet quantified the impacts of
adopting Statement 133 or determined the timing or method of adoption.
However, Statement 133 could increase the volatility of the Company's
earnings and comprehensive income.
(3) ACCOUNTING FOR OIL AND GAS PROPERTIES
Basin follows the full cost method of accounting for oil and gas properties.
Under this method, all costs associated with the acquisition, exploration and
development of oil and gas properties are capitalized. If capitalized costs,
net of amortization and related deferred taxes, exceed the full cost ceiling,
the excess would be expensed in the period such excess occurs. Calculation of
the full cost ceiling includes an estimate of the discounted value of future
net cash flows attributable to proved reserves using various assumptions and
parameters consistent with promulgations of the Securities and Exchange
Commission, and such calculation is sensitive to changes in prevailing oil
and gas sales prices. Oil and gas prices are volatile and reflect seasonal
factors, as well as other supply and demand conditions. A decline in prices
subsequent to September 30, 1999 could result in a requirement that Basin
recognize an impairment expense in a future period.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist you in understanding our
results of operations and our present financial condition and should be read
in conjunction with the Consolidated Financial Statements and the Notes
thereto. Statements in this discussion may be forward-looking. Such
forward-looking statements involve risks and uncertainties, including those
discussed below that could cause actual results to differ significantly from
those expressed. See "Forward Looking Statements."
Basin Exploration, Inc. ("Basin" or the "Company") is a domestic independent
oil and gas company that conducts exploration, acquisition and production
activities in the shallow waters of the Gulf of Mexico and selected areas
onshore.
Basin commenced operations in 1981 and primarily acquired, developed and
exploited properties in the Denver-Julesberg ("D-J") Basin in eastern
Colorado through 1991. In 1992, we began expanding into other areas within
the Rocky Mountain region and initiated exploration activities. In 1996, we
sold our D-J Basin properties, representing approximately two-thirds of our
oil and gas properties at that time, for $123.5 million (the "D-J Sales") and
initiated operations in the Gulf of Mexico.
Since that time, the Company's principal investment activities have related
to property acquisitions, exploratory drilling, and property development in
the shallow waters of the Outer Continental Shelf in the Gulf of Mexico. To a
lesser extent, we have conducted similar activities in the Rocky Mountain
region, primarily in the Green River and Powder River Basins in Wyoming, and,
beginning in 1999, in the onshore Gulf Coast areas of Louisiana and Texas.
During the first nine months of 1999, we participated in drilling 13
exploratory wells and three development wells in the Gulf of Mexico and four
exploratory wells onshore, including wells in progress at period-end. Three
of these wells are still under evaluation. Of the 17 evaluated wells, we have
completed or plan to complete 13 wells, including nine of the exploratory
wells and all three development wells drilled in the Gulf and one exploratory
well drilled in the Green River Basin.
RESULTS OF OPERATIONS
The following operating and financial data, in conjunction with the
discussion below, is provided to assist you in understanding our results of
operations for the periods presented.
9
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRODUCTION:
Oil (MBBL) 173 236 545 624
Gas (MMCF) 5,297 7,036 12,633 20,772
Total gas equivalents (MMCFE) 6,335 8,452 15,903 24,516
REVENUE (IN THOUSANDS):
Oil sales $ 2,545 $ 3,651 $ 7,932 $ 9,145
Gas sales $ 11,553 $ 15,776 $ 28,317 $ 43,605
Total oil and gas sales $ 14,098 $ 19,427 $ 36,249 $ 52,750
AVERAGE SALES PRICE:
Oil (PER BBL) $ 14.74 $ 15.52 $ 14.55 $ 14.67
Gas (PER MCF) $ 2.18 $ 2.24 $ 2.24 $ 2.10
Total gas equivalents (PER MCFE) $ 2.23 $ 2.30 $ 2.28 $ 2.15
EXPENSES (PER MCFE):
Lease operating expenses $ 0.31 $ 0.34 $ 0.41 $ 0.34
Production taxes $ 0.03 $ 0.03 $ 0.04 $ 0.02
Depreciation, depletion and amortization $ 1.33 $ 1.18 $ 1.33 $ 1.19
General and administrative, net $ 0.16 $ 0.15 $ 0.18 $ 0.15
</TABLE>
REVENUE. Oil and gas sales for the three months ended September 30, 1999
totaled $19.4 million, representing an increase of $5.3 million, or 38%,
compared to the third quarter of 1998. This improvement was attributable to a
33% increase in net oil and gas production and a 3% increase in unit prices,
based on net equivalent unit measures. Oil and gas sales for the nine months
ended September 30, 1999 totaled $52.8 million, representing an increase of
$16.5 million, or 46%, compared to 1998. A 54% increase in net oil and gas
production was partially offset by a 6% decline in unit prices, based on net
equivalent unit measures. The increases in oil and gas production are
attributable to contributions during the nine months of 1999 from 18 Gulf of
Mexico properties compared to twelve in the prior-year period. Due to the
additional Gulf of Mexico production, which is predominantly gas, and lower
oil production from onshore properties, on which investments were deferred in
late 1998 and early 1999 due to low oil prices, gas increased from 79% of net
equivalent units produced in the first nine months of 1998 to 85% of the
Company's total oil and gas production in the first nine months of 1999.
Hedging transactions had the effect of decreasing oil and gas sales by $3.7
million, or $0.44 per Mcfe, in the three months ended September 30, 1999, as
compared to increasing oil and gas sales by $1.7 million, or $0.28 per Mcfe,
in the three months ended September 30, 1998. Hedging transactions had the
effect of decreasing oil and gas sales by $3.2 million, or $0.13 per Mcfe in
the nine months ended September 30, 1999, as compared to increasing oil and
gas sales by $2.7 million, or $0.17 per Mcfe, in the nine months ended
September 30, 1998.
LEASE OPERATING EXPENSES. Due to an increased number of producing properties
and higher production levels, lease operating expenses for the three and nine
months ended September 30, 1999 increased by $0.9 million, or 45%, and $1.8
million, or 27%, respectively, from the amounts reported for the comparable
periods in the prior year. Lease operating costs per Mcfe produced in the
three months ended September 30, 1999 increased by approximately 10% to
$0.34, from $0.31 in the comparable period of 1998. This increase in per-unit
costs was principally due to costs associated with workovers to recommence
production on onshore properties that had been shut in due to low commodity
prices. Lease operating costs per Mcfe produced during the nine months ended
September
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30, 1999 declined by approximately 17%, to $0.34, as compared to $0.41 in the
nine months ended September 30, 1998. This decrease in per-unit costs was due
to increased production in 1999 from Gulf of Mexico wells, which typically
have significantly lower average unit operating costs than our Rocky Mountain
properties.
PRODUCTION TAXES. Production taxes for the three and nine months ended
September 30, 1999 were $0.3 million and $0.6 million, representing an
increase of $80,000, or 42%, and a decrease of $91,000, or 14%, respectively,
from amounts reported for the comparable periods in 1998. The increase in the
three months ended September 30, 1999 is attributable to an 85% increase in
onshore oil and gas sales during the 1999 period as compared to 1998. The
decrease in the nine months ended September 30, 1999 was partially due to
reduced tax rates on new production and partially to revisions to previous
estimates. Production taxes as a percentage of oil and gas sales for the
three and nine months ended September 30, 1999 were 1.4 % and 1.0%, compared
to 1.3% and 1.7%, respectively in 1998, due principally to a greater portion
of sales in 1999 attributable to properties in federal waters offshore, which
are generally not subject to production taxes.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization expenses for the three and nine months ended September 30, 1999
were $10.0 million and $29.1 million, representing increases of $1.5 million,
or 18%, and $8.0 million, or 38%, respectively, compared to 1998. The
increases were attributable to the 33% and 54% increases in production
volumes for the three and nine month periods ended September 30, 1999,
relative to the comparable periods in 1998. Depletion rates of $1.16 and
$1.17 per Mcfe of production in the three and nine months ended September 30,
1999 represented a 9% decrease from the $1.28 per Mcfe average depletion rate
during the three and nine months of 1998. The lower rate is principally due
to the effects of a property impairment charge recorded in the fourth quarter
of 1998.
GENERAL AND ADMINISTRATIVE, NET. General and administrative expenses for the
three and nine months ended September 30, 1999 were $1.3 million and $3.8
million, reflecting increases of $0.3 million, or 28%, and $1.0 million, or
34%, respectively, as compared to 1998. The increases resulted primarily from
incremental costs incurred to manage our expanded operations in the Gulf of
Mexico. Percentage increases in general and administrative expenses were
smaller than increases in production, resulting in declines in general and
administrative expenses per Mcfe produced, from $0.16 and $0.18 during the
three and nine month periods ended September 30, 1998, to $0.15 in the three
and nine month periods ended September 30, 1999.
STOCK COMPENSATION, NET. Stock compensation expenses for the three and nine
months ended September 30, 1999 were $0.6 million and $1.4 million,
reflecting increases of $0.4 million and $0.9 million, compared to the same
periods of 1998. Grants of performance shares under Basin's equity incentive
plan are required to be "marked-to-market." Accordingly, the increased
expenses reflect, in part, an increase in the price of the Company's common
stock from $12.56 per share at December 31, 1998 to $24.00 per share at
September 30, 1999.
INTEREST EXPENSE. Interest expenses for the three and nine months ended
September 30, 1999 totaled $0.1 million and $2.2 million, representing a
decrease of $0.4 million, or 80%, and an increase of $0.9 million or 70%,
respectively, as compared to 1998. The fluctuations were attributable to
changes in average borrowings, average interest rates and amounts capitalized
to unproved property costs in accordance with Statement of Financial
Accounting Standards No. 34. During the three months ended September 30,
1999, Basin had average outstanding debt of $33.0 million, with an average
effective interest rate of 6.3%, compared to average debt of $65.5 million
and an average interest rate of 6.5% in the comparable 1998 period. During
the nine months ended September 30, 1999, Basin had average
11
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outstanding debt of $71.8 million, with an average effective interest rate of
6.6%, compared to average debt of $45.0 million and an average interest rate
of 6.6% in the comparable 1998 period. Interest costs of $0.4 million and
$1.5 million were capitalized during the three and nine months ended
September 30, 1999, as compared to $0.6 million and $1.0 million for the
three and nine months ended September 30, 1998.
INCOME TAX BENEFIT (PROVISION). The income tax provisions for 1998
approximate the amounts that would be calculated by applying statutory income
tax rates to income before income taxes. No income tax provision has been
recorded in 1999 due to an equivalent decrease in the previously established
deferred tax asset valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Basin's principal sources of capital have been cash flow from
operations, a revolving line of credit established with a group of banks (the
"Credit Facility"), proceeds from asset sales, and proceeds from sales of
common stock. Our principal uses of capital have been for acquisition,
exploration and development of oil and gas properties.
During June 1999, Basin realized net proceeds of approximately $66.6 million
from the sale of 4.313 million shares of its common stock through an
underwritten public offering. Initially, proceeds from this equity sale were
used to repay a portion of debt outstanding under the Credit Facility.
However, with the net proceeds from the stock offering and approximately $9
million realized from asset sales in the first half of 1999, we increased our
1999 budget for exploration and development from $65 million to $95 million.
We estimate that this budget expansion will enable us to increase our
exploratory drilling activities during the year by approximately 50% compared
to planned activities under our initial 1999 budget, and compared to our
drilling activity during 1998. Although we also pursue acquisitions of
properties with proved and probable reserves as an integral part of our
overall business strategy, we do not budget for such transactions. We plan to
continue to monitor and potentially adjust our budget to reflect changes in
the general business environment, variances from assumptions, or specific
business opportunities.
Net cash provided by operations before changes in working capital totaled
$38.0 million during the nine months ended September 30, 1999, including
$14.9 million related to the most recent fiscal quarter. Other sources of
funds during the first nine months of 1999 included $67.1 million of proceeds
from issuances of common stock and $10.6 million of asset sales. Funds were
utilized for accrual-basis capital expenditures of $57.3 million, net
repayment of $51.2 million of debt, and a $7.6 million increase in net
working capital. As of September 30, 1999, the Company had a working capital
deficit of approximately $5.6 million, long-term debt of $29.0 million, and
stockholders' equity of $171.1 million. The borrowing base presently
established under our Credit Facility is $90 million, of which $61 million
was unutilized as of September 30, 1999.
PRODUCTION. Our cash flow from operations is generally determined by our
production level and oil and gas prices. Since 1996, we have made significant
investments to initiate and then expand our operations in the Gulf of Mexico.
These investments have resulted in an increase in our production from an
average of 11.2 MMcfe per day in the second quarter of 1997, prior to
commencement of Gulf of Mexico production, to an average of 101.9 MMcfe per
day in the second quarter of 1999 and 91.8 MMcfe per day in the third quarter
of 1999. The decrease in production from the second quarter of 1999 to the
third quarter of the year was principally attributable to natural decline
rates only partially offset by initial contributions from additional
properties, and unanticipated reductions in production
12
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from three high-rate properties due to mechanical problems. One mechanical
problem, a pipeline leak, was repaired during the third quarter. We expect to
address another, related to a casing cement failure, through drilling a
side-track well late in the current quarter or in early 2000. The third
mechanical issue related to production of reservoir sand along with natural
gas and condensate, and resulted in an elective reduction of the well's
production rate that successfully eliminated the sand production. We expect
our average production rate in the fourth quarter of 1999 to be approximately
at the level we reported for the third quarter of the year, provided no
unanticipated production disruptions or rate reductions occur. We anticipate
achieving higher production rates next year, based primarily on expected
contributions from properties with proved reserves that are currently either
producing or under development, and also on anticipated additions from
continuing exploration activity. See "Forward Looking Statements" for a
description of the kinds of risks that would cause such results not to occur.
As of November 1, 1999, we owned interests in 25 properties in the Gulf of
Mexico with proved reserves, including six that were under development for
first production. One of the properties under development, Vermilion Block
83, is expected to begin producing from three wells later in November 1999.
The remaining five properties presently under development are expected to
have first production established at various times during the year 2000.
Although we believe these projections are reasonable, there is no assurance
that they will be met. See "Forward Looking Statements" for a description of
certain risks that may impact our ability to achieve projected results.
MARKETING AND HEDGING TRANSACTIONS. Basin's production is generally sold
under month-to-month contracts at prevailing prices. From time to time,
however, as conditions are deemed to warrant, we have entered into hedging
transactions or fixed price sales contracts for a portion of our oil and gas
production. The purposes of these transactions are to limit Basin's exposure
to future oil and gas price declines and to achieve a more predictable cash
flow. However, such contracts may also limit the benefits we would realize if
prices increase. Hedging transactions had the effect of decreasing oil and
gas sales by $3.7 million, or $0.44 per Mcfe, in the three months ended
September 30, 1999, as compared to increasing oil and gas sales by $1.7
million, or $0.28 per Mcfe, in the three months ended September 30, 1998.
Hedging transactions had the effect of decreasing oil and gas sales by $3.2
million, or $0.13 per Mcfe, in the nine months ended September 30, 1999, as
compared to increasing oil and gas sales by $2.7 million, or $0.17 per Mcfe,
in the nine months ended September 30, 1998.
Through November 5, 1999, Basin had entered into the following fixed price
swap and collar arrangements covering the period beginning October 1, 1999
(one MMBtu approximates one Mcf of gas). The positions shown are the net of
hedging contracts entered into that contractually offset certain previously
established swap arrangements at price levels that we anticipate will reduce
revenue in the fourth quarter of 1999 by approximately $0.3 million.
<TABLE>
<CAPTION>
GAS SWAPS OIL COLLARS
------------------------------------ --------------------------------
Average Daily Average NYMEX Average Daily NYMEX NYMEX
Time Period Volume (MMBtu) Price/MMBtu Volume (Bbl) Floor Price/Bbl Ceiling Price/Bbl
- ------------------ --------------- ------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
10/1/99-12/31/99 18,300 2.09 1,000 14.00 16.00
1/1/00-12/31/00 3,300 2.15
1/1/01-12/31/03 10,000 2.15
</TABLE>
In addition, we have periodically entered into spread trades or options
transactions related to oil or gas futures markets. Under a spread trade,
fixed prices under a hedging contract are determined in the future by
reference to the price of an underlying contract. Such positions may enable
us to lock in favorable fixed prices for future hedging positions, but can
also result in unfavorable fixed price
13
<PAGE>
contracts if the reference price declines. As of November 5, 1999, Basin had
an outstanding gas spread trade that provides for a fixed price for 10,000
MMBtu per day for the period of March 2000 through October 2000 to be
established in the future, when so elected by Basin, at a price equal to the
New York Mercantile Exchange February 2000 contract price less $0.41. As of
November 5, 1999, we had also sold the following call options: 20,000 MMBtu
of gas per day for the period from October 1999 through November 1999, at a
strike price of $1.95 per MMBtu; 10,000 MMBtu of gas per day for the period
from October 1999 through December 2001, at an average strike price of $2.50
per MMBtu; and 1,000 barrels of oil per day for the period from October 1999
through December 1999, at a strike price of $16.75 per barrel.
REVOLVING LINE OF CREDIT. Effective January 1, 1999, and as amended in
October 1999, we entered into a Credit Facility with our bank group that
provides for borrowings of up to $150 million. Interest rates applied to
borrowings under the Credit Facility are determined by reference to the prime
rate or LIBOR, at our election. A varying spread of 0% to 0.25% is added to
the prime rate, or a spread of 0.75% to 1.5% is added to LIBOR, based on our
facility usage ratio. Our Credit Facility contains various covenants,
including limitations on our ability to incur other debt, dispose of assets,
pay dividends, or repurchase stock. Pursuant to our Credit Facility,
substantially all of our producing properties are subject to mortgages in
favor of the banks and our remaining properties are subject to a negative
pledge.
Our Credit Facility provides for borrowings to be revolving loans until
November 30, 2001, at which time the outstanding balance will be converted
into a four-year amortizing term loan unless the Credit Facility is amended.
The borrowing base under the Credit Facility is scheduled to be re-determined
at six-month intervals until the revolving loan is converted into a term
loan. The borrowing base is currently established at $90 million and the next
re-determination of the borrowing base under the Credit Facility is scheduled
to occur as of December 1, 1999. Borrowing base re-determinations conducted
by the bank group reflect a number of estimates and assumptions including,
but not limited to, future production from Basin's proved properties, risk
factors for estimates of proved reserves, future oil and gas prices, future
operating and development costs, and future interest rates. Changes in such
estimates and assumptions can significantly impact the size of the borrowing
base established by the banks. Because these factors will be influenced by
future events that cannot be forecast with certitude, we cannot predict what
level of borrowing base will be established at any future determination date.
The weighted average interest rate on borrowings outstanding under the Credit
Facility at September 30, 1999 was 6.1%. Our annual interest costs will
fluctuate based upon changes in short-term interest rates and borrowings
outstanding. Assuming debt outstanding remained unchanged from the amount
outstanding at September 30, 1999, the annual impact on interest expense of a
ten percent change in the average interest rate would be approximately $0.2
million, before amounts capitalized. As the interest rate is variable and is
reflective of current market conditions, the carrying value of Basin's debt
approximates its fair value.
CAPITAL EXPENDITURES. Since the beginning of 1996, our primary exploration
activities have been focused in the shallow waters of the Gulf of Mexico,
predominantly off the coast of Louisiana. During the second half of 1998, we
began to direct a small portion of our exploration budget toward onshore
opportunities. We also pursue acquisition and development opportunities in
the vicinity of our Gulf of Mexico exploration operations, in the Rocky
Mountain region where we have an existing base of proved reserves and
producing wells, and in certain other major domestic producing basins where
we believe significant upside potential exists. Our capital expenditures are
generally discretionary and activity levels are determined by a number of
factors, including oil and gas prices, availability of
14
<PAGE>
funds, quantity and character of identified investment projects, availability
of service providers, and competition.
Basin's initial budget for 1999 provided for capital investments of
approximately $65 million, subject to an increase for proceeds from
anticipated asset sales. With realization of net proceeds from the equity
offering completed in June 1999 and from asset sales, at mid-year we
increased our 1999 exploration and development budget to $95 million. Given
lower costs for oil field services in 1999 compared to 1998, and lower
planned current year investments to acquire prospect leaseholds, we expect
our expanded budget to result in significantly greater drilling activity in
1999 than in 1998, when our capital expenditures totaled $107 million. Our
current 1999 budget primarily provides for:
- - development of seven Gulf of Mexico properties with one or more discovery
wells that had not yet commenced sustained production at the end of 1998;
- - acquisitions of seismic data and exploratory prospect leaseholds;
- - participation in approximately nine net (18 to 20 gross) exploratory wells
in the Gulf of Mexico;
- - participation in four to eight onshore exploration opportunities, primarily
in the Greater Green River Basin in Wyoming and the onshore Gulf Coast
area;
- - development of projected 1999 exploratory discoveries; and
- - continued exploitation of our other offshore and onshore properties.
We also intend to pursue acquisitions of properties with proved and probable
reserves as an integral part of our overall business strategy, with the
expectation that these efforts will result in significant investment activity
over time. At this time, no portion of our 1999 budget has been specifically
allocated for acquisitions of proved properties. If such a transaction is
executed in the future, it may require a re-allocation of funds from other
planned activities and/or external financing.
During the first nine months of 1999, Basin's accrual-basis capital
expenditures totaled approximately $57.3 million. Such investments were
primarily for development of several Gulf of Mexico properties on which
discovery wells were drilled during the prior year, participation in drilling
16 (7.4 net) Gulf of Mexico wells and four (1.2 net) onshore exploratory
wells (including wells in progress at period-end), related completion costs
on twelve (5.0 net) of the Gulf of Mexico wells and one (0.6 net) onshore
well, and acquisitions of additional Gulf of Mexico 3-D seismic data and
leasehold interests.
Preliminarily, we anticipate establishing a budget for exploration and
development activities in year 2000 at a level comparable to our budget for
1999. We expect to be able to fund our planned exploration and development
activities during the balance of 1999 and in year 2000 primarily utilizing
cash flow, working capital, and additional borrowings under the Credit
Facility. However, the amount and allocation of future capital expenditures
will depend on a number of factors that are not entirely within Basin's
control or ability to forecast, including drilling results, scheduling of
activities by other operators, availability of service providers, success in
acquiring prospect leaseholds, and success in consummating acquisitions of
proved properties. Basin's planned capital expenditures are also based on
estimates regarding availability of capital that depend on assumptions and
estimates regarding production, oil and gas prices, and borrowing base
re-determinations under our Credit Facility. Due to
15
<PAGE>
these uncertainties, our actual capital expenditures may vary significantly
and funding sources may differ from current expectations. See "Forward
Looking Statements."
YEAR 2000 READINESS DISCLOSURE AND STATEMENT
Readers are cautioned that the forward-looking statements contained in the
following Year 2000 discussion should be read in conjunction with Basin's
disclosures under the heading "Summary--Forward-Looking Statements."
Year 2000 issues result from the inability of many computer programs to
accurately calculate, store or use a date subsequent to December 31, 1999.
The date can be erroneously interpreted in a number of different ways;
typically the year 2000 is interpreted as the year 1900. This could result in
a system failure or miscalculations causing disruptions of or errors in
operations. Systems potentially affected include not only information
technology systems--computer systems controlling a company's accounting,
land, operations, seismic processing, and other specialized functions--but
also non-information technology systems controlled by embedded chips, which
include many common and specialized machines and support systems. The effects
of the Year 2000 problem can be exacerbated by the interdependence of
computer and telecommunications systems in the United States and throughout
the world. This interdependence can affect us and the parties with whom we do
business.
STATE OF READINESS. We have created an internal committee to assess our Year
2000 readiness and to lead our remediation efforts. The committee is composed
of the general counsel, chief financial officer, controller, and manager of
information systems. The committee's objective is to prevent loss or
impairment of those functions material to Basin's operations and business
continuity or to avoid potential liability to third parties. At the direction
of the committee, department heads and managers have assessed and remediated
our information technology and non-information technology systems, and have
communicated with our business partners regarding the status of their
assessment and remediation efforts, with the results summarized below.
We have completed an assessment of our information technology systems to
determine whether they are Year 2000 compliant. The licensors of both our
core financial, land and operations software system and the underlying
operating system have certified that such software is Year 2000 compliant.
Our Gulf of Mexico seismic data interpretation software system has been
upgraded to software that has been represented to be Year 2000 tested. Basin
will be upgrading our reservoir economics software in the first quarter of
2000 with a Year 2000 compliant-system. We do not expect any impact on the
functionality of our existing reservoir economics system from Year
2000-related issues because we will not be using any 2000 production data
before the upgrade is complete and because we understand that industry has
tested the existing system adequately to confirm the absence of Year 2000
issues. Additionally, we have assessed other less critical information
technology systems and we believe them to be compliant.
We also rely on non-information technology systems, such as office
telephones, facsimile machines, HVAC systems and elevators in our leased
offices, security systems, and automated measuring equipment on platforms and
other production facilities, which may have embedded technology such as
micro-controllers. Department heads and managers have identified those
non-information technology systems that may be susceptible to failure or
impairment by reason of Year 2000 problems and that are potentially critical
to our operations and business continuity. Based on that review, Basin has
sent written inquiries to the suppliers of those systems to determine the
status of their Year 2000 compliance. Our communications systems vendors, and
the property managers of our Houston and
16
<PAGE>
Denver office buildings, have reported their systems to be Year 2000
compliant, although the Houston building is still awaiting results of an
outside audit to confirm their internal analysis. We have received responses
from virtually all vendors of non-information technology systems that may
affect our production operations, and on the basis of those responses believe
those systems to be compliant.
We have sent written inquiries to our significant suppliers, customers (i.e.,
production purchasers and transporters), banks, government agencies, benefit
plan providers, and others with whom we have significant business
relationships to determine the extent to which we are vulnerable to those
third parties' failure to correct their own Year 2000 issues. For Gulf of
Mexico and onshore operations these include representative vendors and
suppliers who could supply necessary goods and services to maintain our
production operations and continue any ongoing or planned drilling
activities. As of the date of this report, the following summarizes the
responses we have received:
(a) We sent inquiries for Gulf of Mexico operations to 115 vendors
and 114 have responded with written or verbal confirmation that they are Year
2000 compliant. Most qualify that statement with the caveat that they cannot
certify the compliance of their material third-party business partners,
although all have confirmed their communication with those partners and their
receipt of some degree of assurance from them. The Minerals Management
Service of the United States Department of the Interior, which is the primary
permitting and supervisory agency over our Gulf of Mexico operations, has
reported that it is Year 2000 compliant.
(b) For onshore operations we sent inquiries to 22 representative
vendors and suppliers and all have responded with confirmation that they are
Year 2000 compliant. We are continuing to inquire of various government
agencies having jurisdiction over our operations to confirm their compliance.
(c) We sent 35 inquiries to production purchasers and pipeline
companies with whom we are currently doing business or expect to do business
with respect to the gathering, treatment, processing, and marketing of our
production, and we have received 30 responses confirming either current Year
2000 compliant or anticipated compliance by late 1999. We are continuing to
follow up with those that have not responded. All interstate pipelines have
certified their compliance, subject, as with our vendors, to the assumption
that the third-party systems on which they rely will be compliant. All the
pipelines have extensive contingency plans and back-up systems in place to
attempt to insure that production continues to flow and that communications
continue uninterrupted. We are continuing to discuss Year 2000 readiness with
our remaining customers to assess their compliance but believe that there is
no purchaser of any material portion of our production that will not be Year
2000 compliant (subject always to the compliance of their business partners).
(d) With respect to our corporate and administrative operations, our
bank group, service providers (such as payroll processing), insurance agents
and underwriters, and benefit plan providers have confirmed their Year 2000
compliance or their expectation that they will be compliant by year end 1999.
We will continue to monitor their compliance efforts.
ESTIMATED COMPLIANCE COSTS. We have relied primarily on our internal staff to
assess our current Year 2000 readiness and do not anticipate extensive use of
external resources to complete our assessment or remediation. We have not
separately quantified our costs of internal resources on this project but do
not expect that we will incur material costs in remediating our information
technology systems to be Year 2000 compliant. Costs incurred for the purchase
of new software and hardware are capitalized and all other costs are expensed
as incurred. We have not incurred, and do not anticipate that we will incur,
costs for external resources in excess of $100,000 relating to the assessment
and remediation of Year 2000 issues. That estimate does not include the cost
of remediating problems caused by
17
<PAGE>
third-party vendors, customers, or other business partners, which Basin will
not be able to fairly estimate until the extent, if any, of their Year 2000
non-compliance is known.
RISKS OF NON-COMPLIANCE AND CONTINGENCY PLANS. As indicated above, we do not
expect Year 2000 issues to cause our information technology systems to have
any material adverse impact on our business, operations or financial
condition. We believe that the potential impact, if any, of our non-critical
information technology systems not being Year 2000 compliant will at most
require employees to manually complete otherwise automated tasks or
calculations and should not impact our ability to continue exploration,
drilling, production or sales activities. We are not able to predict at this
time what the impact could be of non-information technology system failures
but do not believe that there will be a material disruption of our operations.
In light of the responses we have received to date from our business
partners, we do not believe there is a likelihood of a material impact on our
operations, business, or financial condition from the failure of a business
partner to be Year 2000 compliant. The most reasonably likely "worst case"
impacts could be impairment of our ability to deliver our production to, or
receive payment from, third parties gathering and/or purchasing our
production from individual affected facilities; impairment of the ability of
third-party suppliers or service companies to provide needed materials or
services to our planned or ongoing operations, thereby necessitating deferral
or shut-in of exploration, development or production operations; inability to
execute financial transactions with our banks or other third parties whose
systems fail or malfunction; or inability to process permit applications or
operations plans with government agencies that may delay our ability to
conduct planned activities. We have no reason to believe that any of these
contingencies will occur or that our principal vendors, customers, and
business partners will not be Year 2000 compliant.
Basin's gas production purchase contracts do not contain firm delivery
obligations. Offshore production is generally delivered on an interruptible
basis through monthly spot contracts, which permit deliveries to be
interrupted for any reason. These contracts also permit purchasers to refuse
to take contracted quantities for any reason, so disruption of a purchaser's
system for Year 2000-related reasons could result in a purchaser's failure to
take gas tendered by Basin. Either circumstance (i.e., failure of Basin to
deliver or of a purchaser to take) should not result in contractual liability
to cover the cost of acquiring replacement gas. Pipeline failure to any of
Basin's offshore platforms would cause shut-in of Basin's production, since
there would be no alternative available for transporting the gas.
Basin's material onshore gas contract does not commit specified volumes but
only those that are produced, and it is the gas purchaser that owns the
pipeline system into which most of this gas is delivered. Accordingly,
whether a production failure is well-related or pipeline related should not
in either event result in liability of Basin to the gas purchaser.
If Basin is unable to deliver gas offshore because of a failure of equipment
on a platform, Basin could incur a daily imbalance penalty pursuant to
pipeline tariff. However, electronic measuring equipment is generally owned
and maintained by the pipeline, not by Basin, so a failure in such equipment
should not expose Basin to penalty claims by the pipeline. Further, in most
cases such penalties are calculated on a monthly basis, are not imposed for
imbalances caused by force majeure circumstances, and can be avoided by
prompt nomination revisions when problems become apparent. All of Basin's
platforms are equipped with safety systems which will immediately shut-in
production if any pipeline fails to function. Similarly, all platforms
(except West Cameron Block 45, which is manned 24 hours a day) are equipped
with alarm systems which are Year 2000 compliant and which will result in
notification to Basin of any shut-in. Basin will have its marketing and
operations personnel available and
18
<PAGE>
monitoring its platforms over the holiday weekend, and all pipelines and
purchasers have indicated that they will similarly have personnel and back-up
systems in place to prevent shut-ins, act quickly to alleviate interruptions,
and insure continuity of communications. Accordingly, Basin expects to be
able to respond quickly to any production interruption, which at a minimum
will permit nomination changes if necessary to avoid imbalance penalties and
will facilitate remedial action to restore production. Basin does not,
therefore, expect to incur material imbalance penalties for production
failures.
Basin does not use electronic meters to measure its gas production onshore,
and thus there should be no disruption of gas measurement or any
corresponding billing. Although electronic measuring equipment is used
offshore, Basin's platforms are also equipped with mechanical check meters
which can be used to provide integrated charts as alternative readings for
the duration of electronic malfunction. Basin's contracts also permit billing
based on nominations if actual measurements are not available. Accordingly,
Basin does not expect its gas billings to be materially disrupted by Year
2000-related measurement problems. It is possible that purchaser payments
could be delayed by failures in their internal systems, but Basin's material
gas purchasers have confirmed to us their system readiness.
With respect to oil production, once again Basin does not have firm
contractual delivery obligations and thus would not incur liability for
failure to deliver volumes to a purchaser for Year 2000-related reasons.
Basin's crude oil and condensate barrels are transported from offshore
platforms to onshore delivery points via pipelines, and there is no
alternative delivery system available if a pipeline shuts in. Because of the
automatic shut-in system on Basin's platforms, no such pipeline shut-in
should result in an oil spill, because production would cease. Onshore
production is stored in tanks at the leases or at central field gathering
points, which are emptied periodically by truck or pipeline. Basin plans to
maximize its onshore crude oil deliveries within the last two weeks of the
year to minimize the impact of any year-end disruption.
For crude oil and condensate production, Basin's mechanical platform meters
and run tickets would provide adequate measurements for sales, although it is
possible that payments could be delayed either because of the failure of
purchaser payment systems or of third-party allocation systems.
With respect to the conduct of operations, Basin has received Year 2000
compliance assurances from vendors in all critical field categories and
therefore does not expect to experience material disruptions. Nevertheless,
to the extent feasible, Basin intends to minimize its operations at year-end,
including drilling.
Basin's Year 2000 program is a continuing process that may result in changes
to cost estimates and schedules as testing and business partner assessment
progresses. Unexpected Year 2000 compliance problems of either Basin or our
vendors, customers, service providers, or other entities with whom we do
business could have a material adverse impact on our business, financial
condition or operating results.
19
<PAGE>
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that are not
historical facts but 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, estimates, plans or anticipates
will, should, could or may occur, including such matters as:
- - amount and nature of capital expenditures,
- - drilling of wells,
- - estimated reserves,
- - timing and amount of future production of oil and gas,
- - business strategies,
- - operating costs and other expenses,
- - cash flow and anticipated liquidity,
- - prospect development and property acquisitions,
- - marketing of oil and gas, and
- - Year 2000 compliance activities.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, we cannot assure you that any of
these expectations will prove correct or that we will take any actions that
may have been planned. Factors that could cause actual results to differ
materially are described in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this report and
also include, among others:
- - general economic conditions,
- - oil and gas price volatility,
- - our ability to find, acquire, market, develop and produce new properties,
- - the risks associated with acquisitions and exploration,
- - operating hazards attendant to the oil and gas business,
- - downhole drilling and completion risks that are generally not recoverable
from third parties or insurance,
- - the shorter reserve life and steeper decline rate that generally
characterize our Gulf of Mexico reserves in comparison to those of the
Rocky Mountain region and other onshore areas,
- - uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of development expenditures,
- - potential mechanical failure or underperformance of individually
significant wells,
- - the strength and financial resources of our competitors,
- - Basin's ability to find and retain skilled personnel,
- - climatic conditions,
- - availability of capital,
- - availability and cost of material and equipment,
- - delays in anticipated start-up dates,
- - environmental risks,
- - actions or inactions of third-party operators of Basin's properties,
- - regulatory developments, and
- - third-party Year 2000 compliance actions.
20
<PAGE>
All written and oral forward-looking statements attributable to the Company
or persons acting on its behalf are qualified in their entirety by the
factors outlined above. The Company disclaims any obligation to update or
revise any forward-looking statement in light of actual results or future
events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to interest rate risk and commodity price risk is
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations under the headings "Liquidity and Capital Resources
- -Marketing and hedging transactions" and "Liquidity and Capital Resources
- -Revolving line of credit". The Company has no exposure to foreign currency
exchange rate risks or to any other market risks.
21
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) During the period covered by this report, Basin had no sales of
securities that were not registered under the Securities Act of
1933, except the issuance of 21,911 shares of common stock
pursuant to the cashless exercise of warrants issued by us on
November 30, 1994 covering a total of 70,589 shares. Warrants
covering a total of 97,473 shares of Basin common stock remain
outstanding at September 30, 1999. The warrants expire on December
31, 1999. The warrants (and the shares issued pursuant to exercise
of the warrants) were issued in reliance upon the exemption from
registration under Section 4(2) of the Securities Act of 1933, as
amended, relative to sales by an issuer not involving a public
offering.
(d) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger between Sterling Energy Corporation,
Basin Energy, Inc. and Basin Exploration, Inc. dated October 13,
1994(5)
2.2 Plan of Merger between Basin Sterling, Inc. and Basin Exploration,
Inc. dated November 22, 1994(5)
2.3 Plan of Merger between Basin Operating Company and Basin
Exploration, Inc. dated December 14, 1994.(7)
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 May 12, 1999.(15)
10.2 Key Employee Participation Plan.(2)
10.3 Employment Agreement dated March 31, 1992 by and between Basin and
Michael S. Smith.(3)
10.4 Gulf Coast Geoscientist Overriding Royalty Interest Plan as
amended November 10, 1999.(1)
10.5 Onshore Geoscientist Overriding Royalty Interest Plan dated August
24, 1999.(1)
10.6 Form of Rights Agreement dated as of February 24, 1996, between
Basin Exploration, Inc. and Corporate Stock Transfer, Inc. as
Rights Agent.(8)
10.7 Performance Shares Plan approved February 4, 1997.(10)
10.8 Change of Control Employment Agreement dated October 13, 1995
between Basin Exploration, Inc. and Howard L. Boigon.(9)
10.9 Amendment to Change of Control Employment Agreement dated June 2,
1999 between Basin Exploration, Inc. and Howard L. Boigon.(15)
10.10 Employment Agreement dated August 28, 1995 between Basin
Exploration, Inc. and Samuel D. Winegrad.(9)
10.11 Change of Control Agreement dated August 28, 1997 between Basin
Exploration, Inc. and Samuel D. Winegrad.(15)
10.12 Employment Agreement dated June 28, 1995 between Basin
Exploration, Inc. and Neil L. Stenbuck.(9)
10.13 Change of Control Agreement dated August 1, 1997 between Basin
Exploration, Inc. and Neil L. Stenbuck.(1)
10.14 Employment Agreement dated November 10, 1995 between Basin
Exploration, Inc. and David A. Pustka.(9)
10.15 Employment Agreement dated February 1, 1999, between Basin
Exploration, Inc. and David A. Pustka.(14)
10.16 Employment Agreement dated February 23, 1996 between Basin
Exploration, Inc. and Thomas J. Corley.(10)
10.17 Employment Agreement dated January 28, 1999, between Basin
Exploration, Inc. and Patrick A. Jackson.(14)
10.18 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, LP, as Landlord.(8)
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
10.19 Lease of Office Space dated September 25, 1992, between Brookfield
Republic Inc. and Basin Operating Company, as amended(4)+
10.20 First Lease of Additional Office Space dated as of December 1,
1994, between Brookfield Republic, Inc. and Basin Operating
Company.(6)+
10.21 Order of the United States Bankruptcy Court for the Southern
District of Texas Corpus Christi Division, dated November 18,
1997, with exhibits, including the Agreement of Purchase and
Sale.(11)
10.22 Second 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 November 1, 1997(11)
10.23 Third Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and U.S. Bank National
Association, Union Bank of California, N.A. and NationsBank of
Texas, N.A. dated April 30, 1998(12)
10.24 Fourth Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and U.S. Bank National
Association, Union Bank of California, N.A. and NationsBank, N.A.,
dated August 20, 1998(14)
10.25 Amended and Restated Credit Agreement dated January 1, 1999 among
the Company and NationsBank, N.A., U.S. Bank National Association
and Union Bank of California, N.A.(14)
10.26 First Amendment of Amended and Restated Credit Agreement dated
July 1, 1999 among the Company, NationsBank, N.A., U.S. Bank
National Association and Union Bank of California, N.A.(15)
10.27 Second Amendment of Amended and Restated Credit Agreement dated
October 15, 1999 among the Company and U.S. Bank National
Association, Union Bank of California, Toronto Dominion (Texas),
Inc. and Bank of America National Trust and Savings Association.(1)
27 Financial Data Schedule(1)
</TABLE>
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 10-K filed on March 28, 1995,
and incorporated herein by reference.
8 Filed as an Exhibit to Form 8-K filed on February 26, 1996,
and incorporated herein by reference.
9 Filed as an Exhibit to Form 10-K filed on March 28, 1996,
and incorporated herein by reference.
10 Filed as an Exhibit to Form 10-K filed on March 31, 1997,
and incorporated herein by reference.
11 Filed as an Exhibit to Form 8-K filed on December 11, 1997,
and incorporated herein by reference.
24
<PAGE>
12 Filed as an Exhibit to Form 10-Q filed on May 14, 1998, and
incorporated herein by reference.
13 Filed as an Exhibit to Form 10-Q filed on November 13,
1998, and incorporated herein by reference.
14 Filed as an Exhibit to Form 10-K filed on March 30, 1999,
and incorporated herein by reference.
15 Filed as an Exhibit to Form 10-Q filed on August 16, 1999,
and incorporated herein by reference.
+ Confidential treatment has been granted for portions of
these Exhibits.
(b) Reports on Form 8-K
None
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: November 12, 1999 By: /s/ Neil L. Stenbuck
---------------------------
Neil L. Stenbuck
Chief Financial Officer
Date: November 12, 1999 By: /s/ James A. Tuell
---------------------------
James A. Tuell
Controller and
Chief Accounting Officer
25
<PAGE>
BASIN EXPLORATION, INC.
GULF COAST GEOSCIENTIST
OVERRIDING ROYALTY INTEREST PLAN
(Amended November 10, 1999)
This Gulf Coast Geoscientist Overriding Royalty Interest Plan (the "Plan")
shall set forth the terms of the program established by Basin Exploration,
Inc. ("Basin") for assignment of overriding royalty interests into
geoscientists Basin employs to explore for oil and gas in the offshore area
of the Gulf of Mexico.
1. PLAN PARTICIPANTS. The persons covered by this Plan (individually a
"Participant" and collectively the "Participants") shall be the Vice
President of Gulf Coast Exploration and any geologist, geophysicist, or
other geoscientist employed by Basin as a member of Basin's Gulf Coast
offshore exploration group, and approved for inclusion in this Plan by
the President (or other Chief Executive Officer of Basin) and the Vice
President of Gulf Coast Exploration. A Participant's participation in
the Plan shall not be effective until it is confirmed in writing by the
President or Chief Executive Officer delivered to the Participant
("Confirmation").
2. INTERESTS VESTED. A Participant shall become vested in Overriding
Royalty Interests (as hereinafter defined) as of the date and time when
a lease or other interest therein covering oil and gas in the area
described in paragraph 4 below is acquired (whether by purchase, farmin
or in any other manner) by Basin, its investors or program
participants, and/or by third parties acquiring therein interests by,
through or under Basin and/or its investors or program participants
(individually, a "Burdened Party" and collectively the "Burdened
Group") provided that the Participant is an employee of Basin at the
time of such acquisition. For purposes of this paragraph, a lease
acquired at a lease sale pursuant to a bid submitted by Basin or a
Burdened Party acting pursuant to an agreement with Basin shall be
deemed acquired on the date of the lease sale if the lease is awarded
to Basin or a Burdened Party pursuant to that lease sale; a lease
acquired pursuant to a farm-in or other agreement shall be deemed
acquired on the date the agreement has been executed by all parties;
and a lease with developed reserves acquired by the Burdened Group as
described in paragraph 4 shall be deemed acquired for purposes of this
paragraph as to undeveloped reserves upon the circulation of an AFE for
the drilling, or other operation intended to explore for such
undeveloped reserves.
3. OVERRIDING ROYALTY INTEREST. The overriding royalty interest awarded
hereunder (the "Overriding Royalty Interest") shall be a maximum of two
and one-half percent (2.5%) of the full undivided Working Interests
acquired in a lease by the Burdened Group (as such Working Interests
may be enlarged or reduced in accordance with the terms and conditions
under which such interests are so acquired, and proportionately reduced
to the extent the lease covers less than the full and undivided
interest in the oil and gas mineral estate covered thereby). Such
Overriding Royalty Interest shall be computed in the same manner as the
lessor's royalty under the lease burdened by such Overriding Royalty
Interest. For purposes of this Plan, "Working Interest" shall mean the
full or undivided cost-bearing interest in a lease which determines the
entitlement of the
<PAGE>
owner thereof to a share of proceeds of production from the lease.
4. AFFECTED LEASE OR ACREAGE. The Overriding Royalty Interest shall burden
all leases or interests therein acquired (whether by purchase, farm-in
or in any other manner) by the Burdened Group on the Outer Continental
Shelf offshore of Texas, Louisiana, Alabama, and Florida and in state
waters subsequent to the effective date of this Plan subject, however,
to the following exception: In the event the Burdened Group acquires,
by virtue of a producing property acquisition or exchange or other
transaction involving the exchange of consideration for existing
developed reserves, an interest in a lease covering proved and/or
probable reserves which are identified as such by the seller at the
time the lease is acquired, such leasehold interest shall not be
burdened by or subject to the Overriding Royalty Interest insofar as
such lease covers and includes such proved and/or probable reserves. In
such case, however, the Overriding Royalty Interest shall burden such
portion of the lease that covers or includes other reserves discovered
by subsequent exploration on the lease by the Burdened Group. In
addition, leases or interests therein acquired by the Burdened Group in
state waters along the coastlines of the Gulf of Mexico that are within
Prospect Areas established under Basin's Onshore Geoscientist
Overriding Royalty Plan (the "Onshore ORI Plan") shall not be burdened
by the Overriding Royalty Interest granted under this Plan. In general,
it shall be presumed that Basin's offshore exploration group shall have
primary responsibility for exploring in state waters along the
coastlines of the Gulf of Mexico except for those areas that are
related to or extensions of onshore areas worked by Basin's onshore
exploration group, but the Chief Executive Officer of Basin shall
determine whether and the extent to which such areas are to be subject
to this Plan or to the Onshore ORI Plan.
5. PROSPECT SWAPS. If the Burdened Group or a Burdened Party trades or
exchanges a leasehold interest in acreage burdened by the Overriding
Royalty Interest for a leasehold interest in other acreage from a third
party, upon request by the Burdened Group the Participants will
relinquish their Overriding Royalty Interests in the interest traded by
the Burdened Group if the Participants receive the Overriding Royalty
Interest on the interest received by the Burdened Group in exchange.
6. ALLOCATION OF THE OVERRIDING ROYALTY INTEREST. The Participants shall
be allocated and severally share 100 percent of the aggregate
Overriding Royalty Interest described in paragraph 3 above, provided,
however, the Overriding Royalty Interest shall never exceed
five-eighths of one percent (0.625%) for each Participant. Each
Participant shall be entitled to an equal share of the Overriding
Royalty Interest, subject to the 0.625% individual limitation and 2.5%
aggregate limitation, regardless of the number of Participants entitled
to share in such Overriding Royalty Interest, provided that the
Participants are employed by Basin when the Working Interest burdened
by the Overriding Royalty Interest is acquired by the Burdened Group in
the manner provided above.
The number of Participants in the Plan may vary from time to time. When
the number of Participants changes as a result of a Confirmation of a
new Participant or the termination of a Participant's employment, Basin
shall automatically reallocate the interests of the Participants
effective on such Confirmation or termination date to compensate for
the new
2
<PAGE>
number of Participants so that the Overriding Royalty Interests vesting
after the reallocation effective date shall reflect the inclusion or
exclusion (as the case may be) of the new or terminated Participant,
provided, however, that Basin's reallocation of the Overriding Royalty
Interests shall have no effect upon any Participant's Overriding
Royalty Interests which have vested prior to the effective date of such
reallocation.
7. TERMINATION. The rights granted to a Participant pursuant to this Plan
shall automatically terminate upon the end of such Participant's
employment with Basin subject to the following:
a) A Participant's termination shall have no effect upon such
Participant's Overriding Royalty Interests to the extent such interests
have been vested in the Participant prior to his date of termination
regardless whether the Participant has received an assignment of the
Overriding Royalty Interests; and
b) Upon demand, Basin will, or will cause the Burdened Parties to,
execute and deliver to the Participant appropriate instruments of
assignment with respect to the Participant's portion of the Overriding
Royalty Interests which have been vested prior to the Participant's
date of termination.
8. RECORDABLE ASSIGNMENTS. Basin will, or will cause the Burdened Parties
to, make appropriate instruments of assignment of Overriding Royalty
Interests on affected leases into the Participants in recordable form
and in a timely manner utilizing a form of assignment similar to that
attached hereto as Exhibit "A". It is recognized and acknowledged that
some leases may be subject to contractual limitations or restrictions
upon the right of the Burdened Group to make the recordable form
assignments and to such extent it is agreed that notwithstanding the
inability of the Burdened Group to make such assignments to the
Participants, Basin will nevertheless account to the Participants to
the same extent and effect as though such assignments had in fact been
executed and delivered and will pay or cause them to be paid to the
Participants accordingly.
9. AMENDMENT. Basin, at its sole option and discretion, but only after
giving written notice to the Participants, may terminate, amend or
otherwise revise this Plan as to all lease or interests therein
acquired after the date of such notice.
10. SUCCESSORS. This Plan shall be binding upon and shall inure to the
benefit of the Participants and their respective heirs and legal
representatives, and Basin and its successors. The term "successor"
shall mean any person, firm, corporation or other business entity that,
at any time whether by merger, acquisition or otherwise, acquires all
or substantially all of the stock, assets or business of Basin.
11. EMPLOYMENT RELATIONSHIP. Nothing contained in this Plan or in any
Confirmation letter received by a Participant shall restrict or
otherwise interfere with Basin's discretion with respect to the
termination of any Participant's employment.
12. NON-ASSIGNABILITY. Each Participant's rights under this Plan shall be
non-
3
<PAGE>
transferable except by will or by the laws of descent and
distribution and except insofar as applicable law may otherwise
require. Subject to the foregoing, no right, benefit or interest
hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation, or set-off in
respect of any claim, debt or obligation, or to execution, attachment,
levy or similar process, or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall, to
the full extent permitted by law, be null, void and of no effect.
Nothing in this paragraph shall prevent a Participant from assigning or
otherwise transferring any interest in vested Overriding Royalty
Interests to any party.
13. SEVERABILITY. In the event that any provision or portion of this Plan
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions and portions of the Plan shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
14. DELAWARE LAW TO GOVERN. All questions pertaining to the construction,
regulation, validity and effect of the provisions of this Plan shall be
determined in accordance with the laws of the State of Delaware without
regard to the conflict of law principles thereof.
IN WITNESS WHEREOF, this Gulf Coast Geoscientist Overriding Royalty
Interest Plan was adopted by the Company effective this 30th day of November
1995.
BASIN EXPLORATION, INC.
By:
----------------------------
Michael S. Smith, President
4
<PAGE>
BASIN EXPLORATION, INC.
ONSHORE GEOSCIENTIST
OVERRIDING ROYALTY INTEREST PLAN
This Onshore Geoscientist Overriding Royalty Interest Plan (the "Plan") shall
set forth the terms of the program established by Basin Exploration, Inc.
("Basin") for assignment of overriding royalty interests into geoscientists
Basin employs to explore for oil and gas in the onshore area of the United
States.
1. PLAN PARTICIPANTS. The persons covered by this Plan (individually a
"Participant" and collectively the "Participants") shall be the Vice
President of Onshore Exploration and any geologist, geophysicist, or
other geoscientist employed by Basin as a member of Basin's onshore
exploration group, and approved for inclusion in this Plan by the
President (or other Chief Executive Officer of Basin) and the Vice
President of Onshore Exploration. A Participant's participation in the
Plan shall not be effective until it is confirmed in writing by the
President or Chief Executive Officer delivered to the Participant
("Confirmation").
2. INTERESTS VESTED.
A. A Participant shall become vested in Overriding Royalty
Interests (as hereinafter defined) as of the date and time
when a lease or working or operating interest therein covering
oil and gas in a Prospect Area in the area described in
Section 4 below is Acquired (whether by purchase, farmin or in
any other manner) by Basin, its investors or program
participants, and/or by third parties acquiring their
interests by, through or under Basin and/or its investors or
program participants (individually, a "Burdened Party" and
collectively the "Burdened Group") provided that the
Participant is an employee of Basin at the time of such
acquisition and at the time the Prospect Area is Designated as
provided below.
B. For purposes of this Section 2, a lease acquired at a lease
sale pursuant to a bid submitted by Basin or a Burdened Party
acting pursuant to an agreement with Basin shall be deemed
Acquired on the date of the lease sale if the lease is awarded
to Basin or a Burdened Party pursuant to that lease sale; a
lease acquired pursuant to a farm-in or other agreement shall
be deemed Acquired on the date the agreement has been executed
by all parties; and a lease with developed reserves acquired
by the Burdened Group as described in Section 4 shall be
deemed Acquired for purposes of this Section as to undeveloped
reserves upon the circulation of an AFE for the drilling or
other operation intended to explore for such undeveloped
reserves.
C. For purposes of this Section 2, a Prospect Area is defined as
a geographic area (i) located on the onshore area of the
United States, I.E., excluding any area covered by state or
federal waters off the coast of the United States except for
areas in state waters along the coastlines that are related to
or extensions of onshore areas worked by Basin's onshore
exploration group, (ii) covering a reservoir or other geologic
objective that (a) is expected to be tested by the drilling,
re-entry or
<PAGE>
recompletion of a well and (b) is designated as such
("Designated") in writing by the Chief Executive Officer of
Basin based on his evaluation of the information submitted to
him by the Vice President of Onshore Exploration. Prospect
Areas can overlap in areal extent so long as the areas of
overlap do not include the same formations or zones. Generally
it is expected that Prospect Areas will be Designated (x) in
connection with Basin's internal Clearance To Drill procedure
preceding the drilling of an initial well in a Prospect Area,
or (y) in connection with Basin's execution of an agreement to
acquire an interest in a drill-ready Prospect Area from a
third party. However, the Chief Executive Officer shall have
the discretion to Designate a Prospect Area at any time he
believes appropriate based on the data available to him. A
Prospect Area shall not be deemed to include proved and/or
probable reserves identified as such in connection with an
acquisition by Basin as described in Section 4. The decision
of the Chief Executive Officer on when and whether to
Designate a Prospect Area and on the area and formations to be
included within a Prospect Area shall be based on such
criteria as he believes to be appropriate in his sole
discretion and shall be final and binding for all purposes of
this Plan.
D. If a Participant leaves Basin employment, the Chief Executive
Officer of Basin shall have the discretion to allocate either
to such Participant or to a succeeding Participant or to Basin
the Overriding Royalty Interest for which such terminated
Participant would have otherwise been eligible on any lease or
interest therein Acquired by Basin following the termination
of such Participant's employment in a Prospect Area that has
been Designated during such Participant's employment with
Basin.
3. OVERRIDING ROYALTY INTEREST.
A. The overriding royalty interest awarded hereunder (the
"Overriding Royalty Interest") shall be a maximum of two and
one-half percent (2.5%) of the full undivided Working Interest
acquired in a lease by the Burdened Group (as such Working
Interests may be enlarged or reduced in accordance with the
terms and conditions under which such interests are so
acquired, and proportionately reduced to the extent the lease
covers less than the full and undivided interest in the oil
and gas mineral estate covered thereby). For purposes of this
Plan, "Working Interest" shall mean the full or undivided
cost-bearing interest in a lease which determines the
entitlement of the owner thereof to a share of proceeds of
production from the lease.
B. Such Overriding Royalty Interest shall be computed and paid in
accordance with the following:
1. The Overriding Royalty Interest will be subject to
its proportionate shares of all gathering,
transportation, processing, treatment and other costs
of marketing production from the Working Interest
burdened thereby and will be subject to its
proportionate shares of all taxes assessed on or
measured
2
<PAGE>
by production attributable to such Working Interest.
2. The Overriding Royalty Interest will be payable out
of and only out of oil and gas produced, saved and
marketed attributable to the Working Interest
burdened thereby.
3. The Overriding Royalty Interest shall not, in any
event, be paid or accrued upon any oil, gas,
casinghead gas and other hydrocarbon substances used
for operating, development or production purposes on
the Working Interest burdened thereby or unavoidably
lost; or upon gas used in repressuring or recycling
operations or pressure maintenance operations
benefiting such Working Interest.
4. Basin shall not have any duty or obligation to
develop or operate the Working Interests burdened by
the Overriding Royalty Interest for oil, gas and
other hydrocarbons other than in its sole discretion
nor to maintain in effect the burdened Working
Interests by the payment of delay rentals or the
performance of any other act.
5. Basin will have, and will reserve from any assignment
of the Overriding Royalty Interest, the right to pool
or combine the Working Interests burdened thereby and
leases and lands covered thereby or any part thereof,
in such manner and to such extent as Basin shall
determine, with other lands and leases into voluntary
units, or into units established by any governmental
authority having jurisdiction whenever, in the
judgment of Basin, it is necessary or advisable to do
so in order properly to explore or develop all or any
portion of the affected Working Interests or to
promote the conservation of oil or gas therefrom; and
if a Working Interest or any part thereof is pooled
accordingly, then the Overriding Royalty Interest
burdening such Working Interest shall be reduced
proportionately to and payable only in the ratio that
the acreage burdened by such Overriding Royalty
Interest bears to all acreage included in any such
pooled unit.
6. The Overriding Royalty Interests will be subject to
the provisions of any operating agreement now or
hereafter covering the Working Interests burdened
thereby, and in the event Basin goes nonconsent on
any operation pursuant to any such operating
agreement, the Overriding Royalty Interest shall be
deemed suspended to the extent any such operating
agreement would require Basin to bear such overriding
royalty notwithstanding its failure to participate in
the production burdened by such override.
4. AFFECTED LEASE OR PROSPECT AREA. The Overriding Royalty Interest shall
burden all leases or Working Interests therein Acquired (whether by
purchase, farm-in or in any other manner) by the Burdened Group
subsequent to the effective date of this Plan in Prospect Areas
Designated subsequent to the effective date of this Plan, subject,
however, to the following exceptions:
3
<PAGE>
A. In the event the Burdened Group acquires, by virtue of a
producing property acquisition or exchange or other
transaction involving the exchange of consideration for
existing developed reserves, an interest in a lease covering
proved and/or probable reserves which are identified as such
by the seller at the time the lease is acquired, such
leasehold interest shall not be included within a Prospect
Area or burdened by or subject to the Overriding Royalty
Interest insofar as such lease covers and includes such proved
and/or probable reserves. In such case, however, Prospect
Areas may be Designated covering such portion of the lease
that includes other reserves discovered by subsequent
exploration on the lease by the Burdened Group.
B. The Overriding Royalty Interest shall burden interests
Acquired prior to the effective date of this Plan in the
Prospect Areas described in Exhibit A attached hereto as well
as interests in such Prospect Areas Acquired after the
effective date of this Plan.
5. PROSPECT SWAPS. If the Burdened Group or a Burdened Party trades or
exchanges a leasehold interest in acreage burdened by the Overriding
Royalty Interest for a leasehold interest in other acreage from a third
party, upon request by the Burdened Group the Participants will
relinquish their Overriding Royalty Interests in the interest traded by
the Burdened Group if the Participants receive the Overriding Royalty
Interest on the interest received by the Burdened Group in exchange.
6. ALLOCATION OF THE OVERRIDING ROYALTY INTEREST. The Participants shall
be allocated and severally share 100 percent of the aggregate
Overriding Royalty Interest described in paragraph 3 above, provided,
however, the Overriding Royalty Interest shall never exceed
five-eighths of one percent (0.625%) for each Participant. Each
Participant shall be entitled to an equal share of the Overriding
Royalty Interest, subject to the 0.625% individual limitation and 2.5%
aggregate limitation, regardless of the number of Participants entitled
to share in such Overriding Royalty Interest, provided that the
Participants are employed by Basin when the Working Interest burdened
by the Overriding Royalty Interest is Acquired by the Burdened Group in
the manner provided above.
The number of Participants in the Plan may vary from time to time. When
the number of Participants changes as a result of a Confirmation of a
new Participant or the termination of a Participant's employment, then
subject to Paragraph 2.D. above, Basin shall automatically reallocate
the interests of the Participants effective on such Confirmation or
termination date to compensate for the new number of Participants so
that the Overriding Royalty Interests vesting after the reallocation
effective date shall reflect the inclusion or exclusion (as the case
may be) of the new or terminated Participant, provided, however, that
Basin's reallocation of the Overriding Royalty Interests shall have no
effect upon any Participant's Overriding Royalty Interests which have
vested prior to the effective date of such reallocation.
4
<PAGE>
7. TERMINATION. The rights granted to a Participant pursuant to this Plan
shall automatically terminate upon the end of such Participant's
employment with Basin subject to the following:
A. A Participant's termination shall have no effect upon such
Participant's Overriding Royalty Interests to the extent such
interests have been vested in the Participant prior to his
date of termination regardless whether the Participant has
received an assignment of the Overriding Royalty Interests;
and
B. Upon demand, Basin will, or will cause the Burdened Parties
to, execute and deliver to the Participant appropriate
instruments of assignment with respect to the Participant's
portion of the Overriding Royalty Interests which have been
vested prior to the Participant's date of termination.
8. RECORDABLE ASSIGNMENTS. Basin will, or will cause the Burdened Parties
to, make appropriate instruments of assignment of Overriding Royalty
Interests on affected leases into the Participants in recordable form
and in a timely manner utilizing a form of assignment similar to that
attached hereto as Exhibit "B". It is recognized and acknowledged that
some leases may be subject to contractual limitations or restrictions
upon the right of the Burdened Group to make the recordable form
assignments and to such extent it is agreed that notwithstanding the
inability of the Burdened Group to make such assignments to the
Participants, Basin will nevertheless account to the Participants to
the same extent and effect as though such assignments had in fact been
executed and delivered and will pay or cause them to be paid to the
Participants accordingly.
9. AMENDMENT. Basin, at its sole option and discretion, but only after
giving written notice to the Participants, may terminate, amend or
otherwise revise this Plan as to all lease or interests therein
acquired after the date of such notice.
10. SUCCESSORS. This Plan shall be binding upon and shall inure to the
benefit of the Participants and their respective heirs and legal
representatives, and Basin and its successors. The term "successor"
shall mean any person, firm, corporation or other business entity that,
at any time whether by merger, acquisition or otherwise, acquires all
or substantially all of the stock, assets or business of Basin.
11. EMPLOYMENT RELATIONSHIP. Nothing contained in this Plan or in any
Confirmation letter received by a Participant shall restrict or
otherwise interfere with Basin's discretion with respect to the
termination of any Participant's employment.
12. NON-ASSIGNABILITY. Each Participant's rights under this Plan shall be
non-transferable except by will or by the laws of descent and
distribution and except insofar as applicable law may otherwise
require. Subject to the foregoing, no right, benefit or interest
hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation, or set-off in
respect of any claim, debt or obligation, or to execution, attachment,
levy or similar process, or assignment by
5
<PAGE>
operation of law, and any attempt, voluntary or involuntary, to effect
any such action shall, to the full extent permitted by law, be null,
void and of no effect. Nothing in this paragraph shall prevent a
Participant from assigning or otherwise transferring any interest in
vested Overriding Royalty Interests to any party.
13. SEVERABILITY. In the event that any provision or portion of this Plan
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions and portions of the Plan shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
14. DELAWARE LAW TO GOVERN. All questions pertaining to the construction,
regulation, validity and effect of the provisions of this Plan shall be
determined in accordance with the laws of the State of Delaware without
regard to the conflict of law principles thereof.
IN WITNESS WHEREOF, this Onshore Geoscientist Overriding Royalty
Interest Plan was adopted by the Company effective this 24th day of August,
1999.
BASIN EXPLORATION, INC.
By:
---------------------------
Michael S. Smith, President
6
<PAGE>
BASIN EXPLORATION, INC.
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between BASIN EXPLORATION, INC. a Delaware
corporation (the "Company") and NEIL L. STENBUCK (the "Officer"), dated as of
August 1, 1997.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication of
the Officer, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the Officer by virtue of
the personal uncertainties and risks created by a pending or threatened
Change of Control and to encourage the Officer's full attention and
dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Officer with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Officer will be satisfied and
which are competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter
into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Officer's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated
by the Officer that such termination of employment (i) was at the request of
a third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination
of employment. For purposes of this Agreement, the Committee (as described
below) may clarify the date as of which a Change of Control shall be deemed
to have occurred.
(b) The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third anniversary of
the date hereof; provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such date (such date
and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), unless previously terminated, the Change of Control Period
shall be automatically extended so as to terminate three years from such
Renewal Date, unless at least 60 days prior to the Renewal Date (and prior to
the Effective Date) the Company shall give notice to the Officer that the
Change of Control Period shall not be so extended.
<PAGE>
2. CHANGE OF CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) Any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "1934 Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or Mr. Michael
Smith, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act), directly or indirectly, of more than thirty-three and
one-third percent (33-1/3%) of the then outstanding voting stock of the
Company; or
(b) Individuals who, as of the date hereof,
constitute the Board (and any new director whose election by the Board or
whose nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors as of the date hereof or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority thereof; or
(c) The stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least 51% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets; provided, however, that if the merger, plan of liquidation or sale of
substantially all assets is not consummated following such stockholder
approval and the transaction is abandoned, then the Change of Control shall
be deemed not to have occurred.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue
the Officer in its employ, and the Officer hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(a) During the Employment Period, (A) the
Officer's position (including status, offices, titles and
reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all
material respects with the most significant of those held,
exercised and assigned at any time during the 120-day
period immediately preceding the Effective Date and (B) the
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Officer's services shall be performed at the location where
the Officer was employed 120 days immediately preceding the
Effective Date or any office or location less than 30 miles
from such location.
(b) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Officer
is entitled, the Officer agrees to devote reasonable
attention and time during normal business hours to the
business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Officer hereunder, to use the Officer's reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Officer to (A)
serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do
not significantly interfere with the performance of the
Officer's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have
been conducted by the Officer prior to the Effective Date,
the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent
to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Officer's
responsibilities to the Company.
(b) COMPENSATION.
(a) BASE SALARY. During the Employment
Period, the Officer shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a monthly
rate, at least equal to 12 times the highest monthly base
salary paid or payable, including any base salary which has
been earned but deferred, to the Officer by the Company and
its affiliated companies in respect of the 12-month period
immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Officer prior to the
Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Officer under this
Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall
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include any company controlled by, controlling or under
common control with the Company.
(b) ANNUAL BONUS. In addition to Annual
Base Salary, the Officer shall be awarded, for each fiscal
year ending during the Employment Period, an annual bonus
(the "Annual Bonus") in cash at least equal to the average
of the Officer's bonuses over the last three fiscal years,
or such lesser number of years as the Officer may have been
employed by the Company, prior to the Effective Date
(annualized in the event that the Officer was not employed
by the Company for an entire fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus
is awarded, unless the Officer shall elect to defer the
receipt of such Annual Bonus.
(c) INCENTIVE, SAVINGS AND RETIREMENT
PLANS. During the Employment Period, the Officer shall be
entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs
applicable generally to other peer executives of the
Company and its affiliated companies but in no event shall
such plans, practices, policies and programs provide the
Officer with incentive opportunities (measured with respect
to both regular and special incentive opportunities to the
extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities,
in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and its
affiliated companies for the Officer under such plans,
practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the
Effective Date or if more favorable to the Officer, those
provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated
companies.
(d) WELFARE BENEFIT PLANS. During the
Employment Period, the Officer and/or the Officer's family,
as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company
and its affiliated companies (including, without
limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives of
the Company
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and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Officer
with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies
and programs in effect for the Officer at any time during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Officer, those provided
generally at any time after the Effective Date to other
peer executives of the Company and its affiliated
companies.
(e) EXPENSES. During the Employment
Period, the Officer shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the
Officer in accordance with the most favorable policies,
practices, and procedures of the Company and its affiliated
companies in effect for the Officer at any time during the
120-day period immediately preceding the Effective Date or,
if more favorable to the Officer, as in effect generally at
any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(f) FRINGE BENEFITS. During the Employment
Period, the Officer shall be entitled to fringe benefits,
including, without limitation, in accordance with the most
favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect for the
Officer at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Officer, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(g) VACATION. During the Employment
Period, the Officer shall be entitled to paid vacation in
accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated
companies as in effect for the Officer at any time during
the 120-day period immediately preceding the Effective Date
or, if more favorable to the Officer, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Officer's employment
shall terminate automatically upon the Officer's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Officer has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Officer written
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notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Officer's employment. In such event, the Officer's employment
with the Company shall terminate effective on the 30th day after receipt of
such notice by the Officer (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Officer shall not have returned to
full-time performance of the Officer's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Officer from the
Officer's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Officer or the Officer's legal
representative.
(b) CAUSE. The Company may terminate the
Officer's employment during the Employment Period for Cause. For purposes of
this Agreement, "Cause" shall mean:
(a) the Officer's gross violation of the
terms of this Agreement, if such violation has not been
substantially cured within thirty (30) days following written
notice to the Officer from the Company of such violation setting
forth with specificity the nature of the violation or, if cure
cannot reasonably be effected within such 30-day period, if the
Officer does not commence such cure within such 30-day period and
thereafter pursue such cure continuously and with due diligence
until cure has been effected;
(b) the Officer's willful dishonesty
towards, fraud upon, felony crime against, deliberate material
injury or material bad faith action with respect to, or deliberate
or attempted injury to the Company; or
(c) the Officer's conviction for any
felony crime (whether in connection with the Company's affairs or
otherwise).
(c) GOOD REASON; WINDOW PERIOD. The Officer's
employment may be terminated (i) during the Employment Period by the Officer
for Good Reason or (ii) during the Window Period by the Officer without any
reason. For purposes of this Agreement, "Window Period" shall mean the 30-day
period immediately following the Effective Date. For purposes of this
Agreement, any termination by the Officer during the Window Period shall be
deemed a termination by the Officer for Good Reason and, in addition, "Good
Reason" shall mean:
(a) the assignment to the Officer by the
Company following the Effective Date of any duties inconsistent
with, or a substantial alteration in the nature or status of, the
Officer's responsibilities as in effect during the 120-day period
prior to the Effective Date, including a change in the Officer's
title or the level of supervisor to whom the Officer is required
to report;
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(b) a failure by the Company to comply
with any of the provisions of Section 4(b) of this Agreement other
than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Officer;
(c) a relocation of the Company's
principal offices to a location outside a 30-mile radius of
Denver, Colorado, or the Officer's relocation to any place other
than the offices of the Company located in Denver, Colorado or
within 30 miles of Denver, Colorado, except for reasonably
required travel by the Officer on the Company's business to an
extent substantially consistent with the Officer's business travel
obligations immediately preceding the Effective Date;
(d) any material breach by the Company of
any provision of this Agreement, if such material breach has not
been cured within thirty (30) days following written notice by the
Officer to the Company of such breach setting forth with
specificity the nature of the breach;
(e) any failure by the Company to obtain
the assumption and performance of this Agreement by any successor
(by merger, consolidation or otherwise) or assign of the Company;
or
(f) the voluntary termination by Michael
S. Smith of his employment as Chief Executive Officer of the
Company or the termination of his employment as Chief Executive
Officer in the event of a Change of Control; provided that such
termination shall constitute Good Reason only for a period of 120
days from the date of termination of Mr. Smith's employment as
Chief Executive Officer.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Officer shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the
Company for Cause, or by the Officer for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in accordance with
Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Officer's employment under
the provision so indicated and (iii) if the Date of Termination (as
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defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the
giving of such notice). The failure by the Officer or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the Officer
or the Company, respectively, hereunder or preclude the Officer or the
Company, respectively, from asserting such fact or circumstance in enforcing
the Officer's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means
(i) if the Officer's employment is terminated by the Company for Cause, or by
the Officer for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Officer's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Officer of such termination, (iii) if the Officer's employment
is terminated by reason of Disability, the Date of Termination shall be the
Disability Effective Date, and (iv) if the Officer's employment is terminated
by reason of his death, the Date of Termination shall be the last day of the
month during which his death occurs.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR
DISABILITY. If, during the Employment Period, the Company shall terminate the
Officer's employment other than for Cause or Disability or the Officer shall
terminate employment for Good Reason, the parties acknowledge that the
Officer will sustain actual damages, the amount of which is indefinite,
uncertain and difficult of exact ascertainment because of the uncertainties
of successfully relocating and seeking a comparable position. In order to
avoid dispute as to the amount of such damages and the mutual expense and
inconvenience such dispute would entail, the Company and the Officer have
agreed hereby that the Company shall pay to the Officer compensation as
provided below. It is hereby agreed that in the event of such termination by
the Company, the Officer shall receive such amounts as herein provided, not
as a penalty, but as the Officer's agreed compensation and sole damages for
the termination of this Agreement, in lieu of the Officer's proof of his
actual damages on that account. If, during the Employment Period, the Company
shall terminate the Officer's employment other than for Cause or Disability
or the Officer shall terminate employment for Good Reason, the Company shall
pay to the Officer in a lump sum in cash within 5 days after the Date of
Termination the aggregate of the following amounts:
(a) the sum of (1) the Officer's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less
than 12 full months or during which the Officer was employed for
less than 12 full months), for the most recently completed fiscal
year during the Employment Period, if any (such higher amount
being referred to
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as the "Highest Annual Bonus") and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Officer (together
with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
(b) the amount equal to the product of (1) three
and (2) the sum of (x) the Officer's Annual Base Salary and (y)
the Highest Annual Bonus.
To the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Officer any other amounts or benefits
required to be paid or provided or which the Officer is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
In addition, any options to purchase shares of the Company's
common stock shall immediately vest and become exercisable as of the Date of
Termination and, notwithstanding anything to the contrary in the Officer's
option agreements with the Company, the options shall be exercisable for a
period of 12 months after the Date of Termination (but in no event beyond the
expiration date applicable to such options). Any restrictions on restricted
stock grants and performance share grants shall also be eliminated.
(b) DEATH. If the Officer's employment is terminated
by reason of the Officer's death during the Employment Period, this Agreement
shall terminate without further obligations to the Officer's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Officer's estate or beneficiary, as
applicable, in a lump sum in cash within 5 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Officer's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of
the Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in effect with
respect to other peer executives and their beneficiaries at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Officer's estate and/or the Officer's beneficiaries, as in
effect on the date of the Officer's death with respect to other peer
executives of the Company and its affiliated companies and their
beneficiaries.
(c) DISABILITY. If the Officer's employment is
terminated by reason of the Officer's Disability during the Employment
Period, this Agreement shall terminate without
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further obligations to the Officer, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Officer in a lump sum in cash within 5 days
of the Date of Termination. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 6(c) shall include, and
the Officer shall be entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Officer and/or the Officer's family, as in effect at any
time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the
Officer's employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the
Officer other than the obligation to pay to the Officer (x) his Annual Base
Salary through the Date of Termination, (y) the amount of any compensation
previously deferred by the Officer, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Officer voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Officer, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Officer in a lump sum in cash within 5 days of the Date of
Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in
Sections 6(a)(ii), 6(b) and 6(c), nothing in this Agreement shall prevent or
limit the Officer's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Officer may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Officer may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Officer is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Officer or others. In no event shall the Officer be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Officer under any of the provisions
of this Agreement and such amounts shall not be reduced whether or not the
Officer obtains other employment. The Company agrees to pay as incurred, to
the full extent permitted by law, all legal fees and expenses which the
Officer may reasonably incur as a result of any contest (regardless of the
outcome thereof but not in the case of fees incurred with
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respect to a claim brought in bad faith) by the Company, the Officer or
others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Officer about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. LIMITATION ON AMOUNT OF PAYMENT.
(a) LIMITATION. Notwithstanding anything else in this
Agreement, solely in the event of a termination by the Company without Cause
or a termination by the Officer for Good Reason, and except as provided in
subsection (i) below, the aggregate of the payments of benefits to which the
Officer will be entitled under Section 6(a) will be reduced to the extent
necessary so that the Officer will not be liable for the federal excise tax
levied on certain "excess parachute payments" under section 4999 of the
Internal Revenue Code.
(i) The limitation of Section 9(a) will not apply
if the difference between (w) the present value of all payments to
which the Officer is entitled under paragraph 6(a) determined
without regard to Section 9(a) less (x) the present value of all
federal, state and other income and excise taxes for which the
Officer is liable as a result of such payments exceeds the
difference between (y) the present value of all payments to which
the Officer is entitled under Section 6(a) calculated as if the
limitation of Section 9(a) applies less (z) the present value of
all federal, state and other income and excise taxes for which the
Officer is liable as a result of such reduced payments. Present
values will be determined using the interest rate specified in
section 280G of the Internal Revenue Code and will be the present
values as of the date on which the Officer's employment terminates
(unless it is necessary to use a different date in order to avoid
adverse consequences under section 280G).
(b) DETERMINATION BY OFFICER. Whether payments to the
Officer are to be reduced pursuant to Section 9(a), and the extent to which
they are to be so reduced, will be determined by the Officer. The Officer
may, at the expense of the Company, hire an accounting firm, law firm or
employment consulting firm selected by the Officer to assist him in such
determination. If a reduction is made pursuant to Section 9(a), the Officer
will have the right to determine which payments and benefits will be reduced.
(c) ADDITIONAL BENEFIT. The Officer shall receive the
benefit of any change made by the Company in the calculation or entitlement
of severance compensation following a Change of Control for any other officer
of the Company, such as an agreement by the Company to "gross up" the
compensation paid to an officer by paying the excise tax imposed by Section
280G of the Internal Revenue Code .
10. CONFIDENTIAL INFORMATION. The Officer shall not,
during his employment by the Company or at any time thereafter, directly or
indirectly use, divulge, furnish or make accessible to anyone other than the
Company, its directors or officers (otherwise than in the
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regular course of the business of the Company), any knowledge or information
regarding any confidential or secret activities, prospects, technical data,
analysis and interpretations, projects, plans, reports, investor or
co-venturer names or lists, financial or marketing information or documentary
material relating to the existing, planned or contemplated business or
activities of the Company. The Officer, upon leaving the employ of the
Company, shall not take with him or retain any books, records, data, reports,
letters, memoranda, notes or other writings or documents whatsoever, or
copies thereof, which reflect or deal with any secret, proprietary or
confidential information or material relating to the business or activities
of the Company. The obligations of the Officer under this Section 10 shall
not apply to (i) information which at the time of disclosure is readily
available to the public; (ii) information which is or becomes available to
the general public other than through acts or omissions attributable to the
Officer; or (iii) information obtained from a third party who is lawfully in
possession of the same other than through breach of a confidentiality or
nonuse obligation owed to the Company or others with respect to that
information.
11. SUCCESSORS.
(a) This Agreement is personal to the Officer
and, without the prior written consent of the Company, shall not be
assignable by the Officer otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Officer's legal representatives.
(b) This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws. The captions
of this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified otherwise than
by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
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(b) NOTICES. All notices and other
communications hereunder shall be in writing and shall be given by hand
delivery to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Officer:
Neil L. Stenbuck
805 13th Street
Boulder, Colorado 80302
If to the Company:
Basin Exploration, Inc.
370 Seventeenth Street, Suite 3400
Denver, Colorado 80002
Attention: General Counsel or President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) SEVERABILITY. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(d) WITHHOLDINGS. The Company may withhold
from any amounts payable under this Agreement the minimum amounts of any such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) MODIFICATIONS. The Officer's or the
Company's failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Officer or the Company may
have hereunder, including, without limitation, the right of the Officer to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(f) ACKNOWLEDGMENT OF EMPLOYMENT AT WILL. The
Officer and the Company acknowledge that, except as may otherwise be provided
under any other written agreement between the Officer and the Company, the
employment of the Officer by the Company is "at will" and, subject to Section
1(a) hereof, prior to the Effective Date, the Officer's employment and/or
this Agreement may be terminated by either the Officer or the Company at any
time prior to the Effective Date, in which case the Officer shall have no
further rights under this Agreement. From and after the Effective Date, this
Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
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IN WITNESS WHEREOF, the Officer has hereunto set the
Officer's hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its name
on its behalf, all as of the day and year first above written.
------------------------------
Neil L. Stenbuck
BASIN EXPLORATION, INC.
By:
---------------------------
Michael S. Smith, President
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SECOND AMENDMENT OF
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT OF AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment"), dated as of October 15, 1999, is by and among
BASIN EXPLORATION, INC., a Delaware corporation ("Borrower"), U.S. BANK
NATIONAL ASSOCIATION f/k/a COLORADO NATIONAL BANK ("USB"), UNION BANK OF
CALIFORNIA, N.A. ("Union"), TORONTO DOMINION (TEXAS), INC. ("TDT"), and BANK
OF AMERICA, N.A., a national banking association ("BA"), f/k/a BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, successor by merger to BANK
OF AMERICA, N.A., f/k/a NATIONSBANK, N.A. ("NationsBank"), in its capacity as
a Lender and as Agent for Lenders. USB, Union, TDT and BA are herein
collectively referred to as "Lenders."
RECITALS
A. Borrower and NationsBank, USB and Union entered into an
Amended and Restated Credit Agreement dated as of January 1, 1999, as
previously amended (as so amended, the "Credit Agreement"), in order to set
forth the terms upon which NationsBank, USB and Union 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 and repaid. 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) All references in the Credit Agreement to
"NationsBank, N.A." shall be changed to be references to "Bank of America,
N.A." The definition of "BA" contained in the first paragraph of this
Amendment shall be incorporated into the Credit Agreement, and all references
in the Credit Agreement to "NBNA" shall be changed to be references to "BA".
(b) TDT shall be added as an additional "Lender"
under the terms of the Credit Agreement. The definition of "TDT" contained
in the first paragraph of this Amendment shall be incorporated into the
Credit Agreement. On the date hereof, TDT
<PAGE>
will make payments to the other Lenders in such amounts as may be determined
by Agent in order to accomplish the re-allocation of the Proportionate Shares
being effected pursuant to this Amendment, each of which payments shall be
deemed to decrease the outstanding principal balance of the Loan payable to
the Lender receiving the payment and to increase the outstanding principal
balance of the Loan payable to TDT. Fees due and payable after the date of
this Amendment under the terms of the Credit Agreement shall be allocated
among Lenders in accordance with their respective Proportionate Shares in
effect for the time periods for which such fees are being paid. By its
joinder herein, TDT agrees to be bound by all of the terms and provisions of
the Credit Agreement, including without limitation the terms and provisions
of Article 8 of the Credit Agreement relating to the authority, rights and
obligations of Agent and Collateral Agent.
(c) References in the Credit Agreement to "NBNA,
USB and Union" shall be changed to be references to "BA, USB, Union and TDT"
as follows: (1) in lines 7, 9, and 10 and 12 of the first paragraph on page 1
of the Credit Agreement; (2) in lines 1 and 5 of Recital B on page 1 of the
Credit Agreement; (3) in line 1 of the definition of "Lenders" in Section 1.1
on page 9 of the Credit Agreement.
(d) The definition of "Maximum Loan Amount" in
Section 1.1 on page 10 of the Credit Agreement shall be deleted, and the
following shall be substituted therefor:
"MAXIMUM LOAN AMOUNT" means, at any time,
$150,000,000; provided that, at any time prior to the end of
the Revolving Period, Borrower may irrevocably elect, by
giving written notice to Lenders, to decrease the Maximum Loan
Amount to an amount less than the Maximum Loan Amount
theretofore in effect.
(e) The definition of "Notes" in Section 1.1 on
page 11 of the Credit Agreement shall be deleted, and the following shall be
substituted therefor:
"NOTES" means: (a) the Promissory Note of
even date herewith, made by Borrower, payable to the order of
BA, substantially in the form of Exhibit A-1 attached hereto
and made a part hereof, (b) the Promissory Note of even date
herewith, made by Borrower, payable to the order of USB,
substantially in the form of Exhibit A-2 attached hereto and
made a part hereof, (c) the Promissory Note of even date
herewith, made by Borrower, payable to the order of Union,
substantially in the form of Exhibit A-3 attached hereto and
made a part hereof, all as now in effect or as hereafter
amended, modified, extended, restated or replaced, and (d)
Promissory Note dated October 15, 1999, made by Borrower,
payable to
2
<PAGE>
the order of TDT, substantially in the form of Exhibit A-4
attached hereto and made a part hereof, all as now in effect
or as hereafter amended, modified, extended, restated or
replaced.
(f) The definition of "Proportionate Share" in
Section 1.1 on pages 12 and 13 of the Credit Agreement shall be deleted, and
the following shall be substituted therefor:
"PROPORTIONATE SHARE" means, for any Lender,
the fractional share equal to that Lender's share of all of
the rights and obligations of Lenders hereunder, including
without limitation the obligations of Lenders to make Advances
hereunder and the rights of Lenders to receive payments
hereunder. Unless hereafter amended, the Proportionate Share
of each Lender shall be as follows:
BA: 33.333333%
USB: 27.777778%
Union: 22.222222%
TDT: 16.666667%
(g) Section 3.2(a) on page 26 of the Credit
Agreement shall be deleted, and the following shall be substituted therefor:
(a) regular semi-annual determinations,
as of approximately June 1 and December 1 of each
year;
(h) In line 1 of Section 6.1(b)(5) on page 37 of
the Credit Agreement, "April 1" shall be changed to "April 15". In line 7 of
Section 6.1(b)(5) on page 37 of the Credit Agreement, "October 1" shall be
changed to "October 15".
(i) The following shall be added at the end of
Section 9.3 on page 58 of the Credit Agreement:
TDT's address: 909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Bobby Poirrier
(j) Exhibit A-4 attached hereto and made a part
hereof shall be added as Exhibit A-4 to the Credit Agreement.
2. AMENDMENT OF EXISTING NOTES. The existing Notes shall be
amended, such amendments to be effected by Allonges (the "Allonges"), to be
attached to the existing Notes and to be substantially in the form of
Exhibits A-1, A-2 and A-3 attached hereto and made a part hereof.
3. LOAN DOCUMENTS. All references in any document to
3
<PAGE>
the Credit Agreement shall refer to the Credit Agreement, as amended pursuant
to this Amendment. All references in any document to any of the existing
Notes shall refer to such Note, as amended pursuant to the Allonge relating
to such Note.
4. 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) The Allonges.
(c) A Promissory Note payable to the order of TDT,
substantially in the form of Exhibit A-4 attached hereto.
(d) Such certificates of officers of Borrower as
may be required by Lenders.
(e) Any and all other Loan Documents required by
Lenders, including without limitation any and all Security Documents required
by Lenders.
(f) The arrangement fee payable to Agent pursuant
to the terms of the fee letter agreement between Borrower and Agent.
5. 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.
6. 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.
7. 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.
8. MISCELLANEOUS. This Amendment shall be governed by
4
<PAGE>
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 and any and all documents to be delivered in
connection herewith may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute on
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 BA (any party
that effects delivery in such manner hereby agreeing to transmit promptly to
BA 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
BANK OF AMERICA, N.A., f/k/a BANK OF
AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, successor by merger to
NATIONSBANK, N.A., in its capacity
as a Lender and as Agent for
Lenders
By:
------------------------------
Managing Director
U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK
By: /s/ Kathryn A. Gaiter
------------------------------
Vice President
UNION BANK OF CALIFORNIA, N.A.
By:
------------------------------
Vice President
By:
------------------------------
Senior Vice President
5
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------
Title:
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 534
<SECURITIES> 0
<RECEIVABLES> 16,056
<ALLOWANCES> 0
<INVENTORY> 205
<CURRENT-ASSETS> 20,914
<PP&E> 352,784
<DEPRECIATION> 147,387
<TOTAL-ASSETS> 226,848
<CURRENT-LIABILITIES> 26,554
<BONDS> 29,000
0
0
<COMMON> 187
<OTHER-SE> 170,874
<TOTAL-LIABILITY-AND-EQUITY> 226,848
<SALES> 52,750
<TOTAL-REVENUES> 52,833
<CGS> 8,889
<TOTAL-COSTS> 43,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,195
<INCOME-PRETAX> 7,466
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,466
<EPS-BASIC> .48
<EPS-DILUTED> .47
</TABLE>
