<PAGE>
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 March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 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.)
1670 BROADWAY, SUITE 2800, 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 April 30, 2000
---------------------------- -----------------
Common stock, $.01 par value 18,517,000 shares
<PAGE>
BASIN EXPLORATION, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000........................ 3
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 2000.................. 5
Consolidated Statements of Changes in
Stockholders' Equity........................................ 6
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 2000.................. 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 Risk.. 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 2. Changes in Securities and Use of Proceeds................... 17
Item 3. Defaults Upon Senior Securities............................. 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
SIGNATURES................................................................ 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(In thousands)
December 31, March 31,
1999 2000
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 3,777 $ 1,194
Accounts receivable 20,332 16,121
Prepaids and other 4,739 3,498
------------- -------------
28,848 20,813
------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, under the full
cost method of accounting
Proved 343,872 360,794
Unproved 26,567 31,429
Less accumulated depreciation,
depletion and amortization (152,234) (162,542)
-------------- --------------
218,205 229,681
Furniture and equipment, net 1,354 1,305
------------- -------------
219,559 230,986
------------- -------------
OTHER ASSETS 498 1,050
------------- -------------
$ 248,905 $ 252,849
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share data) December 31, March 31,
1999 2000
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 12,187 $ 12,490
Accrued liabilities 27,039 18,302
------------- -------------
39,226 30,792
------------- -------------
LONG-TERM DEBT, net of current portion 34,000 40,000
OTHER LONG-TERM OBLIGATIONS 516 187
DEFERRED INCOME TAXES - 1,073
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,
18,460,000 and 18,506,000 shares
issued, respectively 185 185
Additional paid-in capital 179,430 178,737
Retained earnings (accumulated deficit) (4,452) 1,875
------------- -------------
175,163 180,797
------------- -------------
$ 248,905 $ 252,849
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(In thousands, except per share data) 1999 2000
------------- -------------
<S> <C> <C>
REVENUE:
Oil sales $ 2,246 $ 6,461
Gas sales 10,796 16,241
Interest and other 13 27
------------- -------------
13,055 22,729
------------- -------------
COSTS AND EXPENSES:
Lease operating expenses 2,455 2,909
Production taxes 76 461
Depreciation, depletion and amortization 8,546 10,491
General and administrative, net 1,173 1,355
Stock compensation, net 254 (70)
Interest expense 949 183
------------- -------------
13,453 15,329
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (398) 7,400
Income tax provision - 1,073
------------- -------------
NET INCOME (LOSS) $ (398) $ 6,327
============= =============
BASIC:
Earnings (loss) per share: $ (0.03) $ 0.34
Weighted average shares outstanding 13,973 18,478
DILUTED:
Earnings (loss) per share $ (0.03) $ 0.34
Weighted average shares outstanding 13,973 18,683
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON STOCK PAID-IN TREASURY STOCK (ACCUMULATED STOCKHOLDERS
(In thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT) EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1999 14,151 $ 142 $ 113,136 (186) $(2,571) $ (16,488) $ 94,219
Issuance of common stock 4,433 44 67,939 - - - 67,983
Common stock offering costs - - (465) - - - (465)
Exercise of warrants for
common stock 123 1 1,715 (86) (1,716) - -
Purchase of treasury stock - - - (30) (669) - (669)
Issuance and vesting of
restricted stock 55 1 2,058 - - - 2,059
Retirement of treasury stock (302) (3) (4,953) 302 4,956 - -
Net income - - - - - 12,036 12,036
---------------------------------------------------------------------------------------------------
BALANCES, December 31, 1999 18,460 185 179,430 - - (4,452) 175,163
Issuance of common stock 10 - 64 - - - 64
Purchase of treasury stock - - - (42) (648) - (648)
Issuance and vesting of
restricted stock 78 1 (110) - - - (109)
Retirement of treasury stock (42) (1) (647) 42 648 - -
Net income - - - - - 6,327 6,327
---------------------------------------------------------------------------------------------------
BALANCES, March 31, 1999 18,506 $ 185 $ 178,737 - - $ 1,875 $180,797
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(In thousands) 1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (398) $ 6,327
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Depreciation, depletion and amortization 8,546 10,491
Deferred income tax expense - 1,073
Stock compensation expense 254 (70)
Amortization of debt issuance costs and other 16 19
------------ ------------
8,418 17,840
Changes in operating assets and liabilities -
Decrease (increase) in -
Receivables 809 4,212
Prepaids and other (939) 1,276
(Decrease) increase in -
Accounts payable and accrued liabilities 2,986 (4,545)
------------ ------------
Net cash provided by operating activities 11,274 18,783
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (23,977) (28,021)
Deposits on offshore leases (566) (607)
Proceeds from sale of property and equipment 2,438 1,846
------------ ------------
Net cash used in investing activities (22,105) (26,782)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 23,500 23,000
Principle payments on notes payable and long-term debt (12,602) (17,000)
Proceeds from sale of stock 62 64
Purchase of treasury stock - (648)
Debt issuance costs and other (440) -
------------- ------------
Net cash provided by financing activities 10,520 5,416
------------ ------------
DECREASE IN CASH AND EQUIVALENTS (311) (2,583)
CASH AND EQUIVALENTS, beginning of period 331 3,777
------------ ------------
CASH AND EQUIVALENTS, end of period $ 20 $ 1,194
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 803 $ 99
============ =============
Cash paid for income taxes $ - $ -
============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED 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 as of March 31, 2000, and the results of
operations and cash flows for the three-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 Basin's Annual Report on Form 10-K for the year ended
December 31, 1999.
(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." SFAS 133 establishes accounting and reporting standards
requiring that, unless specific hedge accounting criteria are met, 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 market value and that changes in the derivative's
fair market value be recognized currently in earnings. SFAS 133 is effective for
Basin as of January 1, 2001, but early adoption is allowed. We have not yet
quantified the impacts of adopting SFAS 133 or determined the timing or method
of adoption. However, Statement 133 could increase volatility in earnings and
other comprehensive income.
8
<PAGE>
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. Basin's consolidated
financial statements and the accompanying notes contain additional detailed
information that should be referred to when reviewing this material.
Statements in this discussion may be forward-looking. Such forward-looking
statements involve risks and uncertainties that could cause actual results to
differ significantly from those expressed. See "Forward-Looking Statements."
HISTORY AND OVERVIEW
Basin Exploration, Inc. 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.
We commenced operations in 1981 and completed an initial public offering of
common stock in 1992. From our inception through 1991, we primarily acquired and
developed properties in the Denver- Julesberg Basin in eastern Colorado. 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 and initiated operations in the Gulf of Mexico.
Since that time, Basin's principal activities have related to property
acquisitions, exploratory drilling and property development in the shallow
waters of the Outer Continenetal 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 three months of 2000, we participated in six exploratory
wells and two development wells in the Gulf of Mexico, including wells in
progress at period end. Three of these wells are still under evaluation. Of
the five evaluated wells, we have completed or plan to complete four wells,
including two of the exploratory wells and both of the development wells.
RESULTS OF OPERATIONS
The following operating and financial data is provided to assist in
understanding results of operations for the periods presented.
9
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended March 31, March 31,
------------------------------------------------------------------------
1999 2000
------------------------------------------------------------------------
<S> <C> <C>
PRODUCTION:
Oil (MBBL) 165 235
Gas (MMCF) 5,803 6,498
Total gas equivalents (MMCFE) 6,793 7,908
AVERAGE REALIZED SALES PRICE:
Oil (PER BBL) $ 13.58 $ 27.45
Gas (PER MCF) $ 1.86 $ 2.50
Total gas equivalents (PER MCFE) $ 1.92 $ 2.87
REVENUE (IN THOUSANDS):
Oil sales $ 2,246 $ 6,461
Gas sales $ 10,796 $ 16,241
Total oil and gas sales $ 13,042 $ 22,702
EXPENSES (PER MCFE):
Lease operating expenses $ 0.36 $ 0.37
Production taxes $ 0.01 $ 0.06
Depreciation, depletion and amortization $ 1.26 $ 1.33
General and administrative, net $ 0.17 $ 0.17
</TABLE>
REVENUE. Oil and gas sales revenue for the three months ended March 31, 2000
totaled $22.7 million, representing an increase of $9.7 million, or 74%,
compared to the first quarter of 1999. This growth was achieved on a 16%
increase in net oil and gas production and a 49% increase in unit prices, based
on net equivalent unit measures. Increases in production were primarily
attributable to new fields brought on-line in the shallow-water Gulf of Mexico
during the past year as the result of the company's active drilling program in
the area. During the three months ended March 31, 2000, we obtained production
from 20 GOM properties, compared to 13 in the prior-year period. On an energy
equivalent basis, gas accounted for 82% of our production in the first quarter
of 2000, compared to 85% of our production in the first quarter of 1999. See
"Liquidity and Capital Resources" for additional discussion of the Company's oil
and gas production. Hedging transactions had the effect of increasing oil and
gas sales by $1.4 million, or $0.20 per Mcfe, in the three-month period ended
March 31, 1999, while decreasing oil and gas sales by $0.3 million, or $0.04 per
Mcfe, in the three-month period ended March 31, 2000.
LEASE OPERATING EXPENSES. Due to an increased number of producing properties and
higher production levels, lease operating expenses for the three months ended
March 31, 2000 increased by $0.5 million, or 18%, from the amount reported for
the comparable period in the prior year. Lease operating expenses per Mcfe
produced increased only slightly, from $0.36 in the quarter ended March 31, 1999
to $0.37 during the three months ended March 31, 2000.
PRODUCTION TAXES. Production taxes for the three months ended March 31, 2000
were $0.5 million, representing an increase of $0.4 million compared to 1999,
due to increased revenues from onshore properties, as the result of higher
oil and gas prices and increased production. Production taxes as a percentage
of oil and gas sales for the three months ended March 31, 2000 were 2.0%,
compared to 0.6% in 1999, due to a greater portion of our sales in 2000
attributable to Rocky Mountain properties. Sales from Gulf of Mexico
properties in federal waters offshore are generally not subject to production
taxes.
10
<PAGE>
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization expense for the three months ended March 31, 2000 totaled $10.5
million, representing an increase of $1.9 million, or 23%, compared to 1999.
The increase was attributable to the 16% growth in production volumes in
2000, compared to 1999, and to an increase in the per-unit depletion rate.
The depletion rate of $1.30 per Mcfe produced in the three months ended March
31, 2000 was 6% greater than the $1.23 per Mcfe average depletion rate during
the first quarter of 1999. The higher depletion rate in the first quarter of
the year 2000 reflects reserve additions at a higher average cost than our
adjusted historical average subsequent to recording a property impairment
charge in the fourth quarter of 1998.
GENERAL AND ADMINISTRATIVE, NET. General and administrative expense for the
three months ended March 31, 2000 was $1.4 million, representing an increase
of $0.2 million, or 16%, compared to the first quarter of 1999. The increase
resulted primarily from incremental costs incurred to manage expanded
operations in the Gulf of Mexico. General and administrative expense
increased at a rate comparable to that of production, resulting in general
and administrative expense per Mcfe produced of $0.17 in both 1999 and 2000.
STOCK COMPENSATION, NET. Stock compensation expense for the three months ended
March 31, 2000, net of amounts capitalized, was a credit of $0.1 million,
representing a decrease of $0.3 million compared to the first quarter of 1999.
Stock compensation expense relates to annual grants to employees of restricted
stock, including shares awarded to senior management that will be earned only if
certain performance measures are achieved by Basin. Expense is recognized based
on vesting schedules, projections of performance, and changes in the price of
our common stock during applicable vesting periods. The credit reflects the
effects of a lower common stock price at the end of the first quarter of 2000
than at the beginning of the period.
INTEREST EXPENSE. Interest expense for the three months ended March 31, 2000
totaled $0.2 million, representing a decrease of $0.8 million, or 81%, compared
to the first quarter of 1999. The variance was attributable to a decrease in
average borrowings offset by an increase in average effective interest rates.
During the quarter ended March 31, 2000, Basin had average outstanding debt of
$38.8 million, with an average effective interest rate of 7.3%, compared to
average debt of $88.5 million and an average interest rate of 6.8% in the
comparable 1999 period. Interest expense in 1999 and 2000 excludes $0.6 million
and $0.5 million, respectively, of interest capitalized to unproved property
costs in accordance with Statement of Financial Accounting Standards No. 34.
INCOME TAX BENEFIT (PROVISION). No net income tax benefit was recognized in 1999
due to an equivalent increase in a deferred tax asset valuation allowance.
Basin's provision for income taxes in the first quarter of 2000 benefited from
the utilization of the $1.5 million deferred tax asset valuation allowance
remaining at December 31, 1999. No such deferred asset remains at March 31,
2000, so Basin's effective tax rate in future periods should generally
approximate its statutory rate, which currently is 35%.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Basin's principal sources of capital have been cash flow from
operations, borrowings under a revolving line of credit, proceeds from asset
sales, and proceeds from sales of common stock. Our principal uses of capital
have been for the exploration, acquisition, and development of oil and gas
properties.
Basin's gross accrual-basis capital expenditures during the first three months
of 2000 totaled approximately $23.8 million. Net capital expenditures totaled
approximately $21.9 million, after reflecting recoupments from partners of $1.9
million from sales of partial interests in prospects. Our principal sources of
funds in the first quarter of 2000 were $17.8 million of net cash provided by
operations before changes in working capital, and $6.0 million of net proceeds
from borrowings under our revolving line of credit. At March 31, 2000, we had a
working capital deficit of approximately $10.0 million and long-term debt
outstanding under our revolving line of credit of $40.0 million. The borrowing
base established under our revolving line of credit is currently $90 million.
PRODUCTION AND CASH FLOW. Our cash flow from operations is generally determined
primarily by our production level and realized oil and gas prices. During the
first three months of 2000, we produced approximately 7.9 Bcfe of oil and gas
and realized prices averaging $2.87 per Mcfe.
As of March 31, 2000, we owned interests in six Gulf of Mexico fields under
development for initial production. We expect two of these, Vermilion Block
267 and Mississippi Canyon Block 110, to commence production later in the
current period, but we do not expect them to be on-line for a sufficient
portion of the second quarter of 2000 to fully offset projected
depletion-related declines on other properties. As a result, we estimate that
our production will decline modestly in the second quarter from the first
quarter level, but will increase in the third and fourth quarters of this
year, as greater contributions are received from these two fields and from
three additional fields that are expected to begin producing in the third
quarter of 2000. For the full year, we estimate that our net production will
total at least 34.5 Bcfe, compared to 32.5 Bcfe produced in 1999, and that we
will continue to realize higher average net oil and gas prices than in 1999,
when our prices received averaged $2.20 per McFe. Actual realization of the
production increases projected for 2000 will be dependent upon meeting
scheduled dates for commencement of production from wells not yet on-line at
the end of March 2000, and upon achieving projected performance from major
wells, including certain wells with little or no production history. Although
management and Basin's independent petroleum engineering consultants believe
the 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 production levels. We currently have
oil and gas hedging contracts in effect covering approximately 7.3 Bcfe of
production during the remainder of 2000, at NYMEX prices averaging a minimum
of $2.78 per Mcfe, as summarized below. We will receive prevailing market
prices at the time of sale for the remainder of our production, subject to
entering into additional hedging arrangements in the future.
MARKETING AND HEDGING TRANSACTIONS. Basin's production is generally sold under
month-to-month contracts at prevailing prices. From time-to-time, however, as we
think conditions 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 achieve a more predictable cash flow, and to take advantage of
prices that we view as attractive. However, such contracts also limit the
benefits we would realize if prices increase. Hedging
12
<PAGE>
transactions had the effect of increasing oil and gas sales by $1.4 million, or
$0.20 per Mcfe, in the three-month period ended March 31, 1999, while decreasing
oil and gas sales by $0.3 million, or $0.04 per Mcfe, in the three-month period
ended March 31, 2000.
Through May 12, 2000, Basin had entered into the following fixed price swap and
collar arrangements covering the period beginning April 1, 2000 (one MMBtu
approximates one Mcf of natural gas):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OIL SWAPS GAS SWAPS GAS COLLARS
- ----------------------------------------------------------------------------------------------------------------------
Average Daily NYMEX Average NYMEX Average Daily NYMEX NYMEX
Time Period Volume (Bbl) Price/Bbl Daily Price/ Volume Floor Ceiling
Volume MMBtu (MMBtu) Price/MMBtu Price/MMBtu
(MMBtu)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
04/1/00-06/30/00 1,000 25.13 6,700 3.00 6,700 2.80 3.20
- ----------------------------------------------------------------------------------------------------------------------
07/1/00-09/30/00 10,000 3.00 10,000 2.80 3.20
- ----------------------------------------------------------------------------------------------------------------------
10/1/00-12/31/00 6,600 2.15 300 2.80 3.20
- ----------------------------------------------------------------------------------------------------------------------
01/1/01-12/31/03 10,000 2.15
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
As of May 12, 2000, Basin had also sold call options covering 10,000 MMBtu of
gas per day for the period from April 2000 through December 2001, at an average
strike price of $2.50 per MMBtu.
REVOLVING LINE OF CREDIT. Effective January 1, 1999, and as subsequently
amended, we entered into a credit agreement with our bank group that provides
for borrowings of up to $150 million. The maximum amount that we can draw is
limited to the borrowing base that is periodically established by the bank
group. Interest rates applied to borrowings under the credit agreement 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 applied to LIBOR, based upon our facility usage ratio. Our credit agreement
contains various covenants, including limitations on our ability to incur other
debt, dispose of assets, pay dividends, or repurchase stock. Pursuant to our
credit agreement, 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 agreement provides for borrowings to be revolving loans until
November 30, 2002, at which time the outstanding balance will be converted into
a four-year amortizing term loan unless the credit agreement is amended. The
borrowing base under the credit agreement is scheduled to be re-determined at
six-month intervals until the revolving loan is converted into a term loan. Our
borrowing base is currently set at $90 million, and the next re-determination is
scheduled to occur as of June 1, 2000. 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, which 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
agreement at March 31, 2000 was 6.7%. Our annual interest costs will fluctuate
based upon changes in short-term interest rates and borrowings outstanding.
Assuming debt outstanding during 2000 remained unchanged from the amount
outstanding at March 31, 2000, the annual impact on interest expense of a ten
percent change in the average interest rate would be approximately $0.3 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.
13
<PAGE>
Positive or negative changes in the borrowing base during 2000 could impact the
level of our capital expenditures during the year. Increases, supported by
performance of our properties, drilling results, and/or higher oil and gas
prices, could improve our ability to grow. Decreases would adversely affect our
liquidity and capital resources, potentially resulting in a reduction of planned
capital expenditures or the sale of assets or the issuance of securities.
CAPITAL EXPENDITURES. Our capital expenditures are generally discretionary and
activity levels are determined by a number of factors, including oil and gas
prices, availability of funds, quantity and character of identified investment
projects, availability of service providers, and competition. Since the
beginning of 1996, we have largely focused our exploration activities in the
shallow waters of the Gulf of Mexico, primarily off the coast of Louisiana.
During the second half of 1998 we began to direct a relatively small portion of
our exploration budget toward onshore projects. In addition to our exploration
activities, we also pursue property acquisition 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.
Basin's gross capital expenditures during the three months ended March 31,
2000 totaled approximately $23.8 million. Our net capital expenditures
totaled approximately $21.9 million, after reflecting $1.9 million of
proceeds from asset sales. Gulf of Mexico operations accounted for
approximately 83% of our aggregate gross capital investments. These
investments principally related to the ongoing development of six properties
with productive wells drilled in earlier periods, participation in the
drilling of eight wells, development costs related to four of the five
evaluated wells that were successful, and costs related to identification and
acquisition of exploratory prospects. At the March 2000 federal Central Gulf
of Mexico lease sale, we also submitted deposits totaling $1.1 million
related to ten apparent winning bids aggregating $5.4 million. The Minerals
Management Service has subsequently awarded four of the leases to us and is
continuing to review the other six high bids. The remainder of our
investments was associated with our onshore activities, including
exploitation of various Rocky Mountain properties and investments in seismic
data and leaseholds for future exploration.
Basin's initial exploration and development budget for 2000 provides for net
capital investments of approximately $85 million. This budget primarily provides
for:
- development of six Gulf of Mexico properties with one or more
discovery wells yet to commence sustained production as of the end of
1999;
- participation in approximately six to eight net (15 to 20 gross) wells
in the Gulf of Mexico, most of which are expected to be exploratory
wells;
- participation in five to eight (gross) onshore exploration prospects;
- development of projected year 2000 exploratory discoveries;
- continued exploitation of our other offshore and onshore properties;
and
- acquisitions of seismic data and exploratory leaseholds, both in the
Gulf of Mexico and onshore.
14
<PAGE>
Subject to realization of our projected production volumes and average oil and
gas prices in 2000, we anticipate being able to fund the substantial majority of
our planned capital investments this year with cash flow from operations. We
plan to utilize current capacity under our revolving line of credit for the
estimated residual.
We also intend to pursue acquisitions of properties with proved and probable
reserves as an integral part of our overall business strategy. This strategy
contemplates pursuing onshore proved properties to further establish core
operating areas complementary to our Gulf of Mexico operations, and Gulf of
Mexico properties with identified upside potential. We expect that these efforts
will result in significant investment activity over time. However, we presently
have not specifically allocated any portion of our 2000 budget for acquisitions
of proved properties. If such a transaction is executed, it may require a
re-allocation of funds from other planned activities and/or external financing,
in addition to utilization of our revolving line of credit with our banks. In
such instance, our overall capital budget for the year would likely be
increased, potentially significantly.
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 projections regarding production, oil and
gas prices, and borrowing base re-determinations under our revolving line of
credit. Due to these uncertainties, and other matters described under
"Forward-Looking Statements", actual capital expenditures may vary significantly
from current expectations.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information in this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements express, or are based
on, expectations about future events, activities, or developments that we
expect, believe, project, intend, estimate, plan or anticipate will, should,
could or may occur. These include such matters as:
- business strategies;
- amount and nature of capital expenditures;
- estimated oil and gas reserves;
- timing and amount of future production of oil and gas;
- operating costs and other expenses;
- cash flow and anticipated liquidity;
- marketing of oil and gas;
- drilling of wells; and
- prospect development and property acquisitions.
There are many factors that could cause these forward-looking statements to be
incorrect, including, but not limited to, the risks described in the foregoing
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Basin's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 29, 2000. These factors 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;
- 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 significant wells;
- concentration of value in a relatively small number of properties
offshore;
- the strength and financial resources of Basin's 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;
and
- regulatory developments.
When you consider these forward-looking statements, you should keep in mind
these risk factors and the other cautionary statements in this report. Our
forward-looking statements speak only as of the date made. Neither Basin nor any
person acting on Basin's behalf undertakes any obligation to update any
forward-looking statements in this report or any statement incorporated by
reference.
16
<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) None
(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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
17
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
<TABLE>
<S><C>
2.1 Agreement and Plan of Merger between Sterling Energy Corporation, Basin Energy, Inc. and Basin
Exploration, Inc. dated October 13, 1994(4)
2.2 Plan of Merger between Basin Sterling, Inc. and Basin Exploration, Inc. dated November 22, 1994(4)
2.3 Plan of Merger between Basin Operating Company and Basin Exploration, Inc. dated December 14, 1994.(5)
3.1 Restated Certificate of Incorporation of Basin.(2)
3.2 Restated Bylaws of Basin, as amended February 23, 2000.(13)
4.1 Common Stock Certificate of Basin.(2)
10.1 Equity Incentive Plan as amended May 12, 1999.(11)
10.2 Employment Agreement dated March 31, 1992 by and between Basin Exploration, Inc. and Michael S.
Smith.(3)
10.3 Gulf Coast Geoscientist Overriding Royalty Interest Plan as amended November 10, 1999.(12)
10.4 Onshore Geoscientist Overriding Royalty Interest Plan dated August 24, 1999.(12)
10.5 Form of Rights Agreement dated as of February 24, 1996, between Basin Exploration, Inc. and
Corporate Stock Transfer, Inc. as Rights Agent.(6)
10.6 Performance Shares Plan approved February 4, 1997.(8)
10.7 Change of Control Employment Agreement dated October 13, 1995 between Basin Exploration, Inc.
and Howard L. Boigon.(7)
10.8 Amendment to Change of Control Employment Agreement dated June 2, 1999 between Basin
Exploration, Inc. and Howard L. Boigon.(11)
10.9 Change of Control Agreement dated August 28, 1997 between Basin Exploration, Inc. and Samuel D.
Winegrad.(11)
10.10 Change of Control Agreement dated August 1, 1997 between Basin Exploration, Inc. and Neil L.
Stenbuck.(12)
10.11 Employment Agreement dated February 1, 1999, between Basin Exploration, Inc. and David A.
Pustka.(10)
10.12 Change of Control Agreement dated March 24, 1999 between Basin Exploration, Inc. and Thomas J.
Corley.(13)
10.13 Employment Agreement dated January 28, 1999, between Basin Exploration, Inc. and Patrick A.
Jackson.(10)
10.14 Change of Control Agreement dated May 12, 1999 between Basin Exploration, Inc. and Dalton F.
Polasek.(13)
10.15 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.(9)
10.16 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.(10)
10.17 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.(11)
10.18 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.(12)
10.19 Third Amendment of Amended and Restated Credit Agreement dated December 1, 1999, among Basin
Exploration, Inc. and U.S. Bank National Association, Union Bank of California, Toronto
Dominion (Texas), Inc. and Bank of America National Trust and Savings Association.(12)
27 Financial Data Schedule(1)
(1) Filed herewith.
(2) Filed as an Exhibit to Basin's Registration Statement on Form
S-1 as filed on March 17, 1992, Registration No. 33-46486, and
incorporated herein by reference.
(3) Filed as an Exhibit to Amendment No. 1 to Basin's Registration
Statement on Form S-1 as filed on April 21, 1992, Registration
No. 33-46486, and incorporated herein by reference.
(4) Filed as an Exhibit to Form 8-K filed on December 10, 1994,
and incorporated herein by reference.
(5) Filed as an Exhibit to Form 10-K filed on March 28, 1995, and
incorporated herein by reference.
(6) Filed as an Exhibit to Form 8-K filed on February 26, 1996,
and incorporated herein by reference.
(7) Filed as an Exhibit to Form 10-K filed on March 28, 1996, and
incorporated herein by reference.
(8) Filed as an Exhibit to Form 10-K filed on March 31, 1997, and
incorporated herein by reference.
(9) Filed as an Exhibit to Form 8-K filed on December 11, 1997,
and incorporated herein by reference.
(10) Filed as an Exhibit to Form 10-K filed on March 30, 1999, and
incorporated herein by reference.
(11) Filed as an Exhibit to Form 10-Q filed on August 16, 1999, and
incorporated herein by reference.
(12) Filed as an Exhibit to Form 10-Q filed on November 15, 1999 and
incorporated herein by reference.
(13) Filed as an Exhibit to Form 10-K filed on March 29, 2000, and
incorporated herein by reference.
(b) Reports on Form 8-K
None
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BASIN EXPLORATION, INC.
-----------------------
(Registrant)
Date: May 12, 2000 By:/s/ Neil L. Stenbuck
--------------------
Neil L. Stenbuck
Chief Financial Officer
Date: May 12, 2000 By:/s/ James A Tuell
-----------------
James A. Tuell
Controller and
Chief Accounting Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,194
<SECURITIES> 0
<RECEIVABLES> 16,121
<ALLOWANCES> 0
<INVENTORY> 251
<CURRENT-ASSETS> 20,813
<PP&E> 399,228
<DEPRECIATION> 168,242
<TOTAL-ASSETS> 252,849
<CURRENT-LIABILITIES> 30,792
<BONDS> 40,000
0
0
<COMMON> 185
<OTHER-SE> 180,612
<TOTAL-LIABILITY-AND-EQUITY> 252,849
<SALES> 22,702
<TOTAL-REVENUES> 22,729
<CGS> 3,370
<TOTAL-COSTS> 15,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 7,400
<INCOME-TAX> 1,073
<INCOME-CONTINUING> 6,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,327
<EPS-BASIC> .34
<EPS-DILUTED> .34
</TABLE>
