United States
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended September 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period from .......... to ..........
Commission File Number..........1-12508
MAGNUM HUNTER RESOURCES, INC.
Exact name of registrant as specified in its charter
Nevada 87-0462881
State or other jurisdiction of IRS employer identification No.
incorporation or organization
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039
Address of principal executive offices
(972) 401-0752
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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 4, 1998: 21,057,413
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements of Magnum Hunter Resources, Inc.
("Magnum Hunter"or the "Company") follow "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operation".
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis should be read in conjunction with
Magnum Hunter's consolidated financial statements and the notes associated with
them contained in its Form 10-KSB for the year ended December 31, 1997. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum
Hunter.
In January 1997, the Company purchased a fifty percent (50%) interest in a
natural gas liquids processing plant, the McLean Gas Plant, which is connected
to the Panoma gas gathering system, for $2.5 million. The related operating
agreement allows the Company to recoup its investment out of one hundred percent
(100%) of the net profits of the plant before reverting to a fifty percent (50%)
interest after payout.
On April 30, 1997, the Company purchased from Burlington Resources Inc.
certain oil and gas properties located in the Permian Basin (hereinafter
referred to as the "Permian Basin Properties") for a net price of approximately
$133.8 million, including, but not limited to, certain adjustments for a January
1, 1997 effective date. The acquisition consisted of 1,852 producing oil and
natural gas wells and associated acreage located in 25 field areas of West Texas
and in 22 field areas of Southeast New Mexico.
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On April 29, 1997, Bankers Trust Company, as Agent, provided the Company
with a $130 million revolving line of credit with a term of five years and a $60
million one year senior subordinated bridge facility. The new credit facilities
were used to fund the Permian Basin Properties acquisition and to replace the
previously existing $100 million revolving credit facility with a different bank
group. The revolving line of credit allows the Company to choose either "LIBOR"
or "Prime" based interest rate options.
On May 29, 1997, the Company placed, through a Rule 144A private placement
offering, $140 million in Senior Notes due 2007. The Notes have a 10% coupon,
with interest payable on June 1 and December 1, commencing on December 1, 1997.
There is no restriction on the ability of any consolidated or unconsolidated
subsidiary to transfer funds to the Company in the form of cash dividends, loans
or advances. Net proceeds from the sale of the Senior Notes were used to
completely repay the Company's $60 million senior subordinated term loan
facility with the remaining proceeds used to repay a substantial portion of the
Company's outstanding revolving credit facility. At that time, the maximum
commitment under the revolving credit facility was reduced from $130 million to
$75 million, with a borrowing base of $60 million. The credit facility was
amended as of September 30, 1997, to increase the maximum commitment from $75
million to $125 million, increase the borrowing base by $5 million to $65
million, and modify the interest expense coverage ratio test. As of June 1,
1998, the Company's credit line was enhanced by the addition of two new banks to
the group, the extension of the term of the facility from four to five years,
reaffirmation of the borrowing base of $65 million, improving the credit ratios
and loan covenants, and lowering the interest rate spreads by 1/4 percent.
On December 18, 1997, the Company acquired a thirty percent (30%)
membership interest in NGTS, LLC, ("NGTS") a newly formed wholly owned
subsidiary of Natural Gas Transmission Services, Inc., a natural gas marketing
and trading company based in Dallas, Texas. NGTS assumed all of the parent
company's operations as of December 1, 1997. The Company dedicated substantially
all of its natural gas production to NGTS for marketing. The Company's $4.35
million acquisition was completed with a combination of cash ($2.35 million) and
promissory notes ($2.0 million) that have equity "put" features. The Company
may, at any time, retire the promissory notes due December 1, 1998, with common
stock or cash.
2
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On January 28, 1998, the Company commenced a cash purchase offer for Units
of TEL Offshore Trust ("Tel"). Previous to the offer, the Company owned 161,500
Units representing 3.4% of the Units outstanding. As amended, the offer was to
purchase between forty percent (40%) and sixty percent (60%) of the Trust's
outstanding Units at $5.50 per Unit. On March 27, 1998, the Company purchased
1,745,353 Units pursuant to the tender offer and, together with the Units it
previously owned, represented 40.1% of the total number of Units outstanding.
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are depleted and
charged to operations using the unit-of-production method based on the ratio of
current production to total proved oil and gas reserves. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the sum of (i) the discounted estimated future net
cash flow from proved oil and gas reserves (SEC PV-10) and (ii) the lower of
cost or fair value of unproved properties after income tax effects, such excess
costs are charged to operations. Once incurred, a write-down of oil and gas
properties is not reversible at a later date even if oil or gas prices
subsequently increase. While the Company has never been required to write-down
its asset base, significant downward revisions of quantity estimates or further
declines in oil and gas prices, which are not offset by other factors, such as
new oil and gas reserve additions, could possibly result in the write-down of
the Company's oil and gas properties as currently valued on the balance sheet.
Results of Operations for the Nine Month Periods in 1998 and 1997
As discussed above, the Company acquired the Permian Basin Properties in
April 1997, and its interest in Tel in March 1998. Unless otherwise stated, the
increases in the 1998 interim period over the 1997 interim period were
substantially a result of these acquisitions and the increases in daily oil and
gas production associated with the Company's successful drilling activities.
3
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Crude oil and natural gas sales were $33,698,000 in 1998, a 53% increase
over 1997. The Company sold 851,760 barrels of oil, a 74% increase, and
10,535,070 Mcf of gas, a 63% increase, in 1998 as compared to 1997. The price
received for oil was $13.23 per barrel and for gas was $2.08 per Mcf in 1998,
representing a 26% decrease in oil price and a less than 1% increase in gas
price compared to 1997. Oil and gas sales for the 1998 period also included
$541,000 resulting from the settlement of gas imbalances with another producer
on several of the Company's gas wells. Oil and natural gas production lifting
costs increased 129% to $10,854,000 while production taxes and other costs
increased 50% to $4,593,000 in 1998 over 1997. The gross operating margin from
oil and natural gas production was $18,251,000 in 1998, a 28% increase over
1997. On an equivalent unit basis, the gross margin was $1.14 per Mcfe in 1998,
a 25% decrease. The sales price declined 10% to $2.12 per Mcfe while production
lifting costs increased 35% to $0.69 per Mcfe from 1997 to 1998. Production
taxes and other costs including overhead, were $0.29 per Mcfe in 1998, a 12%
decrease from 1997. The overall increase in the gross operating margin from 1997
to 1998 was principally due to a 67% increase in Mcfe sold, from 9,389,326 Mcfe
to 15,644,893 Mcfe.
Gas gathering, marketing, and processing revenues were $5,193,000 in the
1998 period, a 33% decrease from 1997, principally due to lower prices received
for natural gas and natural gas liquids. Costs from these activities were
$4,387,000 in 1998, a 24% decrease principally due to lower gas prices. Gross
operating margin was $806,000 in 1998, a 58% decrease. The decrease in gross
operating margin was due to lower marketing profits and less favorable
processing economics. Gathering system throughput increased 2% to 20,669 Mcf per
day in 1998. Natural gas plant processing throughput increased 7% to 15,511 Mcf
per day in 1998. Gross operating margin from gathering and marketing operations
was $0.10 per Mcf of throughput in 1998, a 60% decline. The gross operating
margin from natural gas processing was $0.07 per Mcf in 1998, a 68% decline.
Revenues from oil field services and international sales were $703,000 in
1998 versus $3,792,000 in 1997, principally due to a decrease in sales by Hunter
Butcher International, L.L.C. ("Hunter Butcher"). Operating costs decreased to
$361,000 in 1998 from $3,482,000 in 1997, also principally due to Hunter
Butcher. The gross operating margin from these activities increased by $32,000
to $342,000 in 1998 versus $310,000 in the 1997 period.
4
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Depreciation and depletion expense increased 58% to $13,621,000 in 1998
primarily due to the increase in production as a result of prior acquisitions.
General and administrative expense was $2,250,000 in 1998, a 99% increase over
1997, due to increased staffing to manage the significantly larger number of
properties owned by the Company and other costs associated with the increase in
production. On a MCF equivalent basis of daily production, general and
administrative expenses increased 17% to $0.14 per Mcfe in 1998 as compared to
$0.12 per Mcfe in 1997.
Operating profit decreased 48% to $3,528,000 in 1998 from 1997. Equity in
loss of affiliate was $53,000 in 1998 versus none in 1997, due to the
acquisition of an interest in NGTS in December 1997. Other income decreased 29%
to $433,000 in 1998 versus $608,000 in 1997. Interest expense increased 44% to
$13,407,000 in 1998 due to increased levels of borrowing under the Company's
revolving credit lines with banks and the 10% Senior Notes outstanding. The
Company incurred a net loss before income tax and minority interest of
$9,499,000 in 1998, versus a $1,925,000 loss in 1997, principally due to lower
oil prices, interest expense on the acquisitions exceeding operating income and
a higher charge for depreciation and depletion. The Company provided for a
deferred income tax benefit of $3,589,000 on this loss in 1998 versus $731,000
in 1997. The Company reported a net loss before extraordinary item of
$5,935,000, or $0.31 per common share, in 1998 versus a $1,234,000 loss or $0.14
per common share, in 1997.
The Company realized an extraordinary loss of $1,384,000 ($0.10 per common
share) in the 1997 period as required under Accounting Principles Board ("APB")
Statement No. 26 and Statement of Financial Standards ("SFAS") No. 4, from the
early extinguishment of bank debt. The early extinguishment was a result of the
10% Senior Notes financing and amended revolving credit agreements with banks
arranged to facilitate the acquisition of the Permian Basin Properties. The net
loss, after the extraordinary charge, applicable to common shareholders was
$6,592,000 ($0.31 per share) in 1998 compared to a net loss of $3,275,000 ($0.24
per share) in 1997. The Company accrued $657,000 in dividends on its preferred
stock in both years 1998 and 1997.
5
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Results of Operations for the Three Month Periods in 1998 and 1997
As discussed above, the Company acquired its interest in Tel in March 1998.
Unless otherwise stated, the increases in the 1998 interim period over the 1997
interim period were substantially the result of this acquisition and the
increases in daily oil and gas production associated with the Company's
successful drilling activities.
Crude oil and natural gas sales were $11,634,000 in 1998, an 8% increase
over 1997. The Company sold 308,016 barrels of oil, a 23% increase, and
3,778,164 Mcf of gas, a 21% increase, in 1998. The price received for oil was
$12.23 per barrel and for natural gas was $2.08 per Mcf in 1998, representing a
29% decrease in the oil price and no change in the gas price compared to 1997.
Oil and natural gas production lifting costs increased 89% to $4,153,000 while
production taxes and other costs decreased 8% to $1,243,000 in 1998 compared to
1997. The gross operating margin from oil and natural gas production was
$6,238,000 in 1998, a 14% decrease from 1997. On an equivalent unit basis, the
gross margin was $1.11 per Mcfe in 1998, a 29% decrease. The sales price
declined 11% to $2.07 per Mcfe while production lifting costs were $0.74 per
Mcfe in 1998, a 54% increase over 1997. Production taxes and other costs,
including overhead, were $0.22 per Mcfe in 1998, a 24% decrease from 1997. Mcfe
sold increased 22% to 5,626,080 Mcfe in 1998 from 4,618,465 Mcfe in 1997.
Gas gathering, marketing, and processing revenues overall were $1,697,000
in the 1998 period, a 30% decrease from 1997. Costs from these activities were
$1,535,000 in 1998, an 18% decrease from 1997. Gross operating margin was
$162,000 in 1998, a 72% decrease due to lower gas marketing profits and less
favorable processing economics. Gathering system throughput was 20,365 Mcf per
day in 1998, essentially unchanged compared to 1997. Natural gas plant
processing throughput was 15,907 Mcf per day in 1998, a 2% increase. Gross
operating margin from gathering and marketing operations was $0.10 per Mcf of
throughput in 1998, a 37% decline. The gross operating margin from natural gas
processing was $0.02 per Mcf of throughput in 1998, a 91% decline.
6
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Revenues from oil field services and international sales were $249,000 in
1998, a 34% increase. Operating costs were $121,000 in 1998, a 109% increase.
The gross operating margin was $128,000 in 1998, unchanged from 1997.
Depreciation and depletion expense increased 16% to $4,805,000 in 1998 primarily
due to the increase in proved reserves as a result of acquisitions and
development success achieved on existing properties. General and administrative
expense was $750,000 in 1998, a 57% increase over 1997, due to increased
staffing associated with the acquisition of the Permian Basin Properties and
other costs. Operating profit decreased 70% to $973,000 in 1998 from 1997. Other
income was $50,000 in 1998, a decrease of 89% from 1997. Interest expense
increased 3% to $4,656,000 in 1998 from 1997. The Company provided for a
deferred income tax benefit of $1,381,000 on this loss in 1998 versus $300,000
in 1997. The Company reported a net loss before extraordinary item of
$2,272,000, or $0.12 per common share in 1998, versus a net loss of $509,000 or
$0.05 per common share in 1997. The net loss applicable to common shareholders
was $2,491,000 ($0.12 per share) in 1998 compared to a loss of $728,000 ($0.05
per share) in 1997. The Company accrued $219,000 in dividends on its preferred
stock in both years 1998 and 1997.
Liquidity and Capital Resources
The Company has three principal operating sources of cash: (i) sales of oil
and gas, (ii) revenues from gas gathering, processing, and marketing, and (iii)
revenues from petroleum management and consulting services. The Company's cash
flow is highly dependent upon oil and gas prices. Decreases in the market price
of oil and gas could result in reductions of both cash flow and the borrowing
base under the Company's Credit Facility, which would result in decreased funds
available, including funds for future capital expenditures.
On April 30, 1997, the Company closed the acquisition of the Permian Basin
Properties for a net purchase price of approximately $133.8 million. At the same
time, the Company's previously existing $100.0 million credit facility was
replaced by two new credit facilities; (i) a $130.0 million Credit Facility and
(ii) a $60.0 million Term Loan Facility for a combined aggregate amount of
$190.0 million. The initial advances under these new facilities totaled $179.5
million, including funds to complete the Permian Basin Properties acquisition,
to pay principal and accrued interest remaining on the Company's previous credit
facility, and to provide cash for working capital purposes.
7
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On May 29, 1997, the Company sold, through a Rule 144A private placement
offering, $140.0 million aggregate principal amount of Senior Notes. Net
proceeds from the sale of the Senior Notes were used to completely repay the
Company's Term Loan Facility in the principal amount of $60.0 million and to
repay a substantial portion of the indebtedness outstanding under the Credit
Facility. The Senior Notes are unsecured and bear interest at 10% per annum,
with interest payable on June 1 and December 1 commencing on December 1, 1997.
After paydown, the maximum commitment under the Credit Facility was reduced from
$130.0 million to $75.0 million, with a borrowing base of $60.0 million. The
Credit Facility was subsequently amended effective September 30, 1997 to
increase the maximum commitment from $75.0 million to $125.0 million, increase
the borrowing base by $5.0 million to $65.0 million and modify the interest
coverage ratio. As of June 1, 1998, the Company's credit line was enhanced by
the addition of two new banks to the group, the extension of the term of the
facility from four to five years, reaffirmation of the current borrowing base of
$65 million, improving the credit ratios and loan covenants, and lowering the
interest rate spreads by 1/4 percent. With these adjustments, total long-term
debt under the Credit Facility at September 30, 1998 was $50 million, leaving
$15 million available to draw under this Credit Facility. At September 30, 1998,
the Company had $1.6 million in cash and cash equivalents in addition to the
funds available under the Credit Facility as well as other liquid investments.
The Company failed to meet the interest coverage ratio test under the
Credit Facility at September 30, 1998. The banks waived the non-compliance with
this provision for the quarter ended September 30, 1998. Additionally, the banks
lowered the interest coverage ratio test that must be met in the fourth quarter
of 1998 to a level such that management believes that the Company will be in
compliance at December 31, 1998.
For the nine months ended September 30, 1998, the Company had a net
decrease in cash of $1,467,000. The Company's operating activities provided net
cash of $11.5 million, principally from operating income before depreciation,
depletion, and deferred taxes, and a decrease in accounts receivable. The
Company used $40.4 million in investing activities, principally for additions to
property and equipment of $36.5 million. Financing activities provided $27.4
million of cash, principally from the issuance of long-term debt of $36.5
million, less principal payments on such debt in the amount of $3.6 million. The
Company also paid $657,000 in dividends on preferred stock.
8
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Capital Requirements
For fiscal 1998 the Company has budgeted approximately $36 million for
development and exploration activities, including $30 million budgeted for
development projects on the Permian Basin and Panoma Properties and $6.0 million
budgeted for exploration projects. In addition, with respect to the Permian
Basin Properties acquisition, the Company anticipates that it may in the future
spend in excess of $25 million on a development drilling program to enhance an
existing waterflood project in the Westbrook Field located in Mitchell County,
Texas. The Company is not contractually obligated to proceed with any of its
budgeted capital expenditures. The amount and allocation of future capital
expenditures will depend on a number of factors that are not entirely within the
Company's control or ability to forecast, including drilling results and changes
in oil and gas prices. Due to the decline in oil prices beginning earlier in the
year, the Company has redirected a significant portion of its budgeted funds
from oil projects to natural gas and has additionally deferred certain other
capital projects until a later date.
In connection with the acquisition of a 30% interest in NGTS, the Company
is obligated to pay a $2.0 million note to current and former shareholders of
NGTS. This loan is due December 1, 1998 and may be repaid at any time by the
Company with cash or shares of its common stock.
Based upon the Company's anticipated level of operations, the Company
believes that cash flow from operations together with the availability under the
existing Credit Facility (approximately $15 million as of September 30, 1998)
and other financial options available to the Company, will be adequate to meet
its anticipated requirements for working capital, capital expenditures and
scheduled interest payments for the foreseeable future.
In the normal course of business, the Company reviews opportunities for the
possible acquisition of oil and gas reserves and activities related thereto.
When potential acquisition opportunities are deemed consistent with the
Company's growth strategy, bids or offers in amounts and with terms acceptable
to the Company may be submitted. It is uncertain whether any such bids or offers
which may be submitted by the Company from time to time will be acceptable to
the sellers. In the event of a future significant acquisition payable in cash,
the Company may require additional financing in connection therewith.
9
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Inflation and Changes in Prices
During the past several years, the Company has experienced some inflation
in oil and gas prices with moderate increases in property acquisition and
development costs. During 1997, the Company received lower (13%) oil prices and
slightly lower (1%) gas prices for the natural resources produced from its
properties. For the three months ended September 30, 1998 compared to the same
period in 1997, oil prices were significantly lower (29%) while gas prices were
unchanged. The results of operations and cash flow of the Company have been, and
will continue to be, affected by the volatility in oil and gas prices. Should
the Company experience a significant increase in oil and gas prices that is
sustained over a prolonged period, it also expects that there would be a
corresponding increase in oil and gas finding costs, lease acquisition costs,
and operating expenses. Periodically the Company enters into futures, options,
and swap contracts to reduce the effects of significant fluctuations in crude
oil and gas prices. It is policy of the Company not to enter into any such
arrangements which exceed 75% of the Company's anticipated oil and gas
production.
The Company markets oil and gas for its own account, which exposes the
Company to the attendant commodities risk. Substantially all of the Company's
gas production is currently sold to NGTS or end users either ( i) on the spot
market on a month-to-month basis at prevailing spot market prices or (ii) under
long-term contracts based on current spot market prices. The Company normally
sells its crude oil under month-to-month contracts with a number of different
purchasers.
Hedging Activity
Periodically, the Company enters into futures, options, and swap contracts
to reduce the short term effects of fluctuations in crude oil and natural gas
prices. As of September 30, 1998, the Company had none of its oil production and
approximately 29% of its gas production hedged in October 1998, 47% from
November 1998 through March 1999, and 13% from then through October 1999.
Effective June 1998, the Company closed out its previous oil price collar
position ($18.50 floor and $23.25 ceiling price) on 30,000 Bbls of oil per
month, resulting in a gain of $573,000 which is being recognized over the
periods June through December of 1998. At September 30, 1998, the Company had
fixed price swaps covering 100,000 MMBtu of gas per month at $2.36 per MMBtu
from November 1998 through
10
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March 1999, 200,000 MMBtu of gas per month at $2.06 per MMBtu f rom April
1999 through October 1999, and gas price collars covering 600,000 MMBtu per
month on the call side and 400,000 MMBtu per month on the put side (with average
floor and cap prices of $2.27 and $2.68, respectively) from November 1998
through March 1999, and gas price collars covering 200,000 MMBtu per month (with
floor and cap prices of $2.25 and $2.65, respectively) for October, 1998. The
average Btu content of gas produced by the Company at the wellhead exceeds 1,100
Btu per Mcf of gas. Therefore, each of the above gas prices should be increased
by 10% to reflect the actual gas price per Mcf received by the Company. This
figure is before items such as fuel and shrink, compression charges, etc. that
are deducted to derive the realized natural gas sales price. The existing hedges
use either the El Paso Permian Basin Index or the Panhandle Eastern West Texas
Index, and are settled monthly. The gains and losses on the Company's hedging
transactions are determined by taking the difference between the contract price
and a reference price. The resulting transaction gains and losses are determined
monthly and are included in the period the hedged production or inventory is
sold. Net gains related to derivatives for the three and nine month periods
ended September 30, 1998 were $838,000 and $2,079,000, respectively.
Year 2000 Modification
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has identified no significant applications that will require
modifications to ensure Year 2000 Compliance. In addition, the Company has
communicated with its customers, banks and others with whom it does significant
business to determine their Year 2000 Compliance readiness to assess the extent
to which the Company is vulnerable to any third party Year 2000 issues. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company.
11
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The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from those
plans.
The Company's current assessment of internal risks is that there will not
be material adverse impact on the Company's operations or financial performance.
The Company's assessment indicates that if any disruption to operations occur,
it will be isolated and of short-term duration.
The Company intends to develop contingency plans and identify actions
necessary to investigate the impact of third party disruptions.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," became effective as of the first quarter of 1998. This
statement requires companies to report and display comprehensive income and its
components (revenues, expenses, gains and losses). Comprehensive income includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. The Company had an unrealized loss on
investments of $883,000 (net of income tax benefit of $542,000) at September 30,
1998, resulting in comprehensive losses for the three month and nine month
periods ended September 30, 1998, of $3,155,000 and $6,818,000, respectively.
For the three and nine month periods ended September 30, 1997, the Company
recognized losses from investments of $130,000 and $51,000 respectively. These
losses adjusted the Company's net loss for such periods, resulting in
comprehensive losses of $639,000 and $2,669,000 respectively.
Changes in Accounting Standards
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," will become effective in 1998. This statement establishes
standards for defining and reporting business segments. The Company is currently
determining its reportable segments. The adoption of SFAS 131 will not affect
the Company's consolidated financial position, results of operations or cash
flows.
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
is effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Management is currently evaluating the effect of
adopting SFAS 133 on the Company's consolidated financial statements.
12
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MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1998 1997
----------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents................................................... $ 1,563 $ 3,030
Accounts receivable
Trade, net of allowance of $166........................................ 7,592 12,850
Due from affiliates.................................................... 300 58
Notes receivable from affiliate............................................. 688 355
Current portion of long-term note receivable................................ 567 357
Prepaid and other........................................................... 864 1,299
----------------------------------------------------
Total Current Assets.................................................. 11,574 17,949
----------------------------------------------------
Property, Plant, and Equipment
Oil and gas properties, full cost method
Unproved.............................................................. 651 517
Proved................................................................ 264,562 227,389
Pipelines................................................................... 9,211 9,166
Other property.............................................................. 958 776
----------------------------------------------------
Total Property, Plant and Equipment......................................... 275,382 237,848
Accumulated depreciation, depletion, and impairment.................... (29,704) (16,589)
----------------------------------------------------
Net Property, Plant and Equipment........................................... 245,678 221,259
----------------------------------------------------
Other Assets
Deposits and other assets................................................ 7,467 5,863
Investment in unconsolidated affiliate................................... 4,369 4,372
Deferred tax asset....................................................... 2,889 -
Long-term notes receivable, net of imputed interest...................... - 1,626
----------------------------------------------------
Total Assets $ 271,977 $ 251,069
----------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade payables and accrued liabilities................................... $ 11,409 $ 9,235
Dividends payable........................................................ 219 219
Suspended revenue payable................................................ 455 1,162
Current maturities of long-term debt..................................... 16 24
Notes payable............................................................ 4,336 4,699
----------------------------------------------------
Total Current Liabilities......................................... 16,435 15,339
----------------------------------------------------
Long-Term Liabilities
Long-term debt, less current maturities.................................. 190,010 161,519
Production payment liability............................................. 643 743
Deferred income taxes.................................................... - 1,289
Minority Interest ..................................................... 78 39
Stockholders' Equity
Preferred stock - $.001 par value; 10,000,000 shares authorized 216,000
designated as Series A; 80,000 issued and outstanding,
liquidation amount $0.............................................. - -
1,000,000 designated as 1996 Series A Convertible; 1,000,000
issued and outstanding, liquidation amount $10,000,000............. 1 1
Common Stock-$.002 par value; 50,000,000 shares authorized,
21,738,320 shares issued............................................. 43 43
Additional paid-in capital.................................................. 80,220 80,731
Accumulated deficit......................................................... (14,569) (8,634)
Unrealized gain (loss) on investments, net of income tax benefit of $542 ... (883) -
----------------------------------------------------
64,812 72,141
Treasury stock (428,907 and 538,633 shares of common stock, respectively)... (1) (1)
----------------------------------------------------
Total Stockholders' Equity.................................................. 64,811 72,140
----------------------------------------------------
Total Liabilities and Stockholders' Equity.................................. $ 271,977 $ 251,069
----------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
13
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------------------------
Operating Revenues:
Oil and gas sales......................................... $ 11,634 $ 10,765 $ 33,698 $ 22,087
Gas gathering, marketing and processing................... 1,697 2,438 5,193 7,721
Oil field services and international sales................ 249 186 703 3,792
----------------------------------------------------------------------
Total Operating Revenues............................ 13,580 13,389 39,594 33,600
----------------------------------------------------------------------
Operating Costs and Expenses:
Oil and gas production lifting costs...................... 4,153 2,200 10,854 4,745
Production taxes and other costs.......................... 1,243 1,344 4,593 3,070
Gas gathering, marketing and processing................... 1,535 1,865 4,387 5,803
Oil field services and international sales................ 121 58 361 3,482
Depreciation and depletion................................ 4,805 4,147 13,621 8,607
General and administrative................................ 750 477 2,250 1,128
----------------------------------------------------------------------
Total Operating Costs and Expenses.................. 12,607 10,091 36,066 26,835
----------------------------------------------------------------------
Operating Profit............................................. 973 3,298 3,528 6,765
Loss in earnings of affiliate, net of income tax.......... (8) - (53) -
Other income.............................................. 50 453 433 608
Interest expense.......................................... (4,656) (4,540) (13,407) (9,298)
----------------------------------------------------------------------
Net Loss before income tax and minority interest............. (3,641) (789) (9,499) (1,925)
Benefit for deferred income tax........................... 1,381 300 3,589 731
----------------------------------------------------------------------
Net Loss before minority interest............................ (2,260) (489) (5,910) (1,194)
Minority interest in subsidiary earnings.................. (12) (20) (25) (40)
----------------------------------------------------------------------
Net Loss Before Extraordinary Loss........................... (2,272) (509) (5,935) (1,234)
Extraordinary Loss From Early Extinguishment of Debt......... - - - (1,384)
----------------------------------------------------------------------
Net Loss..................................................... (2,272) (509) (5,935) (2,618)
Dividends Applicable to Preferred Stock................... (219) (219) (657) (657)
----------------------------------------------------------------------
Loss Applicable to Common Shares............................. (2,491) (728) (6,592) (3,275)
----------------------------------------------------------------------
Loss per Common Share-Basic
Loss Before Extraordinary Loss............................ $ (0.12) $ (0.05) $ (0.31) $ (0.14)
Extraordinary Loss........................................ - - - (0.10)
----------------------------------------------------------------------
Loss After Extraordinary Loss............................. $ (0.12) $ (0.05) $ (0.31) (0.24)
----------------------------------------------------------------------
Loss per Common Share-Diluted
Loss Before Extraordinary Loss............................ $ (0.12) $ (0.05) $ (0.31) $ (0.14)
Extraordinary Loss........................................ - - - (0.10)
----------------------------------------------------------------------
Loss After Extraordinary Loss............................. $ (0.12) $ (0.05) $ (0.31) $ (0.24)
----------------------------------------------------------------------
Common Shares Used in Per Share Calculation
Basic..................................................... 21,259,867 13,687,278 21,226,367 13,659,170
----------------------------------------------------------------------
Diluted................................................... 21,259,867 13,687,278 21,226,367 13,659,170
----------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
14
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Treasury
Shares Amount Shares Amount Shares
-----------------------------------------------------------------------------------
Balance at December 31, 1997.................... 1,080,000 $ 1 21,738,320 $ 43 (538,633)
-----------------------------------------------------------------------------------
Shares issued to 401(k) plan................. 12,813
Issuance from exercise of employee's options. 96,913
Dividends declared on preferred stock........
Net Income (Loss) .........................
Unrealized (Loss) on investment,
net of income tax............................
-----------------------------------------------------------------------------------
Balance at September 30, 1998................... 1,080,000 $ 1 21,738,320 $ 43 (428,907)
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Additional Unrealized
Stock Paid - In Accumulated Gain (Loss)
Amount Capital Deficit on Investments
-----------------------------------------------------------------------------------
Balance at December 31, 1997.................... $ (1) $ 80,731 $ (8,634) -
-----------------------------------------------------------------------------------
Shares issued to 401(k) plan................. - 66
Issuance from exercise of employee's options. - 80
Dividends declared on preferred stock........ (657)
Net Income (Loss) ......................... (5,935)
Unrealized (Loss) on investment,
net of income tax............................ (883)
-----------------------------------------------------------------------------------
Balance at September 30, 1998................... $ (1) $ 80,220 $ (14,569) (883)
-----------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
15
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Nine Months Ended
September 30,
------------------------------------------
1998 1997
------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss............................................................................. $ (5,935) $ (2,618)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities:
Extraordinary loss............................................................... - 1,384
Depreciation and depletion....................................................... 13,621 8,607
Amortization of financing fees................................................... 538 330
Deferred income taxes............................................................ (3,636) (731)
Equity in unconsolidated affiliate............................................... 86 -
Minority interest................................................................ 39 40
(Gain) Loss on sale of assets ................................................... 82 (333)
Other............................................................................ - 31
Changes in certain assets and liabilities
Accounts and notes receivable.................................................. 4,711 (9,717)
Other current assets........................................................... 435 (972)
Accounts payable and accrued liabilities....................................... 1,533 9,875
------------------------------------------
Net Cash Provided By Operating Activities............................................... 11,474 5,897
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets......................................................... 318 953
Additions to property and equipment.................................................. (36,537) (148,429)
Increase in deposits and other assets................................................ (3,567) -
Loan made for promissory note receivable............................................. (543) (666)
Payments received on promissory note receivable...................................... 28 183
Investment in unconsolidated affiliate............................................... (83) -
------------------------------------------
Net Cash Used In Investing Activities................................................ (40,384) (147,959)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt and production payment.................. 36,500 337,500
Fees paid related to financing activities............................................ - (7,936)
Proceeds from short-term notes payable............................................... - 2,699
Payments of principal on long-term and production payment............................ (8,480) (188,364)
Payment of fees on issuance of preferred stock....................................... - (505)
Proceeds from issuance of common and preferred stock, net of offering costs.......... 80 522
Dividends paid....................................................................... (657) (460)
------------------------------------------
Net Cash Provided By Financing Activities............................................ 27,443 143,456
------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... (1,467) 1,394
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................................ 3,030 1,687
------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................................. $ 1,563 $ 3,081
------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
16
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated balance sheet as of September 30, 1998, the consolidated
statements of operations for the three and nine month periods ended September
30, 1998 and 1997, the consolidated statement of stockholder's equity for the
period ended September, 1998 and the consolidated statements of cash flows for
the nine month periods ended September 30, 1998 and 1997 are unaudited. In the
opinion of management, all necessary adjustments (which include only normal
recurring adjustments) have been made to present fairly the financial position,
results of operations, changes in stockholder's equity and changes in cash flows
for the three and nine month periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the December 31, 1997 annual report on Form 10-KSB for the
Company. The results of operations for the three and nine month periods ended
September 30, 1998, are not necessarily indicative of the operating results for
the full year.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Certain items have been
reclassified to conform with the current presentation.
The Company is a holding company with no significant assets or operations
other than its investments in its subsidiaries. The wholly-owned subsidiaries of
the Company are direct guarantors of the Company's Senior Notes and have fully
and unconditionally guaranteed the Senior Notes on a joint and several basis.
The guarantors comprise all of the direct and indirect subsidiaries of the
Company (other than inconsequential subsidiaries), and the Company has not
presented separate financial statements and other disclosures concerning each
guarantor because management has determined that such information is not
material to investors. There is no restriction on the ability of consolidated or
unconsolidated subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances.
17
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1998
(Unaudited)
NOTE 2 - RECENT EVENTS
On January 9, 1998, the Company adopted a Shareholder Rights Plan, pursuant
to which Rights would be distributed as a dividend to its common stockholders at
a rate of one Right for each share of common stock held of record on January 20,
1998. Under the Rights Plan, the Rights will initially represent the right to
purchase one one-hundreth of a share of 1998 Series A Junior Participating
Preferred Stock for $35.00 per one one-hundreth of a share. The Rights will
become exercisable only if a person or a group acquires or commences a tender
offer for 15% or more of the Company's common stock. Until they become
exercisable, the Rights attached to and trade with the Company's common stock.
The Rights will expire January 20, 2008. The Rights may be redeemed by the
continuing members of the Company's Board of Directors at $.01 per Right prior
to the tenth day after a person or group has accumulated 15% or more of the
Company's common stock. The Rights will not be taxable to the Company's
shareholders. In the event that a person or group acquires 15% or more of the
Company's common stock, the Rights would then be modified to represent the right
to receive for the exercise price, Magnum Hunter common stock having a value
worth twice the exercise price. In the event that the Company is involved in a
merger or other business combination at any time after a person or group has
acquired 15% or more of Magnum Hunter's common stock, the Rights will be
modified so as to entitle a holder to buy a number of shares of common stock of
the acquiring entity having a market value of twice the exercise price of each
Right.
On January 28, 1998, the Company commenced a cash purchase offer for Units
of Tel. Previous to the offer, the Company owned 161,500 Units representing 3.4%
of the Units outstanding. As amended, the offer was to purchase between forty
percent (40%) and sixty percent (60%) of the Trust's outstanding Units at $5.50
per Unit. On March 27, 1998, the Company purchased 1,745,353 Units pursuant to
the tender offer and, together with the Units it previously owned, represented
40.1% of the total number of Units outstanding.
18
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1998
(Unaudited)
NOTE 3 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," became effective as of the first quarter of 1998. This
statement requires companies to report and display comprehensive income and its
components (revenues, expenses, gains and losses). Comprehensive income includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. The Company had an unrealized loss on
investments of $883,000 (net of income tax benefit of $542,000) at September 30,
1998, resulting in comprehensive losses for the three month and nine month
periods ended September 30, 1998, of $3,155,000 and $6,818,000, respectively.
For the three and nine month periods ended September 30, 1997, the Company
recognized losses from investments of $130,000 and $51,000 respectively. These
losses adjusted the Company's net loss for such periods, resulting in
comprehensive losses of $639,000 and $2,669,000 respectively.
19
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description of Exhibit
3.1 & 4.1 Articles of Incorporation (Incorporated by reference to Registration
Statement on Form S-18, File No. 33-30298-D)
3.2 & 4.2 Articles of Amendment to Articles of Incorporation (Incorporated by
reference to Form 10-K for the year ended December 31, 1990)
3.3 & 4.3 Articles of Amendment to Articles of Incorporation (Incorporated by
reference to Registration Statement on Form SB-2, File No. 33-66190)
3.4 & 4.4 Articles of Amendment to Articles of Incorporation (Incorporated by
reference to Registration Statement on Form S-3, File No. 333-30453)
3.5 & 4.5 By-Laws, as Amended (Incorporated by reference to Registration
Statement on Form SB-2, File No. 33-66190)
3.6 & 4.6 Certificate of Designation of 1996 Series A Preferred Stock
(Incorporated by reference to Form 8-K dated December 26, 1996,
filed January 3, 1997)
3.7 & 4.7 Amendment to Certificate of Designations for 1996 Series A
Convertible Preferred Stock (Incorporated by reference to
Registration Statement on Form S-3, File No. 333-30453)
4.8 Indenture dated May 29, 1997 between Magnum Hunter Resources, the
subsidiary guarantors named therein and First Union National Bank
of North Carolina, as Trustee (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
4.9 Form of 10% Senior Note due 2007 (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
10.1 Second Amended and Restated Credit Agreement, dated June 1, 1998,
between Magnum Hunter Resources, Inc. and Bankers Trust Company,
et al. (Incorporated by reference to Form 10-Q dated June 30, 1998)
10.2 * First Amendment to Second Amended and Restated Credit Agreement
between Magnum Hunter Resources, Inc. and Bankers Trust Company,
et al.
10.3 Employment Agreement for Gary C. Evans (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
20
<PAGE>
10.4 Employment Agreement for Matthew C. Lutz (Incorporated by reference
to Registration Statement on Form S-4, File No. 333-2290)
10.5 Stock Purchase Agreement among Magnum Hunter Resources, Inc. and
Trust Company of the West and TCW Asset Management Company, in the
capacities described herein, TCW Debt and Royalty Fund IVB and TCW
Debt and Royalty Fund IVC, dated as of December 6, 1996
(Incorporated by reference to Form 8-K dated December 26, 1996,
filed January 3, 1997)
10.6 Registration Rights Agreement, dated May 29, 1997, between Magnum
Hunter Resources, Inc. and Bankers Trust Company, et al.
(Incorporated by reference to Registration Statement on Form S-4,
File No. 333-2290)
10.7 Purchase and Sale Agreement, dated May 17, 1996 between Meridian
Oil, Inc. and ConMag Energy Corporation (Incorporated by reference
to Form 8-K, dated June 28, 1996, filed July 12, 1996)
10.8 Purchase and Sale Agreement, dated February 27, 1997 among
Burlington Resources Oil and Gas Company, Glacier Park Company and
Magnum Hunter Production, Inc. (Incorporated by reference to Form
8-K, dated April 30, 1997, filed May 12, 1997)
10.9 Purchase and Sale Agreement between Magnum Hunter Resources, Inc.,
NGTS, et al., dated December 17, 1997 (Incorporated by reference to
Form 8-K, dated December 17, 1997, filed December 29, 1997)
27 * Financial Data Schedule
* Filed herewith
(B) Reports on Form 8-K. On September 8, 1998, the Company filed a report on
Form 8-K under Item 5, Other Events, concerning the Company's stock repurchase
program.
21
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNUM HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans November 13, 1998
-----------------------------------------------
Gary C. Evans
President and Chief Executive Officer
By: /s/ Chris Tong November 13, 1998
-----------------------------------------------
Chris Tong
Sr. Vice President and
Chief Financial Officer
By: /s/ David S. Krueger November 13, 1998
--------------------------------------------
David S. Krueger
Vice President and
Chief Accounting Officer
By: /s/ Morgan F. Johnston November 13, 1998
------------------------------------------
Morgan F. Johnston
Vice President, General Counsel and
Secretary
22
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This First Amendment to Second Amended and Restated Credit Agreement (this
"Amendment"), dated as of September 4, 1998, is by and among MAGNUM HUNTER
RESOURCES, INC., a Nevada corporation (the "Borrower"), each Bank (as defined in
the Credit Agreement), BANKERS TRUST COMPANY, individually, as administrative
agent (in such capacity, together with its successors in such capacity, the
"Administrative Agent"), and as an issuing bank, CIBC INC., individually and as
Syndication Agent (in such capacity together with its successors and assigns,
the "Syndication Agent"), and PARIBAS, a French bank acting through its Houston
Agency, individually, as collateral agent (in such capacity, together with its
successors in such capacity, the "Collateral Agent"), and as documentation agent
(in such capacity, together with its successors in such capacity, the
"Documentation Agent").
RECITALS:
WHEREAS, the Borrower, each Bank then a party, the Administrative Agent,
the Syndication Agent, and the Documentation Agent entered into that certain
Second Amended and Restated Credit Agreement dated as of June 1, 1998 (the
"Credit Agreement") pursuant to which the Banks have agreed to revolving credit
loans available to the Borrower under the terms and provisions stated therein;
and
WHEREAS, the Borrower has requested that the Banks and the Agents amend the
Credit Agreement to (i) permit certain stock repurchases and (ii) add a
Permitted Lien basket for purchase money and certain other Liens; and
WHEREAS, the Banks and the Agents are willing to amend the Credit Agreement
and otherwise agree as hereinafter provided: and
WHEREAS, the Borrower, the Banks and the Agents now desire to amend the
Credit Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to the
extent not otherwise defined herein, shall have the same meaning as in the
Credit Agreement, as amended hereby.
ARTICLE II
Amendments
Section 2.1 Amendment to Section 10.2. Section 10.2 is amended by
relettering existing clauses (k) and (l) as (m) and (n), respectively, and by
adding thereto two new clauses, lettered (k) and (l), reading as follows:
"(k) Liens to secure the purchase price of Property (other
than Oil and Gas Properties) acquired or held by Borrower or its
Subsidiaries, as applicable, in the ordinary course of business
securing Debt incurred or assumed for the purposes of financing all or
a part of the cost of acquiring such Property; provided that any such
Lien attaches to such Property concurrently with or within 30 days of
the acquisition thereof, does not attach to any Property other than the
Property for which such purchase money Debt was incurred, and the
principal amount of the Debt secured by any such purchase money Liens
and Liens permitted under Section 10.2(l) does not exceed the Debt
permitted in Section 10.1(k);
<PAGE>
"(l) other Liens on specified Property (other than Oil and Gas
Properties) to secure Debt permitted under Section 10.1(k);"
Section 2.2 Amendment to Section 10.4. Section 10.4 is amended by deleting
the word "and" from the exceptions found therein and by adding to the exceptions
a new clause reading as follows:
"and (iii) repurchase of shares of common stock of the Borrower subject
to the following express conditions: (a) the cost thereof shall not
exceed $4,000,000 in the aggregate, (b) the number of shares
repurchased shall not exceed 1,000,000 in the aggregate and (c) all
repurchases must be completed by April 30, 1999 (unless extended for an
additional six-month period with the approval of the Majority Banks)."
ARTICLE III
Conditions Precedent
Section 3.1 Necessary Documentation. This Amendment shall be effective when
the Agent shall have received this Amendment and the Acknowledgment of
Guarantors executed by all parties.
Section 3.2 Representations and Warranties. All representations and
warranties contained in the Credit Agreement shall be true and correct on and as
of the date hereof with the same force and effect as if such representations and
warranties had been made on and as of such date.
Section 3.3 Additional Documentation. The Agents shall have such additional
approvals, opinions or documents as the Agents or their counsel, Winstead
Sechrest & Minick P.C., may reasonably request.
ARTICLE IV
Miscellaneous
Section 4.1 Ratifications, Representations and Warranties. Except as
expressly modified and superceded by this Amendment, the terms and provisions of
the Credit Agreement and other Loan Documents are ratified and confirmed and
shall continue in full force and effect. The representations and warranties
contained herein and in all other Loan Documents, as amended hereby, shall be
true and correct as of, and as if made on, the date hereof. The Borrower, the
Banks and the Agents agree that the Credit Agreement as amended hereby shall
continue to be legal, valid, binding and enforceable in accordance with its
terms.
Section 4.2 Reference to the Credit Agreement. Each of the Loan Documents,
including the Credit Agreement and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Credit Agreement as amended hereby, are hereby
amended so that any reference in such Loan Documents to the Credit Agreement
shall mean a reference to the Credit Agreement as amended hereby.
Section 4.3 Expenses. The Borrower agrees to pay on demand all expenses set
forth in Section 14.1 of the Credit Agreement.
Section 4.4 Severability. Any provisions of this Amendment held by court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provisions so held to be invalid or unenforceable.
<PAGE>
Section 4.5 Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of New York.
Section 4.6 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Banks, the Agents and the Borrower and their
respective successors and assigns.
Section 4.7 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
but all of which when taken together shall constitute one and the same
instrument.
Section 4.8 Headings. The headings, captions, and arrangements used in the
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
Section 4.9 NO ORAL AGREEMENTS. THIS AMENDMENT AND ALL OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Balance of this page intentionally left blank.]
<PAGE>
EXECUTED as of the day and year first above written.
BORROWER:
MAGNUM HUNTER RESOURCES, INC.
By: ______________________________________________
Chris Tong
Senior Vice President and Chief Financial Officer
ADMINISTRATIVE AGENT:
BANKERS TRUST COMPANY
By: ______________________________________________
Marcus M. Tarkington
Principal
SYNDICATION AGENT:
CIBC INC.
By: ______________________________________________
Robin W. Elliott
Authorized Signatory
DOCUMENTATION AGENT AND COLLATERAL AGENT:
PARIBAS
By: ______________________________________________
Brian M. Malone
Director
-and-
By: ______________________________________________
Michael H. Fiuzat
Vice President
<PAGE>
ISSUING BANK:
BANKERS TRUST COMPANY
By: ______________________________________________
Marcus M. Tarkington, Principal
BANKS:
BANKERS TRUST COMPANY
By: ______________________________________________
Marcus M. Tarkington, Principal
CIBC INC.
By: ______________________________________________
Robin W. Elliott, Authorized Signatory
PARIBAS
By: ______________________________________________
Brian M. Malone, Director
-and-
By: ______________________________________________
Michael H. Fiuzat, Vice President
TORONTO DOMINION (TEXAS) INC.
By: ______________________________________________
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By: ______________________________________________
Charles D. Kirkham, Vice President
<PAGE>
ACKNOWLEDGEMENT BY GUARANTORS
Each of the undersigned Guarantors hereby (i) consents to the terms and
conditions of the First Amendment, (ii) confirms and ratifies the terms of the
Second Amended and Restated Subsidiary Guaranty, (iii) acknowledges and agrees
that its consent is not required for the effectiveness of the First Amendment
and (iv) represents and warrants that (a) no Default or Event of Default has
occurred and is continuing, (b) it is in full compliance with all covenants and
agreements pertaining to it in the Credit Documents and (c) it has reviewed a
copy of the First Amendment.
Executed as of September 11, 1998.
GUARANTORS:
HUNTER GAS GATHERING, INC.
GRUY PETROLEUM MANAGEMENT CO.
MAGNUM HUNTER PRODUCTION, INC.
CONMAG ENERGY CORPORATION
RAMPART PETROLEUM, INC.
By: _______________________________________
Chris Tong
Senior Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 1,563
<SECURITIES> 0
<RECEIVABLES> 8,058
<ALLOWANCES> (166)
<INVENTORY> 0
<CURRENT-ASSETS> 11,574
<PP&E> 275,382
<DEPRECIATION> (29,704)
<TOTAL-ASSETS> 271,977
<CURRENT-LIABILITIES> 16,435
<BONDS> 190,653
0
1
<COMMON> 43
<OTHER-SE> 64,767
<TOTAL-LIABILITY-AND-EQUITY>271,977
<SALES> 38,891
<TOTAL-REVENUES> 39,594
<CGS> 19,834
<TOTAL-COSTS> 36,066
<OTHER-EXPENSES> (380)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,407
<INCOME-PRETAX> (9,499)
<INCOME-TAX> (3,589)
<INCOME-CONTINUING> (5,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,935)
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</TABLE>
