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 June 30, 2000
---- --- ----
[ ] 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 1100, 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 August 1, 2000: 20,115,819.
<PAGE>
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-K for the year ended December 31, 1999. 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.
On December 31, 1998, the Company through its 100% owned subsidiary,
Bluebird Energy, Inc. ("Bluebird"), acquired natural gas reserves and associated
assets in producing fields located in Oklahoma and Texas for approximately $25
million. As part of the capitalization of Bluebird, the Company contributed
1,840,271 units of TEL Offshore Trust. Bluebird is an "unrestricted subsidiary",
as defined under certain credit agreements, and is neither a guarantor of the
Company's 10% Senior Notes due 2007 nor can it be included in determining
compliance with certain financial covenants under the Company's credit
agreements.
On February 3, 1999, the Company sold $50 million of its Convertible
Preferred Stock in a private placement to a natural gas utility. The Preferred
Stock has a liquidation value of $50 million and is convertible into the
Company's common stock at $5.25 per share. Dividends on the preferred stock are
payable in cash at the rate of 8% per annum and are cumulative. The Company used
the net proceeds from the transaction, approximately $46.3 million, to repay
senior bank indebtedness.
On June 8, 1999, the Company acquired oil and gas reserves and related
assets from Vastar for a total purchase price of $32.5 million after purchase
price adjustments. The effective date of the acquisition was April 1, 1999. The
acquisition included Vastar's interest in 476 wells, a gas processing plant and
two gas gathering systems located in the states of Texas, Oklahoma and Arkansas.
On December 1, 1999, the Company acquired a 50% ownership interest in the
Madill Gas Processing Plant and its associated gathering system. This modern
cryogenic plant includes 3,350 horsepower of high-speed compression and has
gas-processing capacity of approximately 18,000 Mcf/d.
On May 24, 2000, the Company and a major New York Stock Exchange listed
company formed a new partnership, Mallard Hunter LP, to acquire certain oil and
gas reserves from two of the Company's subsidiaries, including Bluebird. The
Company is the general partner of the new limited partnership. The Company
assigned approximately 20 billion cubic feet equivalent of proved producing
reserves to the limited partnership, effective June 1, 2000, for a cash payment
of approximately $23 million with a 35% reversionary interest upon predetermined
partnership pay-out. The reserves assigned to the partnership are approximately
60% oil and 40% natural gas. The Company used the net proceeds received from the
limited partnership to reduce commercial bank indebtedness on its two existing
credit lines.
On June 30, 2000, the holders of the Company's 1996 Series A Convertible
Preferred Stock agreed to exchange the convertible preferred securities for (i)
900,000 warrants to purchase restricted common shares of the Company's stock at
an exercise price of $5.25 per share with an expiration date of June 30, 2003
and (ii) payment of $10 million. The convertible preferred stock was transferred
to the Company's wholly-owned subsidiary, Bluebird. The convertible preferred
stock has a coupon rate of 8.75% per annum and is convertible into the Company's
common stock at a conversion price of $5.25 per share (approximately 1.9 million
shares of common stock). As a result of this exchange, the Company reduced its
reported dividends to preferred stockholders by $144,000 for the three and six
month periods ended June 30, 2000. Bluebird used an existing credit line with
its commercial banks to acquire the $10 million preferred stock issue. It is the
intent of Bluebird to re-market the preferred stock to a third party in the
future.
<PAGE>
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 SEC PV_10 of estimated future net cash flow from
proved reserves of oil and gas, and 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 increase. The Company's SEC
PV-10 property valuation at June 30, 2000 exceeded the capitalized cost at that
date. Significant downward revisions of quantity estimates or significant
declines in oil and gas prices which are not offset by other factors could
possibly result in write-down for impairment of oil and gas properties in the
future.
Results of Operations for the Three Month Periods Ended June 30, 2000 and 1999
The results of operations for the three month period ended June 30, 2000
included three months of operations for the Vastar and Madill acquisitions,
while the corresponding period in 1999 included one month of the Vastar and none
of the Madill acquisition. The 2000 interim period was also impacted by the sale
of properties to Mallard Hunter LP effective June 1, 2000. Unless otherwise
stated, the increases in the 2000 interim period over the 1999 period were
substantially the result of these acquisitions and divestitures as well as the
Company's successful drilling activities during the remainder of 1999 and the
first half of 2000.
Oil and natural gas sales were $23,594,000, a 77% increase over 1999 sales
of $13,367,000. The Company sold 334,000 barrels of oil, a 12% increase over
1999 sales of 298,000 barrels. The Company sold 4,839,000 Mcf of natural gas, a
5% increase over 1999 sales of 4,594,000 Mcf. The price received for oil was
$23.10 per barrel and for natural gas was $3.28 per Mcf in 2000 versus an oil
price of $14.40 per barrel and a gas price of $1.98 per Mcf in 1999,
representing a 60% increase in oil price and a 66% increase in gas price. Oil
and natural gas production lifting costs increased 18% to $4,269,000 in 2000
while production taxes and other costs increased 54% to $2,642,000 in 2000
compared to 1999. The gross operating margin from oil and natural gas production
was $16,683,000 in 2000, a 108% increase over the 1999 operating margin of
$8,031,000. On an equivalent unit basis, the gross margin was $2.44 per Mcfe in
2000 versus $1.26 in 1999, a 94% increase. The sales price increased 64% to
$3.45 per Mcfe in 2000 versus $2.10 per Mcfe while production lifting costs
increased 9% to $0.62 per Mcfe in 2000 from $0.57 per Mcfe in 1999. Production
taxes and other costs, including overhead, were $0.39 per Mcfe in 2000 versus
$0.27 per Mcfe in 1999, a 44% increase. Total Mcfe sold increased 7% to
6,844,000 Mcfe in 2000 from 6,380,000 Mcfe in 1999.
Gas gathering, marketing, and processing revenues were $4,414,000 in the
2000 period, a 138% increase from 1999 revenues of $1,851,000, principally as a
result of the Dynegy acquisition and the increase in natural gas and natural gas
liquids prices. Costs from these activities were $3,516,000 in 1999, a 169%
increase from 1999 costs of $1,306,000. Gross operating margin was $898,000 in
2000 versus $545,000 in 1999, a 65% increase. Net gathering system throughput
decreased 15% to 16,557 Mcf per day in 2000 compared to 19,453 Mcf per day in
1999 due to the sale of a gathering system in 1999. Net natural gas plant
processing throughput was 17,864 Mcf per day in 2000 versus 16,145 Mcf per day
in 1999, an 11% increase. The increase in net processing plant throughput was a
result of the Dynegy acquisition completed in the fourth quarter of 1999 and was
partially offset by a reduction in net throughput at the Company's McLean Plant
due to a contractual payout that reduced the Company's portion of future net
cash flow. During December 1999 the Company completed recoupment of its original
investment in the McLean Plant and its share of operating income reverted to 50%
from the 100% applicable during the recoupment period. Gross operating margin
from gathering operations was $0.18 per Mcf of throughput for the 2000 period
versus $0.17 for the 1999 period, a 6% increase. The gross operating margin from
natural gas processing was $0.37 per Mcf of throughput in 2000 versus $0.15 per
Mcf of throughput in 1999 due to more favorable processing economics as a result
of higher natural gas liquids prices in the 2000 period.
Revenues from oil field services and international sales were $278,000 in
2000 versus $141,000 in 1999. Operating costs increased to $135,000 in 2000 from
$65,000 in 1999. The gross operating margin was $143,000 in 2000 versus $76,000
in 1999. Depreciation and depletion expense increased 2% to $5,566,000 in 2000
versus $5,467,000 in 1999. General and administrative expense was $1,317,000 in
2000, a 104% increase from 1999. Operating profit increased 327% to $10,847,000
in 2000 from $2,539,000 in 1999. Equity in earnings of affiliate, net of income
tax, was a profit of $230,000 in 2000 versus a loss of $66,000 in 1999. Other
income was $153,000 in 2000 versus $125,000 in 1999.
2
<PAGE>
Interest expense increased 16% to $5,691,000 in 2000 from $4,894,000 in
1999. The Company provided for deferred income taxes of $2,011,000 on income of
$5,539,000 in 2000 versus no benefit on a loss of $2,296,000 in 1999. The
Company reported net income applicable to common shares of $2,452,000, or $0.12
per common share, basic and $0.11 per common share, diluted, in 2000 versus a
loss of $3,555,000, or $0.18 per common share, basic and diluted, in 1999. The
Company recorded $1,076,000 in dividends on its preferred stock in 2000 versus
$1,215,000 in 1999.
Results of Operations for the Six Month Periods Ended June 30, 2000 and 1999
The results of operations for the six month period ended June 30, 2000,
included six months of operations for the Vastar and Madill acquisitions, while
the corresponding period in 1999 included only one month of the Vastar
acquisition and none of the Madill acquisition. The 2000 interim period was also
impacted by the sale of properties to Mallard Hunter L.P. effective June 1,
2000. Unless otherwise stated, the increases in the 2000 interim period over the
1999 period were substantially the result of these acquisitions and divestitures
as well as the Company's successful drilling activities during the remainder of
1999 and the six months of 2000.
Oil and natural gas sales were $44,959,000, an 82% increase over 1999 sales
of $24,688,000. The Company sold 704,000 barrels of oil, a 21% increase over
1999 sales of 584,000 barrels of oil. The Company sold 9,833,000 Mcf of natural
gas, an 8% increase over 1999 sales of 9,146,000 Mcf. The price received for oil
was $22.38 per barrel and for natural gas was $2.97 per Mcf in 2000 versus an
oil price of $12.70 per barrel and a gas price of $1.89 per Mcf in 1999,
representing a 76% increase in oil price and a 57% increase in gas price. Oil
and natural gas production lifting costs increased 30% to $8,885,000 in 2000
while production taxes and other costs increased 73% to $5,482,000 in 2000
compared to 1999. The gross operating margin from oil and natural gas production
was $30,592,000 in 2000, a 108% increase over 1999 operating margin of
$14,694,000. On an equivalent unit basis, the gross margin was $2.18 per Mcfe in
2000 versus $1.16 in 1999, an 88% increase. The sales price increased 64% to
$3.20 per Mcfe in 2000 versus $1.95 per Mcfe while production lifting costs
increased 17% to $0.63 per Mcfe in 2000 from $0.54 per Mcfe in 1999. Production
taxes and other costs, including overhead, were $0.39 per Mcfe in 2000 versus
$0.25 per Mcfe in 1999, a 56% increase. Total Mcfe sold increased 11% to
14,059,000 Mcfe in 2000 from 12,652,000 Mcfe in 1999.
Gas gathering, marketing, and processing revenues were $8,244,000 in the
2000 period, a 137% increase from 1999 revenues of $3,477,000, principally as a
result of the Dynegy acquisition and the increase in natural gas and natural gas
liquids prices. Costs from these activities were $6,292,000 in 1999, a 144%
increase from 1999 costs of $2,582,000. Gross operating margin was $1,952,000 in
2000 versus $895,000 in 1999, a 118% increase. Net gathering system throughput
decreased 15% to 16,689 Mcf per day in 2000 compared to 19,546 Mcf per day in
1999 due to the sale of a gathering system in 1999. Net natural gas plant
processing throughput was 18,167 Mcf per day in 2000 versus 15,618 Mcf per day
in 1999, a 16% increase. The increase in net processing plant throughput was a
result of the Dynegy acquisition completed in the fourth quarter of 1999 and was
partially offset by a reduction in net throughput at the Company's McLean Plant
due to a contractual payout that reduced the Company's portion of future net
cash flow. During December 1999 the Company completed recoupment of its original
investment in the McLean Plant and its share of operating income reverted to 50%
from the 100% applicable during the recoupment period. Gross operating margin
from gathering operations was $0.17 per Mcf of throughput in 2000 versus $0.16
in 1999, a 6% increase. The gross operating margin from natural gas processing
was $0.42 per Mcf of throughput in 2000 versus $0.11 per Mcf of throughput in
1999 due to more favorable processing economics as a result of higher natural
gas liquids prices in the 2000 period.
Revenues from oil field services and international sales were $476,000 in
2000 versus $299,000 in 1999. Operating costs increased to $250,000 in 2000 from
$136,000 in 1999. The gross operating margin was $226,000 in 2000 versus
$163,000 in 1999. Depreciation and depletion expense increased nine percent to
$11,537,000 in 2000 versus $10,615,000 in 1999. General and administrative
expense was $2,271,000 in 2000, a 70% increase from 1999. Operating profit
increased 399% to $18,986,000 in 2000 from $3,805,000 in 1999. Equity in
earnings of affiliate, net of income tax, was a profit of $270,000 in 2000
versus a loss of $97,000 in 1999. Other income was $229,000 in 2000 versus
$288,000 in 1999. Interest expense increased two percent to $11,427,000 in 2000
from $11,211,000 in 1999. The Company provided for deferred income taxes of
$2,950,000 on income of $8,058,000 in 2000 versus no benefit on a loss
applicable to common shares of $7,215,000 in 1999. The Company reported net
income applicable to common shares of $2,814,000, or $0.14 per common share,
basic and diluted, in 2000 versus a loss of $9,351,000, or $0.46 per common
share, basic and diluted, in 1999. The Company recorded $2,294,000 in dividends
on its preferred stock in 2000 versus $2,049,000 in 1999.
3
<PAGE>
Liquidity and Capital Resources
The Company has three principal operating sources of cash: (i) sales of
crude oil and natural 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 natural gas could result in reductions of both
cash flow and the borrowing base under the Company's existing credit facilities,
which would result in decreased funds available, including funds for capital
expenditures.
At December 31, 1998, the Company had repurchased 625,600 common shares of
stock in the open market for approximately $1.9 million under the previously
announced stock repurchase program of up to one million shares at a cost not to
exceed $4 million. In 1999, the Company purchased an additional 601,472 shares
of common stock for approximately $1.7 million. In April 2000, the Company
announced a stock repurchase program whereby the Company or its affiliates are
authorized to repurchase up to an additional five percent (5%) of Magnum
Hunter's outstanding common stock. In May 2000, Bluebird purchased 129,032
shares of the Company's common stock for $500,000.
In connection with the Madill Gas Plant acquisition, Bluebird's banks
increased the borrowing base under the credit agreement to $45.0 million
effective November 30, 1999, subject to a provision to automatically reduce the
borrowing base to $41.5 million on March 31, 2000, with further reductions to
the borrowing base of $2.0 million to occur on June 30, 2000 and each subsequent
quarter-end. Effective March 27, 2000, the banks suspended the various
requirements of the November 30, 1999 adjustment to the borrowing base and
established a current borrowing base for Bluebird of $43.5 million. The banks
agreed to redetermine the borrowing base and the need to reimplement the other
requirements of the November 30, 1999 adjustment upon the earlier of May 15,
2000, or the consummation or termination of a proposed sale of oil and gas
properties owned partially by Bluebird.
On May 24, 2000, the Company and Bluebird sold properties to Mallard Hunter
LP for approximately $23 million, of which approximately $10.7 million was
attributable to Bluebird. Both the Company and Bluebird used these proceeds to
repay senior bank indebtedness.
On May 23, 2000, Bluebird's banks agreed to allow Bluebird to acquire 100%
of the Company's existing 1996 Series A Convertible Preferred stock at
liquidation value, or $10 million, and to purchase up to $500 thousand of the
Company's common stock. At the same time, the banks lowered Bluebird's borrowing
base to $41 million effective July 1, 2000 and to $38.5 million effective August
31, 2000. The bank agreement also provides that the Company may either re-market
the 1996 Series A Convertible Preferred stock or raise additional equity in a
substantially similar amount by October 1, 2000. The Company is currently
exploring various ways to meet these conditions or alternatives that will be
satisfactory to all parties. The Company believes that accommodations with the
Bluebird lenders will be reached due to new reserve estimates, as of June 30,
2000, provided by Bluebird's third party engineering consultants. The Company
believes that this agreement, along with cash flow from operations, provides
Bluebird with sufficient liquidity to meet interest payments as well as to carry
out its capital spending budget plans in 2000.
The Company's borrowing base under its revolving credit line with banks was
$53 million at June 30, 2000, providing $8 million of additional borrowing
capacity at that date. The Company believes that this availability, along with
cash flow from operations, is sufficient to meet interest and dividend
requirements in 2000 as well as to carry out its capital spending budget plans.
The Company may also sell certain non-strategic oil and gas reserves to fund
capital investment opportunities.
For the six months ended June 30, 2000, the Company had a net decrease in
cash of $983 thousand. The Company's operating activities provided net cash of
$13.5 million, principally from operating income before depreciation and
depletion. The Company was provided $7.9 million by investing activities,
principally from proceeds from property sales of $25.1 million less additions to
property of $14.1 million. Financing activities used $22.7 million of cash,
principally for net repayments under the Company's and Bluebird's credit lines
with banks and the purchase of the Company's preferred and common stock by
Bluebird. The Company also paid $2,657,000 in dividends on preferred stock to
such holders.
4
<PAGE>
Capital Requirements
For fiscal 2000, the Company has budgeted approximately $45 million for
exploration and development activities, including approximately $23 million for
participation in exploration projects in the shallow water area of the Gulf of
Mexico. The Company is typically 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. As a result, actual capital expenditures may
vary significantly from current expectations.
Based upon the Company's anticipated level of operations, the Company
believes that cash flow from operations together with the availability under the
credit facility (approximately $8.0 million available as of June 30, 2000) will
be adequate to meet its anticipated requirements for working capital, capital
expenditures and scheduled interest and dividend payments for the foreseeable
future. In addition, Bluebird has availability under its own credit facility
(non-recourse to the Company) of approximately $400 thousand as of June 30, 2000
on a borrowing base of $43.5 million. The Company believes that this
availability, along with cash flow from operations, provides Bluebird with
sufficient liquidity to meet interest payments as well as to carry out its
capital spending plans in 2000.
In the normal course of business, the Company reviews opportunities for the
possible acquisition of additional 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, the Company may
require additional financing or equity capital in connection therewith.
Inflation and Changes in Prices
During 1999, the Company experienced an increase in prices for crude oil of
18% and for natural gas of 7% compared to the previous year. During the first
six months of 2000, the price increase realized (before hedge effects) for crude
oil was 110% and for natural gas was 75% compared to the six months of 1999. 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 would expect that there would also 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 fluctuations in crude oil and gas prices. It
is the policy of the Company not to enter into any such arrangements which
exceed 75% of the Company's anticipated oil and gas production during the next
12 months.
The Company markets oil and gas for its own account, which exposes the
Company to the attendant commodities risk. A substantial portion of the
Company's gas production is currently sold to NGTS, LLC, a 30% owned affiliate,
or end-users either on the spot market on a month-to-month basis, at either
prevailing spot market prices, or under long-term contracts based on current
spot market prices. The Company normally sells its crude oil under
month-to-month contracts to a variety of different purchasers.
5
<PAGE>
Hedging Activity
Crude Oil and Natural Gas Hedges
Periodically, the Company enters into futures, options, and swap contracts
to mitigate the effects of significant fluctuations in crude oil and gas prices.
At June 30, 2000, the Company had the following open contracts:
Type Volume/Month Duration Avg. Price
------------- ---------------- -------------- ---------------
Oil
-----
Swap........... 30,000 Bbl Jul 00 - Dec 00 $17.60
Collar......... 30,000 Bbl Jul 00 - Sep 00 Floor - $18.00
Cap - $24.00
Collar......... 30,000 Bbl Jul 00 - Sep 00 Floor - $18.00
Cap - $24.65
Collar......... 10,000 Bbl Oct 00 - Dec 00 Floor - $19.00
Cap - $26.21
Gas
-----
Collar ........ 300,000 MMBtu Jul 00 - Oct 00 Floor - $ 1.80
Cap - $ 2.25
Net gains and (losses) related to crude oil and natural gas derivative
transactions for the three month periods ended June 30, 2000 and 1999 were
($2,589,000) and ($358,000), respectively, and for the six month periods ended
June 30, 2000 and 1999 were ($4,502,000) and $1,085,000, respectively. At June
30, 2000, the unrealized loss from derivative transactions was $6,102,000. Based
upon daily natural gas production and daily crude oil (including natural gas
liquids) production at June 30, 2000, approximately 19% and 82%, respectively,
of the Company's total daily production mix was subject to some form of hedging
activity.
Interest Rate Swaps
At June 30, 2000, the Company had the following open interest rate swap
contract:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Type Notional Amount Termination Date Pay Rate Receive Rate
---------------------------------------------------------------------------------------------------------------
Pay Variable/Receive Fixed $50,000,000 06/01/02 LIBOR + 3.69% 10% fixed
from 06/01/00 to
06/01/02
</TABLE>
Net gains from interest rate swaps at June 30, 2000 and 1999 were $48,000
and none for the three months, respectively, and were $153,000 and none for the
six month periods, respectively. At June 30, 2000, the unrealized loss from
interest rate derivative transactions was $934,000.
Year 2000 Compliance
Beginning in 1998, the Company was involved in a program to be "Year 2000"
ready. The program involved reviews of major business, financial and other
information systems, including equipment with embedded microprocessors,
development of specific plans for modification or replacement of date-sensitive
software or microprocessors, execution of such plans and the testing of such
systems to ensure their "Year 2000" readiness. Included within the scope of the
program were contacts with key suppliers and customers to determine their "Year
2000" readiness in order to ensure a steady flow of goods and services to the
Company and continuity with respect to customer service. As a result of this
program, there were no significant occurrences of Year 2000-related failures.
Additionally, the Company does not anticipate that any significant subsequent
events will occur.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established a new model for accounting
for derivatives and hedging activities. SFAS No. 133, which will be effective
for the Company's fiscal year 2001, requires that all derivatives be recognized
on the balance sheet as either assets or liabilities and measured at fair value.
The Statement also requires that changes in fair value be reported in earnings
unless specific hedge accounting criteria are met. The Company is currently
evaluating the effect of the adoption of the Statement on its consolidated
financial position and results of operations.
6
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
2000 1999
---------------------------------------------------
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents.............................................. $ 582 $ 1,565
Restricted cash ....................................................... 2,077 2,145
Accounts receivable
Trade, net of allowance of $166 for 2000 and 1999................. 15,688 10,203
Due from affiliates............................................... 261 48
Notes receivable from affiliate........................................ 1,801 902
Current portion of long-term notes receivable, net of allowance of $790
for 2000 and 1999.................................................... 57 57
Prepaid and other...................................................... 1,708 1,296
----------------------------------------------------
Total Current Assets............................................. 22,174 16,216
----------------------------------------------------
Property, Plant, and Equipment
Oil and gas properties, full cost method
Unproved......................................................... 6,592 3,567
Proved........................................................... 335,384 349,510
Pipelines.............................................................. 12,529 12,462
Other property......................................................... 2,123 1,964
----------------------------------------------------
Total Property, Plant and Equipment.................................... 356,628 367,503
Accumulated depreciation, depletion, amortization and impairment. (113,848) (102,308)
----------------------------------------------------
Net Property, Plant and Equipment...................................... 242,780 265,195
----------------------------------------------------
Other Assets
Deposits and other assets.............................................. 6,566 5,698
Investment in unconsolidated affiliate................................. 6,155 4,163
Deferred tax asset .................................................... 9,825 13,351
Long-term notes receivable, net of imputed interest.................... 1,772 1,487
----------------------------------------------------
Total Assets $ 289,272 $ 306,110
====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade payables and accrued liabilities................................. $ 14,588 $ 15,111
Dividends payable...................................................... 333 552
Suspended revenue payable.............................................. 1,633 1,357
Current maturities of long-term debt................................... 18 6
----------------------------------------------------
Total Current Liabilities........................................ 16,572 17,026
----------------------------------------------------
Long-Term Liabilities
Long-term debt -with recourse, less current maturities................ 185,030 193,000
Long-term debt - nonrecourse........................................... 40,600 41,800
Production payment liability........................................... 408 460
Minority interest............................................................... 184 184
Commitments and Contingencies
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 at December 31, 1999, 1,000,000 purchased and
held for remarketing by subsidiary at June 30, 2000,
liquidation amount $10,000,000....................................... 1 1
50,000 designated as 1999 Series A 8% Convertible; 50,000 issued
and outstanding, liquidation amount $50,000,000...................... - -
Common Stock - $.002 par value; 100,000,000 shares authorized,
21,738,320 shares issued............................................. 43 43
Additional paid-in capital............................................. 111,809 121,815
Accumulated other comprehensive income................................. (1,372) (2,046)
Accumulated deficit.................................................... (59,872) (62,542)
----------------------------------------------------
50,609 57,271
Treasury stock, at cost (1,623,751 and 1,512,719 shares of common stock,
respectively)................................................................... (4,131) (3,631)
----------------------------------------------------
Total Stockholders' Equity...................................................... 46,478 53,640
----------------------------------------------------
Total Liabilities and Stockholders' Equity...................................... $ 289,272 $ 306,110
====================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------
2000 1999 2000 1999
Operating Revenues:
Oil and gas sales........................................... $ 23,594 $ 13,367 $ 44,959 $ 24,688
Gas gathering, marketing and processing..................... 4,414 1,851 8,244 3,477
Oil field services and international sales ................. 278 141 476 299
-------------------------------------------------------------
Total Operating Revenues.............................. 28,286 15,359 53,679 28,464
-------------------------------------------------------------
Operating Costs and Expenses:
Oil and gas production lifting costs......................... 4,269 3,624 8,885 6,817
Production taxes and other costs............................. 2,642 1,712 5,482 3,177
Gas gathering, marketing and processing...................... 3,516 1,306 6,292 2,582
Oil field services and international sales................... 135 65 250 136
Depreciation and depletion ................................. 5,566 5,467 11,537 10,615
Gain on sale of assets ..................................... (6) - (24) -
General and administrative................................... 1,317 646 2,271 1,332
-------------------------------------------------------------
Total Operating Costs and Expenses..................... 17,439 12,820 34,693 24,659
-------------------------------------------------------------
Operating Profit .............................................. 10,847 2,539 18,986 3,805
Equity in earnings (loss) of affiliate, net of income tax ... 230 (66) 270 (97)
Other income................................................. 153 125 229 288
Interest expense............................................. (5,691) (4,894) (11,427) (11,211)
-------------------------------------------------------------
Net Income (Loss) before income tax and minority interest...... 5,539 (2,296) 8,058 (7,215)
Provision for deferred income tax............................ (2,011) - (2,950) -
-------------------------------------------------------------
Net Income (Loss) before minority interest..................... 3,528 (2,296) 5,108 (7,215)
Minority interest in subsidiary earnings..................... - (44) - (87)
-------------------------------------------------------------
Net Income (Loss).............................................. 3,528 (2,340) 5,108 (7,302)
Dividends Applicable to Preferred Stock ..................... (1,076) (1,215) (2,294) (2,049)
-------------------------------------------------------------
Income (Loss) Applicable to Common Shares...................... $ 2,452 $ (3,555) $ 2,814 $ (9,351)
=============================================================
Net Income (Loss).............................................. $ 3,528 $ (2,340) $ 5,108 $ (7,302)
Other Comprehensive Income (Loss), net of tax
Unrealized Gain (Loss) on Investments ....................... 497 (129) 674 (256)
-------------------------------------------------------------
Comprehensive Income (Loss).................................... $ 4,025 $ (2,469) $ 5,782 $ (7,558)
=============================================================
Income (Loss) per Common Share - Basic $ 0.12 $ (0.18) $ 0.14 $ (0.46)
=============================================================
Income (Loss) per Common Share - Diluted $ 0.11 $ (0.18) $ 0.14 $ (0.46)
=============================================================
Common Shares Used in Per Share Calculation...................
Basic....................................................... 20,191,137 20,100,862 20,216,875 20,191,265
=============================================================
Diluted..................................................... 30,559,691 20,100,862 20,792,260 20,191,265
=============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 2000
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Treasury Stock
Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------------
Balance at December 31, 1999........................ 1,130,000 $ 1 21,738,320 $ 43 (1,512,719) $ (3,631)
Purchase of preferred stock by subsidiary......... (1,000,000) -
Exercise of employees' common stock options....... 18,000 -
Purchase of treasury stock........................ (129,032) (500)
Dividends declared or accrued on preferred stock .
Net income........................................
Unrealized gain on investment.....................
-------------------------------------------------------------------------------
Balance at June 30, 2000............................ 130,000 $ 1 21,738,320 $ 43 (1,623,751) $ (4,131)
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Additional Accumulated Other
Paid-In Comprehensive Accumulated
Capital Income (Loss) Deficit
------------------------------------------------------------
Balance at December 31, 1999........................ $ 121,815 $ (2,046) $ (62,542)
Purchase of preferred stock by subsidiary......... (10,035)
Exercise of employees' common stock options....... 29
Purchase of treasury stock........................
Dividends declared or accrued on preferred stock.. (2,438)
Net income........................................ 5,108
Unrealized gain on investment..................... 674
------------------------------------------------------------
Balance at June 30, 2000............................ $ 111,809 $ (1,372) $ (59,872)
============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
March 31,
---------------------------------------
2000 1999
---------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss)............................................. $ 5,108 $ (7,302)
Adjustments to reconcile net income (loss) to cash provided by
(used for) operating activities:
Depreciation and depletion........................... 11,537 10,615
Amortization of financing fees....................... 575 1,611
Deferred income taxes................................ 2,950 -
Equity in unconsolidated affiliate................... (270) 97
Minority interest.................................... - 87
Gain on sale of assets............................... (24) -
Changes in certain assets and liabilities
Accounts and notes receivable............... (5,698) (3,114)
Other current assets........................ (412) 486
Accounts payable and accrued liabilities.... (247) (3,830)
---------------------------------------
Net Cash Provided By (Used In) Operating Activities........... 13,519 (1,350)
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.................................. 25,056 -
Additions to property and equipment........................... (14,080) (40,825)
Loan made for promissory note receivable...................... (1,414) (473)
Payments received on promissory note receivable............... 230 66
Investment in unconsolidated affiliate........................ (1,590) -
---------------------------------------
Net Cash Provided By (Used In) Investing Activities........... 7,872 (41,232)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt and production payment 33,556 78,000
Fees paid related to financing activities..................... (399) (1,659)
Payments of principal on long-term debt and production payment (42,766) (79,070)
Payment of short-term notes payable........................... - (2,000)
Proceeds from issuance of preferred and common stock,
net of offering costs........................................ 29 46,302
Purchase of preferred stock by subsidiary..................... (10,035) -
Purchase of treasury stock.................................... (500) (1,722)
(Increase) Decrease in segregated funds for payment of notes payable 68 (517)
Cash dividends paid........................................... (2,657) (438)
---------------------------------------
Net Cash Provided By (Used In) Financing Activities........... (22,704) 38,896
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (983) (3,686)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 1,565 4,853
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 582 $ 1,167
=======================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest expense..................................... 11,075 9,654
=======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated balance sheet as of June 30, 2000, the consolidated
statements of operations and comprehensive income for the three and six months
ended June 30, 2000 and 1999, the consolidated statement of stockholders' equity
for the period ended June 30, 2000 and the consolidated statements of cash flows
for the six months ended June 30, 2000 and 1999, 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 at June 30,
2000, results of operations for the three and six month periods, and changes in
stockholders' equity and cash flows for the six month periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America 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, 1999 annual
report on Form 10-K for the Company. The results of operations for the three and
six month periods ended June 30, 2000, 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, except for Bluebird, are direct Guarantors of the Company's 10%
Senior Notes and have fully and unconditionally guaranteed the Notes on a joint
and several basis. The Guarantors comprise all of the direct and indirect
subsidiaries of the Company (other than Bluebird and inconsequential
subsidiaries), and the Company has presented separate condensed consolidating
financial statements and other disclosures concerning each Guarantor and
Bluebird (See Note 4). Except for Bluebird, 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" which
summarized the application of generally accepted accounting principles to
revenue recognition in financial statements. The Company does not believe the
adoption of Staff Accounting Bulletin 101 will have any impact on its
consolidated financial position or results of operations since it already
recognizes revenue when the earnings process is complete.
NOTE 2 - RECENT EVENTS
On April 17, 2000, the Company announced a stock repurchase program whereby
the Company or its affiliates are authorized to repurchase up to five percent
(5%) of Magnum Hunter's outstanding common stock.
On May 24, 2000, the Company entered into a strategic alliance with another
entity and formed a new partnership, Mallard Hunter LP, to acquire certain oil
and gas reserves from two of the Company's subsidiaries, including Bluebird. The
Company is the general partner of the limited partnership. The Company assigned
approximately 20 billion cubic feet equivalent of proved producing reserves to
the limited partnership, effective June 1, 2000, for a cash payment of
approximately $23 million with a 35% reversionary working interest upon
predetermined partnership pay-out. The Company used the net proceeds received
from this sale to the limited partnership to reduce commercial bank indebtedness
on its two existing credit lines.
On June 30, 2000, the holders of the Company's 1996 Series A Convertible
Preferred Stock agreed to exchange the convertible preferred securities for
900,000 warrants to purchase restricted common shares of the Company's stock at
an exercise price of $5.25 per share with an expiration date of June 30, 2003
and payment of $10 million. The convertible preferred stock was transferred to
the Company's wholly-owned subsidiary, Bluebird. The convertible preferred stock
has a coupon rate of 8.75% per annum and is convertible into the Company's
common stock at a conversion price of $5.25 per share (approximately 1.9 million
shares of common stock). As a result of this exchange, the Company reduced its
reported dividends to preferred stockholders by $144,000 for the three and six
month periods ended June 30, 2000. Bluebird used an existing credit line with
its commercial banks to acquire the $10 million preferred stock issue. It is the
intent of Bluebird to re-market the preferred stock to a third party in the
future.
F-5
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
(Unaudited)
NOTE 3 - EARNINGS PER SHARE INFORMATION
The following is a reconciliation of the basic and diluted earnings per
share computations.
Three Months Ended June 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Per Share
Income Shares Amount
---------------------------------------------------------------------------------------------------------------------
(Thousands, except per share amounts)
---------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common stockholders...................... $ 2,452 20,191 $ 0.12
========
Effect of Dilutive Securities
Options...................................................... - 845
Convertible Preferred stock.................................. 1,000 9,524
-----------------------------
Diluted EPS
Income available to common stockholders and
assumed conversions....................................... $ 3,452 30,560 $ 0.11
----------------------------- ========
</TABLE>
For the three months ended June 30, 1999, the Company incurred a loss per
share of $0.18 basic and diluted, since the effect of dilutive securities was
antidilutive to EPS.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six Months Ended June 30, 2000
Per Share
Income Shares Amount
------------------------------------------------------------------- ---------------- --------------- ----------------
(Thousands, except per share amounts)
---------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common stockholders...................... $ 2,814 20,217 $ 0.14
==========
Effect of Dilutive Securities
Options...................................................... - 575
-----------------------------
Diluted EPS
Income available to common stockholders and
assumed conversions....................................... $ 2,814 20,792 $ 0.14
----------------------------- ==========
</TABLE>
For the six months ended June 30, 1999, the Company incurred a loss per
share of $0.46 basic and diluted, since the effect of dilutive securities was
antidilutive to EPS.
NOTE 4 - SEGMENT DATA
The Company has three reportable segments. The Exploration and Production
segment is engaged in exploratory and developmental drilling, and the
acquisition, production, and sale of crude oil, condensate, and natural gas. The
Gas Gathering, Marketing and Processing segment is engaged in the gathering,
compressing and processing of raw natural gas from the wellhead, the purchase
and resale of natural gas which it gathers, and the processing of natural gas
liquids. The Oil Field Services segment is engaged in the managing and operation
of producing oil and gas properties for interest owners.
F-6
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
(Unaudited)
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. The Exploration
and Production segment has six geographic areas that are aggregated. The Gas
Gathering, Marketing and Processing segment includes the activities of three gas
gathering systems and three natural gas liquids processing plants in three
geographic areas that are aggregated as of June 30, 2000. The Oil Field Services
segment has six geographic areas that are aggregated. The reason for aggregating
the segments, in each case, is due to the similarity in nature of the products,
the production processes, the type of customers, the method of distribution, and
the regulatory environments.
The accounting policies of the segments are the same as those for the
Company as a whole. The Company evaluates performance based on profit or loss
from operations before income taxes. The accounting for intersegment sales and
transfers is done as if the sales or transfers were to third parties, that is,
at current market prices.
Segment data for the three and six month periods ended June 30, 2000 and
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gas Gathering,
Exploration & Marketing & Oil Field
Three Months Ended June 30, 2000: Production Processing Services All Other Elimination Consolidated
------------------------------------------------------------------------------------------------------------------------------------
Revenue from external customers......... $ 23,594 $ 4,414 $ 270 $ 8 $ $ 28,286
Intersegment revenues................... 4,323 1,602 - (5,925) -
Depreciation, depletion and
amortization ........................... 5,271 219 72 4 5,566
Segment profit (loss)................... 9,958 562 1,297 (970) 10,847
Equity earnings (losses) of affiliates.. 230 230
Interest expense........................ (5,691) (5,691)
Other income............................ 153 153
----------
Loss before income taxes................ $ 5,539
Provision for deferred income tax....... 2,011 2,011
Minority interest....................... -
----------
Net income.............................. $ 3,528
==========
Capital expenditures (net of asset
sales).................................. (16,635) 54 83 - (16,498)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gas Gathering,
Exploration & Marketing & Oil Field
Three Months Ended June 30, 1999: Production Processing Services All Other Elimination Consolidated
------------------------------------------------------------------------------------------------------------------------------------
Revenue from external customers........ $ 13,367 $ 1,851 $ 141 $ - $ - $ 15,359
Intersegment revenues................... - 3,368 1,391 - (4,759) -
Depreciation, depletion and
amortization ........................... 5,251 163 49 4 5,467
Segment profit (loss)................. 2,052 321 821 (655) 2,539
Equity earnings (losses) of affiliates.. (66) (66)
Interest expense........................ (4,894) (4,894)
Other income............................ 125 125
------------
Loss before income taxes................ $ (2,296)
Benefit for deferred income tax......... - -
Minority interest....................... (44) (44)
------------
Net loss................................ $ (2,340)
============
Capital expenditures (net of asset
sales).................................. $ 38,897 $ 14 $ 103 $ - $ 39,014
</TABLE>
F-7
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gas Gathering,
Exploration & Marketing & Oil Field
Six Months Ended June 30, 2000: Production Processing Services All Other Elimination Consolidated
------------------------------------------------------------------------------------------------------------------------------------
Revenue from external customers........ $ 44,959 $ 8,244 $ 468 $ 8 $ $ 53,679
Intersegment revenues................... 7,696 3,271 - (10,967) -
Depreciation, depletion and
amortization ........................... 10,951 437 140 9 11,537
Segment profit (loss)................. 18,213 1,423 1,180 (1,830) 18,986
Equity earnings (losses) of affiliates.. 270 270
Interest expense........................ (11,427) (11,427)
Other income............................ 229 229
------------
Loss before income taxes................ $ 8,058
Provision for deferred income tax....... (2,950) (2,950)
Minority interest....................... -
------------
Net income.............................. $ 5,108
============
Capital expenditures (net of asset
sales).................................. (11,202) 67 103 56 (10,976)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gas Gathering,
Exploration & Marketing & Oil Field
Six Months Ended June 30, 1999: Production Processing Services All Other Elimination Consolidated
------------------------------------------------------------------------------------------------------------------------------------
Revenue from external customers........ $ 24,688 $ 3,477 $ 299 $ - $ - $ 28,464
Intersegment revenues................... - 6,171 2,723 - (8,894) -
Depreciation, depletion and amortization 10,185 326 96 8 10,615
Segment profit (loss)................. 3,081 471 1,492 (1,239) 3,805
Equity earnings (losses) of affiliates.. (97) (97)
Interest expense........................ (11,211) (11,211)
Other income............................ 288 288
------------
Loss before income taxes................ $ (7,215)
Benefit for deferred income tax ........ - -
Minority interest....................... (87) (87)
------------
Net loss................................ $ (7,302)
============
Capital expenditures (net of asset
sales).................................. $ 40,708 $ 30 $ 132 $ - $ 40,870
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Gas Gathering,
Exploration & Marketing & Oil Field
As of June 30, 2000: Production Processing Services All Other Elimination Consolidated
-- -- ---- --- ----- ---------- ---------- -------- --- ----- ----------- ------------
Segment assets.......................... $ 252,061 $ 17,893 $ 8,424 $10,894 $ 289,272
Equity subsidiary investments........... 6,155 6,155
As of June 30, 1999:
Segment assets.......................... $ 267,482 $13,507 $ 5,607 $10,216 $296,812
Equity subsidiary investments........... 4,169 4,169
</TABLE>
NOTE 5 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company and its wholly-owned subsidiaries, except Bluebird, are direct
Guarantors of the Company's 10% Senior Notes and have fully and unconditionally
guaranteed the Notes on a joint and several basis. Bluebird was formed in
December 1998 and first reported results of operations in fiscal 1999. In
addition to not being a guarantor of the
F-8
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
(Unaudited)
Company's 10% Senior Notes, it cannot be included in determining compliance
with certain financial covenants under certain of the Company's credit
agreements. Condensed consolidating financial information for Magnum Hunter
Resources, Inc. and subsidiaries as of June 30, 2000 and December 31, 1999, and
condensed consolidating statements of operations for the three and six months
ended June 30, 2000 and 1999, were as follows:
Magnum Hunter Resources, Inc. and Subsidiaries
Condensed Consolidating Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
June 30, 2000
--------------------------------------------------------------------------------------------------------------------------
Magnum Hunter Bluebird Magnum Hunter
Resources, Inc. Energy, Inc. Resources, Inc.
Amounts in Thousands And Guarantor Subs (Non Guarantor) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets.............................. $ 16,859 $ 5,315 $ - $ 22,174
Property and equipment
(using full cost accounting).............. 196,634 46,146 - 242,780
Investment in subsidiaries
(equity method)........................... 17,644 - (17,644) -
Investment in parent's preferred
and common stock........................ - 10,535 (10,535) -
Other assets................................ 26,381 584 (2,647) 24,318
--------------------------------------------------------------------------
Total assets............................. $ 257,518 $ 62,580 $ (30,826) $ 289,272
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................... $ 14,833 $ 1,689 $ - $ 16,572
Long-term liabilities....................... 185,622 43,237 (2,647) 226,222
Shareholders' equity........................ 57,013 17,644 (28,179) 46,478
--------------------------------------------------------------------------
Total liabilities and shareholders'
equity............................... $ 257,518 $ 62,580 $ (30,826) $ 289,272
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1999
--------------------------------------------------------------------------------------------------------------------------
Magnum Hunter Bluebird Magnum Hunter
Resources, Inc. Energy, Inc. Resources, Inc.
Amounts in Thousands And Guarantor Subs (Non Guarantor) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets.............................. $ 15,076 $ 3,741 $ (2,601) $ 16,216
Property and equipment
(using full cost accounting).............. 211,159 54,036 - 265,195
Investment in subsidiaries
(equity method)............................ 13,302 - (13,302) -
Other assets................................ 24,189 510 - 24,699
--------------------------------------------------------------------------
Total assets............................. $ 263,726 $ 58,287 $ (15,903) $ 306,110
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................... $ 16,442 $ 3,185 $ (2,601) $ 17,026
Long-term liabilities....................... 193,644 41,800 - 235,444
Shareholders' equity........................ 53,640 13,302 (13,302) 53,640
--------------------------------------------------------------------------
Total liabilities and shareholders'
equity................................ $ 263,726 $ 58,287 $ (15,903) $ 306,110
==========================================================================
</TABLE>
F-9
<PAGE>
MAGNUM HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2000
(Unaudited)
Magnum Hunter Resources, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Magnum Hunter Bluebird Magnum Hunter
Amounts in Thousands Resources, Inc. Energy, Inc. Resources, Inc.
And Guarantor Subs (Non Guarantor) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
Revenues................................... $ 17,907 $ 10,494 $ (115) $ 28,286
Expenses................................... 16,893 5,969 (115) 22,747
----------------------------------------------------------------------
1,014 4,525 - 5,539
Income before
Equity in net earnings of subsidiary...... 2,812 - (2,812) -
----------------------------------------------------------------------
Income before income taxes................. 3,826 4,525 (2,812) 5,539
Income tax provision....................... (298) (1,713) - (2,011)
----------------------------------------------------------------------
Net income............................... $ 3,528 $ 2,812 $ (2,812) $ 3,528
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Magnum Hunter Bluebird Magnum Hunter
Amounts in Thousands Resources, Inc. Energy, Inc. Resources, Inc.
And Guarantor Subs (Non Guarantor) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
Revenues................................... $ 12,255 $ 3,167 $ (63) $ 15,359
Expenses................................... 14,635 3,127 (63) 17,699
----------------------------------------------------------------------
(2,380) 40 - (2,340)
Loss before
Equity in net earnings of subsidiary..... 40 - (40) -
----------------------------------------------------------------------
Loss before income taxes................... (2,340) 40 (40) (2,340)
Income tax provision....................... - - - -
----------------------------------------------------------------------
Net loss................................. $ (2,340) $ 40 $ (40) $ (2,340)
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Magnum Hunter Bluebird Magnum Hunter
Amounts in Thousands Resources, Inc. Energy, Inc. Resources, Inc.
And Guarantor Subs (Non Guarantor) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
Revenues................................... $ 35,240 $ 18,652 $ (213) $ 53,679
Expenses................................... 34,172 11,622 (213) 45,621
----------------------------------------------------------------------
Income before 1,068 6,990 - 8,058
Equity in net earnings of subsidiary...... 4,343 - (4,343) -
----------------------------------------------------------------------
Income before income taxes................. 5,411 6,990 (4,343) 8,058
Income tax provision....................... (303) (2,647) - (2,950)
----------------------------------------------------------------------
Net income............................... $ 5,108 $ 4,343 $ (4,343) $ 5,108
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Magnum Hunter Bluebird Magnum Hunter
Amounts in Thousands Resources, Inc. Energy, Inc. Resources, Inc.
And Guarantor Subs (Non Guarantor) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
Revenues................................... $ 23,511 $ 5,095 $ (142) $ 28,464
Expenses................................... 29,463 6,445 (142) 35,766
----------------------------------------------------------------------
Loss before (5,952) (1,350) - (7,302)
Equity in net loss........................ (1,350) - 1,350 -
----------------------------------------------------------------------
Income before income taxes................. (7,302) (1,350) 1,350 (7,302)
Income tax provision....................... - - - -
----------------------------------------------------------------------
Net loss................................. $ (7,302) $ (1,350) $ 1,350 $ (7,302)
======================================================================
</TABLE>
F-10
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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)
3.8 & 4.8 Certificate of Designation for 1999 Series A 8% Convertible
Preferred Stock (Incorporated by reference to Form 8-K,
dated February 3, 1999, filed February 11, 1999)
4.9 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)
4.10 Supplemental Indenture dated January 27, 1999 between Magnum
Hunter Resources, the subsidiary guarantors named therein and
First Union National Bank of North Carolina, as Trustee
(Incorporated by reference to Form 10-K for the fiscal year-end
December 31, 1998 filed April 14, 1999)
4.11 Form of 10% Senior Note due 2007 (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
10.1 Amended and Restated Credit Agreement, dated April 30, 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)
10.2 First Amendment to Amended and Restated Credit Agreement, dated
April 30, 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)
10.3 Second Amendment to Amended and Restated Credit Agreement, dated
April 30, 1997, between Magnum Hunter Resources,Inc. and Bankers
Trust Company, et al (Incorporated by reference to Form 10-K
for the fiscal year-end December 31, 1998 filed April 14, 1999)
10.4 Third Amendment to Amended and Restated Credit Agreement, dated
April 30, 1997, between Magnum Hunter Resources, Inc.
and Bankers Trust Company, et al (Incorporated by reference to
Form 10-K for the fiscal year-end December 31, 1998
filed April 14, 1999)
10.5 Employment Agreement for Gary C. Evans (Incorporated by
reference to Form 10-K for the fiscal year-end December 31,
1999 filed March 30, 2000)
10.6 Employment Agreement for Matthew C. Lutz (Incorporated by
reference to Form 10-K for the fiscal year-end
December 31, 1999 filed March 30, 2000)
10.7 Employment Agreement for Richard R. Frazier (Incorporated by
reference to Form 10-K for the fiscal year-end December 31, 1999
filed March 30, 2000)
10.8 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)
7
<PAGE>
10.9 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)
10.10 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)
10.11 Purchase and Sale Agreement dated November 25, 1998 between
Magnum Hunter Production, Inc. and Unocal Oil Company of
California (Incorporated by reference to Form 10-K for the
fiscal year-end December 31, 1998 filed April 14, 1999)
10.12 Stock Purchase Agreement dated February 3, 1999 between ONEOK
Resources Company and Magnum Hunter Resources, Inc.
(Incorporated by reference to Form 8-K, dated February 3, 1999,
filed February 11, 1999)
27* Financial Data Schedule
* Filed herewith.
8
<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 August 14, 2000
---------------------
Gary C. Evans
President and Chief Executive Officer
By /s/ Chris Tong August 14, 2000
---------------------
Sr. Vice President and
Chief Financial Officer
By /s/ David S. Krueger August 14, 2000
---------------------
David S. Krueger
Vice President and
Chief Accounting Officer
By /s/ Morgan F. Johnston August 14, 2000
------------------------
Morgan F. Johnston
Vice President, General Counsel and
Secretary
