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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-7667
------------------------
SANTA FE SNYDER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2722169
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
840 GESSNER, SUITE 1400
HOUSTON, TEXAS 77024
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(713) 507-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
CLASS OUTSTANDING AS OF NOVEMBER 12, 1999
Common stock, $.01 par value 184,415,316
================================================================================
<PAGE>
SANTA FE SNYDER CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Operations
(unaudited) --
Three Months Ended September 30,
1999 and 1998 and
Nine Months Ended September 30,
1999 and 1998...................... 3
Consolidated Balance Sheet --
September 30, 1999 (unaudited) and
December 31, 1998.................. 4
Consolidated Statement of Cash Flows
(unaudited) --
Three Months Ended September 30,
1999 and 1998 and
Nine Months Ended September 30,
1999 and 1998...................... 5
Notes to Consolidated Financial
Statements......................... 6
Management's Discussion and Analysis
of Financial
Condition and Results of
ITEM 2. Operations......................... 13
Quantitative and Qualitative
ITEM 3. Disclosures about Market Risks..... 20
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..... 21
2
<PAGE>
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales of crude oil and liquids..... $ 87.8 $ 45.6 $ 194.3 $ 131.1
Sales of natural gas............... 69.1 30.3 142.4 91.0
Other.............................. .2 -- 1.0 .4
--------- --------- --------- ---------
Total revenues................ 157.1 75.9 337.7 222.5
--------- --------- --------- ---------
Costs and expenses:
Production and operating........... 35.7 29.8 94.9 81.3
Exploration, including dry hole
costs............................ 14.6 23.7 35.2 43.2
Depletion, depreciation and
amortization..................... 51.4 37.1 127.4 98.6
Impairment of oil and gas
properties....................... -- -- 196.4 --
General and administrative......... 6.5 5.1 19.5 14.1
Taxes other than income............ 8.2 3.9 17.8 12.3
Merger related costs............... -- -- 16.8 --
Loss on disposition of assets...... .6 .2 .8 1.4
--------- --------- --------- ---------
Total costs and expenses...... 117.0 99.8 508.8 250.9
--------- --------- --------- ---------
Income (loss) from operations........... 40.1 (23.9) (171.1) (28.4)
Interest income.................... (.3) .4 .4 3.6
Interest expense................... (13.1) (6.1) (30.6) (15.2)
Interest capitalized............... 1.8 2.0 4.4 5.6
Other expense...................... (.1) (.1) (.2) (.2)
--------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item.................... 28.4 (27.7) (197.1) (34.6)
Current income tax (expense)
benefit.......................... 3.5 (1.0) 3.4 4.4
Deferred income tax (expense)
benefit.......................... (15.5) 10.9 54.2 12.5
--------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. 16.4 (17.8) (139.5) (17.7)
Extraordinary item -- debt
extinguishment................... -- -- (4.2) --
--------- --------- --------- ---------
Net income (loss)....................... $ 16.4 $ (17.8) $ (143.7) $ (17.7)
========= ========= ========= =========
Net income (loss) per common share,
basic and diluted
Before extraordinary item.......... $ .09 $ (.17) $ (.98) $ (.17)
Extraordinary item -- debt
extinguishment................... -- -- (.03) --
--------- --------- --------- ---------
Per common share................... $ .09 $ (.17) $ (1.01) $ (.17)
========= ========= ========= =========
Weighted average number of shares
outstanding:
Basic.............................. 178.8 102.6 142.4 102.7
Diluted............................ 182.1 102.6 142.4 102.7
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SANTA FE SNYDER CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
ASSETS (UNAUDITED)
Current Assets:
Cash and cash equivalents.......... $ 30.7 $ 12.1
Accounts receivable, net........... 91.0 53.2
Inventories........................ 22.0 19.0
Other current assets............... 39.8 31.7
------------- -------------
Total Current Assets....... 183.5 116.0
------------- -------------
Investments.......................... 32.0 --
------------- -------------
Properties and equipment, at cost:
Oil and gas (successful efforts
method of accounting)........... 3,022.2 1,942.1
Other.............................. 61.3 34.9
------------- -------------
3,083.5 1,977.0
Accumulated depletion,
depreciation, amortization and
impairments..................... (1,520.4) (1,258.7)
------------- -------------
Net property and equipment...... 1,563.1 718.3
------------- -------------
Other Assets:
Deferred income taxes.............. -- 13.5
Other.............................. 28.9 11.2
------------- -------------
Total Other Assets......... 28.9 24.7
------------- -------------
Total Assets......................... $ 1,807.5 $ 859.0
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 100.8 $ 123.3
Other current liabilities.......... 55.2 15.9
------------- -------------
Total Current Liabilities 156.0 139.2
------------- -------------
Long-term debt....................... 687.5 330.6
Deferred revenues.................... 113.0 3.6
Other long-term obligations.......... 54.4 37.2
Deferred income taxes................ 65.2 --
Commitments and Contingencies (See
Note 8)
Shareholders' Equity:
Preferred stock, $.01 par value,
50.1 and 38.1 shares authorized,
respectively, none issued and
outstanding..................... -- --
Common stock, $.01 par value, 300.0
and 200.0 shares authorized,
184.4 and 103.0 shares issued
and outstanding, respectively... 1.8 1.0
Paid-in capital.................... 1,247.4 728.2
Accumulated deficit................ (517.2) (372.5)
Treasury stock, at cost, .02 shares
and .8 shares, respectively..... (.3) (6.8)
Unamortized restricted stock
awards.......................... -- (1.5)
Accumulated other comprehensive
loss............................ (.3) --
------------- -------------
Total Shareholders'
Equity................. 731.4 348.4
------------- -------------
Total Liabilities and Shareholders'
Equity............................. $ 1,807.5 $ 859.0
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss).................. $ 16.4 $ (17.8) $ (143.7) $ (17.7)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depletion, depreciation and
amortization.................. 51.4 37.1 127.4 98.6
Impairment of oil and gas
properties.................... -- -- 196.4 --
Deferred income taxes........... 15.5 (10.9) (56.5) (12.5)
Loss on disposition of assets... .6 .2 .8 1.4
Exploratory dry hole costs...... 6.0 12.5 12.3 19.7
Other........................... .4 .8 4.4 2.7
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable.................... (17.9) 8.9 (22.4) 13.5
Increase in inventories......... -- (2.4) (2.0) (6.2)
Decrease in accounts payable.... (5.4) (5.0) (4.2) (15.2)
Forward crude oil sale.......... 99.3 -- 99.3 --
Net change in other assets and
liabilities................... (14.1) 3.8 (10.4) 6.0
--------- --------- --------- ---------
Net cash provided by operating
activities...................... 152.2 27.2 201.4 90.3
--------- --------- --------- ---------
Investing activities:
Capital expenditures, including
exploratory dry hole costs...... (49.8) (41.6) (178.7) (159.7)
Acquisition of oil and gas
properties...................... (259.9) .1 (260.3) (99.9)
Acquisition of Snyder Oil
Corporation..................... -- -- (1.5) --
Net proceeds from disposition of
assets.......................... 6.6 -- 7.0 1.8
--------- --------- --------- ---------
Net cash used in investing
activities...................... (303.1) (41.5) (433.5) (257.8)
--------- --------- --------- ---------
Financing activities:
Net change in long-term lines of
credit.......................... 46.5 18.6 114.0 184.5
Issuance of Senior Notes........... -- -- 123.4 --
Retirement of 11% Subordinated
Debentures...................... -- -- (100.0) --
Common stock issued................ 108.0 -- 108.0 --
Treasury stock reissued............ 5.5 .1 5.9 1.6
Treasury stock purchased........... (.1) (4.4) (.6) (10.4)
--------- --------- --------- ---------
Net cash provided by financing
activities...................... 159.9 14.3 250.7 175.7
--------- --------- --------- ---------
Net increase in cash and cash
equivalents........................ 9.0 -- 18.6 8.2
Cash and cash equivalents at
beginning of period................ 21.7 13.8 12.1 5.6
--------- --------- --------- ---------
Cash and cash equivalents at end of
period............................. $ 30.7 $ 13.8 $ 30.7 $ 13.8
========= ========= ========= =========
Supplemental disclosure of cash flow
information:
Interest paid...................... $ 6.0 $ 3.8 $ 28.8 $ 11.6
Income taxes paid.................. $ 1.2 $ 1.3 $ 3.5 $ 4.6
</TABLE>
The accompanying notes an are integral part of these consolidated financial
statements.
5
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements at September 30, 1999 and for the
three and nine months then ended are unaudited and reflect all adjustments
(consisting of only normal and recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the financial position and
operating results of Santa Fe Snyder Corporation ("Santa Fe Snyder" or the
"Company") for the interim periods. Santa Fe Snyder was formed by the merger
of Snyder Oil Corporation ("Snyder") into Santa Fe Energy Resources, Inc.
("Santa Fe") on May 5, 1999 (the "merger").
The consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations contained in the Annual Reports on Form 10-K/A for the year ended
December 31, 1998 for Santa Fe and Snyder. The results for the three and nine
months ended September 30, 1999 are not necessarily indicative of the results
which may be expected for any other interim period or for the year ending
December 31, 1999. Certain amounts in prior periods have been reclassified to
conform to current presentation.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 was amended by Statement of
Financial Accounting Standards No. 137 resulting in the deferral of the
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company intends to implement the provisions of the Statement
beginning with the first quarter of 2001. SFAS 133 requires all derivatives to
be recognized in the balance sheet as either assets or liabilities and measured
at fair value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS 133. The Company
has not yet determined the impact that the adoption of SFAS 133 will have on its
earnings, statement of financial position, or cash flows.
NOTE 2. MERGER WITH SNYDER OIL CORPORATION
Effective May 5, 1999, Snyder, a Delaware corporation, merged with and into
Santa Fe, also a Delaware corporation, pursuant to an Agreement and Plan of
Merger dated January 13, 1999. In connection with the merger, Santa Fe amended
its Articles of Incorporation to change its name to "Santa Fe Snyder
Corporation" and converted each issued and outstanding share of common stock of
Snyder, par value $.01 per share ("Snyder Common Stock") into 2.05 shares of
common stock, par value $.01 per share, of Santa Fe Snyder (the "Santa Fe
Snyder Common Stock"). The exchange ratio was determined through arm's length
negotiations between the parties. Santa Fe Snyder issued 68.7 million shares of
Santa Fe Snyder Common Stock.
The merger has been accounted for using the purchase method of accounting.
The purchase price totaling $687.4 million (subject to purchase price
adjustments) involved a combination of the issuance of $412.1 million of Santa
Fe Snyder Common Stock (68.7 million shares) to Snyder shareholders, the value
of certain liabilities incurred totaling $56.3 million and the fair value of the
net liabilities assumed of $219.0 million. The total value allocated between the
net assets of Snyder was determined based on the fair value of the Santa Fe
Snyder Common Stock offered to the Snyder stockholders as increased to reflect
the incremental cash expenses incurred to effect the merger.
Other accrued merger costs of $19.4 million include those capitalizable
costs incurred to consummate the transaction, consisting primarily of severance
costs related to Snyder employees ($9.6 million), professional fees ($5.7
million) and the provision for certain lease obligations for duplicate or unused
facilities ($2.5 million). The allocation of purchase price to specific assets
and liabilities is based on certain estimates of fair values and costs, which
will be adjusted to actual amounts as determined. The allocation of
6
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
the purchase price resulted in $654.9 million being allocated to property, plant
and equipment and $32.5 million allocated to investments. The results of
Snyder's operations have been included in the consolidated financial statements
effective May 1, 1999.
In connection with the merger, the Company evaluated the recovery of its
long-lived assets pursuant to Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). The Company determined that the
estimated future undiscounted cash flows were below the carrying value of
certain oil and gas properties in the United States which were written up in
accordance with purchase accounting rules, resulting in an impairment of $196.4
million in the second quarter of 1999. The estimated fair value was based on
anticipated future cash flows discounted at a rate commensurate with the risk
involved with the properties and the Company's long-term outlook for future
commodity prices.
The following unaudited pro forma condensed income statement information
has been prepared to give effect to the merger as if such transaction had
occurred at the beginning of the periods presented. The historical results of
operations have been adjusted to reflect the difference between Snyder's
historical depletion, depreciation and amortization and such expense calculated
based on the value allocated to the assets acquired in the merger. The
information presented is not necessarily indicative of the results of future
operations of the merged companies.
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- ---------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
Revenues............................. $ 377.5 $ 323.7
Net loss before extraordinary item... $ (163.0) $ (42.3)
Net loss available to common
shareholders....................... $ (167.2) $ (42.3)
Basic and diluted loss per share..... $ (.96) $ (.25)
NOTE 3. CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
The merger included certain non-cash investing and financing activities not
reflected in the Consolidated Statement of Cash Flows as follows (in millions of
dollars):
Common stock issued.................. $ 412.1
Deferred tax liability............... 135.4
Long-term debt assumed............... 219.0
Assets acquired, other than cash, net
liabilities assumed................ 768.0
NOTE 4. FINANCING AND DEBT
In connection with the merger, the Company assumed $175 million of Snyder's
8.75% Senior Subordinated Notes (the "Subordinated Notes") due June 15, 2007.
Concurrently with the closing of the merger on May 5, 1999, the Company entered
into a $500 million credit facility (the "Credit Facility"). The Credit
Facility currently consists of a $350 million five-year tranche and a renewable
$150 million 364 day tranche. Pursuant to the credit agreement, the Company has
the ability to increase the Credit Facility amount to $600 million, resulting in
a $450 million five-year tranche. As of this filing, the Company is in the
process of negotiating this increase. The Credit Facility bears interest, at the
Company's option, at
7
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
LIBOR or prime rates plus applicable margins dependent upon the Company's credit
rating and ratio of total debt to earnings before interest, taxes, depreciation,
depletion, amortization, exploration charges and non-cash impairments
("EBITDAX"). Borrowings under the Credit Facility are unsecured but are
subject to compliance with certain covenants including limitations on the
incurrence of additional debt, payment of dividends and other restricted
payments and limitations on liens. Financing fees of approximately $2.1 million
were incurred related to the Credit Facility.
In June 1999, the Company issued $125 million of 8.05% Senior Notes due
2004 (the "Notes"). The Notes were issued for 98.758% of face value and the
Company received total proceeds of $121.6 million after deducting related costs
and expenses of $1.9 million. The Notes, which mature June 15, 2004, are
redeemable, upon not less than thirty nor more than sixty days notice, as a
whole or in part, at the option of the Company at a redemption price equal to
the sum of (i) 100% of the principal amount thereof, (ii) the applicable
make-whole premium as determined by an independent investment banker and (iii)
accrued and unpaid interest. The Notes are general unsecured obligations of the
Company. In connection with the Notes offering, the Company executed two forward
treasury lock agreements (the "Treasury Locks") to mitigate interest rate risk
during the issuance of the Notes. Upon the issuance of the Notes, the Treasury
Locks were terminated resulting in proceeds to the Company totaling $3.1 million
which amount has been deferred and will be recognized as a component of interest
expense over the life of the Notes.
The net proceeds of the offering were used to retire the existing $100
million 11% Senior Subordinated Debentures and to pay $5.5 million in accrued
interest and prepayment penalties upon retirement of such debt and the remaining
$16.1 million was used for a partial repayment on credit facility borrowings.
In connection with these financing activities, the Company recorded an
extraordinary loss in the second quarter of 1999 totaling $4.2 million, net of
taxes. The extraordinary loss represents the write-off of certain debt issue
costs of the Senior Subordinated Debentures and Credit Facility and prepayment
penalties pertaining to the retirement of the Senior Subordinated Debentures,
net of related tax benefits.
8
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
NOTE 5. EARNINGS PER SHARE
The following table sets forth the components of the Company's basic and
diluted earnings per share calculations (in millions, except per share data):
<TABLE>
<CAPTION>
EARNINGS (LOSS) WEIGHTED
ATTRIBUTABLE AVERAGE OF
TO COMMON COMMON SHARES
SHARES OUTSTANDING PER SHARE
---------------- -------------- ----------
<S> <C> <C> <C>
Three Months Ended September 30, 1999
Basic........................... $ 16.4 178.8 $ .09
Effect of dilutive stock
options....................... -- 2.9 --
Effect of dilutive performance
awards........................ -- .4 --
---------------- -------------- ----------
Basic and diluted............... $ 16.4 182.1 $ .09
================ ============== ==========
Three Months Ended September 30, 1998
Basic and diluted............... $ (17.8) 102.6 $ (.17)
================ ============== ==========
Nine Months Ended September 30, 1999
Basic and diluted before
extraordinary item.............. $ (139.5) 142.4 $ (.98)
Basic and
diluted -- extraordinary item... (4.2) 142.4 (.03)
---------------- ----------
Basic and diluted after
extraordinary item.............. $ (143.7) 142.4 $(1.01)
================ ============== ==========
Nine Months Ended September 30, 1998
Basic and diluted............... $ (17.7) 102.7 $ (.17)
================ ============== ==========
</TABLE>
The Company had 2.6 million and 2.4 million stock options outstanding at
September 30, 1999 and 1998, respectively, which were not included in the
computation of diluted earnings per share because the exercise price of these
options was greater than the average market price of the common shares. The
Company reported a loss for the nine months ended September 30, 1999 and for the
three and nine months ended September 30, 1998; therefore the potential effects
of dilutive stock options and performance awards were not included in the
computation of diluted earnings per share.
NOTE 6. INVESTMENTS
The Company holds marketable securities of two foreign energy companies,
listed on the London Stock Exchange, accounted for using the cost method. The
Company follows Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), which requires that such investments be adjusted to their fair values
with a corresponding increase or decrease to stockholders' equity. In accordance
with SFAS 115, investments were reduced by $.5 million and deferred taxes were
increased by $.2 million to reflect the change in fair value from May 5, 1999 to
September 30, 1999. The following table sets forth the fair value and cost basis
(in millions):
SEPTEMBER 30, 1999
------------------
FAIR COST
VALUE BASIS
------ ------
Cairn Energy plc (11.7 million
shares).............................. $ 24.4 $ 25.5
SOCO International plc (7.8 million
shares).............................. 7.6 7.0
------ ------
Total...................... $ 32.0 $ 32.5
====== ======
9
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
On November 10, 1999, the Company sold its investment in Cairn Energy plc
for approximately $24.7 million.
NOTE 7. SEGMENT INFORMATION
The principal business of the Company consists of the exploration,
development and acquisition of oil and gas properties and the production and
sale of crude oil and liquids and natural gas. The Company has determined that
its reportable segments are those that are based on the Company's method of
internal reporting, which disaggregates its business by geographic area. The
Company's reportable segments are the United States, Argentina, Indonesia, and
Other International. Other International represents various exploration and
development projects in China, Gabon, Ecuador, Cote d'Ivoire and other
international arenas. The prior period's segment information has been restated
to present the Company's four reportable segments.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments and allocates resources based principally on
operating income or loss.
The table below presents information about the reported segments for the
three and nine months ended September 30, 1999 and 1998. Other reconciling items
include other corporate income and expenses, hedging activities and overhead
costs not allocated to specific geographic areas. Asset information by
reportable segment is not presented because such information is not a factor
used by management to evaluate the performance of the segments.
<TABLE>
<CAPTION>
DEPLETION,
DEPRECIATION,
AMORTIZATION LOSS EARNINGS (LOSS)
TOTAL AND ON SALE OF OPERATING BEFORE
REVENUES IMPAIRMENT ASSETS INCOME (LOSS) INCOME TAXES
-------- -------------- ---------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30, 1999:
United States........................ $113.2 $ 38.7 $ (.6) $ 44.4 $ 44.3
Argentina............................ 12.7 4.5 -- 4.1 3.9
Indonesia............................ 29.3 5.6 -- 14.3 14.1
Other International.................. 3.7 1.1 -- (8.9) (8.6)
Other reconciling items.............. (1.8) 1.5 -- (13.8) (25.3)
-------- -------------- ---------- ------------- ---------------
Total Consolidated.............. $157.1 $ 51.4 $ (.6) $ 40.1 $ 28.4
======== ============== ========== ============= ===============
THREE MONTHS ENDED
SEPTEMBER 30, 1998:
United States........................ $ 48.1 $ 26.0 $ (.2) $ 2.5 $ 2.6
Argentina............................ 8.6 3.2 -- (.8) (2.1)
Indonesia............................ 15.6 5.6 -- 3.4 2.4
Other International.................. 2.5 .9 -- (20.5) (18.2)
Other reconciling items.............. 1.1 1.4 -- (8.5) (12.4)
-------- -------------- ---------- ------------- ---------------
Total Consolidated.............. $ 75.9 $ 37.1 $ (.2) $ (23.9) $ (27.7)
======== ============== ========== ============= ===============
</TABLE>
10
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
DEPLETION,
DEPRECIATION,
AMORTIZATION LOSS EARNINGS (LOSS)
TOTAL AND ON SALE OF OPERATING BEFORE
REVENUES IMPAIRMENT ASSETS INCOME (LOSS) INCOME TAXES
-------- -------------- ---------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30, 1999:
United States........................ $232.2 $288.0 $ (.8) $(132.8) $(132.7)
Argentina............................ 29.9 13.1 -- 5.1 4.4
Indonesia............................ 68.4 14.0 -- 28.7 28.3
Other International.................. 10.4 4.3 -- (16.7) (15.7)
Other reconciling items.............. (3.2) 4.4 -- (55.4) (81.4)
-------- -------------- ---------- ------------- ---------------
Total Consolidated.............. $337.7 $323.8 $ (.8) $(171.1) $(197.1)
======== ============== ========== ============= ===============
NINE MONTHS ENDED
SEPTEMBER 30, 1998:
United States........................ $150.6 $ 66.3 $ (1.4) $ 17.1 $ 17.2
Argentina............................ 26.5 9.8 -- 2.4 (1.4)
Indonesia............................ 37.9 13.3 -- 8.7 6.9
Other International.................. 5.6 2.2 -- (29.9) (24.4)
Other reconciling items.............. 1.9 7.0 -- (26.7) (32.9)
-------- -------------- ---------- ------------- ---------------
Total Consolidated.............. $222.5 $ 98.6 $ (1.4) $ (28.4) $ (34.6)
======== ============== ========== ============= ===============
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
OIL AND GAS HEDGING. From time to time the Company hedges a portion of its
oil and gas sales to provide a certain minimum level of cash flow from its sales
of oil and gas. While the hedges are generally intended to reduce the Company's
exposure to declines in market price, the Company's gain from increases in
market price may be limited. The Company uses various financial instruments
whereby monthly settlements are based on differences between the prices
specified in the instruments and the settlement prices of certain futures
contracts quoted on the New York Mercantile Exchange ("NYMEX") or certain
other indices. Generally, in instances where the applicable settlement price is
less than the price specified in the contract, the Company receives a settlement
based on the difference; in instances where the applicable settlement price is
higher than the specified price, the Company pays an amount based on the
difference. The instruments utilized by the Company differ from futures
contracts in that there is no contractual obligation which requires or allows
for the future delivery of a product. Gains or losses on hedging activities are
recognized in oil and gas revenues in the period in which the hedged production
is sold.
Crude oil sales hedges resulted in a decrease in revenues of $.4 million
and $.6 million for the three and nine months ended September 30, 1999,
respectively, compared with an increase of $1.3 million and $2.5 million for the
same periods in 1998.
At September 30, 1999, the Company had open crude oil sales hedges on
12,000 barrels per day through December 1999. The instruments used have an
average floor of $19.63 per barrel and an average ceiling of $22.85 per barrel.
Under the terms of the instruments, if the aggregate average of the applicable
daily settlement prices is below the floor, the Company will receive a
settlement based on the difference, and if the aggregate average of the
applicable daily settlement prices is above the ceiling, the Company will be
required to pay an amount based on the difference.
The Company has a long-term gas swap agreement that was entered into by
Snyder in 1994 to lock in the price difference between the Rocky Mountain and
Henry Hub prices on a portion of its Rocky Mountain gas production. The contract
covers 20,000 MMBtus per day through 2004. In addition, the Company had
11
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
15,000 MMBtus per day for the month of October sold under a swap agreement at a
price of $2.18 per MMBtu. The long-term gas swap agreement and natural gas sales
hedges resulted in a decrease in revenues of $1.5 million and $2.6 million for
the three and nine months ended September 30, 1999. The Company had no natural
gas hedges in 1998.
ENVIRONMENTAL MATTERS. The Company's oil and gas operations are subject to
stringent environmental regulation by government authorities. Such regulation
has increased the costs of planning, designing, drilling, installing, operating
and abandoning oil and gas wells and associated facilities. The Company has
expended significant financial and managerial resources to comply with such
regulations. Although the Company believes its operations and facilities are in
general compliance with applicable environmental regulations, the risk of
substantial costs and liabilities are inherent in oil and gas operations. It is
possible that other developments, such as increasingly strict environmental
laws, regulations and enforcement policies or claims for damages to property,
employees, other persons and the environment resulting from the Company's
operations, could result in significant costs and liabilities in the future. As
it has in the past, the Company intends to fund the future costs of
environmental compliance from operating cash flows.
There are other claims and actions pending against the Company. In the
opinion of management, the amounts, if any, which may be awarded in connection
with any of these claims and actions could be significant to the results of
operations of any period but would not be material to the Company's consolidated
financial position.
NOTE 9. PROPERTY ACQUISITION
On August 10, 1999, the Company acquired working interests in four Shell
Deepwater Development, Inc. ("Shell") Gulf of Mexico discoveries, as well as
unexplored acreage on some adjacent blocks for $189 million.
On August 3, 1999, the Company entered into a crude oil forward sales
contract. Under the terms of the contract, the Company is to deliver a total of
6,172,000 barrels of crude oil to the purchaser based on specified monthly
volumes commencing with October 1999 through and including the month August
2002. Revenues from this transaction will be recognized on a unit-of-production
basis for each applicable period. In consideration, the Company received a
prepayment of $99.3 million after deducting arrangement and other related costs,
which is shown on the balance sheet under the caption "Deferred revenues". The
proceeds from this transaction were used to partially fund the Shell acquisition
discussed above.
On August 9, 1999, the Company completed a $114.6 million equity offering
of Santa Fe Snyder Common Stock (12.65 million shares) receiving $108.0 million
after deducting the underwriting discount. The net proceeds from this
transaction were used to partially fund the Shell acquisition discussed above.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Santa Fe Snyder is an independent oil and gas company engaged in the
production, development, acquisition and exploration of oil and gas properties
in the United States, Southeast Asia, South America and West Africa. Santa Fe
Snyder was formed by the merger on May 5, 1999 of Snyder Oil Corporation into
Santa Fe Energy Resources, Inc. See Note 2 to the Consolidated Financial
Statements.
The following review of operations for the three and nine months ended
September 30, 1999 and 1998 should be read in conjunction with the financial
statements of the Company and notes thereto included elsewhere in this Form 10-Q
and with the financial statements, notes and management's discussion and
analysis of financial condition and results of operations contained in the
Annual Reports on Form 10-K/A for the year ended December 31, 1998 for Santa Fe
and Snyder.
FINANCIAL PERFORMANCE
The Company reported net income of $16.4 million, or $.09 per share, for
the three months ended September 30, 1999, compared with a net loss of $17.8
million, or $.17 per share, in the third quarter of 1998.
For the nine months ended September 30, 1999, the Company reported net
income of $7.1 million, or $.05 per share, before recognition of $150.8 million
of non-recurring charges, net of tax, relating to the merger. The non-recurring
charges were property impairments, merger-related costs, and debt extinguishment
costs in the amount of $135.0, $11.6 and $4.2 million, respectively, net of tax.
Including these charges, the Company reported a net loss of $143.7 million, or
$1.01 per share, compared with a net loss of $17.7 million, or $.17 per share,
for the same period in 1998.
13
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth certain financial and operating data for the
periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES (IN MILLIONS)
Crude oil and liquids.............. $ 87.8 $ 45.6 $ 194.3 $ 131.1
Natural gas........................ 69.1 30.3 142.4 91.0
Other.............................. .2 -- 1.0 .4
--------- --------- --------- ---------
$ 157.1 $ 75.9 $ 337.7 $ 222.5
========= ========= ========= =========
CRUDE OIL AND LIQUIDS VOLUMES
(MBBLS/DAY)
Domestic........................... 25.9 21.1 23.7 21.4
Argentina.......................... 5.3 5.2 5.1 5.4
Indonesia.......................... 15.4 13.9 15.7 11.3
Gabon.............................. 1.9 1.9 2.4 1.6
--------- --------- --------- ---------
48.5 42.1 46.9 39.7
========= ========= ========= =========
AVERAGE CRUDE OIL AND LIQUIDS PRICE
($/BBL)
Unhedged
Domestic........................ $ 18.59 $ 11.08 $ 14.79 $ 12.00
Argentina....................... 19.74 10.81 15.03 11.44
Indonesia....................... 20.62 12.20 16.01 12.27
Gabon........................... 21.78 13.73 15.87 12.95
Total...................... 19.48 11.54 15.28 12.04
Hedged 19.39 11.89 15.23 12.27
NATURAL GAS VOLUMES (MMCF/DAY)
Domestic........................... 306.5 156.2 239.4 154.8
Argentina.......................... 27.0 26.7 26.2 26.0
Indonesia.......................... .2 .2 .2 .3
--------- --------- --------- ---------
333.7 183.1 265.8 181.1
========= ========= ========= =========
AVERAGE NATURAL GAS PRICE ($/MCF)
Unhedged
Domestic........................ $ 2.46 $ 1.95 $ 2.13 $ 2.03
Argentina....................... 1.28 1.39 1.25 1.32
Indonesia....................... 1.42 .99 1.13 1.02
Total...................... 2.36 1.87 2.05 1.92
Hedged............................. 2.31 1.87 2.01 1.92
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Costs and Expenses per BOE
Production and operating (a)......... $ 3.73 $ 4.47 $ 3.81 $ 4.26
Exploration, including dry hole
costs................................ 1.53 3.54 1.41 2.26
Depletion, depreciation and
amortization......................... 5.36 5.56 5.12 5.17
General and administrative........... .68 .75 .78 .74
Taxes other than income (b).......... .85 .59 .72 .65
Interest expense, net (c)............ 1.12(e) .55 1.00(e)(f) .45(d)
--------- --------- --------- ---------
Total costs and expenses... $ 13.27 $ 15.46 $ 12.84 $ 13.53
========= ========= ========= =========
</TABLE>
- ------------
a) Excludes related production, severance and ad valorem taxes.
b) Includes related production, severance and ad valorem taxes.
c) Reflects interest expense less amounts capitalized and interest income.
d) Excludes effect of $2.6 million ($.14 per BOE) for the nine months ended
September 30, 1998 of interest income on an income tax refund.
e) Excludes effect of $.7 million ($.07 per BOE) for the three and ($.03 per
BOE) for the nine months ended September 30, 1999 of refund to the IRS for
overpayment of interest related to tax refund.
f) Excludes $6.5 million ($.26 per BOE) for the nine months ended September 30,
1999 of interest expense related to debt extinguishment.
GENERAL
As an independent oil and gas producer, the Company's results of operations
are dependent upon the difference between the prices received for oil and gas
and the costs of finding and producing such resources. Crude oil prices are
subject to significant changes in response to fluctuations in the domestic and
world supply and demand. For the twelve months ended September 30, 1999 the
actual average crude oil and liquids sales price received by the Company ranged
from a high of $19.48 per barrel in the third quarter of 1999 to a low of $10.32
per barrel in the fourth quarter of 1998. Based on operating results for the
first nine months of 1999, the Company estimates that on an annualized basis a
$1.00 per barrel increase or decrease in its average crude oil sales price would
result in a corresponding $11.8 million change in net income and a $14.8 million
change in cash flow from operating activities. The price of domestic natural gas
fluctuates due to weather conditions, the level of natural gas in storage, the
relative balance between supply and demand and other economic factors. The
actual average sales price received by the Company for the twelve months ended
September 30, 1999 for its natural gas ranged from a high of $2.36 per Mcf in
the third quarter of 1999 to a low of $1.59 per Mcf in the first quarter of
1999. Based on operating results for the five months of combined Santa Fe and
Snyder operations since the merger, the Company estimates that on an annualized
basis a $.10 per Mcf increase or decrease in its average natural gas sales price
would result in a corresponding $7.4 million change in net income and a $11.1
million change in cash flow from operating activities. The foregoing estimates
do not give effect to changes in any other factors, such as the effect of the
Company's hedging program, its debt levels and related interest expense or the
level of capital expenditures, that might result from a change in crude oil and
natural gas prices.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1998
OIL AND GAS REVENUES. Revenues from crude oil and natural gas operations
increased 107% to $156.9 million for the three months ended September 30, 1999
from $75.9 million for the same period in 1998. The increase in revenue was due
to production from the Snyder properties, international production growth and
significantly increased commodity prices. The Company's crude oil and liquids
production increased 15% in the third quarter of 1999 to 48.5 MBbls per day from
42.1 MBbls per day for the same period in 1998. The increase in oil production
was driven by production from the Snyder properties and new wells at the
15
<PAGE>
Mudi, Makmur and Geragai fields in Indonesia. Natural gas production of 333.7
MMcf per day in the third quarter of 1999 increased 150.6 MMcf per day from the
same period in 1998 principally due to production from the Snyder properties.
The Company's realized crude oil price for the three months ended September 30,
1999 increased 63% to $19.39 per barrel, including a $.09 per barrel hedging
loss, from the average realized oil price of $11.89 per barrel, including a $.35
per barrel hedging gain, for the same period in 1998. Realized natural gas
prices for the three months ended September 30, 1999 averaged $2.31 per Mcf,
including a $.05 per Mcf hedging loss, compared with an average of $1.87 per Mcf
for the same period in 1998.
COSTS AND EXPENSES. Production and operating expense and depletion,
depreciation and amortization increased $5.9 million and $14.3 million,
respectively, for the three months ended September 30, 1999 from the same period
in 1998, primarily due to increased crude oil and natural gas production from
the Snyder properties. Exploration expense for the three months ended September
30, 1999 decreased to $14.6 million from $23.7 million for the same period in
1998, due primarily to decreased costs associated with international
exploration. General and administrative expense for the third quarter of 1999
was $1.4 million higher compared to the same period in 1998 due to incremental
labor and other overhead costs associated with the merger. Taxes other than
income increased to $8.2 million in the third quarter of 1999 primarily due to
increased severance taxes resulting from increased production and higher
realized prices.
Interest expense for the third quarter of 1999 increased by $5.0 million
compared to the same period in 1998, reflecting the Company's assumption of the
Snyder debt and increased borrowings under the credit facility.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998
OIL AND GAS REVENUES. Revenues from crude oil and natural gas operations
increased to $336.7 million for the nine months ended September 30, 1999 from
$222.1 million for the same period in 1998, due to increased oil and natural gas
production and higher realized gas prices. The Company's crude oil and liquids
production increased 18% in the first nine months of 1999 to 46.9 MBbls per day
from 39.7 MBbls per day for the same period in 1998, primarily due to increased
production in Indonesia and Gabon combined with production from the Snyder
properties. Natural gas production increased in the first nine months of 1999 to
265.8 MMcf per day compared with 181.1 MMcf per day for the same period in 1998
primarily due to production from the Snyder properties and from new wells in the
Gulf of Mexico. The Company's realized crude oil prices for the nine months
ended September 30, 1999 averaged $15.23 per barrel, including a $.05 per barrel
hedging loss, compared with the average realized oil price of $12.27 per barrel,
including a $.23 per barrel hedging gain, for the same period in 1998. Realized
natural gas prices for the nine months ended September 30, 1999 averaged $2.01
per Mcf, including a $.04 per Mcf hedging loss, compared with an average of
$1.92 per Mcf for the same period in 1998.
COSTS AND EXPENSES. Production and operating expense and depletion,
depreciation and amortization expense increased $13.6 million and $28.8 million,
respectively, for the nine months ended September 30, 1999 compared with the
same period in 1998, due to increased crude oil and natural gas production, as
noted above. Exploration expense for the nine months ended September 30, 1999
decreased to $35.2 million from $43.2 million for the same period in 1998, due
primarily to decreased costs associated with international exploration. General
and administrative expense for the nine months ended September 30, 1999 was $5.4
million higher compared to the same period in 1998 due to incremental labor and
other overhead costs associated with the merger. Taxes other than income
increased to $5.5 million in the third quarter of 1999 primarily due to higher
severance taxes resulting from increased production and prices.
Merger related expenses of $16.8 million in the second quarter of 1999
included $1.9 million of severance and relocation costs related to Santa Fe
employees and $9.6 million of costs related to the acceleration of certain
compensation plans and other benefits. In the second quarter of 1999, the
Company recorded a pre-tax impairment charge of $196.4 million pursuant to the
provisions of SFAS 121. See Note 2 to the Consolidated Financial Statements.
16
<PAGE>
Interest income for the nine months ended September 30, 1998 included a
$2.6 million benefit related to interest on a federal income tax audit. Interest
income for 1999 included a $.7 million refund to the IRS for an overpayment of
interest on a tax refund. Interest expense for the first nine months of 1999
increased by $15.4 million compared with the same period in 1998, reflecting the
assumption of debt as a result of the merger with Snyder and increased
borrowings under the credit facility. Income taxes for the nine months ended
September 30, 1998 included a $2.4 million benefit related to a income tax
refund and a $1.7 million benefit due to the resolution of prior year tax
matters.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. The Company's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties. The Company
spent $440.5 million for capital expenditures in the nine months ended September
30, 1999, including $189 million related to the acquisition of certain Gulf of
Mexico deepwater properties from Shell Deepwater Development, Inc. in the third
quarter. The Company expects total capital expenditures for the year, excluding
the acquisition of Snyder, to be approximately $550 million. Because the actual
amounts expended in the future for capital expenditures will be influenced by
numerous factors, some of which are beyond the Company's control, no assurances
can be given as to the amount that will actually be expended during the year.
CAPITAL RESOURCES. The Company's principal capital resources for the nine
months ended September 30, 1999 consisted of cash flow from operating activities
of $201.4 million, including $99.3 million relating to a crude oil forward sale
contract, $114.0 million in borrowings under the Credit Facility, $108.0 million
(net of underwriting discounts) from an equity offering of Santa Fe Snyder
common stock, and $23.4 million of proceeds from the issuance of the Senior
Notes in excess of the amount used to retire the 11% Senior Subordinated
Debentures. See Note 9 to the Consolidated Financial Statements. At September
30, 1999, the Company had $687.5 million in borrowings outstanding, which were
classified as long-term debt on the balance sheet since the Company has the
ability and intends to refinance such amount on a long-term basis. The Company
had one letter of credit outstanding under the Credit Facility at September 30,
1999 for $20.9 million and one letter of credit outside the Credit Facility for
$1.8 million.
Concurrently with the closing of the merger on May 5, 1999, the Company
entered into a $500 million credit facility (the "Credit Facility"). The
Credit Facility currently consists of a $350 million five-year tranche and a
renewable $150 million 364 day tranche. Pursuant to the credit agreement, the
Company has the ability to increase the Credit Facility amount to $600 million,
resulting in a $450 million five-year tranche. As of this filing, the Company is
in the process of negotiating this increase. The Credit Facility bears interest,
at the Company's option, at LIBOR or prime rates plus applicable margins
dependent upon the Company's credit rating and ratio of total debt to earnings
before interest, taxes, depreciation, depletion, amortization, exploration
charges and non-cash impairments ("EBITDAX"). Borrowings under the Credit
Facility are unsecured but are subject to compliance with certain covenants
including limitations on the incurrence of additional debt, payment of dividends
and other restricted payments and limitations on liens. Financing fees of
approximately $2.1 million were incurred related to the Credit Facility.
In June 1999, the Company issued $125 million of 8.05% Senior Notes due
2004 (the "Notes") for 98.758% of face value and received $121.6 million after
deducting related costs and expenses of $1.9 million. In connection with the
Notes offering, the Company executed two forward treasury lock agreements (the
"Treasury Locks") to mitigate interest rate risk during the issuance of the
Notes. Upon the issuance of the Notes, the Treasury Locks were terminated
resulting in proceeds to the Company of $3.1 million which amount has been
deferred and will be recognized as a component of interest expense over the life
of the Notes. The net proceeds of the Notes offering were used to retire the
existing $100 million 11% Senior Subordinated Debentures and to pay $5.5 million
in accrued interest and prepayment penalties upon retirement of such debt.
In connection with these financing activities, the Company recorded an
extraordinary loss in the second quarter 1999 totaling approximately $4.2
million, net of taxes. The extraordinary loss represents the write-off of
certain debt issue costs of the Senior Subordinated Debentures and Credit
Facility and
17
<PAGE>
prepayment penalties pertaining to the retirement of the Senior Subordinated
Debentures, net of related tax benefits.
On August 3, 1999, the Company entered into a crude oil forward sales
contract. Under the terms of the contract, the Company is to deliver a total of
6,172,000 barrels of crude oil to the purchaser based on specified monthly
volumes commencing with October 1999 through and including the month August
2002. Revenues from this transaction will be recognized on a unit-of-production
basis for each applicable period. In consideration, the Company received a
prepaid amount of $99.3 million after deducting arrangement and other related
costs, which is shown on the balance sheet under the caption "Deferred
revenues". The proceeds from this transaction were used to partially fund the
Shell acquisition discussed above.
On August 9, 1999, the Company completed a $114.6 million equity offering
of Santa Fe Snyder common stock (12.65 million shares) receiving $108.0 million
after deducting the underwriting discount. The net proceeds from this
transaction were used to partially fund the Shell acquisition discussed above.
On November 10, 1999, the Company sold its investment in Cairn Energy Plc
for approximately $24.7 million. See Note 6 to the Consolidated Financial
Statements.
The Credit Facility and the Indentures for the Subordinated Notes include
covenants that restrict the Company's ability to take certain actions, including
the ability to incur additional indebtedness and to pay dividends or repurchase
capital stock. Under the most restrictive of these covenants, at September 30,
1999 the Company could incur $293.3 million of additional indebtedness.
In addition to the Credit Facility, the Company also has short-term
uncommitted lines of credit totalling $32.5 million which are used to meet
short-term cash needs. Interest rates on borrowings under these lines of credit
are typically lower than rates paid under the Credit Facility when compared to
the prime rate, which would be required for short-term (less than 30 days)
borrowings. As of September 30, 1999, the Company had $9.0 million in borrowings
outstanding under these facilities, which were classified as long-term debt on
the balance sheet since the Company has the ability and intends to refinance
such amounts on a long-term basis.
The Company has historically funded its operations and exploration and
development capital spending programs with cash flow from operations and
borrowings under bank credit facilities and funded acquisitions with cash flow
from operations, bank debt, public debt, equity offerings and forward sales of
production. The Company believes that cash flow from operations and the
borrowing availability under the Credit Facility and from other capital markets
will be sufficient to meet its anticipated capital requirements for 1999.
YEAR 2000
Many computer systems have been built using software that processes
transactions using two digits to represent the year. This type of software will
generally require modifications to function properly with dates after December
31, 1999 (or, to become "Y2K compliant"). The same issue applies to
microprocessors embedded in machinery and equipment, such as gas compressors and
pipeline meters. The impact of failing to identify those computer systems
(operated by the Company or its business partners) that are not Y2K compliant
and correct the problem could be significant to the Company's ability to operate
and report results, as well as potentially expose the Company to third-party
liability.
18
<PAGE>
The Company has formed a Year 2000 Task Force with representation from
major business units to inventory and assess the risk associated with hardware,
software, telecommunications systems, office equipment, embedded chip controls
and systems, process control systems, facility control systems and dependencies
on third party trading partners. The project phases, expected completion dates
and percentage complete as of November 12, 1999 are as follows:
PHASE COMPLETION DATE PERCENT COMPLETE
- ------------------------------------- ------------------- -----------------
Organization......................... complete 100%
Assessment........................... complete 100%
Implementation/Replacement........... complete 100%
Contact External Trading Partners.... complete 100%
Contingency Planning................. complete 100%
The Company estimates the total cost related to its Year 2000 effort to be
approximately $2.0 million, which has been funded by cash from operations or
borrowings under the Credit Facility.
To date, the Company is not aware of any significant Year 2000 issues that
would cause problems in the areas of safety, environmental or business
interruption. The Company recognizes that, notwithstanding the efforts described
above, the Company could experience disruptions to its operations or
administrative functions. Management believes that most reasonably likely worst
case scenario would involve failure of production equipment in the field, which
would result in disruption of those operations affected until the problem is
solved and possibly expose the Company to contractual penalties and other
liabilities. Management believes that it is taking every reasonable precaution
to detect, remediate and test all critical computer systems and equipment.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
The Company is exposed to market risk, which includes adverse changes in
commodity prices, interest rates and foreign currency as discussed below.
COMMODITY PRICE RISK. The Company produces and sells crude oil, liquids
and natural gas. As a result, the Company's financial results can be
significantly affected as these commodity prices fluctuate widely in response to
changing market factors. The Company makes a limited use of hedging agreements
at times to reduce its exposure to declines in market prices. The Company uses
the hedge method of accounting for these instruments and, as a result, gains and
losses on commodity futures contracts are generally offset by similar changes in
the realized prices of the commodities. At September 30, 1999, the Company had
open crude oil and natural gas sales hedges. See Note 8 to the Consolidated
Financial Statements for further discussion on hedging activities.
INTEREST RATE RISK. The Company's existing debt and any future financings
expose it to interest rate risk. There are financial instruments, such as
interest rate swaps, available to the Company to mitigate this risk. While the
Company has not made significant use of such instruments, it may from time to
time utilize these instruments.
EQUITY PRICE RISK AND FOREIGN CURRENCY RISK. At September 30, 1999, the
Company has investments in two international exploration and production
companies, which are both listed on the London Stock Exchange. See Note 6 to the
Consolidated Financial Statements. The value of these investments is subject to
the risk of fluctuations in their stock prices as well as fluctuations in the
British pound, the currency in which they trade.
FORWARD-LOOKING STATEMENTS
This report includes certain statements (other than statements of
historical fact) that constitute forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used herein, the words "budget," "budgeted,"
"anticipates," "expects," "believes," "seeks," "goals," "intends" or
"projects" and similar expressions are intended to identify forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those projected by such forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable and such forward-looking statements
are based upon the best data available at the time this report is filed with the
Securities and Exchange Commission, no assurance can be given that such
expectations will prove correct. Factors that could cause the Company's results
to differ materially from the results discussed in such forward-looking
statements include, but are not limited to, the following: production variances
from expectations, volatility of oil and gas prices, hedging results, the need
to develop and replace its reserves, the substantial capital expenditures
required to fund its operations, exploration and development risks,
environmental risks, uncertainties about estimates of reserves, competition,
government regulation and political and litigation risks, uncertainties
associated with the Year 2000 issue, and the ability of the Company to implement
its business strategy. All such forward-looking statements in this document are
expressly qualified in their entirety by the cautionary statements in this
paragraph.
20
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 2, 3 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At the Annual meeting of Stockholders held on September 2, 1999, the following
proposals were approved:
AFFIRMATIVE NEGATIVE VOTES
VOTES VOTES WITHHELD
------------ ---------- ---------
1. Election of four directors to
Board of Directors:
Allan V. Martini................. 152,849,445 -- 574,021
(Term expires at annual meeting
of stockholders in 2002)
James E. McCormick............... 152,861,378 -- 562,088
(Term expires at annual meeting
of stockholders in 2002)
Reuben F. Richards............... 152,868,079 -- 555,387
(Term expires at annual meeting
of stockholders in 2002)
Kathryn D. Wriston............... 152,866,566 -- 556,900
(Term expires at annual meeting
of stockholders in 2002)
2. Consider and ratify the
appointment of PricewaterhouseCoopers
LLP as independent accountants of
the Company for
the fiscal Year ending 152,922,386 303,976 197,104
December 31, 1999....................
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------
*10(a) -- Santa Fe Snyder Corporation, 1999
Stock Compensation Retention Plan.
*27 -- Financial Data Schedule
- ------------
* Filed herewith
(b) Reports on Form 8-K
On August 9, 1999, the Company filed a Current Report dated August 9, 1999
on Form 8-K with respect to the issuance of 12,650,000 shares of its common
stock. The items reported in such Current Report were Item 5 (Other Events)
and Item 7 (Financial Statements and Exhibits).
21
<PAGE>
SIGNATURE
Pursuant to the requirements Section 13 or 15 (d) of the Securities
Exchange Act 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 12sth day of
November, 1999.
SANTA FE SNYDER CORPORATION
(REGISTRANT)
/s/ MARK A. JACKSON
MARK A. JACKSON
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
DULY AUTHORIZED OFFICER)
Date: November 12, 1999
22
EXHIBIT 10.A
DRAFT: 8/24/99
SANTA FE SNYDER CORPORATION
1999 STOCK COMPENSATION RETENTION PLAN
STATEMENT OF PURPOSE
The purpose of the Santa Fe Snyder Corporation 1999 Stock
Compensation Retention Plan (the "Plan") is to encourage superior performance by
key officers and to retain such key officers by allowing the Board of Directors
of Santa Fe Snyder Corporation (the "Company") to make a one-time special award
of Phantom Units to such key officers, which grant is conditioned on the key
officer waiving certain severance rights that have been or may be engendered
under a termination agreement or severance program with the Company upon or
following the merger of the Company and Snyder Oil Corporation.
I. DEFINITIONS
Unless the context indicates otherwise, the following terms have the meanings
set forth below:
"Award" means a grant of Base Phantom Units and Contingent Phantom Units
pursuant to the Plan.
"Base Phantom Units" means the grant of Phantom Units to a Participant that,
subject to the further provisions of the Plan and the Participant's grant
agreement, will vest upon the earlier of September 2, 2001 or a Change in
Control.
"Board" means the Board of Directors of the Company.
"Change in Control" means, and shall be deemed to have occurred, if (i) the
stockholders of the Company approve a merger, consolidation or other transaction
involving a disposition of all or substantially all the assets of the Company
with any other company, other than a merger, consolidation or transaction which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger, consolidation or
transaction, and (ii) in conjunction with such merger, consolidation or
transaction the individuals who immediately prior to such event constituted the
Board cease to constitute immediately after such event at least 50% of the board
of directors of the survivor company.
"Committee" means the Compensation and Benefits Committee of the Board.
<PAGE>
"Common Stock" means the common stock, $0.01 par value, of the Company.
"Company" means Santa Fe Snyder Corporation and for purposes of determining
whether a Participant's employment has terminated, each company in which Santa
Fe Snyder Corporation owns, directly or indirectly, more than 50% of the voting
interests.
"Contingent Phantom Units" means the grant of Phantom Units that, subject to the
further provisions of the Plan and the Participant's grant agreement, will vest
upon the achievement of a Target Stock Price during a specified period or, if
earlier, on a Change in Control.
"Fair Market Value" means the closing price per share of Common Stock on the New
York Stock Exchange on the applicable date, as reported in THE WALL STREET
JOURNAL, unless the Board or the Committee, in good faith and using any fair and
reasonable means selected in its discretion, shall determine another value to be
used for such purpose.
"Grant Date" means September 2, 1999.
"Officers" means those employees who are "officers" of the Company on the Grant
Date, within the meaning of Rule 16a-1(f) under the Securities Exchange Act of
1934.
"Participant" means any Officer (or former Officer) who has an Award outstanding
under the Plan.
"Phantom Unit" means a right to receive a payment from the Company (in cash,
treasury shares of Common Stock or any combination thereof, as determined by the
Committee) in an amount equal to the Fair Market Value of a share of Common
Stock on the applicable payment date.
"Plan" means the Santa Fe Snyder Corporation 1999 Retention Stock Compensation
Plan as set forth herein and as may be amended from time to time.
"Restricted Period" means the period of time beginning on the Grant Date and
continuing (i) with respect to a Base Phantom Unit, until September 2, 2001, and
(ii) with respect to a Contingent Phantom Unit, until September 2, 2002, but
with respect to both Awards, subject to earlier termination upon a Change in
Control.
"Target Stock Price" means the closing price per share of the Common Stock, as
reported in THE WALL STREET JOURNAL, for the period(s) designated by the
Committee in the Participant's grant agreement.
II. MAXIMUM AWARDS UNDER THE PLAN
Subject to adjustment as provided in Article VII, the number of shares of
Common Stock with respect to which Phantom Units may be granted under the Plan
shall be 750,000. Vested Awards shall be payable in cash, treasury shares of
Common Stock or any combination thereof, in
-2-
<PAGE>
the discretion of the Committee.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The Committee shall
construe the Plan, prescribe and rescind rules and regulations relating to the
Plan and make all other determinations deemed necessary or advisable for the
administration of the Plan.
IV. ELIGIBILITY
Only those Officers designated by the Committee shall receive Awards under
the Plan.
V. PHANTOM UNITS
Subject to Article VI:
(a) Awards shall become vested as provided in the Participant's Award
agreement as prescribed by the Committee and, to the extent vested,
shall be paid as soon as reasonably practical on or following such
vesting date.
(b) Phantom Units may not be sold, pledged, assigned, transferred or
encumbered, other than by will or the laws of descent and
distribution.
(c) The Committee, in its discretion, may elect to pay all or part of
the Awards prior to the end of the Restricted Period.
(d) The Committee, in its discretion, may at any time unilaterally
cancel any or all of a Participant's Awards under this Plan in
exchange for an equal grant of restricted shares and/or phantom
shares under another stock award plan of the Company, provided such
replacement awards have the same vesting terms as the cancelled
Awards under this Plan.
VI. TERMINATION OF EMPLOYMENT
In the event a Participant's employment with the Company terminates for
any reason prior to the end of the Restricted Period, all of the Participant's
outstanding Awards shall automatically be cancelled unpaid on such termination
of employment, unless and to the extent such cancellation is waived by the
Committee in its sole discretion in the Participant's Award agreement or
otherwise.
-3-
<PAGE>
VII. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
The Committee may make or provide for such adjustments in the maximum
number of shares of Common Stock specified in Section 2, in the numbers of
shares of Common Stock covered by outstanding Awards granted hereunder and/or in
the kind of shares covered thereby (including shares of another issuer), as the
Committee, in its sole discretion exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of
Participants that otherwise would result from any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company, merger, consolidation, reorganization, contribution to capital,
partial or complete liquidation, issuance of rights or warrants to purchase
securities or any other corporation transaction or event having an effect
similar to any of the foregoing.
VIII. WITHHOLDING FOR TAXES
Any payment under the Plan shall be reduced by any amounts required to be
withheld or paid with respect thereto by the Company under all present or future
federal, state and local taxes and other laws and regulations that may be in
effect as of the date of each such payment ("Tax Amounts"). Such arrangements
may, at the discretion of the Participant, include a direction to the Company to
withhold a portion of the shares of Common Stock, if any, being distributed to
the Participant pursuant to such Award, which have a Fair Market Value per share
as of the withholding date that is not greater than the sum of all Tax Amounts
that the Company is required to withhold by applicable law, together with
payment by the Participant of any remaining portion of all Tax Amounts in cash
or by check payable and acceptable to the Company.
IX. DESIGNATION OF BENEFICIARY
Each Participant to whom an Award has been made under this Plan may
designate a beneficiary or beneficiaries (which beneficiary may be an entity
other than a natural person) to exercise any rights or receive any payment that
under the terms of such Award may become payable on or after the Participant's
death. At any time, and from time to time, any such designation may be changed
or canceled by the Participant without the consent of any such beneficiary. Any
such designation, change or cancellation must be on a form provided for that
purpose by the Company and shall not be effective until received by the Company.
If no beneficiary has been named by a deceased Participant, or the designated
beneficiaries have predeceased the Participant, the beneficiary shall be the
Participant's estate. If a Participant designates more than one beneficiary, any
such exercise or payment under this Plan shall be made in equal shares unless
the Participant has designated otherwise, in which case the exercise or payment
shall be made in the shares designated by the Participant.
-4-
<PAGE>
X. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any agreement entered into pursuant to the Plan to
the contrary notwithstanding, if, at any time specified herein or therein for
the making of any determination, payment of any Phantom Units, any law,
regulation or requirement of any governmental authority having jurisdiction in
the premises shall require either the Company or the Participant (or the
Participant's beneficiary), as the case may be, to take any action in connection
with any such determination, the shares then to be distributed, or such payment,
the distribution of such shares or the making of such payment, as the case may
be, shall be deferred until such action shall have been taken.
XI. EFFECTIVE DATE AND DURATION OF PLAN
This Plan shall be effective September 2, 1999 and, subject to Section
XII, shall continue until the earlier of the date it is terminated by the Board
or all Awards have been paid or forfeited, as the case may be.
XII. TERMINATION AND AMENDMENT
The Board may suspend, terminate, modify or amend the Plan at any time or
times; however, no suspension, termination, modification or amendment of the
Plan may terminate a Participant's existing Award or materially adversely affect
a Participant's rights under such Award.
XIII. MISCELLANEOUS
(a) Nothing contained in the Plan shall be construed as conferring upon
any Participant the right to continue in the employ of the Company.
(b) A Participant shall have no rights as a stockholder with respect to
any Award under the Plan.
(c) Nothing contained in the Plan shall be construed as giving any
Participant, such Participant's beneficiaries or any other person
any equity or other interest of any kind in any assets of the
Company or creating a trust of any kind or a fiduciary relationship
of any kind between the Company and any such person.
(d) Nothing contained in the Plan shall be construed to prevent the
Company from taking any corporate action that is deemed by the
Company to be appropriate or in its best interest, whether or not
such action would have an adverse effect on the Plan or any award
made under the Plan. No Participant, beneficiary or other person
shall have any claim against the Company as a result of any such
action.
(e) Neither a Participant nor a Participant's beneficiary shall have the
power or right to
-5-
<PAGE>
sell, exchange, pledge, transfer, assign or otherwise encumber or
dispose of such Participant's or beneficiary's interest arising
under the Plan or in any Award received under the Plan; nor shall
such interest be subject to seizure for the payment of a
Participant's or beneficiary's debts, judgments, alimony, or
separate maintenance or be transferable by operation of law in the
event of a Participant's or beneficiary's bankruptcy or insolvency
and to the extent any such interest arising under the Plan or Award
received under the Plan is awarded to a spouse pursuant to any
divorce proceeding, such interest shall be deemed to be terminated
and forfeited notwithstanding any vesting provisions or other terms
herein or in the agreement evidencing such award.
(f) All rights and obligations under the Plan shall be governed by, and
the Plan shall be construed in accordance with, the laws of the
State of Texas without regard to the principles of conflicts of
laws. Titles and headings to Sections herein are for purposes of
reference only, and shall in no way limit, define or otherwise
affect the meaning or interpretation of any provisions of the Plan.
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 30,700
<SECURITIES> 32,000
<RECEIVABLES> 93,100
<ALLOWANCES> 2,100
<INVENTORY> 22,000
<CURRENT-ASSETS> 183,500
<PP&E> 3,083,500
<DEPRECIATION> 1,520,400
<TOTAL-ASSETS> 1,807,500
<CURRENT-LIABILITIES> 156,000
<BONDS> 0
0
0
<COMMON> 1,800
<OTHER-SE> 729,600
<TOTAL-LIABILITY-AND-EQUITY> 1,807,500
<SALES> 336,700
<TOTAL-REVENUES> 337,700
<CGS> 508,800
<TOTAL-COSTS> 508,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,200
<INCOME-PRETAX> (197,100)
<INCOME-TAX> 57,600
<INCOME-CONTINUING> (139,500)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,200)
<CHANGES> 0
<NET-INCOME> (143,700)
<EPS-BASIC> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
