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 JUNE 30, 2000
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 ORGANIZATION) IDENTIFICATION NO.)
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 JULY 21, 2000
Common stock, $.01 par value 184,343,425
<PAGE>
SANTA FE SNYDER CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Operations (Unaudited) --
Three Months and Six Months Ended June 30, 2000 and 1999 3
Consolidated Balance Sheet -- June 30, 2000 (Unaudited)
and December 31, 1999 4
Consolidated Statement of Cash Flows (Unaudited) --
Three Months and Six Months Ended June 30, 2000 and 1999 5
Consolidated Statement of Comprehensive Income (Unaudited) --
Three Months and Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks 18
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In Millions of Dollars, except as noted)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------
Revenues
Crude oil and liquids $ 127.5 $ 63.4 $ 252.0 $ 106.5
Natural gas 108.3 48.5 185.8 73.3
Other .6 .4 .6 .7
------- ------- ------- -------
236.4 112.3 438.4 180.5
------- ------- ------- -------
Costs and Expenses
Production costs 42.0 30.9 83.9 59.2
Production and other taxes 13.0 6.1 24.4 9.6
Exploration 8.0 9.4 18.1 20.6
Depletion, depreciation and
amortization 68.9 44.1 137.8 76.0
Impairment of oil and gas
properties -- 196.4 -- 196.4
General and administrative 7.4 7.6 14.5 13.0
Merger related costs -- 16.8 -- 16.8
Loss (gain) on disposition of
assets -- .1 (.2) .2
------- ------- ------- -------
139.3 311.4 278.5 391.8
------- ------- ------- -------
Income (Loss) from Operations 97.1 (199.1) 159.9 (211.3)
Interest income .7 .3 1.4 .7
Interest expense (15.5) (10.7) (30.5) (17.5)
Interest capitalized 1.8 1.3 3.3 2.6
------- ------- ------- -------
Income (Loss) Before Income Taxes and
Extraordinary Item 84.1 (208.2) 134.1 (225.5)
Current income tax (expense)
benefit (2.7) .6 (9.0) (.1)
Deferred income tax (expense)
benefit (29.5) 63.8 (42.5) 69.7
------- ------- ------- -------
Income (Loss) Before Extraordinary
Item 51.9 (143.8) 82.6 (155.9)
Extraordinary item -- debt
extinguishment -- (4.2) -- (4.2)
------- ------- ------- -------
Net Income (Loss) $ 51.9 $(148.0) $ 82.6 $(160.1)
======= ======= ======= =======
Net Basic Income (Loss) per Common
Share, basic and diluted
Basic
Before extraordinary item $ .28 $ (.99) $ .45 $ (1.26)
Extraordinary item -- debt
extinguishment -- (.03) -- (.03)
------- ------- ------- -------
Per common share $ .28 $ (1.02) $ .45 $ (1.29)
======= ======= ======= =======
Diluted $ .28 $ (1.02) $ .44 $ (1.29)
======= ======= ======= =======
Weighted Average Number of Shares
Outstanding 182.9 145.3 182.7 123.9
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SANTA FE SNYDER CORPORATION
CONSOLIDATED BALANCE SHEET
(In Millions of Dollars)
June 30, December 31,
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents $ 14.3 $ 6.0
Accounts receivable 148.8 106.6
Inventories 29.3 25.5
Other current assets 57.9 35.0
--------- ---------
250.3 173.1
--------- ---------
Properties and Equipment, at cost
Oil and gas (successful efforts
method of accounting) 3,431.6 3,134.9
Other 54.4 53.2
--------- ---------
3,486.0 3,188.1
Accumulated depletion,
depreciation, amortization and
impairment (1,609.1) (1,531.0)
--------- ---------
1,876.9 1,657.1
--------- ---------
Other Assets 37.1 32.6
--------- ---------
$ 2,164.3 $ 1,862.8
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 177.6 $ 200.4
Income taxes payable 1.6 1.3
Interest payable 1.9 2.1
Other current liabilities 42.4 36.1
--------- ---------
223.5 239.9
--------- ---------
Long-Term Debt 766.8 629.4
--------- ---------
Deferred Revenues 151.9 104.8
--------- ---------
Other Long-Term Obligations 72.1 70.1
--------- ---------
Deferred Income Taxes 120.9 77.4
--------- ---------
Commitments and Contingencies (Note 7)
Shareholders' Equity
Common stock 1.8 1.8
Paid-in capital 1,247.4 1,247.4
Accumulated deficit (417.7) (498.5)
Accumulated other comprehensive
income 3.1 1.3
Treasury stock, at cost (2.7) (10.8)
Unamortized restricted stock awards (2.8) --
--------- ---------
829.1 741.2
--------- ---------
$ 2,164.3 $ 1,862.8
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Millions of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ 51.9 $(148.0) $ 82.6 $(160.1)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depletion, depreciation and
amortization 68.9 44.1 137.8 76.0
Impairment of oil and gas
properties -- 196.4 -- 196.4
Deferred income taxes 29.5 (66.1) 42.5 (72.0)
Loss (gain) on disposition of
assets -- .1 (.2) .2
Exploratory dry hole costs 2.1 .8 2.6 6.3
Other 1.3 2.8 2.5 4.0
Changes in operating assets and
liabilities
Decrease (increase) in
accounts receivable (32.8) (.9) (42.2) (4.5)
Decrease (increase) in
inventories (4.9) (2.9) (3.8) (2.0)
Increase (decrease) in
accounts payable 28.5 .3 26.8 1.2
Increase (decrease) in income
taxes payable (4.2) .4 .3 (.2)
Increase (decrease) in
interest payable (7.1) (8.3) (.2) (5.6)
Increase (decrease) in
deferred revenues (14.6) 3.0 47.1 3.1
Net change in other assets and
liabilities (2.5) (2.9) (24.9) 6.4
------- ------- ------- -------
Net cash provided by operating
activities 116.1 18.8 270.9 49.2
------- ------- ------- -------
Investing Activities
Capital expenditures (86.4) (67.2) (180.9) (128.9)
Acquisition of producing properties (7.1) .1 (220.3) (.4)
Acquisition of Snyder Oil
Corporation -- (1.5) -- (1.5)
Net proceeds from disposition of
assets -- .3 .4 .4
------- ------- ------- -------
Net cash used in investing
activities (93.5) (68.3) (400.8) (130.4)
------- ------- ------- -------
Financing Activities
Net change in long-term lines of
credit (27.3) 36.2 137.2 67.5
Issuance of Senior Notes -- 123.4 -- 123.4
Retirement of 11% Subordinated
Debentures -- (100.0) -- (100.0)
Treasury stock reissued 9.7 .4 11.6 .4
Treasury stock purchased (1.8) (.3) (10.6) (.5)
------- ------- ------- -------
Net cash provided/(used in)
financing activities (19.4) 59.7 138.2 90.8
------- ------- ------- -------
Net increase in Cash and Cash
Equivalents 3.2 10.2 8.3 9.6
Cash and cash equivalents at
beginning of period 11.1 11.5 6.0 12.1
------- ------- ------- -------
Cash and Cash Equivalents at End of
Period $ 14.3 $ 21.7 $ 14.3 $ 21.7
======= ======= ======= =======
Supplemental Disclosure of Cash Flow
Information
Interest paid $ 22.4 $ 18.8 $ 30.3 $ 22.8
Income taxes paid $ 4.0 $ .6 $ 5.9 $ 2.3
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SANTA FE SNYDER CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(In Millions of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 51.9 $(148.0) $ 82.6 $(160.1)
------- ------- ------- -------
Other Comprehensive Income
Unrealized holding gain/(loss) on
securities 2.3 (6.0) 2.8 (6.0)
Deferred income taxes (.9) 2.1 (1.0) 2.1
------- ------- ------- -------
1.4 (3.9) 1.8 (3.9)
------- ------- ------- -------
Comprehensive Income (Loss) $ 53.3 $(151.9) $ 84.4 $(164.0)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. UNAUDITED INTERIM
FINANCIAL STATEMENTS. The unaudited interim consolidated financial statements
of Santa Fe Snyder Corporation ("Santa Fe Snyder" or the "Company") reflect, in
the opinion of management, all adjustments (consisting only of normal and
recurring adjustments) necessary to present fairly the Company's financial
position at June 30 , 2000 and the Company's results of operations and cash
flows for the three-month and six-month periods ended June 30, 2000 and 1999.
Interim period results are not necessarily indicative of results of operations
or cash flows for a full-year period.
These unaudited interim consolidated financial statements and the notes thereto
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of Santa Fe
Snyder and its subsidiaries include the accounts of all wholly owned
subsidiaries. Effective May 5, 1999, Snyder Oil Corporation ("Snyder Oil") was
merged with and into Santa Fe Energy Resources, Inc. ("Santa Fe Energy"), a
Delaware corporation, pursuant to an Agreement and Plan of Merger dated
January 13, 1999 (the "Merger"). In connection with the Merger, Santa Fe amended
its Articles of Incorporation to change its name to Santa Fe Snyder Corporation.
The Merger was accounted for as a purchase. See Note 3 -- Merger with Snyder
Oil Corporation.
All significant intercompany accounts and transactions have been eliminated.
Certain amounts in prior periods have been reclassified to conform to the
current period's presentation.
OIL AND GAS OPERATIONS. In the second quarter of 1999 the Company recorded an
impairment charge of $196.4 million. 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. 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 impairment tests were based on estimates of future cash
flows using an initial WTI spot price and an initial New York Mercantile
Exchange ("NYMEX") gas price based on quoted forward market prices which were
moderately escalated and included no forward sales. Future cash flows were based
on the Company's estimate of proved reserves.
PRICE RISK MANAGEMENT. The Company engages in price risk management activities
for non-trading purposes. Derivative financial instruments (primarily fixed
price swaps, collars and options) are utilized to hedge the impact of market
fluctuations on natural gas and crude oil market prices. Gains and losses on
derivative financial instruments are recognized in oil and gas revenues in the
period in which the hedged production is sold. Gains and losses on hedging
instruments that are closed prior to maturity are deferred and recognized in
earnings over the period the hedged production is sold. The cash flow impact of
hedging activities are reflected in Cash Provided by Operating Activities in the
Consolidated Statement of Cash Flows. See Note 7 -- Commitments and
Contingencies -- Oil and Gas Hedging.
EARNINGS PER SHARE. The computation of earnings per share is discussed in
Note 4 -- Earnings Per Share.
USE OF ESTIMATES. The preparation of the Company's financial statements in
conformity with gen- erally accepted accounting principles requires the Company
to make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
and the periods in which certain items of revenue and expense are included. The
Company's most significant financial estimates are related to the Company's
proved oil and gas reserves. Actual results may differ from such estimates.
COMPREHENSIVE INCOME. Comprehensive income is net income, plus certain other
items that are recorded directly to shareholders' equity.
NEW ACCOUNTING STANDARDS. Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as
amended by Statements of Financial Accounting Standards No. 137 and No. 138, is
effective for fiscal years beginning after June 15, 2000. The Company intends to
implement the provisions of SFAS 133 beginning January 1, 2001.
SFAS 133 requires all derivatives to be recognized in the balance sheet as
either assets or liabilities and measured at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive
7
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
income until the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value will be immediately recognized in
earnings. 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. PROPOSED MERGER WITH DEVON ENERGY CORPORATION. On May 25, 2000 Santa
Fe Snyder entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Devon Energy Corporation ("Devon") and Devon Energy Merger Co. (the "Merger
Sub"), a wholly owned subsidiary of Devon, under the terms of which the Merger
Sub would be merged with and into Santa Fe Snyder. As a result of the merger,
Santa Fe Snyder would become a wholly owned subsidiary of Devon. Under the terms
of the Merger Agreement, Santa Fe Snyder shareholders will receive 0.22 of a
share of Devon common stock for each Santa Fe Snyder common share.
The merger is expected to be accounted for using the "pooling-of-interests"
method of accounting for business combinations. If the pooling-of-interests
treatment is not available, the merger will be accounted for as a purchase of
Santa Fe Snyder by Devon. Devon expects to remain on the "full cost" method of
accounting for oil and gas exploration and production activities.
In connection with the proposed merger, Santa Fe Snyder and Devon granted each
other the right under certain circumstances to purchase newly-issued shares
representing 19.9% of each other's outstanding common shares. The companies also
granted each other the right to a termination fee, subject to certain
conditions, not to exceed $103 million, plus expenses.
The proposed merger is subject to approval by the shareholders of both companies
as well as other customary closing conditions. Both Santa Fe Snyder and Devon
have scheduled special shareholder meetings for August 29, 2000 to vote on the
proposed merger. The merger is expected to be completed shortly after the
meetings.
NOTE 3. MERGER WITH SNYDER OIL CORPORATION. Effective May 5, 1999, Snyder Oil
was merged with and into Santa Fe Energy pursuant to an Agreement and Plan of
Merger dated January 13, 1999. In the Merger each issued and outstanding share
of common stock of Snyder Oil was converted into 2.05 shares of common stock of
Santa Fe Snyder. The Merger has been accounted for as a purchase and the results
of operations of the acquired company are included in Santa Fe Snyder's results
of operations effective May 1, 1999.
The allocation of the purchase price to specific assets was based on certain
estimates of fair values. At the time of the Merger the Company assumed or
accrued the following $19.4 million of costs which were capitalized:
(i) severance costs related to Snyder employees of $9.6 million;
(ii) professional fees of $5.7 million; (iii) provisions for certain lease
obligations for duplicate or unused facilities of $2.5 million; and (iv) other
transition costs of $1.6 million. Subsequently the Company increased the
accruals for professional fees and other transition costs by $0.3 million and
$1.0 million, respectively. At June 30, 2000, after deducting payments made, the
Company's accrued liabilities included $1.5 million with respect to severance
costs and $0.2 million of costs with respect to lease obligations for duplicate
or unused facilities.
8
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
The following unaudited proforma condensed income statement information has been
prepared to give effect to the Merger as if such transaction had occurred at the
beginning of the period presented. The historical results of operations have
been adjusted to reflect the difference between Snyder Oil's historical
depletion, depreciation and amortization and such expense calculated based on
the value allocated to the assets acquired in the Merger. The information
presented is not necessarily indicative of the results of future operations of
the merged companies.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
-----------------------------------------------------------------------------------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in millions of dollars, except per
share data)
Revenues 112.3 121.4 180.5 220.2
Loss before extraordinary item (143.8) (144.7) (155.9) (181.7)
Extraordinary item (4.2) (4.2) (4.2) (4.2)
Net loss (148.0) (148.9) (160.1) (185.9)
Basic and diluted loss per share
Loss before extraordinary item (.99) (.85) (1.26) (1.06)
Extraordinary item (.03) (.02) (.03) (.02)
Net loss (1.02) (.87) (1.29) (1.08)
Weighted average shares outstanding
(millions) 145.3 171.0 123.9 171.0
</TABLE>
NOTE 4. EARNINGS PER SHARE. The following table sets forth the components of
the Company's basic and diluted earnings per share calculations:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
COMMON SHARES PER SHARE
NET INCOME (LOSS) OUTSTANDING AMOUNT
-------------------------------------------------------------------------------------------
($/millions) (millions) (in dollars)
<S> <C> <C> <C>
Three Months Ended June 30, 2000
Basic 51.9 182.9 .28
Effect of dilutive stock
options, performance awards
and restricted stock grants -- 3.8 --
------ ----- -----
Diluted 51.9 186.7 .28
====== ===== =====
Three Months Ended June 30, 1999
Before extraordinary
item -- basic and diluted (143.8) 145.3 (.99)
Extraordinary item -- basic and
diluted (4.2) 145.3 (.03)
------ -----
Including extraordinary
item -- basic and diluted (148.0) 145.3 (1.02)
====== =====
Six Months Ended June 30, 2000
Basic 82.6 182.7 .45
Effect of dilutive stock
options, performance awards
and restricted stock grants -- 3.0 (.01)
------ ----- -----
Diluted 82.6 185.7 .44
====== ===== =====
Six Months Ended June 30, 1999
Before extraordinary
item -- basic and diluted (155.9) 123.9 (1.26)
Extraordinary item -- basic and
diluted (4.2) 123.9 (.03)
------ -----
Including extraordinary
item -- basic and diluted (160.1) 123.9 (1.29)
====== =====
</TABLE>
The Company had 1.3 million stock options outstanding at June 30, 2000 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. Since the Company reported a loss for the three months and six
months ended June 30, 1999, the potential dilutive effects of such stock options
and performance awards were not included in the computation of diluted earnings
per share as they are antidilutive.
9
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
NOTE 5. INVESTMENTS. The Company's investment in SOCO International plc
("SOCO") is classified as an available-for-sale security and such investment is
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in Comprehensive Income. The fair value of the Company's investment
in SOCO was $11.9 million at June 30, 2000 and at December 31, 1999 the fair
value of such securities was $9.1 million. Comprehensive Income for the three
months and six months ended June 30, 2000 includes unrealized gains of
$2.3 million ($1.4 million after deducting $0.9 million in deferred income
taxes) and $2.8 million ($1.8 million after deducting $1.0 million of deferred
income taxes), respectively. The Company's investment in SOCO is included in
Other Assets in the Consolidated Balance Sheet.
NOTE 6. 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,
Southeast Asia, South America, and West Africa.
The accounting policies of the segments are the same as those described in
Note 1. The Company evaluates the performance of its segments and allocates
resources based principally on operating income or loss.
10
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
The following table presents information about the reported segments for the
three months and six months ended June 30, 2000 and 1999. 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
INCOME (LOSS) DEPRECIATION
INCOME BEFORE INCOME AMORTIZATION GAIN (LOSS)
(LOSS) TAXES AND AND ON DISPOSITION OF
REVENUES FROM OPERATIONS EXTRAORDINARY ITEM IMPAIRMENT ASSETS
--------------------------------------------------------------------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 2000
United States 185.9 91.4 91.4 52.6 --
Southeast Asia 28.2 8.4 8.4 7.9 --
South America 15.6 7.0 7.0 5.0 --
West Africa 14.0 7.6 7.6 2.2 --
Other reconciling items (7.3) (17.3) (30.3) 1.2 --
------ -------- -------- ------ -----
236.4 97.1 84.1 68.9 --
====== ======== ======== ====== =====
THREE MONTHS ENDED
JUNE 30, 1999
United States 76.8 (179.7) (179.7) 228.9 (.1)
Southeast Asia 22.3 8.4 8.4 4.3 --
South America 9.8 .4 .4 4.5 --
West Africa 3.6 .5 .5 1.3 --
Other reconciling items (.2) (28.7) (37.8) 1.5 --
------ -------- -------- ------ -----
112.3 (199.1) (208.2) 240.5 (.1)
====== ======== ======== ====== =====
SIX MONTHS ENDED
JUNE 30, 2000
United States 343.8 157.6 157.6 105.6 .2
Southeast Asia 52.6 12.5 12.5 16.0 --
South America 31.4 13.9 13.9 9.5 --
West Africa 24.1 10.1 10.1 4.3 --
Other reconciling items (13.5) (34.2) (60.0) 2.4 --
------ -------- -------- ------ -----
438.4 159.9 134.1 137.8 .2
====== ======== ======== ====== =====
SIX MONTHS ENDED
JUNE 30, 1999
United States 117.6 (180.2) (180.2) 249.3 (.2)
Southeast Asia 39.1 9.7 9.7 8.7 --
South America 17.3 (.6) (.6) 8.7 --
West Africa 6.7 (3.7) (3.7) 2.5 --
Other reconciling items (.2) (36.5) (50.7) 3.2 --
------ -------- -------- ------ -----
180.5 (211.3) (225.5) 272.4 (.2)
====== ======== ======== ====== =====
</TABLE>
11
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
The information presented for Southeast Asia and South America includes the
following amounts for operations in Indonesia and Argentina, respectively, for
the three months and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C>
INDONESIA
Revenues 28.2 22.3 52.6 39.1
Income (loss) from operations 10.2 9.8 16.6 13.1
Income (loss) before income taxes and
extraordinary item 10.2 9.8 16.6 13.1
Depletion, depreciation, amortization
and impairment 7.7 4.2 15.6 8.5
ARGENTINA
Revenues 15.6 9.8 31.4 17.2
Income (loss) from operations 8.2 1.4 15.5 .4
Income (loss) before income taxes and
extraordinary item 8.2 1.4 15.5 .4
Depletion, depreciation, amortization
and impairment 3.4 4.4 7.8 8.6
</TABLE>
NOTE 7. 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 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 the product. Gains or losses on hedging activities
are recognized in oil and gas revenues in the period in which the hedged
production is sold.
At June 30, 2000, the Company had open crude oil sales hedges based on NYMEX
futures contracts on an average of 15,000 barrels per day through December 31,
2000. The hedges have an average floor of approximately $20.00 per barrel and an
average ceiling of approximately $25.00 per barrel. Crude oil sales hedges
reduced revenues by $6.4 million and $0.2 million in the three months ended June
30, 2000 and 1999, respectively, and by $12.6 million and $0.2 million in the
six months ended June 30, 2000 and 1999, respectively. Based on the June 30,
2000 settlement price of the applicable NYMEX futures contracts, the Company's
unrealized loss with respect to such hedges at June 30, 2000 was $13.1 million.
The actual gains or losses realized by the Company from these hedges may vary
significantly due to the volatility of the futures markets and other indices.
In April 2000 the Company entered into natural gas sales hedges for the period
May 1, 2000 through October 31, 2000 on an average of 30,000 MMBtu per day based
on NYMEX futures contracts and an average of 20,000 MMBtu per day based on the
Index of Colorado Interstate Gas, Rocky Mountains (the "CIG Index"). The NYMEX
hedges have an average floor of $3.00 per MMBtu and an average ceiling of $3.28
per MMBtu and the CIG Index hedges have an average floor of $2.60 per MMBtu and
an average ceiling of $2.87 per MMBtu. Natural gas sales hedges reduced revenues
by $1.3 million in the three months and six months ended June 30, 2000 and by
$1.1 million in the three months and six months ended June 30, 1999. Based on
the June 30, 2000 settlement prices of the applicable NYMEX futures contracts
and CIG Index, the Company's unrealized loss with respect to such hedges at June
30, 2000 was $6.7 million.
The Company has a long-term gas swap agreement that was entered into by Snyder
Oil 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. The long-term gas swap agreement
increased natural gas revenues by $0.3 million and $0.2 million in the three
months and six months ended June 30, 2000, respectively. The unrealized gain
with respect to the swap agreement at June 30, 2000 was $3.2 million.
12
<PAGE>
SANTA FE SNYDER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
CRUDE OIL SALES CONTRACTS. In August 1999, the Company entered into a crude oil
forward sales contract under the terms of which the Company is to deliver a
total of 6.2 million barrels of crude oil to the purchaser, at specified monthly
volumes, during the period from October 1999 through August 2002. In
consideration the Company received a prepayment of $99.3 million, after
deducting arrangement and other related costs. In January 2000, the Company
entered into a crude oil forward sales contract under the terms of which the
Company is to deliver a total of 4.2 million barrels of crude oil to the
purchaser, at specified monthly volumes, during the period from February 2000
through August 2002. In consideration the Company received a prepayment of
$74.6 million, after deducting arrangement and other related costs. The
prepayments are recognized in earnings when the crude oil is delivered. The
balance of the prepayment related to undelivered crude oil, $136.2 million at
June 30, 2000, is reflected on the consolidated balance sheet under the caption
Deferred Revenues. Under the terms of the contracts, the Company will deliver a
total of 8.1 million barrels during the period July 2000 through August 2002.
The proceeds from the January 2000 contract were used to pay a portion of the
purchase price of certain proved oil and gas properties acquired in January
2000.
ENVIRONMENTAL REGULATION. 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 to 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.
OTHER MATTERS. There are other claims and actions, including certain
environmental matters, 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 or
cash flows of any period but are not believed to be material to the Company's
consolidated financial position.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our U.S. core areas are the Gulf of Mexico, the Permian Basin and the Rocky
Mountains. Our international core areas are Southeast Asia and South America. We
also explore and produce in West Africa.
On May 5, 1999 Snyder Oil Corporation was merged with and into Santa Fe Energy
Resources, Inc. (the "Merger") and the Company's name was changed to Santa Fe
Snyder Corporation. The producing properties that we acquired in the Merger are
entirely located in the U.S., primarily in the Gulf of Mexico and the Rocky
Mountains. The Merger is described in the notes to the consolidated financial
statements. The Merger was accounted for as a purchase and the consolidated
interim financial statements include results of operations attributable to the
acquired properties with effect from May 1, 1999.
PROPOSED MERGER
On May 25, 2000 we entered into an Agreement and Plan of Merger under the terms
of which we would become a wholly owned subsidiary of Devon Energy Corporation
("Devon"). Under the terms of the agreement, our shareholders will receive 0.22
of a share of Devon common stock for each Santa Fe Snyder common share. The
merger is expected to be accounted for using the "pooling-of-interest" method of
accounting for business combinations.
The proposed merger is subject to approval by the shareholders of both companies
as well as other customary closing conditions. Both companies have scheduled
special shareholder meetings for August 29, 2000 to vote on the proposed merger.
The merger is expected to be completed shortly after the meetings.
The discussions included in this Item 2 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in
Item 3 -- "Quantitative and Qualitative Disclosures About Market Risks" do not
reflect the effect the proposed merger would have on Santa Fe Snyder.
RESULTS OF OPERATIONS
The following table reflects the components of our oil and gas revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OIL
SALES VOLUMES (MBBLS/DAY)
Domestic 37.9 23.8 38.3 22.7
Argentina 5.5 5.0 5.6 5.0
Indonesia 11.5 15.5 11.0 15.7
Gabon 5.6 2.7 4.9 2.7
----- ----- ----- -----
60.5 47.0 59.8 46.1
===== ===== ===== =====
SALES PRICES ($/BBL)
Unhedged
Domestic 22.99 14.73 23.26 12.59
International 27.07 15.49 26.75 13.46
Total 24.51 15.11 24.51 13.03
Hedged 23.36 15.06 23.36 13.01
REVENUES ($ MILLIONS)
Sales
Domestic 79.3 31.9 162.3 51.5
International 55.7 32.6 104.5 57.1
----- ----- ----- -----
135.0 64.5 266.8 108.6
Hedging (6.4) (.2) (12.6) (.2)
Net Profits Payments (1.1) (.9) (2.2) (1.9)
----- ----- ----- -----
127.5 63.4 252.0 106.5
===== ===== ===== =====
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GAS
SALES VOLUMES (MMCF/DAY)
Domestic 371.6 255.1 365.9 205.3
Argentina 23.4 25.7 23.5 25.8
Indonesia .5 .2 .4 .2
----- ----- ----- -----
395.5 281.0 389.8 231.3
===== ===== ===== =====
SALES PRICES ($/MCF)
Unhedged
Domestic 3.20 2.03 2.78 1.89
International 1.36 1.27 1.28 1.23
Total 3.09 1.96 2.69 1.82
Hedged 3.06 1.92 2.67 1.79
REVENUES ($ MILLIONS)
Sales
Domestic 108.2 47.1 185.1 70.2
International 3.0 3.0 5.6 5.8
----- ----- ----- -----
111.2 50.1 190.7 76.0
Hedging (1.0) (1.1) (1.1) (1.1)
Net Profits Payments (1.9) (.5) (3.8) (1.6)
----- ----- ----- -----
108.3 48.5 185.8 73.3
===== ===== ===== =====
</TABLE>
The following table sets forth our revenues and costs and expenses on a BOE
basis:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------
(In Dollars Per BOE, except as noted)
<S> <C> <C> <C> <C>
Production -- MMBOE 11.5 8.5 22.7 15.3
===== ===== ===== =====
Revenues 20.54 13.16 19.30 11.79
----- ----- ----- -----
Production costs 3.65 3.62 3.69 3.87
Production and other taxes 1.13 .72 1.08 .63
General and administrative .64 .89 .64 .85
Financing costs, net(a) 1.13 1.07 1.13 .93
----- ----- ----- -----
6.55 6.30 6.54 6.28
----- ----- ----- -----
Operating margin 13.99 6.86 12.76 5.51
Exploration .69 1.09 .79 1.34
DD&A and impairments 5.99 5.17 6.07 4.96
Loss (gain) on disposition of assets -- .01 (.01) .01
----- ----- ----- -----
Pre-tax margin 7.31 .59 5.91 (.80)
===== ===== ===== =====
</TABLE>
------------
a) Reflects interest expense less amounts capitalized and interest income.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Total revenues for the second quarter of 2000 of $236.4 million were over 100%
higher than in the second quarter of 1999, relfecting higher prices and
increased production from producing property acquisitions, successful drilling
and properties acquired in the Merger with Snyder Oil. Oil and gas prices both
increased by over 50% to $23.36 per barrel and $3.06 Mcf in 2000. Oil production
increased by over 25%, to 60.5 MBbls per day in 2000, due to production from
newly acquired properties, primarily in the deepwater Gulf of Mexico. Gas
production increased by 40%, to 395.5 MMcf per day in 2000, primarily due to
Rocky Mountain and Gulf Coast producing property acquisitions, successful
drilling and properties acquired in the Merger. Realized oil and gas prices for
2000 were reduced $1.15 per barrel and $0.03 per Mcf by hedging losses. Hedging
losses in 1999 reduced realized gas prices by $0.04 per Mcf.
15
<PAGE>
Costs and expenses, other than oil and gas property impairments, increased from
$115.0 million in 1999 to $139.3 million in 2000. Production costs and
depletion, depreciation and amortization ("DD&A") increased, primarily
reflecting costs attributable to the increased production discussed above.
Production and other taxes increased due to increased production volumes and
sale prices. Exploration costs decreased $1.4 million in 2000, primarily due to
lower geological and geophysical costs. Merger related expenses in 1999 included
$1.9 million of severance and relocation costs and $9.6 million of costs related
to the acceleration of certain compensation plans and other benefits. Interest
expense increased $4.8 million reflecting increased long-term debt assocated
with the Merger and producing property acquisitions.
In the second quarter of 1999 we recorded impairments of $196.4 million. We
determined that the estimated future undiscounted cash flows were below the
carrying value of certain oil and gas properties in the United States. The
estimated fair value was based on anticipated future cash flows discounted at a
rate commensurate with the risk involved with the properties and our long-term
outlook for future commodity prices. The impairment tests were based on
estimates of future cash flows using an initial WTI spot price and an initial
New York Mercentile Exchange gas price based on quoted forward market prices
which were moderately escalated and included no forward sales. Future cash flows
were based on the Company's estimate of proved reserves.
The extraordinary item recognized in 1999 relates to the write-off of certain
debt issue costs and prepayment penalties incurred in connection with the
retirement of certain debt, net of $2.3 million in related income tax benefit.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Total revenues for the first half of 2000 of $438.4 million were over 140%
higher than in the first half of 1999, reflecting higher prices and increased
production from producing property acquisitions, successful drilling and
properties acquired in the Merger. Oil prices increased by over 75% to $23.36
per barrel in 2000 and gas prices increased by 50% to $2.67 per Mcf in 2000. Oil
production increased by 30%, to 59.8 MBls per day in 2000, due to production
from newly acquired properties, primarily in the deepwater Gulf of Mexico. Gas
production increased by over 65%, to 389.8 MMcf per day in 2000, primarily due
to Rocky Mountain and Gulf Coast producing property acquisitions, successful
drilling and properties acquired in the Merger. Realized oil and gas prices for
2000 were reduced $1.15 per barrel and $0.02 per Mcf by hedging losses. Hedging
losses in 1999 reduced realized oil and gas prices by $0.02 per barrel and $0.03
per Mcf.
Costs and expenses, other than oil and gas property impairments, increased from
$195.4 million in 1999 to $278.5 million in 2000. Production costs and DD&A
increased, primarily reflecting costs attributable to the increased production
discussed above. Production and other taxes increased due to increased
production volumes and sales prices. Exploration costs decreased $2.5 million in
2000, primarily due to lower geological and geophysical and dry hole costs.
Interest expense increased $13.0 million reflecting increased long-term debt
associated with the Merger and producing property acquisitions.
Discussions of the oil and gas property impairments, merger related costs and
extraordinary item in the first half of 1999 are included in the discussion of
the second quarter results of operations.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Our primary needs for cash are for exploration,
development and acquisition activities. We spent $400 million for capital
expenditures in the first six months of 2000, including $220 million related to
the acquisition of producing oil and gas properties. In 2000 we expect to spend
approximately $340 million on exploration and development programs and
approximately $230 million on the acquisition of producing oil and gas
properties. Since the actual amounts expended in the future and the results
therefrom will be influenced by numerous factors, including many beyond our
control, no assurances can be given as to the amounts that will be expended. In
the first six months of 2000 we purchased 1.4 million of our common shares for
$10.6 million to meet the requirements of outstanding stock options and to
satisfy the stock requirements of employee benefit plans.
CAPITAL RESOURCES. Our principal capital resources in the first six months of
2000 consisted of cash flow from operating activities of $270.9 million, which
included $74.6 million relating to crude oil forward sale contracts, and
$137.2 million in borrowings under the Credit Facility.
At June 30, 2000 we had $26.8 million in working capital compared to a
$66.8 million deficit at year-end. The improvement reflects an increase in
current assets of $77.2 million as accounts receivable increased, reflecting
higher sales prices, and other current assets increased, reflecting higher
prepaid items related to foreign operations.
16
<PAGE>
At June 30, 2000 our long-term debt totaled $768.0 million, including $1.2
million of unamortized discount, as follows:
o $458.0 million outstanding under the terms of a $600.0 million credit
facility (the "Credit Facility"). At June 30 there were also three
letters of credit for $25.9 million outstanding under the terms of the
Credit Facility. The weighted average interest rate under the Credit
Facility during the first six months of 2000 was 6.9%.
o $175.0 million of 8.75% Senior Subordinated Notes due 2007 (the
"Subordinated Notes").
o $125.0 million of 8.05% Senior Notes due 2004 (the "Senior Notes").
o $10.0 million outstanding under the terms of $30 million in working
capital lines of credit.
Amounts outstanding under the above lines of credit are classified as long-term
on the balance sheet since we have the ability and intend to refinance on a
long-term basis.
The Credit Facility and the indentures for the Subordinated Notes and the Senior
Notes include covenants that restrict our 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 June
30, 2000 we could incur $1.2 billion of additional indebtedness, of which
$142.0 million could be borrowed under the Credit Facility, and could pay
dividends and/or repurchase common stock of up to $159.4 million.
The fair value of our long-term debt on June 30, 2000 was $764.4 million. The
fair value of the Subordinated Notes and the Senior Notes is based on market
prices and the fair value of our floating-rate debt is assumed to equal carrying
value. This fair value is not representative of the amount that could be
realized or settled and does not consider tax consequences, if any, of
realization or settlement.
In June 1999 we filed a shelf registration statement with the Securities and
Exchange Commission under which, for a period of two years, we may sell
different types of securities in one or more offerings up to a total amount of
$500 million. To date we have issued the $125 million of Senior Notes and sold
12.6 million shares of common stock in a public offering for $114.6 million
under the shelf registration.
In January 2000 we increased our working interest in two recently acquired
offshore Gulf of Mexico fields by purchasing Marathon Oil Company's working
interest for $160.0 million. To finance a portion of this acquisition, we
entered into an oil forward sales contract whereby we will deliver a total of
4.2 million barrels of oil to the purchaser, at specified monthly volumes,
during the period from February 2000 through August 2002. In consideration, we
received a prepaid amount of $74.6 million, after deducting arrangement and
other related costs. The balance of the prepayment related to undelivered oil is
shown on the consolidated balance sheet under the caption Deferred Revenues. The
remainder of the purchase price was paid utilizing the Credit Facility.
In April 2000 Standard & Poor's Credit Rating Agency upgraded our senior
unsecured debt to BBB-, an investment grade rating. As a result of the upgrade
and our improved debt ratios, we estimate savings of $2.5 million this year in
interest costs on the Credit Facility.
Historically we have funded our operations and investment programs with cash
flow from operations, borrowings under credit facilities, public debt, equity
offerings and forward sales of production. We believe we will be able to fund
our anticipated capital requirements for 2000 from the same or similar sources.
ENVIRONMENTAL MATTERS. Almost all phases of our oil and gas operations are
subject to stringent environmental regulation by governmental authorities. These
regulations have increased the costs of planning, designing, drilling,
installing, operating and abandoning oil and gas wells and other facilities. We
have expended significant financial and managerial resources to comply with
these regulations and believe our operations and facilities are in general
compliance with applicable environmental regulations. However, risks 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 our operations,
could result in significant costs and liabilities in the future. As we have done
in the past, we intend to fund the cost of environmental compliance from
operating cash flows.
DIVIDENDS. The determination of the amount of future cash dividends, if any, to
be declared and paid on our common stock is at the sole discretion of our Board
of Directors and is dependent on financial condition, earnings and available
funds from operations, level of capital and exploration expenditures, dividend
restrictions as set forth in financing agreements, future business prospects and
other matters that our Board deems relevant.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to market risk, which includes adverse changes in commodity
prices and interest rates as discussed below.
COMMODITY PRICE RISK
We sell the majority of our oil and gas on a monthly basis at prices based on
NYMEX or other indices. As a result, our financial results can be materially
affected as these commodity prices fluctuate widely in response to changing
market factors. Oil prices are subject to significant changes in response to the
world political situation as it affects OPEC and other producing countries and
to fluctuations in the domestic and world supply and demand and other market
conditions. In 1999 our average unhedged oil sales price ranged from a low of
$10.85 per barrel in the first quarter to a high of $21.70 per barrel in the
fourth quarter. In 2000 our average unhedged oil sales price was $24.51 per
barrel in the first quarter and second quarter. The price of gas fluctuates due
to weather conditions, the level of gas in storage, the relative balance between
supply and demand and other economic factors. Our average unhedged sales price
for gas in 1999 ranged from a low of $1.59 per Mcf in the first quarter to a
high of $2.36 per Mcf in the third quarter. In 2000 our average unhedged gas
sales price was $2.27 per Mcf in the first quarter and $3.09 per Mcf in the
second quarter.
Based on operating results for the first six months of 2000, we estimate that on
an annualized basis a $1.00 per barrel change in our average oil sales price
would result in a corresponding $14.3 million change in net income and a
$19.4 million change in cash flow from operating activities and a $0.10 per Mcf
change in our average gas sales price would result in a corresponding
$8.7 million change in net income and an $12.8 million change in cash flow from
operating activities. These estimates do not give effect to other factors that
might result from a change in prices.
From time to time we hedge a portion of our oil and gas sales to provide a
certain minimum level of cash flow. While the hedges are generally intended to
reduce our exposure to declines in market price, our gain from increases in
market price may be limited. We use 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. The instruments
we utilize differ from futures contracts in that there is no contractual
obligation which requires or allows for the future delivery of the product.
Gains or losses on hedging activities are recognized in oil and gas revenues in
the period in which the hedged production is sold.
Oil sales hedges resulted in a $6.4 million decrease in revenues in the second
quarter of 2000 and a decrease of $12.6 million in the first half of the year.
At June 30, 2000 we had open oil sales hedges based on NYMEX futures contracts
on an average of 15,000 barrels per day through December 31, 2000. The hedges
have an average floor of approximately $20 per barrel and an average ceiling of
approximately $25 per barrel. Based on the June 30, 2000 settlement price of the
applicable NYMEX futures contracts, our unrealized loss with respect to such
hedges at June 30, 2000 was $13.1 million. The actual gains or losses realized
from these hedges may vary significantly due to the volatility of the futures
markets and other indices.
In addition to oil sales hedges, we entered into two forward sales contracts in
August 1999 and January 2000 which cover approximately 8.1 million barrels of
our oil production during the period from July 2000 until August 2002. In
consideration, we received prepayments totaling $173.9 million, after deducting
arrangement and other related costs.
In April 2000 we entered into natural gas sales hedges for the period May 1,
2000 through October 31, 2000 on an average of 30,000 MMBtu per day based on
NYMEX futures contracts and an average of 20,000 MMBtu per day based on the
Index for Colorado Interstate Gas, Rocky Mountains (the "CIG Index"). The NYMEX
hedges have an average floor of $3.00 per MMBtu and an average ceiling of $3.28
per MMBtu and the CIG Index hedges have an average floor of $2.60 per MMBtu and
an average ceiling of $2.87 per MMBtu. These natural gas sales hedges resulted
in a $1.3 million decrease in revenues in the second quarter of 2000. Based on
the June 30, 2000 settlement prices of the applicable NYMEX futures contracts
and CIG Index, our unrealized loss with respect to such hedges at June 30, 2000
was $6.7 million.
We have a long-term gas swap agreement that was entered into by Snyder Oil in
1994 to lock in the price difference between the Rocky Mountain and Henry Hub
prices on 20,000 MMBtu per day of Rocky Mountain gas production through 2004.
The gas swap agreement increased gas revenues by $0.2 million in the first six
months of 2000. The unrealized gain with respect to the gas swap agreement at
June 30, 2000 was $3.2 million.
INTEREST RATE RISK
Our exposure to changes in interest rates primarily results from our short-term
and long-term debt with both fixed and floating interest rates. To date, we have
not entered into any financial instruments such as interest rate swaps.
18
<PAGE>
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by Statements of
Financial Accounting Standards No. 137 and No. 138, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. We intend to
implement the provisions of SFAS 133 beginning January 1, 2001.
SFAS 133 requires all derivatives to be recognized in the balance sheet as
either assets or liabilities and measured at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. We have not yet determined the impact that the adoption
of SFAS 133 will have on earnings, financial position or cash flows.
RISK FACTORS AND CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference 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," "estimates,"
"intends" or "projects" and similar expressions are intended to identify
forward-looking statements. Where any forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking statement,
we caution that while we believe these assumptions or bases to be reasonable and
to be made in good faith, assumed facts or bases almost always vary from actual
results and the difference between assumed facts or bases and actual results
could be material, depending on the circumstances. It is important to note that
our actual results could differ materially from those projected by such
forward-looking statements. Although we believe 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, we cannot assure you that
such expectations will prove correct. Factors that could cause our 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 reserves, the substantial capital expenditures required to
fund operations, exploration risks, environmental risks, uncertainties about
estimates of reserves, competition, litigation, government regulation, political
risks, and our ability to implement our business strategy. All such
forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph.
For a discussion of important factors that could cause actual results to differ
materially from those expressed in any forward-looking statement made by us or
on our behalf, see "Risk Factors and Cautionary Statement for Purposes of the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995'
in our 1999 Annual Report on Form 10-K.
19
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 2, 3 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders, held May 16, 2000, the
following proposals were approved:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
----------- ---------- ---------
<S> <C> <C> <C>
1. Election of three directors to
the Board of Directors:
William E. Greehey 160,372,468 -- 1,255,391
(term expires at the annual
meeting of
stockholders in 2003)
Harold R. Logan, Jr. 160,377,694 -- 1,250,165
(term expires at the annual
meeting of
stockholders in 2003)
Edward T. Story 160,280,271 -- 1,347,588
(term expires at the annual
meeting of
stockholders in 2003)
2. Approval of the Santa Fe Snyder
Corporation Incentive Stock
Compensation Plan 2000 136,359,425 24,404,729 863,705
3. Ratification and approval of the
appointment of
PricewaterhouseCoopers LLP as
independent public accountants
for the fiscal year ending
December 31, 2000 160,841,716 469,296 316,847
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*10(a) -- Santa Fe Snyder Corporation Incentive Stock Compensation
Plan 2000.
------------
*Filed herewith
(b) Reports on Form 8-K
Date Item
------------- ----
May 30, 2000 5
20
<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 9th day of August, 2000.
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: August 9, 2000
21
