<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission file number 0-18886
--------------------------------------------------------
HS RESOURCES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3036864
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
- --------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 433-5795
----------------------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
------ ------
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock, $.001 par value, outstanding as of the close
of business on November 3, 1997: 17,290,187 after deducting 160,358 shares in
treasury.
<PAGE> 2
HS RESOURCES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets - September 30, 1997 (Unaudited)
and December 31, 1996......................................... 3
Unaudited Consolidated Statements of Operations -
For the Three Months and Nine Months Ended
September 30, 1997 and 1996................................... 5
Consolidated Statements of Stockholders' Equity - For the
Years Ended December 31, 1996 and 1995 and the Nine Months
Ended September 30, 1997 (Unaudited).......................... 6
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1997 and 1996......... 7
Notes to Unaudited Consolidated Financial Statements.......... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings & Environmental Issues...................... 21
Item 2. Changes in Securities......................................... 22
Item 3. Defaults Upon Senior Securities............................... 23
Item 4. Submission of Matters to a Vote of Security Holders........... 23
Item 5. Other Information............................................. 23
Item 6. Exhibits and Reports on Form 8-K.............................. 23
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,379,617 $ 8,764,756
Margin deposits 575,902 575,712
Accounts receivable
Oil and gas sales 16,937,334 22,601,396
Trading and transportation 12,330,122 17,786,206
Trade 3,499,841 2,255,359
Other 7,047,148 5,625,980
Lease and well equipment inventory, at cost 1,362,151 1,724,944
Prepaid expenses and other 573,879 513,471
---------------------------------------------------------------------------------------------------------------------
Total current assets 46,705,994 59,847,824
---------------------------------------------------------------------------------------------------------------------
OIL AND GAS PROPERTIES, AT COST, USING THE FULL COST METHOD
Undeveloped acreage 69,910,789 54,709,553
Costs subject to depreciation, depletion and amortization 732,970,570 727,411,293
Less accumulated depreciation, depletion and amortization (166,926,095) (129,940,868)
---------------------------------------------------------------------------------------------------------------------
Net oil and gas properties 635,955,264 652,179,978
---------------------------------------------------------------------------------------------------------------------
GAS GATHERING AND TRANSPORTATION FACILITIES,
at cost, net of accumulated depreciation of $1,249,387 and
$1,032,224 at September 30, 1997 and December 31, 1996, respectively 4,578,134 4,674,075
---------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred charges and other, net 8,161,562 8,954,781
Office and transportation equipment and other property, net of
accumulated depreciation of $4,688,278 and $3,401,739 at
September 30, 1997 and December 31, 1996, respectively 4,715,790 4,708,436
Investment in Oil and Gas Limited Partnership 875,284 920,285
---------------------------------------------------------------------------------------------------------------------
Total other assets 13,752,636 14,583,502
---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 700,992,028 $ 731,285,379
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade $ 12,226,265 $ 9,124,831
Revenue 15,274,790 8,134,201
Gas purchases 7,761,046 13,878,187
Accrued expenses
Ad valorem and production taxes 8,160,791 7,516,095
Interest 8,112,518 3,179,627
Other 3,517,413 4,235,410
Current portion of long-term debt 30,000 30,000
----------------------------------------------------------------------------------------------------------------
Total current liabilities 55,082,823 46,098,351
----------------------------------------------------------------------------------------------------------------
ACCRUED AD VALOREM TAXES 8,707,820 9,005,922
----------------------------------------------------------------------------------------------------------------
LONG-TERM OIL AND GAS PRODUCTION NOTE PAYABLE 734,696 734,696
-----------------------------------------------------------------------------------------------------------------
LONG-TERM BANK DEBT, NET OF CURRENT PORTION 124,000,000 174,000,000
----------------------------------------------------------------------------------------------------------------
9 7/8% SENIOR SUBORDINATED NOTES,
due 2003, net of unamortized discount of $360,750 and
$404,625 at September 30, 1997 and December 31, 1996,
respectively 74,639,250 74,595,375
9 1/4% SENIOR SUBORDINATED NOTES,
due 2006, net of unamortized discount of $709,013 and
$767,287 at September 30, 1997 and December 31, 1996,
respectively 149,290,987 149,232,713
----------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 89,109,562 84,828,612
----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
----------------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN OIL AND GAS LIMITED PARTNERSHIP 75,974 66,149
----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock --- ---
Common stock, $.001 par value, 30,000,000 shares
authorized; 17,450,545 and 17,127,861 shares issued and
outstanding at September 30, 1997 and December 31, 1996,
respectively 17,451 17,128
Additional paid-in capital 163,140,128 163,114,868
Retained earnings 38,524,185 31,433,399
Deferred compensation (162,300) (171,300)
Treasury stock, at cost, 160,358 and 121,952 shares at
September 30, 1997 and December 31, 1996, respectively (2,168,548) (1,670,534)
----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 199,350,916 192,723,561
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 700,992,028 $ 731,285,379
----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 31,656,583 $ 32,206,719 $ 97,778,112 $ 67,168,879
Trading and transportation 21,428,862 14,683,333 77,819,394 19,536,574
Other gas revenues 1,017,017 675,553 3,206,264 1,780,257
Interest income and other 271,372 173,086 893,865 276,868
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 54,373,834 47,738,691 179,697,635 88,762,578
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Production taxes 2,059,599 2,369,573 6,893,339 5,059,394
Lease operating 5,901,703 5,730,252 18,272,587 11,667,023
Cost of trading and transportation 21,358,229 14,218,629 76,823,360 18,951,357
Depreciation, depletion and amortization 13,120,515 14,330,624 38,436,058 29,522,582
General and administrative 1,841,004 1,160,307 4,872,430 2,922,600
Interest 7,568,278 7,736,840 22,944,633 15,481,522
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 51,849,328 45,546,225 168,242,407 83,604,478
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,524,506 2,192,466 11,455,228 5,158,100
PROVISION FOR INCOME TAXES 961,837 835,453 4,364,442 1,965,359
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,562,669 $ 1,357,013 $ 7,090,786 $ 3,192,741
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Earnings per common and common
equivalent share $ 0.09 $ 0.08 $ 0.40 $ 0.24
- -------------------------------------------------------------------------------------------------------------------------
Earnings per common and common
equivalent share assuming full
dilution $ 0.09 $ 0.08 $ 0.40 $ 0.24
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Weighted average number of common and
common equivalent shares 17,561,000 17,431,000 17,520,000 13,546,000
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares assuming
full dilution 17,668,000 17,442,000 17,580,000 13,549,000
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------------- Paid-In Retained Deferred ---------------------
Shares Amount Capital Earnings Compensation Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,948,680 $ 10,949 $ 97,720,356 $ 22,210,416 $ --- (40,313) $ (584,109)
Purchase of treasury stock --- --- --- --- --- (63,700) (846,625)
Transfer of treasury stock to
401(k) Plan --- --- 3,328 --- --- 26,536 358,287
Exercise of options by issuance
of treasury stock, including
income tax benefit --- --- (5,776) --- --- 2,400 33,144
Net income --- --- --- 274,156 --- --- ---
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 10,948,680 10,949 97,717,908 22,484,572 --- (75,077) (1,039,303)
Purchase of treasury stock --- --- --- --- --- (113,817) (1,460,490)
Transfer of treasury stock to
401(k) Plan --- --- (53,961) --- --- 20,025 246,708
Issuance of common stock for
Tide West acquisition 6,169,181 6,169 65,231,025 --- --- --- ---
Exercise of options by issuance
of treasury stock, including
income tax benefit --- --- 48,606 --- --- 46,917 582,551
Issuance of restricted stock 10,000 10 171,290 --- (171,300) --- ---
Net income --- --- --- 8,948,827 --- --- ---
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 17,127,861 17,128 163,114,868 31,433,399 (171,300) (121,952) (1,670,534)
Purchase of treasury stock --- --- --- --- --- (87,047) (1,157,935)
Transfer of treasury stock to
401(k) Plan --- --- (68,011) --- --- 35,894 485,287
Exercise of options by issuance
of treasury stock, including
income tax benefit --- --- (38,811) --- --- 12,747 174,634
Issuance of restricted stock 2,500 3 44,997 --- (45,000) --- ---
Amortization of deferred compensation --- --- --- --- 54,000 --- ---
Exercise of options by issuance
of common stock, including
income tax benefit 8,203 8 87,397 --- --- --- ---
Exercise of warrants and options 311,981 312 (312) --- --- --- ---
Net income --- --- --- 7,090,786 --- --- ---
----------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997
(Unaudited) 17,450,545 $ 17,451 $ 163,140,128 $ 38,524,185 $ (162,300) (160,358) $ (2,168,548)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30,
------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,090,786 $ 3,192,741
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 38,436,058 29,522,582
Amortization of deferred charges, debt issue costs and deferred compensation 1,369,616 621,193
Transfer of treasury stock to the 401(k) Plan 417,276 ---
Gain on sale of fixed assets --- (12,175)
Deferred income tax provision 4,280,950 1,960,486
Decrease (increase) in accounts and notes receivable 8,454,496 (5,019,888)
Increase in accounts payable and accrued expenses 5,341,429 3,367,125
Other 364,996 369,191
----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 65,755,607 34,001,255
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration, development and leasehold costs (54,744,725) (40,329,316)
Purchase of proved and unproved properties --- (128,391,646)
Cash payment for purchase of TideWest, net of cash acquired --- (85,125,084)
Gas gathering and transportation facilities additions (121,222) (450,968)
Other property additions (1,241,022) (644,219)
Proceeds from the sale of oil and gas properties 33,984,212 9,678,851
Proceeds from the sale of fixed assets and other property --- 12,175
Increase in property related payables 3,344,941 5,582,656
----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,777,816) (239,667,551)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 29,000,000 364,093,596
Repayments of debt (79,000,000) (149,258,900)
Debt and equity issuance costs (438,048) ---
Tide West acquisition costs --- (2,696,021)
Exercise of options by issuance of treasury stock 135,823 136,310
Purchase of treasury stock (1,157,935) (850,945)
Exercise of options by issuance of common stock 87,405 ---
Minority interest 9,825 69,921
----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (51,362,930) 211,493,961
----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,385,139) 5,827,665
Cash and cash equivalents, beginning of the period 8,764,756 116,581
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the period $ 4,379,617 $ 5,944,246
----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid, net of capitalized interest $ 16,373,468 $ 11,202,129
Cash paid for income taxes, net of refund $ (413,076) $ ---
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
HS Resources, Inc., a Delaware Corporation (the "Company" or "HSR") was
organized in January 1987. The Company, directly or through subsidiaries,
acquires, develops and exploits oil and gas properties and markets and trades
oil and gas. The interim financial data are unaudited; however, all adjustments
(which are of a normal and recurring nature) have been made which are, in the
opinion of management, necessary for a fair statement of the financial position
of the Company at September 30, 1997, and its results of operations and cash
flows for the interim periods presented. Because of various factors, results of
operations for these periods are not necessarily indicative of results to be
expected for the full year. For a more complete understanding of the Company's
operations and financial position these statements should be read in conjunction
with audited financial statements and notes thereto included in the Company's
December 31, 1996 Annual Report on Form 10-K previously filed with the
Securities and Exchange Commission.
Note 2. Summary of Significant Accounting Policies
FINANCIAL INSTRUMENTS The Company engages in price and location risk
management activities for both hedging and trading purposes. Activities for
hedging purposes are entered into by the Company to manage its exposure to price
and location risks in the marketing of its oil and gas production and, in the
case of its marketing activities, third party gas. Gains and losses on hedging
positions are deferred; they are recognized in the period during which the
underlying physical transactions occur and are booked in "oil and gas sales"
(for company-owned oil and gas) and in "trading and transportation revenues"
(for third party gas). Activities for trading purposes are accounted for using
the mark-to-market method. Under this method, changes in the market value of
outstanding financial instruments are recognized as a gain or loss in the period
of change on a net basis and are recorded in "trading and transportation
revenues." The market prices used to value these transactions reflect
management's best estimate considering various factors including closing
exchange and over-the-counter quotations, time value and volatility factors
underlying the commitments. The values are adjusted to reflect the potential
impact of liquidating the Company's position in an orderly manner over a
reasonable period of time under present market conditions.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE Effective
January 1, 1998, the Company will adopt the provisions of the Financial
Accounting Standards Board's Statement 128, ("SFAS 128"), Earnings Per Share.
This statement modifies the earnings per share calculation and presentation in
the financial statements. Adoption of SFAS 128 is not expected to have a
material impact on the Company's financial statements.
Note 3. Stock Transactions involving Natural Gas Partners, L.P.
On September 30, 1997, the Company announced the offering by Natural
Gas Partners, L.P. (the "Stockholder") of approximately 1.8 million shares of
the Company's common stock held by it. In a separate transaction, the
Stockholder sold 1 million shares of common stock in a direct, privately
negotiated transaction between the Stockholder and a foreign investment fund.
The Stockholder liquidated these holdings to comply with obligations under its
partnership agreement.
8
<PAGE> 9
On September 30, 1997, the Stockholder also exercised warrants to
purchase 740,262 shares of common stock. The warrants were exercised, along with
1,500 options, in a cashless transaction resulting in the issuance of 311,981
shares of the Company's common stock.
Note 4. Summary of Guarantees on 9 1/4% and 9 7/8% Senior Subordinated Notes
In November 1996, the Company issued $150 million of its 9 1/4% senior
subordinated notes due in 2006. The Notes are general, unsecured obligations of
the Company, subordinated in right of payment to all existing and any future
senior indebtedness of the Company. The Notes rank pari passu with existing and
any future senior subordinated indebtedness and senior to any future
subordinated indebtedness of the Company. The Notes are fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by two of the Company's subsidiaries, Orion Acquisition, Inc.
and HSRTW, Inc. (the "Subsidiary Guarantors"). Because of the issuance of the
guarantees in connection with the Notes due 2006, the Company was required to
and has issued similar guarantees from the Subsidiary Guarantors to the trustee
under that indenture for the Company's 9 7/8% senior subordinated notes due
2003.
Sections 13 and 15 (d) of the Securities Exchange Act of 1934 require
presentation of the following supplemental condensed consolidating financial
statements of the Subsidiary Guarantors. Separate complete financial statements
of the respective Subsidiary Guarantors are not material to investors. There are
no significant contractual restrictions on distributions from each of the
Subsidiary Guarantors to the Company.
Investments in subsidiaries are accounted for by the parent under the equity
method for purposes of the supplemental condensed consolidated financial
statement presentation. Under this method, investments are recorded at cost and
adjusted for the parent company's ownership share of the subsidiaries'
cumulative results of operations. In addition, investments increase to reflect
the amount of contributions to subsidiaries and decrease to reflect the amount
of distributions from subsidiaries. The Company eliminates its investment in
subsidiaries, its equity in the earnings of subsidiaries, intercompany payables
and receivables and other transactions between subsidiaries, including
contributions and distributions.
9
<PAGE> 10
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 1997
ASSETS
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidation
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,253,689 $ -- $ -- $ 3,125,928 $ -- $ 4,379,617
Intercompany receivables 38,318,296 61,679,658 41,713,646 25,760,364 (167,471,964) --
Other current assets 14,340,032 7,278,330 4,419,818 16,879,462 (591,265) 42,326,377
------------- ------------- ------------- ------------- ------------- -------------
Total current assets 53,912,017 68,957,988 46,133,464 45,765,754 (168,063,229) 46,705,994
------------- ------------- ------------- ------------- ------------- -------------
Oil and gas properties, net 314,657,933 201,579,538 119,717,793 -- -- 635,955,264
Gas gathering and transportation
facilities, net -- -- -- 4,578,134 -- 4,578,134
Deferred charges and other, net 7,823,175 -- 319,864 18,523 -- 8,161,562
Office and transportation equipment
and other property, net 3,281,047 1,357,459 -- 77,284 -- 4,715,790
Investments in subsidiaries and
other investments 360,664,864 2,851,386 -- 875,284 (363,516,250) 875,284
------------- ------------- ------------- ------------- ------------- -------------
Total assets $ 740,339,036 $ 274,746,371 $ 166,171,121 $ 51,314,979 $(531,579,479) $ 700,992,028
============= ============= ============= ============= ============= =============
</TABLE>
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidation
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities $ 35,872,398 $ 7,426,842 $ 39,077 $ 12,282,175 $ (567,669) $ 55,052,823
Current portion of long-term debt 30,000 -- -- -- -- 30,000
Intercompany payables 129,153,881 -- 33,417,694 4,900,389 (167,471,964) --
Long-term bank debt and other debt,
net of current portion 124,734,696 -- -- -- -- 124,734,696
9 7/8% senior subordinated notes,
due 2003 74,639,250 -- -- -- -- 74,639,250
9 1/4% senior subordinated notes,
due 2006 149,290,987 -- -- -- -- 149,290,987
Other noncurrent liabilities 8,707,820 -- -- -- -- 8,707,820
Deferred income taxes 18,559,088 62,513,418 2,305,479 5,731,577 -- 89,109,562
Minority interest -- -- -- -- 75,974 75,974
Stockholders' equity and partners'
capital 199,350,916 204,806,111 130,408,871 28,400,838 (363,615,820) 199,350,916
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities,
stockholders' equity and
partners' capital $ 740,339,036 $ 274,746,371 $ 166,171,121 $ 51,314,979 $(531,579,479) $ 700,992,028
============= ============= ============= ============= ============= =============
</TABLE>
10
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidation
------------- ------------------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 37,625,506 $ 26,466,011 $ 8,253,074 $ 25,155,943 $ 277,578 $ 97,778,112
Trading and transportation 4,076,782 -- -- 93,769,657 (20,027,045) 77,819,394
Other revenues 3,586,406 307,337 -- 463,086 (256,700) 4,100,129
------------- ------------- ------------- ------------- ------------- -------------
Total revenues 45,288,694 26,773,348 8,253,074 119,388,686 (20,006,167) 179,697,635
------------- ------------- ------------- ------------- ------------- -------------
Expenses
Production taxes and lease
operating 8,030,464 6,087,898 2,823,693 8,223,871 -- 25,165,926
Cost of trading and
transportation 4,122,294 -- -- 92,450,531 (19,749,465) 76,823,360
Depreciation, depletion
and amortization 16,716,211 10,974,336 3,253,271 7,492,240 -- 38,436,058
General and administrative 2,751,336 1,415,107 -- 705,987 -- 4,872,430
Interest expense 22,570,740 288,744 34,363 307,488 (256,702) 22,944,633
------------- ------------- ------------- ------------- ------------- -------------
Total expenses 54,191,045 18,766,085 6,111,327 109,180,117 (20,006,167) 168,242,407
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before provision
for income taxes (8,902,351) 8,007,263 2,141,747 10,208,569 -- 11,455,228
Benefit (provision) for income
taxes 3,391,796 (3,547,624) (816,006) (3,392,608) -- (4,364,442)
------------- ------------- ------------- ------------- ------------- -------------
(5,510,555) 4,459,639 1,325,741 6,815,961 -- 7,090,786
Equity in earnings of
subsidiaries 10,538,569 2,062,772 -- -- (12,601,341) --
------------- ------------- ------------- ------------- ------------- -------------
Net income $ 5,028,014 $ 6,522,411 $ 1,325,741 $ 6,815,961 $ (12,601,341) $ 7,090,786
============= ============= ============= ============= ============= =============
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidation
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities $ 91,454,337 $(37,979,578) $ (127,258) $ 12,408,106 $ -- $ 65,755,607
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities
Exploration, development
and leasehold costs (44,435,274) (5,136,800) (1,085,490) (4,087,161) -- (54,744,725)
Contributions to subsidiaries (1,212,748) 17,929,118 -- -- (16,716,370) --
Other 1,690,616 24,711,619 -- 9,564,674 -- 35,966,909
------------ ------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by investing
activities (43,957,406) 37,503,937 (1,085,490) 5,477,513 (16,716,370) (18,777,816)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities
Proceeds from debt 29,000,000 -- -- -- -- 29,000,000
Repayments of debt (79,000,000) -- -- -- -- (79,000,000)
Contributions from equity
holders -- -- 1,212,748 (17,929,118) 16,716,370 --
Other (1,372,755) 21,411 -- (11,586) -- (1,362,930)
------------ ------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by financing
activities (51,372,755) 21,411 1,212,748 (17,940,704) 16,716,370 (51,362,930)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents (3,875,824) (454,230) -- (55,085) -- (4,385,139)
Cash and cash equivalents,
beginning of the year 5,129,513 454,230 -- 3,181,013 -- 8,764,756
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents,
end of the period $ 1,253,689 $ -- $ -- $ 3,125,928 $ -- $ 4,379,617
============ ============ ============ ============ ============ ============
</TABLE>
Certain non cash transactions have taken place between HSR and its subsidiaries
related to the equity contributions. Accordingly, these transactions are not
reflected in the statements of cash flows.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL Over the past 18 months, the Company has undertaken several strategic
initiatives that have positioned it for a period of significant growth in
reserves, production, cash flow and earnings. For the last several years the
Company has been pursuing a strategy that includes (i) consolidating in
its core geographic areas, particularly the Denver-Julesburg Basin ("D-J
Basin"), (ii) diversifying its asset base outside of the D-J Basin, (iii)
capturing more of the value stream by marketing its production and (iv)
maximizing its financial flexibility. By completing the acquisition of all
of the D-J Basin properties owned by Basin Exploration, Inc. (the
"Acquisitions") and the merger with Tide West Oil Company (the "Merger"),
by establishing an active Gulf Coast exploration program, and by focusing on the
gas marketing, transportation and trading business through the creation of HS
Energy Services, Inc., HSR has taken the fundamental initial steps to
implement its strategy. Management's focus for the foreseeable future will
be to continue to execute this strategy with particular emphasis on activities
that maximize the financial returns from HSR's expanded asset base.
The Company now operates in four significant core areas, the geologic and
geographic diversity of which combine to create an oil and gas company with
attractive, long-lived reserves, balanced with meaningful exposure to
exploration and technologically-driven upside. The Company's strategically
important and profitable presence in the gas marketing, trading and
transportation business, provides the opportunity to increase its operating
margins on production from both the D-J Basin and Mid-Continent areas. The
Company has begun an oil trading and transportation business to be engaged in
the purchase, sale and transport of crude oil.
The United States oil and gas industry is subject to large variations in
profitability due, in part, to fluctuating commodity prices and related changes
in rates of reinvestment by industry participants. Several factors have led to a
positive fundamental outlook for the oil and gas industry and improved economics
for production in the Company's core geographic areas. These include (i) low gas
storage levels combined with relatively high wellhead capacity utilization, (ii)
increasing overall gas demand, (iii) deregulation of distribution and marketing
channels, particularly for D-J Basin and Rocky Mountain production, and
expansion of pipeline capacity to transfer gas to markets outside the Colorado
Front Range and (iv) successful application of advanced oil and gas exploration,
drilling and production technologies.
GAS PRICE CONSIDERATIONS As of September 30, 1997, approximately 76% of the
Company's proved producing reserves consisted of gas. These reserves are located
primarily in the D-J Basin and Mid-Continent areas. The absolute level and
volatility of gas prices have a material impact on the Company.
During 1995 and early 1996, prices for Rocky Mountain gas were substantially
below prices for gas in markets outside the Rocky Mountain region. This
disparity was caused by low demand for Rocky Mountain gas due to an unusually
warm winter season and above-normal availability of hydro-electric power in the
western United States. This condition resulted in excess gas
12
<PAGE> 13
supply in the Rocky Mountains which led to downward price pressure in the
Colorado Front Range market. However, since the beginning of 1996, the market
for the Company's D-J Basin gas had strengthened substantially due to several
factors. First, the excess supply from Wyoming gas producers has declined as a
result of increased demand from West Coast markets. Second, in October 1995 the
Colorado Public Utilities Commission approved tariff changes that effectively
eliminated transportation costs for D-J Basin gas sold to the Colorado Front
Range market, resulting in a transportation cost advantage for D-J Basin
producers of approximately $0.40 per MMBtu. Third, the supply of D-J Basin gas
has declined over the last two years due to the combination of reduced drilling
in the D-J Basin and natural production declines. The average gas price received
by the Company for its D-J Basin production has increased from $1.28 per Mcf in
1995 to $1.90 per Mcf in 1996 and to $1.96 per Mcf in the nine months ended
September 30, 1997. In addition, expansion of pipeline capacity continues
providing additional transportation outlets for Wyoming producers to markets
other than the Colorado Front Range and providing Colorado Front Range
producers with access to other markets. The Company believes that these
developments will further reduce the disparity between D-J Basin pricing
and pricing generally available elsewhere in the United States.
The D-J Basin provides a significant portion of the Company's gas production.
Historically, the price of D-J Basin gas (on a Btu-equivalent basis) has been
linked closely to the Colorado Interstate Gas pipeline ("CIG") Rocky Mountain
Index. That has changed recently. As a result of the tariff changes and
the seasonal nature of demand in the Colorado Front Range, the price for D-J
Basin gas now tends to reflect the CIG Rocky Mountain Index during the low
demand summer months (generally April through October) and to reflect
Mid-Continent indices during the high demand winter periods (generally
November through March). K N Energy has recently announced plans to
construct a natural gas pipeline from Cheyenne, Wyoming to Denver capable of
transporting up to 250 million cubic feet of natural gas per day. The Company
does not know how this will affect the gas market, but does not believe that it
will have a material adverse effect on the annualized price of gas in the
Colorado Front Range.
Gas prices in the Mid-Continent are closely tied to established indices which
are influenced by national supply and demand factors. Average gas prices
received by the Company in the Mid-Continent generally fluctuate with changes in
Mid-Continent posted prices, which for the years 1993 through 1996 averaged
$0.25 per Mcf less than the Henry Hub price. The average gas price received in
the Mid-Continent since the Merger in June 1996 through December 31, 1996, was
$2.24 per Mcf, or $0.29 below the Henry Hub price and the average price during
the nine months ended September 30, 1997 was $2.23, or $0.20 below the Henry Hub
price (before hedging).
OIL PRICE CONSIDERATIONS Oil prices are established in a highly liquid
international market. Average oil prices received by the Company in the D-J
Basin and Mid-Continent generally fluctuate with changes in the NYMEX West Texas
Intermediate ("NYMEX-WTI") crude oil closing prices. The Company's average oil
price for 1995 was approximately $1.77 per Bbl below NYMEX-WTI closing prices.
The average oil price for 1996 was approximately $0.45 below NYMEX-WTI closing
prices and the average oil price for the nine months ended September 30, 1997
was approximately $1.00 per Bbl below NYMEX-WTI closing prices. The changes in
the relative value of the Company's oil production during these periods is a
result of renegotiation of several oil sales contracts, as well as the general
fluctuation in the market value of the Company's D-J Basin oil production
relative to NYMEX-WTI.
13
<PAGE> 14
RESULTS OF OPERATIONS During 1997 the Company has continued drilling and
development activity in the D-J Basin and exploitation activities in the
Mid-Continent and the Gulf Coast. At September 30, 1997, the Company owned
interests in approximately 3,410 producing wells (of which it operated
approximately 2,580 ) compared to 3,540 wells (of which it operated more than
2,600) at September 30, 1996. The Company's results of operations have been
significantly affected by the Acquisitions and the Merger, which occurred in
1996, by its drilling program and by fluctuations in oil and gas prices. The
United States oil and gas industry is currently experiencing shortages of
drilling and completion equipment, as well as skilled workers. This shortage has
resulted in higher costs for drilling and related field activities primarily in
its Gulf Coast and Mid-Continent district operations. The Company anticipates
that this shortage will continue for the forseeable future.
COMPARISON OF THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OIL AND GAS REVENUES For the comparative three month periods, oil production
increased 4%, from 594 MBbls to 619 MBbls, and gas production decreased 8%,
from 11,168 MMcf to 10,276 MMcf. Average oil prices realized decreased by
9%, from $21.02 to $19.14 per Bbl, and average gas prices realized increased
by 9%, from $1.77 to $1.93 per Mcf. The gas production decrease reflects the
effect of the sale by the Company of non-core, non-strategic properties and
natural production declines in the Company's wells, both of which have been
partially offset by new wells drilled by the Company. The net effect of these
changes was a decrease in oil and gas revenues from $32.2 million to $31.7
million, or 2%. During the period, the Company also recognized approximately $1
million in other gas revenues from the sale of tax credits compared to
$0.7 million for the comparative prior year period.
For the comparative nine month periods, oil production increased from 1,360
MBbls to 1,785 MBbls and gas production increased from 23,221 MMcf to 30,307
MMcf, each an increase of 31%. Average oil prices realized decreased by 2%,
from $20.32 to $19.94 per Bbl, and average gas prices realized increased by
21%, from $1.70 to $2.05 per Mcf. The production increases were the result of
additional production from the properties acquired in the Acquisitions and the
Merger and new wells drilled by the Company. The net effect of these changes
resulted in a 46% increase in oil and gas revenues from $67.2 million to $97.8
million. During the period, the Company also recognized $3.2 million in other
gas revenues from the sale of tax credits compared to $1.8 million for the
comparative prior year period.
The Company, through its gas marketing division and its wholly owned subsidiary,
HS Energy Services, Inc., actively markets a portion of its own gas production,
markets gas to third parties and supplies gas to end-users. Trading and
transportation net margins were $70,633 and $996,034 for the three months and
nine months ended September 30, 1997, respectively.
INTEREST INCOME AND OTHER INCOME Interest and other income increased by $98,286,
or 57%, for the three-month comparative periods and by $616,997, or 223%, for
the nine-month comparative periods. The increase in interest and other income
was mainly due to short term investing of the Company's available funds, as
well as income recorded on the Company's interest in a limited partnership.
14
<PAGE> 15
PRODUCTION EXPENSES Lease operating expenses increased by $171,451, or 3%, for
the three-month comparative periods and by $6,605,564, or 57%, for the
nine-month comparative periods. On a Boe basis, lease operating expenses
increased from $2.33 to $2.53 for the three-month comparative periods and from
$2.23 to $2.67 for the nine-month comparative periods. This increase is
primarily the result of a different mix of wells in the current year,
including wells with historically higher operating costs which were acquired
as a result of the Acquisitions and a significant number of workovers on
producing wells. Production taxes decreased by $309,974, or 13%, for the
three-month comparative periods due to an adjustment recorded in the third
quarter to reflect a refund for prior year production taxes as well as a
decrease in oil and gas sales. For the nine-month comparative periods,
production taxes increased by $1,833,945, or 36%, due to an increase in oil and
gas sales.
DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and
amortization ("DD&A"), a non-cash expense, decreased by $1,210,109, or 8%, for
the three-month comparative periods as a result of a decrease in both production
and the Company's depletion rate. For the nine-month comparative periods DD&A
increased by $8,913,476, or 30%, due to an increase in production which more
than offset a decrease in the DD&A rate. On a Boe basis, the Company's weighted
average depletion rate decreased from $5.42 for the nine months ended September
30, 1996, to $5.41 for the nine months ended September 30, 1997. The
Company adjusts its DD&A rate based on material changes in its reserves and on
an annual basis based on year end engineering.
GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense reflects
costs incurred by the Company, net of administrative costs directly attributable
to drilling and well operations (which costs are included in lease operating
expenses or are capitalized). General and administrative expenses increased by
$680,697, or 59%, for the three-month comparative periods and by $1,949,830, or
67%, for the nine-month comparative periods. The increase is primarily
attributable to the administrative costs resulting from the Merger and the
greater number of Tide West employees, as well as the addition of personnel
and facilities throughout 1997 which are required in order to accomplish
the Company's acquisition, drilling and exploration objectives. On a Boe
basis, general and administrative expenses increased from $0.47 to $0.79 for
the three-month comparative periods and from $0.56 to $0.71 for the nine-month
comparative periods. The current year amount is generally in line with prior
years and with the Company's future expectations (on an annual basis). The
large period-over-period comparative difference results substantially
from the abnormally low costs incurred by the Company in the prior year,
particularly during the transitionary period immediately after closing the
Acquisitions and the Merger. During that transitionary period costs were
anomalously low while the Company hired additional staff to handle the ongoing
requirements attributable to the increase in operations.
INTEREST EXPENSE Interest expense decreased by $168,562, or 2%, for the
three-month comparative periods and increased by $7,463,111, or 48%, for
the nine-month comparative periods. The decrease for the three-month
comparative periods reflects the reduction of the Company's long-term bank debt
throughout 1997. The increase for the nine-month comparative periods is due to
the overall increase in long-term debt attributable to the 1996 Acquisitions and
the Merger.
15
<PAGE> 16
PROVISION FOR INCOME TAXES The Company follows the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109. Pursuant to SFAS 109, the
Company has recorded a tax provision based on tax rates in effect during the
period. Accordingly, the Company accrued taxes at the rate of 38.1% in 1997 and
1996. Due to incurrance of a significant amount of intangible drilling costs,
which are deductible for tax purposes, substantially all of the Company's tax
provision in both periods is deferred.
LIQUIDITY AND CAPITAL RESOURCES
Financing Sources
The Company is committed to reducing its overall debt level, and is currently
implementing numerous programs to do so. Since December 31, 1996, the Company
has reduced its long-term bank debt from $174 million to $124 million by
applying the proceeds from the sale of non-core, non-strategic properties, cash
flow from operations, and excess working capital to the outstanding debt.
The Company believes that it will be able to arrange a favorable combination
of financing alternatives to fund its ongoing capital requirements and
reduce its overall financial leverage. Until this debt level is reduced, the
Company currently plans to fund capital expenditures attributable to
exploration and development drilling activities primarily out of its expected
cash flow from operations. The Company has financed, and expects to continue
to finance, its acquisition activities, if any, with (i) cash flow from
operations, (ii) borrowings under the Chase Facility (defined below), (iii)
public or private offerings of equity and debt, (iv) divestitures (including
asset monetizations) of non-core assets and (v) the TCW Facility (as defined).
Borrowings in connection with acquisitions may have the effect of increasing
the Company's leverage.
On June 14, 1996, the Company amended the terms of its senior bank credit
facility with The Chase Manhattan Bank, as agent (the "Chase Facility"), to
increase the maximum credit amount to $350 million. Under the terms of the Chase
Facility, no principal payments are required until June 14, 2001, assuming the
Company maintains a Borrowing Base sufficient to support the outstanding loan
balance. The Borrowing Base is based on the underlying value of the Company's
oil and gas properties. Upon consummation of the Offering (defined below) and
the application of the estimated net proceeds therefrom, the Borrowing Base
under the Chase Facility was set at $275 million. As a result of the sale of
properties to Gothic Energy Corporation, effective August 28, 1997, the
Borrowing Base was adjusted to $261 million. The Chase Facility bears interest
at The Chase Manhattan Bank Base Rate plus 0% to 0.5% or LIBOR plus 0.75% to
1.5%.
In November 1996, the Company issued $150 million of its 9 1/4% senior
subordinated notes due in 2006 (the "Notes") in a private placement. The
offering of the Notes (the "Offering") was undertaken in order to replace a
portion of the Company's outstanding indebtedness under the Chase Facility
with fixed rate term debt. On April 25, 1997, the Company exchanged $150 million
of new notes registered under the Securities Act of 1933 (the "New Notes") for
the Notes which were offered in a private
16
<PAGE> 17
offering exempt from securities registration. The material terms of the New
Notes are identical to the Notes.
The Company also continues to maintain its arrangement with a Trust Company of
the West-related entity covering a proposed $90 million non-recourse, volumetric
overriding royalty facility (the "TCW Facility") of which approximately $80
million is available. The proceeds from the TCW Facility may be used by the
Company at its discretion for a variety of corporate purposes, including
acquisitions of new properties, exploration and development drilling and
monetization of existing corporate properties.
The Company anticipates that available borrowing capacity under the Chase
Facility, combined with operating cash flow and the TCW Facility, will provide
it with the financial resources and flexibility to fund current and ongoing
development activities and to meet other financial obligations. Since the
consummation of the Merger and the Acquisitions, the Company has monetized
approximately $45 million of non-strategic properties, using the proceeds to
reduce outstanding borrowings under the Chase Facility. The nature of the
Company's current development strategies and other activities provide the
Company with considerable flexibility in terms of the timing and magnitude of
its capital expenditures. If the Company experiences unforeseen changes in its
working capital position or capital resources, management may revise the capital
expenditure program accordingly or alternatively may supplement the capital
position of the Company through, among other things, the issuance of additional
equity or debt securities or by entering into joint venture arrangements.
Capital Commitments
For the nine months ended September 30, 1997, the Company incurred total
exploration, development and leasehold capital expenditures of $54.7 million.
The Company estimates capital expenditures for 1997 will be approximately $60
to $65 million, which will be allocated in varying amounts primarily to
activities in the Company's four core geographic areas: the D-J Basin, the
Northern Rockies, the Anadarko and Arkoma Basins of the Mid-Continent, and the
on-shore Gulf Coast region. The Company continuously evaluates its
inventory of drilling opportunities and adjusts the amount and allocation of
its capital program based on a number of factors, including seismic results,
prospect readiness, product prices, service company availability and
rates, acquisitions and capital position.
A major component of the Company's capital expenditure program includes costs
associated with consolidation activities and development drilling in the D-J
Basin, and, to a lesser extent, the development of its other Rocky Mountain
properties. The Company has incurred approximately $22.2 million in capital
expenditures in the nine months ended 1997 for drilling and recompleting wells
on the Company's D-J Basin properties.
The second component of the Company's capital expenditure program is the
continued exploitation of the properties acquired as a result of the Merger with
Tide West. For the nine months ended September 30, 1997, the Company has
incurred total acquisition, exploitation and development expenditures in the
Mid-Continent area of $9 million. The Company is currently evaluating a variety
of opportunities that include increased exploitation, exploration and density
drilling, recompletions and field extensions.
17
<PAGE> 18
The final component of the Company's capital expenditure program is to develop
exploitation and exploration prospects in the on-shore portion of the Gulf
Coast. In 1997, the Company incurred total capital expenditures of $17.1
million in the Gulf Coast. This includes approximately $8.9 million which
the Company spent under its SouthTech joint venture in the nine months ended
September 30, 1997, for seismic, leasehold, overhead costs and drilling.
In June 1996, the Company entered into an exploration and development agreement
with Chenier Exploration, Inc. ("CEI"), pursuant to which the Company purchased
from CEI and a third party, interests in properties in the Gulf Coast
for approximately $1.9 million, of which $1.2 million was paid in cash and
the remaining portion was funded with a promissory note. Under the terms of
the agreements, CEI was responsible for the generation and development of
prospects in the project areas. On June 24, 1997, the Company gave notice of
termination of this venture, and has since assumed management of the
venture projects. Certain disputes have arisen between the Company and CEI
concerning their respective rights and obligations, but the Company believes
these disputes will not interfere with development of the projects. For
the nine months ended September 30, 1997, the Company spent $8.2 million
for seismic, leasehold, drilling and overhead costs. See - Part II, Item 1
- - Legal Proceedings and Environmental Issues - Litigation.
The Company has also entered into a number of other standard industry
arrangements that require the drilling of wells or other activities. The Company
believes that it will meet its obligations under these arrangements, which
individually and in the aggregate are not material.
Working Capital and Cash Flow
Net cash provided by operating activities for the nine months ended September
30, 1997, was $65.8 million, up from the same period in 1996. This is primarily
the result of (i) additional oil and gas production revenues attributable to the
larger number of producing wells resulting from the Company's drilling
activities and the wells acquired in the Acquisitions and the Merger, and (ii)
higher gas prices. Future cash flows will be influenced by, among other factors,
the number of producing wells on line, product prices and production
constraints.
Risk Management. The Company uses financial instruments to reduce its exposure
to market fluctuations in the price and transportation cost of oil and gas. The
Company's general strategy is to hedge price and location risk with swap,
collar, floor and ceiling arrangements. When utilizing such instruments, in
order to minimize basis risk the Company hedges its production back to the
wellhead to the maximum extent possible. In addition to hedging activities, the
Company is engaged in using the financial markets to capture trading margins.
The Company has established policies with respect to open positions which limit
its exposure to market risk and requires
18
<PAGE> 19
reporting to management of the potential financial exposure on a daily
basis resulting from both hedging and trading activities.
Hedging Activities. Activities for hedging purposes are entered into by the
Company to manage its exposure to price and location risks in the marketing of
its oil and gas production and, in the case of its marketing activities, third
party gas. Gains and losses on hedging positions are recognized in the period
during which the underlying physical transactions occur and are booked in "oil
and gas sales" (for company-owned production) and "trading and transportation
revenues" (for third party gas).
The Company has entered into the following forward sales and swap arrangements
with respect to its gas production for the quarters and in the amounts indicated
below. Note that the Company's total average daily gas production for the
quarter ended September 30, 1997, was 111,695 Mcf/day.
<TABLE>
<CAPTION>
AVERAGE DAILY VOLUME (Mcfd)
--------------------------------------------------------------------
Weighted Average Hedge Price $1.99 $2.68 $2.41 $1.50
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Period Hedged:
October 1997 62,696 --- --- ---
November 1997 --- 52,696 --- ---
December 1997 --- 52,696 --- ---
January 1998 --- --- 32,529 ---
February 1998 32,529 ---
March 1998 32,529 ---
Second Quarter 1998 --- --- --- 2,529
Third Quarter 1998 --- --- --- 2,529
Fourth Quarter 1998 --- --- --- 2,529
Total Quantity Hedged (Number of 1,943,576 3,214,456 2,927,610 695,475
Days Times Daily Volume Hedged)
</TABLE>
The Company has hedged approximately 54% of its oil production at $20.33 per Bbl
through April 30, 1998. Additionally, with respect to the hedging of third party
gas, the Company has hedged 2.7 Bcf through January 1998 with offsetting
physical positions at settlement prices which are based upon NYMEX future prices
or other published indices.
Trading Activities. The Company engages in the trading of various energy-related
financial instruments which require payments to (or receipt of payments from)
counterparties based on the differential between a fixed and variable price for
the commodity, swap or other contractual arrangement. Activities for trading
purposes are accounted for using the mark-to-market method. Under this method,
changes in the market value of outstanding financial instruments are recognized
as a gain or loss in the period of change on a net basis in "trading and
transportation revenues." The market prices used to value these transactions
reflect management's best estimate considering various factors including closing
exchange and over-the-counter quotations, time value and volatility factors
underlying the commitments. The values are adjusted to reflect the potential
impact of liquidating the Company's position in an orderly manner over a
reasonable period of time under present market conditions.
19
<PAGE> 20
Company policy requires that, within defined trading limits, financial
instrument purchase and sales contracts be balanced in terms of contract volumes
and the timing of performance and delivery obligations. As of September 30,
1997, all material open positions were balanced with an offsetting position.
Gains of $43,287 were recognized in connection with these activities for the
third quarter of 1997 and $69,636 for the nine months ended September 30, 1997.
These gains are included in "trading and transportation revenues."
Credit Risk. While notional amounts are used to express the volume of various
derivative financial instruments, the amounts potentially subject to credit risk
in the event of nonperformance by the third parties are substantially smaller.
Counterparties to the swap, collar, floor and ceiling arrangements discussed
above are investment grade financial institutions. Accordingly, the Company does
not anticipate any material impact to its financial position or results of
operations as a result of nonperformance by the third parties on financial
instruments related to hedging activities or trading activities.
Interest Rate Swaps. During the second quarter of 1995, the Company entered into
an interest rate exchange agreement with a financial institution to hedge its
interest rate on $40 million of the Company's borrowings at 7.76% through May
2002. Under the terms of the agreement, the difference between the Company's
fixed rate of 7.76% and the three-month LIBOR rate plus 1.125% is received or
paid by the Company.
The Company, through the Merger, assumed interest rate exchange agreements with
two financial institutions to hedge its interest rate on a total of $40 million
of the Company's borrowings at rates ranging from 6.16% to 7.32% for 1997
through 1999. Under the terms of these agreements, the difference between the
Company's fixed rate and the three-month LIBOR rate is received or paid by the
Company.
Contingencies
In May 1995, the Company was named as a respondent by the United States
Environmental Protection Agency (the "EPA") in an administrative order brought
under the Resource Conservation and Recovery Act ("RCRA") by the EPA against the
owner/operator of an oilfield production water evaporation facility. Based on
its evaluation of the above matters, and after consideration of reserves
established, the Company believes the resolution of such matters will not have a
material adverse effect on the Company's financial position or results of
operations. See - Part II, Item 1 - Legal Proceedings and Environmental Issues -
Environmental Proceedings.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes statements that are not purely historical and are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including statements regarding the Company's expectations,
hopes, beliefs, intentions or strategies regarding the future. All statements
other than statements of historical facts included in this Form 10-Q,
including without limitation, statements under "Legal Proceedings and
Environmental Issues" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" regarding reserves and their values;
planned capital expenditures; increases in oil and gas
20
<PAGE> 21
production; trends and expectations concerning oil and gas prices; the
Company's financial position, business strategy and other plans and objectives
for future operations, divestitures and debt repayment; trading risks, credit
risks, risk management strategy, hedging strategy, availability of capital,
availability and cost of materials and workers, potential liabilities or the
expected absence thereof; and the potential outcome of environmental matters,
litigation or other proceedings are forward-looking statements. All
forward-looking statements included or incorporated by reference in this Form
10-Q are based on information available to the Company on the date hereof, and
the Company assumes no obligation to update such forward-looking statements.
Although the Company believes that the assumptions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct or that the Company will take
any actions that may presently be planned.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and projecting future rates of production and timing
of development expenditures, including many factors beyond the control of the
Company. Many factors may affect the Company's expectations and plans. Capital
expenditure and financing plans may change in connection with the success of
drilling activities, the general availability of capital, interest rates, and
cash flow available from operations. Cash flow available from operations may
change depending on costs of materials and services, regulatory burdens and
commodity prices. Oil and gas prices are volatile, and there are several
potentially significant adverse effects to the Company which can result if
product prices decline materially. First, lower product prices will adversely
impact the Company's cash flow and could cause the Company to (i) curtail its
capital program, (ii) borrow additional amounts under its revolving credit
agreement, and/or (iii) issue additional debt or equity securities. Second,
lower product prices could cause the borrowing base under the Company's bank
credit agreement to be reduced and certain covenant tests to be adversely
affected. Third, under rules promulgated by the Securities and Exchange
Commission, companies that follow the full cost accounting method are required
to make quarterly "ceiling test" calculations. Lower product prices adversely
impact the ceiling calculation. Should the Company realize sustained lower
product prices, it could be required to write down its oil and gas properties,
resulting in a non-cash charge against earnings.
Certain additional important factors that could cause actual results to differ
materially from the Company's forward-looking statements are disclosed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Form 10-Q and in the Company's Form 8-K
filed February 26, 1997. All subsequent written or oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the factors mentioned above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Environmental Issues
Litigation. At this time, the Company is involved in no material
litigation; however, the Company is involved in various claims and lawsuits
incidental to its business, including the litigation and arbitration described
below.
21
<PAGE> 22
On July 22, 1997, CEI commenced a lawsuit against the Company in the United
States District Court for the Eastern District of Texas (Civil Action No 1:97 CV
399). The action follows the Company's notice of termination of the Chenier
joint venture and the Company's assumption of ongoing management of the venture
projects. The suit claims that the Company is obligated to continue paying
certain general and administrative costs to CEI for up to nine months following
termination, and makes other claims. The Company disputes all of CEI's claims.
The Company has been successful in staying the Federal court action and has
obtained an order from the court requiring CEI to arbitrate the dispute in
accordance with the agreement between the Company and CEI. Arbitration has
been commenced by the Company, and an arbitrator has been selected.
Arbitration is to occur in Denver, Colorado. The amounts in dispute under the
suit are not material to the Company.
Environmental Proceedings. The owner of an oil field waste disposal facility, a
major oil company and the Company were named as respondents by the United States
Environmental Protection Agency ("EPA") in an administrative order brought by
the EPA against Weld County Waste Disposal, Inc. ("WCWDI") under section 7003 of
the Resource Conservation and Recovery Act ("RCRA") on May 11, 1995. WCWDI
operated and continues to own two evaporation pits in Colorado formerly used for
the disposal of non-hazardous production wastes. The EPA order requires that
work be performed to abate a perceived endangerment to wildlife, the environment
or public welfare. The Company and other non-operator respondents are working
together with the EPA to close the pits and to develop work plans and
characterization studies, and the facility has been permanently closed.
The Company has utilized this facility in past years to dispose of its
production and flowback water. During the period of its use, the Company
believed that the facility was operating in compliance with all applicable legal
requirements and, along with other oil and gas operators, paid a fee to WCWDI
for using this disposal facility. There were a number of other significant
contributors to the facility during the period reviewed by the EPA (1988 through
1994) and additional contributors during the period from 1977, when it was
constructed, through 1988. The Company and the major oil company were named
because they were deemed the major contributors of waste volumes to the facility
for the period reviewed by the EPA. Certain other contributors are participating
in their share of the reclamation costs.
Based on the Company's current knowledge and its expectation of proportionate
reimbursement from other parties who utilized the facility, the Company does not
believe that its share of the reclamation costs will have a material impact on
its financial condition or results of operations. By agreement with other
contributing parties, the Company is currently paying approximately 50% of the
costs associated with the project, but after recovery from additional liable
parties, the Company's percentage share of overall costs may be reduced to as
low as 40%. The Company has spent approximately $700,000 on its behalf to date
on the project. The Company's share of total costs associated with the project,
at the 50% level of participation, are currently estimated to range from $1 to
$2 million over five years. The Company believes that it has adequately reserved
for the estimated liability.
Item 2. Changes in Securities None.
22
<PAGE> 23
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders None.
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
a. List of Exhibits.
23
<PAGE> 24
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-52774, filed October 2,
1992.)
3.2 Third Amended and Restated Bylaws of the Company adopted December 16,
1996. (Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4, No 333-19433, filed January 8,
1997.)
4.1 Form of Indenture dated December 1, 1993, entered into between the
Company and the Trustee. (Incorporated by reference to Exhibit 4.7 to
Amendment No. 3 to the Company's Registration Statement on Form S-3,
No. 33-70354, filed November 23, 1993.)
4.2 Indenture dated November 27, 1996, among the Company, Orion
Acquisition, Inc., HSRTW, Inc., and Harris Trust and Savings Bank as
Trustee. (Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-4, No 333-19433, filed January 8,
1997.)
4.3 First Supplemental Indenture dated November 25, 1996 among the
Company, Orion Acquisition, Inc., HSRTW, Inc., and Harris Trust and
Savings Bank as Trustee. (Incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-4, No 333-19433, filed
January 8, 1997.)
10.1 Amended Note and Warrant Purchase Agreement dated January 15, 1991,
among NGP, Resolute Resources, Inc., and the Company. (Incorporated
by reference to Exhibit 4.4.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1990, filed February 14,
1991.)
10.1.1 Amendment No. 1 to Note and Warrant Purchase Agreement dated June 28,
1991, between the Company and NGP. (Incorporated by reference to
Exhibit 4.4.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, filed September 30, 1991.)
10.1.2 Second Amendment to Note and Warrant Purchase Agreement dated August
17, 1992, between the Company and NGP. (Incorporated by reference to
Exhibit 4.2.2 to Amendment No. 2 to the Company's Registration
Statement on Form S-1, No. 33-52774, filed November 19, 1992.)
10.1.3 Third Amendment to Note and Warrant Purchase Agreement dated October
21, 1993, between the Company and NGP. (Incorporated by reference to
Exhibit 4.1.3 to Amendment No. 2 to the Company's Registration
Statement on Form S-3, No. 33-70354, filed November 23, 1993.)
10.2 Amended and Restated Warrant Agreement dated January 15, 1991,
between NGP and the Company. (Incorporated by reference to Exhibit
4.5.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1990, filed February 14, 1991.)
24
<PAGE> 25
10.3 Amended Warrant No. W-1, dated January 15, 1991, and issued by the
Company to NGP. (Incorporated by reference to Exhibit 4.6.1 to the
Form 8, Second Amendment to Form 10, filed April 8, 1991.)
10.3.1 Amendment No. 1 to Amended Warrant No. W-1, dated December 30, 1991,
and issued by the Company to NGP. (Incorporated by reference to
Exhibit 4.6.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1991, filed on February 14, 1991.)
10.4 Form of Warrant No. W-10, dated January 28, 1992, and issued by the
Company to NGP. (Incorporated by reference to Exhibit 4.16 to
Amendment No. 1 to the Company's Registration Statement on Form S-1,
No. 33-52774, filed November 9, 1992.)
10.5 1987 Stock Incentive Plan, as amended December 2, 1996. (Incorporated
by reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, filed May 15, 1997.)
10.6 Common Stock Purchase Warrant dated July 12, 1990 by the Company to
James E. Duffy. (Incorporated by reference to Exhibit 10.5 to the
Form 8, Second Amendment to Form 10, filed April 8, 1991.)
10.7 HS Resources, Inc. Rule 701 Compensatory Benefit Plan. (Incorporated
by reference to Exhibit 10.5.2 to the Form 8, Second Amendment to
Form 10 filed April 8, 1991.)
10.8 1992 Directors' Stock Option Plan. (Incorporated by reference
to Exhibit 10.10 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, No. 33-52774, filed November 9, 1992.)
10.8.1 1993 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 10.8.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, filed March 31, 1994 (as amended
by Form 10-K/A-1 on April 8, 1994).)
10.9 Form of Indemnification Agreement for Directors of the Company.
(Incorporated by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
filed March 25, 1996.)
10.10 Lease Agreement dated October 6, 1993, between the Company and JMB
Group Trust IV and Endowment and Foundation Realty, Ltd. -- JMB III
for the premises at One Maritime Plaza, San Francisco, California.
(Incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
filed March 31, 1994 (as amended by Form 10-K/A-1 on April 8, 1994).)
10.11 Lease Agreement dated March 28, 1994, between the Company and 1999
Broadway Partnership for the premises at 1999 Broadway, Denver,
Colorado. (Incorporated by reference to Exhibit 10.15 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, filed August 12, 1994.)
10.12 Interest exchange agreement between The Chase Manhattan Bank, N.A.
and the Company dated May 9, 1995. (Incorporated by reference to
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, filed August 14, 1995.)
10.13 Amended and Restated Agreement and Plan of Merger, dated as of April
29, 1996, among the Company, HSR Acquisition, Inc. and Tide West Oil
Co. (Incorporated by
25
<PAGE> 26
reference as Annex A to Amendment No. 2 to the Company's
Registration Statement on Form S-4, No. 333-01991, filed on May 2,
1996.)
10.14 Agreement for Purchase and Sale of Assets, dated as of February 24,
1996, among the Company, Basin Exploration, Inc. ("Basin") and
Orion Acquisition, Inc. ("Orion"). (Incorporated by reference
to Exhibit 2.3 to the Company's Form 8-K, filed March 12, 1996.)
10.15 Agreement for Purchase and Sale of Assets [Wattenberg], dated as of
February 24, 1996, among the Company, Orion and Basin. (Incorporated
by reference to Exhibit A to the Company's Schedule 13D relating to
Basin Exploration, Inc. filed on March 6, 1996.)
10.16 Purchase and Sale Agreement, dated December 1, 1995, between the
Company and Wattenberg Gas Investments, LLC. (Incorporated by
reference to Exhibit 10.26 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, filed March 25,
1996.)
10.17 Rights Agreement, dated as of February 28, 1996, between the Company
and Harris Trust Company of California as Rights Agent.
(Incorporated by reference to Exhibit 1 to the Company's Form 8-A,
filed March 11, 1996.)
10.18 Purchase and Sale Agreement dated March 25, 1996 between Orion
Acquisition, Inc., the Company and Wattenberg Resources Land, L.L.C.
(Incorporated by reference to Exhibit 10.28 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
filed May 15, 1996.)
10.19 Credit Agreement, dated as of June 7, 1996, among the Company and
The Chase Manhattan Bank, N.A. ("Chase"), as agent of the Banks
signatory thereto. (Incorporated by reference to Exhibit 10.20 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, filed August 14, 1996.)
10.20 Amended and Restated Credit Agreement dated as of June 14, 1996,
among the Company, Chase as agent, and the Banks signatory thereto.
(Incorporated by reference to Exhibit 10.21 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.21 First Amendment to Amended and Restated Credit Agreement dated as of
June 17, 1996, by and among the Company and Chase in its individual
capacity and as agent for the Lenders. (Incorporated by reference to
Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.22 Second Amendment to Amended and Restated Credit Agreement dated as
of November 27, 1996 among the Company and Chase in its individual
capacity and as agent for the Lenders. (Incorporated by reference to
Exhibit 10.22 to the Company's Registration Statement on Form S-4,
No 333-19433, filed January 8, 1997.)
10.23 Assignment of Liens and Amendment of Amended, Restated and
Consolidated Mortgage, Assignment of Production, Security Agreement
and Financing Statement, dated June 14, 1996, among Chase
(Assignor), Chase (Assignee) and the Company. (Incorporated by
reference to Exhibit 10.23 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, filed August 14, 1996.)
26
<PAGE> 27
10.24 Guaranty Agreement by HSR Acquisition, Inc. in favor of Chase, as
Agent, dated June 14, 1996. (Incorporated by reference to Exhibit
10.24 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed August 14, 1996.)
10.25 Guaranty Agreement by Orion Acquisition, Inc. in favor of Chase, as
Agent, dated June 14, 1996. (Incorporated by reference to Exhibit
10.25 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed August 14, 1996.)
10.26 First Amendment to Guaranty Agreement dated as of June 17, 1996, by
and among Orion Acquisition, Inc. and Chase, in its individual
capacity and as agent for the Lenders. (Incorporated by reference to
Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.27 First Amendment to Guaranty Agreement dated as of June 17, 1996, by
and among HSRTW, Inc. (formerly HSR Acquisition, Inc.) and Chase, in
its individual capacity and as agent for the Lenders. (Incorporated
by reference to Exhibit 10.27 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed August 14,
1996.)
10.28 Third Amendment and Supplement to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing
Statement, dated as of July 15, 1996, by and between the Company and
Chase. (Incorporated by reference to Exhibit 10.28 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.29 Hedging Agreement between Chase and the Company dated May 1, 1996.
(Incorporated by reference to Exhibit 10.29 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.30 Hedging Agreement between Chase and the Company dated May 1, 1996.
(Incorporated by reference to Exhibit 10.30 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.31 Hedging Agreement between Chase and the Company dated June 1, 1996.
(Incorporated by reference to Exhibit 10.31 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.32 Purchase and Sale Agreement between the Company and Wattenberg Gas
Investments, LLC dated April 25, 1996. (Incorporated by reference to
Exhibit 10.32 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.33 Purchase and Sale Agreement between Wattenberg Resources Land L.L.C.
and Wattenberg Gas Investments, LLC dated May 21, 1996. (Incorporated
by reference to Exhibit 10.33 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed August 14,
1996.)
10.34 Purchase and Sale Agreement between Orion Acquisition, Inc. and
Wattenberg Gas Investments, LLC dated June 14, 1996. (Incorporated
by reference to Exhibit 10.34 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed August 14,
1996.)
27
<PAGE> 28
10.35 Purchase and Sale Agreement between Wattenberg Resources Land L.L.C.
and Wattenberg Gas Investments, LLC dated June 14, 1996.
(Incorporated by reference to Exhibit 10.35 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.36 Purchase and Sale Agreement between Orion Acquisition, Inc. and
Wattenberg Gas Investments, LLC dated June 14, 1996. (Incorporated
by reference to Exhibit 10.36 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed August 14,
1996.)
10.37 Purchase and Sale Agreement between the Company and Wattenberg Gas
Investments, LLC dated June 28, 1996. (Incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.38 Purchase and Sale Agreement between HSRTW, Inc. and Westtide
Investments, LLC dated August 9, 1996. (Incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, filed November 7, 1996.)
10.39 Acquisition Agreement between the Company and TCW Portfolio No. 1555
DR V Sub-Custody Partnership, L.P. dated August 30, 1996.
(Incorporated by reference to Exhibit 10.38 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, filed November 7, 1996.)
10.40 Purchase Agreement dated November 27, 1996 among the Company, Orion
Acquisition, Inc., HSRTW, Inc., Salomon Brothers Inc., Chase
Securities Inc., Lehman Brothers Inc., and Prudential Securities
Incorporated. (Incorporated by reference to Exhibit 10.40 to the
Company's Registration Statement on Form S-4, No 333-19433, filed
January 8, 1997.)
10.41 Registration Agreement dated November 27, 1996 among the Company,
Orion Acquisition, Inc., HSRTW, Inc. and Salomon Brothers Inc. in
its individual capacity and as agent for Chase Securities Inc.,
Lehman Brothers Inc., and Prudential Securities Incorporated.
(Incorporated by reference to Exhibit 10.41 to the Company's
Registration Statement on Form S-4, No 333-19433, filed January 8,
1997.)
10.42 Employment Agreement between James Piccone and the Company dated
April 21, 1995. (Incorporated by reference to Exhibit 10.42 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed March 18, 1997 (as amended by Form 10-K/A-1
on March 20, 1997).)
10.43 Purchase and Sale Agreement dated June 30, 1997 among HSRTW, Inc. and
Horizon Gas Partners, L.P. as Seller and Gothic Energy Corporation as
Buyer. (Incorporated by reference to Exhibit 10.43 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
filed August 14, 1997.)
10.44 Amended to Purchase and Sale Agreement dated as of July 16, 1997,
among HSRTW, Inc. and Horizon Gas Partners, L.P. as Seller and Gothic
Energy Corporation as Buyer. (Incorporated by reference to Exhibit
10.44 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, filed August 14, 1997.)
28
<PAGE> 29
27* Financial Data Schedule
- -------------------------
* Filed herewith
b. Reports on Form 8-K.
Report dated October 1, 1997, filing (i) the
"Description of Common Stock" and "Business and
Properties" section of the Prospectus Supplement to
Registration Statement (Reg. No. 333-28825) whereby
Natural Gas Partners, L.P., as selling stockholder,
offered to sell 1,864,225 shares of common stock of
the Company and (ii) the September 30, 1997, press release
in connection therewith.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, HS
Resources, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HS RESOURCES, INC.
Dated: November 14, 1997 By: /s/ JAMES E. DUFFY
------------------------------
James E. Duffy
Vice President and Chief
Financial Officer
By: /s/ ANNETTE MONTOYA
-----------------------------
Annette Montoya
Vice President and Principal
Accounting Officer
30
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<S> <C> <C>
27* Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000869295
<NAME> HS RESOURCES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,379,617
<SECURITIES> 0
<RECEIVABLES> 39,814,445
<ALLOWANCES> 0
<INVENTORY> 1,362,151
<CURRENT-ASSETS> 46,705,994
<PP&E> 818,112,948
<DEPRECIATION> 172,863,760
<TOTAL-ASSETS> 700,992,028
<CURRENT-LIABILITIES> 55,082,823
<BONDS> 348,664,933
0
0
<COMMON> 17,451
<OTHER-SE> 199,333,465
<TOTAL-LIABILITY-AND-EQUITY> 700,992,028
<SALES> 175,597,506
<TOTAL-REVENUES> 179,697,635
<CGS> 76,823,360
<TOTAL-COSTS> 68,474,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,944,633
<INCOME-PRETAX> 11,455,228
<INCOME-TAX> 4,364,442
<INCOME-CONTINUING> 7,090,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,090,786
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
