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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT - FEBRUARY 26, 1997
(DATE OF EARLIEST EVENT REPORTED)
HS RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMISSION FILE NO. 0-18886
DELAWARE 94-303-6864
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
ONE MARITIME PLAZA, 15TH FLOOR, SAN FRANCISCO, CALIFORNIA 94111
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 433-5795
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FORM 8-K
HS RESOURCES, INC.
February 26, 1997
ITEM 5. OTHER EVENTS.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, HS Resources, Inc. (the "Company")
is hereby filing cautionary statements identifying important factors that could
cause the Company's actual results to differ materially from those projected in
forward looking statements made by, or on behalf of, the Company.
ITEM 7(C). EXHIBITS FILED.
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
99.01 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
HS RESOURCES, INC.
By: /s/ JAMES M. PICCONE
---------------------------
James M. Piccone
Vice President
Dated: February 26, 1997.
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Exhibit 99.01
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
HS Resources, Inc. may, in discussions of its future plans,
objectives, and expected performance in periodic reports filed by the Company
with the Securities and Exchange Commission (or documents incorporated by
reference therein) and in written and oral presentations made by the Company,
include projections or other forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 or Section 21E of the Securities
Exchange Act of 1934, as amended. Such projections and forward-looking
statements are based on assumptions which the Company believes are reasonable,
but are by their nature inherently uncertain. When used in the Company's
documents or oral presentations, the words "anticipate," "estimate," "project,"
"expect," "objective," "intend," and similar expressions are intended to
identify forward-looking statements. In all cases, there can be no assurance
that specified assumptions will prove correct or that projected events will
occur, and actual results could differ materially from those projected. In
addition to any assumptions and other factors referred to specifically in
connection with a forward-looking statement, factors that could cause the
Company's actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
VOLATILITY OF OIL AND NATURAL GAS PRICES; MARKETABILITY OF PRODUCTION
The Company's revenues, profitability and future rate of growth are
substantially dependent upon prevailing prices for its oil and natural gas.
Hydrocarbon prices can be extremely volatile and in recent years have been
depressed at times by warm weather, weak demand and excess total domestic and
imported supplies. Prices are also affected by actions of state and local
agencies, the United States and foreign governments and international cartels.
These external factors and the volatile nature of the energy markets make it
difficult to estimate accurately future prices of oil and natural gas. Prices
for D-J Basin natural gas, which represents a significant portion of the
Company's overall production, were depressed until recently and have at times
been more volatile than the prices prevailing in the broader United States
natural gas market. Although from time to time the Company hedges a portion of
its oil and natural gas production to provide some protection from price
declines, any substantial or extended decline in the price of oil or natural
gas would have a material adverse effect on the Company's financial condition
and results of operations. The marketability of the Company's production
depends upon the availability and capacity of refineries, natural gas gathering
systems, pipelines and processing facilities. Federal and state regulation of
oil and natural gas production and transportation, general economic conditions
and changes in supply and demand all could adversely affect the Company's
ability to produce and market its oil and natural gas. If market factors were
to change dramatically, the financial impact on the Company could be
substantial. The availability of markets and the volatility of product prices
are beyond the control of the Company and thus represent a significant risk.
Changes in crude oil and natural gas prices (including basis differentials)
from those
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assumed in preparing projections and forward-looking statements could cause the
Company's actual financial results to differ materially from projected
financial results and can also impact the Company's determination of proved
reserves and the standardized measure of discounted future net cash flows
relative to crude oil and natural gas reserves. In addition, periods of
sharply lower commodity prices could affect the Company's production levels
and/or cause it to curtail capital spending projects and delay or defer
exploration, exploitation or development projects.
EFFECTS OF LEVERAGE; EXISTING INDEBTEDNESS
As of December 31, 1996, the Company's total long-term debt was
approximately $398.0 million. The Company's leverage has important consequences
to the Company's financial condition, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may
be impaired; (ii) a portion of the Company's cash flow from operations must be
dedicated to the payment of the principal of and interest on its existing
indebtedness; (iii) certain of the Company's borrowings, principally those
under the Company's revolving credit facility, are at variable rates of
interest, which may make the Company vulnerable to increases in interest rates;
and (iv) the terms of certain of the Company's indebtedness permit its
creditors to accelerate payments upon certain events of default or a change of
control of the Company. As of December 31, 1996 (excluding the effect of
interest rate hedging arrangements covering $80 million in principal amount of
indebtedness), 44% of the aggregate borrowings of the Company were floating
rate obligations and 56% of the Company's borrowings were fixed rate
obligations, with an overall range of interest rates from 6-3/4% to 9-7/8% per
annum.
The Company's revolving credit facility, and the indentures (the
"Indentures"), under which the Company's 9-1/4% Notes due 2006 and 9-7/8%
Senior Subordinated Notes due 2003 (collectively, the "Notes") were issued
impose financial and other restrictions on the Company and its subsidiaries,
including limitations on the incurrence of additional indebtedness and
limitations on the sale of assets. The Company's revolving credit facility
also requires the Company to (i) make periodic payments of interest, (ii) make
principal payments from the proceeds of certain asset sales and in the event
the Company's outstanding debt exceeds the Borrowing Base (as defined therein),
(iii) maintain certain financial ratios, including interest coverage and
leverage ratios and (iv) maintain a minimum level of consolidated cash flow.
There can be no assurance that these requirements or other material
requirements of the Company's revolving credit facility will be met in the
future. If they are not, the lenders under such facility would be entitled to
declare the indebtedness thereunder immediately due and payable. Additionally,
in the event of such an acceleration of indebtedness by the lenders under the
Company's revolving credit facility, a default would be deemed to occur under
the terms of the Notes. In addition, the Indentures contain certain
restrictive covenants that may limit the ability of the Company to engage in
certain transactions.
The Company's strategy and historical focus has been, and is expected to
continue to
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be, the development, acquisition, exploitation, exploration, production and
marketing of oil and natural gas. Each of these activities requires
substantial capital. The Company intends to finance such capital expenditures
in the future through cash flow from operations, the incurrence of additional
indebtedness and/or the issuance of additional equity securities. Based upon
the current and anticipated level of operations, the Company believes that its
cash flow from operations, the funds available under the Company's revolving
credit facility and its other sources of liquidity, will be adequate to meet
its anticipated requirements in the foreseeable future for working capital,
capital expenditures, interest payments and scheduled principal payments.
There can be no assurance, however, that the Company's business will continue
to generate cash flow at or above current levels. If the Company is unable to
generate sufficient cash flow from operations to service its debt, it may be
required to refinance all or a portion of its existing debt (provided the
necessary consents are obtained), or to obtain additional financing. There can
be no assurance that any such refinancing would be possible or that any
additional financing could be obtained. The Company's ability to meet its debt
service obligations and reduce total indebtedness will be dependent not only
upon its future drilling and production performance, but also on oil and
natural gas prices, general economic conditions and financial, business and
other factors affecting the Company's operations, many of which are beyond the
Company's control.
ESTIMATION OF RESERVES
There are numerous uncertainties in estimating quantities of proved
reserves, future rates of production, the timing and success of development
expenditures, oil and gas prices, and many other factors beyond the control of
the Company. Thus, reserve data given in any statements by the Company are
calculated estimates only. Although the Company believes all of its reserve
estimates to be reasonable, reserve estimates are only estimates and should be
expected to change as additional information becomes available.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be exactly measured, and the
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. Accordingly,
estimates of the economically recoverable quantities of oil and natural gas
attributable to any particular property or group of properties, classifications
of such reserves based on risk of recovery and estimates of the future net cash
flows expected therefrom, which are prepared by different engineers or by the
same engineers at different times, may vary substantially. Moreover, there can
be no assurance that reserves estimated to be present will ultimately be
produced or that the proved undeveloped reserves will be developed within the
periods anticipated. Variances from estimates could be material. In addition,
the estimates of future net revenues from proved reserves of the Company and
the present value thereof are based upon certain assumptions about production
levels, prices and costs, which may be inaccurately estimated. With respect to
such estimates, the Company emphasizes that any estimated discounted future net
cash flows should not be construed as representative of the fair market value
of the proved oil and natural gas properties belonging to the Company, as
discounted future net cash flows are based upon projected cash flows that do
not provide for changes in oil and natural gas prices or for changes in
expenses and capital
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costs. The accuracy of such estimates is highly dependent upon the accuracy of
the assumptions upon which they were based. Actual results may differ
materially from the results estimated.
The Company accounts for its oil and natural gas producing activities
under the full cost method. This method imposes certain limitations on the
carrying (book) value of proved oil and natural gas properties and requires a
writedown of such assets for accounting purposes if such limits are exceeded.
The risk that the Company will be required to write down the carrying value of
its oil and natural gas properties increases as oil and natural gas prices
decline or remain depressed. If a writedown is required, it would result in a
non-cash charge to earnings. In the past, the Company has not been required to
write down its oil and natural gas properties. However, no assurance can be
given that the Company will not be required to make such a writedown in the
future.
REPLACEMENT OF RESERVES
The Company's future performance depends in part upon its ability to
acquire, find and develop additional oil and natural gas reserves that are
economically recoverable. Without successful acquisition, exploration or
development activities, the Company's reserves will decline. No assurance can
be given that the Company will be able to acquire or find and develop
additional reserves on an economic basis.
The Company's business is capital intensive and, to maintain its asset
base of proved oil and natural gas reserves, a significant amount of cash flow
from operations must be reinvested in property acquisitions, development or
exploration activities. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's
ability to make the necessary capital investments to maintain or expand its
asset base would be impaired. Without such investment, the Company's oil and
natural gas reserves would decline.
The Company's strategy will include continued exploitation and
exploration of its existing properties and may include opportunistic
acquisitions of other oil and natural gas properties. The successful
acquisition of producing properties requires an assessment of recoverable
reserves, future oil and natural gas prices and operating costs, potential
environmental and other liabilities and other factors. Such assessments are
necessarily inexact and their accuracy inherently uncertain. There can be no
assurance that the Company's acquisition activities and exploration and
development projects will result in increases in reserves. the Company's
operations may be curtailed, delayed or canceled as a result of a lack of
adequate capital and other factors, such as title problems, weather, compliance
with governmental regulations or price controls, mechanical difficulties or
shortages or delays in the delivery of equipment. Furthermore, while the
Company's revenues may increase if prevailing natural gas and oil prices
increase significantly, the Company's finding costs for additional reserves
could also increase. In addition, the costs of exploration and development may
materially exceed initial estimates.
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RISKS OF HEDGING AND TRADING TRANSACTIONS
In order to manage its exposure to price risks in the marketing of its
oil and natural gas and in connection with its trading activities, the Company
has in the past entered and may in the future enter into oil and natural gas
futures contracts on the New York Mercantile Exchange ("NYMEX"), fixed price
delivery contracts and financial swaps. Those transactions that are intended
to reduce the effects of volatility of the price of oil and natural gas may
limit potential gains by the Company if oil and natural gas prices were to rise
substantially over the price established by the hedge. In addition, the
Company's hedging and trading may expose the Company to the risk of financial
loss in certain circumstances, including instances in which (i) production is
less than expected, (ii) there is a widening of price differentials between
delivery points for the Company's production and Henry Hub (in the case of
NYMEX futures contracts) or delivery points required by fixed price delivery
contracts to the extent they differ from those of the Company's production,
(iii) the Company's customers or the counterparties to its futures contracts
fail to purchase or deliver the contracted quantities of oil or natural gas or
honor their financial commitments or (iv) a sudden, unexpected event materially
affects oil or natural gas prices.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's operations are subject to various Federal, state and
local governmental laws and regulations, which may be changed from time to time
in response to economic or political factors. Matters subject to regulation
include, but are not limited to, drilling and operations permits and approvals,
performance bonds, reports concerning operations, discharge and other
permitting requirements, the spacing of wells, unitization and pooling of
properties and taxation.
The Company's operations are subject to complex and constantly
changing environmental laws and regulations adopted by Federal, state and local
governmental authorities. Compliance with such laws has not had a material
adverse effect upon the Company to date. Nevertheless, the discharge of oil,
natural gas or other pollutants into the air, soil or water may give rise to
significant liabilities by the Company to the government and/or third parties,
and may require the Company to incur substantial costs for remediation.
Moreover, the Company has agreed to indemnify certain sellers of producing
properties from whom the Company has acquired properties against certain
liabilities for environmental claims associated with the properties purchased
by the Company. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or as may be in the future, or future
laws or regulations will not materially adversely affect the Company's results
of operations and financial condition or that material indemnity claims will
not arise against the Company with respect to properties acquired by the
Company.
Recently there has been an increased level of regulation of oil and
natural gas activities in Colorado. For example, the Colorado Oil and Gas
Conservation Commission adopted, and is considering the adoption of additional,
stricter regulation of matters such as soil conservation, land reclamation,
fluid disposal and bonding of oil and natural gas companies.
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Additionally, various cities and counties are currently reviewing their
ordinances to determine the level of regulatory authority, if any, they should
assert over such matters. At present, it cannot be determined to what degree
stricter regulations, if adopted, would adversely affect the Company's
operations.
OPERATING HAZARDS; UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and production and transportation of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline failures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims
and other damage or impacts to properties of the Company and others, including
suspension of operations. The business is also subject to environmental
hazards such as oil spills, natural gas leaks, ruptures and discharges of toxic
natural gases, which could expose the Company to substantial liability due to
pollution and other environmental damage. The Company's coverages include, but
are not limited to, comprehensive general liability, automobile, personal
injury, bodily injury and property damage, pollution liability, physical damage
on certain assets, workers' compensation and control of well insurance. The
Company believes that its insurance is adequate and customary for companies of
a similar size engaged in operations similar to those of the Company, but
losses could occur for uninsurable or uninsured risks or in amounts in excess
of existing insurance coverage.
COMPETITION
The oil and natural gas industry is highly competitive. The Company
competes in the areas of property acquisitions and the development, production
and marketing of oil and natural gas with major oil companies, other
independent oil and natural gas concerns and individual producers and
operators. The Company also competes with major and independent oil and
natural gas concerns in recruiting and retaining qualified employees. Many of
these competitors have substantially greater financial and other resources than
the Company.
COMPANY PLANS AND STRATEGIES
Certain of the forward-looking statements made by the Company depend
in part upon the plans and strategies of the Company at the time such
statements are made. Any such statements represent only the expectations and
intentions of the Company at the time such statements are made. Such plans and
strategies may change from time to time depending on a variety of factors
including factors both internal and external to the Company. For example,
plans and strategies could change as a consequence of drilling results, a
change in the Company's technical expertise, and factors concerning the
Company's human resources, financial condition, or availability of capital.
Examples of external factors would be technological developments in the
industry, discoveries of new oil and gas accumulations, competitive factors,
regulatory factors, economic conditions generally, and many other such factors.
Company plans and strategies may also be changed on the basis of management's
business judgment regarding potential risks and benefits of any activity.
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Although the Company believes that the assumptions and expectations
reflected in any forward-looking statements made by it or on its behalf are
reasonable at the time such statements are made, it can give no assurance that
such expectations will prove to have been correct or that the Company will take
any actions that may be planned at the time such statements are made. Any
forward- looking statement made by the Company is based on information
available to the Company on the date such statement is made, and the Company
assumes no obligation to update such forward-looking statements.
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