HS RESOURCES INC, 10-Q, 1997-05-15

HS RESOURCES INC
10-Q, 1997-05-15
CRUDE PETROLEUM & NATURAL GAS

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<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 March 31, 1997
-------------------------------

[ ] 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
incorporation or organization) Identification No.)

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 April 30, 1997: 16,978,206 after deducting 160,358 shares in
treasury.

<PAGE> 2

HS RESOURCES, INC.

INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Financial Statements:

Consolidated Balance Sheets - March 31, 1997 (Unaudited) and
December 31, 1996............................................................ 3

Unaudited Consolidated Statements of Operations - For the
Three Months Ended March 31, 1997 and 1996................................... 5

Consolidated Statements of Stockholders' Equity - For the
Years Ended December 31, 1996 and 1995 and the Three Months
Ended March 31, 1997 (Unaudited)............................................. 6

Unaudited Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 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........................................................ 11

PART II. OTHER INFORMATION

Item 1. Legal Proceedings & Environmental Issues..................................... 19

Item 2. Changes in Securities........................................................ 20

Item 3. Defaults Upon Senior Securities.............................................. 20

Item 4. Submission of Matters to a Vote of Security Holders.......................... 20

Item 5. Other Information............................................................ 20

Item 6. Exhibits and Reports on Form 8-K............................................. 20
</TABLE>

2
<PAGE> 3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,978,222 $ 8,764,756
Margin deposits 580,600 575,712
Accounts receivable
Oil and gas sales 27,032,961 40,387,602
Trade 2,450,798 2,255,359
Other 6,385,067 5,625,980
Lease and well equipment inventory, at cost 1,569,732 1,724,944
Prepaid expenses and other 710,272 513,471
------------- -------------
Total current assets 46,707,652 59,847,824
------------- -------------
OIL AND GAS PROPERTIES, AT COST, USING THE FULL COST METHOD
Undeveloped acreage 56,312,208 54,709,553
Costs subject to depreciation, depletion and amortization 738,382,868 727,411,293
Less accumulated depreciation, depletion and amortization (141,955,634) (129,940,868)
------------- -------------
Net oil and gas properties 652,739,442 652,179,978
------------- -------------
GAS GATHERING AND TRANSPORTATION FACILITIES,
at cost, net of accumulated depreciation of $1,103,857 and
$1,032,224 at March 31, 1997 and December 31, 1996, respectively 4,653,675 4,674,075
------------- -------------
OTHER ASSETS
Deferred charges and other, net 8,763,842 8,954,781
Office and transportation equipment and other property,
net of accumulated depreciation of $3,968,934 and
$3,401,739 at March 31, 1997 and December 31, 1996, respectively 4,722,819 4,708,436
Investment in Oil and Gas Limited Partnership 905,284 920,285
------------- -------------
Total other assets 14,391,945 14,583,502
------------- -------------
TOTAL ASSETS $ 718,492,714 $ 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
MARCH 31, 1997 AND DECEMBER 31, 1996

<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade $ 18,770,933 $ 9,124,831
Revenue 10,108,151 8,134,201
Gas purchases 7,921,741 13,878,187
Accrued expenses
Ad valorem and production taxes 7,582,440 7,516,095
Interest 7,759,650 3,179,627
Other 6,369,535 4,235,410
Current portion of long-term debt 30,000 30,000
------------- -------------
Total current liabilities 58,542,450 46,098,351
------------- -------------
ACCRUED AD VALOREM TAXES 11,659,040 9,005,922
------------- -------------
LONG-TERM OIL AND GAS PRODUCTION NOTE PAYABLE 734,696 734,696
------------- -------------
LONG-TERM BANK DEBT, NET OF CURRENT PORTION 139,000,000 174,000,000
------------- -------------
9 7/8% SENIOR SUBORDINATED NOTES,
due 2003, net of unamortized discount of
$390,000 and $404,625 at March 31, 1997 and December 31, 1996,
respectively 74,610,000 74,595,375
9 1/4% SENIOR SUBORDINATED NOTES,
due 2006, net of unamortized discount of $747,862 and
$767,287 at March 31, 1997 and December 31, 1996, respectively 149,252,138 149,232,713
------------- -------------
DEFERRED INCOME TAXES 87,433,358 84,828,612
------------- -------------
COMMITMENTS AND CONTINGENCIES
------------- -------------
MINORITY INTEREST IN OIL AND GAS LIMITED PARTNERSHIP 165,094 66,149
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock, $.001 par value, 30,000,000 shares
authorized; 17,138,564 and 17,127,861 shares issued
and outstanding at March 31, 1997 and December 31, 1996,
respectively 17,139 17,128
Additional paid-in capital 163,208,451 163,114,868
Retained earnings 35,800,905 31,433,399
Deferred compensation (216,300) (171,300)
Treasury stock, at cost, 121,952 shares at March 31, 1997 and
December 31, 1996 (1,714,257) (1,670,534)
------------- -------------
Total stockholders' equity 197,095,938 192,723,561
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 718,492,714 $ 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 ENDED MARCH 31, 1997 AND 1996
(Unaudited)

<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Oil and natural gas sales $ 36,024,176 $ 13,679,430
Trading and transportation 32,773,771 --
Other gas revenues 1,095,602 474,063
Interest income and other 268,265 40,791
------------ ------------
Total revenues 70,161,814 14,194,284
------------ ------------
EXPENSES
Production taxes 2,806,254 1,064,988
Lease operating 6,430,212 2,826,323
Cost of trading and transportation 31,973,395 --
Depreciation, depletion and amortization 12,465,482 6,107,426
General and administrative 1,727,043 862,792
Interest 7,703,684 3,024,152
------------ ------------
Total expenses 63,106,070 13,885,681
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,055,744 308,603
PROVISION FOR INCOME TAXES (2,688,238) (117,578)
------------ ------------
NET INCOME $ 4,367,506 $ 191,025
------------ ------------
EARNINGS PER SHARE
Earnings per common and common equivalent share $ 0.25 $ 0.02
------------ ------------
Earnings per common and common equivalent share
assuming full dilution $ 0.25 $ 0.02
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Weighted average number of common and common
equivalent shares 17,576,000 11,149,000
------------ ------------
Weighted average number of common and common
equivalent shares assuming full dilution 17,576,000 11,149,000
------------ ------------
</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 1996 AND 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1997

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 -- -- -- -- -- (12,747) (218,357)
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) -- --
Exercise of options by issuance
of common stock, including
income tax benefit 8,203 8 87,397 -- -- -- --
Net income -- -- -- 4,367,506 -- -- --
---------- ---------- ------------- ------------- ---------- -------- -------------

BALANCE, MARCH 31, 1997
(Unaudited) 17,138,564 $ 17,139 $ 163,208,451 $ 35,800,905 $ (216,300) (121,952) $ (1,714,257)
========== ========== ============= ============= ========== ======== =============
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

<PAGE> 7

HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)

<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,367,506 $ 191,025
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 12,465,482 6,107,426
Amortization of deferred charges and debenture issue costs 436,242 28,641
Gain on sale of fixed assets -- (12,000)
Deferred income tax provision 2,604,746 117,578
Decrease (increase) in accounts and notes receivable 12,400,115 (412,784)
Increase in accounts payable and accrued expenses 7,771,751 5,527,790
Other (23,706) (448,158)
------------ ------------
Net cash provided by operating activities 40,022,136 11,099,518
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration, development and leasehold costs (18,074,230) (50,879,759)
Gas gathering and transportation facilities additions (51,233) (24,043)
Other property additions (393,466) (88,275)
Proceeds from the sale of properties 5,500,000 --
Proceeds from the sale of fixed assets and other property -- 12,000
Increase in property related payables 7,325,466 3,960,393
------------ ------------
Net cash used in investing activities (5,693,463) (47,019,684)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt -- 51,000,000
Repayments of debt (35,000,000) (12,400,000)
Debt and equity issuance costs (219,023) --
Exercise of options 135,823 --
Purchase of treasury stock (218,357) (706,873)
Issuance of common stock 87,405 --
Minority interest 98,945 --
------------ ------------
Net cash (used in) provided by financing activities (35,115,207) 37,893,127
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (786,534) 1,972,961
Cash and cash equivalents, beginning of the period 8,764,756 116,581
------------ ------------
Cash and cash equivalents, end of the period $ 7,978,222 $ 2,089,542
------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid, net of capitalized interest $ 2,580,732 $ 483,934
Cash paid for income taxes $ 285,315 $ --
------------ ------------
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.
.

7
<PAGE> 8

HS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. General

HS Resources, Inc., a Delaware Corporation (the "Company") was
organized in January 1987. The Company, directly or through subsidiaries,
acquires, develops and exploits oil and gas properties. 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
March 31, 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. Pro forma Statements

The following table sets forth condensed unaudited pro forma operating
results of the Company for the three months ended March 31, 1997 and 1996. The
condensed pro forma operating results assume that both Basin acquisitions and
the Tide West merger had occurred on January 1, 1996, instead of June 1996. The
condensed pro forma results are not necessarily indicative of the results of
operations had the acquisition been consummated on January 1, 1996, and may not
necessarily be indicative of future performance. The March 31, 1997 amounts
reflect the actual activity for the three months ended.

<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Unaudited)
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 70,161,814 $ 58,383,337
Net income $ 4,367,506 $ 1,389,021
Net income per common share $ 0.25 $ 0.08
Weighted average common shares outstanding 17,576,000 17,310,312
</TABLE>

Note 3. Summary of Guarantees on 9 1/4% 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").

8
<PAGE> 9

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 in the
amount of contributions to subsidiaries and decrease in the amount of
distributions from subsidiaries. The elimination entries eliminate the equity
method investment in subsidiaries and equity in earnings of subsidiaries,
intercompany payables and receivables and other transactions between
subsidiaries including contributions and distributions.

CONDENSED CONSOLIDATING BALANCE SHEETS

March 31, 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 $ 125,127 $ 685,670 $ -- $ 7,821,717 $ (654,292) $ 7,978,222
Intercompany receivables 41,199,679 13,666,727 41,360,136 41,249,712 (137,476,254) --
Other current assets 13,469,825 7,297,857 4,572,760 13,664,006 (275,018) 38,729,430
------------- ------------- ------------- ------------- ------------- -------------
Total current assets 54,794,631 21,650,254 45,932,896 62,735,435 (138,405,564) 46,707,652
------------- ------------- ------------- ------------- ------------- -------------
Oil and gas properties, net 296,143,763 224,311,538 121,374,457 10,909,684 -- 652,739,442
Gas gathering and transportation
facilities, net -- -- -- 4,653,675 -- 4,653,675
Deferred charges and other, net 8,392,516 -- 342,773 28,553 -- 8,763,842
Office and transportation equipment
and other property, net 3,232,370 1,436,732 -- 53,717 -- 4,722,819
Investments in subsidiaries and
other investments 353,250,869 20,449,142 -- 905,285 (373,700,012) 905,284
------------- ------------- ------------- ------------- ------------- -------------
Total assets $ 715,814,149 $ 267,847,666 $ 167,650,126 $ 79,286,349 $(512,105,576) $ 718,492,714
============= ============= ============= ============= ============= =============

LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

Current liabilities $ 37,786,371 $ 6,887,024 $ 83,530 $ 14,714,835 $ (929,310) $ 58,542,450
Intercompany payables 84,133,213 -- 35,674,353 17,668,688 (137,476,254) --
Long-term bank debt and other debt,
net of current portion 139,734,696 -- -- -- -- 139,734,696
9 7/8% subordinated notes, due 2003 74,610,000 -- -- -- -- 74,610,000
9 1/4% subordinated notes, due 2006 149,252,138 -- -- -- -- 149,252,138
Other noncurrent liabilities 11,659,040 -- -- -- -- 11,659,040
Deferred income taxes 21,542,753 60,233,474 1,932,530 3,724,601 -- 87,433,358
Minority interest -- -- -- -- 165,094 165,094
Stockholders' equity and
partners' capital 197,095,938 200,727,168 129,959,713 43,178,225 (373,865,106) 197,095,938
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities, stockholders'
equity and partners' capital $ 715,814,149 $ 267,847,666 $ 167,650,126 $ 79,286,349 $(512,105,576) $ 718,492,714
============= ============= ============= ============= ============= =============
</TABLE>

9
<PAGE> 10

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 1997

<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidation
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Oil and natural gas sales $ 13,423,566 $ 9,275,688 $ 3,157,176 $ 10,192,355 $ (24,609) $ 36,024,176
Trading and transportation 2,931,649 -- -- 35,895,569 (6,053,447) 32,773,771
Other revenues 1,195,109 115,391 -- 174,267 (120,900) 1,363,867
------------ ------------ ------------ ------------ ------------ ------------
Total revenues 17,550,324 9,391,079 3,157,176 46,262,191 (6,198,956) 70,161,814
------------ ------------ ------------ ------------ ------------ ------------
Expenses
Production taxes and lease operating 2,952,335 2,419,534 958,101 2,906,496 -- 9,236,466
Cost of trading and transportation 2,799,010 -- -- 35,252,441 (6,078,056) 31,973,395
Depreciation, depletion and amortization 4,272,702 3,709,745 1,024,741 3,458,294 -- 12,465,482
General and administrative 1,018,223 441,014 -- 267,806 -- 1,727,043
Interest expense 7,579,263 134,638 11,454 99,229 (120,900) 7,703,684
------------ ------------ ------------ ------------ ------------ ------------
Total expenses 18,621,533 6,704,931 1,994,296 41,984,266 (6,198,956) 63,106,070
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes (1,071,209) 2,686,148 1,162,880 4,277,925 -- 7,055,744
Benefit (provision) for income taxes 408,131 (1,267,680) (443,057) (1,385,632) -- (2,688,238)
------------ ------------ ------------ ------------ ------------ ------------
(663,078) 1,418,468 719,823 2,892,293 -- 4,367,506
Equity in earnings of subsidiaries 4,005,584 1,025,000 -- -- (5,030,584) --
------------ ------------ ------------ ------------ ------------ ------------
Net income $ 3,342,506 $ 2,443,468 $ 719,823 $ 2,892,293 $ (5,030,584) $ 4,367,506
============ ============ ============ ============ ============ ============
</TABLE>

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 1997

<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidation
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flow provided by (used in)
operating activities $ 39,118,459 $ (3,536,175) $ (855,885) $ 6,048,974 $ (753,237) $ 40,022,136
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from investing activities
Exploration, development and
leasehold costs (14,024,595) (2,156,394) (513,624) (1,379,617) -- (18,074,230)
Contributions to subsidiaries (1,369,509) -- -- -- 1,369,509 --
Other 6,485,411 5,924,009 -- (28,653) -- 12,380,767
------------ ------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by
investing activities (8,908,693) 3,767,615 (513,624) (1,408,270) 1,369,509 (5,693,463)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from financing activities
Repayments of debt (35,000,000) -- -- -- -- (35,000,000)
Contributions from equity holders -- -- 1,369,509 -- (1,369,509) --
Other (214,152) -- -- -- 98,945 (115,207)
------------ ------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by financing
activities (35,214,152) -- 1,369,509 -- (1,270,564) (35,115,207)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents (5,004,386) 231,440 -- 4,640,704 (654,292) (786,534)
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 $ 125,127 $ 685,670 $ -- $ 7,821,717 $ (654,292) $ 7,978,222
============ ============ ============ ============ ============ ============
</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.

10
<PAGE> 11

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

GENERAL Over the past 12 months, the Company has undertaken several strategic
initiatives that have positioned the Company for a period of significant growth
in reserves, production, cash flow and earnings. In 1995, the Company
articulated a strategy that included (i) consolidating in its core geographic
areas, particularly the 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")
and by forming two important, exploration-focused Gulf Coast joint ventures,
SouthTech and Chenier, 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 has four significant core areas of operations, the geologic and
geographic diversity of which combine to create an oil and natural gas company
with attractive, long-lived reserves balanced with meaningful exposure to
exploration and technologically-driven upside. The Company has also created a
strategically important and profitable presence in the natural gas marketing,
trading and transportation business, which provides the opportunity for the
Company to increase its operating margins on production from both the D-J Basin
and Mid-Continent areas and 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. Over the past year the
industry has seen increases in both oil and natural gas prices from the
relatively low price levels experienced in 1995. 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 natural gas storage levels combined with relatively high wellhead
capacity utilization, (ii) increasing overall natural 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 natural gas exploration, drilling and production
technologies.

NATURAL GAS PRICE CONSIDERATIONS Approximately 76% of the Company's proved
producing reserves consist of natural gas located in the D-J Basin and
Mid-Continent areas. The absolute level and volatility of natural gas prices
have a material impact on the Company.

During 1995 and early 1996, prices for Rocky Mountain natural gas were
substantially below prices for natural gas in markets outside the Rocky
Mountain region. This disparity was caused

11
<PAGE> 12

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 resulted in excess natural gas 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 natural gas had
strengthened substantially due to several factors. First, the excess supply
from Wyoming natural 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 natural gas sold to the Colorado Front Range market,
resulting in an approximately $0.40 per MMBtu transportation cost advantage for
D-J Basin producers. Third, the supply of D-J Basin natural gas has declined
over the last two years due to reduced drilling in the D-J Basin and natural
production declines. The average natural 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 $2.45 per Mcf in the first quarter of 1997. In addition,
expansion of pipeline capacity has begun, which will, in mid-to-late 1997,
provide additional transportation outlets for Wyoming producers to markets
other than the Colorado Front Range. 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 natural gas
production. Historically, the price of D-J Basin natural gas (on a
Btu-equivalent basis) has been linked closely to the Colorado Interstate Gas
pipeline ("CIG") Rocky Mountain Index. However, more 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 natural gas tends to reflect the CIG Rocky
Mountain Index during the low demand summer months (generally April through
October) and Mid-Continent indices during the high demand winter periods
(generally November through March).

Gas prices in the Mid-Continent are closely tied to established indices which
are influenced by national supply and demand factors. Average natural 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 MMBtu less than the Henry Hub price. The average natural 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 first quarter of 1997 was $2.72 or $0.26 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 first quarter of
1997 was approximately $0.85 per Bbl below NYMEX-WTI closing prices. The
increase in the relative value of the Company's oil production during 1996 and
the first quarter of 1997 is a result of renegotiation of several oil sales
contracts, as well as the general increase in the market value of the Company's
D-J Basin oil production.

12
<PAGE> 13

RESULTS OF OPERATIONS During 1997 the Company continued drilling and
development activity in the D-J Basin and exploitation activities in the
Mid-Continent and the Gulf Coast. At March 31, 1997, the Company owned
interests in more than 3,560 producing wells (of which it operated more than
2,580) compared to 1,350 wells (of which it operated more than 1,110) at March
31, 1996. The Company's results of operations have been significantly affected
by the Acquisitions and the Merger, which occurred in 1996, and its drilling
program. Fluctuations in oil and natural gas prices have also significantly
affected the Company's results.

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996

OIL AND GAS REVENUES For the comparative periods, oil production increased from
295 MBbls to 559 MBbls and gas production increased from 4,962 MMcf to 9,971
MMcf, or 89% and 101%, respectively. Average oil prices realized increased by
14% from $18.80 to $21.34 per Bbl and average gas prices realized increased by
48% from $1.64 to $2.42 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 an increase in oil and gas revenues from $13.7 million to $36
million or 163%. The Company also recognized $1.1 million in other gas revenues
from the sale of tax credits with respect to its Section 29 tax credit
agreements for the three months ended March 31, 1997 compared to $474,063 for
the comparative period.

The Company, through its gas marketing division and its wholly owned
subsidiary, HS Energy Services, Inc., actively markets a portion of its own
natural gas production, markets natural gas to third parties and supplies
natural gas to end-users. Trading and transportation net margins were $800,376
at March 31, 1997. There were no comparable revenues in the first quarter of
1996.

INTEREST INCOME AND OTHER INCOME Interest and other income increased by
$227,474, or 558%, for the three months ended March 31, 1997. 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 of $97,235.

PRODUCTION EXPENSES Lease operating expenses increased by $3,603,889, or 128%,
due to an increase in the number of producing wells. On a Boe basis, lease
operating expenses increased from $2.52 to $2.90 for the 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 certain costs attributable to
well site remediation in the Company's Wattenberg producing area. Production
taxes increased by $1,741,266, or 164%, due to increased production and prices.

DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and
amortization ("DD&A"), a non-cash expense, increased $6,358,056, or 104%, due
to an increase in production and an increase in the depletion rate. The
depletion rate increased from $5.15 for the quarter ended March 31, 1996 to
$5.41 for the quarter ended March 31, 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.

13
<PAGE> 14

GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense reflects
costs incurred 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 $864,251, or
100%. The increase for the comparative periods is primarily attributable to the
Merger and retention of the former Tide West employees. On a Boe basis, general
and administrative expenses increased from $0.77 to $0.78 for the comparative
periods.

INTEREST EXPENSE Interest expense increased $4,679,532 or 155%, due to
increased borrowings on the Company's long-term bank debt for the comparative
periods. Also, in November 1996, the Company issued $150 million of 9 1/4%
senior subordinated notes due in 2006.

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 significant 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 debt to total book capitalization
ratio and is currently evaluating various alternatives by which to do so,
including asset divestitures. 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
ratio is reduced, the Company currently plans to fund capital expenditures
attributable to exploration and 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 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 7, 1996, the Company entered into a $180 million revolving and senior
bank credit facility with The Chase Manhattan Bank, as agent (the "Chase
Facility"). On June 14, 1996, the Company amended the terms of 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 natural gas properties. The Chase Facility bears
interest at the Base Rate plus 0% to 0.5% or LIBOR plus 0.75% to 1.5%. As part
of the amendment to the Chase Facility, Tide West's senior bank debt in the
amount of $39.5 million was fully repaid.

In November 1996, the Company issued $150 million of 9 1/4% senior
subordinated notes due in 2006 (the "Notes"). 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.
Upon consummation of the Offering and the application of the estimated net

14
<PAGE> 15

proceeds therefrom, the borrowing base under the Chase Facility was amended to
$275 million, resulting in an amount available for borrowing of $136 million at
March 31, 1997.

The Notes issued 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 (including the Company's 9 7/8% senior
subordinated notes) 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"). There are no significant contractual restrictions on
distributions from each of the Subsidiary Guarantors to the Company. 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 offering exempt from securities registration. The material terms of the
New Notes are identical to the Notes.

In August 1995, the Company signed a Term Sheet with a Trust Company of the
West-related entity covering a proposed $90 million non-recourse, volumetric
overriding royalty facility (the "TCW Facility"). 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.
Effective July 1996, the Company sold certain non-strategic properties under
the TCW Facility for total consideration of $9.4 million. The Company used the
sale proceeds to repay indebtedness under the Chase Facility.

The Company anticipates that its available borrowing capacity under the Chase
Facility, combined with its operating cash flow and the TCW Facility, provide
the Company 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
$20 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 three months ended March 31, 1997, the Company incurred total
exploration, development and leasehold capital expenditures of $18.1 million.
The Company estimates capital expenditures for 1997 will be between $65-$75
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.

15
<PAGE> 16

A major component of the Company's capital expenditure program includes costs
associated with the consolidation 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 $12.4 million in capital
expenditures in the three months ended 1997 for drilling and recompleting wells
and building gathering systems on the Company's existing Wattenberg Field area
properties, compared to $8 million in 1996.

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 three months ended March 31, 1997, the Company has
incurred total acquisition, exploitation and development expenditures in the
Mid-Continent area of $2.1 million. The Company is currently evaluating a
variety of opportunities that include increased exploitation, exploration and
density drilling, recompletions and field extensions.

The final component of the Company's capital expenditure program is to develop
exploitation and exploration prospects in the Gulf Coast. As described below,
the Company has entered into two joint ventures. In 1997, the Company incurred
total capital expenditures of $2.6 million in the Gulf Coast. The Company spent
approximately $3.3 million under the SouthTech joint venture in 1996 for
seismic, leasehold, overhead costs and drilling. In the three months ended
March 31, 1997, the Company spent approximately $1.2 million in similar costs.

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 will be responsible for the generation and development of
prospects in the project areas. For the year ended 1996, the Company spent $2.3
million for seismic, leasehold, drilling and overhead costs compared to $1.4
million for the three months ended March 31, 1997.

In 1994, the Company entered into an exploration agreement with Union Pacific
Resources Company covering drilling locations in the D-J Basin, pursuant to
which the Company committed to spend $9.3 million during the two years ended
June 1996 and meet certain other minimum obligations. All such commitments have
been met. In 1996, the Company elected to extend the agreement and committed to
spend approximately $2.4 million by June 1997. 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 three months ended March 31,
1997, was $40 million, up from $11.1 million in the same period in 1996. This
increase is primarily the result of increased oil and natural gas production
revenues attributable to the larger number of producing wells resulting from
its drilling activities and the wells acquired in the Acquisitions and the
Merger, as well as higher product prices. Future cash flows will be influenced
by, among other factors, the number of producing wells on line, product prices
and production constraints.

16
<PAGE> 17

Risk Management. The Company uses financial instruments to reduce its exposure
to market fluctuations in the price and transportation cost of oil and natural
gas. The Company's general strategy is to hedge price and location risk with
swap, collar, floor and ceiling arrangements. When utilizing such instruments,
the Company strives to hedge its production back to the wellhead, to minimize
basis risk. 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 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 natural gas production and, in the case of its marketing
activities, third party natural gas. Gains and losses on hedging positions are
recognized in the period the underlying physical transactions occur in "oil and
natural gas sales" and "trading and transportation revenues" (for third party
natural gas).

The Company has entered into the following forward sales and swap arrangements
with respect to its natural gas production for the quarters indicated below
(total average daily natural gas production for the quarter ended March 31,
1997 was 110,794 Mcf/day):

<TABLE>
<CAPTION>
Average Daily Volume Average Price
Period Hedged (MCFD) for the Period
<C> <C> <C>
2nd Quarter 1997 31,720 $1.99
3rd Quarter 1997 10,000 $1.99
October 1-31, 1997 10,000 $1.99
</TABLE>

The Company has hedged approximately one-fourth of its oil production at $20.10
per Bbl through April 30, 1998. Additionally, with respect to the hedging of
third party natural gas, the Company has hedged 7.9 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.

Company policy requires that financial instrument purchase and sales contracts
be balanced in terms of contract volumes and the timing of performance and
delivery obligations. As of March 31, 1997, all open positions were balanced
with an offsetting position. For the three months

17
<PAGE> 18

ended March 31, 1997, gains of $23,913 were recognized in connection with these
activities and 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.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This 10-Q Report 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 10-Q
Report, 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 natural gas production,
trends and expectations concerning oil and gas prices, and the Company's
financial position, business strategy and other plans and objectives for future
operations, potential liabilities or the expected absence thereof, 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 10-Q Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update such

18
<PAGE> 19
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 natural 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 natural 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, 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. Using March prices the
Company would have a ceiling write-down. However, the SEC guidelines allow for
the recomputation of the ceiling if increased prices between the period end
date and the filing date are significant and are more than sufficient to cover
capitalized costs. May prices in the ceiling calculation result in a cushion
and therefore the Company has not reported a charge against earnings for the
period. If product prices remain low or decline further and cannot be offset by
additional reserves, the Company could be required to write-down its oil and
gas properties in a future period.

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 10-Q Report and in the Company's 8-K Report
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.

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 for
the disposal of non-hazardous production wastes. The EPA

19
<PAGE> 20

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 develop plans and
characterization studies, and have caused the facility to be 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 $536,000 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 three years. The Company believes that it has adequately
reserved for the estimated liability.

Item 2. Changes in Securities. None.

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. The Company filed one Form 8-K
dated February 26, 1997 regarding forward looking statements.

a. List of Exhibits

20
<PAGE> 21

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.)

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.)

21
<PAGE> 22

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.

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 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.)

22
<PAGE> 23

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.)

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.)

23
<PAGE> 24

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.)

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.)

24
<PAGE> 25

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, LC 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.))

27* Financial Data Schedule

- -------------------------

* Filed herewith

25
<PAGE> 26

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: May 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

26
<PAGE> 27

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------

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.)

<PAGE> 28

10.5* 1987 Stock Incentive Plan, as amended December 2, 1996.

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.)

<PAGE> 29

<PAGE> 30

<PAGE> 31

27* Financial Data Schedule

- -------------------------

* Filed herewith

<PAGE> 1

EXHIBIT 10.5

HS RESOURCES, INC.

1987 STOCK INCENTIVE PLAN

ADOPTED APRIL 29, 1987.

APPROVED BY STOCKHOLDERS APRIL 29, 1987

AMENDMENT AND RESTATEMENT ADOPTED NOVEMBER 6, 1992

APPROVED BY STOCKHOLDERS NOVEMBER 18, 1992

REVISED AS OF DECEMBER 2, 1996
<PAGE> 2
CONTENTS

<TABLE>
<CAPTION>
SECTIONS PAGE
- -------- ----
<S> <C> <C>
1. Name and Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

3. Administration of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

4. Stock Subject to the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

5. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

6. The Option Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

7. Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

8. Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

9. Restricted Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

10. Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

11. Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

12. Termination of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

13. Acceleration of Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

14. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

16. Amendment, Suspension or Termination of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . 9

17. Investment Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

18. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

19. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

-i-
<PAGE> 3
HS RESOURCES, INC.
1987 STOCK INCENTIVE PLAN

1. Name and Purpose.

1.1 This plan is the HS RESOURCES, INC. 1987 STOCK INCENTIVE PLAN
(the "Plan").

1.2 The purposes of the Plan are to attract and retain the best
possible personnel for positions of substantial responsibility with the Company
and to provide additional incentive to Participants to promote the success of
the Company. The Plan provides employees officers, directors, consultants of
the Company an opportunity to purchase shares of the Stock of the Company
pursuant to Incentive Stock Options or Nonstatutory Stock Options, to receive
Restricted Stock, and to benefit from the grant of Stock Appreciation Rights.

2. Definitions.

For purposes of interpreting the Plan and related documents (including
Stock Option Agreements and Restricted Stock Agreements), the following
definitions shall apply:

2.1 "Affiliates" means parent or subsidiary corporations of the
Company as defined in Section 424(e) and (f) of the Code.

2.2 "Award" means a grant under this Plan in the form of Options,
Restricted Stock, or SARs.

2.3 "Board" means the Board of Directors of the Company.

2.4 "Cause" means any of the following, as determined by the
Company:

(a) Willful dishonesty towards the Company, fraud upon the
Company or deliberate injury or intended injury to the
Company;
(b) Conviction of a felony;
(c) Willful participation in activities which constitute
unlawful activities, such as gender-based harassment;
(d) Conviction of a misdemeanor involving moral turpitude; or
(e) Gross negligence or willful misconduct in the performance
of duties.
(f) Continued abuse of alcohol or drugs on the job or
otherwise materially affecting job performance;
(g) Failure to perform duties substantially in accordance with
instructions of relevant superiors and Company policies
and procedures; or

2.5 A "Change in Control" shall be deemed to have taken place if:

2
<PAGE> 4
(a) following a tender offer, merger, consolidation,
reorganization, sale of assets or contested election of directors, or any
combination of the foregoing transactions (a "Transaction") involving the
Company, the persons who were directors of the Company immediately before the
Transaction cease to constitute a majority of the Board of Directors of the
Company or of any successor thereof; or

(b) an event occurs with respect to the Company which, if
the Company were a reporting company under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), would require a reporting as a change in control
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the 1934 Act; provided that, without limitation, such a Change in Control shall
be deemed to have occurred if and when any "person" (as that term is used in
Section 13(d) and 14(d) of the 1934 Act), other than a current shareholder of
the Company, becomes a beneficial owner directly or indirectly of securities
representing 40% or more of the combined voting power of the Company's then
outstanding securities.

2.6 "Code" means the Internal Revenue Code of 1986, as amended.

2.7 "Committee" means the committee appointed by the Board
pursuant to Section 3 hereof to administer the Plan.

2.8 "Company" means HS Resources, Inc., a Delaware corporation and
its Affiliates, if any.

2.9 "Fair Market Value" means the value of each share of Stock
subject to this Plan determined as follows: If on the Grant Date or other
determination date the Stock is listed on the Pacific, American or New York
Stock exchange, the price of the last reported trade of the Stock on such
Exchange on such date shall be considered to be the Fair Market Value of such
Stock. During such time as the Stock is not listed on any of the aforesaid
Exchanges and is publicly traded, its Fair Market Value may be considered to be
the price of the last reported trade in the over-the- counter market on the
Grant Date or other determination date, as reported by the National Association
of Securities Dealers Automated Quotation ("NASDAQ") National Market System, if
listed thereon; otherwise, the average between the closing bid and asked prices
as reported in the Wall Street Journal. If the Stock is not publicly traded or
listed or such market quotations are unavailable, a value for each share of
Stock determined by the Committee to be the fair market value of a share of
Stock, determined by any method deemed reasonable by the Committee.

2.10 "Grant Date" means the date on which the Committee takes valid
action to grant an Option or SAR hereunder; provided, however, that the
Committee may expressly provide for a Grant date other than the date on which
the Committee takes action, and further provided that the Grant Date of an
option intended to qualify as an Incentive Stock Option shall be not earlier
than the first date such grant may be given effect under the Code. The Grant
Date of Restricted Stock shall be the date determined under Section 9.1 below.

3
<PAGE> 5
2.11 "Incentive Stock Option" or "ISO" means an Option designated
as an Incentive Stock Option and satisfying the requirements of Section 422 of
the Code.

2.12 "Non-Employee Director" means a director of the Company who
meets the definition of a "non-employee director" set forth in SEC Rule 16b-3,
as amended, or any successor rule.

2.13 "Nonstatutory Stock Option" or "NSO" means an Option other
than an ISO.

2.14 "Option" means an option to purchase one or more shares of
Stock pursuant to this Plan.

2.15 "Optionee" means a Participant who receives an Option.

2.16 "Option Price" means the purchase price for each share of
Stock subject to an Option.

2.17 "Participant" means any person who receives an Option, SAR or
Restricted Stock under this Plan.

2.18 "Restricted Stock" means a share of Stock which, at the time
it is granted or sold by the Company, is not transferable and/or is subject to
a substantial risk of forfeiture, within the meaning of Section 83 of the Code.

2.19 "Restricted Stock Agreement" means the written agreement
evidencing the grant or sale of Restricted Stock pursuant to Section 9 of this
Plan.

2.20 "Stock" means the common stock of the Company.

2.21 "Stock Appreciation Right" or "SAR" means a right granted
pursuant to Section 8 of the Plan.

2.22 "Stock Option Agreement" means the written agreement
evidencing grant of an Option hereunder.

3. Administration of the Plan.

3.1 The Plan shall be administered by the Committee. The
Committee shall consist of not fewer than two members of the Board to be
appointed by the Board. The Board may from time to time remove members or add
members to the Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board. Any power, authority, or decision-making granted to
the Committee under this Plan may also be exercised by the Board. The
Committee shall hold meetings at such times and places as it shall determine.
Two members of the Committee shall constitute a quorum and acts of the
Committee at a meeting at which a quorum

4
<PAGE> 6
is present, or acts approved in writing by all the members of the Committee
shall be the valid acts of the Committee.

3.2 The Committee may from time to time determine which employees,
officers, directors or consultants of the Company shall be granted Options,
SARs or Restricted Stock under the Plan, the terms and conditions thereof,
including the purchase price, if any, of Restricted Stock and the exercise
price of Options, and the number of shares which shall be granted. The
Committee shall report to the Board the names of Participants, the number of
shares and the terms and conditions of benefits granted under this Plan.

3.3 The Committee is authorized to establish such rules and
regulations consistent with provisions of the Plan as it may deem appropriate
for the proper administration of the Plan, and to make such interpretations of
and determinations under the Plan, and to take such steps in connection with
the Plan or the Options granted thereunder as it may deem necessary or
advisable. The interpretation by the Committee of any provision of the Plan or
any Stock Option Agreement or Restricted Stock Agreement granted pursuant to
the Plan shall be final, binding and conclusive. The Committee shall have the
right to accelerate the time for exercise of any Options previously granted
under any circumstances it deems appropriate.

3.4 For Committee approval of any Award to an officer or director
of the Company, as defined in SEC Rule 16b-3 or any successor rule, the
Committee shall be composed entirely of two or more Non-Employee Directors;
provided, however, that if the Committee is not composed as such, the Board
shall have the right to take such action with respect to any Award to an
officer of director as it deems necessary or advisable to comply with SEC Rule
16b-3 and any related rules, including but not limited to seeking shareholder
ratification of such Award or imposing a six-month period prior to sale of the
Award or any shares of Common Stock underlying the Award.

3.5 The Committee may delegate to a separate committee composed of
at least one member of the Board the limited authority to grant Awards to
persons other than officers or directors and establish the terms of such Awards
at the time of the grant.

4. Stock Subject to the Plan.

4.1 The maximum aggregate number of shares of Stock subject to
this Plan which may be issued as Restricted Stock or subject to Options shall
be the lesser of (i) 1,500,000 shares of Stock, as constituted on November 19,
1993, or (ii) 10% of the Company's outstanding stock on a fully diluted basis.
If an Option is surrendered for cash or for any other reason (except for
exercise) ceases to be exercisable in whole or in part, the shares of Stock
which were subject to such Option but as to which the Option had not been
exercised shall continue to be available under the Plan.

4.2 If there is any change in the Stock subject to the Plan or the
Stock subject to any Option through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend, or other change
in the corporate structure of the Company, appropriate

5
<PAGE> 7
proportionate adjustments shall be made by the Committee in the aggregate
number of shares subject to the Plan and the Option Price and number of shares
subject to outstanding Options in order to preserve, but not to increase, the
benefits of the Participant.

5. Eligibility.

Persons eligible under the Plan for grant of Awards are such
employees, officers, directors and consultants of the Company as the Committee
shall designated from time to time. Members of the Board, members of the Board
of Directors of an Affiliate, or consultants of the Company who are not
employed as regular salaried officers or employees of the Company may not
receive Incentive Stock Options.

6. The Option Price.

The Option Price of the Stock covered by each Option intended to
qualify as an Incentive Stock Option shall not be less than the Fair Market
Value of such Stock on the Grant Date, or if an Option intended to qualify as
an Incentive Stock Option is to be granted to a person then possessing ten
percent (10%) or more of the outstanding Stock, the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the Stock
on the grant Date. The Option Price of the Stock covered by each Option not
intended to qualify as an Incentive Stock Option shall not be less than
eighty-five percent (85%) of the Fair Market Value for such Stock on the Grant
Date. Such prices shall be subject to adjustment as provided in Section 4.2
hereof.

7. Terms and Conditions of Options.

7.1 Each Option granted pursuant to the Plan shall be evidenced by
a written Stock Option Agreement executed by the Company and the Optionee. If
an Optionee fails to execute a Stock Option Agreement within the time
prescribed by the Committee, the Option evidenced thereby shall become void and
of no effect.

7.2 The term of each Option shall be for no more than ten years,
provided, however, that in the case of grant of an Incentive Stock Option to a
Participant possessing ten percent (10%) or more of the outstanding Stock, the
term shall be no more than five years.

7.3 Payment of the exercise price upon exercise of any Option
granted under this Plan shall be made in cash, a certified check, bank draft,
postal or express money order, in the amount of the applicable Option Price
multiplied by the number of shares of Stock subject to such exercise; provided,
however, that the Committee, in its sole discretion, may provide that an
Optionee may pay the Option Price in whole or in part with notes, with shares
of Stock or with other property owned by the Optionee. Any notes used to
exercise Options shall be full recourse, interest- bearing obligations
containing such terms as the Committee shall determine. Any Stock used to
exercise Options shall be valued at Fair Market Value on the date of exercise
of the Option. Any other property used to exercise Options shall be valued by
the Board on the date of exercise of the Option.

6
<PAGE> 8
7.4 Stock issued upon exercise of an Incentive Stock Option may
not be surrendered in payment of an Option exercise price until the Stock to be
surrendered has been held for at least one year after the exercise of such
Option and for at least two years after the date of grant of the Option.

7.5 The Stock Option Agreement may contain such other terms,
provisions, and conditions as may be determined by the Committee (not
inconsistent with this Plan) including, without limitation, provisions relating
to Stock Appreciation Rights with respect to Options granted hereunder. If an
Option, or any part thereof, is intended by the Committee to qualify as an
Incentive Stock Option, the Stock Option Agreement shall contain those terms
and conditions necessary to so qualify said Option or such part thereof.

7.6 No Option designated as an Incentive Stock Option shall be
granted to a Participant under the Plan if, as a result of such grant, the
aggregate Fair Market Value (determined as of the date such Option is granted)
of all Stock with respect to which ISOs are exercisable for the first time by
such Optionee during any calendar year, under all ISO plans of the Company,
would exceed $100,000.

8. Stock Appreciation Rights.

The Committee may, under such terms and conditions as it deems
appropriate, authorize the surrender by a Participant of all or part of an
unexercised Option and authorize a cash payment in consideration thereof of an
amount equal to the difference obtained by subtracting the Option Price of the
shares of Stock then subject to exercise under such Option from the Fair Market
Value of Stock represented by such shares on the date of surrender, provided
that the Committee determines that such settlement is consistent with the
purpose of the Plan. Such payment may be made in shares of Stock valued at
their Fair Market Value on the date of surrender of such Option or in cash, or
partly in shares and partly in cash. Acceptance of such surrender and the
manner of payment shall be in the discretion of the Committee.

9. Restricted Stock.

9.1 The Committee may approve the grant or sale of Restricted
Stock to any eligible person, as specified in Section 5. Such grant or sale
shall be evidenced by a Restricted Stock Agreement in such form as the
Committee shall approve. Subject to such Agreement, holders of Restricted
Stock shall have all the rights of holder of nonrestricted stock of such class
or series, including voting rights and the right to receive dividends and other
distributions. The Grant Date of Restricted Stock shall be (i) for purposes of
corporate law and establishing Fair Market Value, the date on which the
Committee acts to authorize the sale; and (ii) for purposes of any election
under Section 83(b) of the Code, the date on which the Participant receives a
beneficial ownership interest in such Restricted Stock.

7
<PAGE> 9
9.2 The Committee shall determine the purchase price per share
with respect to any sale of Restricted Stock, provided that the Committee may
grant or award shares of Restricted Stock to a Participant without requiring
payment of cash consideration by the Participant.

9.3 Payment of the purchase price, if any, upon purchase of any
Restricted Stock granted under this Plan shall be made in cash, a certified
check, bank draft, postal or express money order, in the amount of the
applicable per share price set by the Committee multiplied by the number of
shares of Restricted Stock subject to such purchase; provided, however, that
the Committee, in its sole discretion, may provide that a Participant may pay
the purchase price in whole or in part with notes, with shares of Stock, or
with other property owned by the Participant. Any notes shall be full
recourse, interest-bearing obligations containing such terms as the Committee
shall determine. Any Stock used to pay for Restricted Stock shall be valued at
Fair Market Value on the date of purchase. Any other property used to pay for
Restricted Stock shall be valued by the Board on the date of purchase.

9.4 Stock issued upon exercise of an Incentive Stock Option may
not be surrendered in payment of the purchase price of Restricted Stock until
the Stock to be surrendered has been held for at least one year after the
exercise of such Option and for at least two years after the date of grant of
the Option.

9.5 The Restricted Stock Agreement may contain such other terms,
provisions, and conditions as may be determined by the Committee (not
inconsistent with this Plan).

9.6 Each certificate representing Restricted Stock shall bear one
or more legends making appropriate reference to the restrictions imposed on
such stock.

10. Withholding.

The Company shall have the right to withhold, or require a Participant
to remit to the Company, an amount sufficient to satisfy any federal, state,
local or foreign withholding tax requirements imposed with respect to any grant
of Restricted Stock, lapses of restrictions on Restricted Stock, exercise of
NSOs, disqualifying dispositions of ISOs, or any SAR payment under the Plan.
To the extent permissible under applicable tax, securities, and other laws, the
Company may, in its sole discretion, permit the Participant to satisfy a tax
withholding requirement by directing the Company to apply shares of stock to
which the Participant is entitled as a result of the exercise of an Option or
the lapse of restrictions on Restricted Stock, to satisfy such requirement.

11. Transferability.

Each ISO granted pursuant to this Plan shall, during Participant's
lifetime, be exercisable only by the Participant, and neither the ISO nor any
right thereunder (including any SAR) shall be transferable by Participant by
operation of law or otherwise other than by will or the laws of descent and
distribution, and shall not be pledged or hypothecated (by operation of law or
otherwise) or subject to execution, attachment or similar processes. Upon the
prior written

8
<PAGE> 10
consent of the Committee and subject to any conditions associated with such
consent, an NSO or any right hereunder (including any SAR) may be assigned in
whole or in part during the Participant's lifetime to one or more members of
the Participants' immediate family or to a trust established exclusively for
one or more such family members. The terms applicable to the assigned portion
shall be the same as those in effect immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Committee
may deem appropriate. A Participant's rights in Restricted Stock are
nontransferable except as provided in the Restricted Stock Agreement or by the
laws of descent and distribution.

12. Termination of Service.

12.1 The following provisions shall govern the exercise of any ISOs
held by any employee of the Company whose employment is terminated:

(a) If the Optionee's employment with the Company is
terminated for Cause, the ISOs held by the Optionee shall be exercisable, to
the extent that such Options were exercisable on the date the Optionee's
employment terminated, for a period of thirty (30) days following such
termination of employment; provided, however, if the termination includes any
matter described in Section 2.4(a) of the definition of Cause herein, at the
option of the Committee (in the case of ISOs held by an officer or director) or
the Chief Executive Officer (in any other case) the ISOs held by the Optionee
may terminate immediately upon the termination of the Optionee's employment
with the Company or at any subsequent time.

(b) If the Optionee's employment with the Company is
terminated for any reason other than Cause or such Optionee's death or
disability, all ISOs held by the Optionee shall be exercisable, to the extent
that such Options were exercisable on the date the Optionee's employment
terminated, for a period of three (3) months following such termination of
employment.

(c) If the Optionee's employment with the Company is
terminated because of such Optionee's death or disability within the meaning of
Section 22(e)(3) of the Code, all ISOs held by the Optionee shall become
immediately exercisable and shall be exercisable for a period of twelve (12)
months following such termination of employment.

(d) In no event may any ISO remain exercisable after the
expiration of the term of the Option. Upon the expiration of any three (3) or
twelve (12) month exercise period, as applicable, or, if earlier, upon the
expiration of the term of the Option, the Option shall terminate and shall
cease to be outstanding for any shares for which the Option has not been
exercised.

12.2 The following provisions shall govern the exercise of any
NSOs:

(a) If the Optionee's employment with the Company is
terminated for Cause, the NSOs held by the Optionee shall be exercisable, to
the extent that such Options were exercisable on the date the Optionee's
employment terminated, for a period of thirty (30) days following such
termination of employment; provided, however, if the termination includes any
matter described in Section 2.4(a) of the definition of Cause herein, at the
option of

9
<PAGE> 11
the Committee (in the case of ISOs held by an officer or director) or the Chief
Executive Officer (in any other case) the NSOs held by the Optionee may
terminate immediately upon the termination of the Optionee's employment with
the Company or at any subsequent time.

(b) If the Optionee's employment, service on the Board or
consultancy is terminated for any reason other than Cause or such Optionee's
death or disability, all NSOs held by the Optionee shall be exercisable, to the
extent such Options were exercisable on the date of such termination, for a
period of twelve (12) months following such termination.

(c) If the Optionee's employment, service on the Board or
consultancy is terminated because of such Optionee's death or disability, all
NSOs held by the Optionee shall become immediately exercisable and shall be
exercisable for a period of twelve (12) months following such termination.

(d) In no event may any NSO remain exercisable after the
expiration of the term of the Option. Upon the expiration of any six (6) or
twelve (12) month exercise period or, if earlier, upon the expiration of the
term of the Option, the Option shall terminate and shall cease to be
outstanding for any shares for which the Option has not been exercised.

12.3 In the event of the death or disability (within the meaning of
Section 22(e) of the Code) of a Participant, or the termination of employment
by the Participant in a manner determined by the Committee, in its sole
discretion, to constitute retirement (which determination shall be communicated
to the Participant within 10 days of such termination), all employment period
and other restrictions applicable to Restricted Stock then held by such
Participant shall lapse, and such awards shall become fully nonforfeitable.
Subject to Sections 12 and 14, in the event of a Participant's termination of
employment for any other reason, any Restricted Stock as to which the
employment period or other restrictions have not been satisfied shall be
forfeited.

13. Acceleration of Vesting.

The Committee may, at any time in its sole discretion, accelerate the
vesting of any Award made pursuant to this Plan by giving written notice to the
Participant. Upon receipt of such notice, the Participant and the Company
shall amend the agreement relating to the Award to reflect the new vesting
schedule. The acceleration of the exercise period of an Award shall not affect
the expiration date of such Award.

14. Change in Control.

In the event of a Change in Control of the Company, all Awards
outstanding under the Plan as of the day before the consummation of such Change
in Control shall automatically accelerate for all purposes under this Plan so
that each Option shall become fully exercisable with respect to the total
number of shares subject to such Option as of such date, without regard to the
conditions expressed in the agreements relating to such Option, and the
restrictions on each

10
<PAGE> 12
share of Restricted Stock shall lapse and such shares of Restricted Stock
shall no longer be subject to forfeiture.

15. Use of Proceeds.

Cash proceeds realized from the sale of Restricted Stock or of Stock
pursuant to Options granted under the Plan shall constitute general funds of
the Company.

16. Amendment, Suspension or Termination of the Plan.

The Board may at any time suspend or terminate the Plan, and may amend
it from time to time in such respects as the Board may deem advisable;
provided, however, except as provided in Section 4.2 hereof, the Board shall
not amend the Plan in the following respects without the consent of
stockholders then sufficient to approve the Plan in the first instance:

(a) To increase the maximum number of shares subject to
the Plan;

(b) To change the designation or class of employees
eligible to receive options under the Plan.

No Option or SAR may be granted or Restricted Stock sold or awarded
during any suspension or after the termination of the Plan, and no amendment,
suspension or termination of the Plan shall, without the Participant's consent,
impair any Participant's rights or obligations under any Award granted under
the Plan; provided, however, that all participants shall receive the benefits
of any amendments that have been made to the Plan. This Plan shall terminate
ten years from the date of its adoption unless previously terminated by the
Board pursuant to this Section 16.

17. Investment Purpose.

At the time of exercise of any Option or the purchase of Restricted
Stock, the Committee may, if it shall deem it necessary or desirable for any
reason connected with any securities law or regulation, require, as a condition
to the issuance of any shares to Participant, that Participant represent in
writing to the Company that it is Participant's intention to acquire the shares
for investment and not with a view to the distribution thereof or that the
Participant agree to any other appropriate restriction on transfer of the
shares. In the event such a representation is required and made, no shares
shall be issued unless and until the Company is satisfied with the correctness
of such representation and, in such event, the Committee may require that a
legend be placed on the certificates evidencing any shares to be issued which
legend shall disclose the existence of an investment representation and such
further restrictions on transfer as may be imposed to comply with applicable
laws as the Committee may deem appropriate to protect the interest of the
Company.

11
<PAGE> 13

18. Indemnification.

18.1 Each person who is or shall have been a member of the Board or
the Committee shall be indemnified and held harmless by the Company against and
from any and all loss, cost, liability or expense that may be imposed upon or
reasonably incurred by such Board or Committee member in connection with or
resulting from any claim, action, suit or proceeding to which such Board or
Committee member may be a party or in which such Board or Committee member may
be involved by reason of any action taken or failure to act under this Plan,
and against and from any and all amounts paid by such Board or Committee member
(with the Company's written approval) in the settlement thereof, or paid by
such Board or Committee member in satisfaction of a judgment in any such
action, suit or proceeding except a judgment in favor of the Company based upon
a finding of such Board or Committee member's bad faith; subject, however, to
the conditions that upon the institution of any claim, action, suit or
proceeding against such Board or Committee member, such Board or Committee
member shall in writing give the Company an opportunity, at its own expense, to
handle and defend the same before such Board or Committee member undertakes to
handle and defend it on such Board or Committee member's own behalf. The
foregoing right of indemnification shall not be exclusive of any other right to
which such person may be entitled as a matter of law or otherwise, or any power
the Company may have to indemnify such Board or Committee member or hold such
Board or Committee member harmless.

18.2 Each member of the Board or of the Committee and each officer
and employee of the Company shall be fully justified in relying or acting upon
any information furnished in connection with the administration of this Plan by
any person or persons other than a Participant affected by such action. In no
event shall any person who is or shall have been a member of the Board or of
the Committee, or an officer or employee of the Company, be liable for any
determination made or other action taken or any omission to act in reliance
upon any such information, or for any action (including furnishing of
information) taken or any failure to act, if in good faith.

19. Miscellaneous.

19.1 The validity, interpretation and effect of this Plan, and the
rights of all persons hereunder, shall be governed by and determined in
accordance with the laws of California.

19.2 The grant of an Option or SAR or the sale or award of
Restricted Stock to any Participant under this Plan shall not give such
Participant any right to be retained in the employ or service of the Company,
and the right and power of the Company to discharge any such person shall not
be affected by such grant. No Participant nor any person entitled to exercise
an Option under this Plan shall have any of the rights of a shareholder with
respect to the shares of Stock subject to an Option except to the extend Stock
Certificates have been issued upon exercise of an Option or sale of Restricted
Stock. No person shall have any right or claim whatever, directly, indirectly,
or by implication, to receive an Option, SAR, or Restricted Stock nor any
expectancy thereof, unless and until the same shall have been granted to such
person by the Committee as provided herein. The grant of an Option, SAR, or
Restricted Stock shall not

12
<PAGE> 14
create any right or implication that any other for further Option, SAR, or
Restricted Stock may or shall be granted at another time. Each Option, SAR, or
sale of Restricted Stock hereunder shall be separate and distinct from every
other grant of an Option or SAR, or sale of Restricted Stock, and shall not be
considered part of any continuing series of such grants.

END OF PLAN

<ARTICLE> 5

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