<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, 1999
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------------
Commission file number 0-18886
---------------------------------------------------------
HS RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3036864
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 433-5795
-----------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock, $.001 par value, outstanding as of the close
of business on April 30, 1999: 18,634,359 after deducting 727,461 shares in
treasury.
1
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HS RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets - March 31, 1999 (Unaudited) and
December 31, 1998...............................................................3
Unaudited Consolidated Statements of Operations - For the Three Months
Ended March 31, 1999 and 1998...................................................5
Consolidated Statements of Stockholders' Equity - For the Years Ended
December 31, 1998 and 1997 and the Three Months Ended
March 31, 1999 (Unaudited)......................................................6
Unaudited Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 1999 and 1998..............................7
Notes to Unaudited Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................13
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings & Environmental Issues.......................................30
Item 2. Changes in Securities..........................................................31
Item 3. Defaults Upon Senior Securities................................................31
Item 4. Submission of Matters to a Vote of Security Holders............................31
Item 5. Other Information..............................................................31
Item 6. Exhibits and Reports on Form 8-K...............................................32
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HS Resources, Inc.
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,249,925 $ 9,658,697
Margin deposits 269,584 621,765
Accounts receivable
Oil and gas sales 18,962,037 20,528,042
Trading and transportation 10,892,972 14,011,992
Trade 6,117,562 4,079,887
Other 9,398,734 8,276,930
Lease and well equipment inventory, at cost 655,279 709,985
Prepaid expenses and other 2,526,864 2,378,092
------------- -------------
Total current assets 55,072,957 60,265,390
------------- -------------
OIL AND GAS PROPERTIES, AT COST, USING THE SUCCESSFUL EFFORTS METHOD
Undeveloped acreage 107,141,552 108,029,622
Costs subject to depreciation, depletion and amortization 836,676,440 816,633,609
Less accumulated depreciation, depletion and amortization (189,409,250) (175,729,105)
------------- -------------
Net oil and gas properties 754,408,742 748,934,126
------------- -------------
GAS GATHERING AND TRANSPORTATION FACILITIES,
at cost, net of accumulated depreciation of $1,690,699
and $1,616,576 at March 31, 1999 and December 31, 1998, respectively 4,288,677 4,274,544
------------- -------------
OTHER ASSETS
Deferred charges and other, net 10,543,048 11,001,725
Office and transportation equipment and other property,
net of accumulated depreciation of $5,973,375
and $5,883,372 at March 31, 1999 and December 31, 1998, respectively 2,789,568 3,017,825
Notes receivable from officers for exercise of stock options
and issuance of common stock (Note 6) 3,052,208 2,245,813
Goodwill, net of accumulated amortization of $990,000
and $900,000 at March 31, 1999 and December 31, 1998, respectively 2,610,000 2,700,000
------------- -------------
Total other assets 18,994,824 18,965,363
------------- -------------
TOTAL ASSETS $ 832,765,200 $ 832,439,423
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
HS Resources, Inc.
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
Trade $ 20,735,609 $ 21,378,518
Revenue 20,681,168 20,915,255
Gas purchases 4,905,301 7,237,935
Accrued expenses
Ad valorem and production taxes 12,035,024 12,027,297
Interest 13,785,708 6,665,508
Other 5,035,268 7,381,932
Income taxes payable 2,419,347 2,792,929
Oil and gas production note payable 734,696 734,696
Current portion of long-term debt 30,000 30,000
------------- -------------
Total current liabilities 80,362,121 79,164,070
------------- -------------
Accrued Ad Valorem Taxes 15,045,316 12,450,721
------------- -------------
Deferred Revenue 6,384,363 8,908,363
------------- -------------
Long-Term Bank Debt, Net of Current Portion 227,000,000 230,000,000
------------- -------------
9 7/8% Senior Subordinated Notes,
due 2003, net of unamortized discount of $273,000 and
$287,625 at March 31, 1999 and December 31, 1998, respectively 74,727,000 74,712,375
------------- -------------
9 1/4% Series A Senior Subordinated Notes,
due 2006, net of unamortized discount of $592,462 and
$611,887 at March 31, 1999 and December 31, 1998, respectively 149,407,538 149,388,113
------------- -------------
9 1/4% Series B Senior Subordinated Notes,
due 2006, net of unamortized discount of $4,050,781 and $4,183,594
at March 31, 1999 and December 31, 1998, respectively 80,949,219 80,816,406
------------- -------------
Deferred Income Taxes 44,203,290 44,137,897
------------- -------------
Commitments and Contingencies
------------- -------------
Stockholders' Equity
Preferred stock -- --
Common stock, $.001 par value, 50,000,000 shares authorized;
19,361,820 and 19,126,820 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 19,362 19,127
Additional paid-in capital 189,565,596 188,195,831
Retained deficit (25,882,006) (25,988,247)
Deferred compensation (1,400,622) (1,749,256)
Treasury stock, at cost, 801,200 shares at March 31, 1999
and December 31, 1998 (7,615,977) (7,615,977)
------------- -------------
Total stockholders' equity 154,686,353 152,861,478
------------- -------------
Total Liabilities and Stockholders' Equity $ 832,765,200 $ 832,439,423
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
HS Resources, Inc.
Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES
Oil and gas sales $ 36,088,004 $ 45,371,410
Trading and transportation 9,299,881 16,324,016
Other gas revenues 2,524,000 1,869,223
Interest income and other 156,421 203,696
------------ ------------
Total revenues 48,068,306 63,768,345
------------ ------------
EXPENSES
Production taxes 2,147,861 2,997,951
Lease operating 6,690,817 7,145,546
Cost of trading and transportation 8,981,748 15,796,845
Depreciation, depletion and amortization 14,198,306 15,482,176
Exploratory and abandonment 2,017,746 516,171
Geological and geophysical 2,021,879 2,617,596
General and administrative 1,408,637 1,838,328
Interest 10,429,678 10,780,951
------------ ------------
Total expenses 47,896,672 57,175,564
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 171,634 6,592,781
PROVISION FOR INCOME TAXES 65,393 2,511,850
------------ ------------
NET INCOME $ 106,241 $ 4,080,931
============ ============
BASIC EARNINGS PER SHARE $ 0.01 $ 0.22
============ ============
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.22
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 18,419,000 18,472,000
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ASSUMING DILUTION 18,419,000 18,709,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
HS Resources, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1998 and 1997
and the three months ended March 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
------------------- Paid-In Earnings Deferred ----------------------
Shares Amount Capital (Deficit) Compensation Shares Amount
---------- ------- ------------ ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 17,127,861 $17,128 $163,114,868 $ 8,133,368 $ (171,300) (121,952) $(1,670,534)
Purchase of treasury stock -- -- -- -- -- (101,247) (1,398,669)
Transfer of treasury stock
to 401(k) Plan -- -- (68,011) -- -- 35,894 485,287
Issuance of common stock for
Amoco Acquisition 1,200,000 1,200 19,998,800 -- -- -- --
Exercise of options by issuance
of treasury stock, including
income tax benefit -- -- (34,355) -- -- 26,947 367,375
Issuance of restricted stock 2,500 3 44,997 -- (45,000) -- --
Amortization of deferred
compensation -- -- -- -- 72,000 -- --
Issuance of common stock 12,203 12 135,393 -- -- -- --
Exercise of warrants and options 311,981 312 (312) -- -- -- --
Net loss -- -- -- (15,505,158) -- -- --
---------- ------- ------------ ------------ ------------- -------- -----------
BALANCE, DECEMBER 31, 1997 18,654,545 18,655 183,191,380 (7,371,790) (144,300) (160,358) (2,216,541)
Purchase of treasury stock -- -- -- -- -- (721,937) (6,524,268)
Transfer of treasury stock
to 401(k) Plan -- -- 7,419 -- -- 39,046 541,568
Exercise of options by issuance
of treasury stock, including
income tax benefit -- -- (115,247) -- -- 42,049 583,264
Issuance of restricted stock 32,126 33 427,685 -- (427,718) -- --
Amortization of deferred
compensation -- -- -- -- 306,547 -- --
Issuance of performance shares 106,234 106 1,533,913 -- (1,534,019) -- --
Exercise of stock options, including
income tax benefit 337,021 336 3,200,912 -- -- -- --
Restricted stock forfeited (3,106) (3) (50,231) -- 50,234 -- --
Net loss -- -- -- (18,616,457) -- -- --
---------- ------- ------------ ------------ ------------- -------- -----------
BALANCE, DECEMBER 31, 1998 19,126,820 19,127 188,195,831 (25,988,247) (1,749,256) (801,200) (7,615,977)
Issuance of common stock 235,000 235 1,369,765 -- -- -- --
Amortization of deferred
compensation -- -- -- -- 348,634 -- --
Net income -- -- -- 106,241 -- -- --
---------- ------- ------------ ------------ ------------- -------- -----------
BALANCE, MARCH 31, 1999 (UNAUDITED) 19,361,820 $19,362 $189,565,596 $(25,882,006) $ (1,400,622) (801,200) $(7,615,977)
========== ======= ============ ============ ============= ======== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
HS Resources, Inc.
Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 106,241 $ 4,080,931
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 14,198,306 15,482,176
Surrendered and expired acreage 734,573 --
Amortization of deferred charges, debt issue costs
and deferred compensation 1,171,058 569,778
Transfer of treasury stock to 401(k) Plan -- 548,987
Deferred income tax provision 65,393 2,376,201
Decrease (increase) in accounts and notes receivable 1,525,546 (5,378,005)
Increase in accounts payable and accrued expenses 5,730,026 7,870,831
Decrease in deferred revenue, net (2,524,000) (782,503)
Other 14,211 (713,116)
------------ ------------
Net cash provided by operating activities 21,021,354 24,055,280
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration, development and leasehold costs (19,890,396) (27,889,436)
Purchase of unproved and proved properties -- (3,075,316)
Gas gathering and transportation facilities additions (88,256) (16,697)
Other property additions (124,719) (178,309)
Increase (decrease) in property related payables (1,937,380) 5,048,938
------------ ------------
Net cash used in investing activities (22,040,751) (26,110,820)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt -- 6,000,000
Repayments of debt (3,000,000) (5,000,000)
Issuance of common stock 610,625 --
Exercise of options -- 627,023
Purchase of treasury stock -- (1,600,785)
Minority interest, net -- 293,909
------------ ------------
Net cash (used in) provided by financing activities (2,389,375) 320,147
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,408,772) (1,735,393)
Cash and cash equivalents, beginning of year 9,658,697 6,907,708
------------ ------------
Cash and cash equivalents, end of year $ 6,249,925 $ 5,172,315
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid, net of capitalized interest $ 2,411,881 $ 5,915,129
Cash paid for income taxes, net of reimbursements $ 373,583 $ 583,819
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
HS Resources, Inc. (the "Company" or "HSR") a Delaware corporation, was
organized in January 1987. The Company, directly or through subsidiaries,
acquires, develops and exploits oil and gas properties. The Company's properties
are primarily located in the Denver-Julesburg ("D-J") Basin, the onshore area of
the Texas-Louisiana Gulf Coast and to a lesser extent the Northern Rocky
Mountains. The Company, through its wholly owned subsidiary, HS Energy Services,
Inc. ("HSES"), markets its own gas production, markets gas owned by third
parties and actively trades both physical and financial positions in the gas
commodities market. 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, 1999, 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, 1998 Report on Form 10-K filed with the Securities
and Exchange Commission on March 31, 1999.
Note 2. Summary of Significant Accounting Policies
FINANCIAL INSTRUMENTS The Company engages in price and location risk management
activities for both hedging and trading purposes. Activities for hedging
purposes are entered into by the Company to manage its exposure to price and
location risks in the marketing of its oil and gas production and, in the case
of its marketing activities, third party gas. Gains and losses on hedging
positions are deferred and recognized as "oil and gas sales" (for company-owned
production) and "trading and transportation revenues" (for third party gas) in
the period the underlying physical transactions occur. 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. In the event energy
related financial instruments are terminated prior to the period of physical
delivery of the items being hedged, the gains or losses on the energy related
financial instruments at the time of the termination remain deferred until the
period of physical delivery unless both the energy related financial instruments
and the items being hedged result in a loss. If this occurs, the loss is
recorded immediately.
8
<PAGE> 9
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings Per Share." This statement provides computation,
presentation and disclosure requirements for earnings per share ("EPS"). The new
standard was adopted by the Company for the fiscal year ended 1997 and all prior
periods have been retroactively adjusted. There was no dilutive impact to
weighted average shares for the quarter ended March 31, 1999. In the quarter
ended March 31, 1998, the dilutive impact was 237,000 shares.
Note 3. Pro forma Statements
The following table sets forth condensed unaudited pro forma operating results
of the Company for the three months ended March 31, 1999 and 1998. The condensed
pro forma operating results assume the divestiture of the Company's
Mid-Continent oil and gas subsidiary, HSRTW, Inc., to Universal Resources,
Corp., occurred on January 1, 1998. The condensed pro forma results are not
necessarily indicative of the results of operations had the divestiture been
consummated on January 1, 1998, and may not necessarily be indicative of future
performance. The March 31, 1999 amounts reflect the actual activity for the
three months then ended. Amounts in thousands, except per share amounts.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Unaudited)
1999 1998
------------ -----------
<S> <C> <C>
Revenues $ 48,068 $ 56,945
Net income $ 106 $ 4,854
Basic earnings per share $ 0.01 $ 0.26
Diluted earnings per share $ 0.01 $ 0.26
Weighted average number of common
shares outstanding 18,419 18,472
Weighted average number of common
shares outstanding assuming dilution 18,419 18,709
</TABLE>
9
<PAGE> 10
Note 4. Issuance of Performance Shares
In May 1998, the Company's stockholders approved the Amended and Restated 1997
Performance and Equity Incentive Plan (the "Plan"). The Plan allows for the
issuance of performance shares to employees, officers and directors. Accelerated
vesting of such shares is dependent on the attainment by the Company of defined
performance goals. These shares can vest over nine years with vesting to occur
no earlier than one-fourth of the shares in each of the first four years. In
1998, the Company issued 106,234 performance shares. In connection with this
issuance, the Company recorded deferred compensation of $1.5 million which is
being amortized based on management's evaluation regarding the attainment of the
defined performance goals. In April 1999, the earnings measure for determining
return on equity as originally stated in the 1997 Plan was changed to allow that
value measure to operate as originally intended following the Company's change
to successful efforts accounting. Following that change, the Board of Directors
determined that the 1998 value measures applicable to the performance shares
issued in 1998 were fully met. As a result, one fourth of these performance
shares have now vested. Additional amortization expense of approximately
$200,000 was recorded in the first quarter of 1999 related to the vesting of
these shares.
Note 5. Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement is effective for fiscal years beginning after June 15, 1999 and
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.
The Company has not yet quantified the impact of adopting SFAS 133 on its
financial statements and has not determined the timing of or method of adoption.
However, SFAS 133 could increase volatility in earnings and other comprehensive
income.
In December 1998, the Emerging Issues Task Force reached consensus on Issue No.
98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities" ("EITF Issue 98-10"). EITF Issue 98-10 requires energy trading
contracts to be recorded at fair value on the balance sheet, with the changes in
fair value included in earnings. The Company's initial application of EITF Issue
98-10 was immaterial to the financial statements.
10
<PAGE> 11
Note 6. Related Party Transactions
In February 1999, the Company instituted the 1999 Non-Compensatory Stock
Purchase Plan. This plan is designed to enable officers of the Company to
purchase stock at fair market value in transactions exempt from Section 16(b) of
the Securities Exchange Act of 1945. Five hundred thousand shares of common
stock have been allocated to the plan. The plan is administered by the
Compensation Committee of the Board of Directors. As of March 31, 1999, 235,000
shares of common stock had been purchased at prices ranging from $5.625 to
$6.50. In connection with the stock purchases, 76,000 shares were purchased for
cash. The remaining shares were purchased with the officers paying 15% of the
purchase price in cash, and the remainder in the form of full recourse
promissory notes maturing in two years from the date of issuance. The notes bear
interest at the annual rate of 8.5%.
In June 1998, in connection with the exercise of stock options, certain officers
of the Company issued to the Company full recourse notes in the amount of $2.1
million. The notes and accrued interest are due and payable to the Company on or
before June 1, 2000. The interest rate on these notes is prime plus 0.25% per
annum. The prime rate as of March 31, 1999 was 7.75%
Note 7. Total Return Equity Swap
On February 25, 1999, the Company entered into a total return equity swap with a
financial institution, whereby the financial institution acquired approximately
730,000 shares of HSR's common stock from another investor. Under the terms of
the swap agreement, the Company has the right, but not the obligation, to
purchase the stock at a price of $6.0625 per share at any time through July 1,
2000. If the Company decides not to purchase the shares, at the earlier of July
1, 2000 or the termination of the swap, the Company will receive any increase in
the market value of the shares (as defined) above the $6.0625 purchase price, or
will pay for any loss; however, the Company may cover any losses by issuing
common stock to the financial institution if it chooses to do so. The Company
will also pay certain commissions and finance costs.
11
<PAGE> 12
Note 8. Business Segment Information (in thousands)
The Company is an independent energy company engaged in the following
activities:
o acquisition, development, exploitation, exploration and production
of oil and gas
o marketing of oil and gas
<TABLE>
<CAPTION>
March 31,
---------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING REVENUES:
Oil and gas sales D-J Basin $ 36,557 $ 39,451
Oil and gas sales Gulf Coast 2,018 597
Oil and gas sales Mid-Continent and other 37 7,193
Trading and transportation 30,119 38,722
Intersegment eliminations (20,819) (22,398)
-------------- --------------
$ 47,912 $ 63,565
============== ==============
OPERATING INCOME:
D-J Basin $ 14,514 $ 19,246
Gulf Coast (2,072) (2,112)
Mid-Continent and other (463) 1,860
Trading and transportation 963 1,171
Intersegment eliminations (750) (747)
-------------- --------------
OPERATING INCOME 12,192 19,418
Other income and expense (12,020) (12,825)
-------------- --------------
INCOME BEFORE INCOME TAXES $ 172 $ 6,593
============== ==============
IDENTIFIABLE ASSETS (AT MARCH 31):
Oil and gas properties D-J Basin $ 918,815 $ 849,547
Oil and gas properties Gulf Coast 26,185 16,778
Oil and gas properties Mid-Continent and other 4,798 197,720
Trading and transportation 3,805 3,735
Corporate 8,557 9,730
-------------- --------------
$ 962,160 $ 1,077,510
============== ==============
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE:
Oil and gas properties D-J Basin $ 13,258 $ 11,802
Oil and gas properties Gulf Coast 497 144
Oil and gas properties Mid-Continent and other -- 3,024
Trading and transportation 105 102
Corporate 338 410
-------------- --------------
$ 14,198 $ 15,482
============== ==============
CAPITAL EXPENDITURES AND ACQUISITIONS:
Oil and gas properties D-J Basin $ 14,293 $ 22,066
Oil and gas properties Gulf Coast 5,121 1,626
Oil and gas properties Mid-Continent and other 564 7,289
Trading and transportation 19 --
Corporate 106 178
-------------- --------------
$ 20,103 $ 31,159
============== ==============
</TABLE>
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL We have pursued a strategy centered around consolidation in the
Denver-Julesburg ("D-J") Basin, coupled with continued exploitation and
exploration in our core areas. We use a technology-oriented approach to
exploitation and exploration designed to reduce risk and maximize efficiencies.
Our success in consolidating in the D-J Basin culminated in the December 1997
acquisition of all of Amoco Production Company's D-J Basin properties. This
transaction has also helped reshape our strategic direction, including in
particular, the September 1998 sale of our wholly-owned subsidiary, HSRTW, Inc.,
to Universal Resources Corp., a subsidiary of Questar Corp., for $157.5 million.
HSRTW, Inc. held the majority of our Mid-Continent assets.
The Amoco acquisition and related consolidation in the D-J Basin, coupled with
our exploration successes in the Gulf Coast, have materially increased the
number of low-risk, high-return projects available to us. However, the Amoco
acquisition required us to borrow funds, which significantly increased our
leverage ratios. As a result, we sold the majority of our Mid-Continent asset
base and utilized the proceeds to pay down debt under our senior credit
facility. See "Liquidity and Capital Resources -- Financing Sources."
Following the Mid-Continent sale, we now operate primarily in three core areas:
the D-J Basin, the Gulf Coast and, to a lesser extent, the Northern Rockies. We
will continue to pursue certain technology-oriented exploration projects and
other activities in other regions, including the Mid-Continent. We will also
continue our strategically important and profitable presence in the gas
marketing, trading and transportation business through our wholly-owned
subsidiary, HS Energy Services, Inc. ("HSES"). HSES provides opportunities for
us to enhance our operating margins on gas production from each of our producing
areas and from production we market on behalf of other oil and gas producers.
OIL AND GAS PRICES Profitability in the United States oil and gas industry
fluctuates widely due in part to fluctuating commodity prices and related
changes in rates of reinvestment by industry participants. In 1998 and early
1999, United States natural gas prices and international crude oil prices were
very low, resulting in significant changes to the operating and financial
margins of oil and gas producers. The downturn in oil prices was attributable to
a global oversupply of crude oil resulting from the economic difficulties in
Asia, Russia and elsewhere, high levels of production by certain OPEC and
non-OPEC producers and warm weather in the United States. Gas prices were also
low primarily due to above-normal winter temperatures in both 1997 and 1998,
resulting in excess supplies of gas in winter storage. Additionally, low oil
prices also have had a depressing effect on the price of liquids recovered from
natural gas. Thus, the early 1999 low oil price environment further diminished
the overall price received for our gas production. As a result of these factors,
the HSR weighted average price realized per barrel of oil, excluding hedging
benefits, for the three months ended March 31, 1999 was $11.43 compared to
$14.77 for the comparable period in 1998. Natural gas prices per Mcf, excluding
hedging benefits, were $1.68 for the three months ended March 31, 1999, compared
to $2.16 in the comparable period in 1998. Both oil and gas prices have
increased significantly since the end of the first quarter.
13
<PAGE> 14
At December 31, 1998, approximately 82% of our proved producing reserves
consisted of gas, of which 98% were located in the D-J Basin. The absolute level
and volatility of gas prices, particularly in the D-J Basin, have a material
impact on HSR. Historically, the price of D-J Basin gas (on a Btu-equivalent
basis) has been linked closely to the Colorado Interstate Gas Company ("CIG")
pipeline Rocky Mountain Index, which remains the case during the lower demand
summer months (generally April through October). More recently, however, as a
result of increased pipeline capacity in the D-J Basin, a transportation cost
advantage for deliveries into the Public Service Company of Colorado ("PSCO")
Front Range market, and seasonal fluctuations, the price more closely tracks
Mid-Continent indices during the higher demand winter periods (generally
November through March).
PSCO and CIG, through a jointly owned affiliate, recently began operating a
newly expanded 270 MMcfd capacity line between the Colorado Front Range market
area and Wyoming. This line operates independently and not as part of PSCO's
local distribution system. Additionally, a subsidiary of KN Energy, Inc. ("KN")
has been granted authority to build a 250 MMcfd capacity pipeline. Construction
has not commenced on the KN line, and it is uncertain whether this line will be
built in the near future. The PSCO line will eliminate some portion of the
advantage HSR currently has over Wyoming producers for direct sales in the
Colorado Front Range market, as it increases the amount of Wyoming gas that
could be transported to the Colorado Front Range market. However, the
availability of one or both of these lines also expands the amount of gas that
could be exported from the D-J Basin to Mid-Continent and West Coast markets
through Wyoming pipeline interconnections. To date, the increased export
capacity from the D-J Basin on the PSCO line, combined with increased demand
from and transportation to West Coast markets out of Wyoming, have strengthened
the overall market for D-J Basin gas compared to several years ago. Given the
narrowing of the spread between CIG and Mid-Continent indices, we do not
anticipate any material adverse changes to D-J Basin gas prices as a result of
the new pipelines.
In recent months, gas prices both in the D-J Basin and nationwide have generally
recovered from the lows experienced last winter. However, we cannot predict the
future trends in gas prices. The uncertainty concerning the price of oil and gas
remains a dominant and unpredictable factor in our profitability.
RESULTS OF OPERATIONS During 1999 we continued our drilling and development
activities to exploit the larger number of development opportunities in the D-J
Basin resulting from the Amoco acquisition. We also continued our exploitation
and exploration activities in the Gulf Coast region. At March 31, 1999 we owned
interests in more than 4,300 producing wells (of which we operated more than
2,870) compared to more than 5,400 wells (of which we operated more than 3,300)
at March 31, 1998. The Mid-Continent sale, which closed on September 1, 1998,
reduced our well inventory by more than 1,000 producing wells. Our results of
operations have been significantly affected by the Amoco acquisition, by our
drilling program and by fluctuations in oil and gas prices. Future results will
be significantly affected by our exploration, exploitation and development
activities.
Comparative operating results by business segment, consolidated other income,
expenses and income taxes are presented below. Segment operating revenues, costs
and expenses are before intersegment eliminations.
14
<PAGE> 15
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
D-J BASIN
OIL AND GAS SALES (IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Production:
Oil (Bbl) 557 603
Gas (Mcf) 13,105 11,030
Mcfe 16,446 14,649
Boe 2,741 2,441
Prices:
Average realized oil price ($/Bbl) $ 12.91 $ 17.23
Average realized gas price ($/Mcf) $ 2.05 $ 2.47
Operating Revenues:
Oil and gas sales $ 34,033 $ 37,603
Other gas revenues 2,524 1,848
-------- --------
36,557 39,451
-------- --------
Operating Costs and Expenses:
Production taxes 2,023 2,455
Lease operating 6,569 5,590
Depreciation, depletion
and amortization 13,258 11,802
Exploratory and abandonment 93 55
Geological and geophysical 100 303
-------- --------
22,043 20,205
-------- --------
Operating Income $ 14,514 $ 19,246
======== ========
</TABLE>
GENERAL We have been active in the D-J Basin for more than 17 years. Over the
past three years we have further consolidated our position as a result of the
acquisition in June 1996 of all of the D-J Basin properties of Basin
Exploration, Inc. and the December 1997 Amoco acquisition. During 1998 a
substantial exploitation program was undertaken consisting of more than 450
separate activities. During the three months ended March 31, 1999 we continued
the exploitation program by completing approximately 115 additional activities.
15
<PAGE> 16
OIL AND GAS REVENUES D-J Basin production increased per Mcfe for the quarter
ended March 31, 1999 compared to March 31, 1998. The production increase was
primarily the result of the success of our ongoing exploitation and development
activities. As a result of the increased production, other gas revenues related
to the sale of tax credits have also increased during the same period.
PRODUCTION EXPENSES Lease operating expense ("LOE") increased both on an
absolute and an Mcfe basis for the quarter ended March 31, 1999 compared to the
comparable prior year period. LOE per Mcfe was $0.40, compared to $0.38 ($2.40
and $2.29 per Boe) for the quarter ended March 31, 1999 and 1998, respectively.
The increase was due to the hiring of additional personnel throughout the first
quarter of 1998 to manage the Amoco properties as well as additional workover
costs incurred in 1999. Production taxes decreased in 1999 due to decreased
prices and were partially offset by increased production.
DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and
amortization ("DD&A"), a non-cash expense, increased from 1998 to 1999 due to an
increase in production. The weighted average depletion rate for the D-J Basin
was $0.80 per Mcfe, ($4.81 per Boe) for the periods ended March 31, 1999 and
1998. We adjusted our DD&A rate for all of 1998 as part of the conversion to the
successful efforts method of accounting. We will adjust our DD&A rate in the
fourth quarter of 1999 based on year-end engineering and, if material changes in
our reserves warrant, on an interim basis.
EXPLORATORY AND ABANDONMENT COSTS Exploratory and abandonment costs include the
costs of exploratory dry holes, delay rentals, plugging and abandonment ("P&A")
costs, expired acreage and certain salaries and related overhead ("overhead")
costs directly related to exploratory activities. In 1999, we incurred $57,000
for P&A costs, $18,000 for delay rentals and expired acreage and $18,000 for
overhead costs directly attributable to exploratory activity. In 1998, we
incurred $15,000 for exploratory dry hole costs, $12,000 for delay rentals and
$28,000 for overhead costs.
GEOLOGICAL AND GEOPHYSICAL COSTS Geological and geophysical ("G&G") costs
include costs for seismic activity as well as certain overhead costs directly
attributable to G&G activity. Of the total G&G costs, we incurred $29,000 and
$168,000 in seismic costs for the periods ended March 31, 1999 and 1998,
respectively. The remaining G&G costs of $71,000 and $135,000 relate to overhead
costs directly attributable to G&G activity.
16
<PAGE> 17
GULF COAST
OIL AND GAS SALES (IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Production:
Oil (Bbl) 37 3
Gas (Mcf) 812 262
Mcfe 1,036 283
Boe 173 47
Prices:
Average realized oil price ($/Bbl) $ 10.93 $ 11.06
Average realized gas price ($/Mcf) $ 1.98 $ 2.13
Operating Revenues:
Oil and gas sales $ 2,018 $ 597
Other gas revenues -- --
-------- --------
2,018 597
-------- --------
Operating Costs and Expenses:
Production taxes 113 42
Lease operating 69 18
Depreciation, depletion
and amortization 497 144
Exploratory and abandonment 1,787 518
Geological and geophysical 1,624 1,987
-------- --------
4,090 2,709
-------- --------
Operating Loss $ (2,072) $ (2,112)
======== ========
</TABLE>
GENERAL Over the past three years, the majority of our Gulf Coast activities
have focused on the acquisition, processing and interpretation of 3-D seismic
information and the acquisition of leasehold interests. During 1999 and
thereafter we expect to materially increase our level of Gulf Coast drilling
activities on prospects which we have identified through our extensive 3-D
seismic programs.
OIL AND GAS REVENUES Oil and gas revenues increased from the period March 31,
1998 compared to March 31, 1999. The increase in production was partially offset
by a decrease in prices. We drilled 6 gross (2.5 net) wells in the first quarter
of 1999. The impact of the wells drilled late in 1998 and in the first quarter
of 1999 will not be reflected until later in the year because as of March 31,
1999, seven wells were waiting on pipeline hookup.
17
<PAGE> 18
EXPLORATORY AND ABANDONMENT COSTS The largest components of exploratory and
abandonment costs in the quarter ended March 31, 1999 included the following:
$0.7 million for expired acreage in both our SouthTech and other Gulf Coast
project areas, $0.4 million in delay rentals, $0.4 million for two exploratory
dry holes and $0.3 million for certain overhead costs directly related to
exploratory activities. In the quarter ended March 31, 1998, we incurred $0.2
million for delay rentals and $0.3 million for overhead costs.
GEOLOGICAL AND GEOPHYSICAL COSTS Of total G&G costs, we incurred $1.3 million
and $1.6 million in 1999 and 1998, respectively, for seismic permits and
processing costs in the Gulf Coast. The remaining G&G of $0.3 million and $0.4
million relates to certain overhead costs directly attributable to G&G activity.
18
<PAGE> 19
MID-CONTINENT AND OTHER
OIL AND GAS SALES (IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Production:
Oil (Bbl) -- 84
Gas (Mcf) 49 2,933
Mcfe 50 3,439
Boe 8 573
Prices:
Average realized oil price ($/Bbl) $ -- $ 15.30
Average realized gas price ($/Mcf) $ -- $ 2.01
Operating Revenues:
Oil and gas sales $ 37 $ 7,172
Other gas revenues -- 21
-------- --------
37 7,193
-------- --------
Operating Costs and Expenses:
Production taxes 12 501
Lease operating 53 1,538
Depreciation, depletion
and amortization -- 3,024
Exploratory and abandonment 138 (57)
Geological and geophysical 297 327
-------- --------
500 5,333
-------- --------
Operating (Loss) Income $ (463) $ 1,860
======== ========
</TABLE>
GENERAL Information for this segment includes activity for both the
Mid-Continent and Northern Rockies areas. Activity in the Mid-Continent began on
June 17, 1996 as a result of the merger with Tide West Oil Company. Effective
September 1, 1998, we sold the majority of our Mid-Continent assets and used the
proceeds from the sale to pay down a portion of debt under our senior credit
facility. Our current strategy in the Mid-Continent is to pursue
technology-oriented exploration projects.
Over the past six years we have acquired extensive acreage in the Northern
Rockies region. Our current strategy is to utilize our acreage position as a
vehicle for generating capital expenditures on our acreage by third party
operators.
Due to the Mid-Continent sale effective September 1, 1998, there were virtually
no oil and gas revenues in this segment for the quarter ended March 31, 1999.
19
<PAGE> 20
TRADING AND TRANSPORTATION (IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Operating Revenues:
Trading and transportation $ 30,119 $ 38,722
Operating Costs and Expenses:
Cost of trading and transportation 29,051 37,449
Depreciation and amortization 105 102
-------- --------
29,156 37,551
-------- --------
Operating Income $ 963 $ 1,171
======== ========
</TABLE>
Through our wholly-owned subsidiary, HSES, we market our own gas production as
well as that of third parties. A portion of this gas is sold directly to end
users, while other amounts are used as the equity-gas foundation for a physical
trading business in which gas volumes may be traded several times at different
receipt and delivery points in order to capture the greatest margin possible.
HSES also serves as an intermediary in the execution of financial derivative
instruments for a variety of energy related products and, to a lesser extent,
makes speculative trades for its own account in the commodity and basis markets.
Operating income decreased in the quarter ended March 31, 1999 compared to March
31, 1998 primarily as a result of a decrease in the volume of gas being marketed
for the three months ended March 31, 1999 due to the Mid-Continent sale
effective September 1, 1998.
OTHER INCOME AND EXPENSES (IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Interest income and other $ 156 $ 204
General and administrative $ 1,409 $ 1,838
Interest $ 10,430 $ 10,781
Depreciation $ 338 $ 410
</TABLE>
INTEREST INCOME AND OTHER INCOME Interest and other income decreased from the
quarter ended March 31, 1999 compared to March 31, 1998. As a result of the
Mid-Continent sale we no longer record income on an interest in a limited
partnership.
20
<PAGE> 21
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses ("G&A")
reflect costs incurred, net of administrative costs directly attributable to
drilling and well operations (which costs are included in LOE). Certain G&A
costs directly related to geological and geophysical activities and exploratory
activities are included in geological and geophysical costs and exploratory
costs. G&A per Mcfe was $0.08 and $0.10 ($0.48 and $0.60 per Boe), for the
period March 31, 1999 compared to March 31, 1998, respectively. On both an
absolute and an Mcfe basis, G&A decreased for the three months ended March 31,
1999 compared to the three months ended March 31, 1998, due primarily to
discontinued G&A attributable to our Mid-Continent properties sold in 1998.
INTEREST EXPENSE Interest expense decreased for the period March 31, 1999
compared to March 31, 1998 due to the decrease in long-term debt attributable to
the repayment of $152 million of bank debt from the proceeds of the
Mid-Continent sale. The decrease in interest expense was partially offset by the
decrease in capitalized interest on our undeveloped properties.
INCOME TAXES (IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Current provision $ -- $ --
Deferred provision 65 2,512
-------- --------
Provision for taxes $ 65 $ 2,512
======== ========
Effective tax rate 38.1% 38.1%
======== ========
</TABLE>
PROVISION FOR INCOME TAXES We follow the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109. Pursuant to SFAS 109, we have recorded a
tax provision based on tax rates in effect during the period. Accordingly, we
accrued taxes at the rate of 38.1% as of March 31, 1999 and 1998. Due to
significant intangible drilling costs, which are deductible for income tax
purposes, substantially all of our tax provision in 1999 and 1998 is deferred.
21
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
Financing Sources
At March 31, 1999, our overall debt level was approximately $3 million lower
than at December 31, 1998 as a result of repayment of debt from cash flow. We
believe that our current level of debt and leverage is manageable under expected
production and pricing levels, since our debt is supported by stable, long-lived
producing reserves and by our hedging programs, with short-term product prices
partially hedged at favorable prices. We expect cash flows from producing
activities to be sufficient to enable us to service our debt for the foreseeable
future, absent any major and prolonged period of price declines. We have a large
number of low-risk, potentially high-return exploitation projects which should
enhance production and cash flow. As part of an overall financing strategy, we
are evaluating a wide range of future financing alternatives and are not
committed to any particular course. In undertaking any future financing
transactions, we intend to seek to achieve the optimal capital structure needed
to support our long-term strategic objectives. Any such financings will reflect
market conditions at the time and may include the issuance of medium or
long-term debt, equity, or equity-linked securities.
We currently plan to fund capital expenditures attributable to exploration,
exploitation and development activities primarily out of our expected cash flow
from operations, subject to periodic variation resulting from the timing of
project activities and short-term product price volatility.
The borrowing base under our revolving senior bank credit facility with The
Chase Manhattan Bank is currently $280 million, which amount is currently under
review and redetermination by the Banks. The interest rate under the Chase
facility is the Base Rate plus 0% to 0.625% or LIBOR plus 0.75% to 1.625%. The
borrowing base is based on the Banks' review of our reserves and the Banks' view
of future pricing. Under the terms of the Chase facility, no principal payments
are required until December 15, 2002, assuming we maintain a borrowing base
sufficient to support the outstanding loan balance. As of March 31, 1999, $227
million was outstanding under the Chase facility.
We anticipate that our borrowing capacity under the Chase facility, although
currently under review and redetermination, and our operating cash flow will
provide us with adequate financial resources and flexibility to fund current and
ongoing activities, to service our debt and to meet other financial obligations.
The nature of our current development strategies and other activities provide us
with considerable flexibility in terms of the timing and magnitude of our
capital expenditures. If we experience unforeseen changes in our working capital
position or capital resources, we may revise the capital expenditure program
accordingly or alternatively may attempt to supplement our capital position
through, among other things, the issuance of additional equity, equity-linked or
debt securities, the sale or monetization of properties or by entering into
joint venture arrangements.
22
<PAGE> 23
Capital Commitments
We continuously evaluate our inventory of drilling opportunities to develop a
growth-oriented portfolio of risk-balanced development, exploitation and
exploration opportunities. On an ongoing basis, we adjust the amount and
allocation of our capital expenditures based on a number of factors, including
seismic results, prospect readiness, product prices, service company
availability and rates, acquisitions and capital position. For the three months
ended March 31, 1999, we incurred total costs for exploration, development,
leasehold, exploratory and abandonment and geological and geophysical activities
of $20.4 million, exclusive of capitalized interest and overhead costs directly
related to exploratory and G&G activity. We estimate that such expenditures for
1999 will be approximately $65 to $75 million, assuming stable product prices
for the year. These costs will be allocated in varying amounts primarily to
activities in our core geographic areas.
A major component of our capital program relates to our development activities
in the D-J Basin. We incurred approximately $12.8 million for the three months
ended March 31, 1999 for costs to drill, deepen, recomplete and refrac our D-J
Basin properties, and anticipate allocating $20 to $30 million to the D-J Basin
for all of 1999.
Another component of our capital program has been to develop exploitation and
exploration prospects in the onshore portion of the Gulf Coast. For the three
months ended March 31, 1999, we incurred total expenditures of $7.0 million for
seismic, leasehold and drilling costs in the Gulf Coast, including approximately
$4.8 million of expenditures under our SouthTech joint venture and $2.2 million
on our other Gulf Coast projects. We anticipate allocating $35 to $45 million to
the Gulf Coast projects for all of 1999 for exploration and development
activities including land and seismic.
Activities in our Northern Rockies area are designed to utilize our extensive
acreage position as a vehicle for generating capital expenditures by third party
operators on our acreage. In the first quarter of 1999 our effort has been
directed toward evaluating existing projects drilled in the latter part of 1998.
Specifically, we initiated gas sales from the HSR Holmes 5-1, and have been
testing gas from limited perforations in the HSR Gold Coast 16-6. We continue to
seek value-added partners to test new plays and technologies on our acreage.
We have also entered into a number of other standard industry arrangements that
require the drilling of wells or other activities. We believe that we will meet
our 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,
1999 was $21.0 million, down from $24.1 million for the same period in 1998
primarily as a result of the depressed pricing. Future cash flows will be
influenced by, among other factors, the number of producing wells on line,
product prices and production constraints.
23
<PAGE> 24
Risk Management
We use financial instruments to reduce our exposure to market fluctuations in
the price and transportation cost of oil and gas. Our general strategy is to
hedge price and location risk with swap, collar, floor and ceiling arrangements.
In order to minimize risk, to the maximum extent possible we hedge certain of
our production back to the wellhead. In addition to hedging activities, we are
engaged in using the financial markets to capture trading margins. We have
established policies with respect to open positions which limit our exposure to
market risk and require daily reporting to management of the potential financial
exposure resulting from both hedging and trading activities.
Recently issued accounting pronouncements change current and future accounting
and reporting requirements for certain risk management activities. See Note 2 of
the Notes to Unaudited Consolidated Financial Statements.
Hedging Activities
We enter into transactions for hedging purposes to manage our exposure to price
and location risks in the marketing of our oil and gas production and, in the
case of our marketing activities, third party gas. Gains and losses on hedging
positions are recognized in the period during which the underlying physical
transactions occur and are booked in "oil and gas sales" (for company-owned
production) and "trading and transportation revenues" (for third party gas).
Our general strategy is to hedge price and location risk with swap, collar,
floor and ceiling arrangements. As a part of our risk management program, we
generally enter into hedges for delivery into one of several pipelines located
near our producing regions, Panhandle Eastern Pipeline Company ("PEPL"),
Northwest Pipeline Corporation ("NW"), CIG, or at the New York Mercantile
Exchange ("NYMEX") prices settled at the Henry Hub. With respect to the
NYMEX-hedged volumes that exceed our Gulf Coast volumes, it is our practice to
hedge basis to our producing regions.
As of March 31, 1999, we hold hedge swap positions as follows:
<TABLE>
<CAPTION>
Average Daily
Volume Settlement Price
Time Period (MMBtu) Location (per MMBtu)
----------- ------------- ---------- -----------
<S> <C> <C> <C>
April 1999-October 1999 50,000 CIG $ 1.90
April 1999-October 1999 50,000 NW $ 1.735
November 1999-March 2000 10,000 PEPL $ 2.18
</TABLE>
24
<PAGE> 25
We have hedged our expected oil production as follows:
<TABLE>
<CAPTION>
Monthly Hedged Settlement Price
Time Period Volume (Bbl) Location (per Bbl)
----------- ------------ ---------- ---------
<S> <C> <C> <C>
April 1999-December 1999 60,800 WTI $ 15.95
April 1999-December 1999 30,400 WTI $ 16.45
April 1999-June 1999 60,667 WTI $ 13.10
July 1999-March 2000 45,500 WTI $ 13.30
July 1999-December 1999 30,667 WTI $ 14.02
</TABLE>
Additionally, with respect to the hedging of third party gas, we have hedged 9.9
Bcf from January 1999 through December 2000 with offsetting physical positions
at settlement prices which are based upon NYMEX future prices of other published
indices.
We routinely buy and sell options or forward contracts as part of our overall
hedging strategy. As of March 31, 1999, we had no open contracts.
Trading Activities
We engage 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 a 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 in "trading and
transportation revenues" as a net gain or loss in the period of change. 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 our position in an orderly manner over a reasonable period of time
under present market conditions.
Our policy requires that, within defined trading limits, financial instrument
purchase and sales contracts be balanced in terms of contract volumes and the
timing of performance and delivery obligations. As of March 31, 1999, all
material open positions were balanced with an offsetting position. During the
three months ended March 31, 1999, gains of $0.6 million 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
25
<PAGE> 26
arrangements discussed above are generally investment grade institutions.
Accordingly, we do not anticipate any material impact to our financial position
or results of operations as a result of nonperformance by the third parties to
financial instruments related to hedging activities or trading activities.
Interest Rate Swaps
In the first quarter of 1999, we entered into an interest rate exchange
agreement with a financial institution to hedge $50 million of our borrowings at
5.66% through March 31, 2004. During the fourth quarter of 1998, we entered into
an interest rate exchange agreement with a financial institution to hedge the
interest rate on $80 million of our borrowings at 5.86% through December 15,
2006. Under the terms of the agreements, the difference between the fixed rate
and the one-month LIBOR rate is received or paid by us. As part of the $80
million hedging agreement, we cancelled or offset our previous hedging
agreements. Market risk related to borrowings from a one percent change in
interest rates would result in an approximate $1.0 million annual impact on
pre-tax income, based on the quarter end borrowing level and the amount of such
borrowings which are not subject to interest rate swaps.
Total Return Equity Swap
On February 25, 1999, we entered into a total return equity swap with a
financial institution, whereby the financial institution acquired approximately
730,000 shares of our common stock from another investor. Under the terms of the
swap agreement, we have the right, but not the obligation, to purchase the stock
at a price of $6.0625 per share at any time through July 1, 2000. If we decide
not to purchase the shares, at the earlier of July 1, 2000 or the termination of
the swap, we will receive any increase in the market value of the shares (as
defined) above the $6.0625 purchase price, or will pay for any loss; however, we
may cover any losses by issuing common stock to the financial institution if we
choose to do so. All such amounts will be reflected in stockholders' equity at
the time of settlement. We will also pay certain commissions and finance costs.
Contingencies
In May 1995, we, along with a major oil company, were named as respondents by
the EPA in an administrative order brought under RCRA by the EPA against the
owner/operator of an oilfield production water evaporation facility. Based on
our evaluation of this matter, and after consideration of reserves established,
we believe the resolution of this matter will not have a material adverse effect
on our financial condition or results of operations. See Item 1. "Legal
Proceedings and Environmental Issues."
Year 2000
We have undertaken and are continuing our analysis and corrective measures to
address the Year 2000 problem. The Year 2000 problem results from computer
programs that were written utilizing two digits rather than four to define an
applicable year. These programs are unable to distinguish between years in
different centuries, eg. 1910 and 2010 appear to be the same year. Therefore,
our computer equipment, software, and devices with embedded technology could
encounter problems beginning on January 1, 2000. This could result in a system
failure or
26
<PAGE> 27
miscalculations causing disruptions of field and/or office operations, as well
as disruptions in the business operations of our vendors and customers.
In addressing the problem, we have considered both our information technology
("IT") systems and non-IT systems. IT systems include computer hardware and
software systems as well as telephone and other communications systems. Non-IT
systems include fax machines, copiers, monitors for field operations, and other
miscellaneous systems. Both IT and non-IT systems may contain embedded
technology, which is also subject to the Year 2000 problem.
However, correcting problems in non-IT systems poses the greatest challenge.
Based upon our assessment and corrective efforts to date, we believe that most
of our IT systems are currently Year 2000 compliant. Those systems that remain
non-compliant generally require only upgrading or installation of software
correction packages which have been identified and which are available. Few, if
any, of our IT systems will require replacement. We currently expect to have
substantially all of our IT systems in compliance by June 30, 1999.
Virtually all of our non-IT systems are provided by third parties. We have
reviewed our critical path non-IT systems in the D-J Basin. The primary
mechanisms of concern to us were the well control units that electronically
control production from each of the wells. Many of these contain embedded chip
technology. Based on written representations of the manufacturers, however, we
believe that these systems are Year 2000 compliant. Our assessment of non-IT
office systems, such as fax machines and copiers is currently underway and is
expected to be completed by June 30, 1999. We are contacting the third-party
providers or manufacturers of these non-IT office systems to determine if any of
these require remediation or replacement.
We are in the process of identifying our most significant third-party vendors
and service providers to determine their state of readiness regarding the Year
2000 problem as it relates to us. Our key third-party providers include
gatherers, processors and pipelines, oil and gas purchasers, our banks, the New
York Stock Exchange, our transfer agent, the property managers of our leased
office space, equipment suppliers, major joint venture partners and others. We
are contacting third-party providers either verbally or in writing and reviewing
their public disclosures concerning the Year 2000 problem in an effort to
determine whether we are vulnerable to the Year 2000 problems of these third
parties. We began making these contacts in the fourth quarter of 1998 and expect
to continue assessing risks associated with our third-party providers throughout
1999.
We have determined that our most reasonably likely worst case scenario would be
a failure of third-party systems necessary to move gas from our wells in the D-J
Basin to the market. In order to assess and mitigate risks in this regard, we
have organized a group of appropriate personnel from companies that are
interdependent for purposes of producing, gathering, compressing, transporting
and processing gas in the D-J Basin along the KN gathering system. An initial
meeting of these parties was held on March 2, 1999, with each company reviewing
the state of readiness of its critical path equipment in this integrated system.
The initial meeting revealed that all of the relevant equipment is either
believed to be compliant or expected to be compliant by the summer of 1999, and
that any failures can be manually overridden. However, the system appears to be
vulnerable to either a failure of utility power for the processing plants or a
failure of the pipeline owned by BP/Amoco that transports plant liquids from
BP/Amoco's Wattenberg
27
<PAGE> 28
gas plant. The parties agreed to investigate the state of readiness of these
systems and report this information to each other. The members of the group also
agreed to communicate significant information to each other on a periodic basis,
and to meet again in August of 1999.
We have also begun efforts to organize a similar group of parties connected to
the Duke gathering and processing system, the other major gas system in the D-J
Basin. By the end of the second quarter, we hope to achieve the same level of
comfort with respect to the Duke system that we have achieved with respect to
the KN system.
We expect to use our existing staff to address our Year 2000 readiness. Labor
costs attributable to our Year 2000 effort are expected to be less than $100,000
and we anticipate that expenditures for remedial software and replacement of IT
systems will be less than $50,000. We estimate that costs associated with
remediation or replacement of non-IT systems (being primarily office equipment
such as fax machines and copiers) will be less than $50,000.
We have considered other potential worst case scenarios including our inability
to execute financial transactions with our banks or other third parties whose
systems fail or malfunction and the inability to properly account for hedging
and trading transactions due to the inability to properly track pricing indices.
We currently have no reason to believe that any of these contingencies are
likely to occur or that our principal vendors, customers, and business partners
will not be Year 2000 compliant. We are not able to develop reasonable
contingency plans for dealing with these other worst case scenarios, but we do
not believe they are likely to occur. However, the extended failure of certain
key third-party systems could potentially have a material adverse effect on us.
28
<PAGE> 29
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes statements that are not purely historical and are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding our expectations, hopes, beliefs, intentions or
strategies regarding the future. All statements other than statements of
historical facts included in this Form 10-Q are forward-looking statements,
including without limitation, statements under "Legal Proceedings and
Environmental Issues," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the "Notes to Consolidated Financial
Statements" regarding:
o the allocation of planned capital expenditures and the sources of
and limits on such expenditures;
o expected drilling opportunities;
o trends or expectations concerning oil and gas prices or market
characteristics;
o expected effect on D-J Basin gas prices from new pipelines;
o our financial position, stability of cash flow, debt service
capabilities and capital availability;
o marketing, hedging and trading risks and benefits and our policy
of attempting to balance open positions;
o credit risks associated with trading and marketing;
o the ability to manage risk through hedging and similar activities
and the expectation that we will continue to undertake such
activities;
o business strategy and other plans and objectives for future
operations;
o potential liabilities or the expected absence thereof;
o the potential materiality and amount of Year 2000 compliance
expenses or the remoteness of the possibility of material losses
associated with the Year 2000 problem generally;
o the potential outcome of environmental matters, litigation or other
proceedings;
All forward-looking statements included in this Form 10-Q are based on
information available to us on the date hereof, and we assume no obligation to
update such forward-looking statements. Although we believe the forward-looking
statements are based on reasonable assumptions, we can give no assurance that
our expectations will prove to have been correct or that we will take any
actions that may presently be planned. Actual results may differ materially from
any forward-looking statements made by us depending on a variety of factors,
including, among others, the Risk Factors described in our report on Form 10-K
filed March 31, 1999.
29
<PAGE> 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Environmental Issues
Litigation. We are subject to minor lawsuits incidental to operations in the oil
and gas industry. We believe we have meritorious defenses to all lawsuits in
which we are a defendant and will vigorously defend against them. The resolution
of these lawsuits, regardless of the outcome, will not have a material adverse
effect on our results of operations or financial position.
On July 28, 1998, JW Resources, Inc. brought suit against HSR and HSRTW, Inc. in
the United States District Court for the Northern District of Texas, Amarillo
Division (JW Resources, Inc. v. HS Resources, Inc. and HSRTW, Inc., Civil Action
No. 2:98-CV-275). HSRTW, Inc. is now Questar Exploration and Production Company,
and is a subsidiary of Questar Corp. JW alleges that the defendants damaged JW's
leasehold rights in certain oil and gas leases in Potter County, Texas. The
complaint alleges that HSR and HSRTW, Inc., as the owner and/or operator of deep
rights in these leases, damaged the plaintiff's shallow rights in the same lands
by failing to cement the shallow zones during the drilling of wells to the deep
formations. HSR and HSRTW have denied each claim made by the plaintiff and
believe that they have substantial scientific and legal defenses to each claim
and intend to vigorously defend against them. Although it is not possible to
predict the outcome of this matter at trial, we believe that the litigation will
not have a material adverse effect on our results of operations or financial
condition.
Environmental Proceedings. The owner of an oil field waste disposal facility, a
major oil company and HSR were named as respondents by the 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 on
May 11, 1995. WCWDI operated and continues to own an evaporation pit in Colorado
for the disposal of non-hazardous production wastes. The EPA order requires that
work be performed to abate a perceived endangerment to wildlife, the environment
or public welfare. We and other non-operators are working together with the EPA
to complete characterization and closure of the facility.
We utilized this facility in past years to dispose of our production and
flowback water. During the period of its use, we 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.
HSR 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.
30
<PAGE> 31
Based on our current knowledge and our expectation of proportionate
reimbursement from other parties who utilized the facility, we do not believe
that our share of the reclamation costs will have a material impact on our
financial condition or results of operations. By agreement with other
contributing parties, we are currently paying approximately 50% of the costs
associated with the project, but after recovery from additional liable parties,
our percentage share of overall costs may be reduced to as low as 40%. We have
spent approximately $1.1 million on our behalf to date on the project. Our share
of total costs associated with the project are currently estimated to be
approximately $1.3 million. The remaining estimated liability has been accrued
at March 31, 1999.
On March 25, 1999, we voluntarily reported to the United States Corps of
Engineers the likely violation of Section 404 of the Clean Water Act in
connection with several of the HSR operated drillsites in southern Louisiana.
Operations on several drillsites likely have, and operations on several others
may have disturbed wetlands areas without the required advance permitting. We
agreed to promptly conduct wetlands delineations on all suspect sites and to
submit such data to the Corps for after-the-fact permitting. This effort is
currently underway. The Corps issued a routine cease and desist order to HSR
prohibiting any further unpermitted wetlands disturbance, but not interfering
with continuation of production or other operations. We cannot predict whether
any fines will be issued in connection with the violations; however, we do not
believe the outcome of this proceeding will have a material adverse impact on
HSR. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Disclosure Regarding Forward-Looking Statements."
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.
31
<PAGE> 32
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
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* Certificate of Amendment of Certificate of Incorporation filed November
30, 1998.
3.3 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 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.)
10.2 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.)
10.3 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.)
10.3.1 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.))
32
<PAGE> 33
10.4 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.)
10.5 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.))
10.6 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.)
10.7 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.)
10.8 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.)
10.9 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.)
10.10 Purchase and Sale Agreement dated March 25, 1996, between Orion, 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.)
10.11 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.)
10.12 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.)
10.13 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
33
<PAGE> 34
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.)
10.14 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.)
10.15 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.)
10.16 Purchase and Sale Agreement between Orion 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.)
10.17 Purchase and Sale Agreement between Wattenberg Resources Land L.L.C.
and Wattenberg Gas Investments, LLC dated June 14, 1996. (Incorporated
by reference to Exhibit 10.35 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, filed August 14, 1996.)
10.18 Purchase and Sale Agreement between Orion 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.)
10.19 Purchase and Sale Agreement between the Company and Wattenberg Gas
Investments, LLC dated June 28, 1996. (Incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.20 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.)
10.21 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.)
10.22 Purchase and Sale Agreement between the Company and Amoco Production
Company dated November 25, 1997. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, filed December 23,
1997.)
34
<PAGE> 35
10.23 Side Letter Agreement between the Company and Amoco Production Company
dated November 25, 1997. (Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K, filed December 23, 1997.)
10.24 Closing Side Agreement between the Company and Amoco Production Company
dated December 15, 1997. (Incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K, filed December 23, 1997.)
10.25 Third Amendment to Amended and Restated Credit Agreement dated as of
December 15, 1997, among the Company and The Chase Manhattan Bank as
agent for the Lenders signatory thereto. (Incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K, filed
December 23, 1997.)
10.26 Purchase and Sale Agreement dated December 15, 1997, by and between HS
Resources, Inc. as Seller and WestTide Investments, LLC as Buyer.
(Incorporated by reference to Exhibit 10.46 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, filed
March 31, 1998.)
10.27 Fifth Amendment and Supplement to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing
Statement between HS Resources (Mortgagor) and The Chase Manhattan
Bank, as agent for the Lenders, effective as of December 15, 1997.
(Incorporated by reference to Exhibit 10.37 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, filed May 14,
1998.)
10.28 Agreement and Plan of Merger between Orion Acquisition, Inc. and HS
Resources, Inc. dated April 20, 1998, but effective May 1, 1998.
(Incorporated by reference to Exhibit 10.38 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, filed May 14,
1998.)
10.29 First Amendment to Agreement of Lease between 1999 Broadway Partnership
(Landlord) and HS Resources, Inc. (Tenant), dated March 21, 1997.
(Incorporated by reference to Exhibit 10.39 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, filed May 14,
1998.)
10.30 HS Resources, Inc. Form of Key Employee Severance Agreement (March 27,
1998). (Incorporated by reference to Exhibit 10.40 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed May 14, 1998.)
10.31 Fourth Amendment to Amended and Restated Credit Agreement dated as of
June 16, 1998, among the Company and The Chase Manhattan Bank in its
individual capacity and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.41 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed August 14, 1998.)
35
<PAGE> 36
10.32 Stock Purchase and Sale Agreement between the Company and Universal
Resources Corporation dated July 27, 1998. (Incorporated by reference
to Exhibit 10.1 to the Company's Form 8-K, filed August 6, 1998.)
10.33 Fifth Amendment to Amended and Restated Credit Agreement dated as of
September 1, 1998, among the Company and The Chase Manhattan Bank in
its individual capacity and as agent for the lenders. (Incorporated by
reference to Exhibit 10.37 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, filed November 16,
1998.)
10.34 Sixth Amendment and Supplement to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing
Statement dated as of July 22, 1998, among the Company and The Chase
Manhattan Bank in its individual capacity and as agent for the Lenders.
(Incorporated by reference to Exhibit 10.38 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, filed
November 16, 1998.)
10.35 Sixth Amendment to Amended and Restated Credit Agreement dated as of
December 10, 1998, among the Company and The Chase Manhattan Bank in
its individual capacity and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, filed March 31, 1999.)
10.36 Seventh Amendment to Amended and Restated Credit Agreement dated as of
December 31, 1998, among the Company and The Chase Manhattan Bank in
its individual capacity and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, filed March 31, 1999.)
10.37 1999 Non-Compensatory Stock Purchase Plan. (Incorporated by reference
as Exhibit 4.1 to Form S-8 filed January 25, 1999.)
10.38 Supplemental Indenture dated as of March 1, 1999, among the Company and
Harris Trust and Savings Bank as Trustee, amending Indenture dated as
of December 1, 1993, concerning 9-7/8% Senior Subordinated Notes due
2003. (Incorporated by reference to Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
filed March 31, 1999.)
10.39 Supplemental Indenture dated as of March 1, 1999, among the Company and
Harris Trust and Savings Bank as Trustee, amending Indenture dated as
of November 27, 1996, concerning 9-1/4% Series A Senior Subordinated
Notes due 2006. (Incorporated by reference to Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, filed March 31, 1999.)
10.40 Supplemental Indenture dated as of March 1, 1999, among the Company and
Harris Trust and Savings Bank as Trustee, amending Indenture dated as
of December 11, 1998, concerning 9-1/4% Series B Senior Subordinated
Notes due 2006. (Incorporated by
36
<PAGE> 37
reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, filed March 31, 1999.)
27* Financial Data Schedule
* Filed herewith
b. Reports on Form 8-K.
Report dated March 23, 1999, filing the press releases and investor
conference call transcript in connection with the Company's year end
earnings release and operational update. Item 5.
37
<PAGE> 38
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, 1999 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
38
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.2 Certificate of Amendment of Certificate of Incorporation filed
November 30, 1998.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HS RESOURCES, INC.
HS Resources, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of HS Resources, Inc., has duly
adopted resolutions setting forth proposed amendments of the Amended and
Restated Certificate of Incorporation dated December 1, 1992 (the "Certificate
of Incorporation") of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of said corporation for consideration
thereof. The resolutions setting forth the proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by amending Article 4 to increase the total
number of shares of Common Stock that the Company is authorized to
issue from 30,000,000 shares to 50,000,000 shares. Henceforth, Article
4 shall read in its entirety as follows:
Article 4.
(a) The corporation is authorized to issue two
classes of shares, which shall be known as "Common Stock" and
"Preferred Stock," respectively. The total number of shares of
Common Stock authorized to be issued is Fifty Million
(50,000,000) with a par value of $.001 per share, and the
number of shares of Preferred Stock authorized to be issued is
Fifteen Million (15,000,000) with a par value of $.001 per
share.
(b) The Preferred Stock may be issued in one or more
series. The board of directors of the corporation shall
determine the designation of each series and the authorized
number of shares of each series of Preferred Stock. The board
of directors is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of such shares and to increase
or decrease (but not below the number of shares of such series
then outstanding) the number of shares of that series. If the
number of shares of any series of stock shall be so decreased,
the shares constituting such decrease shall resume the status
that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
<PAGE> 2
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by amending Article 16 to allow subsequent
amendments to Article 4 of the Certificate of Incorporation to be
effected upon approval by the affirmative vote of holders of not less
than a majority of the outstanding shares of stock entitled to vote for
the election of directors. Henceforth, Article 16 shall read in its
entirety as follows:
ARTICLE 16. The corporation reserves the right to
amend, alter, change or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter
prescribed by statute; provided, however, that this amended
and Restated Certificate of Incorporation shall not be
altered, amended or repealed except (i) in the case of Article
4, by the affirmative vote of holders of not less than a
majority of the outstanding shares of stock entitled to vote
upon the election of directors; and (ii) in the case of any
other provision, by the affirmative vote of holders of not
less than two-thirds of the outstanding shares of stock
entitled to vote upon the election of directors.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation law of the state of Delaware on May 20, 1998, at which meeting the
necessary number of shares as required by statute were voted in favor of these
amendments.
THIRD: That said amendments were duly adopted on May 20, 1998, in
accordance with the provisions of Section 242 of the General Corporation Law of
the state of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by James M. Piccone, its authorized officer, this 30th day of November,
1998.
By:
-------------------------------
James M. Piccone
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,249,925
<SECURITIES> 0
<RECEIVABLES> 45,371,305
<ALLOWANCES> 0
<INVENTORY> 655,279
<CURRENT-ASSETS> 55,072,957
<PP&E> 958,560,311
<DEPRECIATION> 197,073,324
<TOTAL-ASSETS> 832,765,200
<CURRENT-LIABILITIES> 80,362,121
<BONDS> 532,083,757
0
0
<COMMON> 19,362
<OTHER-SE> 154,666,991
<TOTAL-LIABILITY-AND-EQUITY> 832,765,200
<SALES> 45,387,885
<TOTAL-REVENUES> 48,068,306
<CGS> 8,981,748
<TOTAL-COSTS> 28,485,246
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 10,429,678
<INCOME-PRETAX> 171,634
<INCOME-TAX> 65,393
<INCOME-CONTINUING> 106,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,241
<EPS-PRIMARY> 0.01
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</TABLE>
