<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 June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18886
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HS RESOURCES, INC .
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(Exact name of registrant as specified in its charter)
Delaware 94-3036864
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 433-5795
----------------------------
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(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 July 31, 1999: 18,798,448 after deducting 729,356 shares in
treasury.
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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 - June 30, 1999 (Unaudited) and
December 31, 1998........................................................................................3
Unaudited Consolidated Statements of Operations - For the Three Months
and Six Months Ended June 30, 1999 and 1998..............................................................5
Consolidated Statements of Stockholders' Equity - For the Years Ended
December 31, 1998 and 1997 and the Six Months Ended
June 30, 1999 (Unaudited)................................................................................6
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 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...................................................................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings & Environmental Issues................................................................33
Item 2. Changes in Securities...................................................................................34
Item 3. Defaults Upon Senior Securities.........................................................................34
Item 4. Submission of Matters to a Vote of Security Holders.....................................................34
Item 5. Other Information.......................................................................................35
Item 6. Exhibits and Reports on Form 8-K........................................................................35
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HS Resources, Inc.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,152,397 $ 9,658,697
Margin deposits 840,057 621,765
Accounts receivable
Oil and gas sales 25,182,366 20,528,042
Trading and transportation 15,776,342 14,011,992
Trade 3,634,423 4,079,887
Other 9,653,446 8,276,930
Lease and well equipment inventory, at cost 548,776 709,985
Prepaid expenses and other 1,759,199 2,378,092
Notes receivable from officers for exercise of stock options (Note 6) 2,330,773 --
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 60,877,779 60,265,390
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OIL AND GAS PROPERTIES, AT COST, USING THE SUCCESSFUL EFFORTS METHOD
Undeveloped acreage 107,204,642 108,029,622
Costs subject to depreciation, depletion and amortization 845,193,142 816,633,609
Less accumulated depreciation, depletion and amortization (201,883,465) (175,729,105)
- ---------------------------------------------------------------------------------------------------------------------
Net oil and gas properties 750,514,319 748,934,126
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GAS GATHERING AND TRANSPORTATION FACILITIES,
at cost, net of accumulated depreciation of $1,766,266
and $1,616,576 at June 30, 1999 and December 31, 1998, respectively 4,302,422 4,274,544
- ---------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred charges and other, net 10,182,881 11,001,725
Office and transportation equipment and other property,
net of accumulated depreciation of $6,054,908
and $5,883,372 at June 30, 1999 and December 31, 1998, respectively 2,584,991 3,017,825
Notes receivable from officers for exercise of stock options and issuance
of common stock (Note 6) 780,243 2,245,813
Goodwill, net of accumulated amortization of $1,080,000
and $900,000 at June 30, 1999 and December 31, 1998, respectively 2,520,000 2,700,000
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Total other assets 16,068,115 18,965,363
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TOTAL ASSETS $ 831,762,635 $ 832,439,423
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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HS Resources, Inc.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
Trade $ 9,044,513 $ 21,378,518
Revenue 31,290,216 20,915,255
Gas purchases 6,330,489 7,237,935
Accrued expenses
Ad valorem and production taxes 10,264,528 12,027,297
Interest 5,368,623 6,665,508
Other 3,554,094 7,381,932
Income taxes payable 41,453 2,792,929
Oil and gas production note payable -- 734,696
Current portion of long-term debt 30,000 30,000
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Total current liabilities 65,923,916 79,164,070
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Accrued Ad Valorem Taxes 7,961,375 12,450,721
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Deferred Revenue 3,428,387 8,908,363
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Long-Term Bank Debt, Net of Current Portion 247,000,000 230,000,000
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9 7/8% Senior Subordinated Notes,
due 2003, net of unamortized discount of $258,375 and
$287,625 at June 30, 1999 and December 31, 1998, respectively 74,741,625 74,712,375
- ---------------------------------------------------------------------------------------------------------------
9 1/4% Series A Senior Subordinated Notes,
due 2006, net of unamortized discount of $573,037 and
$611,887 at June 30, 1999 and December 31, 1998, respectively 149,426,963 149,388,113
- ---------------------------------------------------------------------------------------------------------------
9 1/4% Series B Senior Subordinated Notes,
due 2006, net of unamortized discount of $3,917,969 and $4,183,594
at June 30, 1999 and December 31, 1998, respectively 81,082,031 80,816,406
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Deferred Income Taxes 46,376,233 44,137,897
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Commitments and Contingencies
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Stockholders' Equity
Preferred stock -- --
Common stock, $.001 par value, 50,000,000 shares authorized;
19,527,804 and 19,126,820 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 19,528 19,127
Additional paid-in capital 190,917,401 188,195,831
Retained deficit (25,763,032) (25,988,247)
Deferred compensation (2,418,559) (1,749,256)
Treasury stock, at cost, 729,356 and 801,200 shares at June 30, 1999
and December 31, 1998, respectively (6,933,233) (7,615,977)
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 155,822,105 152,861,478
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 831,762,635 $ 832,439,423
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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HS Resources, Inc.
Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 36,719,538 $ 38,340,869 $ 72,807,542 $ 83,712,279
Trading and transportation 11,978,219 11,142,333 21,278,100 27,466,349
Other gas revenues 2,517,982 2,275,952 5,041,982 4,145,175
Interest income and other 113,421 439,280 269,842 642,976
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Total revenues 51,329,160 52,198,434 99,397,466 115,966,779
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EXPENSES
Production taxes 2,136,782 2,758,755 4,284,643 5,756,706
Lease operating 7,469,681 8,168,539 14,160,498 15,314,085
Cost of trading and transportation 11,463,929 10,563,534 20,445,677 26,360,379
Depreciation, depletion and amortization 13,203,448 16,450,440 27,401,754 31,932,616
Exploratory and abandonment 2,721,574 1,156,602 4,739,320 1,672,773
Geological and geophysical 1,465,160 5,211,825 3,487,039 7,829,421
Impairment and loss/(gain) on
sales of oil and gas properties 1,100,113 (72,671) 1,100,113 (72,671)
General and administrative 1,066,290 2,152,119 2,474,927 3,990,447
Interest 10,509,980 11,071,124 20,939,658 21,852,075
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Total expenses 51,136,957 57,460,267 99,033,629 114,635,831
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INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 192,203 (5,261,833) 363,837 1,330,948
PROVISION (BENEFIT) FOR INCOME TAXES 73,229 (2,004,758) 138,622 507,091
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NET INCOME (LOSS) $ 118,974 $ (3,257,075) $ 225,215 $ 823,857
========================================================================================================================
BASIC EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.18) $ 0.01 $ 0.04
========================================================================================================================
DILUTED EARNINGS (LOSS) PER SHARE $ 0.01 $ (0.18) $ 0.01 $ 0.04
========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 18,773,000 18,590,000 18,596,000 18,531,000
========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ASSUMING DILUTION 18,895,000 18,590,000 18,657,000 18,649,000
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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HS Resources, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
and the Six Months Ended June 30, 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 -- -- -- --
Issuance of treasury stock
for exercise of options 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
Issuance of treasury stock
for exercise of options 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)
Transfer of treasury stock
to 401(k) Plan -- -- 50,737 -- -- 74,889 712,194
Issuance of common stock 235,000 235 1,369,765 -- -- -- --
Amortization of deferred
compensation -- -- -- -- 630,395 -- --
Issuance of performance shares 132,000 132 997,788 -- (997,920) -- --
Issuance of restricted stock 33,984 34 301,744 -- (301,778) -- --
Purchase of treasury stock -- -- -- -- -- (3,545) (34,200)
Issuance of treasury stock
for exercise of options including
income tax benefit -- -- 1,536 -- -- 500 4,750
Net income -- -- -- 225,215 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 (UNAUDITED) 19,527,804 $19,528 $ 190,917,401 $(25,763,032) $(2,418,559) (729,356) $(6,933,233)
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
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HS Resources, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
June 30,
------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 225,215 $ 823,857
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 27,401,754 31,932,616
Impairment and loss/(gain) on sales
of oil and gas properties 1,100,113 (72,671)
Surrendered and expired acreage 1,905,067 --
Amortization of deferred charges, debt issue costs
and deferred compensation 2,245,739 1,224,820
Transfer of treasury stock to 401(k) Plan 762,931 548,987
Deferred income tax provision 138,336 371,042
Increase in accounts and notes receivable (7,349,726) (4,021,800)
(Decrease) increase in accounts payable
and accrued expenses (4,084,365) 264,343
Decrease in deferred revenue, net (5,479,976) (2,505,923)
Other (6,793) (602,922)
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Net cash provided by operating activities 16,858,295 27,962,349
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CASH FLOWS FROM INVESTING ACTIVITIES
Exploration, development and leasehold costs (30,183,449) (56,932,144)
Purchase of unproved and proved properties -- (3,498,910)
Gas gathering and transportation facilities additions (177,568) (26,425)
Other property additions (232,814) (523,558)
Adjusted proceeds from the sale of oil and gas properties (808,340) 1,551,972
(Decrease) increase in property related payables (11,545,135) 11,946,002
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (42,947,306) (47,483,063)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 40,000,000 39,000,000
Repayments of debt (23,000,000) (18,000,000)
Issuance of common stock 610,625 --
Exercise of options 6,286 630,773
Purchase of treasury stock (34,200) (1,604,910)
Minority interest, net -- (612,625)
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 17,582,711 19,413,238
- ---------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,506,300) (107,476)
Cash and cash equivalents, beginning of period 9,658,697 6,907,708
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,152,397 $ 6,800,232
===================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid, net of capitalized interest $ 20,565,248 $ 19,132,223
Cash paid for income taxes, net of reimbursements $ 665,463 $ 624,259
===================================================================================================
</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 June 30, 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
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<PAGE> 9
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.
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. In the quarter ended June 30,
1999, the dilutive impact was 122,000 shares. There was no dilutive impact to
weighted average shares for the quarter ended June 30, 1998. In the six months
ended June 30, 1999 and 1998, the dilutive impact was 61,000 and 118,000
shares, respectively.
Note 3. Pro forma Statements
The following table sets forth condensed unaudited pro forma operating results
of the Company for the six months ended June 30, 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 June 30, 1999 amounts reflect the actual activity for the six
months then ended. Amounts in thousands, except per share amounts.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
(Unaudited)
1999 1998
---------- ----------
<S> <C> <C>
Revenues $ 99,397 $ 102,443
Net income $ 225 $ 2,842
Basic earnings per share $ 0.01 $ 0.15
Diluted earnings per share $ 0.01 $ 0.15
Weighted average number of
common shares outstanding 18,596 18,531
Weighted average number of
common shares outstanding
assuming dilution 18,657 18,649
</TABLE>
9
<PAGE> 10
Note 4. Issuance of Performance Shares
In May 1998, the Company's stockholders approved amendments to 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 1998
amendments to the 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.
In the second quarter of 1999, the Company issued 132,000 performance shares
and recorded deferred compensation of approximately $1.0 million.
Through the first six months of 1999, the Company has amortized deferred
compensation for all performance shares issued assuming achievement of defined
performance goals.
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").
The date of this statement was recently extended and is now effective for
fiscal years beginning after June 15, 2000. This statement 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
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<PAGE> 11
earnings. The Company's initial application of EITF Issue 98-10 was immaterial
to the financial statements.
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 June 30, 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 June 30, 1999 was 7.75%
Note 7. Total Return Equity Swap
In 1999 the Company entered into two total return equity swap agreements with a
financial institution. Under the terms of the first agreement, entered into on
February 25, 1999, the financial institution acquired approximately 730,000
shares of HSR's common stock from another investor at a price of $6.0625. 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.
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<PAGE> 12
On May 24, 1999 the Company entered into a second agreement whereby the
financial institution acquired 100,000 shares of HSR's common stock at a price
of $11.9875. The Company has the right, but not the obligation, to purchase the
stock at a price of $11.9875 per share at any time through January 5, 2001.
If the Company decides not to purchase the shares on or before the termination
of either agreement, the Company will receive any increase in the market value
of the shares covered by that agreement above the purchase price of the shares,
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. All such
amounts will be reflected in stockholders' equity at the time of settlement. The
Company will also pay certain commissions and finance costs. At June 30, 1999
the aggregate fair market value of the Company's common stock in excess of the
underlying option price attributable to such shares was $6.6 million.
12
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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>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Oil and gas sales D-J Basin $ 34,702 $ 33,335 $ 71,259 $ 72,786
Oil and gas sales Gulf Coast 4,454 588 6,472 1,185
Oil and gas sales Mid-Continent and other 81 6,694 119 13,886
Trading and transportation 39,893 35,136 70,012 73,858
Intersegment eliminations (27,914) (23,994) (48,734) (46,392)
- ----------------------------------------------------------------------------------------------------------------------
$ 51,216 $ 51,759 $ 99,128 $ 115,323
======================================================================================================================
OPERATING INCOME (LOSS):
D-J Basin $ 12,877 $ 11,072 $ 27,390 $ 30,317
Gulf Coast (116) (4,824) (2,188) (6,936)
Mid-Continent and other (1,218) 1,214 (1,681) 3,073
Trading and transportation 1,006 1,085 1,969 2,256
Intersegment eliminations (602) (606) (1,352) (1,351)
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 11,947 7,941 24,138 27,359
Other income and expense (11,755) (13,203) (23,775) (26,028)
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES $ 192 $ (5,262) $ 363 $ 1,331
======================================================================================================================
IDENTIFIABLE ASSETS (FOR THE PERIOD ENDED JUNE 30):
Oil and gas properties D-J Basin $ 925,554 $ 869,770 $ 925,554 $ 869,770
Oil and gas properties Gulf Coast 27,855 19,448 27,855 19,448
Oil and gas properties Mid-Continent and other 5,057 203,723 5,057 203,723
Trading and transportation 3,841 3,735 3,841 3,735
Corporate 8,399 10,032 8,399 10,032
- ----------------------------------------------------------------------------------------------------------------------
$ 970,706 $ 1,106,708 $ 970,706 $ 1,106,708
======================================================================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE:
Oil and gas properties D-J Basin $ 12,028 $ 12,882 $ 25,287 $ 24,684
Oil and gas properties Gulf Coast 757 113 1,254 257
Oil and gas properties Mid-Continent and other 15 2,937 15 5,961
Trading and transportation 111 100 216 202
Corporate 292 419 630 829
- ----------------------------------------------------------------------------------------------------------------------
$ 13,203 $ 16,451 $ 27,402 $ 31,933
======================================================================================================================
CAPITAL EXPENDITURES AND ACQUISITIONS:
Oil and gas properties D-J Basin $ 7,169 $ 20,637 $ 21,462 $ 42,703
Oil and gas properties Gulf Coast 2,684 4,514 7,805 6,140
Oil and gas properties Mid-Continent and other 530 4,324 1,094 11,613
Trading and transportation 35 -- 54 --
Corporate 73 346 179 524
- ----------------------------------------------------------------------------------------------------------------------
$ 10,491 $ 29,821 $ 30,594 $ 60,980
======================================================================================================================
</TABLE>
13
<PAGE> 14
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. To partially reduce this increase in debt 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 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
14
<PAGE> 15
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. In April 1999, both
oil and gas prices began to recover. The average price realized by HSR per
barrel of oil, excluding hedging benefits, for the three months ended June 30,
1999 was $16.11 compared to $13.38 for the comparable period in 1998. Natural
gas prices per Mcf, excluding hedging benefits, were $1.94 for the three months
ended June 30, 1999 compared to $1.89 in the comparable period in 1998.
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 this past winter. However, we cannot predict
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 June 30, 1999 we owned
interests in more than 4,300 producing wells (of which we operated more than
2,870) compared to approximately 5,490 wells (of which we operated more than
3,390) at June 30, 1998. The
15
<PAGE> 16
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.
16
<PAGE> 17
COMPARISON OF THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
D-J BASIN
OIL AND GAS SALES (IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Production:
Oil (Bbl) 526 614 1,083 1,217
Gas (Mcf) 13,291 12,303 26,396 23,333
Mcfe 16,449 15,985 32,895 30,634
Boe 2,742 2,664 5,482 5,106
Prices:
Average realized oil price ($/Bbl) $ 13.49 $ 14.82 $ 13.19 $ 16.02
Average realized gas price ($/Mcf) $ 1.89 $ 1.79 $ 1.97 $ 2.11
Operating Revenues:
Oil and gas sales $ 32,184 $ 31,084 $ 66,217 $ 68,687
Other gas revenues 2,518 2,251 5,042 4,099
-------- -------- -------- --------
34,702 33,335 71,259 72,786
-------- -------- -------- --------
Operating Costs and Expenses:
Production taxes 1,872 2,280 3,895 4,735
Lease operating 7,282 6,603 13,851 12,194
Depreciation, depletion
and amortization 12,028 12,882 25,287 24,684
Exploratory and abandonment 472 283 564 338
Geological and geophysical 2 288 103 591
Impairment and (gain)/loss on
on sales of oil and gas properties 169 (73) 169 (73)
-------- -------- -------- --------
21,825 22,263 43,869 42,469
-------- -------- -------- --------
Operating Income $ 12,877 $ 11,072 $ 27,390 $ 30,317
======== ======== ======== ========
</TABLE>
17
<PAGE> 18
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 including refracs, recompletes, deepenings and new wells.
During the six months ended June 30, 1999 we continued the exploitation program
by completing approximately 160 additional activities.
OIL AND GAS REVENUES D-J Basin revenues increased by 3.5% for the three
months ended June 30, 1999 and decreased by 3.6% for the six months ended June
30, 1999 compared to the comparable prior year periods. The increase in
revenues for the three month period ended June 30, 1999 as compared to the same
period in 1998 was due to increased production as well as a higher realized
weighted average price. The decrease in revenues for the six month period ended
June 30, 1999 was due to a lower realized weighted average price in 1999 which
more than offset the increase in production. Production increased for both
periods in 1999 compared to 1998 primarily as a 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 periods.
PRODUCTION EXPENSES Lease operating expense ("LOE") increased both on an
absolute and an Mcfe basis for the quarter and six months ended June 30, 1999
compared to the comparable prior year periods. LOE per Mcfe was $0.44 and $0.41
($2.66 and $2.48 per Boe) for the quarters ended June 30, 1999 and 1998,
respectively. For the six months ended June 30, 1999 and 1998, LOE per Mcfe was
$0.42 and $0.40 ($2.53 and $2.39 per Boe), respectively. The increase for the
quarter and six month periods reflects the hiring of additional personnel in
1998 to manage the Amoco properties as well as additional workover costs
incurred in 1999. Production taxes decreased for the quarter and six months
ended June 30, 1999 largely due to an adjustment we recorded in the second
quarter to reduce the ad valorem tax accrual rate for 1998 and 1999 to the
actualized rate paid in 1999.
DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and
amortization ("DD&A"), a non-cash expense, decreased on an Mcfe basis for the
quarter and six months ended June 30, 1999 compared to the comparable prior year
periods. We adjusted our DD&A rate in the second quarter of 1999 to reflect
mid-year reserve revisions. The weighted average depletion rate for the D-J
Basin was $0.73 compared to $0.80 per Mcfe, ($4.36 compared to $4.81 per Boe)
for the quarters ended June 30, 1999 and 1998, respectively. For the six months
ended June 30, 1999 and 1998 the weighted average depletion rate for the D-J
Basin was $0.76 compared to $0.80 per Mcfe, ($4.58 compared to $4.81 per Boe),
respectively.
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. Exploratory and abandonment
costs increased by $189,000 and $226,000 for the quarter and six months ended
June 30, 1999, respectively, compared to the comparable prior year periods
mainly due to an increase in P&A costs.
18
<PAGE> 19
GEOLOGICAL AND GEOPHYSICAL COSTS Geological and geophysical ("G&G") costs
include costs for seismic activity as well as certain overhead costs directly
attributable to G&G activity. G&G costs decreased for the quarter and six
months ended June 30, 1999 compared to the comparable prior year periods due to
a reduced level of seismic activity in the Greater D-J project area.
GULF COAST
OIL AND GAS SALES (IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Production:
Oil (Bbl) 67 6 104 10
Gas (Mcf) 1,452 197 2,264 459
Mcfe 1,854 235 2,890 517
Boe 309 39 482 86
Prices:
Average realized oil price ($/Bbl) $ 16.10 $ 11.54 $ 14.25 $ 11.37
Average realized gas price ($/Mcf) $ 2.32 $ 2.62 $ 2.20 $ 2.34
Operating Revenues:
Oil and gas sales $ 4,454 $ 588 $ 6,472 $ 1,185
Other gas revenues -- -- -- --
-------- -------- -------- --------
4,454 588 6,472 1,185
-------- -------- -------- --------
Operating Costs and Expenses:
Production taxes 252 32 365 74
Lease operating 127 32 196 50
Depreciation, depletion
and amortization 757 113 1,255 257
Exploratory and abandonment 2,129 685 3,916 1,203
Geological and geophysical 1,305 4,550 2,928 6,537
-------- -------- -------- --------
4,570 5,412 8,660 8,121
-------- -------- -------- --------
Operating Loss $ (116) $ (4,824) $ (2,188) $ (6,936)
======== ======== ======== ========
</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 for the quarter and six
months ended June 30, 1999 as compared to the comparable prior year periods.
The increase in production was partially offset by a decrease in gas prices. We
drilled 12 gross (3.7 net)
19
<PAGE> 20
wells in the six months ended June 30, 1999 of which 8 were successful. Of the
total wells drilled to date, 6 wells are currently awaiting pipeline hookup.
EXPLORATORY AND ABANDONMENT COSTS Exploratory and abandonment costs increased
for the quarter and six months ended June 30, 1999 compared to the comparable
prior year periods as a result of an increase in exploratory dry hole costs and
expired acreage. In 1999 we expensed one dry hole in the second quarter and
three dry holes for the six month period whereas only one dry hole was expensed
for the quarter and six months ended June 30, 1998. We also had a greater
working interest percentage in the 1999 dry holes compared to the 1998 dry hole.
We expensed $1.1 million and $1.8 million of expired acreage in the quarter and
six months ended June 30, 1999, respectively.
GEOLOGICAL AND GEOPHYSICAL COSTS G&G costs decreased for the quarter and six
months ended June 30, 1999 compared to the comparable prior year periods. The
reduction in G&G costs is attributable to the progression from G&G evaluation
of project areas to drilling activity in those areas.
20
<PAGE> 21
MID-CONTINENT AND OTHER
OIL AND GAS SALES (IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Production:
Oil (Bbl) 1 79 1 163
Gas (Mcf) 38 2,863 88 5,796
Mcfe 40 3,337 90 6,776
Boe 7 556 15 1,129
Prices:
Average realized oil price ($/Bbl) $ 9.03 $ 13.33 $ 18.86 $ 14.35
Average realized gas price ($/Mcf) $ 2.05 $ 1.96 $ 1.28 $ 1.98
Operating Revenues:
Oil and gas sales $ 81 $ 6,669 $ 119 $ 13,840
Other gas revenues -- 25 -- 46
---------- ---------- ---------- ----------
81 6,694 119 13,886
---------- ---------- ---------- ----------
Operating Costs and Expenses:
Production taxes 13 447 25 948
Lease operating 61 1,533 114 3,071
Depreciation, depletion
and amortization 15 2,937 15 5,961
Exploratory and abandonment 121 189 259 131
Geological and geophysical 158 374 456 702
Impairment and loss on sales of
oil and gas properties 931 -- 931 --
---------- ---------- ---------- ----------
1,299 5,480 1,800 10,813
---------- ---------- ---------- ----------
Operating (Loss) Income $ (1,218) $ 1,214 $ (1,681) $ 3,073
========== ========== ========== ==========
</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 and six months ended
June 30, 1999. However, in
21
<PAGE> 22
the second quarter of 1999 we recorded an additional $0.9 million expense
related to the 1998 sale of the Mid-Continent properties.
TRADING AND TRANSPORTATION (IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues:
Trading and transportation $ 39,893 $ 35,136 $ 70,012 $ 73,858
Operating Costs and Expenses:
Cost of trading and transportation 38,776 33,951 67,827 71,400
Depreciation and amortization 111 100 216 202
---------- ---------- ---------- ----------
38,887 34,051 68,043 71,602
---------- ---------- ---------- ----------
Operating Income $ 1,006 $ 1,085 $ 1,969 $ 2,256
========== ========== ========== ==========
</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 and six months ended June
30, 1999 compared to the comparable prior year periods primarily as a result of
a decrease in derivative transaction gains. This was as a result of decreased
market volatility which in turn yielded fewer trading opportunities.
OTHER INCOME AND EXPENSES (IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income and other $ 113 $ 439 $ 270 $ 643
General and administrative $ 1,066 $ 2,152 $ 2,475 $ 3,990
Interest $ 10,510 $ 11,071 $ 20,940 $ 21,852
Depreciation $ 292 $ 419 $ 630 $ 829
</TABLE>
INTEREST INCOME AND OTHER INCOME Interest and other income decreased for the
quarter and six months ended June 30, 1999 compared to comparable prior year
periods. As a result of the Mid-Continent sale we no longer record income on an
interest in a limited partnership.
22
<PAGE> 23
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 $0.06 and $0.11 ($0.35 and $0.66 per Boe), for the
quarters ended June 30, 1999 and 1998, respectively. For the six months ended
June 30, 1999 and 1998, G&A per Mcfe was $0.07 and $0.11 ($0.41 and $0.63 per
Boe), respectively. On both an absolute and an Mcfe basis, G&A decreased for the
quarter and six months ended June 30, 1999 compared to the comparable prior year
periods, due primarily to discontinued G&A attributable to the 1998 sale of the
Mid-Continent properties and the efficiencies associated with our consolidation
program in the D-J Basin.
INTEREST EXPENSE Interest expense decreased for the quarter and six months ended
June 30, 1999 compared to the comparable prior year periods 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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current provision (benefit) $ -- $ -- $ -- $ --
Deferred provision (benefit) 73 (2,005) 139 507
---------- ---------- ---------- ----------
Provision (benefit) for taxes $ 73 $ (2,005) $ 139 $ 507
========== ========== ========== ==========
Effective tax rate 38.1% 38.1% 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 June 30, 1999 and 1998. Due primarily
to significant intangible drilling costs, which are deductible for income tax
purposes, all of our tax provision in 1999 and 1998 is deferred.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Financing Sources
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 prices that support our bank interest
requirements. 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 low commodity prices. 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. 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 June 30, 1999,
$247 million was outstanding under the Chase facility compared to $230 million
at December 31, 1998. The increased borrowings of $17 million were used to pay
yearly ad valorem taxes and semi-annual interest payments on our senior
subordinated notes.
We anticipate that our borrowing capacity under the Chase facility 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.
24
<PAGE> 25
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 six months
ended June 30, 1999, we incurred total costs for exploration, development,
leasehold, exploratory and abandonment and geological and geophysical
activities of $31.3 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 $18.8 million for the six months
ended June 30, 1999 for costs to drill, deepen, recomplete and refrac our D-J
Basin properties, and anticipate allocating $25 to $35 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 six
months ended June 30, 1999, we incurred total expenditures of $11.3 million for
seismic, leasehold and drilling costs in the Gulf Coast. 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 planned to utilize our extensive
acreage position as a vehicle for generating capital expenditures by third
party operators on our acreage. In the second quarter of 1999 our effort has
been directed toward evaluating the economic viability of projects drilled in
the latter part of 1998. 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 six months ended June 30,
1999 was $16.9 million, down from $28.0 million for the same period in 1998
primarily as a result
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<PAGE> 26
of the depressed pricing earlier this year and a reduction in our working
capital deficit. Future cash flows will be influenced by, among other factors,
the number of producing wells on line, product prices and production
constraints.
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.
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As of June 30, 1999, we held hedge swap positions as follows:
<TABLE>
<CAPTION>
Average Daily
Volume Settlement Price
Time Period (MMBtu) Location (per MMBtu)
- ------------------ ---------------- ------------- -----------------
<S> <C> <C> <C>
July 1999 - October 1999 50,000 CIG $ 1.9000
July 1999 - October 1999 50,000 NW $ 1.7350
July 1999 - October 1999 5,000 NW $ 2.1000
November 1999 - March 2000 10,000 NW $ 2.1750
November 1999 - March 2000 10,000 PEPL $ 2.4850
November 1999 - March 2000 5,000 PEPL $ 2.5200
</TABLE>
As of June 30, 1999 we had hedged our expected oil production as follows:
<TABLE>
<CAPTION>
Monthly Hedged Settlement Price
Time Period Volume (Bbl) Location (per Bbl)
- ------------------- ------------------ -------------- -------------
<S> <C> <C> <C>
July 1999 - December 1999 60,800 WTI $ 15.95
July 1999 - December 1999 30,400 WTI $ 16.45
July 1999 - December 1999 30,667 WTI $ 14.02
July 1999 - March 2000 30,556 WTI $ 13.30
</TABLE>
Additionally, with respect to the hedging of third party gas, we have hedged
9.3 Bcf from July 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 June 30, 1999, we were not utilizing these types of
transactions in our current hedging portfolio.
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
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<PAGE> 28
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 on a daily basis in terms of contract
volumes and the timing of performance and delivery obligations. As of June 30,
1999 we had written call options for which there are no offsetting positions.
These options represent 20,000 mmbtu/day and are for the period July 1999
through October 1999. In connection with these call options we collected a
premium of $152,050 which has been included in "trading and transportation
revenues." During the six months ended June 30, 1999, gains of $1.2 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 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 $1.2 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.
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<PAGE> 29
Total Return Equity Swap
In 1999 we entered into two total return equity swap agreements with a financial
institution. Under the terms of the first agreement, entered into on February
25, 1999, the financial institution acquired approximately 730,000 shares of
HSR's common stock from another investor at a price of $6.0625. 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.
On May 24, 1999 we entered into a second agreement whereby the financial
institution acquired 100,000 shares of HSR's common stock at a price of
$11.9875. We have the right, but not the obligation, to purchase the stock at a
price of $11.9875 per share at any time through January 5, 2001.
If we decide not to purchase the shares on or before the termination of either
agreement, we will receive any increase in the market value of the shares
covered by that agreement above the purchase price of the shares, 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. At June 30, 1999 the aggregate fair market value
of HSR's common stock in excess of the underlying option price attributable to
such shares was $6.6 million.
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 miscalculations causing disruptions of field and/or office
operations, as well as disruptions in the business operations of our vendors
and customers.
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<PAGE> 30
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 September 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 has been completed. We have
contacted the third-party providers or manufacturers of these non-IT office
systems and have obtained representations that such systems are Year 2000
compliant.
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
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<PAGE> 31
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 gas plant. The parties are investigating the state of
readiness of these systems. 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. That meeting is now being scheduled.
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. We are currently in discussions with Duke concerning this matter, and
hope to have a comprehensive meeting in the next few weeks.
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.
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<PAGE> 32
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;
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<PAGE> 33
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.
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. This case, which was
discussed in our report on Form 10-Q filed May 14, 1999, has now been settled
and dismissed with prejudice by the court.
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.
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<PAGE> 34
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.
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 $1.2 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 June 30, 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 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 now complete. 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 operations on new wells.
Responsibility for disposition of this matter, has now been transferred to
Region 6 of the Environmental Protection Agency. 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
We held our annual meeting of the stockholders on May 27, 1999. The following
matter was submitted to a vote of the stockholders: To elect P. Michael Highum
and Michael J. Savage to serve as directors of HSR. The matter was approved by
our stockholders at the meeting.
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Item 5. Other Information None.
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. (Incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, filed May 14, 1999.)
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.)
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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.))
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.)
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<PAGE> 37
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 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.)
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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.)
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.)
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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.)
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.)
39
<PAGE> 40
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 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 May 13, 1999, filing the May 4, 1999 press release in
connection with the Company's first quarter earnings release. Item 5.
40
<PAGE> 41
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: August 13, 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
41
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
42
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,152,397
<SECURITIES> 0
<RECEIVABLES> 56,577,350
<ALLOWANCES> 0
<INVENTORY> 548,776
<CURRENT-ASSETS> 60,877,779
<PP&E> 967,106,371
<DEPRECIATION> 209,704,639
<TOTAL-ASSETS> 831,762,635
<CURRENT-LIABILITIES> 65,923,916
<BONDS> 552,250,619
0
0
<COMMON> 19,528
<OTHER-SE> 155,802,577
<TOTAL-LIABILITY-AND-EQUITY> 831,762,635
<SALES> 94,085,642
<TOTAL-REVENUES> 99,397,466
<CGS> 20,445,677
<TOTAL-COSTS> 57,648,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,939,658
<INCOME-PRETAX> 363,837
<INCOME-TAX> 138,622
<INCOME-CONTINUING> 225,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,215
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
