FOR IMMEDIATE RELEASE
July 27, 2000
HS RESOURCES ANNOUNCES RECORD QUARTERLY PRODUCTION,
REVENUES, CASH FLOW AND NET INCOME
San Francisco, California - HS Resources, Inc. (NYSE:HSE) today announced record
results in oil and gas production, revenues, operating cash flow and earnings
for the quarter and six months ended June 30, 2000. For the quarter, the Company
earned $11.4 million or $0.60 per diluted share, compared to $0.1 million or
$0.01 per diluted share in the comparable prior year period. Operating cash flow
totaled $41.2 million or $2.15 per share, compared to $18.7 million or $0.99 per
share for the prior year period. The results for the quarter reflect increases
in production, higher oil and natural gas product prices and strong operating
fundamentals throughout the Company's major business units.
Oil and gas production for the quarter was 20.9 billion cubic feet of gas
equivalent (Bcfe), or 3.49 million barrels of oil equivalent (MMBoe), an
increase of 14% over the comparable prior year period. Quarterly production from
the Company's D-J Basin properties increased 7%, to 17.7 Bcfe from 16.5 Bcfe and
production from the Gulf Coast increased 75%, to 3.2 Bcfe from 1.9 Bcfe in the
prior year quarter. Approximately 79% of the production was natural gas (16.61
billion cubic feet) and 21% was oil (720,500 barrels).
Quarterly production revenues, including the effects of product price hedging,
increased 73% from the comparable prior year period, to $63.6 million from $36.7
million, as materially higher commodity prices were realized from the higher
production. The quarterly average gas price realized by the Company, including
hedging effects, was $2.76 per thousand cubic feet (Mcf), a 43% increase from
$1.93 realized in the second quarter of 1999. Realized oil prices, including
hedging effects, saw a 79% increase to $24.70 from $13.78 per barrel (Bbl) in
the second quarter of 1999. Hedging activities reduced realized gas prices in
the current quarter by $0.69 per Mcf and realized oil prices by $3.35 per Bbl.
For the comparable quarter last year, hedging activities reduced realized prices
by $0.01 per Mcf and $2.33 per Bbl.
Production taxes increased $3.6 million principally as a result of the increase
in production revenues. Taxes also reflect higher production tax rates on
production from the Company's Gulf Coast and D-J Basin properties. Combined
lease operating and general and administrative expenses were $0.48 per Mcfe,
essentially flat with the $0.47 per Mcfe in the prior year period ($2.89 and
$2.79 per Boe, respectively). The combined costs reflect a reduction in per unit
lease operating expenses from $0.41 to $0.38 per Mcfe as a result of operating
efficiencies realized in the Company's Wattenberg Field area, offset by an
increase in payroll-related general and administrative expenses from $0.06 to
$0.10 per Mcfe. Interest expense increased 21% in the aggregate, including $1.2
million attributable to the financing of the Wattenberg Gathering System (WGS)
purchased in December 1999. Excluding the interest associated with WGS, interest
<PAGE>
attributable to the Company's oil and gas producing activities decreased on a
per-unit basis from $0.57 per Mcfe to $0.55 per Mcfe.
HS also noted the continued successful integration of WGS into its operating
activities, which it has now operated for two full quarters. WGS contributed
$3.3 million ($0.17 per share) to quarterly operating cash flow and $1.7 million
($0.09 per share) to net income. The portion of these amounts attributable to
HS' equity gas production is reflected as a component of natural gas revenues,
whereas volumes attributable to third parties are reflected as revenue and
expense line items in the Company's income statement. The Company earned $0.4
million for the quarter from its 6.9% interest in the BP Amoco Wattenberg Gas
Processing Plant acquired in December 1999. In addition, the Company's
wholly-owned gas marketing, trading and transportation company, HS Energy
Services, Inc. contributed $0.5 million to income before taxes for the quarter,
which is essentially flat with the prior year.
For the first six months of 2000, the Company reported net income of $21.5
million or $1.12 per diluted share, compared to $0.2 million or $0.01 per
diluted share in the comparable prior year period. Operating cash flow totaled
$78.7 million or $4.11 per diluted share compared to $37.1 million or $1.99 per
diluted share for the first six months of 1999. Production revenues increased
67% to $121.7 million compared to $72.8 million in 1999 reflecting a 15%
increase in production to 41.2 Bcfe, or 6.87 MMBoe, and higher product prices.
Average realized prices for the first six months of 2000, including hedging
effects, were $2.74 per Mcf of gas and $22.58 per barrel of oil compared to
$1.98 per Mcf and $13.29 per barrel in the comparable prior year period.
As part of its price risk management program, the Company routinely enters into
oil and gas price hedging agreements, including natural gas swap contracts and
written calls covering a portion of its oil and gas production. As to the
natural gas swap contracts, there are a significant number of variables that
will enter into the final determination of the effective price HS will receive
for its gas when these contracts are settled. Based on the Company's current
assessment of these variables, HS estimates that it will receive the following
net wellhead gas prices on an Mcf basis for the periods and percentages of its
gas production indicated as a result of these swap contracts: 3Q 2000 - 60% at
$2.65; 4Q 2000 - 45% at $2.85; year 2001 - 35 % at $2.75; year 2002 - 25% at
$2.90. These swap contracts, and other information about HS's oil and gas hedge
position will be more fully detailed in the Company's upcoming Report on
Form 10-Q to be filed with the Securities and Exchange Commission on or before
August 14, 2000.
HS Resources also announced certain results from its operations:
In the D-J Basin, during the quarter HS completed nearly 100 individual
activities of the more than 400 activities scheduled for this year. These
activities included eleven new J-Sand wells, nineteen J-Sand deepenings and 50
Codell refracs. The Company's D-J Basin activities for the first half of the
year have resulted in the establishment of meaningful new proved reserves in the
D-J Basin.
From inception of the J-Sand program in mid-1998 through the end of the second
quarter of 2000, 221 new drills and deepenings have been completed. These wells
have average gross
<PAGE>
reserves of 810 MMcfe per well and initial flow rates that range between 500 and
1,500 Mcf per day. The average finding costs to date have been $0.30/Mcfe
($1.78/Boe) for deepenings and $0.41/Mcfe ($2.49/Boe) for new drills, resulting
in rates of return in excess of 100%. HS currently plans to drill 61 new wells
and deepen 76 wells during 2000.
The Codell refracs completed during the quarter brought the total to more than
677 refracs since program inception in 1997. The refrac program has achieved an
overall 7-fold average increase in production per well, rates of return in
excess of 100%, and a $0.68 per Mcfe ($4.06 per Boe) finding cost for
incremental reserves. The Company currently expects to complete more than 215
Codell refracs during the year.
The Company's Wattenberg Gathering System transported an average of
approximately 204 MMcf of gas per day for the quarter, representing an increase
of approximately 5% over the prior year quarter, at which time the system was
operated by the previous owner. The increased throughput reflects the initial
remedial activities that have been undertaken by HS to create greater throughput
capacity, which benefits HS and all other transporters on the system.
To accommodate additional production growth in the field, HS plans to continue
expansion of WGS capacity over the next several years. In this regard, HS
recently initiated a project to expand the capacity of WGS by as much as 50
MMcfd through the addition of a new compressor station. HS has completed the
design of the expansion program and has ordered the major equipment components
with the expectation that the new station will be operational near the end of
this year, pending receipt of appropriate permits. HS is also working on other
projects to improve the overall reliability and efficiency of the system through
the installation of new instrumentation and controls, gas cooling and
dehydration equipment and the installation of gas processing facilities. The
total cost of these WGS programs will be approximately $10-$13 million, which HS
currently plans to fund through an add-on to the existing WGS operating lease.
The increased gathering revenues are expected to fund the incremental lease
costs and generate substantial additional cash flow.
In the Gulf Coast region, during the quarter HS drilled seven wells (2.5 net),
of which three (1.0 net) were commercially successful. HS operated five of these
wells, two of which were discoveries, including the first well drilled in the
Hathaway project area.
Net Gulf Coast production for the quarter averaged 35.7 MMcfe per day compared
to 20.4 MMcfe per day for the prior year period. This represented a 75% increase
from the prior year quarter and a 21% increase from the 29.6 MMcfe per day
produced during the first quarter of 2000. Quarterly production includes five
wells that were brought on line during the quarter. At quarter-end, eight wells
(3.5 net) were awaiting testing or hookup. During the month of July, two of
these wells (0.63 net) were brought on line.
In addition to drilling, seismic acquisition continues in several south
Louisiana project areas.
Chairman and Chief Executive Officer Nicholas J. Sutton stated, "Our exceptional
results for the quarter reflect the benefits of our consolidation program in the
D-J Basin and the continuation of our proprietary 3-D seismic exploration
program in the on-shore Gulf Coast area. The significant increase in production
generated in these two areas, coupled with the substantially higher product
<PAGE>
prices realized over the past few months, has generated record profitability and
operating cash flow. We anticipate a continuation of the same exceptional
results in the last half of the year and believe that 2000 will be a record year
for per-share earnings and cash flow for HS Resources."
Commenting on the Company's operating activities for the quarter, President P.
Michael Highum stated, "We completed nearly 100 activities in the D-J Basin
during the quarter, which included J-Sand drills, J-Sand deepenings and Codell
refracs. We are on track to complete more than 400 of these activities for the
year from our inventory of several thousand specifically identified
opportunities. In addition, we acquired interests in 60 wells and associated
mineral rights from another D-J Basin producer for $7.1 million. Of the 60 wells
acquired, HS previously operated 54 and now owns a 100% working interest in all
the wells. Our acquisition cost was less than $3.50 per Boe and was an
exceptional strategic fit with our existing properties. In the Gulf Coast, we
completed three successful wells, brought five wells on-line and realized
meaningful production increases during the period."
Chief Financial Officer James E. Duffy added, "Year-to-date we have funded our
capital expenditure program out of operating cash flow and retired approximately
$10 million of the KMI debt. Short-term bank borrowings of $17 million have been
used to fund seasonal working capital requirements, including the $7.1 million
D-J Basin property acquisition and the repurchase of 732,000 shares of HS
Resources common stock for $4.4 million. These interim bank borrowings, however,
do not change our previously announced goal to reduce total debt during the
calendar year by $35-50 million out of cash flow, after funding our capital
expenditure program."
Statements concerning debt repayment ability and plans, drilling, deepening,
refracing, and other plans, expansion plans for the WGS Gathering System and the
financing thereof, reserve additions, the ability to fund activities out of cash
flow, expectations concerning the continuation of results and record per share
earnings and cash flow, estimates of the effect on natural gas prices of swap
contracts, and all similar statements or implications are forward looking
statements within the meaning of Federal securities laws. Actual results or
events may differ materially from these forward-looking statements, depending
upon a variety of factors, including commodity prices, availability of capital,
results of exploration and other drilling, cash flow from operations, costs of
materials and labor, availability of equipment, regulatory burdens, the effect
of variable factors on the net realized price received by the Company under gas
swap contracts, Company objectives and business judgment and other factors, both
within and outside of the Company's control. The Company's forward looking
statements are qualified in their entirety by these and other factors more fully
set forth on the Company's report on Form 10-K filed March 24, 2000.
HS Resources, Inc. is an independent oil and gas exploration and development
company with active projects in the D-J Basin, Gulf Coast, Mid-Continent and
Northern Rocky Mountain regions. The common stock of HS Resources, Inc. is
traded on the New York Stock Exchange under the symbol "HSE".
Contact: Theodore Gazulis
Vice President
<PAGE>
415-433-5795
[email protected]
www.hsresources.com
-------------------
<PAGE>
HS Resources, Inc.
Summary of 2000 Operations
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Oil & gas sales $63,589 $36,720 $121,728 $72,808
Trading and transportation 25,181 11,978 43,826 21,278
Other gas revenues 2,396 2,518 4,402 5,042
Gathering and transmission system revenues 3,256 -- 6,364 --
Income from interest in gathering plant 358 -- 722 --
Interest and other income 992 113 1,253 270
------- ------- -------- -------
Total revenues 95,772 51,329 178,295 99,398
------- ------- -------- -------
Expenses:
Production taxes 5,775 2,137 11,243 4,285
Lease operating 8,039 7,470 15,063 14,160
Cost of trading and transportation 24,680 11,464 41,792 20,446
Gathering and transmission system 1,364 -- 2,579 --
operating expense
DD&A 15,166 13,203 30,021 27,402
Exploratory and abandonment 3,860 2,722 6,528 4,739
Geological and geophysical 3,661 1,465 7,211 3,487
Impairment and loss on sales
of oil and gas properties 61 1,100 161 1,100
General and administrative 2,030 1,066 4,056 2,475
Interest 12,692 10,510 24,854 20,940
------- ------- -------- -------
Total expenses 77,328 51,137 143,508 99,034
------- ------- -------- -------
Income before provision
for income taxes 18,444 192 34,787 364
Provision for income taxes 7,027 73 13,254 139
------- ------- -------- -------
Net income $11,417 $ 119 $ 21,533 $ 225
======= ======= ======== =======
Net income per share - diluted $ 0.60 $ 0.01 $ 1.12 $ 0.01
======= ======= ======== =======
Outstanding shares - diluted 19,186 18,895 19,173 18,657
======= ======= ======== =======
Operating cash flow (a) $41,192 $18,682 $ 78,708 $37,092
======= ======= ======== =======
Operating cash flow per share - diluted $ 2.15 $ 0.99 $ 4.11 $ 1.99
======= ======= ======== =======
</TABLE>
(a) Net income before geological and geophysical, exploratory and
abandonment, depreciation, depletion and amortization, impairment and
loss on sales of oil and gas properties and income taxes.
<PAGE>
HS Resources, Inc.
Summary of 2000 Operations
SUMMARY PRODUCTION, PRICE AND COST DATA
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
% %
2000 1999 Change 2000 1999 Change
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Production by district (MMcfe):
D-J Basin (a) 17,682 16,490 7% 35,288 32,985 7%
Gulf Coast 3,248 1,854 75% 5,942 2,890 106%
Total production (MMcfe) 20,930 18,344 14% 41,230 35,875 15%
Period Production:
Oil (MBbl) 720 594 21% 1,431 1,188 20%
Gas (MMcf) 16,607 14,782 12% 32,647 28,748 14%
Equivalent Gas (MMcfe) 20,930 18,344 14% 41,230 35,875 15%
Equivalent Barrels (MBoe) 3,488 3,057 14% 6,872 5,979 15%
Daily Production:
Oil (Bbl) 7,917 6,523 21% 7,860 6,562 20%
Gas (Mcf) 182,494 162,437 12% 179,378 158,831 13%
Equivalent Gas (Mcfe) 229,998 201,577 14% 226,539 198,203 14%
Equivalent Barrels (Boe) 38,333 33,596 14% 37,757 33,034 14%
Average oil price (Bbl) $ 24.70 $ 13.78 79% $ 22.58 $ 13.29 70%
Average gas price (Mcf) $ 2.76 $ 1.93 43% $ 2.74 $ 1.98 38%
Average price (Mcfe) $ 3.04 $ 2.00 52% $ 2.95 $ 2.03 45%
Average price (Boe) $ 18.23 $ 12.01 52% $ 17.71 $ 12.18 45%
Costs:
LOE per Mcfe $ 0.38 $ 0.41 -7% $ 0.37 $ 0.39 -5%
G&A per Mcfe $ 0.10 $ 0.06 67% $ 0.10 $ 0.07 43%
LOE and G&A per Mcfe $ 0.48 $ 0.47 2% $ 0.46 $ 0.46 0%
DD&A per Mcfe $ 0.72 $ 0.72 0% $ 0.73 $ 0.76 -4%
(DD&A includes depreciation
on non oil and gas assets)
</TABLE>
(a) Includes nominal production volumes in the Northern Rockies and
Mid-Continent
<PAGE>
HS Resources, Inc.
Summary of 2000 Operations
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
2000 1999
---------- ------------
Assets
Current assets $ 115,365 $ 77,662
Oil & gas properties 1,049,142 992,334
Accumulated DD&A (256,137) (227,691)
Gas gathering and transportation 56,440 54,627
facilities
Accumulated DD&A (3,354) (2,016)
Other assets 14,518 16,262
---------- ---------
Total assets $ 975,974 $ 911,178
========== =========
June 30, December 31,
2000 1999
---------- ------------
Liabilities and Stockholders' Equity
Current portion of payable to KMI $ 21,367 $ 19,551
Other current liabilities 121,616 95,044
----------- ---------
Total current liabilities 142,983 114,595
Bank debt 244,000 227,000
Payable to KMI, net of current portion 16,245 27,556
9 7/8% Subordinated notes, due 2003 74,800 74,771
9 1/4% Subordinated notes, due 2006 231,118 230,813
Other long-term liabilities & deferred 14,591 15,804
revenue
Deferred taxes 66,171 53,246
Stockholders' equity 186,066 167,393
----------- ---------
Total liabilities and stockholders' equity $ 975,974 $ 911,178
=========== =========
<PAGE>
HS Resources, Inc.
Summary of 2000 Operations
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,533 $ 225
Depreciation, depletion and amortization 30,021 27,402
Depreciation expense offset against revenue 635 --
Impairment and loss on sales of oil and gas properties 161 1,100
Amortization of deferred charges, debt issue costs
and deferred compensation 2,117 2,246
Surrendered and expired acreage 3,087 1,905
Transfer treasury stock to 401(k) plan 1,057 763
Deferred income tax provision 12,925 138
Increase in accounts receivable (30,763) (7,350)
Increase (decrease) in accounts payable and accrued 28,506 (4,084)
expenses
Decrease in deferred revenue, net -- (5,480)
Other (717) (7)
--------- --------
Net cash provided by operating activities 68,562 16,858
--------- --------
Cash flows from investing activities:
Exploration, development and leasehold costs (52,908) (30,184)
Purchase of proved and unproved properties (7,455) --
Gas gathering and transportation facilities additions (1,812) (177)
Other property additions (231) (233)
Net proceeds from the sale of oil and gas properties 102 (808)
Decrease in property related payables (3,148) (11,545)
--------- --------
Net cash used in investing activities (65,452) (42,947)
--------- --------
Cash flows from financing activities:
Proceeds from bank debt 102,000 40,000
Repayments of bank debt (85,000) (23,000)
Repayment of KMI debt (9,495) --
Exercise of options and warrants 3,394 6
Issuance of common stock -- 611
Purchase of treasury stock (8,048) (34)
--------- --------
Net cash provided by financing activities 2,851 17,583
--------- --------
Net increase (decrease) in cash and
cash equivalents 5,961 (8,506)
Cash and cash equivalents, beginning
of the period 518 9,658
--------- --------
Cash and cash equivalents, end of
the period $ 6,479 $ 1,152
========= ========
</TABLE>
<PAGE>
HS Resources, Inc.
Summary of 2000 Operations
2000 DEVELOPMENT, EXPLOITATION AND EXPLORATION COSTS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended 6/30/00
-----------------------------------------------------------
Northern
D-J Basin Gulf Coast Rockies Other Total
--------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Capitalized Cost
Land $ (354) $ 4,591 $ 56 $ 637 $ 4,930
Exploration Drilling -- 10,046 1,307 88 11,441
Development Drilling 10,089 -- -- -- 10,089
Recompletions and Refracs 23,862 1 -- -- 23,863
Acquisitions 7,455 (1) -- 1 7,455
Capitalized Interest & Other 2,659 478 92 (644) 2,585
-------- -------- ------ ------- -------
Total Capitalized Costs 43,711 15,115 1,455 82 60,363
-------- -------- ------ ------- -------
Costs Charged to Income Statement
Geological & Geophysical 267 3,976 751 2,217 7,211
Exploratory Dryholes 5 1,422 -- -- 1,427
Surrendered & Expired Acreage (1) 37 3,019 31 -- 3,087
Other Exploratory 96 1,708 162 48 2,014
-------- -------- ------ ------- -------
Total G&G and Exploration Costs 405 10,125 944 2,265 13,739
-------- -------- ------ ------- -------
Total Development, Exploitation
and Exploration Costs $ 44,116 $ 25,240 $2,399 $ 2,347 $74,102
======== ======== ====== ======= =======
</TABLE>
(1) Includes non-cash charges in the current period for certain previously
capitalized leasehold costs attributable to expired acreage and associated
capitalized interest.
