<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______________________________to__________________
Commission file number 0-18886
----------------------------------------------------------
HS RESOURCES, INC .
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3036864
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 433-5795
------------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock, $.001 par value, outstanding as of the close
of business on April 30, 2000: 18,853,756 after deducting 670,912 shares in
treasury.
1
<PAGE> 2
HS RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets - March 31, 2000 (Unaudited) and
December 31, 1999........................................................................................3
Unaudited Consolidated Statements of Operations - For the Three Months
Ended March 31, 2000 and 1999............................................................................5
Consolidated Statements of Stockholders' Equity - For
the Years Ended December 31, 1999 and 1998 and the Three Months Ended
March 31, 2000 (Unaudited)...............................................................................6
Unaudited Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 2000 and 1999.......................................................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...................................................................................33
Item 3. Defaults Upon Senior Securities.........................................................................33
Item 4. Submission of Matters to a Vote of Security Holders.....................................................33
Item 5. Other Information.......................................................................................33
Item 6. Exhibits and Reports on Form 8-K........................................................................34
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
ASSETS
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 980 $ 518
Margin deposits 4,080 935
Accounts receivable
Oil and gas sales 35,446 31,602
Trading and transportation 19,568 18,518
Trade 5,434 3,089
Other 16,435 16,211
Lease and well equipment inventory, at cost 1,107 1,249
Prepaid expenses and other 3,584 3,966
Notes receivable from officers for exercise of stock options
and issuance of common stock (Note 6) 2,434 1,574
------------ ------------
Total current assets 89,068 77,662
------------ ------------
OIL AND GAS PROPERTIES, AT COST, USING THE SUCCESSFUL EFFORTS METHOD
Undeveloped acreage 100,081 99,358
Costs subject to depreciation, depletion and amortization 920,078 892,976
Less accumulated depreciation, depletion and amortization (241,644) (227,691)
------------ ------------
Net oil and gas properties 778,515 764,643
------------ ------------
GAS GATHERING AND TRANSPORTATION FACILITIES,
at cost, net of accumulated depreciation of $2,685
and $2,016 at March 31, 2000 and December 31, 1999, respectively 52,194 52,611
------------ ------------
OTHER ASSETS
Workover rigs and equipment, net 848 832
Deferred charges and other, net 10,431 10,070
Office and transportation equipment and other property,
net of accumulated depreciation of $6,715
and $6,509 at March 31, 2000 and December 31, 1999, respectively 2,058 2,208
Notes receivable from officers for exercise of stock options
and issuance of common stock (Note 6) -- 812
Goodwill, net of accumulated amortization of $1,350
and $1,260 at March 31, 2000 and December 31, 1999, respectively 2,250 2,340
------------ ------------
Total other assets 15,587 16,262
------------ ------------
TOTAL ASSETS $ 935,364 $ 911,178
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
------------ ------------
(In thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable
Trade $ 26,013 $ 26,653
Revenue 40,557 36,897
Gas purchases 12,722 9,290
Accrued expenses
Ad valorem and production taxes 11,051 10,624
Interest 11,710 5,233
Other 5,971 5,389
Income taxes payable 862 958
Payable to KMI 20,445 19,551
------------ ------------
Total current liabilities 129,331 114,595
------------ ------------
ACCRUED AD VALOREM TAXES 20,471 15,804
------------ ------------
PAYABLE TO KMI, NET OF CURRENT PORTION 21,987 27,556
------------ ------------
LONG-TERM BANK DEBT 220,000 227,000
------------ ------------
9 7/8% SENIOR SUBORDINATED NOTES,
due 2003, net of unamortized discount of $215 and
$229 at March 31, 2000 and December 31, 1999, respectively 74,785 74,771
------------ ------------
9 1/4% SERIES A SENIOR SUBORDINATED NOTES,
due 2006, net of unamortized discount of $515 and
$534 at March 31, 2000 and December 31, 1999, respectively 149,485 149,466
------------ ------------
9 1/4% SERIES B SENIOR SUBORDINATED NOTES,
due 2006, net of unamortized discount of $3,519 and $3,653
at March 31, 2000 and December 31, 1999, respectively 81,481 81,347
------------ ------------
DEFERRED INCOME TAXES 59,322 53,246
------------ ------------
COMMITMENTS AND CONTINGENCIES
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock, $.001 par value, 50,000 shares authorized;
19,523 and 19,528 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively 20 20
Additional paid-in capital 192,237 191,406
Retained deficit (4,186) (14,302)
Deferred compensation (1,727) (1,981)
Treasury stock, at cost, 670 and 731 shares at March 31, 2000
and December 31, 1999, respectively (7,842) (7,750)
------------ ------------
Total stockholders' equity 178,502 167,393
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 935,364 $ 911,178
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
(In thousands, except
per share amounts)
<S> <C> <C>
REVENUES
Oil and gas sales $ 58,139 $ 36,088
Trading and transportation 18,645 9,300
Gathering and transmission system revenues 3,108 --
Other gas revenues 2,007 2,524
Income from interest in gathering plant 365 --
Interest income and other 259 156
-------- --------
Total revenues 82,523 48,068
-------- --------
EXPENSES
Production taxes 5,468 2,148
Lease operating 7,024 6,691
Cost of trading and transportation 17,112 8,982
Gathering and transmission system operating expenses 1,215 --
Depreciation, depletion and amortization 14,855 14,198
Exploratory and abandonment 2,668 2,018
Geological and geophysical 3,550 2,022
Impairment and loss on sales of oil and gas properties 100 --
General and administrative 2,026 1,409
Interest 12,162 10,429
-------- --------
Total expenses 66,180 47,897
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 16,343 171
PROVISION FOR INCOME TAXES 6,227 65
-------- --------
NET INCOME $ 10,116 $ 106
======== ========
BASIC EARNINGS PER SHARE $ 0.54 $ 0.01
======== ========
DILUTED EARNINGS PER SHARE $ 0.53 $ 0.01
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 18,813 18,419
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ASSUMING DILUTION 19,161 18,419
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1999
and the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
--------------------- Paid-In Earnings Deferred ---------------------
Shares Amount Capital (Deficit) Compensation Shares Amount
--------- --------- ---------- --------- ------------ --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 18,655 $ 19 $ 183,191 $ (7,372) $ (144) (160) $ (2,217)
Purchase of treasury stock -- -- -- -- -- (722) (6,524)
Transfer of treasury stock to 40l(k) Plan -- -- 7 -- -- 39 542
Issuance of treasury stock
for exercise of options
including income tax benefit -- -- (115) -- -- 42 583
Issuance of restricted stock 32 -- 428 -- (428) -- --
Amortization of deferred compensation -- -- -- -- 307 -- --
Issuance of performance shares 106 -- 1,534 -- (1,534) -- --
Exercise of stock options, including
income tax benefit 337 -- 3,201 -- -- -- --
Restricted stock forfeited (3) -- (50) -- 50 -- --
Net loss -- -- -- (18,616) -- -- --
--------- --------- ---------- --------- ------------ --------- ---------
BALANCE, DECEMBER 31, 1998 19,127 19 188,196 (25,988) (1,749) (801) (7,616)
Purchase of treasury stock -- -- -- -- -- (128) (2,055)
Transfer of treasury stock to 40l(k) Plan -- -- 50 -- -- 75 712
Issuance of treasury stock
for exercise of options
including income tax benefit -- -- 492 -- -- 123 1,209
Issuance of restricted stock 34 -- 301 -- (301) -- --
Amortization of deferred compensation -- -- -- -- 1,067 -- --
Issuance of performance shares 132 1 997 -- (998) -- --
Issuance of common stock 235 -- 1,370 -- -- -- --
Net income -- -- -- 11,686 -- -- --
--------- --------- ---------- --------- ------------ --------- ---------
BALANCE, DECEMBER 31, 1999 19,528 20 191,406 (14,302) (1,981) (731) (7,750)
Purchase of treasury stock -- -- -- -- -- (96) (1,783)
Exercise of warrants 4 -- 30 -- -- -- --
Transfer of treasury stock to 40l(k) Plan -- -- 385 -- -- 62 672
Issuance of treasury stock
for exercise of options
including income tax benefit -- -- 473 -- -- 95 1,019
Restricted stock and performance shares
forfeited (9) -- (57) -- 57 -- --
Amortization of deferred compensation -- -- -- -- 197 -- --
Net income -- -- -- 10,116 -- -- --
--------- --------- ---------- --------- ------------ --------- ---------
BALANCE, MARCH 31, 2000 (Unaudited) 19,523 $ 20 $ 192,237 $ (4,186) $ (1,727) (670) $ (7,842)
========= ========= ========== ========= ============ ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,116 $ 106
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 14,855 14,198
Depreciation expense offset against revenue 312 --
Impairment and loss on sales of oil and gas properties 100 --
Surrendered and expired acreage 1,703 735
Amortization of deferred charges, debt issue costs
and deferred compensation 892 1,171
Transfer of treasury stock to 401(k) Plan 1,057 --
Deferred income tax provision 6,076 65
(Increase) decrease in accounts and notes receivable (7,464) 1,526
Increase in accounts payable and accrued expenses 21,000 5,730
Decrease in deferred revenue, net -- (2,524)
Other (3,558) 14
-------- --------
Net cash provided by operating activities 45,089 21,021
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration, development and leasehold costs (29,996) (19,891)
Workover equipment additions (41) --
Gas gathering and transmission facilities additions (251) (88)
Other property additions (75) (125)
Net proceeds from the sale of oil and gas properties 163 --
Decrease in property related payables (2,492) (1,937)
-------- --------
Net cash used in investing activities (32,692) (22,041)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank debt 30,000 --
Repayments of bank debt (37,000) (3,000)
Repayment of KMI debt (4,675) --
Issuance of common stock -- 611
Exercise of options and warrants 1,523 --
Purchase of treasury stock (1,783) --
-------- --------
Net cash used in financing activities (11,935) (2,389)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 462 (3,409)
Cash and cash equivalents, beginning of year 518 9,659
-------- --------
Cash and cash equivalents, end of year $ 980 $ 6,250
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid, net of capitalized interest $ 4,965 $ 2,412
Cash paid for income taxes, net of reimbursements $ 280 $ 374
</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, explores for, exploits and produces oil and gas properties.
The Company's primary properties are 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 and the Mid-Continent. Through its
wholly-owned subsidiary, HS Gathering L.L.C., the Company gathers and transports
its own and third party gas. Through its subsidiary, HS Energy Services, Inc.
("HSES"), the Company 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 presented here are unaudited;
however, all adjustments (which are of a normal and recurring nature) have been
made which are, in the opinion of management, necessary for a fair statement of
the financial position of the Company at March 31, 2000, 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, 1999 Report on Form 10-K filed with the Securities
and Exchange Commission on March 24, 2000.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUCCESSFUL EFFORTS. The Company utilizes the successful efforts method of
accounting for its oil and gas properties. Consequently, leasehold costs are
capitalized when incurred. Unproved properties are assessed periodically within
specific geographic areas, and impairments in value are charged to expense.
Exploratory costs, geological and geophysical expenses and delay rentals are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of developmental dry holes and proved leaseholds are
amortized on the unit-of-production method based on proved reserves on a field
by field basis. The depreciation of capitalized drilling costs is based on the
unit-of-production method using proved developed reserves on a field by field
basis.
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 in the period the underlying physical
transactions occur in "oil and gas sales" (for company-owned production) and
"trading and transportation revenues" (for third party gas). 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
8
<PAGE> 9
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
to the period of physical delivery of the items being hedged, the gains or
losses on the energy related financial instruments at the time of the
termination remain deferred until the period of physical delivery unless both
the energy related financial instruments and the items being hedged result in a
loss. If this occurs, the loss is recorded immediately.
NOTE 3. PRO FORMA STATEMENTS
On November 26, 1999, the Company acquired certain gas gathering and
transmission assets (the "Wattenberg Gathering and Transmission System") from
Kinder Morgan, Inc. and affiliated entities ("KMI") for an adjusted purchase
price of approximately $48 million plus the future assumption of an operating
lease which had a present value of $19 million.
The Wattenberg Gathering and Transmission System consists of a low pressure
gathering system and a high pressure transmission system. The low pressure
gathering system consists of more than 1,500 miles of pipeline and 3,000
horsepower of compression, located in five northeastern Colorado counties. Gas
is delivered to the inlet of the high pressure transmission system, which
consists of almost 60 miles of high pressure pipeline and almost 40,000
horsepower of compression. The acquisition is being accounted for using the
purchase method of accounting. Along with the system, the Company acquired a
6.9% interest in the BP Amoco Wattenberg Gas Processing Plant, and a right of
first refusal to purchase the remaining interest in the plant.
The following table sets forth condensed unaudited pro forma operating results
of the Company for the three months ended March 31, 1999. The condensed pro
forma operating results assume the acquisition of the gas gathering and
transmission assets from KMI had occurred on January 1, 1999. The condensed pro
forma results are not necessarily indicative of the results of operations had
the divestiture been consummated on January 1, 1999, and may not necessarily be
indicative of future performance. Amounts in thousands, except per share
amounts.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999
(Unaudited)
------------------
<S> <C>
Revenues $ 52,701
Net income $ 1,393
Diluted earnings per share $ 0.08
Weighted average number of common
shares outstanding assuming dilution 18,419
</TABLE>
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 have a base vesting
schedule over nine years with
9
<PAGE> 10
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
accelerated 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 the second quarter of 1999,
the Company issued 132,000 performance shares and recorded deferred compensation
of approximately $1.0 million.
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 amended by SFAS No. 137 extending the
adoption period to 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 changes in
fair value included in earnings. In accordance with EITF Issue 98-10 the Company
records energy trading contracts at fair value on the balance sheet, with the
changes in fair value included in earnings.
10
<PAGE> 11
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
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 1934. Five hundred thousand shares of common
stock have been allocated to the plan. The plan is administered by the
Compensation Committee of the Board of Directors. As of March 31, 2000, 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. The notes mature on March 3, 2001 and bear interest at the
annual rate of 8.5%.
In June 1998, in connection with the exercise of stock options, certain officers
of the Company issued to the Company full recourse notes in the amount of $2.1
million. The notes and accrued interest are due and payable to the Company on or
before June 1, 2000. The interest rate on these notes is prime plus 0.25% per
annum. The prime rate as of March 31, 2000 was 9.0%. In the third quarter of
1999, principal and accrued interest in the amount of $823,295 was repaid.
NOTE 7. TOTAL RETURN EQUITY SWAPS
In 1999, the Company entered into three total return equity swap agreements with
financial institutions. 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 had 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. This swap was terminated
April 20, 2000. See Note 8.
On May 24, 1999 the Company entered into a second agreement whereby the
financial institution acquired 100,000 shares of HSR's common stock from another
investor 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.
On December 1, 1999, the Company entered into a third agreement whereby a
financial institution agreed to acquire on the open market approximately 300,000
shares of the Company's common stock at the current market price over a three
month period beginning December 2, 1999. As of March 31, 2000 the financial
institution had
11
<PAGE> 12
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
acquired 308,100 shares at a weighted average price of $14.55 per share. The
Company has the right, but not the obligation, to purchase the stock at the
weighted average price at any time through September 2, 2001.
If the Company decides not to purchase the shares on or before the termination
of the second or third agreement, the Company will receive any increase in the
market value of the shares covered by the agreement above the purchase price of
the shares, or will pay for any loss; however, the Company may cover losses in
most circumstances 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 also pays certain commissions and finance
costs. At March 31, 2000 the aggregate fair market value of the Company's common
stock in excess of the underlying option price attributable to such shares,
including the shares subject to the first agreement, which have now been
repurchased, was approximately $13.9 million.
NOTE 8. SUBSEQUENT EVENT
Effective April 20, 2000 the Company repurchased approximately 730,000 shares of
its common stock under the first agreement discussed in the first paragraph of
Note 7. Those shares were retired into the Company's treasury, and, as a result,
the $4.5 million transaction will reduce the Company's outstanding common stock
by approximately 4%.
12
<PAGE> 13
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
NOTE 9. BUSINESS SEGMENT INFORMATION
The Company is an independent energy company engaged in the following
activities:
o acquisition, development, exploitation, exploration and
production of oil and gas
o transportation and marketing of oil and gas
<TABLE>
<CAPTION>
March 31,
--------------------------
(In thousands) 2000 1999
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Oil and gas sales D-J Basin $ 51,117 $ 36,557
Oil and gas sales Gulf Coast 8,977 2,018
Oil and gas sales Mid-Continent and Northern Rockies 51 37
Gas gathering and transmission facilities 3,473 --
Trading and transportation 54,220 30,119
Intersegment eliminations (35,575) (20,819)
----------- -----------
$ 82,263 $ 47,912
=========== ===========
OPERATING INCOME:
D-J Basin $ 26,504 $ 14,514
Gulf Coast 2,573 (2,072)
Mid-Continent and Northern Rockies (2,006) (463)
Gas gathering and transmission facilities 637 --
Trading and transportation 2,094 963
Intersegment eliminations (668) (750)
----------- -----------
OPERATING INCOME 29,134 12,192
Other income and expense (12,791) (12,021)
----------- -----------
INCOME BEFORE INCOME TAXES $ 16,343 $ 171
=========== ===========
IDENTIFIABLE ASSETS (AT MARCH 31):
Oil and gas properties D-J Basin $ 972,536 $ 912,835
Oil and gas properties Gulf Coast 41,015 26,185
Oil and gas properties Mid-Continent and Northern Rockies 7,524 4,798
Gas gathering and transmission facilities 54,879 5,980
Trading and transportation 3,852 3,805
Corporate 8,521 8,557
----------- -----------
$ 1,088,327 $ 962,160
=========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE:
Oil and gas properties D-J Basin $ 12,884 $ 13,258
Oil and gas properties Gulf Coast 1,361 497
Oil and gas properties Mid-Continent and Northern Rockies 20 --
Gas gathering and transmission facilities 277 --
Trading and transportation 107 105
Corporate 206 338
----------- -----------
$ 14,855 $ 14,198
=========== ===========
CAPITAL EXPENDITURES AND ACQUISITIONS:
Oil and gas properties D-J Basin $ 19,733 $ 14,205
Oil and gas properties Gulf Coast 8,875 5,121
Oil and gas properties Mid-Continent and Northern Rockies 1,429 564
Gas gathering and transmission facilities 251 88
Trading and transportation 4 19
Corporate 62 106
----------- -----------
$ 30,354 $ 20,103
=========== ===========
</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 of assets 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.
A major milestone in our D-J Basin consolidation was 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.
In December 1999 we furthered our consolidation strategy by acquiring certain
gas gathering and transmission assets (the "Wattenberg Gathering and
Transmission System") from Kinder Morgan, Inc. ("KMI") for an adjusted purchase
price of approximately $48 million, plus the assumption of an operating lease
which had a net present value of $19 million. As part of this transaction, we
also purchased a 6.9% interest in the BP Amoco Wattenberg Gas Processing Plant,
and a right of first refusal to purchase the remaining interest in the plant.
The transaction is scheduled to close in December 2001. The Wattenberg Gathering
and Transmission System consists of a low pressure gathering system and a high
pressure transmission system. The low pressure gathering system consists of more
than 1,500 miles of pipeline and 3,000 horsepower of compression, located in
five northeastern Colorado counties. Gas is delivered to the inlet of the high
pressure transmission system, which consists of almost 60 miles of high pressure
pipeline and almost 40,000 horsepower of compression. The acquisition is
recorded in our financial statements as of December 1, 1999 using the purchase
method of accounting. This purchase has given us operational control over the
gathering of a large percentage of our gas production. By operating the pipeline
we are better positioned to anticipate and alleviate any gathering system
bottlenecks that otherwise might have adversely affected our D-J Basin
exploitation program and the production of other operators.
To complete the 1997 Amoco acquisition we were required 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. 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. In 1999,
approximately 90% of our production (on an energy equivalent basis) came from
the D-J Basin and 10% from the Gulf Coast. 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 historically profitable presence in the gas marketing, trading and
14
<PAGE> 15
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 early 1999, United
States natural gas prices and international crude oil prices were very low,
resulting in significant reductions in the operating and financial margins of
oil and gas producers. Additionally, low oil prices had a depressing effect on
the price of liquids recovered from natural gas during this time period. Thus,
the low oil price of early 1999 further diminished the overall price received
for our gas production. In April 1999, both oil and gas prices began to recover,
and have continued to increase in 2000. This resulted in HSR realizing for the
three months ended March 31, 2000 an average price per barrel of oil ("Bbl"),
excluding hedging effects, of $27.33 compared to $11.43 for the comparable
period in 1999. Natural gas prices per thousand cubic feet of gas ("Mcf"),
excluding hedging effects, were $2.71 for the three months ended March 31, 2000
compared to $1.68 in the comparable period in 1999.
At December 31, 1999, approximately 82% of our proved producing reserves
consisted of gas, of which 97% 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. This remains the case during the lower demand
summer months (generally April through October). More recently, however, as a
result of increased pipeline capacity into and out of 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).
In the fall of 1998, PSCO and CIG, through a jointly owned affiliate, began
operating a newly expanded 270 MMcf per day 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, KMI has been granted
authority to build a 250 MMcf per day capacity pipeline serving similar regions.
Construction has not commenced on the KMI line, and it is uncertain whether this
line will be built in the near future. The PSCO line is expected to eliminate
some portion of the price 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
15
<PAGE> 16
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.
Gas and oil prices remain strong as of the date of this report. However, we
cannot predict future trends in gas or oil prices. The uncertainty concerning
the price of oil and gas remains a dominant and unpredictable factor in our
profitability.
RESULTS OF OPERATIONS. During 2000 we continued our drilling and development
activities to exploit our opportunities in the D-J Basin. We also continued our
exploitation and exploration activities in the Gulf Coast region. Our results of
operations are significantly affected 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 ENDED MARCH 31, 2000 AND 1999
D-J BASIN
OIL AND GAS SALES
(IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Production:
Oil (Bbl) 594 557
Gas (Mcf) 14,023 13,105
Mcfe 17,585 16,446
Boe 2,931 2,741
Prices (1):
Average realized oil price ($/Bbl) $ 18.83 $ 12.91
Average realized gas price ($/Mcf) $ 2.70 $ 2.05
Operating Revenues:
Oil and gas sales $ 49,110 $ 34,033
Other gas revenues 2,007 2,524
-------- --------
51,117 36,557
-------- --------
Operating Costs and Expenses:
Production taxes 4,859 2,023
Lease operating 6,729 6,569
Depreciation, depletion
and amortization 12,884 13,258
Exploratory and abandonment 47 93
Geological and geophysical 94 100
-------- --------
24,613 22,043
-------- --------
Operating Income $ 26,504 $ 14,514
======== ========
</TABLE>
(1) Includes effects of hedging activities
17
<PAGE> 18
GENERAL. We have been active in the D-J Basin for almost 20 years. Over the
years we sought to consolidate our position there by acquiring properties and
conducting active exploitation programs. More recent acquisitions include the
June 1996 acquisition of Basin Exploration, Inc.'s D-J Basin properties, the
December 1997 Amoco acquisition, and the 1999 acquisition of the Wattenberg
Gathering and Transmission System. For the three months ended March 31, 2000 and
1999 exploitation programs consisted of 136 and 115 separate activities,
respectively.
OIL AND GAS REVENUES. Our D-J Basin oil and gas production and revenues have
increased primarily as the result of the success of our ongoing exploitation and
development activities and increased product prices. Other gas revenues related
to the sale of tax credits decreased for the three months ended March 31, 2000
compared to the prior year mainly due to normal production declines.
PRODUCTION EXPENSES. Total lease operating expense ("LOE") increased modestly
for the three months ended March 31, 2000 compared to the prior year period.
However, LOE per Mcfe declined from $0.40 to $0.38 for the quarter ended March
31, 1999 and 2000, respectively, because the increase in total LOE was offset by
an increase in production. The increase in costs and production was due to a
larger number of producing wells. Production taxes increased in 2000 as a result
of higher realized product prices.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization ("DD&A"), a non-cash expense, decreased for the three months ended
March 31, 2000 compared to the prior year period because a decrease in the
depletion rate more than offset an increase in production. The decrease in the
depletion rate was the result of the addition of proved reserves due to higher
year-end product prices. The weighted average depletion rate per Mcfe for the
D-J Basin was $0.73 and $0.80 ($4.36 and $4.81 per Boe) for the three months
ended March 31, 2000, and 1999, respectively. We annually adjust our DD&A rate
based on year-end engineering and, if material changes in our reserves warrant,
on an interim basis.
EXPLORATORY AND ABANDONMENT COSTS. Exploratory and abandonment costs include the
costs of exploratory dry holes, delay rentals, plugging and abandonment ("P&A")
costs, expired acreage and salaries and related overhead ("overhead") costs
directly related to exploratory activities. Exploratory and abandonment costs
decreased for the three months ended March 31, 2000 compared to the prior year
period mainly due to a decrease in P&A costs.
GEOLOGICAL AND GEOPHYSICAL COSTS. Geological and geophysical ("G&G") costs
include costs for seismic activity as well as overhead costs directly
attributable to G&G activity. The decrease for the three months ended March 31,
2000 compared to the prior year period relates to a decrease in overhead costs
in the Greater D-J Basin area.
18
<PAGE> 19
GULF COAST
OIL AND GAS SALES
(IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Production:
Oil (Bbl) 116 37
Gas (Mcf) 1,995 812
Mcfe 2,694 1,036
Boe 449 173
Prices (1):
Average realized oil price ($/Bbl) $ 28.51 $ 10.93
Average realized gas price ($/Mcf) $ 2.83 $ 1.98
Operating Revenues:
Oil and gas sales $ 8,977 $ 2,018
Operating Costs and Expenses:
Production taxes 604 113
Lease operating 240 69
Depreciation, depletion
and amortization 1,361 497
Exploratory and abandonment 2,504 1,787
Geological and geophysical 1,595 1,624
Impairment and loss on
sales of oil and gas properties 100 --
-------- --------
6,404 4,090
-------- --------
Operating Income (Loss) $ 2,573 $ (2,072)
======== ========
</TABLE>
(1) There were no hedging activities affecting Gulf Coast production in
2000 or 1999.
GENERAL. Over the past several years, the majority of our Gulf Coast activities
focused on acquiring, processing and interpreting 3-D seismic information,
acquiring leasehold interests, and drilling on our project areas. During 2000 we
expect to continue to increase our level of Gulf Coast drilling activities on
prospects that we have identified through our 3-D seismic programs.
OIL AND GAS REVENUES. Oil and gas revenues increased significantly for the three
months ended March 31, 2000 compared to the prior year period due to an increase
both
19
<PAGE> 20
in production and in product prices. We drilled a total of 7 gross (3.3 net)
wells in the first quarter of 2000 compared to 6 gross (2.5 net) wells in the
first quarter of 1999. Of the total wells drilled to date, 6 gross (2.625 net)
are currently awaiting pipeline hookup.
PRODUCTION EXPENSES. Aggregate LOE increased from the first quarter of 1999 to
the first quarter of 2000 because of the greater number of producing wells. LOE
per Mcfe increased from $0.07 to $0.09 for the three months ended March 31, 1999
and 2000, respectively, mainly due to an increase in water hauling costs.
Production taxes increased from the first quarter of 1999 to the first quarter
of 2000 as a result of higher realized product prices.
DEPRECIATION, DEPLETION AND AMORTIZATION. Total DD&A increased from the first
quarter of 1999 to the first quarter of 2000 as a result of an increase in
production and an increase in the DD&A rate. The weighted average DD&A rate per
Mcfe in the Gulf Coast increased from $0.48 to $0.51 for the three months ended
March 31, 1999 and 2000, respectively.
EXPLORATORY AND ABANDONMENT COSTS. During the first quarter of 2000 we expensed
$1.7 million for expired acreage, $0.2 million for one exploratory dry hole,
$0.3 million for delay rentals and $0.3 million for overhead costs. In the first
quarter of 1999, we expensed $0.7 million for expired acreage, $0.4 million in
delay rentals, $0.4 million for two exploratory dry holes and $0.3 million for
overhead costs directly related to exploratory activities.
GEOLOGICAL AND GEOPHYSICAL COSTS. Of total G&G costs, we incurred $1.2 million
and $1.3 million for the three months ended March 31, 2000 and 1999,
respectively, for seismic permits and processing costs in the Gulf Coast. The
remaining G&G of $0.4 million and $0.3 million relates to overhead costs
directly attributable to G&G activity.
IMPAIRMENT AND LOSS ON SALES OF OIL AND GAS PROPERTIES. As of March 31, 2000, we
recorded a loss of $100,000 on the sale of one well.
20
<PAGE> 21
MID-CONTINENT AND NORTHERN ROCKIES
OIL AND GAS SALES
(IN THOUSANDS EXCEPT AVERAGE PRICES)
<TABLE>
<CAPTION>
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Production:
Oil (Bbl) -- --
Gas (Mcf) 21 49
Mcfe 21 50
Boe 4 8
Prices:
Average realized oil price ($/Bbl) $ -- $ --
Average realized gas price ($/Mcf) $ -- $ --
Operating Revenues:
Oil and gas sales $ 51 $ 37
Operating Costs and Expenses:
Production taxes 5 12
Lease operating 55 53
Depreciation, depletion
and amortization 20 --
Exploratory and abandonment 117 138
Geological and geophysical 1,860 297
-------- --------
2,057 500
-------- --------
Operating Loss $ (2,006) $ (463)
======== ========
</TABLE>
GENERAL. Information for this segment includes activity for both the
Mid-Continent and Northern Rockies areas. Our strategy in the Mid-Continent is
to pursue technology-oriented exploration projects with a focus on high volume,
long-life gas prospects.
Over the past seven 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 by third party operators on our
acreage.
OIL AND GAS REVENUES. There were virtually no oil and gas revenues in this
segment because of the earlier Mid-Continent property sale and the sale of
properties in the Northern Rockies region.
21
<PAGE> 22
EXPLORATORY AND ABANDONMENT COSTS. The majority of exploratory and abandonment
costs in the first quarter of 2000 and 1999 represent costs incurred for delay
rentals and overhead costs for projects in the Northern Rockies.
GEOLOGICAL AND GEOPHYSICAL COSTS. The increase in G&G costs in the first quarter
of 2000 compared to 1999 is the result of an increase in seismic activity in the
Mid-Continent project area mainly due to the acquisition and processing of 3-D
seismic data in the Mountain Front project area in Oklahoma.
TRADING AND TRANSPORTATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Operating Revenues:
Trading and transportation (1) $ 54,220 $ 30,119
Operating Costs and Expenses:
Cost of trading and transportation (1) 52,019 29,051
Depreciation and amortization 107 105
-------- --------
52,126 29,156
-------- --------
Operating Income $ 2,094 $ 963
======== ========
</TABLE>
(1) Intercompany revenues and expenses attributable to our volumes which
are marketed by HSES have been eliminated in our financial statements.
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 margins increased in the first quarter of 2000 compared to 1999
primarily as a result of an increase in the volume of financial intermediary
transactions and gains recorded by HSES in commodity and basis trading
activities. For the quarters ended March 31, 2000 and 1999, gains of $1.4
million and $0.6 million, respectively were recognized in connection with
financial trading activities.
22
<PAGE> 23
GAS GATHERING AND TRANSMISSION
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Operating Revenues
Gathering and transmission system revenues $ 3,108 $ --
Income from interest in gathering plant 365 --
-------- --------
3,473 --
Operating Costs and Expenses
Gathering and transmission system operating expenses 1,215 --
Depreciation and amortization 277 --
Interest expense 1,344 --
-------- --------
2,836 --
-------- --------
Operating Income $ 637 $ --
======== ========
</TABLE>
GATHERING AND TRANSMISSION SYSTEM REVENUES AND EXPENSES. Effective December 1,
1999 we took over operations of the Wattenberg Gathering and Transmission System
from KMI. The revenues and expenses associated with third party gas for the
quarter ended March 31, 2000 are recorded as gathering and transmission system
revenues and expenses.
OTHER INCOME AND EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Interest income and other $ 259 $ 156
General and administrative $ 2,026 $ 1,409
Interest $ 10,818 $ 10,429
Depreciation $ 206 $ 338
</TABLE>
INTEREST INCOME AND OTHER INCOME. Interest and other income increased modestly
for the first quarter of 2000 compared to the first quarter of 1999 due to third
party billings associated with our subsidiary, HS Services. In 1999 we acquired
five workover rigs (which are used to perform regular maintenance on producing
wells and to complete new wells) and four water trucks (which haul water used in
drilling, fracing and production operations).
23
<PAGE> 24
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). 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 $0.10 and $0.08 ($0.60 and $0.48 per Boe) in the first
quarter of 2000 compared to the first quarter of 1999. On both an absolute and
an Mcfe basis, G&A increased due to an increase in payroll-related general and
administrative expenses.
INTEREST EXPENSE. Interest expense increased for the first quarter of 2000
compared to the first quarter of 1999 mainly due to an increase in the interest
rate on our bank debt and a decrease in capitalized interest on our undeveloped
acreage account. For the three months ended March 31, 2000 and 1999 we
capitalized $1.6 million and $1.8 million, respectively of interest related to
undeveloped acreage.
INCOME TAXES
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Current provision $ -- $ --
Deferred provision 6,227 65
-------- --------
Provision for taxes $ 6,227 $ 65
======== ========
Effective tax rate 38.1% 38.1%
======== ========
</TABLE>
PROVISION FOR INCOME TAXES. We follow the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109. Pursuant to SFAS 109, we have recorded a
tax provision based on tax rates in effect during the period. Accordingly, we
accrued taxes at the rate of 38.1% in the first quarter of 2000 and 1999. Due
primarily to significant intangible drilling costs, which are deductible for
income tax purposes, substantially all of our tax provision is deferred.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING SOURCES. We believe that our current level of debt is manageable under
expected production and pricing levels because our debt is supported by stable,
long-lived producing reserves and by short-term product prices that are
partially hedged at prices that support our bank and other 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 or sustained production interruptions.
We have a large number of low-risk, potentially high-return exploitation
projects which should enhance production and cash flow. As part of an
24
<PAGE> 25
overall financing strategy, we continually evaluate a wide range of future
financing alternatives and are not committed to any particular course. In
undertaking any future financing transactions, we will 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 led by The
Chase Manhattan Bank is currently $280.0 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 review of our reserves by the lending bank
group and their view of future pricing. Under the terms of the Chase facility,
no principal payments are required until December 15, 2002, assuming we maintain
a borrowing base sufficient to support the outstanding loan balance. As of March
31, 2000, $220.0 million was outstanding under the Chase facility compared to
$227.0 million at December 31, 1999.
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.
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 quarter ended March 31, 2000, we incurred total costs for exploration,
development, leasehold, exploratory and abandonment and geological and
geophysical activities of $32.4 million, exclusive of capitalized interest and
overhead costs directly related to exploratory and G&G activity. We estimate
that such expenditures for the year 2000 will be approximately $100 to $110
million, depending on product prices for the full year. These costs will be
allocated in varying amounts primarily to activities in our core geographic
areas.
25
<PAGE> 26
A major component of our capital program relates to our development activities
in the D-J Basin. We incurred approximately $19.0 million for the quarter ended
March 31, 2000 for costs to drill, deepen, recomplete and refrac our D-J Basin
properties, and we anticipate allocating approximately $55 to $60 million to the
D-J Basin during 2000.
Another component of our capital program has been to develop our exploitation
and exploration prospects in the onshore portion of the Gulf Coast. For the
quarter ended March 31, 2000, we incurred total expenditures of $10.3 million
for seismic, leasehold and drilling costs in the Gulf Coast. We anticipate
allocating approximately $25 to $40 million to the Gulf Coast projects during
2000 for exploration and development activities including land and seismic.
In our Mid-Continent project area we are acquiring and processing 3-D seismic
data and are preparing to initiate drilling activity on several prospects.
Activity in this area will focus on high volume, long-life gas prospects. We
anticipate allocating $5 to $6 million to the Mid-Continent project area during
2000.
Activities in the Northern Rockies are planned to manage risk by utilizing our
extensive acreage positions, operational expertise, and geotechnical ideas to
attract risk capital from value-added partners. We believe our projects have
substantial flexibility in terms of timing, as a result of long-term leases and
minimal future capital obligations.
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. The Company aggressively manages its working
capital position including periodic borrowings and repayments under its
revolving credit facility. Of the total working capital deficit of $40.3 million
at March 31, 2000, $20.4 million represents the current portion of the payable
to KMI for the purchase of the Wattenberg Gathering and Transmission System. The
Company intends to use cash provided by monthly gathering and transportation
revenues from existing contractual agreements, including amounts paid by HSR, to
fund the monthly obligations to KMI. The Company believes that the payments made
under the gathering agreements will exceed the payments to KMI assuming no
unforeseen extended operational interruptions of the system.
Net cash provided by operating activities for the quarter ended March 31, 2000
was $45.1 million, up from $21.0 million for the same period in 1999 primarily
as a result of an increase in product prices. 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
26
<PAGE> 27
hedge price and location risk with swap, collar, floor and ceiling arrangements.
In order to minimize risk, we hedge certain of our production back to the well
head. 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 can change current and future
accounting and reporting requirements for certain risk management activities.
See Note 5 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). Hedging contracts for our production reduced our oil and gas
sales by $4.7 million in the first quarter of 2000 and increased our oil and gas
sales by $5.9 million in the first quarter of 1999. Hedging contracts for third
party gas increased trading and transportation revenues by approximately $76,000
in the first quarter of 2000 and decreased trading and transportation revenues
by $63,000 in the first quarter of 1999.
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 our basis (meaning the transportation
differential from our producing regions to the location of delivery for a hedged
volume).
27
<PAGE> 28
As of March 31, 2000, we held hedge swap positions as follows:
GAS HEDGES
<TABLE>
<CAPTION>
Average Daily Fair Value at
Quantity Settlement Price March 31, 2000
Time Period (MMBtu) Location (per MMBtu) Gain (Loss)
- --------------- ---------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
April 2000 - October 2000 15,000 NW 2.193 $ (1,582,027.50)
April 2000 - October 2000 5,000 NW 2.223 $ (495,242.50)
April 2000 - October 2000 10,000 NW 2.250 $ (931,635.00)
April 2000 - October 2000 15,000 NW 2.288 $ (1,277,077.50)
April 2000 - October 2000 25,000 NW 2.150 $ (2,864,087.50)
April 2000 - October 2000 10,000 NW 2.198 $ (1,043,985.00)
April 2000 - October 2000 10,000 NW 2.115 $ (1,220,535.00)
April 2000 - October 2000 30,000 NW 2.053 $ (4,062,855.00)
April 2000 - October 2000 20,000 NW 2.500 $ (1,863,270.00)
November 2000 - March 2001 10,000 NW 2.445 $ (601,133.00)
November 2000 - March 2001 10,000 NW 2.450 $ (593,583.00)
November 2000 - March 2001 80,000 NW 2.478 $ (4,291,889.00)
April 2001 - October 2001 10,000 NW 2.090 $ (741,610.00)
April 2001 - October 2001 20,000 NW 2.110 $ (1,397,620.00)
April 2001 - October 2001 50,000 NW 2.350 $ (926,050.00)
April 2001 - October 2001 5,000 NW 2.400 $ (39,105.00)
April 2001 - December 2001 20,000 NW 2.200 $ (1,607,130.00)
January 2002 - March 2002 15,000 NW 1.900 $ (639,945.00)
January 2002 - March 2002 15,000 NW 2.200 $ (186,340.00)
April 2002 - October 2002 15,000 NW 2.310 $ (117,798.00)
April 2002 - October 2002 25,000 NW 2.300 $ (249,830.00)
</TABLE>
GAS BASIS HEDGES(1)
<TABLE>
<CAPTION>
Average Daily Basis Fair Value at
Quantity Settlement Differential March 31, 2000
Time Period (MMBu) Location (per MMBtu) Gain (Loss)
- --------------- ---------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
April 2002 - October 2002 75,000 NW (0.310) $ (462,240.00)
November 2002 - December 2002 15,000 NW (0.300) $ (64,050.00)
</TABLE>
(1) Basis is the differential between the NYMEX contract price and the
regional index. The Company has locked in basis differential but has
not locked in the fixed portion of the risk.
28
<PAGE> 29
WRITTEN GAS CALLS
<TABLE>
<CAPTION>
Average Daily Fair Value at
Quantity Settlement Price March 31, 2000
Time Period (MMBtu) Location (per MMBtu) Gain (Loss)
- --------------- ---------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
April 2000 - December 2000 20,000 NYMEX 3.100 $ (1,173,580)
January 2001 - December 2001 20,000 NYMEX 3.000 $ (1,953,164)
</TABLE>
As of March 31, 2000, we had hedged our expected oil production as follows:
CRUDE OIL HEDGES
<TABLE>
<CAPTION>
Average Monthly Fair Value at
Quantity Settlement Price March 31, 2000
Time Period (Bbl) Location (per Bbl) Gain (Loss)
- --------------- ---------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
April 2000 - June 2000 61,000 WTI 22.600 $ (675,600.60)
</TABLE>
WRITTEN CRUDE OIL HEDGES
<TABLE>
<CAPTION>
Average Monthly Fair Value at
Quantity Settlement Price March 31, 2000
Time Period (Bbl) Location (per Bbl) Gain (Loss)
- --------------- ---------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
April 2000 - December 2000 61,000 WTI 21.400 $ (2,352,138)
January 2001 - December 2001 60,833 WTI 20.400 $ (2,347,883)
</TABLE>
Additionally, with respect to the hedging of third party gas, we have hedged 3.4
Bcf from April 2000 through December 2000 with offsetting physical positions at
settlement prices which are based upon NYMEX future prices or other published
indices. The fair market value of these hedges at March 31, 2000 was a gain of
$519,000.
We routinely buy and sell options or forward contracts as part of our overall
hedging strategy. As of March 31, 2000, we had written crude oil and natural gas
calls through December 2001. These calls are hedged by future production. The
counterparties to these call transactions require the maintenance of specified
margin balances. Fluctuations in the mark-to-market value of these instruments
could result in additional margin requirements over the term of the underlying
contracts.
TRADING ACTIVITIES. We engage in the trading of various energy related financial
instruments which require payments to or receipt of payments from counterparties
based on the differential between a fixed and a variable price for the
commodity, swap or other
29
<PAGE> 30
contractual arrangement. Activities for trading purposes are accounted for using
the mark-to-market method. Under this method, changes in the market value of
outstanding financial instruments are recognized in "trading and transportation
revenues" as a net gain or loss in the period of change. The market prices used
to value these transactions reflect management's best estimate considering
various factors, including closing exchange and over-the-counter quotations,
time value and volatility factors underlying the commitments. The values are
adjusted to reflect the potential impact of liquidating our position in an
orderly manner over a reasonable period of time under present market conditions.
Our policy requires that, within defined trading limits, financial instrument
purchase and sales contracts be balanced in terms of contract volumes and the
timing of performance and delivery obligations. For the quarters ended March 31,
2000 and 1999, net gains of $1.4 million and $0.6 million, respectively, were
recognized in connection with financial trading 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 pre-1999 interest
rate hedging agreements. Market risk related to borrowings from a one percent
change in interest rates would result in an approximate $0.9 million impact on
pre-tax income, based on the quarter end borrowing level and the amount of such
borrowings which are not subject to interest rate swaps.
TOTAL RETURN EQUITY SWAPS. In 1999 we entered into three total return equity
swap agreements with financial institutions. 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 had 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.
Effective April 20, 2000 we repurchased the 730,000 shares of our common stock.
Those shares were retired into the treasury, and, as a
30
<PAGE> 31
result, the $4.5 million transaction will reduce our outstanding common stock by
approximately 4%.
On May 24, 1999 we entered into a second agreement whereby the financial
institution acquired 100,000 shares of HSR's common stock from another investor
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.
On December 1, 1999 we entered into a third agreement whereby a financial
institution agreed to acquire on the open market approximately 300,000 shares of
our stock at the current market price over a three month period beginning
December 2, 1999. As of March 31, 2000 the financial institution had acquired
308,100 shares at a weighted average price of $14.55 per share. We have the
right, but not the obligation to purchase the stock at the weighted average
price at any time through September 2, 2001.
If we decide not to purchase the shares on or before the termination of the
second or third agreement, we will receive any increase in the market value of
the shares covered by the agreement above the purchase price of the shares, or
will pay for any loss; however, we may cover losses in most circumstances 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 also pay certain commissions and finance costs. At March 31, 2000
the aggregate fair market value of HSR's common stock in excess of the
underlying option price attributable to such shares, including those under the
first agreement, which have now been repurchased, was approximately
$13.9 million.
CONTINGENCIES. We have resolved the alleged Clean Water Act Section 404
(wetlands) violations in Louisiana. We have agreed to a proposal to settle the
matter that is presently being reviewed by senior officials at the Department of
Justice ("DOJ") and the Environmental Protection Agency ("EPA"). The settlement
will not have a material adverse effect on us. As of March 31, 2000 we have
accrued an amount in our financial statements that is sufficient to cover the
estimated settlement. See "Legal Proceedings and Environmental Issues."
31
<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 "Notes to Unaudited Consolidated
Financial Statements." These statements may concern, among other things:
o planned capital expenditures and expected funding of capital
expenditures from cash flow;
o increases in oil and gas production;
o production economics;
o expected drilling opportunities;
o ability to anticipate and alleviate gathering and transportation
bottlenecks;
o expectations of payments under gathering agreements exceeding required
payments to Kinder Morgan, Inc.;
o trends or expectations concerning oil and gas prices or market
characteristics;
o marketing, hedging and trading risks, strategies, policies, procedures
and profitability;
o credit risk on trading and hedging activities;
o our financial position, stability of cash flow, debt service
capabilities and capital availability;
o the ability to manage risk through hedging and similar activities;
o business strategy and other plans and objectives for future operations;
o potential liabilities or the expected absence thereof; and
o the potential outcome of environmental matters, litigation or other
proceedings.
All forward-looking statements included in this Form 10-Q are based on
information available to us on the date hereof, and we assume no obligation to
update such forward-looking statements. Although we believe the forward-looking
statements are based on
32
<PAGE> 33
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 factors discussed in "Certain Considerations" described in our
report on Form 10-K filed March 24, 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings and Environmental Issues
ENVIRONMENTAL PROCEEDINGS. In May 1995, we were named by the EPA pursuant to a
Resource Conservation and Recovery Act administrative order as one of two
respondents in addition to the owner/operator of an oilfield production water
evaporation facility. The order requires that work be performed to abate a
perceived endangerment to wildlife, the environment or public welfare. We and
other non-operator respondents have worked together with the EPA to develop
characterization studies of the site, and have caused the facility to be
permanently closed. HSR and other non-operator respondents have completed
substantially all work at the site. We have incurred approximately $1.3 million
as of March 31, 2000 for our portion of the costs. This amount has been recorded
in our financial statements as of March 31, 2000 and we believe that no
substantial liability remains.
Additionally, in March of 1999 we became subject to an enforcement action now
being handled by the EPA and DOJ for alleged violations of Section 404 of the
Clean Water Act concerning wetlands. We have agreed to a proposal to settle the
matter that is presently being reviewed by senior officials at the DOJ and EPA.
The settlement will not have a material adverse effect on us. As of March 31,
2000 we have accrued an amount in our financial statements that is sufficient to
cover the estimated settlement.
Finally, the gathering and transmission properties we are acquiring from KMI
contain numerous areas of polluted soil and ground water. These conditions have
been reported to the appropriate jurisdictional agencies. HSR expects the costs
associated with cleanup of these environmental problems will be borne by KMI
under the indemnification provisions of our agreement with KMI.
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. We do not believe that
the resolution of such lawsuits will have a material adverse effect on our
financial position or results of operations.
Item 2. Changes in Securities None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders None.
Item 5. Other Information None.
33
<PAGE> 34
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.)
34
<PAGE> 35
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 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.)
10.8 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.)
10.9 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.)
10.10 Amended and Restated Credit Agreement dated as of June 14, 1996, among
the Company, Chase as agent, and the Banks signatory thereto.
(Incorporated by reference to Exhibit 10.21 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, filed August
14, 1996.)
10.11 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.)
35
<PAGE> 36
10.12 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.)
10.13 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.)
10.14 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.)
10.15 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.)
10.16 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.)
10.17 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.)
10.18 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.)
36
<PAGE> 37
10.19 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.)
10.20 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.)
10.21 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.)
10.22 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.)
10.23 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.)
10.24 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.)
10.25 Agreement and Plan of Merger between Orion Acquisition, Inc. and HS
Resources, Inc. dated April 20, 1998, but effective May 1, 1998.
(Incorporated by reference to Exhibit 10.38 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, filed May 14,
1998.)
10.26 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.)
37
<PAGE> 38
10.27 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.)
10.28 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.)
10.29 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.)
10.30 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.)
10.31 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.)
10.32 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.)
10.33 Seventh Amendment to Amended and Restated Credit Agreement dated as of
December 31, 1998, among the Company and The Chase Manhattan Bank in
its individual capacity and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, filed March 31, 1999.)
10.34 1999 Non-Compensatory Stock Purchase Plan. (Incorporated by reference
as Exhibit 4.1 to Form S-8 filed January 25, 1999.)
38
<PAGE> 39
10.35 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.)
10.36 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.)
10.37 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.)
10.38 Seventh Amendment and Supplement to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing
Statement dated as of September 1, 1999 among: The Company and The
Chase Manhattan Bank in its individual capacity, and as agent to the
Lenders. (Incorporated by reference to Exhibit 10.41 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999,
filed November 15, 1999).
10.39 Eighth Amendment to Amended and Restated Credit Agreement dated as of
August 27, 1999 among: The Company and The Chase Manhattan Bank in its
individual capacity, and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.42 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, filed November 15,
1999).
10.40 Exchange Agreement dated August 27, 1999 between HS Resources, Inc. and
Patina Oil & Gas Corporation. (Incorporated by reference to Exhibit
10.43 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, filed November 15, 1999).
10.41 Ninth Amendment to Amended and Restated Credit Agreement dated as of
October 28, 1999 among: The Company and The Chase Manhattan Bank in its
individual capacity, and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, filed March 24, 2000.)
39
<PAGE> 40
27* Financial Data Schedule
* Filed herewith
b. Reports on Form 8-K.
Form 8-KA dated February 9, 2000 relating to the November 26, 1999
acquisition from Kinder Morgan, Inc. Item 2.
Form 8-K dated February 18, 2000, filing the February 17, 2000 press
release in connection with the Company's fourth 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: May 11, 2000 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>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 980,410
<SECURITIES> 0
<RECEIVABLES> 79,317,006
<ALLOWANCES> 0
<INVENTORY> 1,106,969
<CURRENT-ASSETS> 89,068,318
<PP&E> 1,084,726,449
<DEPRECIATION> 251,111,440
<TOTAL-ASSETS> 935,364,213
<CURRENT-LIABILITIES> 129,330,647
<BONDS> 547,737,794
19,523
0
<COMMON> 0
<OTHER-SE> 178,483,122
<TOTAL-LIABILITY-AND-EQUITY> 935,364,213
<SALES> 80,256,447
<TOTAL-REVENUES> 82,522,952
<CGS> 18,327,057
<TOTAL-COSTS> 35,690,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,162,490
<INCOME-PRETAX> 16,342,869
<INCOME-TAX> 6,226,633
<INCOME-CONTINUING> 10,116,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,116,236
<EPS-BASIC> 0.54
<EPS-DILUTED> 0.53
</TABLE>
