- ----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
=========
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10874
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MESA INC.
=========
(Exact name of registrant as specified in its charter)
Texas 75-2394500
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
- ---------------------------- -----
(Address of Principal (Zip Code)
Executive Offices) (214) 444-9001
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(Registrant's telephone number)
(No changes)
------------
(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
------- -------
Number of shares of common stock outstanding as of the close of business
on November 13, 1996: 64,279,568
----------
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<PAGE>
PART I - FINANCIAL INFORMATION
==============================
Item 1. Financial Statements
- -----------------------------
MESA INC.
=========
Consolidated Statements of Operations
-------------------------------------
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
REVENUES: -------- -------- -------- --------
Natural gas.................... $ 37,919 $ 24,817 $132,729 $ 93,548
Natural gas liquids............ 21,943 16,828 65,058 53,607
Oil and condensate............. 3,981 4,987 12,828 15,554
Other.......................... 2,909 2,335 8,102 7,679
-------- -------- -------- --------
66,752 48,967 218,717 170,388
-------- -------- -------- --------
COSTS AND EXPENSES:
Lease operating................ 13,786 13,423 39,069 36,623
Production and other taxes..... 4,176 4,690 14,475 13,917
Exploration charges............ 1,297 824 4,111 3,061
General and administrative..... 12,343 9,210 26,881 21,617
Depreciation, depletion
and amortization.............. 22,617 20,601 75,265 61,897
-------- -------- -------- --------
54,219 48,748 159,801 137,115
-------- -------- -------- --------
OPERATING INCOME .................... 12,533 219 58,916 33,273
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income.................. 462 4,108 7,426 12,208
Interest expense................. (25,784) (37,589) (99,697) (110,701)
Gains (losses) on investments.... 69 (627) 9,418 1,122
Gains from collection of interest
from Bicoastal Corporation...... -- 1,699 2,548 6,352
Gain from adjustment of
contingency reserve............. -- -- 15,000 --
Other............................ (806) (283 (1,533) 3,426
-------- -------- -------- --------
(26,059) (32,692) (66,838) (87,593)
-------- -------- -------- --------
Net Income (Loss) Before
Extraordinary Item.............. (13,526) (32,473) (7,922) (54,320)
Extraordinary Loss on
Debt Extinguishment............. (59,386) -- (59,386) --
-------- -------- -------- --------
Net Income (Loss).................... $(72,912) $(32,473) $(67,308) $(54,320)
======== ======== ======== ========
Dividends on Preferred Stock......... (4,130) -- (4,130) --
Net Income (Loss) Applicable to
Common Stock.................... $(77,042) $(32,473) $(71,438) $(54,320)
======== ======== ======== ========
Income (Loss) Per Common Share
Before Extraordinary Item....... $ (.28) $ (.51) $ (.19) $ (.85)
Income (Loss) Per Common Share
on Extraordinary Item........... (.92) -- (.92) --
-------- -------- -------- --------
Net Income (Loss) Per Common Share... $ (1.20) $ (.51) $ (1.11) $$ (.85)
======== ======== ======== ========
Weighted Average
Shares Outstanding:
Common.......................... 64,266 64,050 64,125 64,050
Series A Preferred.............. 57,327 -- 19,249 --
Series B Preferred.............. 58,222 -- 19,549 --
(See accompanying notes to consolidated financial statements.)<PAGE>
MESA INC.
=========
Consolidated Balance Sheets
---------------------------
(in thousands, except share data)
September 30, December 31,
ASSETS 1996 1995
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash investments.................... $ 27,105 $ 149,143
Investments.................................. -- 38,280
Accounts and notes receivable................ 37,027 44,734
Other........................................ 4,771 4,590
---------- ----------
Total current assets.................... 68,903 236,747
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Oil and gas properties, wells and
equipment using the successful
efforts method of accounting............... 1,961,657 1,930,879
Office and other............................. 39,998 41,603
Accumulated depreciation, depletion
and amortization........................... (938,952) (867,665)
---------- ----------
1,062,703 1,104,817
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OTHER ASSETS:
Restricted cash of subsidiary partnership.... -- 57,731
Gas balancing receivable..................... 58,357 56,020
Other........................................ 22,480 31,509
---------- ----------
80,837 145,260
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$1,212,443 $1,486,824
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities on long-term debt......... $ 5,305 $ 101,413
Accounts payable and accrued liabilities..... 33,234 31,068
Interest payable............................. 14,530 60,465
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Total current liabilities............... 53,069 192,946
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LONG-TERM DEBT.................................... 834,435 1,135,330
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DEFERRED REVENUE.................................. 15,096 17,578
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OTHER LIABILITIES................................. 60,608 73,966
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CONTINGENCIES
STOCKHOLDERS' EQUITY:
8% Cumulative convertible preferred
stock, $.01 par value, authorized
500,000,000 shares; outstanding
119,257,587 shares and 0 shares,
respectively............................... 1,193 --
Common stock, $.01 par value, authorized
600,000,000 shares; outstanding 64,279,568
shares and 64,050,009 shares, respectively. 643 640
Additional paid-in capital................... 651,438 398,965
Accumulated deficit.......................... (404,039) (332,601)
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249,235 67,004
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$1,212,443 $1,486,824
========== ==========
(See accompanying notes to consolidated financial statements.)
MESA INC.
=========
Consolidated Statements of Cash Flows
-------------------------------------
(in thousands)
(unaudited)
Nine Months Ended
September 30
-------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (67,308) $(54,320)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization... 75,265 61,897
Accreted interest on discount notes........ 3,266 39,064
Gains from investments..................... (9,418) (1,122)
Changes in operating receivables and
payables.................................. (49,211) (6,673)
Changes in investments, net................ 47,698 3,473
Debt extinguishment expense................ 59,386 --
Other...................................... 4,025 (592)
---------- --------
Cash provided by operating activities...... 63,703 41,727
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (36,148) (35,571)
Other........................................... 1,846 6,422
---------- --------
Cash used in investing activities.......... (34,302) (29,149)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock............................... 248,433 --
Long-term borrowings............................ 970,097 --
Repayments of long-term debt.................... (1,370,366) (15,507)
Other........................................... 397 3,280
---------- --------
Cash used in financing activities.......... (151,439) (12,227)
---------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH INVESTMENTS............................... (122,038) 351
CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD..... 149,143 143,422
---------- --------
CASH AND CASH INVESTMENTS AT END OF PERIOD........... $ 27,105 $143,773
========== ========
(See accompanying notes to consolidated financial statements.)
<PAGE>
MESA INC.
=========
Consolidated Statement of Changes in Stockholders' Equity
---------------------------------------------------------
(in thousands)
(unaudited)
<TABLE>
8% Cumulative 8% Cumulative
Series A Series B
Common Stock Preferred Stock Preferred Stock Additional
-------------- --------------- --------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995..... 64,050 $640 $398,965 $(332,601)
Net Loss..................... -- -- -- -- -- -- -- (67,308)
Stock Options Exercised...... 211 3 -- -- -- -- 1,103 --
8% Cumulative Convertible
Preferred Stock Issued.... -- -- 58,599 586 58,850 588 247,259 --
8% Cumulative Convertible
Preferred Stock Dividends. -- -- 678 7 1,151 12 4,111 (4,130)
8% Cumulative Convertible
Preferred Stock Converted
to Common Stock........... 20 -- (20) -- -- -- -- --
------ ---- ------- ------ ------ ------ -------- ---------
BALANCE, September 30, 1996.... 64,281 $643 59,257 $ 593 60,001 $ 600 $651,438 $(404,039)
====== ==== ======= ====== ====== ====== ======== =========
(See accompanying notes to consolidated financial statements.)
</TABLE>
<PAGE>
MESA INC.
=========
Notes to Consolidated Financial Statements
------------------------------------------
September 30, 1996
(unaudited)
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
===========================================================
MESA Inc., a Texas corporation, was formed in 1991 to reorganize the
business of Mesa Limited Partnership. Unless the context otherwise
requires, as used herein the term "Mesa" refers to MESA Inc. and its
subsidiaries taken as a whole and includes its predecessor.
The consolidated financial statements of Mesa for the three and nine
month periods ended September 30, 1996 and 1995, are unaudited but reflect,
in the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to fairly present the results for such
periods. The preparation of the consolidated financial statements of Mesa
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates. The accompanying financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in Mesa's Annual Report on
Form 10-K ("Form 10-K") for the year ended December 31, 1995.
Certain reclassifications have been made to amounts reported in the
previous year to conform to 1996 presentation.
(1) RECAPITALIZATION
================
In August of 1996, Mesa completed a recapitalization of its balance
sheet by issuing new equity and repaying and refinancing substantially all
of its then existing long-term debt. The structure and effects of the
Recapitalization are described below.
Series A & B Preferred Equity Sales
- -----------------------------------
On April 26, 1996, Mesa entered into a stock purchase agreement with
DNR-MESA Holdings L.P., a Texas limited partnership ("DNR"), whose sole
general partner is Rainwater Inc., a Texas corporation owned by Richard E.
Rainwater. The agreement contemplated that Mesa would issue $265 million in
new preferred equity and would repay and/or refinance substantially all of
its $1.2 billion of existing debt (the "Recapitalization"). The sale of
shares to DNR and certain other matters were approved by Mesa's stockholders
at a special meeting on June 25, 1996. On July 2, 1996, DNR purchased, in a
private placement, approximately 58.8 million shares of a new class of
Series B 8% Cumulative Convertible Preferred Stock ("Series B Preferred").
On July 5, 1996, Mesa commenced a rights offering for approximately 58.6
million shares of a new class of Series A 8% Cumulative Convertible
Preferred Stock ("Series A Preferred") to its existing stockholders (the
"Rights Offering"). DNR provided a standby commitment to purchase an
additional number of shares of Series B Preferred equal to the number of
shares of Series A Preferred not subscribed to in the Rights Offering.
Stockholders received .912 rights in respect of each share of common stock
held. Each full right was exercisable for one share of Series A Preferred
at an exercise price of $2.26 per share, the same per share price at which
DNR purchased shares of Series B Preferred. On August 5, 1996, the Rights
Offering closed. On August 8, 1996, Mesa issued approximately 58.6 million
shares of Series A Preferred to rights holders who exercised their rights.
Because the rights offering was oversubscribed, DNR was not required to
purchase additional Series B Preferred pursuant to its standby commitment.
Each share of Series A and B Preferred is convertible into one share of
Mesa common stock at any time prior to mandatory redemption in 2008. After
2006, at the option of Mesa's non-series B directors, Mesa has the right to
redeem any outstanding Series A and Series B Preferred shares for common
stock or cash unless such shares were previously converted to common stock.
Similarly, at mandatory redemption in 2008, the remaining Series A and B
Preferred shares will be converted into common stock or cash at the option
of Mesa's non-series B directors. An annual 8% pay-in-kind dividend will be
paid quarterly on the shares during the first four years following issuance.
Thereafter, the 8% dividend may, at the option of Mesa, be paid in cash or
additional preferred shares, depending on whether certain financial tests
are met and subject to any limitations in Mesa's debt agreements.
The Series A and B Preferred represented 64.6% of the fully diluted
common shares at the time of issuance and will represent 71.5% of such
shares after the mandatory four-year pay-in-kind period, excluding stock
options and assuming no other stock issuance by Mesa. The Series A and B
Preferred have a liquidation preference per share equal to $2.26 plus
accrued and unpaid dividends. The terms of the Series A and Series B
Preferred are substantially identical except for certain voting rights and
certain provisions relating to transferability. The Series A and B
Preferred will vote with the common stock as a single class on all matters,
except as otherwise required by law and except for (i) the right of the
holders of the Series B Preferred to nominate and elect a majority of Mesa's
Board of Directors for so long as DNR and its affiliates meet certain
minimum stock ownership requirements, and (ii) the right of the holders of
the Series A Preferred to elect two directors in the event of certain
dividend arrearages. As a result of the stock issuances and the subsequent
pay-in-kind quarterly dividends, at September 30, 1996 DNR owns
approximately 32.7% of Mesa's fully diluted common shares (excluding
outstanding stock options).
New Debt
- --------
In conjunction with the issuance of Series A and B Preferred, Mesa
entered into a new seven-year $525 million secured revolving credit facility
("New Credit Facility") with a group of banks. Mesa also issued and sold
$475 million of senior subordinated notes consisting of $325 million of 10-5/8%
senior subordinated notes due in 2006 ("Senior Subordinated Notes") and
$150 million of 11-5/8% senior subordinated discount notes due in 2006
("Senior Discount Notes"). (See Note 3 for a more detailed description of
the new debt.)
<PAGE>
Use of Proceeds
- ---------------
The total proceeds from the issuance of the new equity and new long-term
debt, together with certain cash and investments on hand, were used to
repay and refinance then existing long-term debt and transaction costs as
follows:
Amount
-------------
(In millions)
Sources
New Credit Facility.......................................... $ 365.0
Senior Subordinated Notes.................................... 325.0
Senior Discount Notes........................................ 150.1
Series A and B Preferred Stock............................... 265.4
Cash and investments......................................... 162.2
--------
Total sources........................................... $1,267.7
========
Uses
Repayment of HCLP Secured Notes............................... $ 492.3
Repayment of Former Credit Facility........................... 38.6
Redemption of 12-3/4% Secured Discount Notes due June 30 1998. 617.4
Redemption of 13-1/2% Subordinated Notes due May 1, 1999...... 7.6
Prepayment premium with respect to HCLP Secured Notes......... 50.9
Fees and expenses............................................. 35.9
Accrued interest.............................................. 25.0
--------
Total uses............................................... $1,267.7
========
See Note 3 for a description of Mesa's existing long-term debt at
September 30, 1996. The fees and expenses associated with the
Recapitalization consist primarily of underwriter fees, preferred stock
commitment fees, legal fees, printing and mailing costs and accounting fees.
The fees associated with the Series A and B Preferred stock have been offset
against the proceeds of the issuance of the shares and reflected in
additional paid-in capital on the consolidated balance sheet. The fees
relating to the issuance of new debt has been capitalized and is being
amortized over the term of the associated debt.
An extraordinary loss totaling approximately $59.4 million on the
extinguishment of long-term debt has been recognized in the third quarter of
1996. The loss consists primarily of the $50.9 million HCLP Secured Notes
prepayment premium and approximately $11.2 million of unamortized debt
issuance costs and premiums associated with the debt that was repaid and
refinanced, partially offset by $2.7 million in gains from cash deposits
associated with the HCLP Secured Notes.
Effect of the Recapitalization
- ------------------------------
The Recapitalization enhances Mesa's ability to compete in the oil and
gas industry by substantially increasing its cash flow available for
investment and improving its ability to attract capital, which increases its
ability to pursue investment opportunities. Specifically, Mesa's financial
condition will improve significantly as a result of the Recapitalization due
to (i) a significant reduction in total debt outstanding ($317 million,
initially), (ii) a reduction in annual cash interest expense of
approximately $75 million, (iii) the implementation of a cost savings
program designed to initially reduce annual general and administrative and
other operating overhead expenses by approximately $10 million, and (iv) the
extension of maturities on its long-term debt.
The expected reduction of annual cash interest expense is based on the
following assumptions: (i) average borrowings under the New Credit Facility
of approximately $365 million, excluding letters of credit, and (ii) annual
interest rates of approximately 7% under the New Credit Facility, 10-5/8%
under the Senior Subordinated Notes and 11-5/8% under the Senior Discount
Notes. Actual borrowings and interest rates under the New Credit Facility
will fluctuate over time and will affect Mesa's actual cash interest
expense.
In conjunction with the recapitalization of Mesa on July 2, 1996, all
of Mesa's principal subsidiaries were merged into Mesa Operating Co.
("MOC"). As a result, MOC now owns substantially all of Mesa's assets and
liabilities, including all of Mesa's oil and gas properties and all of its
long-term debt.
Prior to the Recapitalization, Mesa's direct subsidiaries were MOC,
Mesa Holding Co. ("MHC") and Hugoton Management Co. ("HMC"). MOC owned all
of Mesa's interest in the West Panhandle field of Texas, the Gulf Coast and
the Rocky Mountain areas, as well as an approximate 99% limited partnership
in Hugoton Capital Limited Partnership ("HCLP"). MHC owned cash, an
approximate 1% limited partnership interest in HCLP and 100% of Mesa
Environmental Ventures Co. ("MEV"), a company established to compete in the
natural gas vehicle business. HMC owned the general partnership interest in
HCLP. HCLP owned substantially all of Mesa's Hugoton field natural gas
properties.
Management believes that cash from operating activities, together with
as much as $187 million of availability under the New Credit Facility will
be sufficient for Mesa to meet its debt service obligations and scheduled
capital expenditures, and to fund its working capital needs, for the next
several years. Notwithstanding the Recapitalization, Mesa continues to be
highly leveraged.
(2) INVESTMENTS
===========
The value of investments are as follows (in thousands):
September 30, December 31,
1996 1995
------------- ------------
New York Mercantile Exchange ("NYMEX")
Futures Contracts:
Margin Cash........................... $ -- $17,498
Unrealized gain in trading contracts.. -- 7,558
Commodity Price Swaps:
Margin Cash........................... -- 2,434
Unrealized gain (loss) in price swaps. -- (811)
Natural Gas Options:
Premiums.............................. -- 66
Unrealized gain in trading options.... -- 978
Equity securities:
Cost.................................. -- 10,719
Unrealized loss....................... -- (162)
------- -------
Total market value.................... $ -- $38,280
======= =======
For the nine months ended September 30, 1996, Mesa recognized net gains
of approximately $9.4 million from its investments compared with net gains
for the same period in 1995 of $1.1 million. These gains do not include
gains or losses from futures contracts accounted for as a hedge of
production. Hedge gains or losses are included in revenues in the period in
which the hedged production occurs.
The net investment gains and losses recognized during a period include
both realized and unrealized gains and losses. Mesa realized net gains from
investments of $17.0 million for the nine months ended September 30, 1996,
and $3.0 million for the same period in 1995. At September 30, 1996, Mesa
had no open futures contracts and no unrealized gain or loss on investments.
In 1995 Mesa entered into certain over-the-counter commodity price swap
agreements. These agreements required Mesa to make payments to (or receive
payments from) a counter party based on the differential between a fixed and
a variable price for specified natural gas volumes. Mesa's agreements were
to expire on the last day of trading for April, May and June 1996 natural
gas futures contracts as determined by the NYMEX. During the nine months
ended September 30, 1996, Mesa closed all of these positions, which related
to 10.1 million MMBTUs of natural gas. Mesa realized a gain of $3.4 million
on these positions. Mesa will continue to evaluate, as circumstances
warrant, opportunities in the financial and physical energy markets.
(3) LONG-TERM DEBT
==============
Long-term debt and current maturities are as follows (in thousands):
September 30, December 31,
1996 1995
------------- ------------
10-5/8% Senior Subordinated Notes........... $ 325,000 $ --
11-5/8% Senior Discount Notes............... 154,435 --
New Credit Facility......................... 355,000 --
HCLP Secured Notes.......................... -- 504,674
Former Credit Agreement..................... -- 61,131
12-3/4% secured discount notes.............. -- 618,518
12-3/4% unsecured discount notes............ -- 39,725
13-1/2% subordinated notes.................. -- 7,390
Other....................................... 5,305 5,305
---------- ----------
839,740 1,236,743
Current maturities.......................... (5,305) (101,413)
---------- ----------
Long-term debt.............................. $ 834,435 $1,135,330
========== ==========
MOC is the borrower under the New Credit Facility and all borrowings
are fully and unconditionally guaranteed by MESA Inc. The New Credit
Facility, which is secured by liens on substantially all of Mesa's assets,
matures on June 30, 2003. The borrowing base for the New Credit Facility is
determined based on the value of Mesa's proved oil and gas reserves.
Initially the borrowing base was set at $525 million. As of November 12,
1996, the New Credit Facility supports Letters of Credit totaling $11.0
million and Mesa has $187 million of unused borrowing capacity. Borrowings
bear interest, at Mesa's option, at Interbank Eurodollar rates plus 1-1/2%,
CD rates plus 1-1/2%, Fed Funds rates plus 1% or the prime rate plus 1/2%.
Mesa has entered into an interest rate swap for two years that fixes the
interest rate on $250 million of borrowings at 7-3/4%.
The New Credit Facility restricts, among other things, Mesa's ability
to incur additional indebtedness, create liens, pay dividends, acquire stock
or make investments, loans and advances.
The 10-5/8% Senior Subordinated Notes are unsecured and mature in 2006.
MOC is the issuer of such notes and such notes are fully and unconditionally
guaranteed by MESA Inc. Interest is payable semiannually in cash.
The 11-5/8% Senior Discount Notes are unsecured and mature in 2006.
MOC is the issuer of such notes and such notes are fully and unconditionally
guaranteed by MESA Inc. Through June 30, 2001, interest will not accrue;
however, the accreted value, as defined, of such notes will increase at a
rate of 11-5/8% per year, compounded semiannually. Thereafter, through
maturity, interest will be payable semiannually in cash.
The indentures governing the Senior Subordinated Notes and the Senior
Discount Notes contain certain covenants that, among other things, limit the
ability of Mesa and its restricted subsidiaries to incur additional
indebtedness and issue "disqualified stock," pay dividends, make
investments, make certain other restricted payments, enter into certain
transactions with affiliates, dispose of assets, incur liens and engage in
mergers and consolidations.
HCLP Secured Notes
- ------------------
In 1991 HCLP issued $616 million of HCLP Secured Notes in a private
placement with a group of institutional lenders. On July 2, 1996, pursuant
to the Recapitalization, Mesa prepaid the HCLP Secured Notes. See Note 1.
A prepayment premium, based on prevailing interest rates at the date of
redemption, was due upon redemption of the HCLP Secured Notes totaling $50.9
million. Such premium is classified as an extraordinary loss from early
extinguishment of debt in the third quarter of 1996 statement of operations.
Former Credit Agreement
- -----------------------
As of June 30, 1996, Mesa had outstanding borrowings of approximately
$38.6 million and letter of credit obligations of $11.0 million under its
$82.5 million bank credit facility, as amended (the "Former Credit
Agreement"). The Former Credit Agreement required principal payments of
$22.5 million in the first half of 1996, with the remainder due in June 1997
(including cash collateralization of letters of credit outstanding at that
time).
On July 2, 1996, pursuant to the Recapitalization, Mesa prepaid all of
its obligations under the Former Credit Agreement. See Note 1.
Discount Notes
- --------------
In August 1993, Mesa issued approximately $435.5 million initial
accreted value ($569.2 million face amount), as defined, of 12-3/4% secured
discount notes due June 30, 1998, $136.9 million initial accreted value
($178.8 million face amount) of 12-3/4% unsecured discount notes due June
30, 1996 (together, the "Discount Notes") and $29.3 million principal amount
of 0% convertible notes. The 0% convertible notes were converted into
approximately 7.5 million shares of common stock in 1993. The 12-3/4%
unsecured discount notes were paid at maturity on July 1, 1996.
In 1994, Mesa issued an additional $48.2 million face amount of 12-3/4%
secured discount notes and used the proceeds to settle a lawsuit. Also in
1994, Mesa redeemed $139.1 million face amount of 12-3/4% unsecured discount
notes with proceeds from a public offering of Mesa common stock and from
additional borrowings under the Credit Agreement.
On July 2, 1996, pursuant to the Recapitalization, Mesa defeased the
12-3/4% secured discount notes, which have been redeemed. See Note 1.
Subordinated Notes
- ------------------
The 13-1/2% subordinated notes were unsecured and were to mature in
1999. Interest on these notes was payable semiannually in cash. Pursuant
to the Recapitalization, these notes were redeemed on August 22, 1996.
Interest and Maturities
- -----------------------
The aggregate interest payments, net of amounts capitalized, made
during the nine months ended September 30, 1996 and 1995, were $139.4
million and $61.0 million, respectively. The interest payments in the nine
months ended September 30, 1996 included a $42 million interest payment made
on January 2, 1996, paid pursuant to the terms of the Discount Notes, in
respect of the regular December 31, 1995 interest payment. Payment of
approximately $39.1 million of interest expense incurred during the nine
months ended September 30, 1995 was deferred under the terms of the Discount
Notes until the repayment dates of the Discount Notes. Such interest is
included in interest expense in the consolidated statements of operations
for the nine months ended September 30, 1995.
There are no scheduled principal payments under the terms of the New
Credit Facility, the Senior Subordinated Notes or the Senior Discount Notes
in the next five years.
<PAGE>
(4) CONTINGENCIES
=============
Masterson
- ---------
In February 1992 the current lessors of an oil and gas lease (the "Gas
Lease") dated April 30, 1955, between R. B. Masterson, et al., as lessor,
and Colorado Interstate Gas Company ("CIG"), as lessee, sued CIG in Federal
District Court in Amarillo, Texas, claiming that CIG had underpaid royalties
due under the Gas Lease. Under the agreements with CIG, Mesa has an
entitlement to gas produced from the Gas Lease. In August 1992 CIG filed a
third-party complaint against Mesa for any such royalty underpayments which
may be allocable to Mesa. Plaintiffs alleged that the underpayment was the
result of CIG's use of an improper gas sales price upon which to calculate
royalties and that the proper price should have been determined pursuant to
a "favored-nations" clause in a July 1, 1967, amendment to the Gas Lease
(the "Gas Lease Amendment"). The plaintiffs also sought a declaration by
the court as to the proper price to be used for calculating future
royalties.
The plaintiffs alleged royalty underpayments of approximately $500
million (including interest at 10%) covering the period from July 1, 1967,
to the present. In March 1995 the court made certain pretrial rulings that
eliminated approximately $400 million of the plaintiffs' claims (which
related to periods prior to October 1, 1989), but which also reduced a
number of Mesa's defenses. Mesa and CIG filed stipulations with the court
whereby Mesa would have been liable for between 50% and 60%, depending on
the time period covered, of an adverse judgment against CIG for post-February
1988 underpayments of royalties.
On March 22, 1995, a jury trial began and on May 4, 1995, the jury
returned its verdict. Among its findings, the jury determined that CIG had
underpaid royalties for the period after September 30, 1989, in the amount
of approximately $140,000. Although the plaintiffs argued that the
"favored-nations" clause entitled them to be paid for all of their gas at
the highest price voluntarily paid by CIG to any other lessor, the jury
determined that the plaintiffs were estopped from claiming that the
"favored-nations" clause provides for other than a pricing-scheme to
pricing-scheme comparison. In light of this determination, and the
plaintiffs' stipulation that a pricing-scheme to pricing-scheme comparison
would not result in any "trigger prices" or damages, defendants asked the
court for a judgment that plaintiffs take nothing. The court, on June 7,
1995, entered final judgment that plaintiffs recover no monetary damages.
The plaintiffs have filed a motion for new trial on which the court has not
yet ruled. Mesa cannot predict whether the court will grant such motion or,
if it does not, whether the plaintiffs will appeal the court's final
judgment. However, based on the jury verdict and final judgment, Mesa does
not expect the ultimate resolution of this lawsuit to have a material
adverse effect on its financial position or results of operations.
On June 7, 1996, the plaintiffs filed a separate suit against CIG and
Mesa in state court in Amarillo, Texas, similarly claiming underpayment of
royalties under the "favored-nations" clause, but based upon the
above-described pricing-scheme to pricing-scheme comparison on a
well-by-well monthly basis. The plaintiffs also claim underpayment of
royalties since June 7, 1995 under the "favored-nations" clause since 1967,
based upon either the pricing-scheme to pricing-scheme method or their
previously alleged higher price method. Mesa believes it has several defenses
to this action and intends to contest it vigorously. Mesa has not yet
determined the amount of damages, if any, that would be payable if such action
were determined adversely to Mesa.
The federal court in the above-referenced first suit issued an order on
July 29, 1996 which stayed the second suit pending a decision by the court
on plaintiff's motion for new trial in the first suit.
Thompson
- --------
In May 1996, the current lessors of an oil and gas lease dated October
8, 1958 between Terry Thompson, Jr., et al., as Lessor, and CIG, as Lessee,
sued CIG in state court in Amarillo claiming CIG has underpaid royalties
based upon allegations that CIG failed to develop, produce and market the
gas properly. Mesa is not currently a party of this litigation; however, if
CIG is found to be liable for any such underpayments, it may seek to recover
from Mesa the portion of such underpayments which may be allocable to Mesa.
Mesa believes there are several defenses to this action and, to the extent
Mesa becomes a party, intends to contest such action vigorously. Mesa has
not yet determined the amount of damages, if any, that would be payable if
such action were determined adversely to Mesa.
Mesa does not expect the resolution of this lawsuit to have a material
adverse effect on its financial position or results of operations.
Lease Termination
- -----------------
In 1991 Mesa sold certain producing oil and gas properties to Seagull
Energy Company ("Seagull"). In 1994, two lawsuits were filed against
Seagull in the 100th District Court in Carson County, Texas, by certain land
and royalty owners claiming that certain of the oil and gas leases owned by
Seagull have terminated due to cessation in production and/or lack of
production in paying quantities occurring at various times from first
production through 1994. In the third quarter of 1995, Seagull filed
third-party complaints against Mesa claiming breach of warranty and false
representation in connection with the sale of such properties to Seagull.
Seagull filed a similar third-party complaint June 29, 1995, against Mesa
covering a different lease in the 69th District Court in Moore County,
Texas. The plaintiffs in the cases against Seagull are seeking to terminate
the leases. Seagull, in its complaint against Mesa, is seeking unspecified
damages relating to any leases which are terminated. Mesa believes it has
several defenses to these lawsuits, including a two-year limitation on
indemnification set forth in the purchase and sale agreement pursuant to
which Mesa sold the properties.
Mesa does not expect the resolution of this lawsuit to have a material
adverse effect on its financial position or results of operations.
Other
- -----
Mesa is also a defendant in other lawsuits and has assumed liabilities
relating to Original Mesa and the Partnership. Mesa does not expect the
resolution of these other matters to have a material adverse effect on its
financial position or results of operations.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
===============================================
This Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation, the statements under "Capital Resources and Liquidity" and Notes
1 and 3 to the consolidated financial statements of Mesa regarding MESA
Inc.'s ("Mesa") financial position and liquidity, its ability to make debt
service payments and other matters are forward-looking statements. Although
Mesa believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from Mesa's expectations ("Cautionary
Statements") are disclosed in this Form 10-Q, and in Mesa's Form 10-K for
the year ended December 31, 1995, including without limitation, in
conjunction with the forward-looking statements included in this Form 10-Q.
All subsequent written and oral forward-looking statements attributable to
Mesa or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
RESULTS OF OPERATIONS
=====================
Mesa reported a net loss of $72.9 million in the third quarter of 1996
compared with a net loss of $32.5 million in the third quarter of 1995.
Mesa had a net loss of $67.3 million for the nine months ended September 30,
1996 compared with a net loss of $54.3 million for the same period in 1995.
The following table presents a summary of the results of operations of
Mesa for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues....................... $ 66,752 $ 48,967 $218,717 $170,388
Operating and
administrative costs.......... (31,602) (29,075) (84,536) (75,218)
Depreciation, depletion
and amortization.............. (22,617) (19,673) (75,265) (61,897)
-------- -------- -------- --------
Operating income............... 12,533 219 58,916 33,273
Interest expense, net
of interest income............ (25,322) (33,481) (92,271) (98,493)
Other.......................... (737) 789 25,433 10,900
-------- -------- -------- --------
Net loss before extraordinary
item.......................... (13,526) (32,473) (7,922) (54,320)
Extraordinary loss on debt
extinguishment................ (59,386) -- (59,386) --
-------- -------- -------- --------
Net income (loss).............. $(72,912) $(32,473) $(67,308) $(54,320)
======== ======== ======== ========
<PAGE>
Revenues
--------
The table below presents, for the periods indicated, the revenues,
production and average prices received from sales of natural gas, natural
gas liquids and oil and condensate.
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues (in thousands):
Natural gas............... $ 37,919 $ 24,817 $132,729 $ 93,548
Natural gas liquids....... 21,943 16,828 65,058 53,607
Oil and condensate........ 3,981 4,987 12,828 15,554
-------- -------- -------- --------
Total................ $ 63,843 $ 46,632 $210,615 $162,709
======== ======== ======== ========
Natural Gas Production
(million cubic feet):
Hugoton................... 10,724 10,504 35,778 36,181
West Panhandle............ 4,753 5,412 14,320 14,854
Gulf Coast & Other........ 4,750 1,600 13,204 5,337
-------- -------- -------- --------
Total................ 20,227 17,516 63,302 56,372
======== ======== ======== ========
Natural Gas Liquids Production
(thousand barrels):
Hugoton................... 794 700 2,506 2,564
West Panhandle............ 712 799 2,169 2,148
Gulf Coast & Other........ 53 10 124 39
-------- -------- -------- --------
Total................ 1,559 1,509 4,799 4,751
======== ======== ======== ========
Oil and Condensate Production
(thousand barrels):
Hugoton................... -- -- -- --
West Panhandle............ 56 43 132 78
Gulf Coast & Other........ 158 275 560 866
-------- -------- -------- --------
Total................. 214 318 692 944
======== ======== ======== ========
Average Prices:
Natural gas (per thousand
cubic feet).............. $ 1.89 $ 1.47(1)$ 2.08 $ 1.64(1)
Natural gas liquids
(per barrel)............. $ 14.08 $ 11.15 $ 13.70 $ 11.31
Oil and condensate
(per barrel)............. $ 18.59 $ 15.68 $ 18.56 $ 16.38
(1) Includes $.12 and $.24 from hedging natural gas production in the
third quarter of 1995 and the nine months ended September 30, 1995,
respectively.
<PAGE>
Mesa's natural gas equivalent production was 8 percent higher in the
third quarter of 1996 and 6 percent higher for the nine-month period ended
September 30, 1996 as compared to the same periods in 1995. The increase in
production occurred primarily in Mesa's Gulf Coast offshore properties, the
area in which Mesa has refocused its exploration and development drilling
efforts. Production in the Hugoton and West Panhandle fields, which comprise
approximately 80% of Mesa's total equivalent production, has held steady at
1995 levels.
Mesa's natural gas price increased 24 percent, natural gas liquids
prices increased 26 percent, and oil prices increased 19 percent in the third
quarter of 1996 as compared to the same period in 1995. The natural gas,
natural gas liquids and oil prices for the nine-month period ended September
30, 1996 increased 27 percent, 21 percent and 13 percent, respectively, as
compared to 1995.
From time to time, Mesa hedges its natural gas production; however, in
the nine-month period ended September 30, 1996, Mesa had not entered into
any such hedging agreements. Amortization of deferred gains and losses from
hedging activities are included in revenues when the hedged production
occurs. Mesa recognized $2.3 million in the third quarter of 1995 and $13.5
million in the nine months ended September 30, 1995 of hedge gains as natural
gas revenues.
In order to mitigate the potential negative effects of volatile
commodity prices, Mesa has entered into certain hedging transactions,
principally NYMEX natural gas swaps and basis swaps with certain financial
institutions, gas producers, and marketing companies. These swaps have the
effect of fixing absolute price for specified sales volumes or fixing the
difference between prices realized at the NYMEX Henry Hub delivery point and
Mesa's primary Hugoton gas delivery point. In these transactions Mesa has
effectively established a price of $2.26 per MCF for approximately 3 BCF of
November 1996 and December 1996 Hugoton sales volumes. For the remainder of
winter 1996-1997 Mesa has agreed to receive for one-third (60,000 MMBTU/day)
of its Hugoton gas sales volume the settlement value for the NYMEX futures
contract minus approximately $.30. Similarly, Mesa has agreed to receive a
fixed discount of $.23 from NYMEX futures price for 40,000 MMBTU per day of
Hugoton gas for one year beginning April 1997.
Costs and Expenses
------------------
Mesa's costs and expenses increased from $48.8 million in the third
quarter of 1995 to $54.2 million for the same period in 1996. Production and
other taxes were lower due to lower tax rates for Hugoton field production
partially offset by higher taxes due to increased revenues. Exploration
charges were greater, reflecting increased exploration activities in the Gulf
of Mexico and consist primarily of three-dimensional seismic costs. General
and administrative ("G&A") expenses increased due to a $5.6 million charge
associated with a reduction in personnel partially offset by lower legal
expenses. Depreciation, depletion and amortization ("DD&A") expense, which
is calculated quarterly on a unit-of-production basis, was higher primarily
due to increased production.
Mesa's costs and expenses increased from $137.1 million to $159.8
million in the nine-month period ended September 30, 1996, compared to the
same period in 1995. Lease operating expense increased primarily due to
higher production costs in the West Panhandle field and higher production.
Production and other taxes were higher due to increased revenues resulting
from higher prices partially offset by lower tax rates for Hugoton field
production. Exploration charges were greater, reflecting increased
exploration activities in the Gulf of Mexico and consist primarily of
exploratory dry-hole expense. G&A expenses increased due to a $9.2 million
charge associated with a reduction in personnel partially offset by lower
legal expenses. DD&A expense, which is calculated quarterly on a
unit-of-production basis, was higher primarily due to increased production
and an impairment of long-lived assets of approximately $6.8 million in
accordance with the adoption of a new accounting standard (SFAS No. 121).
Other Income (Expense)
----------------------
Interest income decreased from $4.1 million and $12.2 million for the
three- and nine-month periods ended September 30, 1995, respectively, to $.5
million and $7.4 million for the same periods in 1996, respectively, as a
result of lower average cash balances.
Interest expense decreased from $37.6 million and $110.7 million for the
three- and nine-month periods ended September 30, 1995, respectively, to
$25.8 million and $99.7 million for the same periods in 1996, respectively,
as a result of lower average debt balances in the third quarter of 1996.
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Gains (losses) from
investments................... $ 69 $ (627) $ 9,418 $ 1,122
Gains from collections
from Bicoastal Corporation.... -- 1,699 2,548 6,352
Gain from adjustment of
contingency reserve........... -- -- 15,000 --
Other.......................... (806) (283) (1,533) 3,426
-------- -------- ------- --------
Total Other Income (Expense) $ (737) $ 789 $25,433 $ 10,900
======== ======== ======= ========
The gains (losses) from investments relate to Mesa's investments in
marketable securities and energy futures contracts, which include NYMEX
futures contracts, commodity price swaps and options that are not accounted
for as hedges of future production. Mesa's investments in marketable
securities and futures contracts are valued at market prices at each
reporting date with gains and losses included in the statement of operations
for such reporting period whether or not such gains or losses have been
realized.
The gains from collection of interest from Bicoastal Corporation relate
to a note receivable from such company, which was in bankruptcy. Mesa's
claims in the bankruptcy exceeded its recorded receivable. As of September
30, 1996, Mesa had collected the full amount of its allowed claim plus a
portion of the interest due on such claims. Mesa does not expect any future
amounts received from such company to be significant.
In the second quarter of 1996, Mesa revalued certain contingencies
associated primarily with contracts which were settled in the mid-to-late
1980's. As a result of the revaluation, Mesa recorded a net gain of $15
million in the second quarter of 1996.
CAPITAL RESOURCES AND LIQUIDITY
===============================
In August of 1996, Mesa completed a recapitalization of its balance
sheet by issuing new preferred equity and repaying and refinancing
substantially all of its existing long-term debt (the "Recapitalization").
See Note 1 to the consolidated financial statements of Mesa included
elsewhere in this Form 10-Q for a detailed discussion of the
Recapitalization, which discussion is incorporated herein by reference.
The Recapitalization will enhance Mesa's ability to compete in the oil
and gas industry by substantially increasing its cash flow available for
investment and improving its ability to attract capital, which will increase
its ability to pursue investment opportunities. Specifically, Mesa's
financial condition will improve significantly as a result of the
Recapitalization due to (i) a significant reduction in total debt outstanding
($317 million, initially), (ii) a reduction in annual cash interest expense
of approximately $75 million, (iii) the implementation of a cost savings
program designed to initially reduce annual general and administrative and
other operating overhead expenses by approximately $10 million, and (iv) the
extension of maturities on its long-term debt.
The expected reduction of annual cash interest expense is based on the
following assumptions: (i) average borrowings under the New Credit Facility
of approximately $365 million, excluding letters of credit, and (ii) annual
interest rates of approximately 7% under the New Credit Facility, 10-5/8%
under the Senior Subordinated Notes and 11-5/8% under the Senior Discount
Notes. Actual borrowings and interest rates under the New Credit Facility
will fluctuate over time and will affect Mesa's actual cash interest expense.
Mesa's strategic plan continues to focus on increasing cash flow and
reducing debt in an effort to renew growth and strengthen its balance sheet.
Management believes that cash from operating activities, together with
as much as $187 million of availability under the New Credit Facility will be
sufficient for Mesa to meet its debt service obligations and scheduled
capital expenditures, and to fund its working capital needs, for the next
several years. Notwithstanding the Recapitalization, Mesa continues to be
highly leveraged.
OTHER
=====
See Note 4 to the consolidated financial statements of Mesa included
elsewhere in this Form 10-Q for information regarding the status of certain
pending litigation.
Mesa recognizes its ownership interest in natural gas production as
revenue. Actual production quantities sold may be different from Mesa's
ownership share of production in a given period. Mesa records these
differences as gas balancing receivables or as deferred revenue. Net gas
balancing underproduction represented approximately 3.3% of total equivalent
production for the nine months ended September 30, 1996, compared with 2.5%
during the same period in 1995. The gas balancing receivable or deferred
revenue component of natural gas and natural gas liquids revenues in future
periods is dependent on future rates of production, field allowables and the
amount of production taken by Mesa or by its joint interest partners.
Mesa invests from time to time in marketable equity and other
securities, as well as in energy-related commodity futures contracts, which
include NYMEX futures contracts, price swaps and options. Mesa also enters
into natural gas futures contracts as a hedge against natural gas price
fluctuations.
Management does not anticipate that inflation will have a significant
effect on Mesa's operations.
PART II - OTHER INFORMATION
===========================
Item 1. Legal Proceedings
- --------------------------
Reference is made to Part I, Item 1, Note 4 of this Form 10-Q for
information regarding legal proceedings, which information is incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company's annual meeting of stockholders was held on July 30, 1996.
There were two matters submitted to the stockholders at the meeting. The
results of the votes were as follows:
1. Election of Boone Pickens, John S. Herrington and Robert L.
Stillwell to serve as directors of Mesa.
Votes Cast Votes
Name For Withheld
--------------------------- ---------- ---------
Boone Pickens.............. 49,347,998 6,461,881
John S. Herrington......... 48,473,472 7,336,407
Robert L. Stillwell........ 49,214,052 6,595,827
2. Ratification of Arthur Andersen LLP as the Company's independent
public accountants for 1995.
Votes Cast
---------------------- Number of
For Against Abstentions
---------- --------- ------------
51,830,832 3,746,954 232,093
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits (Asterisk indicates incorporated by reference herein)
*2.1 - Stock Purchase Agreement dated April 29, 1996 between MESA
Inc. And DNR-MESA Holdings, L.P. (Exhibit 10 to Mesa's Form
8-K dated April 29, 1996.)
*3.1 - Amended and Restated Articles of Incorporation of MESA Inc.
dated December 31, 1991 (Exhibit 3[a] to Mesa's Form
10-K dated December 31, 1991).
*3.2 - Statement of Resolution establishing series of notes
designated Series A 8% Cumulative Convertible Preferred Stock
and Series B 8% Cumulative Convertible Preferred Stock.
(Exhibit 4 to Mesa's Form 8-K dated April 29, 1996).
* 3.3 - Amended and Restated Bylaws of MESA Inc. dated July 2,
1996 (Exhibit 3.3 to Mesa's Form 10-Q dated August 13,
1996). <PAGE>
4.1* - Credit Agreement dated as of July 2, 1996, among Mesa
Operating Co., as Borrower, MESA Inc. and the Banks listed as
lenders in the Credit Agreement and The Chase Manhattan
Bank, N.A., as Administrative Agent, Bankers Trust Company,
as Syndication Agent, and Society Generale, Southwest Agency,
as Documentation Agent (Exhibit No. 4.16 to Mesa's Form 10-Q
dated August 13, 1996).
4.2* - Indenture dated July 2, 1996, among Mesa Operating Co., as
Issuer, MESA Inc., as a Guarantor, and Harris Trust and
Savings Bank as Trustee relating to 11-5/8% Senior
Subordinated Discount Notes Due 2006 (Exhibit No. 4.17 to
Mesa's Form 10-Q dated August 13, 1996).
4.3* - Indenture dated July 2, 1996, among Mesa Operating Co., as
Issuer, MESA Inc., as a Guarantor, and Harris Trust and
Savings Bank as Trustee relating to 10-5/8% Senior
Subordinated Notes Due 2006 (Exhibit No. 4.18 to Mesa's Form
10-Q dated August 13, 1996).
The Registrant agrees to furnish to the Commission upon
request any instruments defining the right of holders of
long-term debt with respect to which the total amount
outstanding does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
*10.1 - Stock Purchase Agreement, dated April 26, 1996, between Mesa
and DNR-MESA Holdings, L.P. (Exhibit No. 10 to Mesa's
Form 8-K filed on April 29, 1996).
*10.2 - Contract dated January 3, 1928, between Colorado Interstate
Gas Company and Amarillo Oil Company (the "B" Contract)
(Exhibit 10.1 to Pioneer Corporation's Form 10-K dated
December 31, 1985).
*10.3 - Amendments to the "B" Contract (Exhibit 10.2 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.5 - Gathering Charge Agreement dated January 20, 1984, as
amended, with respect to the "B" Contract (Exhibit 10.3 to
Pioneer Corporation's Form 10-K dated December 31, 1985).
*10.5 - Agreement of Compromise and Settlement dated May 29, 1987,
between the Partnership and Colorado Interstate Gas Company
(Confidential Treatment Requested) (Exhibit 10[s] to the
Partnership's Form 10-K dated December 31, 1987).
*10.6 - Agreement of Sale between Pioneer Corporation and Cabot
Corporation dated August 29, 1984 (Exhibit 10.5 to Pioneer
Corporation's Form 10-K dated December 31, 1985).
*10.7 - Settlement Agreement dated March 15, 1989, by and among Mesa
Operating Limited Partnership and Mesa Limited Partnership,
et al, Energas Company and the City of Amarillo (Exhibit
10[k] to the Partnership's Form 10-K dated December 31,
1990).
<PAGE>
*10.8 - Gas Purchase Agreement dated December 1, 1989, between
Williams Natural Gas Company and Mesa Operating Limited
Partnership acting on behalf of itself and as agent for Mesa
Midcontinent Limited Partnership (Exhibit 10.1 to
Registration Statement of the Partnership on Form S-3,
Registration No. 33-32978).
*10.9 - "B" Contract Production Allocation Agreement dated July 29,
1991, and effective as of January 1, 1991, between Colorado
Interstate Gas Company and Mesa Operating Limited
Partnership (Exhibit 10[r] to Mesa's Form 10-K dated
December 31, 1991).
*10.10 - Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993, between Colorado Interstate
Gas Company and Mesa Operating Limited Partnership (Exhibit
10.24 to Mesa's Registration Statement on Form S-1,
Registration No. 033-51909).
*10.11 - Amended Supplemental Stipulation and Agreement between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership dated June 19, 1991 (Exhibit 10[w] to the
Partnership's Registration Statement on Form S-4,
Registration No. 33-42102).
*10.12 - Amended Peak Day Gas Purchase Agreement dated effective June
19, 1991, between Colorado Interstate Gas Company and Mesa
Operating Limited Partnership (Exhibit 10[t] to Mesa's
Form 10-K dated December 31, 1991).
*10.13 - Omnibus Amendment to Collateral Instruments to Supplemental
Stipulation and Agreement dated June 19, 1991, between
Colorado Interstate Gas Company and Mesa Operating Limited
Partnership (Exhibit 10[u] to Mesa's Form 10-K dated
December 31, 1991).
*10.14 - Amarillo Supply Agreement between Mesa Operating Limited
Partnership, Seller, and Energas Company, a division of Atmos
Energy Corporation, Buyer, dated effective January 2, 1993
(Exhibit 10.14 Mesa's Form 10-K dated December 31,
1995).
*10.15 - Gas Gathering Agreement-Interruptible between Colorado
Interstate Gas Company, Transporter, and Mesa Operating
Limited Partnership, Shipper, dated effective October 1,
1993, as amended by agreements dated January 1, 1994, January
5, 1994, and June 1, 1994 (Exhibit 10.15 Mesa's Form
10-K dated December 31, 1995).
*10.16 - Gas Supply Agreement dated May 11, 1994, between Mesa
Operating Co., as successor to Mesa Operating Limited
Partnership, acting on behalf of itself and as agent for
Hugoton Capital Limited Partnership, and Williams Gas
Marketing Company, and Gas Supply Guarantee dated May 11,
1994 (Exhibit 10.14 Mesa's Form 10-K dated December
31, 1995).
*10.17 - Gas Transportation Agreement dated June 14, 1994, between
Western Resources, Inc. and Mesa Operating Co., acting on
behalf of itself and as agent for Hugoton Capital Limited
Partnership (Exhibit 10.24 to Mesa's Form 10-K dated
December 31, 1994).
*10.18 - Incentive Bonus Plan of Mesa Operating Limited Partnership,
as amended, dated effective January 1, 1986 (Exhibit 10[s]
to the Partnership's Form 10-K dated December 31, 1990).
*10.19 - Performance Bonus Plan of Mesa Operating Limited Partnership
dated effective January 1, 1990 (Exhibit 10[t] to the
Partnership's Form 10-K dated December 31, 1990).
*10.20 - 1991 Stock Option Plan of Mesa (Exhibit 10[v] to Mesa's
Form 10-K dated December 31, 1991).
*10.21 - Interruptible Gas Transportation and Sales Agreement dated
January 1, 1991, between Mesa Operating Limited Partnership
and Energas Company and Amendment dated January 1, 1995
(Exhibit 10.22 Mesa's Form 10-K dated December 31,
1995).
*10.22 - "B" Contract Operating Agreement dated January 1, 1988,
between Mesa Operating Limited Partnership and Colorado
Interstate Gas Company (Exhibit 10.23 Mesa's Form 10-K
dated December 31, 1995).
*10.23 - "B" Contract Agreement of Compromise and Settlement dated
May 29, 1987, between Mesa Operating Limited Partnership and
Colorado Interstate Gas Company, and Amendment to Gathering
Agreement dated July 15, 1990 (Exhibit 10.24 Mesa's
Form 10-K dated December 31, 1995).
*10.24 - Gas Purchase Agreement dated January 1, 1996, between Mesa
Operating Co., as Seller, and KN Marketing L.P., as Buyer,
and Amendment dated August 1, 1995 (Exhibit 10.25 Mesa's
Form 10-K dated December 31, 1995).
*10.25 - Change in Control Retention/Severance Plan adopted August
22, 1995, and Amendment dated October 20, 1995 (Exhibit 10.26
Mesa's Form 10-K dated December 31, 1995).
27 - Article 5 of Regulation S-X Financial Data Schedule
for the Second Quarter 1996 Form 10-Q.
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated August 30, 1996 regarding the
election of Jon Brumley to serve as Chairman of the Board of
Directors and Chief Executive Officer of Mesa, Inc.
<PAGE>
SIGNATURES
==========
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MESA Inc.
(Registrant)
/s/ Wayne A. Stoerner
-----------------------------
Wayne A. Stoerner
Controller
(Principal accounting officer
duly authorized to sign on
behalf of the Registrant)
Date: November 14, 1996
-----------------
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
27 Article 5 of Regulation S-X Financial Data Schedule
for the Third Quarter 1996 Form 10-Q.
<PAGE>
[ARTICLE] 5
[LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE MESA INC. AND
SUBSIDIARIES SEPTEMBER 30, 1996, FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] SEPT 30-1996
[CASH] 27,105
[SECURITIES] 0
[RECEIVABLES] 40,625
[ALLOWANCES] 3,598
[INVENTORY] 2,545
[CURRENT-ASSETS] 68,903
[PP&E] 2,001,655
[DEPRECIATION] 938,952
[TOTAL-ASSETS] 1,212,443
[CURRENT-LIABILITIES] 53,069
[BONDS] 834,435
[PREFERRED-MANDATORY] 1,193
[PREFERRED] 0
[COMMON] 643
[OTHER-SE] 248,042
[TOTAL-LIABILITY-AND-EQUITY] 1,212,443
[SALES] 218,717
[TOTAL-REVENUES] 218,717
[CGS] 0
[TOTAL-COSTS] 159,801
[OTHER-EXPENSES] 66,838
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 99,697
[INCOME-PRETAX] (7,922)
[INCOME-TAX] 0
[INCOME-CONTINUING] (7,922)
[DISCONTINUED] 0
[EXTRAORDINARY] (59,386)
[CHANGES] 0
[NET-INCOME] (67,308)
[EPS-PRIMARY] (1.11)
[EPS-DILUTED] (1.11)
</TABLE>
