UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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 1-10578
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VINTAGE PETROLEUM, INC.
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(Exact name of registrant as specified in charter)
Delaware 73-1182669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 West Seventh Street Tulsa, Oklahoma 74119-1029
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(Address of principal executive offices) (Zip Code)
(918) 592-0101
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 9, 2001
----------------------------- -----------------------------
Common Stock, $.005 Par Value 63,080,322
-1-
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except shares
and per share amounts)
(Unaudited)
ASSETS
------
June 30, December 31,
2001 2000
------------------ ----------------
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 36,150 $ 19,506
Accounts receivable -
Oil and gas sales.................................................. 113,047 146,770
Joint operations................................................... 12,639 6,267
Derivative financial instruments receivable............................. 5,766 -
Prepaids and other current assets....................................... 27,863 13,946
------------------ ----------------
Total current assets............................................. 195,465 186,489
------------------ ----------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, successful efforts method....................... 2,436,718 1,734,003
Oil and gas gathering systems and plants................................ 28,854 19,252
Other 22,965 19,636
------------------ ----------------
2,488,537 1,772,891
Less: Accumulated depreciation, depletion and amortization............ 736,478 667,837
------------------ ----------------
1,752,059 1,105,054
------------------ ----------------
GOODWILL, net of amortization.............................................. 177,931 -
------------------ ----------------
OTHER ASSETS, net.......................................................... 48,563 46,854
------------------ ----------------
$2,174,018 $1,338,397
================== ================
See notes to unaudited consolidated financial statements.
-3-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, December 31,
2001 2000
------------------ ----------------
CURRENT LIABILITIES:
Revenue payable.......................................................... $ 56,076 $ 60,519
Accounts payable - trade................................................. 50,816 43,225
Current income taxes payable............................................. 20,621 43,187
Short-term revolving debt................................................ 10,539 3,400
Other payables and accrued liabilities................................... 80,676 61,961
------------------ ----------------
Total current liabilities.............................................. 218,728 212,292
------------------ ----------------
LONG-TERM DEBT............................................................. 959,214 464,229
------------------ ----------------
DEFERRED INCOME TAXES...................................................... 236,342 33,252
------------------ ----------------
OTHER LONG-TERM LIABILITIES................................................ 3,733 3,767
------------------ ----------------
STOCKHOLDERS' EQUITY per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding..................................... - -
Common stock, $.005 par, 160,000,000 shares authorized,
63,080,322 and 62,801,416 shares issued and
outstanding, respectively.............................................. 315 314
Capital in excess of par value........................................... 323,322 319,893
Retained earnings........................................................ 422,269 303,449
Accumulated other comprehensive income................................... 12,225 1,201
------------------ ----------------
758,131 624,857
Less: Unamortized cost of restricted stock awards...................... 2,130 -
------------------ ----------------
756,001 624,857
------------------ ----------------
$2,174,018 $1,338,397
================== ================
See notes to unaudited consolidated financial statements.
-4-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
REVENUES: (Restated) (Restated)
Oil and gas sales...................................................... $ 208,504 $ 151,264 $ 415,383 $ 290,788
Gas marketing.......................................................... 35,491 25,418 94,814 43,880
Oil and gas gathering and processing................................... 6,197 4,276 14,306 7,694
Gain (loss) on disposition of assets................................... (2) (289) 24 (383)
Other income (expense)................................................. 1,724 (24,403) 2,877 (23,322)
---------- ---------- ---------- ----------
251,914 156,266 527,404 318,657
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Lease operating, including production taxes............................ 52,893 39,299 100,749 74,874
Exploration costs...................................................... 3,489 1,077 5,692 3,381
Gas marketing.......................................................... 34,297 24,400 91,623 41,927
Oil and gas gathering and processing................................... 6,122 3,650 14,477 6,318
General and administrative............................................. 12,113 10,234 24,092 19,237
Depreciation, depletion and amortization............................... 40,397 23,823 67,988 45,436
Amortization of goodwill............................................... 2,774 - 2,774 -
Interest............................................................... 15,874 11,924 26,791 25,339
---------- ---------- ---------- ----------
167,959 114,407 334,186 216,512
---------- ---------- ---------- ----------
Income before income taxes and cumulative effect of change in
accounting principle................................................. 83,955 41,859 193,218 102,145
PROVISION BENEFIT FOR INCOME TAXES:
Current................................................................ 27,957 8,948 50,195 23,176
Deferred............................................................... 3,779 5,852 20,106 12,204
---------- ---------- ---------- ----------
31,736 14,800 70,301 35,380
---------- ---------- ---------- ----------
Income before cumulative effect of change in accounting principle...... 52,219 27,059 122,917 66,765
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, net of taxes of $644........................................ - - - (1,422)
---------- ---------- ---------- ----------
NET INCOME............................................................... $ 52,219 $ 27,059 $ 122,917 $ 65,343
========== ========== ========== ==========
BASIC INCOME PER SHARE:
Income before cumulative effect of change in accounting principle...... $ 0.83 $ 0.43 $ 1.95 $ 1.07
Cumulative effect of change in accounting principle.................... - - - (.02)
---------- ---------- ---------- ----------
Net income............................................................. $ 0.83 $ 0.43 $ 1.95 $ 1.05
========== ========== ========== ==========
DILUTED INCOME PER SHARE:
Income before cumulative effect of change in accounting principle...... $ 0.81 $ 0.42 $ 1.92 $ 1.05
Cumulative effect of change in accounting principle.................... - - - (.02)
---------- ---------- ---------- ----------
Net income............................................................. $ 0.81 $ 0.42 $ 1.92 $ 1.03
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic.................................................................. 63,031 62,591 62,964 62,502
========== ========== ========== ==========
Diluted................................................................ 64,153 63,932 64,104 63,568
========== ========== ========== ==========
See notes to unaudited consolidated financial statements.
-5-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
AND COMPREHENSIVE INCOME
------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001
--------------------------------------
(In thousands)
(Unaudited)
Capital Unamortized Accumulated
Common Stock In Excess Restricted Other
----------------- of Par Stock Retained Comprehensive
Shares Amount Value Awards Earnings Income Total
-------- ------ --------- ----------- -------- ------------- --------
Balance at December 31, 2000........ 62,801 $ 314 $319,893 $ - $303,449 $ 1,201 $624,857
Cumulative effect of adoption of
SFAS No. 133...................... - - - - - 14,915 14,915
Comprehensive income:
Net income........................ - - - - 122,917 - 122,917
Foreign currency translation
adjustment...................... - - - - - 6,182 6,182
Change in value of
derivatives..................... - - - - - (10,073) (10,073)
--------
Total comprehensive income........ 119,026
--------
Exercise of stock options and
resulting tax effects............. 169 1 1,215 - - - 1,216
Issuance of restricted stock........ 110 - 2,214 (2,214) - - -
Amortization of restricted
stock awards...................... - - - 84 - - 84
Cash dividends declared
($.065 per share)................. - - - - (4,097) - (4,097)
-------- ------ -------- ------- --------- -------- --------
Balance at June 30, 2001............ 63,080 $ 315 $323,322 $(2,130) $422,269 $ 12,225 $756,001
======== ====== ======== ======= ======== ======== ========
See notes to unaudited consolidated financial statements.
-6-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(Unaudited)
Six Months Ended June 30,
----------------------------
2001 2000
---------- ----------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 122,917 $ 65,343
Adjustments to reconcile net income to cash provided by
operating activities -
Depreciation, depletion and amortization................................. 67,988 45,436
Amortization of goodwill................................................. 2,774 -
Exploration costs........................................................ 5,692 3,381
Provision for deferred income taxes...................................... 20,106 12,204
Other adjustments........................................................ 66 383
Cumulative effect of change in accounting principle...................... - 1,422
---------- ----------
219,543 128,169
Decrease (increase) in receivables.............................................. 44,744 (26,374)
Increase (decrease) in payables and accrued liabilities......................... (41,543) 63,946
Other........................................................................... (15,191) 15,577
---------- ----------
Cash provided by operating activities.................................... 207,553 181,318
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -
Oil and gas properties........................................................ (107,170) (67,254)
Gathering systems and other................................................... (2,828) (1,056)
Proceeds from sale of oil and gas properties.................................... 24 1,417
Purchase of company, net of cash acquired....................................... (462,815) -
Other........................................................................... (1,653) (1,084)
---------- ----------
Cash used by investing activities........................................ (574,442) (67,977)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock........................................................ 1,216 2,995
Advances on revolving credit facility and other borrowings...................... 455,537 11,788
Payments on revolving credit facility and other borrowings...................... (75,629) (152,942)
Dividends paid.................................................................. (3,773) (3,120)
Other........................................................................... 6,182 -
---------- ----------
Cash provided (used) by financing activities............................. 383,533 (141,279)
---------- ----------
Net increase (decrease) in cash and cash equivalents.............................. 16,644 (27,938)
Cash and cash equivalents, beginning of period.................................... 19,506 42,687
---------- ----------
Cash and cash equivalents, end of period.......................................... $ 36,150 $ 14,749
========== ==========
See notes to unaudited consolidated financial statements.
-7-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
June 30, 2001 and 2000
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of Vintage Petroleum, Inc. and its
wholly- and majority-owned subsidiaries and its proportionately consolidated
general partner interests in various joint ventures (collectively, the
"Company"). Management believes that all material adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation have been
made. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain 2000 amounts have been reclassified to
conform with the 2001 presentation. These reclassifications have no impact on
net income. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any, at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. These financial statements and notes should be read in conjunction
with the 2000 audited financial statements and related notes included in the
Company's 2000 Annual Report on Form 10-K, Item 8, Financial Statements and
Supplementary Data.
2. SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
Under the successful efforts method of accounting, the Company capitalizes all
costs related to property acquisitions and successful exploratory wells, all
development costs and the costs of support equipment and facilities. All costs
related to unsuccessful exploratory wells are expensed when such wells are
determined to be non-productive; other exploration costs, including geological
and geophysical costs, are expensed as incurred. The Company recognizes gain or
loss on the sale of properties on a field basis.
Unproved leasehold costs are capitalized and are reviewed periodically for
impairment. Costs related to impaired prospects are charged to expense. If oil
and gas prices decline in the future, some of these unproved prospects may not
be economic to develop which could lead to an impairment expense.
Costs of development dry holes and proved leaseholds are amortized on the
unit-of-production method based on proved reserves on a field basis. The
depreciation of capitalized production equipment and drilling costs is based on
the unit-of-production method using proved developed reserves on a field basis.
Estimated abandonment costs, net of salvage value, are included in the
depreciation and depletion calculation.
-8-
The Company reviews its proved oil and gas properties for impairment on a
field basis. For each field, an impairment provision is recorded whenever
events or circumstances indicate that the carrying value of those properties may
not be recoverable. The impairment provision is based on the excess of carrying
value over fair value. Fair value is defined as the present value of the
estimated future net revenues from production of total proved and risk-adjusted
probable and possible oil and gas reserves, based on the Company's expectations
of future oil and gas prices and costs, consistent with the method used for
acquisition evaluations. Prior to 2001, the Company considered only proved oil
and gas reserves in determining fair value. The change to total risk-adjusted
reserves had no material effect on the Company's financial statements for the
three month and six month periods ended June 30, 2001. In estimating the future
net revenues, the Company assumed that the current oil and gas price environment
would continue for the remainder of the year and thereafter, escalate annually.
The Company assumed operating costs would escalate annually beginning at current
levels. Due to the volatility of oil and gas prices, it is possible that the
Company's assumptions regarding oil and gas prices may change in the future and
may result in future impairment provisions. No impairment provision related to
proved oil and gas properties was required for the first six months or the
second quarter of either 2001 or 2000.
Hedging
The Company periodically uses hedges (swap agreements) to reduce the impact of
oil and natural gas price fluctuations. Gains or losses on swap agreements are
recognized as an adjustment to sales revenue when the related transactions being
hedged are finalized. Gains or losses from swap agreements that do not qualify
for accounting treatment as hedges are recognized currently as other income or
expense. The cash flows from such agreements are included in operating
activities in the consolidated statements of cash flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). The FASB has subsequently
issued Statement No. 137 and Statement No. 138 which are amendments to SFAS No.
133. SFAS No. 133, as amended, 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. SFAS No. 133, as
amended, 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 income statement. Companies
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
-9-
Upon adoption of SFAS No. 133 on January 1, 2001, the Company recorded a
transition asset of approximately $18.5 million related to cash flow hedges in
place that are used to reduce the volatility in commodity prices for portions of
the Company's forecasted oil production. Additionally, the Company recorded,
net of tax, an adjustment to accumulated other comprehensive income in the
Stockholders' Equity section of the balance sheet of approximately $14.9
million. The amount recorded to accumulated other comprehensive income will be
relieved over time and taken to the income statement as the physical
transactions being hedged are finalized. A significant portion of the Company's
cash flow hedges in place at January 1, 2001, had settled as of June 30, 2001,
with the actual cash flow impact recorded in "Oil and gas sales" on the
Company's income statement.
Statements of Cash Flows
During the six months ended June 30, 2001 and 2000, the Company made cash
payments for interest totaling approximately $16.7 million, and $25.9 million,
respectively. Cash payments made during the first six months of 2001 and 2000
for U.S. Federal and state income taxes were approximately $12.9 million and
$15.5 million, respectively. The Company made cash payments of approximately
$56.7 million and $5.7 million during the first six months of 2001 and 2000,
respectively, for foreign income taxes, primarily in Argentina.
Earnings Per Share
Basic earnings per common share for the second quarters of 2001 and 2000 were
computed by dividing net income by the weighted average number of shares
outstanding during the period. Diluted earnings per common share for the second
quarters of 2001 and 2000 were computed assuming the exercise of all dilutive
options, as determined by applying the treasury stock method. In addition, for
the three month period ended June 30, 2001, the Company had outstanding stock
options for 1,003,000 additional shares of the Company's common stock with an
average exercise price of $21.17 which were anti-dilutive. There were no anti-
dilutive shares for the three month period ended June 30, 2000.
Lease Operating Expense
For the three months ended June 30, 2001, the Company recorded in lease
operating expenses gross production taxes and transportation and storage
expenses of approximately $4.6 million and $2.8 million, respectively. For the
three months ended June 30, 2000, the Company recorded in lease operating
expenses gross production taxes and transportation and storage expenses of
approximately $4.1 million and $2.3 million, respectively.
For the six months ended June 30, 2001, the Company recorded in lease
operating expenses gross production taxes and transportation and storage
expenses of approximately $9.7 million and $5.6 million, respectively. For the
six months ended June 30, 2000, the Company recorded in lease operating expenses
gross production taxes and transportation and storage expenses of approximately
$7.5 million and $4.1 million, respectively.
-10-
Foreign Currency
The Company uses the U.S. dollar as its functional currency, except for the
Canadian subsidiaries, which use the Canadian dollar. Adjustments arising from
translation of the Canadian subsidiaries' financial statements are reflected in
accumulated other comprehensive income. Transaction gains and losses that arise
from exchange rate fluctuations applicable to transactions denominated in a
currency other than the Company's functional currency are included in the
results of operations as incurred.
Cumulative Effect of Change in Accounting Principle
The Company adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB No. 101") in the fourth quarter of
2000, effective January 1, 2000. SAB No. 101 requires oil inventories held in
storage facilities to be valued at cost. Cost is defined as lifting costs plus
depreciation, depletion and amortization. The Company previously followed
industry practice by valuing oil inventories at market. The cumulative effect
reduced net income by $1.4 million, net of income tax effects of approximately
$0.6 million. Both the three month and six month periods ended June 30, 2000,
have been restated to give effect to this change in accounting principle.
Additional volatility in quarterly and annually reported earnings may occur in
the future as a result of fluctuations in oil inventory levels.
Transportation and Storage Costs
The Company adopted Emerging Issues Task Force Issue 00-10, Accounting for
Shipping and Handling Fees and Costs ("EITF 00-10") in the fourth quarter of
2000. EITF 00-10 requires that transportation and storage costs be shown as an
expense in the statement of operations and not deducted from revenues. The
Company previously followed industry practice by deducting transportation and
storage costs from revenues. The Company now records transportation and storage
costs as lease operating costs. Both the three month and six month periods
ended June 30, 2000, have been restated to reflect the adoption of EITF 00-10.
The adoption of EITF 00-10 did not impact net income.
Comprehensive Income
The Company had no non-owner changes in equity other than net income during
the six months ended June 30, 2000. The Company had positive foreign currency
translation adjustments of approximately $6.2 million for the six months ended
June 30, 2001, which it has included in accumulated other comprehensive income
in the Stockholders' Equity section of the accompanying balance sheet. The
Company also recorded under SFAS No. 133 a net reduction in unrealized
derivative gains, net of tax, of approximately $10.1 million related to oil
swaps, reducing the unrealized gains, net of tax, to $4.8 million at June 30,
2001. This net reduction consisted of a $13.2 million reduction of the
transitional asset established on January 1, 2001 (initially $14.9 million), for
contracts in place at December 31, 2000, that settled during the first half of
2001 and an increase for a current period change in value of $3.1 million for
contracts to be settled in the third and fourth quarters of 2001. The actual
cash flow impact of settled oil swaps ($8.7 million) has been reflected in the
"Oil and gas sales" line on the Company's statement of income for the six months
ended June 30, 2001.
-11-
3. PUBLIC OFFERING
On May 30, 2001, the Company issued $200 million of its 7 7/8% Senior
Subordinated Notes due 2011 (the "7 7/8% Notes"). The 7 7/8% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after May 15, 2006. In addition, prior to May 15, 2004, the Company may redeem
up to 35 percent of the 7 7/8% Notes with the proceeds of certain underwritten
public offerings of the Company's common stock. The 7 7/8% Notes mature on May
15, 2011, with interest payable semiannually on May 15 and November 15 of each
year. All of the net proceeds to the Company from the sale of the 7 7/8% Notes
were used to repay a portion of the existing indebtedness under the Company's
revolving credit facility.
The 7 7/8% Notes are unsecured senior subordinated obligations of the Company,
rank subordinate in right of payment to all senior indebtedness (as defined) and
rank pari passu with the Company's 9% Senior Subordinated Notes Due 2005, its 8
5/8% Senior Subordinated Notes due 2009 and its 9 3/4% Senior Subordinated Notes
due 2009. The indenture for the 7 7/8% Notes contains limitations on, among
other things, additional indebtedness and liens, the payment of dividends and
other distributions, certain investments and transfers or sales of assets.
4. RECENT PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board issued Statement
No. 141, Business Combinations ("SFAS No. 141"), and Statement No. 142, Goodwill
and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires all
business combinations initiated after June 30, 2001, to be accounted for using
the purchase method of accounting. Under SFAS 142, goodwill is no longer
subject to amortization over its estimated useful life. Rather, goodwill will
be subject to at least an annual assessment for impairment by applying a fair-
value-based test. Additionally, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of the acquirer's intent
to do so. SFAS No. 142 is required to be applied starting with fiscal years
beginning after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the first
interim financial statements have not previously been issued.
The Company's May 2001 acquisition of Genesis Exploration Ltd. was accounted
for using the purchase method of accounting. Management plans to adopt SFAS No.
142 effective January 1, 2002, resulting in the elimination of goodwill
amortization for future period statements of income.
-12-
5. SEGMENT INFORMATION
The Company's reportable business segments have been identified based on the
differences in products or services provided. Revenues for the exploration and
production segment are derived from the production and sale of natural gas,
sulfur and crude oil. Revenues for the gathering/plant segment arise from the
transportation, processing and sale of natural gas, crude oil and plant
products. The gas marketing segment generates revenue by earning fees through
the marketing of Company produced gas volumes and the purchase and resale of
third party produced gas volumes. The Company evaluates the performance of its
operating segments based on operating income before corporate general and
administrative costs and interest costs.
-13-
Operations in the gathering/plant and gas marketing segments are in the United
States. The Company operates in the oil and gas exploration and production
segment in the United States, Canada, South America, Trinidad and Yemen.
Summarized financial information for the Company's reportable segments for the
six month and three month periods ended June 30, 2001 and 2000, is shown in the
following tables (in thousands):
Exploration and Production
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Other
U.S. Canada Argentina Bolivia Ecuador Foreign
---------- -------- --------- ---------- ------- -------
Six Months Ended 6/30/01
----------------------------------------
Revenues from external customers........ $233,466 $ 32,175 $131,074 $ 8,341 $10,781 $ -
Intersegment revenues................... - - - - - -
Depreciation, depletion and
amortization expense.................. 28,617 13,690 20,235 2,137 975 -
Operating income........................ 142,505 8,548 81,789 4,329 6,044 527
Total assets............................ 529,698 701,994 452,432 121,505 54,765 25,458
Capital investments..................... 32,033 631,601 30,079 753 6,275 1,152
Long-lived assets....................... 475,496 676,579 411,289 96,119 46,639 24,538
Six Months Ended 6/30/00
----------------------------------------
Revenues from external customers........ $156,544 $ - $ 90,830 $ 5,170 $13,574 $ -
Intersegment revenues................... - - - - - -
Depreciation, depletion and
amortization expense.................. 25,677 - 14,300 2,786 940 -
Operating income (loss)................. 81,398 - 53,424 (647) 10,273 (288)
Total assets............................ 519,662 - 387,153 121,007 59,192 15,183
Capital investments..................... 24,591 - 21,476 12,423 892 8,797
Long-lived assets....................... 468,606 - 348,007 96,256 49,621 15,038
Gathering/ Gas
Plant Marketing Corporate Total
---------- -------- --------- ----------
Six Months Ended 6/30/01
----------------------------------------
Revenues from external customers........ $ 14,306 $ 94,814 $ 2,447 $ 527,404
Intersegment revenues (losses).......... (422) 1,378 - 956
Depreciation, depletion and
amortization expense.................. 1,054 - 4,054 70,762
Operating income (loss)................. (1,225) 3,191 (1,607) 244,101
Total assets............................ 20,209 22,074 245,883 2,174,018
Capital investments..................... 9,602 - 3,328 714,823
Long-lived assets....................... 14,412 - 184,918 1,929,990
Six Months Ended 6/30/00
----------------------------------------
Revenues from external customers........ $ 7,695 $ 43,880 $ 964 $ 318,657
Intersegment revenues................... 1,105 1,002 - 2,107
Depreciation, depletion and
amortization expense.................. 752 - 981 45,436
Operating income (loss)................. 624 1,954 (17) 146,721
Total assets............................ 10,480 19,457 40,635 1,172,769
Capital investments..................... 32 - 1,024 69,235
Long-lived assets....................... 6,409 - 4,817 988,754
-14-
Exploration and Production
-----------------------------------------------------------------
Other
U.S. Canada Argentina Bolivia Ecuador Foreign
---------- -------- --------- -------- ------- -------
Three Months Ended 6/30/01
----------------------------------------
Revenues from external customers........ $109,626 $ 26,554 $ 63,594 $3,956 $4,717 $ -
Intersegment revenues................... - - - - - -
Depreciation, depletion and
amortization expense.................. 14,706 12,033 10,676 1,130 414 -
Operating income........................ 64,088 6,502 37,732 1,834 2,639 310
Capital investments..................... 20,157 629,943 16,105 217 4,138 924
Three Months Ended 6/30/00
----------------------------------------
Revenues from external customers........ $ 81,673 $ - $ 35,686 $3,116 $5,702 $ -
Intersegment revenues................... - - - - - -
Depreciation, depletion and
amortization expense.................. 13,293 - 7,692 1,537 406 -
Operating income (loss)................. 42,570 - 15,613 847 4,053 (210)
Capital investments..................... 17,529 - 14,489 6,363 282 5,842
Gathering/ Gas
Plant Marketing Corporate Total
---------- --------- --------- ----------
Three Months Ended 6/30/01
----------------------------------------
Revenues from external customers........ $6,197 $35,491 $ 1,779 $ 251,914
Intersegment revenues (losses).......... (90) 595 - 505
Depreciation, depletion and
amortization expense.................. 748 - 3,464 43,171
Operating income (loss)................. (672) 1,194 (1,685) 111,942
Capital investments..................... 9,210 - 1,976 682,670
Three Months Ended 6/30/00
----------------------------------------
Revenues from external customers........ $4,277 $25,418 $ 394 $ 156,266
Intersegment revenues................... 555 512 - 1,067
Depreciation, depletion and
amortization expense.................. 383 - 512 23,823
Operating income (loss)................. 243 1,020 (119) 64,017
Capital investments..................... 11 - 659 45,175
Intersegment sales are priced in accordance with terms of existing contracts
and current market conditions. Capital investments include expensed exploratory
costs. Corporate general and administrative costs and interest costs are not
allocated to the operating income (loss) of the segments.
-15-
6. COMMITMENTS AND CONTINGENCIES
Through its December 2000 acquisition of Cometra Energy (Canada) Ltd.
("Cometra"), the Company assumed the drilling obligations of Cometra's wholly-
owned subsidiary, Cometra Trinidad Limited. These obligations require the
acquisition of 15 line-kilometers of 2-D seismic, 40 square-kilometers of 3-D
seismic and drilling of three exploratory wells. As of June 30, 2001, all
seismic obligations had been fulfilled and the first two exploratory wells had
been drilled and were waiting on testing. The Company currently expects to
drill the third exploratory well under this commitment during the second or
third quarter of 2002.
The Company also is committed to drill four development wells on its Block 14
and Block 17 concessions in Ecuador (two wells each) during 2002. The Company
currently estimates its commitment for these wells to be approximately $15
million.
The Company also recently entered into an agreement with Shell C.A.P.S.A. to
purchase its interests in certain producing concessions in Argentina for
approximately $50.4 million, subject to customary closing adjustments. Closing
is anticipated by the end of August 2001.
The Company had approximately $8.7 million in letters of credit outstanding at
June 30, 2001. These letters of credit relate primarily to various obligations
for acquisition and exploration activities in South America and bonding
requirements of various state regulatory agencies for U.S. oil and gas
operations. The Company's availability under its revolving credit facility is
reduced by the outstanding letters of credit.
The Company is a defendant in various lawsuits and is a party to governmental
proceedings from time to time arising in the ordinary course of business. In
the opinion of management, none of the various pending lawsuits and proceedings
should have a material adverse impact on the Company's financial position or
results of operations.
7. SIGNIFICANT ACQUISITION
On May 2, 2001, the Company completed the acquisition of Canadian-based
Genesis Exploration Ltd. ("Genesis") for total consideration of $610 million,
including transaction costs and the assumption of the estimated net indebtedness
of Genesis at closing (the "Genesis Acquisition"). The cash portion of the
acquisition price was paid through advances under the Company's revolving credit
facility and cash on hand. The Genesis Acquisition was accounted for using
purchase accounting, and as such, only two months of Genesis activity are
included in the Company's statements of income for the three month and six
month periods ended June 30, 2001.
The Company estimates that it acquired 62.2 million barrels of oil equivalent
("BOE") of proved reserves in the transaction with Genesis consisting of
approximately 27.7 million barrels of oil and 207.2 Bcf of gas. Proved
undeveloped reserves of oil and gas account for 33 percent of total proved BOE
of reserves. In addition, the Company estimates that the properties have
significant upside potential which may be realized through its 2001 work program
and beyond. The reserves acquired in the Genesis Acquisition are located
primarily in the provinces of Alberta and Saskatchewan, with a significant
exploration exposure in the Northwest Territories.
-16-
In addition to reserves, the Company acquired over one million net undeveloped
acres principally located in the areas of Alberta and Saskatchewan with a
significant portion, aggregating to 440,000 net acres, in the Northwest
Territories. Also, the Genesis Acquisition brings with it over 600 square-miles
of 3-D seismic and over 15,000 miles of 2-D seismic. The Company estimates the
acquisition cost of proved reserves was approximately $8.78 per BOE, exclusive
of $54 million allocated to undeveloped acreage and $9 million allocated to
facilities.
The Genesis Acquisition preliminary purchase price was allocated as of May 2,
2001, as follows (in thousands):
C$ US$ (a)
---------- ----------
Total purchase price.................................................... $ 933,335 $ 609,624
Long-term debt assumed.................................................. (135,000) (88,178)
Negative working capital assumed........................................ (89,766) (58,632)
------------ ------------
Amount paid............................................................. 708,569 462,814
Net assets at May 2, 2001............................................... (196,912) (128,617)
------------ ------------
Excess of purchase price over net assets at May 2, 2001................. $ 511,657 $ 334,197
============ ============
Allocation of excess of purchase price over net assets:
Fair market value adjustment to oil and gas properties.................. $ 393,702 $ 257,153
SFAS No. 109 goodwill................................................... 273,640 178,733
Increase in deferred income taxes....................................... (150,630) (98,387)
Increase in accrued liabilities......................................... (5,055) (3,302)
------------ ------------
$ 511,657 $ 334,197
============ ============
_______________
(a) Converted at the May 2, 2001, exchange rate of US$1/C$1.5310.
SFAS No. 109 goodwill will be amortized using a unit-of-production basis over
the total proved reserves acquired in accordance with Accounting Principles
Board Opinion No. 16, Business Combinations, until January 1, 2002, when the
Company formally adopts SFAS No. 142.
-17-
If the Genesis Acquisition had been consummated as of January 1, 2000, the
Company's unaudited pro forma revenues and net income for the six months ended
June 30, 2001 and 2000, would have been as shown below; however, such pro forma
information is not necessarily indicative of what actually would have occurred
had the transaction occurred on such date.
Six Months Ended
June 30,
---------------------
2001 2000
------ ------
(In thousands, except
per share amounts)
Revenues................................................................ $586,193 $368,263
Income before cumulative effect of change in accounting principle....... 122,826 52,898
Net income.............................................................. 122,826 51,476
Basic Income Per Share:
Income before cumulative effect of change in accounting principle..... $ 1.95 $ 0.85
Net income............................................................ 1.95 0.82
Diluted Income Per Share:
Income before cumulative effect of change in accounting principle..... $ 1.92 $ 0.83
Net income............................................................ 1.92 0.81
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. The following table reflects the Company's oil and gas
production and its average oil and gas sales prices for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- --------------- ---------------- ---------------
Production:
Oil (MBbls) -
U.S................................... 2,145 2,249 4,330 4,472
Argentina............................. 2,574 (a) 2,130 (b) 5,050 (a) 4,051 (b)
Ecuador............................... 245 (a) 255 (b) 582 (a) 584 (b)
Bolivia............................... 25 (a) 25 (b) 48 (a) 43 (b)
Canada................................ 376 - 435 -
Total................................ 5,365 (a) 4,659 (b) 10,445 (a) 9,150 (b)
Gas (MMcf) -
U.S................................... 9,043 9,502 17,604 18,144
Argentina............................. 2,966 2,205 5,008 3,688
Bolivia............................... 1,971 1,459 3,838 2,585
Canada................................ 4,973 - 5,803 -
Total................................ 18,953 13,166 32,253 24,417
Total MBOE............................. 8,524 6,853 15,821 13,220
Average prices:
Oil (per Bbl) -
U.S................................... $ 24.75 (c) $ 22.33 (d) $ 25.22 (c) $ 23.32 (d)
Argentina............................. 23.12 (c) 26.66 24.56 (c) 26.93
Ecuador............................... 19.30 22.39 18.53 23.26
Bolivia............................... 20.32 27.65 25.16 27.61
Canada................................ 24.30 - 24.59 -
Total................................ 23.67 (c) 24.34 (d) 24.50 (c) 24.94 (d)
Gas (per Mcf) -
U.S................................... $ 6.25 $ 3.31 $ 7.03 $ 2.86
Argentina............................. 1.38 1.82 1.41 1.85
Bolivia............................... 1.74 1.65 1.85 1.54
Canada................................ 3.51 - 3.71 -
Total................................ 4.30 2.87 4.94 2.56
_____________
(a) Total production for the three months and six months ended June 30, 2001,
before the impact of changes in inventories was 5,452 MBbls (Argentina -
2,551 MBbls, Ecuador - 349 MBbls, Bolivia - 31 MBbls) and 10,615 MBbls
(Argentina - 5,095 MBbls, Ecuador - 699 MBbls, Bolivia - 56 MBbls),
respectively.
(b) Total production for the three months and six months ended June 30, 2000,
before the impact of changes in inventories was 4,792 MBbls (Argentina -
2,274 MBbls, Ecuador - 244 MBbls, Bolivia - 25 MBbls) and 9,557 MBbls
(Argentina - 4,492 MBbls, Ecuador - 549 MBbls, Bolivia - 44 MBbls),
respectively.
(c) Reflects the impact of oil hedges which increased the three months and six
months ended June 30, 2001, U.S., Argentina and total average oil prices
per Bbl by $0.57, $0.57 and $0.50, and $0.60, $1.22 and $0.84,
respectively.
(d) Reflects the impact of oil hedges which decreased the three months and six
months ended June 30, 2000, U.S. and total average oil prices per Bbl by
$2.93 and $1.41, and $2.06 and $1.01, respectively.
-19-
Average U.S. and Canada oil prices received by the Company fluctuate generally
with changes in the NYMEX reference price for oil. The Company's Argentina oil
production is sold at West Texas Intermediate spot prices as quoted on the
Platt's Crude Oil Marketwire (approximately equal to the NYMEX reference price)
less a specified differential. The Company's Ecuador production is sold to
various third party purchasers at West Texas Intermediate spot prices less a
specified differential. The Company experienced a two percent decrease in its
average oil price, including the impact of hedging activities (nine percent
decrease excluding hedging activities), during the first six months of 2001 as
compared to the same period of 2000. The Company's realized average oil price
for the first six months of 2001 (before hedges) was approximately 83 percent of
the NYMEX reference price compared to 90 percent for the same period of 2000.
This decrease in realization was primarily the result of widening differentials
on Argentina and Ecuador production; however, the differentials are expected to
return closer to more historical levels over the last half of 2001.
The Company participated in oil hedges covering 3.22 MMBbls and 3.49 MMBbls
during the first six months of 2001 and 2000, respectively. The impact of the
2001 hedges increased the Company's U.S. average oil price for the first six
months of 2001 by 60 cents to $25.22 per Bbl, its Argentina average oil price by
$1.22 to $24.56 per Bbl and its overall average oil price by 84 cents to $24.50
per Bbl. The impact of the 2000 hedges reduced the Company's U.S. average oil
price for the first six months of 2000 by $2.06 to $23.32 per Bbl, and its
overall average oil price by $1.01 to $24.94 per Bbl.
Average U.S. gas prices received by the Company fluctuate generally with
changes in spot market prices, which may vary significantly by region as
evidenced by the significantly higher gas prices in California during the first
half of 2001 due to the localized power shortage. The Company's Bolivia average
gas price is tied to a long-term contract under which the base price is adjusted
for changes in specified fuel oil indexes. In Argentina, the Company's average
gas price is primarily determined by the realized price of oil from its El
Huemul concession; however, this contract expires at the end of 2001. The
Company anticipates securing long-term contracts for this gas during 2001 and it
expects future gas prices to be at lower levels than the current contract. The
Company's Canada gas is generally sold at spot market prices as reflected by the
AECO gas price index. The Company's total average gas price for the first six
months of 2001 was 93 percent higher than the same period of 2000.
-20-
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. The Company has entered into
various oil hedges (swap agreements) for a total of 1.80 MMBbls of oil at a
weighted average price of $29.54 per Bbl (NYMEX reference price) for the last
two quarters of 2001. The Company continues to monitor oil and gas prices and
may enter into additional oil and gas hedges or swaps in the future. The
following table reflects the barrels currently hedged and the corresponding
weighted average NYMEX reference prices by quarter for the remainder of 2001:
NYMEX
Reference
Price
Quarter Ending Barrels Per Bbl
------------------ -------------- ---------
(in thousands)
September 30, 2001 1,344 $29.87
December 31, 2001 460 28.58
Relatively modest changes in either oil or gas prices significantly impact the
Company's results of operations and cash flow. However, the impact of changes
in the market prices for oil and gas on the Company's average realized prices
may be reduced from time to time based on the level of the Company's hedging
activities. Based on the first six months of 2001 oil production, a change in
the average oil price realized, before hedges, by the Company of $1.00 per Bbl
would result in a change in net income and cash flow before income taxes on an
annual basis of approximately $6.5 million and $10.2 million, respectively. A
10 cent per Mcf change in the average price realized, before hedges, by the
Company for gas would result in a change in net income and cash flow before
income taxes on an annual basis of approximately $2.0 million and $3.2 million,
respectively, based on gas production for the first six months of 2001.
Period to Period Comparison
During December 2000 and May 2001, the Company made two acquisitions which
significantly impacted the period to period comparison for the second quarter
and the first six months of 2001. These acquisitions (the "Canadian
Acquisitions") include the purchase of 100 percent of the outstanding common
stock of Cometra Energy (Canada) Ltd. (the "Cometra Acquisition") in December
2000 and the purchase of 100 percent of the outstanding common stock of Genesis
Exploration Ltd. (the "Genesis Acquisition") in May 2001.
The Company's consolidated revenues and expenses for the second quarter and
first half of 2001 include under the purchase method of accounting the
consolidation of Cometra for a full three months and six months, respectively,
and Genesis for the last two months of each respective period.
-21-
Three months ended June 30, 2001, Compared to Three Months ended June 30, 2000
The Company reported net income of $52.2 million for the quarter ended June
30, 2001, compared to net income of $27.1 million for the same period in 2000.
The primary reason for the 93 percent increase quarter over quarter was the
$16.3 million, net of tax, negative impact on the 2000 second quarter of an
unfavorable court decision in Argentina; however, the 2001 quarter was also
benefitted by a 50 percent increase in average gas prices received by the
Company and a 24 percent increase in production on a BOE basis.
Oil and gas sales increased $57.2 million (38 percent), to $208.5 million for
the second quarter of 2001 from $151.3 million for the same period of 2000. A 50
percent increase in average gas prices, coupled with a 44 percent increase in
gas production, accounted for an increase of $43.7 million. A 15 percent
increase in oil production, partially offset by a three percent decrease in
average oil prices, accounted for an additional increase of $13.5 million. The
Company's 15 percent increase in oil production was primarily a result of
volumes associated with the Canadian Acquisitions, its Argentina Cuyo basin
properties acquired in September 2000 and its 2000 and 2001 exploitation
activities in Argentina. The Company's gas production rose by 44 percent due
primarily to the gas production from the Canadian Acquisitions, increased
production in Bolivia as a result of increased takes into the Bolivia-to-Brazil
pipeline and increased gas production in the Company's Argentina concessions.
As a result of an unfavorable decision by the Supreme Court of Argentina, the
Company had recorded as other expense in the second quarter of 2000 a non-
recurring charge of $25.1 million. No similar charge was incurred in the second
quarter of 2001.
Lease operating expenses, including production taxes, increased $13.6 million
(35 percent), to $52.9 million for the second quarter of 2001 from $39.3 million
for the same period of 2000. The increase in lease operating expenses is due
primarily to costs associated with properties acquired through the Canadian
Acquisitions and the Company's 2000 and 2001 drilling programs, increased lease
power and field services costs, certain one-time repair costs and an increase in
production taxes due to higher product prices. Lease operating expenses per
equivalent barrel produced increased to $6.21 in the second quarter of 2001 from
$5.73 for the same period in 2000. As the result of a Securities and Exchange
Commission mandate, transportation and storage costs billed to the Company have
been reclassified to lease operating expenses for all periods shown. These costs
had been previously reported as a reduction of oil and gas revenues consistent
with oil and gas industry practice. This reclassification added 33 cents and 34
cents to the reported lease operating expense per BOE in the second quarter of
2001 and 2000, respectively.
Exploration costs increased $2.4 million (218 percent), to $3.5 million for
the second quarter of 2001 from $1.1 million for the same period of 2000.
During the second quarter of 2001, the Company's exploration costs included $2.0
million for seismic and other geological and geophysical costs and $1.5 million
for unsuccessful exploratory drilling and leasehold impairments. Exploration
expenses for the second quarter of 2000 consisted of $0.7 million for lease
impairments and $0.4 million for unsuccessful exploratory drilling.
-22-
General and administrative expenses increased $1.9 million (19 percent), to
$12.1 million for the second quarter of 2001 from $10.2 million for the same
period of 2000, due primarily to costs associated with the Company's new
Canadian operations and personnel additions and consulting costs in conjunction
with the Company's higher level of capital expenditures. The Company's G&A per
BOE for the second quarter of 2001 was $1.42 compared to $1.49 for the same
period of 2000.
Depreciation, depletion and amortization increased $16.6 million (70 percent),
to $40.4 million for the second quarter of 2001 from $23.8 million for the same
period of 2000, primarily due to a 24 percent increase in total production and a
higher DD&A rate associated with the properties acquired in the Genesis
Acquisition. The Company's average oil and gas DD&A rate per equivalent barrel
produced increased from $3.34 in the second quarter of 2000 to $4.56 in the
second quarter of 2001.
In connection with the Genesis Acquisition, the Company recorded as an asset
goodwill in the amount of approximately $178.7 million. The Company is
currently required under Accounting Principles Board Opinion No. 17, Intangible
Assets, to amortize this goodwill using the units-of-production method over the
total proved reserves of Genesis. The Company recorded goodwill amortization
expense of $2.8 million for the second quarter of 2001. In June 2001, Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
was issued changing the rules regarding goodwill. For fiscal years beginning
January 1, 2002, companies are no longer required to amortize goodwill, but
rather must periodically review the fair value of goodwill and record impairment
charges to income when the fair value is less than the book value of the
goodwill.
Interest expense increased $4.0 million (34 percent), to $15.9 million for
the second quarter of 2001 from $11.9 million for the same period of 2000, due
primarily to a 55 percent increase in the Company's total average outstanding
debt quarter over quarter primarily as a result of the borrowings related to and
debt assumed with the May 2001 Genesis Acquisition and the December 2000 Cometra
Acquisition. This increase was partially offset by a decrease in the Company's
average interest rate to 7.89 percent for the second quarter of 2001 from to
8.87 percent in the same period of 2000. The Company had $14.4 million and $5.0
million of accrued interest payable at June 30, 2001, and December 31, 2000,
respectively, included in other payables and accrued liabilities.
Six months ended June 30, 2001, Compared to six months ended June 30, 2001
The Company reported net income of $122.9 million for the six months ended
June 30, 2001, compared to net income of $65.3 million for the year-earlier
period. The increase in the Company's net income is primarily due to a 93
percent increase in average gas prices, combined with a 20 percent increase in
production on an equivalent barrel basis. The first half of 2000 also included a
$16.3 million, net of tax, non-recurring charge against income related to an
unfavorable court decision in Argentina.
-23-
Oil and gas sales increased $124.6 million (43 percent), to $415.4 million for
the first six months of 2001 from $290.8 million for the six months of 2000. A
14 percent increase in oil production, partially offset by a two percent
decrease in average oil prices, accounted for a $27.7 million increase in oil
sales for the first six months of 2001 as compared to the year-earlier period.
A 93 percent increase in average gas prices coupled with a 32 percent increase
in gas production accounted for a $96.9 million increase in gas sales for the
first six months of 2001 as compared to the year-earlier period. The 14 percent
increase in oil production and the 32 percent increase in gas production are
primarily the result of the Canadian Acquisitions and the Company's exploitation
and exploration activities.
As a result of an unfavorable decision by the Supreme Court of Argentina, the
Company had recorded as other expense in the first six months of 2000 a non-
recurring charge of $25.1 million. No similar charge was incurred in the first
six months of 2001.
Lease operating expenses, including production taxes, increased $25.8 million
(34 percent), to $100.7 million for the first six months of 2001 from $74.9
million for the first six months of 2000 primarily due to the 20 percent
increase in production primarily the result of the Canadian Acquisitions,
increased lease power and field services costs, an increase in severance taxes
due to higher product prices and certain one-time repair costs. Lease operating
expenses per equivalent barrel produced increased 13 percent to $6.37 in the
first six months of 2001 from $5.66 for the same period in 2000. As the result
of a Securities and Exchange Commission mandate, transportation and storage
costs billed to the Company have been reclassified to lease operating expenses
for all periods shown. These costs had been previously reported as a reduction
of oil and gas revenues consistent with oil and gas industry practice. This
reclassification added 35 cents and 31 cents to the reported lease operating
expense per BOE in the first six months of 2001 and 2000, respectively.
Exploration costs increased $2.3 million (68 percent), to $5.7 million for the
first six months of 2001 from $3.4 million for same period of 2000. During the
first six months of 2001, the Company's exploration costs included $2.9 million
for unsuccessful exploratory drilling and lease impairments and $2.8 million for
other geological and geophysical costs. Exploration costs for the first six
months of 2000 included $2.5 million for unsuccessful exploratory drilling,
primarily in Bolivia, $0.8 million for lease impairments and $0.1 million for
other geological and geophysical costs.
General and administrative expenses increased $4.9 million (26 percent), to
$24.1 million for the first six months of 2001 from $19.2 million for the first
six months of 2000 due primarily to costs associated with the Canadian
operations acquired through the Canadian Acquisitions and personnel additions
and consulting costs in conjunction with the Company's higher level of capital
expenditures. General and administrative expenses per equivalent barrel
produced increased to $1.52 for the first half of 2001 from $1.46 in the year-
earlier period.
Depreciation, depletion and amortization increased $22.6 million (50 percent),
to $68.0 million for the first six months of 2001 from $45.4 million for the
first six months of 2000, due primarily to the 20 percent increase in production
on a BOE basis and the 25 percent increase in the average amortization rate per
equivalent barrel produced from $3.30 in the first six months of 2000 to $4.14
for the same period of 2001 primarily due to the Genesis Acquisition and the
impact on reserves of lower oil prices year over year.
-24-
Interest expense increased $1.5 million (6 percent), to $26.8 million for the
first six months of 2001 from $25.3 million for the first six months of 2000,
due primarily to a 12 percent increase in the Company's total average
outstanding debt year over year. This increase was partially offset as the
Company's overall average interest rate decreased to 8.34 percent in the first
six months of 2001 as compared to 8.72 percent in the year-earlier period
primarily as the result of lower rates on its floating-rate debt due to overall
market reductions and a significant increase in its lower-cost floating- rate
borrowings as a result of the Canadian Acquisitions.
Capital Expenditures
During the first six months of 2001, the Company's total oil and gas capital
expenditures were $701.9 million, including $599.5 million for oil and gas
properties acquired in the Genesis Acquisition. In North America, the Company's
non-acquisition oil and gas capital expenditures totaled $59.8 million.
Exploration activities accounted for $23.0 million of the North America capital
expenditures with exploitation activities contributing $36.8 million. During
the first six months of 2001, the Company's international non-acquisition oil
and gas capital expenditures totaled $38.4 million, including $30.2 million in
Argentina on exploitation activities and $6.3 million in Ecuador, principally on
exploitation. The Company also spent a combined $1.9 million in other
international areas including Trinidad, Bolivia and Yemen during the first half
of 2001. The sizeable decrease from 2000 spending in Bolivia and Yemen is the
result of the completion of the Bolivia drilling program in 2000 and the
Company's current evaluation stage of the 2000 Yemen drilling program results.
The Company had accrued property costs of $31.0 million and $14.6 million as of
June 30, 2001, and December 31, 2000, respectively, included in other payables
and accrued liabilities.
As of June 30, 2001, the Company had total unevaluated oil and gas property
costs of approximately $102.0 million consisting of undeveloped leasehold costs
of $84.8 million, including $60.7 million in Canada, and exploratory drilling in
progress of $17.2 million. Approximately $15.1 million of the total unevaluated
costs are associated with the Company's Yemen drilling program. Future
exploration expense and earnings may be impacted to the extent any of the
exploratory drilling is determined to be unsuccessful.
On May 2, 2001, the Company completed the Genesis Acquisition for total
consideration of $610 million, including transaction costs and the assumption of
the estimated net indebtedness of Genesis at closing (See Note 7 - Significant
Acquisition). The cash portion of the acquisition price was paid through
advances under the Company's revolving credit facility and cash on hand.
The Company also recently entered into an agreement with Shell C.A.P.S.A.
("Shell") to purchase its interests in certain producing concessions in
Argentina for approximately $50.4 million, subject to customary closing
adjustments. Closing is anticipated by the end of August 2001.
-25-
The timing of most of the Company's capital expenditures is discretionary with
no material long-term capital expenditure commitments other than the Shell
agreement mentioned above. Consequently, the Company has a significant degree of
flexibility to adjust the level of such expenditures as circumstances warrant.
The Company uses internally-generated cash flow to fund capital expenditures
other than significant acquisitions. The Company's non-acquisition capital
expenditure budget for 2001 and its preliminary non-acquisition budget for 2002
are currently set at $238 million and $298 million, respectively. The Company
does not have a specific acquisition budget since the timing and size of
acquisitions are difficult to forecast. The Company continues to evaluate
additional acquisitions of oil and gas properties. In addition to internally-
generated cash flow and advances under its revolving credit facility, the
Company may seek additional sources of capital to fund any future significant
acquisitions (see "Liquidity"), however, no assurance can be given that
sufficient funds will be available to fund the Company's desired acquisitions.
Liquidity
Internally generated cash flow and the borrowing capacity under its revolving
credit facility are the Company's major sources of liquidity. In addition, the
Company may use other sources of capital, including the issuance of additional
debt securities or equity securities, to fund any major acquisitions it might
secure in the future and to maintain its financial flexibility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. Since
1990, in conjunction with the purchase of substantial oil and gas assets, the
Company completed five public equity offerings as well as two public debt
offerings and two Rule 144A debt offerings, which provided the Company with
aggregate net proceeds of approximately $843 million.
On May 30, 2001, the Company issued $200 million of its 7 7/8% Senior
Subordinated Notes due 2011 (the "7 7/8% Notes"). The 7 7/8% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after May 15, 2006. In addition, prior to May 15, 2004, the Company may redeem
up to 35 percent of the 7 7/8% Notes with the proceeds of certain underwritten
public offerings of the Company's common stock. The 7 7/8% Notes mature on May
15, 2011, with interest payable semiannually on May 15 and November 15 of each
year. All of the net proceeds to the Company from the sale of the 7 7/8% Notes
were used to repay a portion of the existing indebtedness under the Company's
revolving credit facility.
Under the Second Amended and Restated Credit Agreement dated November 30,
2000, as amended (the "Bank Facility"), certain banks have provided to the
Company a $625 million unsecured revolving credit facility. The Bank Facility
establishes a borrowing base determined by the banks' evaluation of the
Company's oil and gas reserves. The amount available to be borrowed under the
Bank Facility is limited to the lesser of the facility size or the borrowing
base, which is currently set at $850 million.
-26-
As a result of the recent amendment to its $625 million Bank Facility, the
Company's unused availability under the Bank Facility at August 9, 2001, was
approximately $235 million. The amendment included an increase in the borrowing
base to $850 million, in part to reflect the addition of the Canadian properties
acquired in the Genesis Acquisition. While availability under the Bank Facility
is limited to the $625 million facility size, the $225 million of borrowing base
in excess of the $625 million Bank Facility provides additional liquidity should
the Company choose to incur additional indebtedness outside the Bank Facility.
The unused portion of the Bank Facility and the Company's internally generated
cash flow provide liquidity which may be used to finance future capital
expenditures, including acquisitions. As additional acquisitions are made and
such properties are added to the borrowing base, the banks' determination of the
borrowing base and their commitments may be increased.
Outstanding advances under the Bank Facility bear interest payable quarterly
at a floating rate based on Bank of Montreal's alternate base rate (as defined)
or, at the Company's option, at a fixed rate for up to six months based on the
Eurodollar market rate ("LIBOR"). The Company's interest rate increments above
the alternate base rate and LIBOR vary based on the level of outstanding senior
debt to the borrowing base. As of June 30, 2001, the Company had $360 million
outstanding under its Bank Facility, excluding outstanding letters of credit of
approximately $8.7 million. The Company must pay a commitment fee ranging from
0.325 to 0.50 percent per annum on the unused portion of the banks' commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's oil and gas reserves. If the sum
of outstanding senior debt exceeds the borrowing base, as redetermined, the
Company must repay such excess. Final maturity of the Bank Facility is November
30, 2005.
The Company's internally generated cash flow, results of operations and
financing for its operations are dependent on oil and gas prices. For the six
months ended June 30, 2001, approximately 66 percent of the company's production
was oil. Realized oil prices for the period decreased by two percent as
compared to the same period of 2000 and total production on a BOE basis
increased by 20 percent. As a result, the Company's earnings and cash flows
materially increased compared to the first six months of 2000. To the extent
oil prices decline, the Company's earnings and cash flow from operations may be
adversely impacted. However, the Company believes that its cash flows and
unused availability under the Bank Facility are sufficient to fund its planned
capital expenditures for the foreseeable future.
Inflation
In recent years, U.S. inflation has not had a significant impact on the
Company's operations or financial condition.
-27-
Income Taxes
The Company incurred a current provision for income taxes of approximately
$50.2 million and $23.2 million for the first six months of 2001 and 2000,
respectively. The total provision for U.S. income taxes is based on the Federal
corporate statutory income tax rate plus an estimated average rate for state
income taxes. Earnings of the Company's foreign subsidiaries are subject to
foreign income taxes. No U.S. deferred tax liability will be recognized related
to the unremitted earnings of these foreign subsidiaries as it is the Company's
intention, generally, to reinvest such earnings permanently.
Change in Accounting Principles
The Company adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB No. 101"), in the fourth quarter of
2000, effective January 1, 2000. SAB No. 101 requires oil inventories held in
storage facilities to be valued at cost. Cost is defined as lifting costs plus
depreciation, depletion and amortization. The Company previously followed
industry practice by valuing oil inventories at market. The cumulative effect
reduced net income by $1.4 million, net of income tax effects of $0.6 million.
The first six months of 2000 have been restated to give effect to this change in
accounting principle. Additional volatility in quarterly and annually reported
earnings may occur in the future as a result of the required adoption of SAB No.
101 and fluctuations in oil inventory levels.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended in June 1999 by Statement No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133, and in June 2000 by Statement No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133 ("SFAS No. 133"). SFAS No. 133
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. SFAS No. 133 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 income statement. Companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting.
Upon adoption of SFAS No. 133 on January 1, 2001, the Company recorded a
transition asset of $18.5 million related to cash flow hedges in place that are
used to reduce the volatility in commodity prices for portions of the Company's
forecasted oil production. Additionally, the Company recorded, net of tax, an
adjustment to accumulated other comprehensive income in the Stockholders' Equity
section of the balance sheet of $14.9 million. The amount recorded to
accumulated other comprehensive income will be relieved over time and taken to
the income statement as the physical transactions being hedged are finalized.
-28-
Foreign Operations
For information on the Company's foreign operations, see "Foreign Currency and
Operations Risk" under Item 3 of Part I of this Form 10-Q.
Forward-Looking Statements
This Form 10-Q includes certain statements that may be deemed to be "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements in this Form 10-Q, other than statements of
historical facts, that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future,
including production, operating costs and product price realization targets,
future capital expenditures (including the amount and nature thereof), the
drilling of wells, reserve estimates, future production of oil and gas, future
cash flows, future reserve activity and other such matters are forward-looking
statements. Although the Company believes the expectations expressed in such
forward-looking statements are based on reasonable assumptions within the bounds
of its knowledge of its business, such statements are not guarantees of future
performance and actual results or developments may differ materially from those
in the forward-looking statements.
Factors that could cause actual results to differ materially from those in
forward-looking statements include: oil and gas prices; exploitation and
exploration successes; continued availability of capital and financing; general
economic, market or business conditions; acquisition opportunities (or lack
thereof); changes in laws or regulations; risk factors listed from time to time
in the Company's reports filed with the Securities and Exchange Commission; and
other factors. The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
-29-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The Company's operations are exposed to market risks primarily as a result of
changes in commodity prices, interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
Commodity Price Risk
The Company produces, purchases and sells crude oil, natural gas, condensate,
natural gas liquids and sulfur. As a result, the Company's financial results
can be significantly impacted as these commodity prices fluctuate widely in
response to changing market forces. The Company has previously engaged in oil
and gas hedging activities and intends to continue to consider various hedging
arrangements to realize commodity prices which it considers favorable. During
2000 and the first half of 2001, the Company entered into various oil hedges
(swap agreements) for a total of 5.02 MMBbls of oil at a weighted average NYMEX
reference price of $30.54 per Bbl for the calendar year 2001. The fair value of
commodity swap agreements is the amount at which they could be settled, based on
quoted market prices. At June 30, 2001, the Company would have received
approximately $5.8 million to terminate its oil swap agreements then in place
for the last two quarters of 2001 covering a total 1.80 MMBbls of oil at an
average NYMEX reference price of $29.54 per Bbl. The Company continues to
monitor oil and gas prices and may enter into additional oil and gas hedges or
swaps in the future.
Interest Rate Risk
The Company's interest rate risk exposure results primarily from short-term
rates, mainly LIBOR-based, on borrowings from its commercial banks. To reduce
the impact of fluctuations in interest rates, the Company maintains a portion of
its total debt portfolio in fixed-rate debt. At June 30, 2001, the amount of
the Company's fixed-rate debt was 62 percent of its total long-term debt. In
the past, the Company has not entered into financial instruments such as
interest rate swaps or interest rate lock agreements. However, it may consider
these instruments to manage the impact of changes in interest rates based on
management's assessment of future interest rates, volatility of the yield curve
and the Company's ability to access the capital markets in a timely manner.
The following table provides information about the Company's long-term debt
principal payments and weighted-average interest rates by expected maturity
dates:
Fair
Value
There- at
Long-Term Debt: 2001 2002 2003 2004 2005 after Total 6/30/01
-------------------------------------------------------------------------------
Fixed rate (in thousands)......... - - - - $149,816 $449,398 $599,214 $606,206
Average interest rate............. - - - - 9.0% 8.7% 8.8% -
Variable rate (in thousands)...... - - - - $360,000 - $360,000 $360,000
Average interest rate............. - - - - (a) - (a) -
(a) LIBOR plus an increment, based on level of outstanding senior debt to the
borrowing base, up to a maximum of 2.0 percent. The increment above LIBOR
at June 30, 2001, was 1.75 percent.
-30-
Foreign Currency and Operations Risk
International investments represent, and are expected to continue to
represent, a significant portion of the Company's total assets. The Company has
international operations in Argentina, Canada, Bolivia, Ecuador, Trinidad and
Yemen. For the first half of 2001, the Company's exploration and production
operations in Argentina accounted for approximately 25 percent of the Company's
revenues, 33 percent of the Company's operating income and 21 percent of its
total assets as of June 30, 2001. The Company's Canadian operations accounted
for approximately 32 percent of its total assets as of June 30, 2001. A majority
of these assets were purchased on May 2, 2001, as part of the Genesis
Acquisition and the Company's exploration and production operations include only
two months of their activity during the first half of 2001. During the first
half of 2001, none of the Company's other international operations accounted for
more than 10 percent of its revenues or operating income or total assets. The
Company continues to identify and evaluate international opportunities, but
currently has no binding agreements or commitments to make any material
international investment other than the previously mentioned agreement with
Shell C.A.P.S.A. for the purchase of its interests in certain producing
Argentina concessions for $50.4 million. As a result of such significant foreign
operations, the Company's financial results could be affected by factors such as
changes in foreign currency exchange rates, weak economic conditions or changes
in the political climate in these foreign countries.
Since 1999, Argentina's economy has been in recession. In an effort to regain
control of the economy, President Fernando de la Rua has appointed Domingo
Cavallo as Minister of Economy. Mr. Cavallo has been granted emergency powers
by Congress to introduce reforms to achieve an economic reactivation by
restoring growth and competitiveness. In May, the International Monetary Fund
(the "IMF") approved a debt-swap and new fiscal deficit targets in order to
allow sufficient time for economic and fiscal reforms to take effect. The
Congress recently passed a "zero deficit" law, which consists of emergency cuts
in government spending with the goal of eliminating the fiscal deficit. In
effect, the government will spend only what it collects in revenues. Although
the President obtained the political support for the new law, social approval
must still be won and economic recovery must take effect. Social protests have
begun to escalate and some in the business community are calling for the federal
government to take a firm approach to control the situation.
Mr. Cavallo continues to focus on improvement in tax revenue, clamping down on
tax evasion, lowering tariffs on imported capital goods to lower the costs of
investment and taxing financial transactions. The Argentina congress has
recently approved a proposal for the peso to shift from fixed parity with the
U.S. dollar to a link with a basket of currencies including the euro and the
U.S. dollar once the euro reaches a 1:1 exchange rate with the U.S. dollar.
Until then, the peso will still be tied to the U.S. dollar only. Economic
recovery will be led by new investment and by exports, but the pace of growth
will likely be constrained by the economic slow down in Brazil, which is
Argentina's main trading partner, and in the global economy.
All of the Company's Argentine revenues are U.S. dollar based, while a large
portion of its costs are denominated in Argentine pesos. The Company believes
that should any devaluation of the Argentine peso occur, its revenues would be
unaffected and its operating costs would not be significantly increased. At the
present time, there are no foreign exchange controls preventing or restricting
the conversion of Argentine pesos into dollars.
-31-
Since the mid-1980's, Bolivia has been undergoing major economic reform,
including the establishment of a free-market economy and the encouragement of
foreign private investment. Economic activities that had been reserved for
government corporations were opened to foreign and domestic private investments.
Barriers to international trade have been reduced and tariffs lowered. A new
investment law and revised codes for mining and the petroleum industry, intended
to attract foreign investment, have been introduced.
The political environment in Bolivia will soon change as President Hugo
Banzer, after being stricken with cancer, has resigned and handed over power to
his Vice-President, Jorge Quiroga. Mr. Quiroga, who is a U.S. educated
industrial engineer, will run the country until new elections are held, which
are currently scheduled for next year. He will be barred from running in those
elections due to term limits.
In 1987, the Boliviano ("Bs") replaced the peso at the rate of one million
pesos to one Boliviano. The exchange rate is set daily by the Government's
exchange house, the Bolsin, which is under the supervision of the Bolivian
Central Bank. Foreign exchange transactions are not subject to any controls.
The US$:Bs exchange rate at June 30, 2001, was US$1:Bs 6.60. The Company
believes that any currency risk associated with its Bolivian operations would
not have a material impact on the Company's financial position or results of
operations.
In Ecuador, President Gustavo Naboa and Congress continue to debate further
tax, social, and customs reform to strengthen economic growth. The legal basis
for many of the recent reforms is the Ley Fundamental para la Transformacion
Economica del Ecuador (the "economic transformation law") enacted in March 2000,
which mandated dollarization of the economy. As a result of this reform, all of
the Company's Ecuadorian revenues and costs are U.S. dollar based. Even though
the second phase of the economic transformation law (known as Trole II), which
was intended to bring significant tax and labor reform and a defined
privatization program to increase inflows of foreign direct investment, was
rejected by Congress, President Noboa used his veto powers to pass a tax reform
package which allowed the IMF to make a disbursement of its stand-by loan in the
second quarter. Although this political environment has slowed decisive
policymaking, fixed investment should see a significant increase in 2001 driven
by construction of the new heavy oil pipeline (the O.C.P.) begun in the second
quarter.
With the Cometra Acquisition in December 2000 and the Genesis Acquisition in
May 2001, the Company now has significant producing operations in Canada. The
Company views the operating environment in Canada as stable and the economic
stability as good. A majority of the Company's Canadian revenues and costs are
denominated in Canadian dollars, and while the value of the Canadian dollar does
fluctuate in relation to the U.S. dollar, the Company believes that any currency
risk associated with its Canadian operations would not have a material impact on
the Company's financial position or results of operations. The US$:C$ exchange
rate at June 30, 2001, was US$1:C$1.5175 as compared to US$1:C$1.4995 at
December 31, 2000.
-32-
PART II
OTHER INFORMATION
-33-
Item 1. Legal Proceedings
-----------------
For information regarding legal proceedings, see the Company's Form
10-K for the year ended December 31, 2000.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on May 8, 2001, in Tulsa, Oklahoma. At the Annual
Meeting, the stockholders of the Company elected William L. Abernathy
and Bryan H. Lawrence as Class II Directors. The stockholders also
considered and approved the appointment of Arthur Andersen LLP as the
independent public accountants of the Company for the fiscal year
ending December 31, 2001.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 55,486,537 shares of the Common Stock of the
Company, or 88 percent of the total stock outstanding and entitled to
vote at the Annual Meeting. The table below describes the results of
voting at the Annual Meeting.
Votes Broker
Votes Against or Non-
For Withheld Abstentions Votes
---------- ---------- ----------- ------
1. Election of Directors:
William L. Abernathy 46,493,359 8,993,178 -0- -0-
Bryan H. Lawrence 54,104,360 1,382,177 -0- -0-
2. Ratification of Arthur Andersen
LLP as independent public
accountants of the Company
for fiscal 2001 55,277,578 153,892 55,067 -0-
-34-
Item 5. Other Information
-----------------
Copies of the Company's press releases each dated August 8, 2001,
announcing second quarter 2001 earnings results and revisions to 2001
capital budget and growth targets and announcing preliminary 2002
capital budget and growth targets are attached as exhibits hereto and
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
The following documents are included as exhibits to this Form 10-
Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after an
exhibit, such exhibit is filed herewith.
2. Acquisition Agreement dated as of March 27, 2001, between
the Company and Genesis Exploration Ltd. (filed as Exhibit 2
to the Company's Current Report on Form 8-K filed May 15,
2001).
4. Indenture dated as of May 30, 2001, between The Chase
Manhattan Bank, as Trustee, and the Company (filed as
Exhibit 4.1 to the Company's Registration Statement on Form
S-4, Registration No. 333-63896, filed on June 26, 2001).
10. First Amendment to Second Amended and Restated Credit
Agreement dated as of August 8, 2001, between the Company,
the Lenders party thereto, Bank of Montreal, as
Administrative Agent, Bank of America, N.A., as Syndication
Agent, Societe General, Southwest Agency, as Documentation
Agent, and ABN AMRO Bank, N.V., as Managing Agent.
99.1 Press release dated August 8, 2001, issued by the Company
announcing second quarter 2001 earnings results.
99.2 Press release dated August 8, 2001, issued by the Company
announcing an acquisition in Argentina, revisions to 2001
capital budget and growth targets and preliminary 2002
capital budget and growth targets.
b) Reports on Form 8-K
Form 8-K dated May 2, 2001, was filed May 15, 2001, to report
under Item 2 the May 2, 2001, acquisition of 100 percent of the
outstanding common stock of Genesis Exploration Ltd. and to
report under Item 7 the acquisition agreement related thereto.
Form 8-K/A1 dated May 2, 2001, was filed May 21, 2001, to report
under Item 7 the financial statements for Genesis Exploration
Ltd. and pro forma financial statements for the Company.
Form 8-K dated May 22, 2001, was filed May 24, 2001, to report
under Item 5 the Company's press release dated May 22, 2001,
announcing the sale of $200 million of senior subordinated notes
and updating the Company's 2001 hedging program.
-35-
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.
VINTAGE PETROLEUM, INC.
-----------------------
(Registrant)
DATE: August 14, 2001 \s\ Michael F. Meimerstorf
-----------------------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
-36-
Exhibit Index
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
------- ------------------------------------------------------------------
2. Acquisition Agreement dated as of March 27, 2001, between the
Company and Genesis Exploration Ltd. (filed as Exhibit 2 to the
Company's Current Report on Form 8-K filed May 15, 2001).
4. Indenture dated as of May 30, 2001, between The Chase Manhattan
Bank, as Trustee, and the Company (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-4, Registration No.
333-63896, filed on June 26, 2001).
10. First Amendment to Second Amended and Restated Credit Agreement
dated as of August 8, 2001, between the Company, the Lenders party
thereto, Bank of Montreal, as Administrative Agent, Bank of
America, N.A., as Syndication Agent, Societe General, Southwest
Agency, as Documentation Agent, and ABN AMRO Bank, N.V., as
Managing Agent.
99.1 Press release dated August 8, 2001, issued by the Company
announcing second quarter 2001 earnings results.
99.2 Press release dated August 8, 2001, issued by the Company
announcing an acquisition in Argentina, revisions to 2001 capital
budget and growth targets and preliminary 2002 capital budget and
growth targets.