-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CMrALzksVGOfTBq/4m5XCuRLH2lZ9ZGLZB7TJczTso8BR//vUM8B1oqYFPk9Kig9 E7zZvQAeZ+wUH8l+PcgonQ== /in/edgar/work/20000811/0000899243-00-001906/0000899243-00-001906.txt : 20000921 0000899243-00-001906.hdr.sgml : 20000921 ACCESSION NUMBER: 0000899243-00-001906 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELLWETHER EXPLORATION CO CENTRAL INDEX KEY: 0000319459 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 760437769 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09498 FILM NUMBER: 693298 BUSINESS ADDRESS: STREET 1: 1331 LAMAR STREET 2: SUITE 1455 CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7136501025 MAIL ADDRESS: STREET 1: 1221 LAMAR STREET 2: STE 1600 CITY: HOUSTON STATE: TX ZIP: 77010-3039 10-Q 1 0001.txt FOR THE QUARTER ENDED JUNE 30, 2000 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 QUARTER ENDED JUNE 30, 2000 or ______ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From __________ to __________ Commission file number 0-9498 BELLWETHER EXPLORATION COMPANY (Exact name of registrant as specified in its charter) Delaware 74-0437769 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 1331 Lamar, Suite 1455 Houston, Texas 77010-3039 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (713) 495-3000 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 ___ - As of August 5, 2000, 13,917,898 shares of common stock of Bellwether Exploration Company were outstanding. 1 BELLWETHER EXPLORATION COMPANY ------------------------------ INDEX -----
PART I. FINANCIAL INFORMATION Page # ITEM 1. Financial Statements Condensed Consolidated Balance Sheets: June 30, 2000 (Unaudited) and December 31, 1999.................... 3 Condensed Consolidated Statements of Operations (Unaudited): Three and six months ended June 30, 2000 and June 30, 1999......... 5 Condensed Consolidated Statements of Cash Flows (Unaudited): Six months ended June 30, 2000 and June 30, 1999................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited)..... 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 12 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........... 19 PART II. OTHER INFORMATION.................................................... 20
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- BELLWETHER EXPLORATION COMPANY ------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Amounts in thousands) ASSETS ------ June 30, December 31, 2000 1999 ------------------ ------------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents.................................... $ 4,356 $ 6,101 Accounts receivable and accrued revenues..................... 19,086 14,354 Prepaid expenses and other................................... 2,020 1,562 ---------- ---------- Total current assets...................................... 25,462 22,017 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST: Oil and gas properties (full cost) United States - Unproved properties of $19,551 and $16,325 excluded from amortization as of June 30, 2000 and December 31, 1999, respectively..................... 391,460 344,778 Latin America - Unproved properties of $1,769 and $404 excluded from amortization as of June 30, 2000 and December 31, 1999, respectively......................... 4,664 1,246 Gas plant facilities......................................... 17,984 17,775 ---------- ---------- 414,108 363,799 Accum. deprec. depl. and amortz - oil and gas.............. (236,158) (221,092) Accum. deprec. depl. and amortz - gas plant................. (6,765) (6,134) ---------- ---------- Net property, plant and equipment............................ 171,185 136,573 Leasehold, furniture and equipment........................... 2,191 438 Accumulated depreciation..................................... (184) (74) ---------- ---------- 2,007 364 ---------- ---------- INVESTMENTS IN OUTSIDE COMPANIES............................. 4,554 4,554 NOTES RECEIVABLE............................................. 281 --- DEFERRED INCOME TAXES........................................ 18,596 2,739 OTHER ASSETS................................................. 5,397 5,514 ---------- ---------- $ 227,482 $ 171,761 ========== ==========
See accompanying notes to condensed consolidated financial statements 3 BELLWETHER EXPLORATION COMPANY ------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Amounts in thousands, except share information) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ June 30, December 31, 2000 1999 -------------------- -------------------- (Unaudited) CURRENT LIABILITIES: Accounts payable and accrued liabilities....................... $ 35,660 $ 18,247 --------------- --------------- Total current liabilities..................................... 35,660 18,247 --------------- --------------- LONG-TERM DEBT................................................. 140,900 130,000 OTHER LIABILITIES.............................................. 200 200 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued or outstanding at June 30, 2000 and December 31, 1999............................................. --- --- Common stock, $0.01 par value, 30,000,000 shares authorized, 13,917,791 and 13,857,791 shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively.......... 142 142 Additional paid-in capital..................................... 81,444 80,442 Retained earnings.............................................. (28,959) (55,378) Treasury stock, at cost, 311,000 shares........................ (1,905) (1,905) --------------- --------------- Total stockholders' equity................................... 50,722 23,314 --------------- --------------- $227,482 $171,761 =============== ===============
See accompanying notes to condensed consolidated financial statements 4 BELLWETHER EXPLORATION COMPANY ------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) (Amounts in thousands, except per share information)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ -------------------------------- 2000 1999 2000 1999 ------------------------------------------ -------------------------------- REVENUES: Oil and gas revenues.......................... $24,826 $14,024 $ 48,493 $26,751 Gas plant operations, net..................... 737 254 1,391 475 Interest and other income..................... 342 986 566 1,269 -------- -------- --------- -------- 25,905 15,264 50,450 28,495 -------- -------- --------- -------- COST AND EXPENSES: Production expenses........................... 7,021 5,013 13,335 10,625 Depreciation, depletion and amortization...... 6,886 5,764 14,176 10,444 General and administrative expenses........... 3,239 1,474 5,115 2,868 Interest expense.............................. 3,748 2,890 7,157 5,719 -------- -------- --------- -------- 20,894 15,141 39,783 29,656 -------- -------- --------- -------- Income (loss) before income taxes.............. 5,011 123 10,667 (1,161) Provision (benefit) for income taxes........... 1,982 --- (15,752) --- -------- -------- --------- -------- NET INCOME (LOSS).............................. $ 3,029 $ 123 $ 26,419 $(1,161) ======== ======== ========= ======== Net income (loss) per share.................... $ .22 $ 0.01 $ 1.90 $ (0.08) ======== ======== ========= ======== Net income (loss) per share-diluted............ $ .21 $ 0.01 $ 1.86 $ (0.08) ======== ======== ========= ======== Weighted average common shares outstanding................................... 13,883 13,854 13,871 13,854 ======== ======== ========= ======== Weighted average common shares outstanding-diluted........................... 14,429 13,894 14,214 13,854 ======== ======== ========= ========
See accompanying notes to condensed consolidated financial statements 5 BELLWETHER EXPLORATION COMPANY ------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) (Amounts in thousands)
Six Months Ended June 30, --------------------------------------------- 2000 1999 --------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS)................................................... $ 26,419 $ (1,161) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization........................ 14,632 10,854 Stock option expense amortization............................... 581 --- ------------------- ------------------- Deferred income taxes........................................... (15,791) --- ------------------- ------------------- 25,841 9,693 Change in assets and liabilities: Accounts receivable and accrued revenue............................. (4,732) 3,618 Accounts payable and other liabilities.............................. 17,412 379 Due from related parties............................................ --- 34 Other............................................................... (1,436) 158 ------------------- ------------------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES..................... 37,085 4,189 ------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of oil and gas properties............................... (6,413) (14,269) Additions to properties and facilities.............................. (44,070) (10,573) Additions to leasehold, furniture and equipment..................... (1,856) (43) Notes receiveable.................................................. (281) --- Proceeds from sales of properties................................... 2,547 256 ------------------- ------------------- NET CASH FLOWS USED IN INVESTING ACTIVITIES......................... (50,073) (24,629) ------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings............................................ 28,900 23,500 Repayment of bank note.............................................. (18,000) (11,500) Exercise of stock options........................................... 343 --- Purchase of treasury shares......................................... --- (1) ------------------- ------------------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES..................... 11,243 11,999 ------------------- ------------------- Net (decrease) increase in cash and cash equivalents............... (1,745) 1,252 Cash and cash equivalents at beginning of period.................... 6,101 10 ------------------- ------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 4,356 $ 1,262 =================== ===================
See accompanying notes to condensed consolidated financial statements 6 BELLWETHER EXPLORATION COMPANY ------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) ----------------------------------------------------------- (UNAUDITED) (Amounts in thousands)
Six Months Ended June 30, -------------------------------------- 2000 1999 ----------------- ---------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest.................................................... $6,364 $5,356 Income taxes................................................ $ 104 $ 28
See accompanying notes to condensed consolidated financial statements 7 BELLWETHER EXPLORATION COMPANY ------------------------------ Notes to Condensed Consolidated Financial Statements ---------------------------------------------------- (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all disclosures required by generally accepted accounting principles. However, in the opinion of management, these statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position at June 30, 2000 and December 31, 1999, and the results of operations and changes in cash flows for the periods ended June 30, 2000 and 1999. These financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements in the December 31, 1999 Form 10-K of Bellwether Exploration Company (the "Company") that was filed with the Securities and Exchange Commission on March 24, 2000. Certain reclassifications of prior period statements have been made to conform with current reporting practices. In order to prepare these financial statements in conformity with generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reserve information. Actual results could differ from those estimates. 2. STOCKHOLDERS' EQUITY -------------------- On May 15, 2000 the Company's president was granted 500,000 options with an exercise price set at the average price for the 30 days prior to the grant date. Such average price was less than the closing price on the grant date. The Company is required to recognize compensation expense equal to the difference between the exercise price and the close price of Bellwether's stock on the grant date for every option. A charge of $536,070 was recorded in May 2000, when one-third of the options vested. The remaining expense will be charged ratably over the vesting period for the remaining options, two years. Total compensation expense recognized for the quarter relative to these options was $580,742. 8 BELLWETHER EXPLORATION COMPANY ------------------------------ Notes to Condensed Consolidated Financial Statements (Continued) ---------------------------------------------------------------- (Unaudited) The following represents a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. For the six months ended June 30, 1999, diluted earnings per common share are not calculated since the issuance or conversion of additional securities would have an antidilutive effect due to the loss in the period. Options and warrants equal to 413,500 shares in 2000 that could potentially dilute basic earnings per share in the future were not included in the June 30, 2000computation of diluted earnings per share because to do so would have been antidilutive. SFAS NO. 128 RECONCILIATION (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS):
For the Six Months Ended For the Six Months Ended June 30, 2000 June 30, 1999 ----------------------------------------------- ------------------------------------------ Income Shares Per Share (Loss) Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- --------------- ------------ ------------- ------------- ------------ INCOME (LOSS) PER COMMON SHARE: Income (Loss) available to common stockholders................... $ 26,419 13,871 $ 1.91 $ (1,161) 13,854 $ (.08) ======== ------- EFFECT OF DILUTIVE SECURITIES: Options and Warrants............ $ --- 343 $ --- --- -------- ------- --------- ------- INCOME (LOSS) PER COMMON SHARE-DILUTED: Income (Loss) available to common stockholders and assumed conversions.................... $ 26,419 14,214 $ 1.86 $ (1,161) 13,854 $ (.08) ======== ======= ======== ========= ======= =======
In September 1998, the Company's Board of Directors authorized the repurchase of up to $5 million of the Company's common stock. As of June 30, 2000, 311,000 shares had been acquired at an aggregate price of $1,905,000. These treasury shares are reported at cost as a reduction to Stockholders' Equity. 3. LONG TERM DEBT -------------- In April 1997, the Company entered into a senior unsecured revolving credit facility ("Senior Credit Facility") which currently has a borrowing base of $55.0 million and a maturity date of November 5, 2003. The Company may elect an interest rate based either on a margin plus LIBOR or the higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds Rate. For LIBOR borrowings, the interest rate will vary from LIBOR plus 1.0% to LIBOR plus 1.75% based upon the borrowing base usage. As of June 30, 2000 there were $40.9 million borrowings outstanding under the Senior Credit Facility, and available borrowing capacity of $6.8 million, net of outstanding letters of credit of $7.3 million. 9 BELLWETHER EXPLORATION COMPANY ------------------------------ Notes to Condensed Consolidated Financial Statements (Continued) ---------------------------------------------------------------- (Unaudited) The Senior Credit Facility contains various covenants including certain required financial measurements for current ratio, consolidated tangible net worth and interest coverage ratio. In addition, the Senior Credit Facility includes certain limitations on restricted payments, dividends, incurrence of additional funded indebtedness and asset sales. As of June 30, 2000, the Company was in compliance with its covenants under the Senior Credit Facility. In April 1997, the Company issued $100.0 million of 10-7/8% senior subordinated notes ("Notes") that mature April 1, 2007. Interest on the Notes is payable semi-annually on April 1 and October 1. The Notes contain certain covenants, including limitations on indebtedness, liens, dividends and other payment restrictions affecting restricted subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales and restrictions on mergers and consolidations or sales of assets. As of June 30, 2000, the Company was in compliance with its covenants under the Notes. Effective September 22, 1998, the Company entered into an eight and a half year interest rate swap agreement with a notional value of $80 million. Under the agreement, the Company receives a fixed interest rate and pays a floating interest rate based on the simple average of three foreign LIBOR rates. Floating rates are redetermined for a six month period each April 1 and October 1. The floating rate for the period from April 1, 2000 to October 1, 2000 is 10.33%. Through April 1, 2002 the floating rate is capped at 10.875% and capped at 12.875% thereafter. The fair value of the interest rate swap at June 30, 2000 was a loss of $4.4 million. 4. NEW ACCOUNTING PRONOUNCEMENTS ----------------------------- In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes standards of accounting for and disclosures of derivative instruments and hedging activities. As amended, the statement is effective for fiscal quarters beginning after January 1, 2001. The Company has not yet determined the impact of this statement on the Company's financial condition or results of operations but has begun documenting and implementing new policies to ensure compliance with this pronouncement. In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation: an Interpretation of APB Opinion No. 25." Among other issues, Interpretation No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a non- compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock options in a business combination. The provisions of Interpretation No. 44 affecting us are to be applied on a prospective basis effective July 1, 2000. 10 BELLWETHER EXPLORATION COMPANY ------------------------------ Notes to Condensed Consolidated Financial Statements (Continued) ---------------------------------------------------------------- (Unaudited) 5. NATURAL GAS AND CRUDE OIL HEDGING --------------------------------- Oil and gas revenues were reduced $4,269,000 and $5,422,000 in the three and six months ended June 30, 2000, and were reduced $1,631,000 and $1,643,000 in the three and six month period ended June 30, 1999, as a result of hedging activity. Since year end 1999, the Company has entered into additional swap contracts as follows: OIL HEDGES ---------- NYMEX NYMEX PERIOD BBLS TOTAL BBLS TYPE PRICE PRICE PER DAY FLOOR CEILING - --------------------------------------------------------------------------- July 2000-Sept. 2000 4,000 368,000 Collar* $22.25 $24.75 - --------------------------------------------------------------------------- Oct. 2000-Dec. 2000 4,000 368,000 Collar** $23.00 $25.00 - --------------------------------------------------------------------------- GAS HEDGES ---------- NYMEX NYMEX PERIOD MCF TOTAL MCF TYPE PRICE PRICE PER DAY FLOOR CEILING - -------------------------------------------------------------------------- April 2000-Oct. 2000 35,000 7,490,000 Collar $2.30 $2.84 - -------------------------------------------------------------------------- Nov. 2000- March 2001 20,000 3,020,000 Collar $2.30 $3.35 - -------------------------------------------------------------------------- April 2001-Oct. 2001 30,000 6,420,000 Collar $2.30 $2.88 - -------------------------------------------------------------------------- * This agreement includes a put at $17.25 per barrel with a $0.50 cost per barrel ** This agreement includes a put at $18.00 per barrel The fair value at June 30, 2000 of all commodity swap agreements was an unrealized loss of $25.6 million. A 10% change in prices would have a $10.2 million impact on the fair value of the swaps. 6. INCOME TAXES ------------ At December 31, 1999 the Company had a tax valuation allowance of $19.8 million against its deferred tax assets. As of March 31, 2000, based on projections of taxable income due to higher commodity prices, the Company determined that it was more likely than not that the deferred tax assets would be realized and the valuation allowance was removed. The $19.8 million benefit recorded for the removal of the valuation allowance was offset by $2.1 million deferred tax liability that was generated during the three months ended March 31, 2000, resulting in an overall tax benefit of $17.7 million for the first quarter of 2000 and reported deferred tax assets of $20.5 million. As the Company continues to realize earnings and generate deferred taxes, the tax asset will decrease in amount. For the second quarter of 2000, a deferred tax liability of $2 million was generated, reducing the reported deferred tax asset to $18.6 million. 11 BELLWETHER EXPLORATION COMPANY ------------------------------ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------- ------------------------------------------------- Condition and Results of Operations ----------------------------------- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company strives to maximize long-term shareholder value through aggressive growth in reserves and cash flow using advanced technologies, implementation of a low cost structure and maintenance of a capital structure supportive of growth. The Company employs an integrated interdisciplinary team approach to a balanced program of strategic acquisitions of producing oil and gas properties and technology driven development and exploration activities. The funding of these activities has historically been provided by operating cash flows, bank financing, equity placements and sale of non-core assets. The Company invested $50.3 million in oil and gas properties for the six months ended June 30, 2000 versus $24.8 million for the same period in 1999. Cash flows from operations before changes in assets and liabilities were $25.8 million for the six months ended June 30, 2000 compared to $9.7 million provided by operating activities in the same period of 1999. At June 30, 2000, the Company had $6.8 million of available debt capacity under the Senior Credit Facility, net of $7.3 million in outstanding lines of credit. 2000 CAPITAL EXPENDITURES - ------------------------- During 2000, the Company anticipates investing approximately $75 million, primarily for development and exploratory drilling activities, leasehold costs, and seismic acquisitions. Activity during 2000 was accelerated so that after one-half of the year $50.3 million, or about two-thirds of the capital budget was spent. Of the $50.3 million, $46.5 million related to United States operations and $3.8 million related to Latin American operations. Spending will decrease in the remainder of the year in order to keep within the budget. The Company believes its cash flow provided by operating activities and borrowings under its credit facilities will be sufficient to meet these projected capital investments (See Note 3 of the Notes to Condensed Consolidated Financial Statements). Additional cash flow is anticipated from the sale of non-core properties. The Company currently has two packages of non-core properties out for bids and anticipates closing the sales by the end of next quarter. The Company continues to review acquisition opportunities and the consummation of such a transaction will directly impact anticipated capital expenditures. GAS BALANCING - ------------- It is customary in the industry for working interest partners to sell more or less than their entitled share of natural gas. The settlement or disposition of existing gas balancing positions is not anticipated to materially impact the financial condition of the Company. 12 BELLWETHER EXPLORATION COMPANY ------------------------------ Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations (Continued) ----------------------------------------------- Oil and Gas Property Accounting - ------------------------------- The Company utilizes the full cost method of accounting for its investment in oil and gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and gas reserves are capitalized as incurred. To the extent that capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization, exceed the discounted future net revenues of proved oil and gas reserves net of deferred taxes, such excess capitalized costs would be charged to operations. No such charges to operations were required during the six month periods ending June 30, 2000 or 1999. RESULTS OF OPERATIONS - ---------------------- The following table sets forth certain operating information for the Company for the periods presented:
Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------------------- 2000 1999 2000 1999 -------------- ---------- ---------- ----------- Production: Oil and condensate (MBBLs)......................... 573 501 1,135 1,021 Natural gas (MMCF)................................. 4,685 4,196 9,693 8,981 Average sales price: (1) Oil and condensate (per BBL)....................... $20.37 $11.61 $19.85 $10.46 Natural gas (per MCF)............................. $ 2.81 $ 1.96 $ 2.68 $ 1.79 Average costs: Production expenses (per BOE)...................... $ 5.19 $ 4.18 $ 4.85 $ 4.22 General and administrative expense (per BOE)....................................... $ 2.39 $ 1.23 $ 1.86 $ 1.14 Depreciation, depletion and amortization (per BOE)(2).................................... $ 4.82 $ 4.54 $ 4.88 $ 3.90
(1) Average sales prices include the effect of hedges, which reduced revenues by $4,269,000 and $5,422,000 in the three and six month periods in 2000, and reduced revenues by $1,631,000 and $1,643,000 in the three and six month periods in 1999. (2) Excludes depreciation, depletion and amortization on gas plants and other assets of $310,000 and $616,000 in the three and six month periods in 2000, and of $310,000 and $616,000 in the three and six month periods ended in 1999. 13 BELLWETHER EXPLORATION COMPANY ------------------------------ Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations (Continued) ----------------------------------------------- Three Months Ended June 30, 2000 and 1999 - ----------------------------------------- Net income for the quarters ended June 30, 2000 and 1999 was $3.0 million or $.21 per share, and $123,000 or $.01 per share, respectively. Significant increases in oil and gas prices are the primary drivers of the improvement, but increased production has also played a role. Oil and gas revenues for the three months ended June 30, 2000 were $24.8 million, as compared to $14.0 million for the respective period in 1999. Individual comparison shows $11.7 million in oil revenues for the quarter versus $5.8 million for the same quarter of the previous year, in effect a doubling of oil revenue. Oil revenues benefited from the 76% increase in realized prices from $11.61 per barrel in the three months ended June 30, 1999 to $20.37 per barrel realized in the three months ended June 30, 2000. Improved oil production, primarily from the start of production at the Charapa field in Ecuador and the Big Island field in Southwest Louisiana, accounts for the rest of the increase. Oil production was 573,000 barrels during the quarter ended June 30, 2000 compared to 501,000 for the same quarter of 1999. Gas revenues increased 61% from $8.2 million reported for the quarter ended June 30, 1999 to $13.2 million for the quarter ended June 30, 2000. Again, prices account for a large portion of the increase. Gas prices averaged $2.81 per mcf, or 43% higher, in the three month period ended June 30, 2000 as compared to $1.96 per mcf in the comparable period of 1999. Gas production was up 12% compared to the same quarter of 1999 with 4,685 Mmcf and 4,196 Mmcf for the three month periods ended June 30, 2000 and 1999, respectively. The realized prices discussed above include the impact of oil and gas hedges. A decrease of $4.3 million related to hedging activity was reflected in oil and gas revenues for the quarter ended June 30, 2000, while a decrease in oil and gas revenues of $1.6 million was reflected for the same period of 1999. Net gas plant operating profit was $737,000 in the three months ended June 30, 2000 and $254,000 in the same period of 1999. Liquid prices were 45% higher in 2000, which combined with increased volumes, resulted in higher gas plant revenues in 2000. Throughput volumes increased 28% in the second quarter as compared to 1999. The throughput volume increase was due to the increased production from the Exxon operated CO2 flood project that began in the latter part of second quarter 2000 and is expected to continue production improvements. Interest and other income decreased from $986,000 for the three months ended June 30, 1999 to $342,000 for the three months ended June 30, 2000. A large take or pay revenue contract settlement was included in 1999. Production expenses for the three months ended June 30, 2000 totaled $7.0 million, or 40% above the $5.0 million for the three months ended June 30, 1999. On a barrel equivalency basis (BOE), production expenses were $5.19 per BOE for the quarter ended June 30, 2000 compared to $4.18 per BOE for the quarter ended June 30, 1999. Numerous expense workovers were performed during the second quarter of 2000 to increase production as much as possible in order to take advantage of high commodity prices. The majority of the workovers targeted fields owned and operated during the same period of 1999, such as the Ship Shoal Complex and the Cove, Pine Prairie and Point Pedernales fields. Also, significant maintenance work was performed at Eugene Island 307, which produced minimally in 1999, as 3 new wells in 2000 now make it an economically viable block once again. 14 BELLWETHER EXPLORATION COMPANY ------------------------------ Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations (Continued) ----------------------------------------------- Depreciation, depletion and amortization was $6.9 million for the three months ended June 30, 2000 and $5.8 million for the three month period ended June 30, 1999. The increase is directly related to the accelerated level of capital spending and increased production previously discussed. Depreciation, depletion and amortization per BOE has increased from $4.54 per BOE in 1999 to $4.82 per BOE in 2000. General and administrative expenses totaled $3.2 million in the three months ended June 30, 2000 as compared to $1.5 million for the comparable period of fiscal 1999. On a BOE basis, general and administrative expenses were $2.39 per BOE in the period ended June 30, 2000 and $1.23 per BOE in the period ended June 30, 1999. Significantly lower than normal outsourcing costs in 1999 contribute to the disparity. Prior to October 1999, the Company was charged a management fee based upon a specified percentage of the average book value of the Company's total assets, excluding cash, plus a percentage of operating cash flows. Due to the $73.9 million impairment charge in December 1998, the Company's total assets and resulting percentage of such assets was reduced In October 1999, the Company became party to a new Master Services Agreement ("MSA") and six specific contracts which covered comparable outsourcing services as the 1999 contract. The new contracts have varying terms and fees, but overall management fees have increased to levels similar to 1998 management fee levels, a level management feels is appropriate. For the current period, Ecuadorian operations, nonexistant in 1999, contributed $200,000 to administrative costs, and an $800,000 charge related to change in management was recorded. Included in that charge was $581,000 required to be expensed based upon differences between exercise and grant date prices on options awarded to the Company president. Interest expense increased 28% to $3.7 million for the three months ended June 30, 2000 from $2.9 million in the same period of 1999 due to higher average balances outstanding in 2000. Increased interest rates also contributed to the expense increase. The provision for federal and state income taxes for the three months ended June 30, 2000 and 1999 are based upon a 40% and 0% effective tax rate, respectively. No tax was recorded in 1999 due to the adjustment to the Company's tax valuation allowance for the current period's net income from operations. As of March 31, 2000, the Company determined it was more likely than not that the deferred tax assets would be realized, based on current projections of taxable income due to higher commodity prices, and the valuation allowance was removed. Subsequent tax accruals are calculated at the 38% rate. SIX MONTHS ENDED JUNE 30, 2000 AND 1999 - --------------------------------------- Net income for the six months ended June 30, 2000 was $26.4 million, or $1.91 per share, and the net loss for the six months ended June 30, 1999 was $1.2 million, or $.08 per share. A major contributor to the increase was a deferred tax benefit of $19.8 million resulting from the reversal of the Company's tax valuation allowance recorded March 31, 2000. Also contributing to the increase were higher oil and gas prices and increased oil and gas production as compared to the six months ended June 30, 1999. Oil and gas revenues for the six months ended June 30, 2000 were $48.5 million, as compared to $26.8 million for the respective period in 1999. Most significantly, oil revenues more than doubled, with $22.5 million in 2000 versus $10.7 million in the previous year. A 90% increase in oil prices from an average of $10.46 per barrel in the six month period ended June 30, 1999 to an average of $19.85 per barrel in the six months ended 15 BELLWETHER EXPLORATION COMPANY ------------------------------ Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations (Continued) ----------------------------------------------- June 30, 2000 drove the revenue improvement. Complementing the improved prices was increased oil production, primarily from the start of production at the Charapa field in Ecuador and the Big Island field in Southwest Louisiana. Oil production increased 11% compared to the same quarter of 1999. The Company produced 1,135,000 and 1,021,000 barrels for the six month periods ended June 30, 2000 and 1999, respectively. Gas revenues had a slightly smaller impact with $26.0 million reported for the six months ended June 30, 2000 and $16.1 million for the same period of 1999. Gas prices averaged $2.68 per mcf in the six month period ended June 30, 2000, a 50% increase, as compared to $1.79 per mcf in the comparable period of 1999. Gas production increased 8% compared the the same quarter of 1999 with production of 9,693 and 8,981 million cubic feet (MMcf) for the six month periods ended June 30, 2000 and 1999, respectively. New Mexico and Giddings field properties acquired late in 1999 account for most of the production increase. The realized prices discussed above included the impact of oil and gas hedges. Oil and gas hedges in place in 2000 resulted in a $5.4 million decrease in oil and gas revenues in the period ended June 30, 2000 while a decrease in revenues of $1.6 million was reflected in the same period of 1999. Net gas plant operating profit was $1.4 million in the six months ended June 30, 2000 and $475,000 in the same period of 1999. Throughput volume increases and liquid price increases in 2000 significantly increased gas plant revenues. The throughput volume increase was due to increased production from the Exxon operated CO2 flood project that began in the latter part of second quarter 2000 and is expected to continue production improvements. Liquid prices averaged $18.51 for the six month period ended June 30, 2000, but only averaged $10.72 for the six month period ended June 30, 1999. Interest and other income decreased from $1.3 million at June 30, 1999 to $566,000 at June 30, 2000 primarily due to a large take or pay revenue contract settlement recorded in 1999. Production expenses for the six months ended June 30, 2000 totaled $13.3 million, or 25% above the $10.6 million for the six months ended June 30, 1999. On a BOE basis, production expenses of $4.85 per BOE for the six months ended June 30, 2000 exceeded production expenses of $4.22 per BOE for the six months ended June 30, 1999 by 15%. Numerous expense workovers were performed during the second quarter of 2000 to increase production as much as possible in order to take advantage of high commodity prices. The majority of the workovers targeted fields owned and operated during the same period of 1999, such as the Ship Shoal Complex and the Cove, Pine Prairie and Point Pedernales fields. Also, significant maintenance work was performed at Eugene Island 307, which produced minimally in 1999, as 3 new wells in 2000 now make it an economically viable block once again. Depreciation, depletion and amortization was $14.2 million for the six months ended June 30, 2000 and $10.4 million for the six month period ended June 30, 1999. The increase is directly related to the accelerated level of capital spending and production increases previously discussed. Depreciation, depletion and amortization per BOE has increased from $3.90 per BOE in 1999 to $4.88 per BOE in 2000. 16 BELLWETHER EXPLORATION COMPANY ------------------------------ Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations (Continued) ----------------------------------------------- General and administrative expenses totaled $5.1 million in the six months ended June 30, 2000 as compared to $2.9 million for the comparable period of fiscal 1999. An increase in outsourcing costs from $1.1 million to $2.6 million was the major contribution to the increase. In 1999, the Company was charged a management fee under its outsourcing contract which was based upon a specified percentage of the average book value of the Company's total assets, excluding cash, plus a percentage of operating cash flows. Due to the $73.9 million impairment charge in December 1998, the Company's total assets and resulting percentage of such assets was reduced. In addition, with the depressed oil and gas prices in the first half of 1999, management fees were further reduced in such period. In October 1999, the Company became party to a new Master Services Agreement ("MSA") and six specific contracts which covered comparable outsourcing services as the 1999 contract. The new contracts have varying terms and fees, but overall management fees have increased to levels similar to 1998 management fee levels, a level management feels is appropriate. For the current period, Ecuadorian operations, nonexistant in 1999, contributed almost $300,000 to administrative costs, and an $800,000 charge related to change in management was recorded. Included in that charge was $581,000 required to be expenses based upon differences between exercise and grant date prices on options awarded to the Company president. Interest expense increased 26% to $7.2 million for the six months ended June 30, 2000 from $5.7 million in the same period of 1999. Increased interest rates and higher borrowings outstanding resulted in the increase. At December 31, 1999 the Company had a tax valuation allowance of $19.8 million against its deferred tax assets. As of March 31, 2000, the Company determined that it was more likely than not that the deferred tax assets would be realized, based on current projections of taxable income due to higher commodity prices, and the valuation allowance was removed. The $19.8 million benefit recorded for the removal of the valuation allowance was offset by a $2.1 million deferred tax liability that was generated during the three months ended March 31, 2000 and $2.0 million deferred tax liability generated during the three months ended June 30, 2000, resulting in an overall tax benefit of $15.7 million for the year to date. The provision for federal and state income taxes for the six months ended June 30, 1999 was based upon a 0% effective tax rate. No tax accrual was made in 1999 because of an increase in the Company's tax valuation allowance for the benefit for the current period's net loss from operations. New Accounting Pronouncements - ----------------------------- In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative instruments and Heding Activities." This statement establishes standards of accounting for and disclosures of derivative instruments and hedging activities. As amended, this statement is effective for fiscal quarters beginnning after January 1, 2001. The Company has not yet determined the impact of this statement on the Company's financial condition or results of operations but has begun documenting and implementing new policies to ensure compliance with the pronouncement when it becomes effective. 17 BELLWETHER EXPLORATION COMPANY ------------------------------ Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations (Continued) ----------------------------------------------- In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation: an Interpretation of APB Opinion No. 25." Among other issues, Interpretation No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock options in a business combination. The provisions of Interpretation No. 44 affecting us are to be applied on a prospective basis effective July 1, 2000. FORWARD LOOKING STATEMENTS - -------------------------- This Form 10-Q contains "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included herein, including without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the notes to the financial statements regarding the Company's financial position, capital budget, intent to acquire oil and gas properties, estimated quantities and net present values of reserves, business strategy, plans and objectives of management of the Company for future operations, and the effect of gas balancing, are forward-looking statements. There can be no assurances that such forward looking statements will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") include the volatility of oil and gas prices, operating hazards, government regulations, exploration risks and other factors described in the Company's Form 10-K filed with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified by the Cautionary Statements. 18 BELLWETHER EXPLORATION COMPANY ------------------------------ ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- The Company is exposed to market risk, including adverse changes in commodity prices and interest rates. Since year end 1999, the Company has entered into additional swap contracts as follows: OIL HEDGES - ---------- NYMEX NYMEX PERIOD BBLS TOTAL BBLS TYPE PRICE PRICE PER DAY FLOOR CEILING - ------------------------------------------------------------------------------ July 2000-Sept. 2000 4,000 368,000 Collar* $22.25 $24.75 - ------------------------------------------------------------------------------ Oct. 2000-Dec. 2000 4,000 368,000 Collar** $23.00 $25.00 - ------------------------------------------------------------------------------ GAS HEDGES - ---------- NYMEX NYMEX PERIOD MCF TOTAL MCF TYPE PRICE PRICE PER DAY FLOOR CEILING - ----------------------------------------------------------------------------- April 2000-Oct. 2000 35,000 7,490,000 Collar $2.30 $2.84 - ----------------------------------------------------------------------------- Nov. 2000- March 2001 20,000 3,020,000 Collar $2.30 $3.35 - ----------------------------------------------------------------------------- April 2001-Oct. 2001 30,000 6,420,000 Collar $2.30 $2.88 - ----------------------------------------------------------------------------- * This agreement includes a put at $17.25 per barrel with a $0.50 cost per barrel ** This agreement includes a put at $18.00 per barrel The fair value at June 30, 2000 of all commodity swap agreements was an unrealized loss of $25.6 million. A 10% change in price would have a $ 10.2 million impact on the fair value of the swaps. The fair value of the interest rate swap at June 30, 2000 was a loss of $4.4 million. 19 BELLWETHER EXPLORATION COMPANY ------------------------------ PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - ------- ----------------------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ------- ------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- A Proxy statement was sent to all shareholders of record as of April 10, 2000 for the following matters which were voted on at the annual meeting of shareholders held on May 31, 2000: 1. Habib Kairouz, Judy Ley Allen, A.K. McLanahan, Vincent H. Buckley, Dr. Jack Birks, and Townes Pressler were elected as directors with 12,144,931 shares voting in favor, 897,938 shares abstaining and no shares voting against. J.P. Bryan was elected with 12,144,897 shares voting in favor, 897,972 shares abstaining and no shares voting against. 2. Shares of common stock authorized and reserved for issuance under the 1996 Stock Incentive Plan were increased by 900,000 shares with 3,694,881 shares voting in favor and 3,352,348 shares voting against. No other matters were brought up at the meeting. A copy of the Proxy Statement was filed with the Securities and Exchange Commission on April 28, 2000 and is incorporated herein by reference. ITEM 5. OTHER INFORMATION - ------- ----------------- None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- a. Exhibits. The following exhibits are filed with this Form 10-Q and they are identified by the number indicated. 10.20 Employment Contract dated May 15, 2000 between the Company and Douglas G. Manner - included herewith 27 Financial Data Schedule - Included herewith b. Reports on Form 8-K. None. 20 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. BELLWETHER EXPLORATION COMPANY ------------------------------ (Registrant) Date: August 11, 2000 By: /s/ Douglas G. Manner ---------------------- --------------------------------------- Douglas G. Manner President and Chief Executive Officer Date: August 11, 2000 By: /s/ Robert J. Bensh ---------------------- --------------------------------------- Robert J. Bensh Chief Financial Officer 21 EX-10.20 2 0002.txt EMPLOYMENT AGREEMENT Exhibit 10.20 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") entered into effective as of May 15, 2000, by and between Douglas G. Manner (the "Executive"), and Bellwether Exploration Company, a Delaware corporation having its principal place of business at 1331 Lamar, Suite 1455, Houston, Texas 77010-3039 (the "Company"); W I T N E S S E T H: WHEREAS, The Company wishes to employ the Executive as the Chief Executive Officer and President and to perform services incident to such position for the Company, and the Executive wishes to be so employed by the Company, all upon the terms and conditions hereinafter set forth: NOW THEREFORE, in consideration of the premises and mutual covenants and obligations herein set forth and for other good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, accepted and agreed to, the parties hereto, intending to be legally bound, hereby agree as follows: 1. EMPLOYMENT AND TERM. The Company hereby employs the Executive to serve as the Chief Executive Officer and President of the Company. The term of this Agreement (the "Term of this Agreement") shall be effective as of the date first above written and shall terminate thirty-six (36) months from the date hereof (the "Termination Date"), unless earlier terminated by either party hereto in accordance with the provisions of Section 5 hereof. During the term of this Agreement, the terms of employment shall be as set forth herein unless modified by the Executive and the Company in accordance with the provisions of Section 11 hereof. The Executive hereby agrees to accept such employment and to perform the services specified herein, all upon the terms and conditions hereinafter set forth. 2. POSITION AND RESPONSIBILITIES. The Executive shall serve as the Chief Executive Officer and President of the Company and shall report to, and be subject to the general direction of the Chairman of the Board of the Company. The Executive shall have other obligations, duties, authority and power to do all acts and things as are customarily done by a person holding the same or equivalent position or performing duties similar to those to be performed by executives in corporations of similar size to the Company and shall perform such managerial duties and responsibilities for the Company as may reasonably be assigned to him by the Chairman of the Board of the Company. Unless otherwise agreed to by the Executive, the Executive shall be based at the Company's principal executive offices located in the greater Houston, Texas metropolitan area. 3. EXTENT OF SERVICE. The Executive shall devote his full business time and attention to the business of the Company. 4. COMPENSATION. (a) In consideration of the services to be rendered by the Executive to the Company, the Company will pay the Executive (i) a one-time signing bonus of $150,000.00 upon the execution of this Agreement by Executive, and (ii) a salary ("Salary") of $350,000 per year during the Term of this Agreement. Such Salary will be payable in conformity with the Company's prevailing practice for executives' compensation as such practice shall be established or modified from time to time. Salary payments shall be subject to all applicable federal and state withholding, payroll and other taxes. From time to time during the Term of this Agreement, the amount of the Executive's Salary may be increased by, and at the sole discretion of, the Compensation Committee of the Company's Board of Directors, which shall review the Executive's Salary no less regularly than annually. (b) The Company shall grant the Executive an option to purchase 500,000 shares of common stock of the Company at an exercise price per share of $6.29, which is equal to the average of the closing price of such common stock for the thirty (30) business days preceding the date of this Agreement ("Option"). Such Option shall vest 33.4% on the execution date of this Agreement and on each of the first and second anniversary dates of this Agreement. The term of the Option shall be ten years from the date of grant subject to the provisions of paragraph 5(f)(i) hereof. (c) Any annual cash bonus paid to the Executive shall be based on performance and be at the sole discretion of the Compensation Committee of the Company's Board of Directors; provided, however, in the event such cash bonus shall be paid to the Executive, it shall be no less than 50% of Executive's then existing current salary. (d) During the term of this Agreement, the Company shall pay or reimburse the Executive for all reasonable out-of-pocket expenses for travel, meals, hotel accommodations, entertainment and the like incurred by him in connection with the business of the Company upon submission by him of an appropriate statement documenting such expenses as required by the Internal Revenue Code of 1986, as amended (the "Code"). (e) The Executive shall be entitled to four (4) weeks of paid vacation during each calendar year during the term of this Agreement. Vacation shall accrue on the first day of each calendar year. The Company shall not pay the Executive for any accrued but unused portion of vacation and any such unused portion of vacation shall not be carried forward to the next year. (f) During the term of this Agreement, the Executive shall be entitled to participate in and to receive all rights and benefits under any life, disability, medical and dental, health and accident and profit sharing or deferred compensation plans and such other plan or plans as may be implemented by the Company during the term of this Agreement. The Executive shall also be entitled to participate in and to receive all rights and benefits under any plan or program adopted by the Company for any other or group of other executive employees of 2 the Company, including without limitation, the rights and benefits under the directors' and officers' liability insurance currently in place under the Company's insurance program for the directors and officers of the Company. (g) During the term of this agreement, the Executive shall be entitled to receive a car allowance of $500.00 per month and one parking space shall be provided to the Executive by the Company. (h) The Company shall pay one club initiation fee of up to $25,000.00 and the base monthly dues applicable thereto, not to exceed $250.00 per month. (i) Upon presentation by Executive to Bellwether of acceptable documentation of such expenditures, Bellwether shall reimburse Executive for any loss incurred by Executive, if any, resulting from the sale of his residence in Calgary, Alberta, Canada, in addition to all real estate fees, commissions and closing costs ("Fees") on the sale of such residence as well as those Fees related to the residence purchased by Executive in Houston. (j) Upon presentation by Executive to Bellwether of acceptable documentation of such expenditures, Bellwether shall reimburse Executive for all moving, travel, lodging and other expenses related to the process of identifying a residence in Houston. 5. TERMINATION. (a) Termination by Company; Discharge for Cause. The Company shall be entitled to terminate this Agreement and the Executive's employment with the Company at any time and for whatever reason; or at any time for "Cause" (as defined below) by written notice to the Executive. Termination of the Executive's employment by the Company shall constitute a termination for "Cause" if such termination is for one or more of the following reasons: (i) the willful failure or refusal of the Executive to render services to the Company in accordance with his obligations under this Agreement, including, without limitation, the willful failure or refusal of the Executive to comply with the work rules, policies, procedures, and directives as established by the Board of Directors and consistent with this Agreement; such failure or refusal to be uncured and continuing for a period of not less than fifteen (15) days after notice outlining the situation is given by the Company to the Executive; (ii) the commission by the Executive of an act of fraud or embezzlement; (iii) the commission by the Executive of any other action with the intent to injure the Company; (iv) the Executive having been convicted of a felony or a crime involving moral turpitude; (v) the Executive having misappropriate the property of the Company; (vi) the Executive having engaged in personal misconduct which materially injures the Company; or (vii) the Executive having willfully violated any law or regulation relating to the business of the company which results in material injury to the Company. In the event of the Executive's termination by the Company for Cause hereunder, the Executive shall be entitled to no severance or other termination benefits except for any unpaid Salary accrued through the date of termination. A termination of this Agreement by the Company without Cause pursuant to this 3 Section 5(a) shall entitle the Executive to the Severance Payment and other benefits specified in Section 5(f) hereof. (b) Death. If the Executive dies during the term of this Agreement and while in the employ of the Company, this Agreement shall automatically terminate and the Company shall have no further obligation to the Executive or his estate except that the Company shall pay to the Executive's estate that portion of his Salary and benefits accrued through the date of death. All such payments to the Executive's estate shall be made in the same manner and at the same time as the Executive's Salary. (c) Disability. If during the term of this Agreement, the Executive shall be prevented from performing his duties hereunder for a period of 60 days by reason of disability, then the Company, on 30 days' prior notice to the Executive, may terminate this Agreement. For purposes of this Agreement, the Executive shall be deemed to have become disabled when the Board of Directors of the Company, upon verification by a physician designated by the Company, shall have determined that the Executive has become physically or mentally unable (excluding infrequent and temporary absences due to ordinary illness) to perform the essential functions of his duties under this Agreement with reasonable accommodation. In the event of a termination pursuant to this paragraph (c), the Company shall be relieved of all its obligations under this Agreement, except that the Company shall pay to the Executive or his estate in the event of his subsequent death, that portion of the Executive's Salary and benefits accrued through the date of such termination. All such payments to the Executive or his estate shall be made in the same manner and at the same time as his Salary would have been paid to him had he not become disabled. (d) Termination for Good Reason. The Executive shall be entitled to terminate this Agreement and his employment with the Company at any time upon thirty (30) days written notice to the Company for "Good Reason" (as defined below). The Executive's termination of employment shall be for "Good Reason" if such termination is a result of any of the following events: (i) The Executive is assigned any responsibilities or duties materially inconsistent with his position, duties, responsibilities and status with the Company as in effect at the date of this Agreement or as may be assigned to the Executive pursuant to Section 2 hereof; or his title or offices as in effect at the date of this Agreement or as the Executive may be appointed or elected to in accordance with Section 2 are changed; or the Executive is required to report to or be directed by any person other than the Chairman of the Board of the Company; (ii) there is a reduction in the Salary (as such Salary shall have been increased from time to time) payable to the Executive pursuant to Section 4(a) hereof; (iii) failure by the Company or any successor to the Company or its assets to continue to provide to the Executive any material benefit, bonus, profit sharing, incentive, remuneration or compensation plan, stock ownership or purchase plan, stock option 4 plan, life insurance, disability plan, pension plan or retirement plan in which the Executive was entitled to participate in as at the date of this Agreement or subsequent thereto, or the taking by the Company of any action that materially and adversely affects the Executive's participation in or materially reduces his rights or benefits under or pursuant to any such plan or the failure by the Company to increase or improve such rights or benefits on a basis consistent with practices in effect prior to the date of this Agreement or with practices implemented and subsequent to the date of this Agreement with respect to the executive employees of the Company generally, which ever is more favorable to the Executive, but excluding such action that is required by law; (iv) without Executive's consent, the Company requires the executive to relocate to any city or community other than one within a fifty (50) mile radius of the greater Houston, Texas metropolitan area, except for required travel on the Company's business to an extent substantially consistent with the Executive's business obligations under this Agreement; or (v) there is any material breach by the Company of any provision of this Agreement. Upon the Executive's termination of this Agreement for Good Reason, the Executive shall be entitled to the Severance Payment and other benefits specified in Section 5(f) hereof. (e) Voluntary Termination. Notwithstanding anything to the contrary herein, the Executive shall be entitled to voluntarily terminate this Agreement and his employment with the Company at his pleasure upon sixty (60) days written notice to such effect. In such event, the Executive shall not be entitled to any further compensation other than any unpaid Salary and benefits accrued through the date of termination. At the Company's option, the Company may pay to the Executive the salary and benefits that the Executive would have received during such sixty (60) day period in lieu of requiring the Executive to remain in the employment of the Company for such sixty (60) day period. (f) Termination Benefits Upon Involuntary Termination or Termination for Good Reason. In the event that (i) the Company terminates this Agreement and the Executive's employment with the Company for any reason other than for Cause (as defined in Section 5(a) hereof) or the death or disability (as defined in Section 5(c) hereof) of the Executive, or (ii) the Executive terminates this Agreement and his employment with the Company for Good Reason (as set forth in Section 5(d) hereof), then the Company shall pay the Executive, within thirty (30) days after the date of termination, an amount (the "Severance Payment") equal to (x) two (2) times the Executive's highest annual Salary in existence at any time during the last two (2) years of employment immediately preceding the date of termination, and (y) two (2) times the highest annual bonus paid to the Executive during such two-year period, minus applicable withholding and authorized salary reductions (the "Severance Payment"). In addition, following other such termination, the Executive shall be entitled to the following benefits (collectively, the "Additional Benefits"); 5 (i) immediate vesting of any of the Executive's outstanding options to purchase securities of the Company which were not vested by their own terms on the date of termination and the extension of the Executive's right to exercise all the Executive's options to purchase securities of the Company for a period equal to the lesser of (A) one (1) year following the date of termination or (B) the remaining term of the applicable option; (ii) continued coverage, at the Executive's cost, under the Company's group health plan for the applicable coverage period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") but only if Executive elects such COBRA continuation in accordance with the time limits and in the applicable COBRA regulations; and (iii) an amount, in cash, equal to the sum of (A) any unreimbursed expenses incurred by the Executive in the performance of his duties hereunder through the date of termination, plus (B) any accrued and unused vacation time or other unpaid benefits as of the date of termination. The parties agree that, because there can be no exact measure of the damages which would occur to the Executive as a result of termination of employment, such payments contemplated in this Section 5(f) shall be deemed to constitute liquidated damages and not a penalty and the Company agrees that the Executive shall not be required to mitigate his damages. The termination compensation in this Section 5(f) shall be paid only if the Executive executes a termination agreement releasing all legally waivable claims arising from the Executive's employment. (g) Termination and Benefits upon a Change in Control. In the event of a Change in Control, as defined in this Section 5(g), then in lieu of the Severance Payment contained in Section 5(f) hereof, if the Executive is terminated without Cause or the Executive terminates his employment for Good Reason within the twelve (12) month period immediately following a Change in Control the Company shall pay to the Executive a lump sum amount equal to: (x) two (2) times the Executive's highest annual salary paid during the last two (2) years immediately preceding the date of termination, and (y) two (2) times the highest annual bonus paid to the Executive while employed by the Company, minus applicable withholding and authorized salary reductions (the "Payment"). In the event that the excise tax relating to "parachute payments" under Section 280G of the Code applies to the Payment, then the Company shall pay the Executive an additional payment in an amount such that, after payment of federal income taxes (but not the excise tax) on such additional payment, the Executive retains an amount equal to the excise tax originally imposed on the Payment. The Executive shall also are entitled to receive the Additional Benefits. "Change of Control" means or shall be deemed to have occurred if and when: (i) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the outstanding voting stock of the Company; (ii) the Company is merged with or into or consolidated with another Person and, immediately after giving effect to the merger or 6 consolidation, (a) less than 50% of the total voting power of the outstanding voting stock of the surviving or resulting Person is then "beneficially owned" (within the meaning of Rule 13d-3 under the Exchange Act) in the aggregate by the stockholders of the Company immediately prior to such merger or consolidation, and (b) any "person" or "group" (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the voting stock of the surviving or resulting Person; (iii) the Company sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the Company assets (either in one transaction or a series of related transactions); or (iv) the liquidation or dissolution of the Company. (h) Survival. Notwithstanding the termination of this Agreement under this Section 5, the provisions of Sections 7 and 8 of this Agreement, and all other provisions hereof which by their terms are to be performed following the termination hereof shall survive such termination and be continuing obligations. 6. Consent and Waiver by Third Parties. The Executive hereby represents and warrants that he has obtained all necessary waivers and/or consents from third parties as to enable him to accept employment with the Company on the terms and conditions set forth herein and to execute and perform this Agreement without being in conflict with any other agreement, obligations or understanding with any such third party. 7. Confidential Information. The Executive acknowledges that in the course of his employment with the Company, he has received and will receive access to confidential information of a special and unique value concerning the Company and its business, including, without limitation, trade secrets, know-how, lists of customers, employee records, books and records relating to operations, costs or providing service and equipment, operating an maintenance costs, pricing criteria and other confidential information and knowledge concerning the business of the Company and its affiliates (hereinafter collectively referred to as "information") which the Company desires to protect. The Executive acknowledges that such information is confidential and the protection of such confidential information against unauthorized use or disclosure is of critical importance to the Company. The Executive agrees that he will not reveal such information to any one outside the Company. The Executive further agrees that during the term of this Agreement and thereafter he will not use or disclose such information. Upon termination of his employment hereunder, the Executive shall surrender to the Company all papers, documents, writings and other property produced by him or coming into his possession by or through his employment hereunder and relating to the information referred to in this Section 7, and the Executive agrees that all such materials will at all times remain the property of the Company. The obligation of confidentiality, non-use and non- disclosure of know-how set forth in this Section 7 shall not extend to know-how (i) which was in the public domain prior to disclosure by the disclosing party, (ii) which comes into the public domain other than through a breach of this Agreement, (iii) which is disclosed to the Executive after the termination of this Agreement by a third party having legitimate possession therof and the unrestricted right to make such disclosure, or (iv) which is necessarily disclosed in the course of 7 the Executive's performance of his duties to the Company as contemplated in this Agreement. The agreements in this Section 7 shall survive the termination of this Agreement. 8. NO SOLICITATION. To support the agreements contained in Section 7 hereof, from the date hereof and for a period twelve (12) months after the Executive's employment with the Company is terminated for any reason, the Executive shall not, either directly or indirectly, through any person, firm, association or corporation with which the Executive is now or may hereafter become associated, (i) hire, employ, solicit or engage any then current employee of the Company or its affiliates, or (ii) use in any competition, solicitation or marketing effort any information as to which the Executive has a duty of confidential treatment under paragraph 7 above. 9. NOTICES. All notices, requests, consents and other communications under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, postage prepaid, by certified mail, return receipt requested, or telegraphed and confirmed if addressed to the respective parties as follows: If to the Executive: Douglas G. Manner c/o Bellwether Exploration Company 1331 Lamar, Suite 1455 Houston, Texas 77010-3039 If to the Company: Bellwether Exploration Company 1331 Lamar, Suite 1455 Houston, Texas 77010-3039 Attn: Chairman, Compensation Committee Either party hereto may designate a different address by providing written notice of such new address to the other party hereto. 10. SPECIFIC PERFORMANCE. The Executive acknowledges that a remedy at law for any breach or attempted breach of Section 7 or 8 of this Agreement will be inadequate, agrees that the Company shall be entitled to specific performance and injunctive and other equitable relief in case of any such a breach or attempted breach, and further agrees to waive any requirement of the securing or posting of any bond in connection with the obtaining of any such injunctive or any other equitable relief. 11. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the rights and remedies of any provision hereof may be waived, only in accordance with this Section 11. No modifications or waiver by the Company shall be effective without the consent of at least a majority of the Compensation Committee of the Board of Directors then in office at the time of such modification or waiver. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement sets forth all the terms of the 8 understandings between the parties with reference to the subject matter set forth herein and may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 12. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Texas. 13. SEVERABILITY. In case of one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never contained herein. 14. ARBITRATION. In the event that a dispute or controversy should arise between the Executive and the Company as to the meaning or application of any provision, term or condition of this Agreement, such dispute or controversy shall be settled by binding arbitration in Houston, Texas and for said purpose each of the parties hereto hereby expressly consents to such arbitration in such place. Such arbitration shall be conducted in accordance with the existing rules and regulations of the American Arbitration Association governing commercial transactions. The expense of the arbitrator shall be borne by the Company. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date and year first above written. COMPANY: BELLWETHER EXPLORATION COMPANY By: /s/ J. P. BRYAN ----------------------------------- J. P. Bryan, Chief Executive Officer EXECUTIVE: /s/ DOUGLAS G. MANNER -------------------------------------- Douglas G. Manner 9 EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 4,356 0 19,086 0 0 25,462 414,108 (242,923) 227,482 35,660 100,000 0 0 142 50,580 227,482 48,493 50,450 27,511 39,783 5,115 0 7,157 10,667 (15,752) 26,419 0 0 0 26,419 1.90 1.86
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