-----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, VFIkvxLmidHbyIoF4rbJ2YHQvzVGMfKwwa1o1HANNXZNRz8sJxoLnGeCVHCpX7vb h1upHDmKa+WTCeHB+ZNRFA== 0000899243-99-002254.txt : 19991115 0000899243-99-002254.hdr.sgml : 19991115 ACCESSION NUMBER: 0000899243-99-002254 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELLWETHER EXPLORATION CO CENTRAL INDEX KEY: 0000319459 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [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: 99746838 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 FORM 10-Q 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 SEPTEMBER 30, 1999 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 of incorporation) (IRS Employer Identification Number) 1331 Lamar, Suite 1455 Houston, Texas 77010-3039 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (713) 650-1025 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 November 6, 1999, 13,853,791 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: September 30, 1999 (Unaudited) and December 31, 1998............. 3 Condensed Consolidated Statements of Operations (Unaudited): Three months and nine months ended September 30, 1999 and 1998... 5 Condensed Consolidated Statements of Cash Flows (Unaudited): Nine months ended September 30, 1999 and 1998.................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited).... 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 14 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......... 25 PART II. OTHER INFORMATION.................................................... 26
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) ASSETS ------
September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents.............................. $ 2,234 $ 10 Accounts receivable and accrued revenues............... 18,865 16,455 Prepaid expenses and other............................. 1,410 1,719 --------- --------- Total current assets.................................. 22,509 18,184 --------- --------- PROPERTY AND EQUIPMENT, AT COST: Oil and gas properties (full cost method).............. 322,426 289,231 Gas plant facilities................................... 17,549 17,406 --------- --------- 339,975 306,637 Accumulated depreciation, depletion and amortization... (218,406) (198,421) --------- --------- 121,569 108,216 --------- --------- OTHER ASSETS........................................... 4,605 4,796 --------- --------- $ 148,683 $ 131,196 ========= =========
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 ------------------------------------
September 30, December 31, 1999 1998 ------------- ------------- (Unaudited) CURRENT LIABILITIES: Accounts payable and accrued liabilities....................... $ 17,128 $ 11,982 Due to related parties......................................... 126 125 -------- -------- Total current liabilities..................................... 17,254 12,107 -------- -------- LONG-TERM DEBT................................................. 117,900 104,400 OTHER LIABILITIES.............................................. 200 200 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued or outstanding at September 30, 1999 and December 31, 1998............................................. --- --- Common stock, $0.01 par value, 30,000,000 shares authorized, 13,853,791 and 13,853,991 shares issued at September 30, 1999 and December 31, 1998, respectively........ 142 142 Additional paid-in capital..................................... 80,442 80,442 Accumulated deficit............................................ (65,350) (64,191) Treasury stock, at cost, 311,000 shares........................ (1,905) (1,904) -------- -------- Total stockholders' equity................................... 13,329 14,489 -------- -------- $148,683 $131,196 ======== ========
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 Nine Months Ended September 30, September 30, ----------------------- --------------------- 1999 1998 1999 1998 -------- ------- ------- ------- REVENUES: Oil and gas revenues.......................... $17,089 $18,299 $43,840 $58,029 Gas plant operations, net..................... 432 371 907 918 Interest and other income..................... 175 364 1,444 877 ------- ------- ------- ------- 17,696 19,034 46,191 59,824 ------- ------- ------- ------- COST AND EXPENSES: Production expenses........................... 5,426 6,277 16,051 19,170 Depreciation, depletion and amortization...... 6,412 8,057 16,856 25,616 General and administrative expenses........... 3,320 2,032 6,188 6,640 Interest expense.............................. 3,001 2,951 8,720 8,906 ------- ------- ------- ------- 18,159 19,317 47,815 60,332 ------- ------- ------- ------- Income (loss) before income taxes.............. (463) (283) (1,624) (508) Provision (benefit) for income taxes........... (465) (96) (465) (176) ------- ------- ------- ------- NET INCOME (LOSS).............................. $ 2 $ (187) $(1,159) $ (332) ======= ======= ======= ======= Net income (loss) per share.................... $ --- $ (0.01) $ (0.08) $ (0.02) ======= ======= ======= ======= Net income (loss) per share-diluted............ $ --- $ (0.01) $ (0.08) $ (0.02) ======= ======= ======= ======= Weighted average common shares outstanding................................... 13,854 14,121 13,854 14,103 ======= ======= ======= ======= Weighted average common shares outstanding -diluted...................................... 13,923 14,121 13,854 14,103 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements 5 BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
Nine Months Ended September 30, ----------------------- 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS............................................................. $ (1,159) $ (332) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization........................ 17,471 26,256 Deferred income taxes........................................... --- (787) -------- -------- 16,312 25,137 Change in assets and liabilities: Accounts receivable and accrued revenue............................. (2,410) 7,390 Accounts payable and other liabilities.............................. 5,146 1,454 Due from related parties............................................ 1 4,963 Other............................................................... (93) (1,724) -------- -------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES..................... 18,956 37,220 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of oil and gas properties............................... (14,739) (1,136) Additions to properties and facilities.............................. (18,714) (31,738) Proceeds from sales of properties................................... 3,222 578 -------- -------- NET CASH FLOWS USED IN INVESTING ACTIVITIES......................... (30,231) (32,296) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings............................................ 13,500 --- Exercise of stock options........................................... --- 1,502 Purchase of treasury shares......................................... (1) (1,358) -------- -------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES..................... 13,499 144 -------- -------- Net increase in cash and cash equivalents........................... 2,224 5,068 Cash and cash equivalents at beginning of period.................... 10 2,699 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 2,234 $ 7,767 ======== ========
See accompanying notes to condensed consolidated financial statements 6 BELLWETHER EXPLORATION COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (UNAUDITED) (Amounts in thousands)
Nine Months Ended September 30, ---------------------------- 1999 1998 ------- ------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest.................................................... $5,844 $5,639 Income taxes................................................ $ (437) $1,412
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 September 30, 1999 and December 31, 1998, and the results of operations and changes in cash flows for the periods ended September 30, 1999 and 1998. These financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements in the December 31, 1998 Form 10-K of Bellwether Exploration Company (the "Company") that was filed with the Securities and Exchange Commission on March 22, 1999. 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. 8 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 2. STOCKHOLDERS' EQUITY SFAS No. 128 requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. For the nine months ended September 30, 1999 and 1998, diluted earnings per common share are not calculated since the issuance or conversion of additional securities would have an antidilutive effect. SFAS NO. 128 RECONCILIATION (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS):
For the Nine Months Ended For the Nine Months Ended September 30, 1999 September 30, 1998 -------------------------------------------- ---------------------------------------------- Loss Shares Per Share Loss Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------ ---------- ----------- ------------- --------- LOSS PER COMMON SHARE: Loss available to common stockholders................... $1,159 13,854 $.00 $332 14,103 $ .02 ==== ===== EFFECT OF DILUTIVE SECURITIES: Options and Warrants............ $ --- --- $--- --- ------ ------ ---- ------ LOSS PER COMMON SHARE-DILUTED: Loss available to common stockholders and assumed conversions.................... $1,159 13,854 $.00 $332 14,103 $ .02 ====== ====== ==== ==== ====== =====
Securities that could potentially dilute basic earnings per share in the future, that were not included in the computation of diluted earnings per share because to do so would have been antidilutive are as follows:
For the Periods Ended September 30, ------------------------------------------ 1999 (shares) 1998 (shares) ----------------- ------------------ Options and Warrants 31,000 254,000 ====== =======
9 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 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 September 30, 1999, 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 September 30, 1999 there were $17.9 million borrowings outstanding under the Senior Credit Facility. 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. 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. 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 October 1, 1999 to April 1, 2000 is 9.64%. Through April 1, 2002 the floating rate is capped at 10.875% and capped at 12.875% thereafter. 10 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 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, this 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. 5. NATURAL GAS AND CRUDE OIL HEDGING Oil and gas revenues decreased $2,576,000 and $4,220,000 in the three and nine months ended September 30, 1999, respectively, and increased $1,877,000 and $2,840,000 in the three and nine months ended September 30, 1998, respectively, as a result of hedging activity. The following tables detail the Company's hedges of future production which were in place at September 30, 1999. Oil Hedges - ----------
NYMEX NYMEX BBLS Price Price Period per Day Total BBLS Type Floor Ceiling ------ ------------ -------------- --------- ----------- ----------- October 1999 to December 1999 2,000 184,000 Collar $19.00 $23.70 January 2000 to March 2000 2,000 182,000 Collar $19.00 $21.75 Gas Hedges - ---------- NYMEX NYMEX MMBTU Total Price Price Period per Day MMBTU Type Floor Ceiling ------ ------------ -------------- --------- ----------- ----------- October 1999 30,000 930,000 Collar $ 2.20 $ 2.61 November 1999 to March 2000 15,000 2,280,000 Collar $ 2.40 $ 3.10 November 1999 to March 2000 15,000 2,280,000 Collar* $ 3.00 $ 3.55 April 2000 to October 2000 15,000 3,210,000 Collar $ 2.30 $ 2.87 November 2000 to December 2000 20,000 1,220,000 Collar $ 2.40 $ 3.40 April 2001 to October 2001 20,000 4,280,000 Collar $ 2.40 $ 2.95
The fair value at September 30, 1999 of these swap agreements was a gain of $13,100. - --------- * This agreement includes a put at $2.40 per mcf. 11 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 6. LEGAL PROCEEDING The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra, et al. v. Eastern Exploration, Inc., et al., in the 370th Judicial District Court of Hidalgo County, Texas. On May 11, 1999, the trial court granted plaintiffs' Motion for Summary Judgment and denied defendants' Motions for Summary Judgment. The Company was notified of the trial court's judgment May 18, 1999. The trial court awarded plaintiffs in excess of $5.8 million in damages plus interest. The Company has a 75% interest in the leases made the subject of the lawsuit, but the judgment is joint and several against all defendants. The majority of the damages awarded to plaintiffs consist of compensatory royalties assessed under a compensatory royalty clause in plaintiffs' 648- acre oil and gas lease. Defendants contend that the unambiguous meaning of the compensatory royalty clause is that, if a well is drilled within 1,200 feet of the 648-acre lease, lessee must either commence an offset well within 120 days of the offending well, or commence payment of compensatory royalties within 120 days of the offending well calculated on production from the well or wells drilled within 1,200 feet. Plaintiffs contend that the unambiguous meaning of the compensatory royalty clause is that (1) lessees duties under the clause were expanded to the entirety of the gas unit within which plaintiffs' 648-acre lease is located; (2) if a well is drilled within 1,200 feet of the gas unit in which plaintiffs' 648-acre lease is located, the compensatory royalty provisions are merely "triggered"; (3) once the compensatory royalty provisions are triggered, lessee has a retroactive duty to commence an offset well or commence payment of compensatory royalties within 120 days of the first well drilled in the common field or reservoir underlying plaintiffs' 648-acre lease, regardless of when that first well was drilled and regardless of whether that first well is more than 1,200 feet away from either the gas unit or the 648-acre lease. Plaintiffs claim that the compensatory royalty provisions were triggered when a well was allegedly drilled within 1,200 feet of the gas unit within which plaintiffs' 648-acre lease is located. Because defendants could not go back in time and commence an offset well within 120 days of the first well that was allegedly drilled in the common field or reservoir underlying plaintiffs' 648-acre lease, defendants had to go back in time and commence payment of compensatory royalties calculated on all wells allegedly drilled in the common field or reservoir. In granting plaintiffs' Motion for Summary Judgement, the trial court adopted this interpretation of the clause. The Company believes that the trial court's judgment is in error for the following reasons, among others: (1) plaintiffs interpretation is unreasonable as a matter of law; (2) the duties under the compensatory royalty clause did not expand to the entirety of the unit, and because it is undisputed that no well was ever drilled within 1,200 feet of plaintiffs' 648-acre lease, lessees' duties under the compensatory royalty clause never came into effect as a matter of law; and (3) even if the duties under the compensatory royalty clause did expand to the entirety of the unit, defendants timely drilled an offset well within 120 days of the well that was allegedly drilled within 1,200 feet of the gas unit in which plaintiffs' 648-acre lease is located, and therefore no compensatory royalties are 12 BELLWETHER EXPLORATION COMPANY Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) due as a matter of law. Because the Company believes that the trial court's judgment is in error, the Company perfected an appeal of the judgment on August 9, 1999. The Company intends to vigorously prosecute the appeal, and believes, with its legal counsel, that a reversal of the judgment is more likely than not to occur. Such an appeal could, however, require Bellwether to secure a bond in the amount of up to the full amount of the judgment, although it is more likely Bellwether's bonding obligation will be in the $3.5 million range. The parties attempted to mediate the dispute in October 1999. Following day-long negotiations, the parties temporarily ceased negotiations. Bellwether will vigorously prosecute the appeal, and believes, with its legal counsel, that a reversal of the judgment is more likely than not to occur. Bellwether has accrued for the anticipated costs associated with the matter. 7. RELATED PARTY TRANSACTIONS Director Mr. J.P. Bryan was elected Chairman and Chief Executive Officer effective August 2, 1999. Mr. Bryan is Senior Managing Director of and a holder of Common Stock of the parent corporation of Torch Energy Advisors, Inc. ("Torch"). Mr. Bryan has no involvement in the day to day operations of Torch. The Company is party to an administrative services agreement with Torch, pursuant to which Torch performs certain administrative functions for the Company, including financial, accounting, legal and technical support. During the nine months ended September 30, 1999 and 1998, the Company incurred $1.7 million and $3.2 million, respectively. During 1998, in connection with a possible transaction by the Company with Carpatsky Petroleum Company ("Carpatsky"), the Company agreed to guarantee $500,000 of indebtedness of Carpatsky to Torch. The Carpatsky note to Torch went into default in June 1998. Under an agreement effective October 31, 1999, Bellwether paid Torch $565,700 for the guaranty. The Company received in exchange 4.5 million shares of Carpatsky, with a current market value of $550,000 and a warrant to acquire an additional 967,296 common shares. Carpatsky is currently traded on the Alberta Stock Exchange and is subject to normal market fluctuations. 13 BELLWETHER EXPLORATION COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Upon the change in management, Bellwether has refocused it's corporate strategy regarding growth in reserves and cash flow from primarily exploration activities to growth through acquisitions and exploitation. The Company will continue to focus on opportunities in West Texas, onshore and offshore Texas/Louisiana Gulf Coast and Latin America. Latin America is a new area of focus where Bellwether will strive to acquire and exploit producing fields. Utilizing an acquisitions approach to growth, Bellwether will expand the number of fields it operates, strive to extend the Company's reserve life and will regularly divest mature properties to enhance financial results. Bellwether's funding of its drilling and acquisition opportunities will be provided by operating cash flows, the sale of non-core assets, bank financing and public sales of debt and equity securities. The Company invested $33.5 million in oil and gas properties for the nine months ended September 30, 1999 versus $32.9 million for the same period in 1998. The 1999 period included a net expenditure of $13.2 million on June 30, 1999 to acquire producing oil and gas properties in the Gulf of Mexico. The results for the three and nine month periods include revenue, production costs and expenses relative to these properties beginning July 1999. Cash flows from operations before changes in assets and liabilities were $16.3 million for the nine months ended September 30, 1999 compared to $25.1 million in the same period of 1998. At September 30, 1999, the Company had $37.1 million of available debt capacity under the Senior Credit Facility. 1999 CAPITAL EXPENDITURES During 1999, the Company anticipates investing approximately $54.0 million, primarily for development and exploratory drilling activities, leasehold and seismic acquisitions and the producing property acquisition discussed above. 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). 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. 14 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. Due to declines in oil and gas prices at year end, and to a lesser extent, downward revisions in estimated proved reserves, the Company recorded a $73.9 million pretax impairment charge in the fiscal year ended December 31, 1998. No such charges to operations were required during the nine month periods ending September 30, 1999 or 1998. RESULTS OF OPERATIONS The following table sets forth certain operating information for the Company for the periods presented:
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------------------- 1999 1998 1999 1998 ---------------------------------------------------- Production: Oil and condensate (MBBLs)...................... 510 583 1,531 1,760 Natural gas (MMCF).............................. 4,630 5,109 13,611 16,865 Average sales price:/(1)/ Oil and condensate (per BBL).................... $15.80 $11.52 $ 12.88 $ 11.80 Natural gas (per MCF).......................... $ 2.51 $ 1.90 $ 2.08 $ 2.04 Average costs: Production expenses (per BOE)................... $ 4.23 $ 4.38 $ 4.22 $ 4.19 General and administrative expense (per BOE).................................... $ 2.59 $ 1.42 $ 1.63 $ 1.45 Depreciation, depletion and amortization (per BOE)/(2)/............................... $ 4.75 $ 5.42 $ 4.19 $ 5.42
(1) Average sales prices exclude the effect of hedges, which decreased revenues by $2,576,000 and $4,220,000 in the three and nine month periods in 1999, respectively, and increased revenues by $1,877,000 and $2,840,000 in the three and nine month periods in 1998, respectively. (2) Excludes depreciation, depletion and amortization on gas plants and other assets of $318,000 and $934,000 in the three and nine month periods in 1999, respectively, and of $221,000 and $663,000 in the three and nine month periods ended in 1998, respectively. 15 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Net income for the quarter ended September 30, 1999 was $2,000 or $0.00 per share, while the quarter ended September 30, 1998 reflected a loss of $187,000 or $.01 per share, respectively. While oil and gas revenues were approximately 7% lower in the quarter ended September 30, 1999, expenses were, likewise, lower by 6% as compared to the quarter ended September 30, 1998. Oil and gas revenues for the three months ended September 30, 1999 were $17.1 million, as compared to $18.3 million for the 1998 period. The 7% decrease in oil and gas revenues is primarily due to the decline in oil and gas production. Production volumes reflect a 5.9 million cubic feet per day (MMcf/d) decrease in production from the Cove field caused by weather and maintenance delays from mid-August through the end of September. In addition, the Company experienced production declines in the Ship Shoal complex, located in the Gulf of Mexico; however, the Company believes that through an aggressive workover and development program, production declines can be improved significantly. Oil production was down 12% compared to the same quarter of 1998 with 510,000 and 583,000 barrels for the three month periods ended September 30, 1999 and 1998, respectively. Gas production was down 9% compared to the same quarter of 1998 with 4,630 and 5,109 million cubic feet (MMcf) for the three month periods ended September 30, 1999 and 1998, respectively. Oil prices averaged $15.80 per barrel in the three month period ended September 30, 1999 as compared to $11.52 per barrel in the comparable period of 1998. Gas prices averaged $2.51 per mcf in the three month period ended September 30, 1999 as compared to $1.90 per mcf in the comparable period of 1998. This represents a 32% increase in gas prices and a 37% increase in oil prices. Oil and gas hedges in place in 1998 resulted in $1.9 million of additional oil and gas revenues in the period ended September 30, 1998 while a decrease in oil and gas revenues of $2.6 million was reflected in the same period of 1999. Net gas plant operating profit was $432,000 in the three months ended September 30, 1999 and $371,000 in the same period of 1998. While throughput volumes were down moderately in 1999 as compared to 1998, liquid prices were significantly higher in 1999 resulting in higher gas plant revenues in 1999 as compared to 1998. Interest and other income decreased from $364,000 for the three months ended September 30, 1998 to $175,000 for the three months ended September 30, 1999 as a result of lower interest income. Production expenses for the three months ended September 30, 1999 totaled $5.4 million, or 14% below the $6.3 million for the three months September 30, 1998. The decrease results from certain uneconomical properties being abandoned and the declining production in the Gulf of Mexico properties mentioned above. On a barrel equivalency basis (Boe), production expenses of $4.23 per Boe for the quarter ended September 30, 1999 were 3% lower as compared to $4.38 per Boe for the quarter ended September 30, 1998. 16 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Depreciation, depletion and amortization was $6.4 million for the three months ended September 30, 1999 and $8.1 million for the three month period ended September 30, 1998. The decline resulted from the $73.9 million impairment charge made at December 31, 1998 as well as decreased production volumes. Depreciation, depletion and amortization per Boe has declined from $5.42 per Boe in 1998 to $4.75 per Boe in 1999. General and administrative expenses totaled $3.3 million in the three months ended September 30, 1999 as compared to $2.0 million for the comparable period of fiscal 1998. Approximately $1.7 million in severance costs due to the Company's recent management change, offset partially by a decrease in outsourcing costs from $903 million to $616 million, was the major cause of the increase. The Company is charged a management fee under its current outsourcing contract which is 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 described above, the Company's total assets and resulting percentage of such assets was reduced. On a Boe basis, general and administrative expenses were $2.59 per Boe in the period ended September 30, 1999 and $1.42 per Boe in the period ended September 30, 1998. Interest expense remained relatively flat at $3.0 million for the three months ended September 30, 1999 and 1998 even though the Company had higher average balances outstanding in 1999. Savings of $256,000 realized as an interest rate swap accounted for the comparable result. A refund of $465,000 on 1998 taxes was received in the third quarter of 1999. The refund resulted from higher than anticipated dry hole and expired lease charges in 1998. No tax has been recorded in 1999 due to the adjustment to the Company's tax valuation allowance for the current period's net income from operations. NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Net loss for the nine months ended September 30, 1999 and 1998 was $1.2 million or $0.08 per share, and $.3 million or $.02 per share, respectively. The increased loss is due to lower oil and gas prices in the first quarter of 1999 and lower oil and gas production as compared to the nine months ended September 30, 1998. Oil and gas revenues for the nine months ended September 30, 1999 were $43.8 million, as compared to $58.0 million for the respective period in 1998. The 24% decrease in oil and gas revenues is partially due to lower oil and gas prices in the first quarter. Oil prices averaged $12.88 per barrel in the nine month period ended September 30, 1999 as compared to $11.80 per barrel in the comparable period of 1998. Gas prices averaged $2.08 per mcf in the nine month period ended September 30, 1999 as compared to $2.04 per mcf in the comparable period of 1998. Oil and gas hedges in place in 1998 resulted in $2.8 million of additional oil and gas revenues in the period ended September 30, 1998 while a decrease in revenues of $4.2 million was reflected in the same period of 1999. 17 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Production volumes reflect weather and maintenance delays of six weeks in the third quarter at the Company's Cove field. In addition, the Company has experienced production declines in the Ship Shoal complex, located in the Gulf of Mexico. The Company believes this decline can be improved significantly going forward through an aggressive workover and drilling program in Ship Shoal and in the Company's overall drilling portfolio. Oil production was down 13% compared to the same period of 1998 with 1,531,000 and 1,760,000 barrels for the nine month periods ended September 30, 1999 and 1998, respectively. Gas production was down 19% compared to the same period of 1998 with 13,611 MMcf and 16,865 MMcf for the nine month periods ended September 30, 1999 and 1998, respectively. Net gas plant operating profit was $907,000 in the nine months ended September 30, 1999 and $918,000 in the same period of 1998. Interest and other income increased from $.9 million at September 30, 1998 to $1.4 million at September 30, 1999 primarily as a result of the receipt of take or pay revenue contract settlements. Production expenses for the nine months ended September 30, 1999 totaled $16.1 million, or 16% below the $19.2 million for the nine months September 30, 1998. The decrease results from certain uneconomical properties being abandoned and the declining production in the Gulf of Mexico properties mentioned above. On a Boe basis, production expenses of $4.22 per Boe for the nine months ended September 30, 1999 were almost flat as compared to production expenses of $4.19 per Boe for the nine months ended September 30, 1998. The decreased oil and gas volumes mentioned above resulted in the increased production costs on an equivalency basis. Depreciation, depletion and amortization was $16.9 million for the nine months ended September 30, 1999 and $25.6 million for the nine month period ended September 30, 1998. The decline resulted from the $73.9 million impairment charge made at December 31, 1998 as well as decreased production volumes. Depreciation, depletion and amortization per Boe has declined from $5.42 per Boe in 1998 to $4.19 per Boe in 1999. General and administrative expenses totaled $6.2 million in the nine months ended September 30, 1999 as compared to $6.6 million for the comparable period of fiscal 1998. A decrease in outsourcing costs from $3.2 million to $1.7 million, partially offset by approximately $1.7 million in severance costs due to the Company's recent management change, was the major contribution to the decline. The Company is charged a management fee under its current outsourcing contract which is 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 described above, the Company's total assets and resulting percentage of such assets was reduced. Additionally, the 1998 period included costs related to the closing of the Company's Dallas exploration office in March 1998 and certain transition costs related to the change of the Company's 1997 fiscal year. On a Boe basis, general and administrative expenses were $1.63 per Boe in the period ended September 30, 1999 and $1.45 per Boe in the period ended September 30, 1998. 18 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest expense remained relatively flat at $8.7 million for the nine months ended September 30, 1999 and $8.9 million in the same period of 1998 even though the Company had higher average balances outstanding in 1999. Savings of $713,000 realized as an interest rate swap partially accounted for the decline. A refund of $465,000 on 1998 taxes was received in the third quarter of 1999. The refund resulted from higher than anticipated dry hole and expired lease charges in 1998. No tax accrual has been 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. MANAGEMENT CHANGES On August 2, 1999, Mr. J. Darby Sere, previously Chairman and CEO, and Mr. William C. Rankin, previously Senior Vice President and Chief Financial Officer, left the Company to pursue other opportunities. Director Mr. J.P. Bryan was elected Chairman and CEO effective August 2, 1999. Mr. Bryan is Senior Managing Director of and a holder of Common Stock of the parent corporation of Torch Energy Advisors, Inc. ("Torch"). Mr. Bryan has no involvement in the day to day operations of Torch. The Company is party to an administrative services agreement with Torch, pursuant to which Torch performs certain administrative functions for the Company, including financial, accounting, legal and technical support. In addition to electing J.P. Bryan Chairman and CEO, the Board of Directors promoted Cliff M. West, Jr. and Robert J. Bensh to Senior Vice President - Exploitation & Exploration and Senior Vice President - Finance, respectively. YEAR 2000 ISSUES The Year 2000 problem ("Y2k") refers to the inability of computer and other information technology systems to properly process date and time information. The problem was caused, in part, by the outdated programming practice of using two digits rather than four to represent the year in a date. The consequence of the Y2k problem is that information technology and embedded processing systems are at risk of malfunction, particularly during the transition between 1999 to 2000. The effects of Y2k are exacerbated by the interdependence of computer and telecommunication systems throughout the world. This interdependence also exists among the Company and its vendors, customers and business partners, as well as with government agencies. 19 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The risks of Y2k fall into three general areas: 1) Corporate Systems, 2) Field Systems and 3) Third Party Exposure. The Company is addressing each of these areas through a readiness process that follows the steps below: a) Planning and Awareness b) Inventory and Assessment c) Identify Potential Problems and their Business Impact d) Identify/Approve Solutions e) Test and Implement Solutions f) Contingency Planning The Company outsources a substantial portion of its information technology and field operations to Torch. The Company and Torch have jointly developed a plan to address the Company's Year 2000 issues. (As used in the remainder of this discussion, references to the Company include the Torch employees assisting the Company in its Year 2000 compliance program.) The Company has formed a Y2k Team comprised of representatives from senior management, exploration, exploitation, accounting, legal and internal audit. The continuing progress of this Y2k Team is reported regularly to the Company's Board of Directors. The estimated total costs for Y2k readiness have been nominal. It is anticipated that such costs for complete Y2k readiness will continue to be nominal as much of these costs are borne by Torch under the terms of the existing outsourcing agreement. In addition, there have been no material capital expenditures for Y2k and there is not anticipated to be material capital expenditures because most major critical field operations do not have date sensitive equipment. CORPORATE SYSTEMS 1. Planning and Awareness. All employees have attended Y2k informational programs including a general discussion of what Y2k is and how it could affect the business. Employees of all levels of the organization have been asked to participate in the identification of potential Y2k risks. 2. Inventory and Assessment. The Company has completed an inventory of the traditional computing platforms including client/server systems, LAN systems and PC systems, as well as an inventory of all systems software and operating systems for each computing system. In addition, third party service interfaces, banking/treasury interfaces and telecommunications have been cataloged. Assessment of component compliance (compliant, not-compliant, expected date of compliance, etc.) has been completed and included research of product information on the Internet, contacting peer group companies and accessing information that peer group companies have already found. 20 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 3. Identification. The failure to identify and correct a material Y2k problem in the Corporate Systems could result in inaccurate or untimely financial information for management decision-making or financial reporting purposes. The severity of such problems may impact the duration during which quality information is available to management. At this time, management believes that any Y2k disruptions associated with its financial and administration systems will not have a material effect on the Company. 4. Identify/Approve Solutions. Based upon the assessments of components' compliance, solutions are determined. These solutions include: 1) fix or replace the non-compliant component, 2) buy patches or replacement items, 3) develop workarounds, 4) identify alternate automated processes, 5) design manual procedures and 6) develop business continuity plans for specific items or systems. 5. Test and Implement Solutions. Torch has upgraded its accounting software and has achieved full Y2k compliance. In addition, all network and desktop applications used by the Company have been inventoried and are generally Y2k compliant. The costs of all such risk assessments and remediation are borne by Torch under the terms of Bellwether's outsourcing agreements. 6. Contingency Planning. Notwithstanding the foregoing, should there be significant unanticipated disruptions in the Company's financial and administrative systems, a number of accounting processes that are currently automated will need to be performed manually. The Company has contingency arrangements for temporary staffing to accommodate such situations. FIELD SYSTEMS 1. Planning and Awareness. The Company's Y2k program has involved all levels of management of field and facility assets from production foremen and higher. Employees at all levels of the organization have been asked to participate in the identification of potential Y2k risk, which might otherwise go unnoticed by higher level employees and officers of Bellwether, and as a result, the Company believes that awareness of the issue is high. 2. Inventory and Assessment. This step entailed locating all embedded chip technology used in the field operations including safety systems, measurement devices, overflow valves, SCADA systems and other field processes that are date-or-time-sensitive. It is estimated that there are less than a hundred embedded components residing in the computer systems within Bellwether's operated oil and natural gas fields and processing plants. During the assessment stage a list of assets to be tested was assembled. Consideration was given to 1) issues of health and safety, 2) environmental concerns, 3) economic factors and 4) other business risks as appropriate. Vendors and manufacturers have been contacted as well as product research through the Internet and the use of peer group company shared information. To date, the majority of embedded components researched have been deemed either date- insensitive or Y2k compliant. However, the complexity of embedded systems is such that a small minority of non-compliant components, even a single non- compliant component, can corrupt an entire system. The system level evaluation has been completed. 21 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 3. Identification. The failure to identify and correct a material Y2k problem could result in outcomes ranging from errors in data reporting to curtailments or shutdowns in production or discharges of materials onto the environment. The Company prioritized the remediation of embedded components and systems which are either known to be Y2k non-compliant or which have higher risk of Y2k failures. To assist in this effort, Bellwether and Torch retained consultants knowledgeable and experienced in the assessment of Y2k issues impacting field operations. Bellwether gave extremely high priority to the remediation of any situation that could impact employee health and safety or environmental security. The cost of the assessment was not material to Bellwether's financial results. Despite these efforts, it is possible that there will be production disruptions or other Y2k related problems associated with Y2k non-compliance. Depending on the magnitude of any such disruptions or other problems, and the time and cost required to correct them, such failures could materially and adversely impact the Company's results of operations, liquidity and financial condition. 4. Identify/Approve Solutions. Based upon the assessment of field systems, regarding compliance or non-compliance, solutions were determined. These potential solutions included 1) fix or replace non-compliant items, 2) buy patches or replacement items, 3) develop workarounds, 4) identify alternative automated processes, 5) design manual procedures and 6) develop business continuity plans for specific items or systems. 5. Test and Implement Solutions. Once identified, assessed and prioritized, Bellwether tested, upgraded and certified those embedded components and systems in field process control units deemed to pose the greatest risk of significant non-compliance. It is important to note that in some circumstances, the procedures used to test embedded components for Y2k compliance themselves pose a risk of damaging the component or corrupting the system. Accordingly, there were situations in which a decision not to test was deemed the most prudent. The Company's cost of testing and upgrading its embedded chips was not material due to the number of components and the low cost of such components. In addition, if the Company is not successful and ultimately experiences Y2k related failures, the costs attributable to lost production, damages to facilities and environmental damages may be material. The effort to address the Y2k situation is dynamic and may likely not be fully completed by December 31, 1999. 6. Contingency Planning. Should material production disruptions occur as a result of Y2k failures in the field operations, Bellwether's operating cash flow will be impacted. This contingency is being factored into deliberations on capital budgeting, liquidity and capital adequacy. It is management's intention to maintain adequate financial flexibility to sustain the Company during any such period of cash flow disruption. 22 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THIRD PARTY EXPOSURES 1. Planning and Awareness. The Company has been involved in informational programs with its employees and the employees of Torch who have significant interaction with outside vendors, customers and business partners of the Company. All levels of employees in the organization have been asked to participate in the identification of potential third party Y2k risk, which might otherwise go unnoticed by higher level employees and officers of Bellwether, and as a result, awareness of the issue is considered high. 2. Inventory and Assessment. Surveys of general Y2k readiness have been sent to all vendors, customers and business partners of the Company. An assessment is made regarding the priority of risk associated with each third party, and how the third party's level of compliance directly affects day-to-day business. The Company's most critical customers are outside operators of wells, gas plants, refineries, natural gas marketers and pipelines. 3. Identification. Refineries are extremely complex operations containing hundreds or thousands of computerized processes. The failure on the part of a Bellwether refinery customer to identify and correct a material Y2k problem could result in material disruptions in the sale of Bellwether's production to that refinery. In many cases, affected Bellwether production may not be easily shifted to other markets, and markets may have similar effects. Although the Company has made inquiries to key third parties on the subject of Y2k readiness and will continue to do so, it has no ability to require responses to such inquiries or to independently verify their accuracy. Accordingly, management is unable to express any view about whether there will be material production disruptions associated with third party Y2k non- compliance. Depending on the magnitude of any such disruptions and the time required to correct them, such failures could materially and adversely impact the Company's results of operations, liquidity and financial condition. Other significant concerns include the integrity of global telecommunication systems, the readiness of commercial banks to execute electronic fund transfers and of the ability of the financial community to maintain an orderly market in Bellwether's securities. 4. Identify/Approve Solutions. By prioritizing the various third party risks mentioned above, a list of most critical third party vendors, customers and business partners has been determined. By cross-referencing the results of the Y2k readiness survey with the Company's priority list of third parties, solutions can be determined. These may involve field and/or office visits and more detailed meetings to access the third party's Y2k compliance. 23 BELLWETHER EXPLORATION COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 5. Test and Implement Solutions. Bellwether is continuing to contact third parties directly and research public documents to ascertain the level of Y2k compliance. 6. Contingency Planning. Should material production disruptions occur as a result of Y2k failures of third parties, Bellwether's operating cash flow will be impacted. This contingency is being factored into deliberations on capital budgeting, liquidity and capital adequacy. It is management's intention to maintain adequate financial flexibility to sustain the Company during any such period of cash flow disruption. SUBSEQUENT EVENTS During 1998, in connection with a possible transaction by the Company with Carpatsky Petroleum Company ("Carpatsky"), the Company agreed to guarantee $500,000 of indebtedness of Carpatsky to Torch. The Carpatsky note to Torch went into default in June 1998. Under an agreement effective October 31, 1999, Bellwether paid Torch $565,700 for the guaranty. The Company received in exchange 4.5 million shares of Carpatsky, with a current market value of $550,000 and a warrant to acquire an additional 967,296 common shares. Carpatsky is currently traded on the Alberta Stock Exchange and is subject to normal market fluctuations. 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, legal proceedings, 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, gas plant operations and the effect of gas balancing and the Year 2000 problem, 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. 24 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. The following tables detail the Company's hedges of future production which were in place at September 30, 1999. Oil Hedges - ----------
NYMEX NYMEX BBLS Price Price Period per Day Total BBLS Type Floor Ceiling ------ ------------ -------------- ---------- ----------- ------------- October 1999 to December 1999 2,000 184,000 Collar $19.00 $23.70 January 2000 to March 2000 2,000 182,000 Collar $19.00 $21.75 Gas Hedges - ---------- NYMEX NYMEX MMBTU Total Price Price Period per Day MMBTU Type Floor Ceiling ------ ------------ -------------- ---------- ----------- ------------- October 1999 30,000 930,000 Collar $ 2.20 $ 2.61 November 1999 to March 2000 15,000 2,280,000 Collar $ 2.40 $ 3.10 November 1999 to March 2000 15,000 2,280,000 Collar* $ 3.00 $ 3.55 April 2000 to October 2000 15,000 3,210,000 Collar $ 2.30 $ 2.87 November 2000 to December 2000 20,000 1,220,000 Collar $ 2.40 $ 3.40 April 2001 to October 2001 20,000 4,280,000 Collar $ 2.40 $ 2.95
The fair value at September 30, 1999 of these agreements was a gain of $13,000. A 10% increase in prices would result in a change in fair value of approximately $1.2 million while a decrease in prices would result in a change in fair value of approximately $1 million. - ------------- * This agreement includes a put at $2.40 per mcf. 25 BELLWETHER EXPLORATION COMPANY PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra, et al. v. Eastern Exploration, Inc., et al., in the 370th Judicial District Court of Hidalgo County, Texas. On May 11, 1999, the trial court granted plaintiffs' Motion for Summary Judgment and denied defendants' Motions for Summary Judgment. The Company was not notified of the trial court's judgment until May 18, 1999. The trial court awarded plaintiffs in excess of $5.8 million in damages plus interest. The Company has a 75% interest in the leases made the subject of the lawsuit, but the judgment is joint and several against all defendants. The majority of the damages awarded to plaintiffs consist of compensatory royalties assessed under a compensatory royalty clause in plaintiffs' 648-acre oil and gas lease. Defendants contend that the unambiguous meaning of the compensatory royalty clause is that, if a well is drilled within 1,200 feet of the 648- acre lease, lessee must either commence an offset well within 120 days of the offending well, or commence payment of compensatory royalties within 120 days of the offending well calculated on production from the well or wells drilled within 1,200 feet. Plaintiffs contend that the unambiguous meaning of the compensatory royalty clause is that (1) lessees duties under the clause were expanded to the entirety of the gas unit within which plaintiffs' 648-acre lease is located; (2) if a well is drilled within 1,200 feet of the gas unit in which plaintiffs' 648-acre lease is located, the compensatory royalty provisions are merely "triggered"; (3) once the compensatory royalty provisions are triggered, lessee has a retroactive duty to commence an offset well or commence payment of compensatory royalties within 120 days of the first well drilled in the common field or reservoir underlying plaintiffs' 648-acre lease, regardless of when that first well was drilled and regardless of whether that first well is more than 1,200 feet away from either the gas unit or the 648- acre lease. Plaintiffs claim that the compensatory royalty provisions were triggered when a well was allegedly drilled within 1,200 feet of the gas unit within which plaintiffs' 648-acre lease is located. Because defendants could not go back in time and commence an offset well within 120 days of the first well that was allegedly drilled in the common field or reservoir underlying plaintiffs' 648-acre lease, defendants had to go back in time and commence payment of compensatory royalties calculated on all wells allegedly drilled in the common field or reservoir. In granting plaintiffs' Motion for Summary Judgement, the trial court adopted this interpretation of the clause. The Company believes that the trial court's judgment is in error for the following reasons, among others: (1) plaintiffs interpretation is unreasonable as a matter of law; (2) the duties under the compensatory royalty clause did not expand to the entirety of the unit, and because it is undisputed that no well was ever drilled within 1,200 feet of 26 BELLWETHER EXPLORATION COMPANY PART II. OTHER INFORMATION (CONTINUED) plaintiffs' 648-acre lease, lessees' duties under the compensatory royalty clause never came into effect as a matter of law; and (3) even if the duties under the compensatory royalty clause did expand to the entirety of the unit, defendants timely drilled an offset well within 120 days of the well that was allegedly drilled within 1,200 feet of the gas unit in which plaintiffs' 648-acre lease is located, and therefore no compensatory royalties are due as a matter of law. Because the Company believes that the trial court's judgment is in error, the Company perfected an appeal of the judgment on August 9, 1999. The Company intends to vigorously prosecute the appeal, and believes, with its legal counsel, that a reversal of the judgment is more likely than not to occur. Such an appeal could, however, require Bellwether to secure a bond in the amount of up to the full amount of the judgment, although it is more likely Bellwether's bonding obligation will be in the $3.5 million range. The parties attempted to mediate the dispute in October 1999. Following day- long negotiations, the parties temporarily ceased negotiations. Bellwether will vigorously prosecute the appeal, and believes, with its legal counsel, that a reversal of the judgment is more likely than not to occur. Bellwether has accrued for the anticipated costs associated with the matter. 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 None. ITEM 5. OTHER INFORMATION None. 27 BELLWETHER EXPLORATION COMPANY PART II. OTHER INFORMATION (CONTINUED) 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. 10.18 Employment Contract dated August 1, 1999 between the Company and J.P. Bryan - Included herewith 21.1 Subsidiaries of Bellwether Exploration Company - Included herewith 27 Financial Data Schedule - Included herewith b. Reports on Form 8-K. On September 30, 1999 an 8-K was filed announcing the election of J.P. Bryan as Chairman of the Board and CEO, as well as announcing the promotion of Cliff M. West, Jr. to Senior Vice President - Exploitation and Exploration and Robert J. Bensh to Senior Vice President - Finance. 28 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: November 12, 1999 By: /s/ J.P. Bryan ------------------------ ------------------------------------ J.P. Bryan Chairman and Chief Executive Officer Date: November 12, 1999 By: /s/ Robert J. Bensh ------------------------ ------------------------------------ Robert J. Bensh Chief Financial Officer 29 EX-10.18 2 EMPLOYMENT CONTRACT EXHIBIT 10.18 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") entered into effective as of August 1, 1999, by and between J.P. Bryan (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 President, Chairman and Chief Executive Officer 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 President, Chairman and Chief Executive Officer 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 twenty-four (24) months from the date hereof (the "Termination Date"), unless earlier terminated by either party hereto in accordance with the provisions of Section 5 hereof; provided, however, that upon the occurrence of a Change of Control (as such term is defined in Section 5(g) hereof), the Termination Date shall automatically extend to a date 24 months following the date of such Change in Control without any further action by the Company or the Executive. 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 President, Chairman and Chief Executive Officer of the Company and shall report to, and be subject to the general direction and control of, the Board of Directors 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 Board of Directors of the Company and, at no additional remuneration, shall serve in such other comparable positions with any subsidiary corporation of the Company, or any partnership, limited liability company or other entity in which the Company has an interest (herein collectively called "affiliates"), as the Board of Directors of the Company may from time to time determine. 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. The foregoing shall not be construed as preventing the Executive from continuing in his capacity as Senior Managing Director of Torch Energy Advisors Incorporated and as a member of various Board of Directors of certain companies, provided, however, that such activities will not require services on the part of the Executive which would in any way impair the performance of his duties under this Agreement. 4. Compensation. (a) In consideration of the services to be rendered by the Executive to the Company, the Company will pay the Executive a salary ("Salary) of $300,000 per year during the Term of this Agreement. Such Salary shall 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) Any cash or stock bonuses 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. (c) 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"). (d) The Executive shall be entitled to six 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 pay the Executive for any unused portion of vacation and any such unused portion of vacation shall not be carried forward to the next year. (e) 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 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. (f) During the term of this agreement the Executive shall be entitled to receive a car allowance of $1,000.00 per month. 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 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 misappropriated 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 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 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 and would have been paid to him had he not become disable. (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 and adversely 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 materially and adversely changed; (ii) there is a Change in Control of the Company; (iii) 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; (iv) 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 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; (v) without Executive's consent, the Company requires the Executive to relocate to any city or community other than one within 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 (vi) 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 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 two (2) times the sum of (x) the Executive's highest annual Salary during the last one (1) year of employment immediately preceding the date of termination, plus (y) the highest annual bonus paid to the Executive during such one-year period (the "Severance Payment"). In addition, following other such termination, the Executive shall be entitled to the following benefits (collectively, the "Additional Benefits"); (i) immediate vesting of any of the Executive's 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 year following the date of termination or (B) the remaining term of the applicable option; (ii) immediate vesting and lapse of restrictions on any restricted stock grants outstanding at the time of such termination; (iii) continued coverage, at the Company's cost, under the Company's medical, dental and health benefits (but not life or disability insurance) set forth in Section 3(g) hereof for a period of eighteen (18) months from the date of termination; (iv) within 30 days following the date of termination and to the extent permitted by law, the Company shall contribute to the Executive's 401(k) or substitute equivalent plan an amount equal to the aggregate amount contributed by the Executive to such plan during the year in which the termination occurs plus any profit sharing contribution in a proportionate amount to the amount paid in the year prior to termination, and shall contribute to the deferred compensation plan any matching contributions to which Executive would have been entitled through the date of termination; and (v) 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; (vi) an amount equal to one year of car allowance payments. 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 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 of the Executive or (ii) the Executive terminates this Agreement and his employment with the Company for Good Reason (as defined in Section 5(d) hereof), within twenty four months following a Change in Control (as defined in Section 5(g)), then in lieu of the Severance Payment contained in Section 5(f) hereof, the Company shall pay to the Executive an amount equal to three (3) times the sum of: (x) the Executive's highest annual Salary during the last two (2) years immediately preceding the termination, plus (y) the highest annual bonus paid to the Executive in such period. In the event that the excise tax relating to "parachute payments" under Section 280G of the Code applies to the Severance 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 Severance Payment. The Executive shall also be entitled to receive the Additional Benefits. "Change of Control" means or shall be deemed to have occurred if and when: (a) the acquisition, by whatever means (including without limitation, amalgamation, consolidation, liquidation, arrangement or merger), by a person (or two or more persons who in such acquisition have acted jointly or in concert or intend to exercise jointly or in concert any voting rights attaching to the securities acquired), directly or indirectly, of the beneficial ownership of such number of voting securities or rights to voting securities of the Company, which together with such person's then owned voting securities and rights to voting securities, if any, represent assuming the full exercise of such rights to voting securities) more than 20% of the combined voting power of the Company's then outstanding voting securities, together with the voting securities that would be outstanding on the full exercise of the rights to voting securities acquired and such person's previously owned rights to voting securities; provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, or (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company; or (b) individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the shareholders of the Company involving a contest for or on an item of business relating to the election of directors shall not constitute a majority of the Board of Directors following such election. (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 anyone 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 thereof and the unrestricted right to make such disclosure, or (iv) which is necessarily disclosed in the course of 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 of 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: J. P. Bryan 2121 Kirby, Suite 22S Houston, Texas 77019 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 breach or attempted breach, and further agrees to waive any requirement for 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 modification 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 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 been 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. BELLWETHER EXPLORATION COMPANY By: ___________________________________ Name: _________________________________ Title: ________________________________ EXECUTIVE: _____________________________________ J.P. Bryan EX-21.1 3 SUBSIDIARIES OF BELLWETHER BELLWETHER EXPLORATION COMPANY EXHIBIT 21.1 SUBSIDIARIES OF BELLWETHER EXPLORATION COMPANY
State (Country) of Incorporation ------------------- Snyder Gas Plant Venture Texas West Monroe Gas Gathering Corporation Louisiana NGL-Torch Gas Plant Venture Texas Black Hawk Oil Company Delaware Bellwether International, Inc. Delaware Bellwether Cayman, Inc. The Cayman Islands
EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 3-MOS DEC-31-1999 DEC-31-1999 JAN-01-1999 JUL-01-1999 SEP-30-1999 SEP-30-1999 2,234 2,234 0 0 18,865 18,865 0 0 0 0 22,509 22,509 339,975 339,975 (218,406) (218,406) 148,683 148,683 17,254 17,254 100,000 100,000 0 0 0 0 142 142 13,187 13,187 148,683 148,683 43,840 17,089 46,191 17,696 32,907 11,838 47,815 18,159 6,188 3,320 0 0 8,720 3,001 (1,624) (463) (465) (465) (1,159) 2 0 0 0 0 0 0 (1,159) 2 (0.08) 0 (0.08) 0
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