-----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, KWZqOzE5988u+Mjmw5rvNyy0m3ccE0scZsQXXLxhJg9/qDlIZPywJJDbni5SpYKz 6kQJsME4O6qILxA8UuJUKQ== 0000927356-99-001744.txt : 19991115 0000927356-99-001744.hdr.sgml : 19991115 ACCESSION NUMBER: 0000927356-99-001744 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARRETT RESOURCES CORP CENTRAL INDEX KEY: 0000351993 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840832476 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13446 FILM NUMBER: 99746829 BUSINESS ADDRESS: STREET 1: 1515 ARAPAHOE ST STREET 2: TOWER 3 STE 1000 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032973900 MAIL ADDRESS: STREET 1: 1515 ARAPAHOE ST STREET 2: TOWER 3 STE 1000 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: AIMEXCO INC DATE OF NAME CHANGE: 19840215 10-Q 1 FORM 10Q FOR BARRETT RESOURCES CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 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 1-13446 BARRETT RESOURCES CORPORATION (Exact name of registrant as specified in its charter) Delaware 84-0832476 (State or other jurisdiction of (I.R.S. Employer) Incorporation or organization) Identification No.) 1515 Arapahoe Street, Tower 3, Suite 1000 Denver, Colorado 80202 (Address of principal executive (Zip Code) offices) (303) 572-3900 (Registrant's telephone number, including area code) 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 [_] There were 32,579,326 shares of the registrant's $.01 par value common stock outstanding as of November 9, 1999. BARRETT RESOURCES CORPORATION ----------------------------- INDEX ----- PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Condensed Balance Sheets - September 30, 1999 and December 31, 1998.................. 3 Consolidated Condensed Statements of Income - Three Months Ended September 30, 1999 and 1998............................... 4 Consolidated Condensed Statements of Income - Nine Months Ended September 30, 1999 and 1998............................... 5 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998........................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................................ 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......................... 15 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- BARRETT RESOURCES CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
Sept. 30, 1999 Dec.31, 1998 -------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 14,604 $ 14,339 Receivables, net 148,220 127,798 Inventory 21,274 8,968 Other current assets 5,963 2,053 -------------- ------------ Total current assets 190,061 153,158 Property and equipment, net 670,384 682,168 Other assets, net 3,227 3,553 -------------- ------------ $ 863,672 $ 838,879 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 119,126 $ 104,799 Amounts payable to oil and gas property owners 24,346 16,020 Production taxes payable 22,301 20,400 Accrued and other liabilities 10,617 17,047 -------------- ------------ Total current liabilities 176,390 158,266 Long-term debt 305,920 334,067 Deferred income taxes 22,678 13,294 Stockholders' equity: Preferred stock, $.001 par value: 1,000,000 shares authorized, none outstanding -- -- Common stock, $.01 par value: 45,000,000 shares authorized; 32,602,013 issued (32,002,304 at December 31, 1998) 326 320 Additional paid-in capital 271,902 261,998 Retained earnings 87,082 70,934 Treasury stock, at cost (626) -- -------------- ------------ Total stockholders' equity 358,684 333,252 -------------- ------------ $ 863,672 $ 838,879 ============== ============
See accompanying notes. 3 BARRETT RESOURCES CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)
Three Months Ended ----------------------------------------- Sept. 30, 1999 Sept. 30, 1998 ------------------ ----------------- Revenues: Oil and gas production $ 57,670 $ 47,745 Trading revenues 219,869 98,582 Interest income 151 156 Other income 1,236 258 ------------------ ----------------- 278,926 146,741 Operating expenses: Lease operating expenses 16,517 13,219 Cost of trading 220,091 94,460 Depreciation, depletion and amortization 24,106 25,502 General and administrative 5,816 5,066 Interest expense 5,419 5,255 Other 1 252 ------------------ ----------------- 271,950 143,754 ------------------ ----------------- Income for the period before income taxes 6,976 2,987 Provision for income taxes 2,652 1,135 ------------------ ----------------- Net income for the period $ 4,324 $ 1,852 ================== ================= Earnings per common share Basic $ 0.13 $ 0.06 ================== ================= Assuming dilution $ 0.13 $ 0.06 ================== =================
See accompanying notes. 4 BARRETT RESOURCES CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)
Nine Months Ended ----------------------------------------- Sept. 30, 1999 Sept. 30, 1998 ------------------ ----------------- Revenues: Oil and gas production $ 153,718 $ 154,877 Trading revenues 568,337 249,700 Interest income 609 511 Other income 3,723 5,304 ------------------ ----------------- 726,387 410,392 Operating expenses: Lease operating expenses 44,168 41,756 Cost of trading 550,489 240,236 Depreciation, depletion and amortization 71,572 74,738 General and administrative 17,936 19,354 Interest expense 16,000 14,672 Other 158 2,412 ------------------ ----------------- 700,323 393,168 ------------------ ----------------- Income for the period before income taxes 26,064 17,224 Provision for income taxes 9,916 6,545 ------------------ ----------------- Net income for the period $ 16,148 $ 10,679 ================== ================= Earnings per common share Basic $ 0.50 $ 0.34 ================== ================= Assuming dilution $ 0.49 $ 0.33 ================== =================
See accompanying notes. 5 BARRETT RESOURCES CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Nine Months Ended ---------------------------------------- Sept. 30, 1999 Sept. 30, 1998 ------------------- ------------------ Cash flows from operations: Net income $ 16,148 $ 10,679 Adjustments needed to reconcile to net cash provided by operations: Depreciation, depletion and amortization 71,898 75,061 Deferred income taxes 9,384 6,284 Other (576) (1,392) ------------------- ------------------ 96,854 90,632 Change in current assets and liabilities: Accounts receivable (20,422) 13,895 Other current assets (16,031) (11,646) Accounts payable 14,327 14,878 Amounts due oil and gas owners 8,326 (11,442) Production taxes payable 1,901 3,519 Accrued and other liabilities (4,966) (8,661) ------------------- ------------------ Net cash flow provided by operations 79,989 91,175 ------------------- ------------------ Cash flows from investing activities: Proceeds from sale of oil and gas properties 12,550 4,021 Acquisition of property and equipment (72,523) (156,333) ------------------- ------------------ Net cash flow used in investing activities (59,973) (152,312) ------------------- ------------------ Cash flows from financing activities: Borrowings under line of credit 35,000 91,000 Proceeds from issuance of common stock 9,285 3,999 Payments under line of credit (60,000) (36,000) Payments on other long-term debt (4,035) (612) Treasury stock purchased (1) -- Other -- (151) ------------------- ------------------ Net cash flow provided by (used in) financing activities (19,751) 58,236 ------------------- ------------------ Increase (decrease) in cash and cash equivalents 265 (2,901) Cash and cash equivalents at beginning of period 14,339 14,479 ------------------- ------------------ Cash and cash equivalents at end of period $ 14,604 $ 11,578 =================== ================== Non-cash investing and financing activities: Issuance of common stock for property acquisition -- $ 9,116 Common Stock/treasury share options exercised $ 627 $ 60
See accompanying notes. 6 BARRETT RESOURCES CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 30, 1999 1. UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position of Barrett Resources Corporation and its subsidiaries, collectively referred to as the "Company", as of September 30, 1999 and the results of operations and cash flows for the periods presented. All of the Company's subsidiaries are wholly owned. All such adjustments are of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results for the full year. The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in Form 10-K for the year ended December 31, 1998. These financial statements should be read in conjunction with the financial statements and notes included in the Form 10-K. 2. INCOME TAXES Provisions for income taxes were calculated in accordance with Statement of Financial Accounting Standards No. 109 which provides that a deferred tax liability or asset be determined based on the timing differences between the basis used for financial versus tax reporting of assets and liabilities as measured by the effective tax rates. For the quarter ended September 30, 1999, the Company used an estimated effective tax rate of 38 percent. In July 1999, Plains Petroleum Company ("Plains"), a wholly owned subsidiary of the Company, received a favorable ruling from the United States Tax Court in a case stemming from an Internal Revenue Service ("IRS") examination of Plains' federal tax returns filed for the years 1991 through 1993. As a result of its examination, the IRS in 1996 had issued a "Notice of Deficiency" of $5.3 million with penalties and an undetermined amount of interest. The deficiency resulted primarily from the IRS's disallowance of certain net operating loss deductions claimed during the periods under examination. The IRS has until January 25, 2000 to appeal the ruling from the United States Tax Court. The IRS has also examined the federal tax returns of the Company for the periods ended July 1995, December 1995 and December 1996. The IRS issued a letter proposing changes to tax for those periods totaling $5.7 million. The proposed tax changes resulted primarily from the disallowance of net operating loss and merger related deductions claimed for the periods ended December 1995 and 1996. The net operating losses relate to the same net operating loss carry forwards involved in the Plains tax returns for years 1991 through 1993. 3. LONG-TERM DEBT The Company's long-term debt consists of the following (in thousands): 7 September 30, December 31, 1999 1998 ------------- ------------- Line of Credit $ 150,000 $ 175,000 7.55% Senior Notes 150,000 150,000 Production Payments 10,364 14,399 ------------- ------------- Total 310,364 339,399 Less: current portion 4,444 5,332 ------------- ------------- Long-term debt $ 305,920 $ 334,067 ============= ============= As of September 30, 1999 the Company's effective interest rate, on an outstanding balance of $150 million on its line of credit, was 5.71% per annum. Total interest expense paid for the nine months ended September 30, 1999 was $18.8 million compared to $16.8 million for the nine months ended September 30, 1998. 4. EARNINGS PER SHARE The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock.
Three Months Ended Sept. 30, Sept. 30, (in thousands) 1999 1998 ----------- ----------- Income available to common stockholders $ 4,324 $ 1,852 =========== =========== Weighted average number of common shares used in basic EPS 32,431 31,890 Effect of dilutive securities: Stock options 778 234 Written put option 56 150 ----------- ----------- Weighted number of common shares and dilutive potential common stock used in EPS - assuming dilution 33,265 32,274 =========== =========== Nine Months Ended Sept. 30, Sept. 30, (in thousands) 1999 1998 ----------- ----------- Income available to common stockholders $ 16,148 $ 10,679 =========== =========== Weighted average number of common shares used in basic EPS 32,212 31,693 Effect of dilutive securities: Stock options 357 353 Written put option 118 150 ----------- ----------- Weighted number of common shares and dilutive potential common stock used in EPS - assuming dilution 32,687 32,196 =========== ===========
8 On August 3, 1999, the holder of the written put option elected to exercise such option and, accordingly, the Company issued 150,000 shares of its common stock. In conjunction with the exercise of this option, the Company received the holders' one percent interest in a subsidiary of the Company. In addition, with the exercise of the put option, the Company's written call option, as described in the financial statements and notes of the Company's Form 10-K, was terminated. 5. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". FASB Statement No. 133 ("SFAS 133") establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. It also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. FASB Statement No. 133 is effective for fiscal years beginning after June 15, 2000, as amended in SFAS 137, and cannot be applied retroactively. The Company has not yet quantified the impacts of adopting SFAS 133 on its financial statements and has not determined the timing of or method of adoption of SFAS 133. However, SFAS 133 could increase volatility in earnings and other comprehensive income. 6. BUSINESS SEGMENT INFORMATION The Company operates principally in two business segments: natural gas trading and oil and gas exploration, development and production. In addition to marketing its own gas, the Company engages in natural gas trading activities, which involves purchasing natural gas from third parties and selling natural gas to other parties at prices and volumes that management anticipates will result in profits to the Company. The Company evaluates segment performance based on the profit or loss from operations before income taxes. Corporate general and administrative expenses are unallocated except for certain direct costs associated with the Company's trading activity. Consolidated and segment financial information is as follows:
Quarter ended Sept. 30, 1999 Natural - --------------------------- Gas Oil & Gas Segment Corporation (in thousands) Trading E&P Total & Unallocated Consolidated --------------- - -------------------------------------------------------------------------------------------------------- Revenues $219,869 $57,742 $277,611 $ 1,164 $278,775 Interest Income 0 0 0 151 151 -------------------------------------------------------------------------- Total Revenues 219,869 57,742 277,611 1,315 278,926 DD&A 0 22,997 22,997 1,109 24,106 Profit (loss) (222) 18,228 18,006 (11,030) 6,976 Expenditures for assets 0 19,465 19,465 774 20,239
9
Quarter ended Sept. 30, 1998 Natural - ---------------------------- Gas Oil & Gas Segment Corporation (in thousands) Trading E&P Total & Unallocated Consolidated --------------- - ---------------------------------------------------------------------------------------------------- Revenues $ 98,582 $ 46,800 $145,382 $1,203 $146,585 Interest Income 0 0 0 156 156 ---------------------------------------------------------------------- Total Revenues 98,582 46,800 145,382 1,359 146,741 DD&A 0 24,444 24,444 1,058 25,502 Profit (loss) 4,122 9,136 13,258 (10,271) 2,987 Expenditures for assets 0 56,366 56,366 378 56,744 Nine Months ended Natural - ----------------- Gas Oil & Gas Segment Corporation Sept. 30, 1999 Trading E&P Total & Unallocated Consolidated -------------- (in thousands) -------------- - ---------------------------------------------------------------------------------------------------- Revenues $568,337 $153,876 $722,213 $3,565 $725,778 Interest Income 0 0 0 609 609 ---------------------------------------------------------------------- Total Revenues 568,337 153,876 722,213 4,174 726,387 DD&A 0 68,282 68,282 3,290 71,572 Profit (loss) 17,848 41,426 59,274 (33,210) 26,064 Expenditures for assets 0 58,499 58,499 1,474 59,973 Nine Months ended Natural - ----------------- Gas Oil & Gas Segment Corporation Sept. 30, 1998 Trading E&P Total & Unallocated Consolidated -------------- (in thousands) -------------- - ---------------------------------------------------------------------------------------------------- Revenues $249,700 $156,006 $405,706 $4,175 $409,881 Interest Income 0 0 0 511 511 ---------------------------------------------------------------------- Total Revenues 249,700 156,006 405,706 4,686 410,392 DD&A 0 71,619 71,619 3,119 74,738 Profit (loss) 9,464 42,631 52,095 (34,871) 17,224 Expenditures for assets 0 158,926 158,926 2,501 161,427
10 BARRETT RESOURCES CORPORATION For the Quarter Ended and Nine Months Ended September 30, 1999 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Liquidity and Capital Resources - ------------------------------- For the nine months ended September 30, 1999, total assets increased $24.8 million, or 3 percent, to $863.7 million as compared with total assets of $838.9 million at December 31, 1998. Cash and cash equivalents increased $0.3 million to $14.6 million, working capital increased $18.8 million to $13.7 million, and net property and equipment decreased $11.8 million to $670.4 million. Operating cash flows before working capital adjustments totaled $30.9 million in the third quarter of 1999 compared with $28.2 million in the third quarter of 1998. After working capital adjustments, cash flow provided by operations decreased by $11.4 million to $9.7 million as compared with the same period in 1998. Capital expenditures of $29.1 million for the quarter represent a decrease of $19.1 million from the same period in 1998. These expenditures, funded by operating cash flows, consisted principally of drilling and development activities and acquisitions of oil and gas properties. Of these capital expenditures, approximately 89 percent was invested in the Rocky Mountain Region, principally in the Piceance, Powder River and Wind River Basins, and 6 percent in the Mid-Continent Region. The Company recently increased the 1999 capital expenditures budget from $111 million to $130 million. The 1998 capital expenditures budget was $206 million. In an effort to maintain debt levels, management continues to be sensitive to fluctuations in product prices and will reassess the capital expenditure levels relative to such fluctuations and the Company's cash flows. On October 29, 1999, the Company sold certain gas properties principally located in the Texas and Oklahoma panhandles, effective September 1, 1999, for $8.2 million. These properties represented less than two percent of the Company's proved reserves and production. On November 1, 1999, the Company sold its interests in certain non-producing oil and gas leases in the Gulf of Mexico for $7.0 million. The Company plans to continue actively acquiring, exploring and developing oil and gas properties. The Company expects cash flow from its producing properties and its borrowing capacity to be sufficient to fund its anticipated capital and operating requirements, including any contingencies. Information regarding the Company's Year 2000 readiness is contained in the Company's annual report on Form 10-K for the year ended December 31, 1998 and reference is made to the information contained there. There has been no material change in the status of the Company's Year 2000 readiness program. As of July 1999, the Company verified that all IT hardware systems, including network and embedded systems, are Year 2000 compliant. All software systems utilized by the Company are Year 2000 compliant with the exception of one program used to access an outside database. The vendor providing this program is continuing to perform Beta tests on its updated software. The Company's costs associated with completing its Year 2000- readiness program are not expected to exceed $250,000. Costs incurred to date are nominal and are included in normal operating expense. 11 The Company's operating results are directly affected by oil and gas prices. Oil and gas prices also affect the reserve values used in determining the "ceiling test" limitation for the Company's capitalized oil and gas property costs accounted for under the full cost method. Should the net capitalized costs of the Company's oil and gas properties exceed the estimated present value of future net cash flows from proved oil and gas reserves, such excess costs would be recognized as an impairment and charged to current expense. A decline in oil and gas sales prices could possibly result in the recognition of an impairment expense in future periods. Results of Operations - --------------------- Net income for the quarters ended September 30, 1999 and 1998 was $4.3 million ($.13 per share, assuming dilution) and $1.9 million ($.06 per share, assuming dilution), respectively. This increase is primarily due to higher average prices for oil and gas. Total revenues for the quarter were $278.9 million, up 90 percent compared to $146.7 million for the same period in 1998. This increase is principally attributed to a $121.3 million increase in trading revenues. Production revenue for the third quarter of 1999 increased from $47.7 million to $57.7 million. Production revenues and related volumes and average prices during the periods presented were as follows:
Quarter Ended Nine Months Ended September 30, September 30, ---------------- ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Gas Revenues (000's) $52,293 $42,538 $139,742 $135,691 Gas Production (Bcf) 24.3 23.0 71.2 70.5 Average Price per Mcf $ 2.15 $ 1.85 $ 1.96 $ 1.92 Oil Revenues (000's) $ 5,377 $ 5,207 $ 13,976 $ 19,186 Oil Production (MBbls) 358 492 1,125 1,619 Average Price per Barrel $ 15.02 $ 10.58 $ 12.42 $ 11.85
(Note: Bcf = billion cubic feet; Mcf = thousand cubic feet; MBbls = thousand barrels.) Third quarter gas revenues increased 23 percent as compared with the same period in 1998, principally due to a 16 percent increase in average prices and a 6 percent increase in production volumes. The 3 percent increase in third quarter 1999 oil revenues from the same period in 1998 is attributed to a 42 percent increase in average oil prices partially offset by a 27 percent decrease in production volumes. The decline in oil production is primarily due to the selling of various Gulf of Mexico wells and lower capital spending on oil projects in the first nine months of 1999. For the quarter ended September 30, 1999, revenues from trading were $219.9 million compared to $98.6 million for the same period in 1998. The associated costs of trading increased to $220.1 million from $94.5 million. Gross profit from trading was a negative $0.2 million for the quarter ended September 30, 1999 compared to $4.1 million for the quarter ended September 30, 1998. To reduce its exposure to volatile oil and gas price fluctuations, the Company enters into hedging arrangements for both trading and producing activities. During the third quarter ended September 30, 1999, the 12 Company recognized net production hedging losses of approximately $1.5 million for oil and $4.6 million for gas. These hedging losses were recorded in the consolidated statements of income as adjustments to oil and gas production revenue. The Company realized net hedging income on its trading activities of approximately $2.3 million during the third quarter. Depreciation, depletion and amortization decreased in 1999 to $24.1 million from $25.5 million in 1998 due to a decrease in the depletion rate from $.94 to $.87 per Mcfe. Interest expense for the third quarter increased from $5.3 million in 1998 to $5.4 million in 1999. The Company's largest sources of operating income are from trading activities and oil and gas production. The levels of the Company's revenues and earnings from gas and oil production and trading activities are affected by prices at which natural gas and oil are being sold. This is particularly true with respect to natural gas, which accounted for approximately 91 percent of the Company's production revenue and all of its trading activities for the third quarter of 1999. As a result, the Company's operating results for any prior period are not necessarily indicative of future operating results because of the fluctuations in gas and oil prices and the lack of predictability of those fluctuations as well as changes in production levels. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Commodity Price Risk -------------------- The Company uses commodity derivative financial instruments, including futures and swaps, to reduce the effect of natural gas price volatility on a portion of its natural gas and crude oil production. Natural gas commodity swap agreements are generally used to fix a price at the natural gas market location or to fix a price differential between the price of natural gas at Henry Hub and the price of gas at its market location. Settlements are based on the difference between a fixed and a variable price as specified in the agreement. The following table summarizes the Company's derivative financial instrument position on its natural gas and crude oil production as of September 30, 1999. The fair value of these instruments reflects the estimated amounts that the Company would receive or pay to settle the contracts as of September 30, 1999. Actual settlement of these instruments as they mature will differ from these estimates. Gains or losses realized from these instruments hedging the Company's production are expected to be offset by corresponding changes in the sales value of the Company's natural gas and crude oil production. Natural Gas ---------------------------------------------------------------------- For the period | MMBtu |Price Range Per | Fair Value | | MMBtu | ---------------------------------------------------------------------- 9/1999 - 2/2003 | 77.1 million | $1.72 - $2.03 | $(42.9) million ---------------------------------------------------------------------- Crude Oil ---------------------------------------------------------------------- For the period | Barrels |Price Range Per | Fair Value | | Barrel | ---------------------------------------------------------------------- 9/1999 - 12/1999 | 0.6 million | $15.00 | $(2.1) million ---------------------------------------------------------------------- The Company also uses commodity derivative financial instruments in its trading activities to hedge price fluctuations, to hedge the value of stored gas and to lock in margins on its trading positions. The following table summarizes the Company's derivative financial instrument position on its natural gas and crude oil trading activities as of September 30, 1999. The fair value of these instruments reflects the estimated amounts that the Company would receive or pay to settle the 13 contracts as of September 30, 1999. Actual settlement of these instruments as they mature will differ from these estimates. Gains or losses realized from these instruments hedging the Company's trading activities are expected to be offset by corresponding changes in the settlement value of actual natural gas and crude oil traded. Natural Gas ------------------------------------------------------------------- For the period | MMBtU | Price Range Per | Fair Value | | MMBtu | ------------------------------------------------------------------- 9/1999 - 12/2004 | 578 million | $1.53 - $3.22 | $24.1 million ------------------------------------------------------------------- Crude Oil ------------------------------------------------------------------- For the period | Barrels | Price Range Per | Fair Value | | Barrel | ------------------------------------------------------------------- 9/1999 - 10/2000 | 2.7 million | $13.98 - $22.20| $ 0.4 million ------------------------------------------------------------------- Interest Rate Risk - ------------------ The Company's use of fixed and variable rate long-term debt to partially finance capital expenditures exposes the Company to market risk related changes in interest rates. As of September 30, 1999, there have been no material changes in the Company's interest rate risk exposure, from that disclosed in the 1998 Form 10-K. _______________________________________________________________________ This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in the forward-looking statements and the assumptions upon which such forward-looking statements are based are reasonable, it can give no assurance that such expectations and assumptions will prove to have been correct. See the Company's Annual Report on Form 10-K for additional statements concerning important factors that could cause actual results to differ materially from the Company's expectations. 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following Exhibit is filed as part of this Quarterly Report on Form 10-Q: 27.1 Financial Data Schedule (b) During the quarter ended September 30, 1999, the Registrant filed one report on Form 8-K reporting an event occurring on August 20, 1999. 15 SIGNATURES ------------ Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BARRETT RESOURCES CORPORATION November 12, 1999 By /s/ A. Ralph Reed --------------------------------- A. Ralph Reed President and Chief Operating Officer November 12, 1999 By /s/ J. Frank Keller --------------------------------- J. Frank Keller Chief Financial Officer 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JUL-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 0 14,604 0 0 0 148,591 0 371 0 21,274 0 190,061 0 1,277,009 0 606,625 0 863,672 0 176,390 0 305,920 0 0 0 0 0 326 0 358,358 0 863,672 277,539 722,055 278,926 726,387 260,714 666,229 260,714 666,229 5,817 18,094 0 0 5,419 16,000 6,976 26,064 2,652 9,916 4,324 16,148 0 0 0 0 0 0 4,324 16,148 .13 .50 .13 .49
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