-----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, O3h3F1BQKbkATcccoJkA03rr8PUjRTt1Z6Hjyg/zD3CzW0KUTRNgoaM5feoP7HMH CX2vBIwjBDiwLJjlUwqCeQ== 0000932384-97-000184.txt : 19970813 0000932384-97-000184.hdr.sgml : 19970813 ACCESSION NUMBER: 0000932384-97-000184 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASIN EXPLORATION INC CENTRAL INDEX KEY: 0000827795 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 841143307 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20125 FILM NUMBER: 97656533 BUSINESS ADDRESS: STREET 1: 370 SEVENTEENTH ST STE 1800 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036858000 MAIL ADDRESS: STREET 2: 370 SEVENTEENTH STREET SUITE 1800 CITY: DENVER STATE: CO ZIP: 80202 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 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 0-20125 BASIN EXPLORATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 84-1143307 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 370 17TH STREET, SUITE 3400, DENVER, CO 80202 (Address of principal executive offices) (Zip Code) (303) 685-8000 (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 ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of Common stock, as of the latest practicable date. Outstanding at CLASS July 31, 1997 ------------------------------------ ----------------- Common stock, $.01 par value 10,779,000 shares BASIN EXPLORATION, INC. INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1997 and December 31,1996................................3 Consolidated Statements of Operations for the three months ended June 30, 1997 and 1996 and six months ended June 30, 1997 and 1996...........................5 Consolidated Statements of Changes in Stockholders' Equity for the period from January 1, 1996 through June 30, 1997.............................6 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996...........................7 Notes to Consolidated Financial Statements........................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...........15 Item 6. Exhibits and Reports on Form 8-K..............................15 SIGNATURES.................................................................18 EXHIBITS - Index to Exhibits.....................................................19 2 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 ASSETS (In thousands) June 30, December 31, 1997 1996 ---------- ----------- CURRENT ASSETS: Cash and equivalents $ 625 $ 22,023 Accounts receivable 7,250 5,108 Stockholder note receivable 559 559 Prepaids and other 3,426 2,203 ---------- ---------- 11,860 29,893 ---------- ---------- PROPERTY AND EQUIPMENT, at cost: Oil and gas properties, under the full cost method of accounting Proved 108,776 78,641 Unproved 14,747 9,822 Less accumulated depreciation, depletion and amortization (38,523) (36,581) --------- ---------- 85,000 51,882 Furniture and equipment, net 2,346 2,918 ---------- ---------- 87,346 54,800 ---------- ---------- OTHER ASSETS: 175 264 ---------- ---------- $ 99,381 $ 84,957 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share data) June 30, December 31, 1997 1996 ----------- ----------- CURRENT LIABILITIES: Accounts payable and accrued expenses $ 9,146 $ 7,469 Accrued ad valorem taxes 2,753 2,040 Income taxes payable 42 1,000 Current portion of long-term debt 147 206 ---------- --------- 12,088 10,715 ---------- --------- LONG-TERM DEBT, net of current portion 14,131 218 AD VALOREM TAXES AND OTHER 391 513 DEFERRED INCOME TAXES 4,458 4,760 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, par value $.01 per share; 10,000,000 shares authorized, no shares issued and outstanding - - Common stock, par value $.01 per share, 50,000,000 shares authorized, 10,757,000 shares issued 108 108 Additional paid-in capital 59,346 59,219 Retained earnings 8,995 9,556 Common stock held in treasury, at cost, 56,000 shares (136) (132) ---------- --------- 68,313 68,751 ---------- --------- $ 99,381 $ 84,957 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 4 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended June 30, June 30, (In thousands, except per share data) 1997 1996 1997 1996 ---- ---- ---- ---- REVENUE: Oil sales $ 1,828 $ 3,164 $ 3,983 $ 7,039 Gas sales 689 1,932 1,771 5,543 Gain on sale of assets - 22,472 - 22,472 Interest and other 49 112 224 202 -------- -------- -------- -------- 2,566 27,680 5,978 35,256 -------- -------- -------- -------- COSTS AND EXPENSES: Lease operating expenses 977 1,328 2,036 3,004 Production taxes 271 473 635 1,199 Depreciation, depletion and amortization 1,236 2,116 2,396 5,470 General and administrative, net 817 1,023 1,603 2,212 Interest expense 142 671 171 2,218 -------- -------- -------- -------- 3,443 5,611 6,841 14,103 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (877) 22,069 (863) 21,153 Income tax benefit (provision) 307 (5,694) 302 (5,694) -------- -------- -------- -------- NET INCOME (LOSS) $ (570) $16,375 $ (561) $15,459 ======== ======== ======== ======== EARNINGS (LOSS) PER SHARE $ (0.05) $ 1.53 $(0.05) $ 1.44 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING $10,701 $10,711 $10,701 $10,699 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH JUNE 30, 1997
ADDITIONAL RETAINED TOTAL COMMON STOCK PAID -IN TREASURY STOCK EARNINGS STOCKHOLDERS' (In Thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) EQUITY - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, January 1, 1996 10,724 $107 $59,288 (32) $(94) $(6,014) $53,287 Issuance and vesting of restricted stock and stock options 33 1 181 - - - 182 Purchase of treasury stock and options - - (250) (24) (38) - (288) Net income - - - - - 15,570 15,570 --------------------------------------------------------------------------------------------- BALANCES, December 31, 1996 10,757 108 59,219 (56) (132) 9,556 68,751 Issuance and vesting of restricted stock - - 127 - - - 127 Purchase of treasury stock - - - - 4 - (4) Net income (loss) - - - - - (561) (561) --------------------------------------------------------------------------------------------- BALANCES, June 30, 1997 $10,757 $108 $59,346 (56) $(136) $8,995 $68,313 =============================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 6 BASIN EXPLORATION, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) For the Six Months Ended June 30, 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (561) $ 15,459 Adjustments to reconcile net income (loss) to net cash provided by operating activities - Gain on sale of assets - (22,472) Depreciation, depletion and amortization 2,396 5,470 Deferred income tax provision (benefit) (302) 3,694 Stock compensation expense 127 65 Other, net (4) 115 Changes in operating assets and liabilities - Decrease (increase) in - Restricted cash - (36) Receivables (2,142) 2,893 Inventory and other (1,136) (593) (Decrease) increase in - Accounts payable and accrued expenses 746 (2,708) Ad valorem taxes and other 591 (2,150) Income taxes payable (958) 2,000 --------- --------- Net cash provided by (used in) operating activities (1,243) 1,737 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital additions (34,200) (10,107) Proceeds from sale of property and equipment 195 120,977 --------- --------- Net cash provided by (used in) investing activities (34,005) 110,870 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable and long-term debt 14,500 8,089 Principal payments on notes payable and long-term debt (646) (84,736) Purchase of treasury stock and options (4) (34) Issuance of common stock - 84 --------- --------- Net cash provided by (used in) financing activities 13,850 (76,597) --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS (21,398) 36,010 CASH AND EQUIVALENTS, beginning of period 22,023 1,613 --------- --------- CASH AND EQUIVALENTS, end of period $ 625 $ 37,623 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 56 $ 2,273 ========= ========= Cash paid for income taxes $ 958 $ - ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 7 BASIN EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the financial position of Basin Exploration, Inc. and its wholly-owned subsidiaries (collectively, "Basin" or the "Company") as of June 30, 1997 and the results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Management believes the disclosures made are adequate to ensure that the information is not misleading, and suggests that these financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 8 BASIN EXPLORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basin Exploration, Inc. ("Basin" or the "Company") is an independent energy company engaged in the acquisition, exploration and development of oil and gas properties and marketing of the related oil and gas production in the United States, including the Gulf of Mexico. Basin's revenue and results of operations are significantly affected by changes in oil and gas prices. Assuming level production, the Company's total revenue would generally be higher in the first and fourth quarters due to higher natural gas prices typically resulting from greater demand during colder months. The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto. RESULTS OF OPERATIONS REVENUE. Excluding a $22,472,000 gain on sale of assets recognized during 1996, revenue for the three and six months ended June 30, 1997, was $2,566,000 and $5,978,000, representing decreases of $2,642,000, or 51%, and $6,806,000, or 53%, respectively, as compared to the same periods in 1996. The following table reflects the Company's average oil and gas prices and its average daily oil and gas production for the periods presented:
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ---------------------------- 1997 1996 % Change 1997 1996 % Change ---- ---- -------- ---- ---- -------- Average price: Oil (per Bbl) $17.73 $20.84 (15) $19.09 $19.14 - Gas (per Mcf) $ 1.73 $ 1.32 31 $ 2.21 $ 1.41 57 Average daily production: Oil (Bbl) 1,133 1,668 (32) 1,153 2,021 (43) Gas (Mcf) 4,384 16,103 (73) 4,428 21,558 (79)
The decreases in average daily production were primarily attributable to sales of producing properties during 1996. The Company consummated two transactions during 1996 in which all of its assets in the D-J Basin were sold. As of December 31, 1995, these assets represented approximately two-thirds of the Company's producing wells and 70% of its proved oil and gas reserves. In conjunction with the second transaction, which closed in June 1996, a $22,472,000 gain was recognized. Excluding the production and sales from such D-J Basin properties, average oil and gas prices and average daily oil and gas production for the periods presented were: 9 BASIN EXPLORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended Six Months Ended June 30, June 30, --------------------------- ------------------------- 1997 1996 % CHANGE 1997 1996 % CHANGE ---- ---- -------- ---- ---- -------- Average price: Oil (per Bbl) $17.73 $21.07 (16) $19.09 $20.01 (5) Gas (per Mcf) $ 1.73 $ 1.06 63 $ 2.21 $ 1.17 89 Average daily production: Oil (Bbl) 1,133 1,181 (4) 1,153 1,182 (2) Gas (Mcf) 4,384 5,029 (13) 4,428 5,003 (11)
LEASE OPERATING EXPENSES. Lease operating expenses for the three and six months ended June 30, 1997, were $977,000 and $2,036,000, decreases of $351,000, or 26%, and $968,000, or 32%, respectively, compared to the same periods in 1996. Production costs per Mcfe produced during the three and six months ended June 30, 1997, were $0.96 and $0.99, compared to $0.56 and $0.49, respectively, in 1996. The higher costs per Mcfe were caused primarily by the increased portion of the Company's total active wells that are oil wells, with typically higher unit operating costs, following the sale of the D-J Basin assets. PRODUCTION TAXES. Production taxes for the three and six months ended June 30, 1997, were $271,000 and $635,000, decreases of $202,000, or 43%, and $564,000, or 47%, respectively, compared to the same periods in 1996. Production taxes as a percent of oil and gas sales for the three and six months ended June 30, 1997 were 10.8% and 11.0%, compared to 9.3% and 9.5%, respectively, in 1996. The increased average tax rates were due to a greater portion of sales occurring in higher-tax jurisdictions in 1997. DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and amortization expense for the three and six months ended June 30, 1997, was $1,236,000 and $2,396,000, decreases of $880,000, or 42%, and $3,074,000, or 56%, respectively, compared to the same periods in 1996. The decreases are attributable to lower production volumes in 1997 as compared to the same periods in 1996. The depletion rate of $0.95 per Mcfe produced in the six months ended June 30, 1997 compared to an $0.81 per Mcfe average depletion rate during the same 1996 period. The higher rate in 1997 was largely due to higher-cost Gulf of Mexico proved reserves acquired in the first quarter of 1997 which, although not yet producing, were incorporated into the computation of the depletion rate for the period. GENERAL AND ADMINISTRATIVE, NET. General and administrative expenses for the three and six months ended June 30, 1997 were $817,000 and $1,603,000, reflecting decreases of $206,000, or 20%, and $609,000, or 28%, respectively, compared to the same periods in 1996. The decreases resulted primarily from staff reductions made during the first half of 1996 and related reductions in office rent expense attributable to the Company's relocation to smaller space in the second half of 1996. INTEREST EXPENSE. Interest expense for the three and six months ended June 30, 1997 was $142,000 and $171,000, decreases of $529,000, or 79%, and $2,047,000, or 92%, respectively, compared to the same 10 BASIN EXPLORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS periods in 1996. The decreases were principally attributable to lower average borrowings as a result of asset sales consummated during 1996, as summarized below:
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Average borrowings (in millions) $ 7 $ 33 $ 4 $ 52 Average interest rate on borrowings 6.8% 8.1% 6.8% 8.5%
INCOME TAX BENEFIT (PROVISION). The income tax benefit for 1997 approximates the amount that would be calculated by applying statutory income tax rates to the loss before income taxes. The differences between the income tax provisions for the three and six months ended June 30, 1996, and the amounts which would be calculated by applying statutory income tax rates to income before income taxes are due primarily to reversal of a previously established $2,196,000 deferred tax asset valuation allowance. LIQUIDITY AND CAPITAL RESOURCES In February 1996, the Company entered into two agreements pursuant to which it sold all of its assets in the D-J Basin, effective January 1, 1996, for an aggregate adjusted sales price of $123.5 million. The sale of approximately one-third of these D-J Basin assets was closed in March 1996 and the sale of the remainder was closed in June 1996. Combined, these transactions resulted in the disposition of two-thirds of the Company's total wells and approximately 70% of its estimated proved oil and gas reserves as of December 31, 1995. A portion of the sales proceeds was used to repay all outstanding long-term debt and the remainder, net of transaction costs, was initially invested in short-term, interest-bearing cash equivalents pending redeployment into new oil and gas investments. The Company's remaining producing properties after the sale were primarily mature oil and gas fields in the Powder River Basin, Green River Basin, and elsewhere in the Rocky Mountain region. Since the beginning of 1996, the Company has been focusing its exploratory activities in the shallow waters of the Gulf of Mexico, and its acquisition and exploitation efforts in the Gulf Coast and Rocky Mountain areas. At the beginning of 1997, the Company had net working capital of approximately $19.2 million, including $22.0 million of cash equivalents, and had virtually no long-term debt. After investing approximately $34.1 million in oil and gas activities during the first six months of 1997, the Company ended the period with a long-term debt of approximately $14.1 million. The Company has a line of credit established with its bank group that provides for the interest rate on borrowings to be determined by reference to either the prime rate or LIBOR, at the Company's election. A varying spread of 0% to 0.5% is added to the prime rate, or 0.625% to 1.25% is applied to LIBOR, based upon the Company's debt-to-capitalization ratio at the time. The credit agreement provides for borrowings to be revolving loans until August 1, 1999, at which time the outstanding balance will be converted into a four-year amortizing term loan. The credit agreement contains various covenants, including ones that could limit the Company's ability to incur other debt, dispose of assets, pay dividends, or repurchase stock. The borrowing base under the revolving credit facility was increased from $25.0 million to $32.5 million in June 1997 and is 11 BASIN EXPLORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS scheduled to be redetermined as of November 1, 1997 and generally at six month intervals thereafter until converted into a term loan. Because this recent increase was based, in part, on Gulf of Mexico proved reserves that have not yet commenced production, the interest rate that will be applied prior to the next borrowing base redetermination will be 0.5% greater than would otherwise be applicable whenever borrowings under the line of credit exceed $25 million. As of June 30, 1997 there were $14.0 million of borrowings outstanding under the facility. The Company's capital expenditures are generally discretionary and activity levels are determined by a number of factors, including oil and gas prices, interest rates, availability of funds, quantity and character of identified investment projects, availability of service providers, and competition. The Company's capital budget for calendar 1997 is presently established at approximately $55 million, allocated as follows: approximately $15 million is provided for proved property acquisitions consummated in the first quarter; approximately $20 million is provided for acquisitions of prospect leaseholds, seismic data procurement, and exploratory drilling costs; approximately $15 million relates to anticipated development of the Company's existing property base; and approximately $5 million is provided for other activities, including current year development of assumed exploratory discoveries. Approximately $34.1 million was invested during the first six months of 1997. The remaining budget for the year of approximately $20.9 million is partially uncommitted and is dependent on future developments that are not entirely within the Company's control, such as drilling rig availability, drilling results, and activities conducted by other operators. Further, the Company intends to continue to pursue acquisitions of proved properties, which, while not budgeted, could be very significant. Therefore, the Company's actual capital expenditures may vary significantly from these budgeted amounts. The Company had no extraordinary capital expenditure commitments pending at June 30, 1997. The Company has been awarded all 11 tracts for which it participated in winning bids at the central Gulf of Mexico lease sale held on March 5, 1997 by the federal government's Minerals Management Service (MMS). The Company's net share of the related leasehold bonuses totaled approximately $5.7 million. Approximately $31.0 million of investments made during the first six months of 1997 related to operations in the Gulf of Mexico. Such amounts were incurred primarily for a $14.4 million acquisition of properties with proved and probable reserves, the continuation drilling and completion of an exploratory well commenced in 1996, the drilling and completion of a successful field delineation well, leasehold bonuses, fabrication of an offshore platform, and acquisitions of 3-D seismic data. The successful field discovery and delineation wells drilled in the first half of 1997 were located on Eugene Island (EI) Block 65. A production platform is scheduled to be installed on the EI 65 property in the third quarter of 1997 to commence production from two completed productive intervals in each of the two wells. Through the $14.4 million acquisition consummated in the first quarter of 1997, the Company increased its interest in EI 65 and acquired interests in East Cameron (EC) Block 378. A well on EC 378 was completed subsea in January 1997 and is waiting on pipeline installation to connect to a nearby third-party production platform. Production from EC 378 is expected to commence during the fourth quarter of 1997. Management believes that the remainder of the current-year budget, as described above, can be funded without new sources of capital by utilizing projected cash flow and borrowings under the Company's revolving credit facility. The Company's ability to fund investment activities in future periods may be significantly affected by 12 BASIN EXPLORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS the results obtained from investments made in 1997. Cash flow is projected to increase significantly during the latter part of the year when EI 65 and EC 378 are expected to be on-line. Forecasted combined initial production rates for the three wells on these two properties would result in more than a 200% increase in the Company's oil and gas production, in net equivalent units. However, these properties have not produced before and the projected on-line dates and production rates may not be achieved. Failure of these properties to perform as expected could impair the Company's borrowing capacity as well as its cash flow. If conditions warrant, the Company may consider raising additional capital through issuance of debt or equity securities. Should the Company undertake a large acquisition, issuing such securities or monetizing assets would likely be required to fund the transaction. Changes In Prices The Company's revenue, cash flow, and the value of its oil and gas properties have been, and will continue to be, affected by changes in oil and natural gas prices. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent on oil and natural gas prices. As such, changes in oil and gas prices can significantly affect the amount of the Company's capital expenditures. Oil and natural gas prices are subject to significant seasonal and other fluctuations that are beyond the Company's ability to control or predict. The Company periodically enters into derivatives transactions in order to hedge against the volatility of product prices. Although the Company enters into such agreements to limit exposure to price decreases, the agreements may also limit the Company's ability to benefit from significant price increases on the contract volumes. Effective July 1, 1996, the Company entered into a crude oil swap agreement with a contract volume of 10,000 barrels per month through December 31, 1997. This agreement provides for cash settlement of the differential between the $18.32 per barrel contract price and the average closing NYMEX crude oil price during each month. The Company has also entered into a crude oil collar arrangement effective for calendar 1997 on 10,000 barrels per month. This agreement provides for the cash settlement of the differential between the monthly average closing NYMEX price and the contract floor of $19.50 per barrel or the contract ceiling of $24.35 per barrel, if the average monthly NYMEX price falls outside of the range defined by such contract floor and contract ceiling. The Company has also entered into a natural gas collar arrangement for the seven-month period commencing October 1, 1997, for a contract volume of 450,000 MMBTU per month. Under this arrangement, the applicable NYMEX floor and ceiling prices on which settlements will be based vary by month, and average $2.094 and $2.536, respectively, over the contract term. In conjunction with entering into this collar, the Company acquired call options on an equivalent volume of natural gas for the contract period at varying strike prices $.29 above the respective contract ceilings provided for under the collar. Any gain or loss realized on these agreements is included as a component of sales in the month of production. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Statements that are not historical facts contained in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ from projected results. Such statements address activities, events or developments that the Company expects, believes, projects, intends or anticipates will or may occur, including such matters as future capital, development and exploration expenditures (including the amount and nature thereof), drilling of wells, future production of oil and gas, business strategies, cash flow and anticipated liquidity, prospect development and property acquisition, or marketing of oil and gas. Factors that could cause actual results to differ materially ("Cautionary Disclosures") are described, among other 13 BASIN EXPLORATION, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS places, in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Without limiting the Cautionary Disclosures so described, Cautionary Disclosures include, among others: general economic conditions, the market price of oil and natural gas, the risks associated with exploration, the Company's ability to find, acquire, market, develop and produce new properties, operating hazards attendant to the oil and natural gas business, downhole drilling and completion risks that are generally not recoverable from third parties or insurance, the Company's inexperience in the Gulf of Mexico, uncertainties in the estimation of proved reserves and in the projection of future rates of production and timing of development expenditures, potential mechanical failure of individually significant productive wells, the strength and financial resources of the Company's competitors, the Company's ability to find and retain skilled personnel, climatic conditions, labor relations, availability and cost of material and equipment, delays in anticipated start-up dates, environmental risks, the results of financing efforts, actions or inactions of third-party operators of the Company's properties, and regulatory developments. All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Disclosures. The Company disclaims any obligation to update or revise any forward-looking statement to reflect events or circumstances occurring hereafter or to reflect the occurrence of anticipated or unanticipated events. 14 BASIN EXPLORATION, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Proxies for the Company's annual meeting of shareholders held on April 28, 1997, were solicited pursuant to Regulation 14A during the quarter ended June 30, 1997. There was no solicitation in opposition to the nominees listed in the proxy statement and all such nominees were elected. The following is a summary of the matters voted upon at such meeting and the number of votes cast for, against and abstentions: NUMBER OF VOTES CAST FOR AGAINST ABSTAIN Election of Directors J. Paul Hellstrom 6,593,946 - 4,575 Howard L. Boigon 6,593,946 - 4,575 Ratify selection of Arthur Andersen LLP as auditors 6,590,973 4,200 3,348 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION OF EXHIBITS 2.1 -- Agreement and Plan of Merger between Sterling Energy Corporation, Basin Energy, Inc. and Basin Exploration, Inc. dated October 13, 1994/7/ 2.2 -- Plan of Merger between Basin Sterling, Inc. and Basin Exploration, Inc. dated November 22, 1994/8/ 2.3 -- Plan of Merger between Basin Operating Company and Basin Exploration, Inc. dated December 14, 1994/8/ 3.1 -- Restated Certificate of Incorporation of Basin./2/ 3.2 -- Restated Bylaws of Basin./2/ 4.1 -- Common Stock Certificate of Basin./2/ 10.1 -- Equity Incentive Plan as amended April 28, 1997./13/ 10.3 -- Key Employee Participation Plan./2/ 10.4 -- Employment Agreement dated March 31, 1992 by and between Basin and Michael S. Smith./3/ 10.5 -- Gulf Coast Geoscientist Overriding Royalty Interest Plan dated November 30, 1995./10/ 10.6 -- Form of Rights Agreement dated as of February 24, 1996, between Basin Exploration, Inc. and Corporate Stock Transfer, Inc. as Rights Agent./9/ 10.7 -- Performance Shares Plan approved February 4, 1997./12/ 10.8 -- Change of Control Employment Agreement dated October 13, 1995 between Basin Exploration, Inc. and Howard L. Boigon./10/ 10.9 -- Employment Agreement dated August 28, 1995 between Basin Exploration, Inc. and Samuel D. Winegrad./10/ 10.10 -- Employment Agreement dated June 28, 1995 between Basin Exploration, Inc. and Neil L. Stenbuck./10/ 10.11 -- Employment Agreement dated November 10, 1995 between Basin Exploration, Inc. and David A. Pustka./10/ 10.12 -- Employment Agreement dated February 23, 1996 between Basin Exploration, Inc. and Thomas J. Corley./12/ 10.13 -- Assignment and Assumption of Lease dated December 18, 1995 by and between Team, Inc., as original Tenant, Basin Exploration, Inc., as New Tenant, and FC Tower Property Partners, L.P., as Landlord./9/ 15 BASIN EXPLORATION, INC. AND SUBSIDIARIES 10.14 -- First Supplement to Amended Mortgage, Security Agreement, Assignment, Financing Statement and Fixture Filing dated May 8, 1995 by and between Basin Exploration, Inc. and Basin Gas Ltd. to NationsBank of Texas, N.A., as successor collateral agent for the benefit of Colorado National Bank, Union Bank and NationsBank of Texas, N.A./8/ 10.15 -- Second Supplement to Amended Mortgage, Security Agreement, Assignment, Financing Statement and Fixture Filing dated May 8, 1995 by and between Basin Exploration, Inc., and Basin Gas Ltd. to NationsBank of Texas, N.A. in its capacity as the successor collateral agent for the benefit of Colorado National Bank, Union Bank and NationsBank of Texas, N.A./10/ 10.16 -- Agreement for Purchase and Sale of Assets (Monetization) dated February 24, 1996 by and between Basin Exploration, Inc., HS Resources, Inc. and Orion Acquisition, Inc./7/ 10.17 -- Agreement for Purchase and Sale of Assets (Wattenberg), dated February 24, 1996 by and between Basin Exploration, Inc., HS Resources, Inc. and Orion Acquisition, Inc./7/ 10.18 -- Lease of Office Space dated September 25, 1992, between Brookfield Republic Inc. and Basin Operating Company, as amended/4/+/ 10.19 -- First Lease of Additional Office Space dated as of December 1, 1994, between Brookfield Republic, Inc. and Basin Operating Company./6/+/ 10.20 -- Amended and Restated Credit Agreement dated August 6, 1996 between the Company and Colorado National Bank, Union Bank of California, N.A. and NationsBank of Texas, N.A./11/ 10.21 -- Purchase and Sale Agreement dated February 13, 1997, between Hall-Houston Oil Company et al as Sellers and Basin Exploration, Inc. as Buyer./12/+/ 10.22 -- First Amendment of Amended and Restated Credit Agreement dated August 6, 1996 between the Company and Colorado National Bank, Union Bank of California, N.A. and NationsBank of Texas, N.A. dated June 11, 1997/1/ 21 -- Subsidiaries./12/ 27 -- Financial Data Schedule/1/ - -------------- 1 Filed herewith. 2 Filed as an Exhibit to Basin's Registration Statement on Form S-1 as filed on March 17, 1992, Registration No. 33-46486, and incorporated herein by reference. 3 Filed as an Exhibit to Amendment No. 1 to Basin's Registration Statement on Form S-1 as filed on April 21, 1992, Registration No. 33-46486, and incorporated herein by reference. 4 Filed as an Exhibit to Basin's Registration Statement on Form S-1 as filed on October 25, 1993, Registration No. 33-70802, and incorporated herein by reference. 5 Filed as an Exhibit to Form 8-K filed on December 10, 1994, and incorporated herein by reference. 6 Filed as an Exhibit to Form 10-K/A-1 filed on June 26, 1995 and incorporated herein by reference. 7 Filed as an Exhibit to Form 8-K filed on March 6, 1996, and incorporated herein by reference. 8 Filed as an Exhibit to Form 10-K filed on March 28, 1995, and incorporated herein by reference. 9 Filed as an Exhibit to Form 8-K filed on February 26, 1996, and incorporated herein by reference. 10 Filed as an Exhibit to Form 10-K filed on March 28, 1996, and incorporated herein by reference. 11 Filed as an Exhibit to Form 10-Q filed on August 14, 1996, and incorporated herein by reference. 12 Filed as an Exhibit to Form 10-K filed on March 31, 1997, and incorporated herein by reference. 16 BASIN EXPLORATION, INC. AND SUBSIDIARIES 13 Filed as an Exhibit to Form 10-Q filed on May 15, and incorporated herein by reference. + Confidential treatment has been granted for portions of these Exhibits. (b) Reports on Form 8-K None 17 BASIN EXPLORATION, INC. AND SUBSIDIARIES 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. BASIN EXPLORATION, INC. (Registrant) Date: August 12, 1997 By:/S/ NEIL L. STENBUCK ------------------------------------ Neil L. Stenbuck Chief Financial Officer Date: August 12, 1997 By:/S/ JAMES A. TUELL ------------------------------------ James A. Tuell Controller (Principal Accounting Officer) 18 BASIN EXPLORATION, INC. AND SUBSIDIARIES Index to Exhibits EXHIBIT NUMBERS EXHIBITS 10.22 First Amendment of Amended and Restated Credit Agreement dated August 6, 1996 between the Company and Colorado National Bank, Union Bank of California, N.A. and NationsBank of Texas, N.A. dated June 11, 1997 27 Financial data schedule 19 EX-10.22 2 AMENDED & RESTATED CREDIT AGREEMENT FIRST AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of June 11, 1997, is by and among BASIN EXPLORATION, INC., a Delaware corporation ("Borrower"), COLORADO NATIONAL BANK ("CNB"), UNION BANK OF CALIFORNIA, N.A. ("Union"), and NATIONSBANK OF TEXAS, N.A. ("NBT"), in its capacity as a Lender and as Agent for Lenders. CNB, Union and NBT are herein collectively referred to as "Lenders." RECITALS A. Borrower and Lenders entered into an Amended and Restated Credit Agreement dated as of August 6, 1996 (the "Credit Agreement'), in order to set forth the terms upon which Lenders would make loans to Borrower and issue letters of credit at the request of Borrower and by which such loans and letters of credit would be governed. Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit Agreement. B. The parties hereto wish to enter into this Amendment in order to amend certain terms and provisions of the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. CREDIT AGREEMENT. Effective as of the date of this Amendment, the Credit Agreement shall be, and hereby is, amended as follows: (a) The following new definitions shall be inserted in proper alphabetical order in Section 1.1 of the Credit Agreement: "REGULAR BORROWING BASE" means, at any time during the time period from June 12, 1997 to the date as of which the November 1, 1997 redetermination of the Borrowing Base becomes effective, $25,000,000, unless Borrower and Lenders hereafter mutually agree upon a different amount. "SUPPLEMENTAL BORROWING BASE" means, at any time during the time period from June 12, 1997 to the date as of which the November 1, 1997 redetermination of the Borrowing Base becomes effective, the excess of the Borrowing Base over the Regular Borrowing Base. (b) The definition of "Base Rate Spread" in Section 1.1 on page 1 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: "BASE RATE SPREAD" means: (a) for any and all calendar months that the Capitalization Ratio is greater than or equal to 50 percent, 0.25 percentage points per annum; and (b) for any and all calendar months that the Capitalization Ratio is less than 50 percent, 0.00 percentage points per annum; provided that, as to any time period during which the then-outstanding principal balance of the Loan plus the face amount of all Letters of Credit outstanding hereunder exceeds the Regular Borrowing Base, the amount set forth in clause (a) above shall be increased to 0.75 percentage points per annum and the amount set forth in clause (b) above shall be increased to 0.50 percentage points per annum. (c) The definition of "Borrowing Base" in Section 1.1 on page 3 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: "BORROWING BASE" means, at any time, the aggregate loan value of the Borrowing Base Properties, as determined by Lenders in accordance with the provisions of Section 3.2 below; provided that, for the time period from the date of this Agreement through June 11, 1997, the Borrowing Base shall be $25,000,000; provided further that, for the time period from June 12, 1997 to the date as of which the November 1, 1997 redetermination of the Borrowing Base becomes effective, the Borrowing Base shall be $32,500,000 unless Borrower and Lenders hereafter mutually agree upon a different amount or unless the Borrowing Base is redetermined pursuant to Section 3.2 below prior to such redetermination date. (d) The definition of "Fixed Rate Spread" in Section 1.1 on page 7 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: "FIXED RATE SPREAD" means: (a) for any and all calendar months that the Capitalization Ratio is greater than or equal to 50 percent, 1.25 percentage points per annum; (b) for any and all calendar months that the Capitalization Ratio is less than 50 percent but greater than or equal to 40 percent, 1.00 percentage point per annum; (c) for any 2 and all calendar months that the Capitalization Ratio is less than 40 percent but greater than or equal to 30 percent, 0.75 percentage point per annum; and (d) for any and all calendar months that the Capitalization Ratio is less than 30 percent, 0.625 percentage point per annum; provided that, as to any time period during which the then-outstanding principal balance of the Loan plus the face amount of all Letters of Credit outstanding hereunder exceeds the Regular Borrowing Base, the amount set forth in clause (a) above shall be increased to 1.75 percentage points per annum, the amount set forth in clause (b) above shall be increased to 1.50 percentage points per annum, the amount set forth in clause (c) above shall be increased to 1.25 percentage points per annum and the amount set forth in clause (d) above shall be increased to 1.125 percentage points per annum. (e) Section 3.6(a) on pages 22 and 23 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: Section 3.6. FEES. (a) Borrower shall pay to Agent, on behalf of Lenders (and Agent shall pay each Lender its respective Proportionate Share thereof on the Business Day that any such payment is deemed to be received from Borrower), within 30 days after the end of each three-month period ending on the last day of January, April, July or October during the Revolving Period, commencing with the three-month period ending October 31, 1996, a commitment fee, computed on a daily basis for such three-month period, in an amount equal to: (i) the Commitment Fee Rate, times (ii) the excess of the Commitment Amount over the sum of the outstanding principal balance of the Loan plus the face amount of all Letters of Credit outstanding hereunder; provided that, for the time period from June 12, 1997 to the date as of which the November 1, 1997 redetermination of the Borrowing Base becomes effective, such fee shall be calculated as follows: (1)(A) the Commitment Fee Rate, times (B) the excess of the Regular Borrowing Base over the sum of the outstanding principal balance of the Loan plus the face amount of all Letters of Credit outstanding hereunder; plus (2) (A) 0.625 percentage points per annum, times (B) the excess of the Commitment Amount over the greater of: (I) the sum of the outstanding principal balance of the Loan plus the face amount of all Letters of Credit outstanding hereunder; or (II) the Regular Borrowing Base. 3 (f) The next-to-last sentence of Section 5.1(m) on page 30 of the Credit Agreement shall be amended to read as follows: "Borrower has no subsidiaries other than Basin Offshore Oil & Gas, Inc., wholly-owned subsidiary." (g) In Borrower's address in Section 9.3 on page 53 of the Credit Agreement, "Suite 1800" shall be changed to "Suite 3400". (h) At the end of the paragraph numbered 4 on the Disclosure Schedule (Schedule 2 of the Credit Agreement), the following shall be inserted: "On or about August 31, 1996, a partial plan termination relating to accelerated vesting occurred with respect to Borrower's 401(k) plan." 2. LOAN DOCUMENTS. All references in any document to the Credit Agreement shall refer to the Credit Agreement, as amended and supplemented pursuant to this Amendment. 3. CONDITIONS PRECEDENT. The obligations of the parties under this Amendment are subject, at the option of Lenders, to the prior satisfaction of the condition that Borrower shall have executed and/or delivered, or caused to have been executed and/or delivered, to or for the benefit of Lenders, the following (all documents to be satisfactory in form and substance to Lenders): (a) This Amendment. (b) Such certificates of officers of Borrower as may be required by Lenders. (c) Any and all other Loan Documents required by Lenders. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby certifies to Lenders that as of the date of (and after giving effect to) this Amendment, except as heretofore disclosed to and waived by Lenders: (a) all of Borrower's representations and warranties contained in the Credit Agreement are true, accurate and complete in all material respects, and (b) no Default or Event of Default has occurred and is continuing under the Credit Agreement. 5. CONTINUATION OF THE CREDIT AGREEMENT. Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement, the terms of this Amendment shall control. Borrower hereby ratifies, confirms and adopts the Credit Agreement, as amended hereby. 4 6. EXPENSES. Borrower shall pay all reasonable expenses incurred in connection with the transactions contemplated by this Amendment, including without limitation all reasonable fees and reasonable expenses of Lenders' attorneys and all recording and filing fees, charges and expenses. 7. MISCELLANEOUS. This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Delivery of this Amendment and any and all documents to be delivered in connection herewith by any party may be effected, without limitation, by faxing a signed counterpart of this Amendment to NBT (any party that effects delivery in such manner hereby agreeing to transmit promptly to NBT an actual signed counterpart). EXECUTED as of the date first above written. BASIN EXPLORATION, INC. By: /s/ NEIL L. STENBUCK ---------------------------------------- Vice President/Chief Financial Officer COLORADO NATIONAL BANK By: /s/ KATHRYN A. GAITER ---------------------------------------- Vice President NATIONSBANK OF TEXAS, N.A., in its capacity as a Lender and as Agent for Lenders By: /s/ DAVID A. RUBENKING ---------------------------------------- Senior Vice President UNION BANK OF CALIFORNIA, N.A. By /s/ RANDALL L. OSTERBERG ----------------------------------------- Vice President By /s/ MICHAEL E. TREGONING ----------------------------------------- Senior Vice President 5 EX-27 3 FDS DATA SCHEDULE 6/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 625 0 7,809 0 236 11,860 129,391 (42,044) 99,381 12,088 14,131 0 0 108 68,205 99,381 5,754 5,978 2,671 6,670 0 0 171 (863) (302) (561) 0 0 0 (561) (.05) (.05)
-----END PRIVACY-ENHANCED MESSAGE-----