10QSB 1 d10qsb.txt FORM 10-QSB FOR QUARTER ENDED 06/30/2001 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______ to _______ Commission File No. 001-14745 3TEC ENERGY CORPORATION (Exact name of small business issuer as specified in its charter) DELAWARE 63-1081013 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 777 WALKER STREET TWO SHELL PLAZA, SUITE 2400 HOUSTON, TX 77002 (Address of principal executive offices) (713) 821-7100 (Issuer's telephone number) N/A (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of Exchange Act 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 [ ] Number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Common stock, $0.02 par value 14,744,534 shares as of July 20, 2001 Transitional Small Business Disclosure Format (check one) Yes [ ] No [X] 3TEC ENERGY CORPORATION AND SUBSIDIARIES INDEX
PAGE NO. ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets- June 30, 2001 (Unaudited) and December 31, 2000 (Audited)........ 1 Consolidated Statements of Operations (Unaudited)- Three and six months ended June 30, 2001 and 2000................ 2 Consolidated Statements of Cash Flows (Unaudited)- Six months ended June 30, 2001 and 2000.......................... 3 Notes to Consolidated Financial Statements (Unaudited)............. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8 PART II. OTHER INFORMATION Item 2. Changes in Securities.............................................. 11 Item 4. Submission of Matters to a Vote of Security Holders................ 12 Item 6. Exhibits and Reports on Form 8-K................................... 14
PART I. CONSOLIDATED FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS 3TEC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2001 2000 ------------ ------------ ASSETS (UNAUDITED) (AUDITED) CURRENT ASSETS Cash and cash equivalents.......................... $ 8,818,556 $ 4,436,497 Accounts receivable................................ 23,624,743 26,137,738 Other current assets............................... 2,601,471 5,389,848 ------------ ------------ Total current assets........................... 35,044,770 35,964,083 PROPERTY (AT COST) Oil and gas-successful efforts method.............. 385,531,818 270,277,796 Other.............................................. 2,471,677 2,030,310 ------------ ------------ 388,003,495 272,308,106 Accumulated depreciation, depletion and amortization. (67,969,210) (56,170,333) ------------ ------------ Net Properties and Equipment......................... 320,034,285 216,137,773 ------------ ------------ OTHER ASSETS......................................... 3,045,430 2,662,201 ------------ ------------ TOTAL ASSETS......................................... $358,124,485 $254,764,057 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable................................... $ 13,655,868 $ 10,746,140 Accrued liabilities................................ 998,686 2,191,826 Series C Preferred stock redemption payable........ 2,709,057 2,855,521 Income taxes payable............................... 5,197,728 4,461,928 Other current liabilities.......................... 1,110,215 467,152 ------------ ------------ Total current liabilities............................ 23,671,554 20,722,567 ------------ ------------ LONG-TERM DEBT....................................... 89,000,000 63,000,000 SENIOR SUBORDINATED CONVERTIBLE NOTES................ 13,073,844 13,223,844 DEFERRED INCOME TAXES................................ 47,839,245 6,770,981 OTHER LIABILITIES.................................... - 58,424 MINORITY INTEREST.................................... 1,694,212 1,393,578 STOCKHOLDERS' EQUITY Preferred stock, $0.02 par, 20,000,000 shares authorized, 266,667 designated Series B, 2,300,000 shares designated Series C and 725,167 shares designated Series D, none other designated......... -- -- Convertible preferred stock Series B, $7.50 stated value, 266,667 shares issued and outstanding, $2,000,000 aggregate liquidation preference......... 3,627,000 3,627,000 Convertible preferred stock Series D, $24.00 stated value, 621,372 and 621,930 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively. $14,912,928 aggregate liquidation preference.......................................... 7,564,812 7,571,553 Common stock, $.02 par value, 60,000,000 shares authorized, 14,744,534 and 14,687,906 shares issued at June 30, 2001 and December 31, 2000, respectively........................................ 294,890 293,758 Additional paid-in capital......................... 136,786,314 136,382,775 Retained earnings.................................. 35,621,454 2,768,417 Treasury stock; 69,807 shares at June 30, 2001 and December 31, 2000, respectively............... (1,048,840) (1,048,840) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY........................... 182,845,630 149,594,663 ------------ ------------ COMMITMENTS AND CONTINGENCIES........................ - - ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $358,124,485 $254,764,057 ============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1 3TEC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------------- -------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) 2001 2000 2001 2000 ----------- ----------- ----------- ----------- REVENUES Oil, natural gas and plant income............ $36,750,273 $21,968,372 $85,614,104 $39,260,395 Gain on sale of properties................... 6,748,666 17,788 6,835,876 26,681 Other........................................ 327,326 144,160 452,435 452,442 ----------- ----------- ----------- ----------- TOTAL REVENUES................................. 43,826,265 22,130,320 92,902,415 39,739,518 ----------- ----------- ----------- ----------- EXPENSES Production Lease Operations........................... 4,786,100 4,338,127 9,142,913 7,822,023 Production, severance and ad valorem tax... 2,343,334 1,409,467 5,519,495 2,818,933 Gathering, transportation and other........ 1,068,358 377,451 1,926,557 754,901 Geological and geophysical................... 153,984 86,015 369,097 163,416 Dry hole..................................... - 17,018 - 29,261 General and administrative................... 1,806,849 1,585,049 3,348,586 3,064,614 Interest..................................... 1,893,203 2,184,926 4,074,334 4,269,425 Depreciation, depletion and amortization..... 7,745,605 4,626,945 14,546,844 8,547,381 ----------- ----------- ----------- ----------- TOTAL EXPENSES................................. 19,797,433 14,624,998 38,927,826 27,469,954 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAX EXPENSE MINORITY INTEREST AND DIVIDENDS TO PREFERRED STOCKHOLDERS.................... 24,028,832 7,505,323 53,974,589 12,269,564 Minority Interest.............................. 118,286 60,001 300,634 102,401 Income tax expense............................. 9,130,956 2,531,411 20,446,380 4,136,835 ----------- ----------- ----------- ----------- NET INCOME..................................... 14,779,590 4,913,911 33,227,575 8,030,328 Dividends to preferred stockholders............ 183,769 322,477 374,538 582,567 ----------- ----------- ----------- ----------- NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS.......................... $14,595,821 $ 4,591,434 $32,853,037 $ 7,447,761 =========== =========== =========== =========== NET INCOME PER COMMON SHARE BASIC........................................ $1.00 $.71 $2.25 $1.20 =========== =========== =========== =========== DILUTED...................................... $0.78 $.50 $1.76 $.87 =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC........................................ 14,627,066 6,428,700 14,612,342 6,220,892 =========== =========== =========== =========== DILUTED...................................... 19,171,852 10,160,863 19,123,258 9,723,924 =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 2 3TEC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30 --------------------------------- (Unaudited) (Unaudited) 2001 2000 ----------------- ------------ OPERATING ACTIVITIES Net income.......................................................................... $ 33,227,575 $ 8,030,328 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization.......................................... 14,194,729 8,547,381 Amortization of debt issue costs.................................................. 352,115 - Dry hole costs.................................................................... - 29,261 Gain on sale of properties........................................................ (6,835,876) (26,681) Deferred income taxes............................................................. 13,502,420 4,136,835 Minority interest................................................................. 300,634 102,401 Changes in current assets and liabilities net of acquisition effects: Accounts receivable and other current assets..................................... 6,428,657 (11,606,380) Accounts payable, accrued liabilities and other current liabilities.............. (1,010,921) 1,017,005 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 60,159,333 10,230,150 INVESTING ACTIVITIES Proceeds from sales of properties................................................. 11,653,915 237,746 Acquisition of Magellan Exploration LLC, net of cash acquired..................... - (269,937) Acquisition of Classic Resources Inc., net of cash acquired....................... (58,584,209) - Acquisition of oil and gas properties............................................. (4,476,682) (55,442,670) Development of oil and gas properties............................................. (29,675,099) (8,238,308) Additions to other assets......................................................... (755,000) (175,304) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES............................................... (81,837,075) (63,888,473) FINANCING ACTIVITIES Proceeds from long term debt...................................................... 82,000,000 58,100,000 Principal payments on long term debt.............................................. (56,000,000) (74,600,000) Proceeds from issuance of common stock............................................ - 66,772,195 Proceeds from exercise of stock options and warrants.............................. 247,928 - Preferred stock dividends......................................................... (188,127) (421,479) Treasury stock purchase - Alabama disenters....................................... - 137,878 Debt, common stock and preferred stock issue and registration costs............... - (846,463) ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................. 26,059,801 49,142,131 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... 4,382,059 (4,516,192) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 4,436,497 6,141,153 ------------ ------------ CASH AND CASH EQUIVALENTS AT ENDING OF PERIOD....................................... $ 8,818,556 $ 1,624,961 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest.......................................................................... $ 3,706,980 $ 4,213,984 ============ ============ Income taxes...................................................................... $ 6,208,200 $ - ============ ============ Non-cash investing and financing activities: Preferred dividends paid-in-kind.................................................. $ - $ 118,095 ------------ ------------ Preferred dividends accrued but not paid.......................................... $ 186,411 $ 219,096 ============ ============ Common stock and warrants issued in acquisition of Magellan Exploration LLC....... $ - $ 10,572,935 ============ ============ Preferred stock issued in acquisition of Magellan Exploration LLC................. $ - $ 7,453,457 ============ ============ Deferred taxes recorded in acquisition of Classic Resources Inc................... $ 27,565,884 $ - ============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3 3TEC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) INTERIM FINANCIAL STATEMENTS In management's opinion, the accompanying consolidated financial statements contain all adjustments (consisting primarily of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company as of June 30, 2001 and the consolidated results of operations and consolidated cash flows for the periods ended June 30, 2001 and 2000. These consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. The results of operations for the six months ended June 30, 2001, are not necessarily indicative of the results which may be expected for any other interim period or for the entire fiscal year ending December 31, 2001. (2) RECLASSIFICATIONS Certain reclassifications of prior period amounts have been made to conform to the current presentation. (3) EARNINGS PER SHARE Basic earnings and loss per common share are based on the weighted average shares outstanding without any dilutive effects considered. Diluted earnings and loss per share reflect dilution from all potential common shares, including options, warrants and convertible preferred stock and convertible notes. Basic and diluted earnings per share for the six month period ended June 30, 2001 and 2000 determined as follows (in thousands):
SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 2001 JUNE 30, 2000 -------------- ------------- Basic net income attributable to common stockholders................... $32,853 $7,448 Plus preferred stock dividends......................................... 375 583 Plus interest expense (net of tax) on subordinated convertible notes... 365 393 ------- ------ Fully diluted net income attributable to common stockholders........... $33,593 $8,424 ======= ====== OUTSTANDING OUTSTANDING SHARES SHARES -------------- ------------- Basic shares outstanding (weighted average shares)..................... 14,612 6,221 Plus potentially dilutive securities: Dilutive options and warrants applying treasury stock method........... 2,290 1,064 Shares from conversion of subordinated convertible notes............... 1,468 1,469 Shares from conversion of Series B preferred stock..................... 131 91 Shares from conversion of Series C preferred stock..................... - 375 Shares from conversion of Series D preferred stock..................... 622 504 ------- ------ Fully diluted shares outstanding (weighted average shares)............. 19,123 9,724 ======= ======
4 3TEC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (4) ACQUISITIONS On January 30, 2001, the Company acquired 100% of the issued and outstanding stock of Classic Resources Inc. ("Classic") for cash consideration of approximately $53.5 million (the "Classic Acquisition") plus other acquisition costs. The purchase price is subject to certain post-closing adjustments customary in transactions of this type. Classic is a privately-held exploration and production company with properties located in East Texas. The Company estimates these properties to have unaudited total net proved reserves of 47 Bcfe and net daily production of approximately 11 Mmcfe, as of January 31, 2001. The Classic Acquisition was financed under the Company's existing Credit Facility. On May 31, 2000, we completed the acquisition of the CWR Properties (the "CWR Acquisition") located in East Texas for cash consideration of approximately $51.9 million. The effective date of the acquisition was January 1, 2000 and the operations are included in the Company's consolidated financial statements beginning June 1, 2000. The CWR Properties acquisition was financed under our existing credit facility, which we amended prior to closing the CWR Acquisition. The purchase price was allocated principally to oil and natural gas properties. On February 3, 2000, we completed the acquisition of Magellan Exploration LLC (the "Magellan Acquisition"), from certain affiliates of EnCap Investments L.L.C., a Delaware limited liability company and an investor in W/E Energy Company, LLC ("EnCap Investments"), and other third parties for consideration consisting of (a) 1,085,934 shares of common stock, (b) four year warrants to purchase up to 333,333 shares of common stock at $30.00 per share, (c) 617,009 shares of 5% Series D Convertible Preferred Stock with a redemption value of $24.00 per share and (d) the assignment of a performance based "back-in" working interest of 5% of Magellan's interest in 12 exploration prospects. The purchase price of approximately $19 million was allocated principally to proved undeveloped oil and natural gas properties. The following pro forma data presents the results of the Company for the six months ended June 30, 2000, as if the Classic Acquisition and the CWR Acquisition had occurred on January 1, 2000, and the results of the Company for the six months ended June 30, 2001 as if the Classic Acquisition had occurred on January 1, 2001. The pro forma data assumes the acquisition of the respective properties and the debt financing transactions related to these acquisitions. The pro forma results are presented for comparative purposes only and are not necessarily indicative of the results which would have been obtained had the acquisitions been consummated as presented. The pro forma financial data does not include the financial information for the Magellan Acquisition, which is not significant with respect to the operations of the Company for the period presented (in thousands, except per share amounts):
PRO FORMA PRO FORMA SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2001 JUNE 30, 2000 (UNAUDITED) (UNAUDITED) ----------------- ----------------- Total revenues................................................... $94,972 $49,398 Net income attributable to common stockholders................... 30,683 7,209 Net income per basic share attributable to common stockholders... 2.10 1.16
The results of Classic's operations have been included in the Company's consolidated financial statements beginning on January 30, 2001 using the purchase method of accounting. The total purchase price was allocated principally to oil and natural gas assets as adjusted for deferred tax liabilities of approximately $27 million. 5 3TEC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (5) STOCKHOLDERS' EQUITY Common Stock On June 30, 2000, the Company completed its public offering of 8.05 million shares of the Company's common stock (priced at $9.00 per share). The net proceeds, approximately $66.6 million, were used primarily to repay a portion of the outstanding debt under the amended Credit Facility. Series C Preferred Stock Redemption On August 31, 2000, the Company sent notices to the holders of its Series C Preferred Stock (the "Series C") advising that the Series C would be redeemed on September 30, 2000. The Series C had a redemption price of $5.00 per share and the holders had the right to convert their Series C shares into Company common stock at a ratio of one share of common for three shares of Series C prior to September 30, 2000. A total of 2,101,827 shares of the Series C were outstanding on August 31, 2000, with 1,293,521 shares (62%) held by the Company's 80% owned subsidiary, Enex Resources Corporation. Approximately 109,580 Series C shares were converted into 36,527 shares of common stock and approximately 1,992,247 Series C shares were redeemed. At June 30, 2001, the Company's liability for the Series C redemption is approximately $2.7 million. Series D Preferred Stock In connection with the Magellan Acquisition, the Company issued 617,009 shares of Series D Preferred Stock, par value $0.02 per share (the "Series D"), with a redemption value of $24.00 per share. While the per share redemption and dividend amounts of all of our different series of preferred stock vary, the rights as to dividends and liquidation payments are equal. Shares of Series D earn cumulative dividends at 5% per annum, payable semi-annually on March 31 and September 30 of each year, when, as and if authorized and declared by the board of directors. For a period of three years from the closing date of the Magellan Acquisition, the Company may pay the dividends at its option in cash or in additional shares of Series D. Dividends were paid on the outstanding shares of Series D as of March 31, 2000 in the form of additional shares of Series D Preferred Stock, and as of September 30, 2000 and March 31, 2001 in a cash payment. Holders of Series D have the right to convert one share of Series D into one share of common stock. Upon thirty days written notice, the Company has the right to redeem any or all shares of Series D for $24.00 per share plus any accrued but unpaid dividends. Holders of the Series D have no right to require the Company to redeem the Series D. During the six month period ended June 30, 2001, 558 shares of the Series D Preferred Stock were converted to common stock. In the event of liquidation, dissolution, winding-up or merger of the Company, the holders of Series D Preferred Stock are entitled to receive distributions of $24.00 per share of Series D plus any accrued but unpaid dividends before any holders of common stock or junior preferred stock receive any distributions. A majority of the holders of Series D must consent to certain actions by the Company, that might adversely affect any holder's rights and preferences. (6) COMMITMENTS AND CONTINGENCIES On November 18, 1999, the Company's shareholders approved a reincorporation of the Company from Alabama to Delaware (See Note 1). The Alabama Code has a shareholder dissent provision that allows a shareholder to dissent from the reincorporation and demand cash payment equal to the fair value of the common stock owned at the date of the reincorporation. Before the November 18, 1999 shareholders meeting, the Company received shareholder dissents representing ownership of 99,438 shares of common stock. Over the period December 15, 1999 to January 25, 2000, the Company received formal demands for payment from the dissenting shareholders (the 6 3TEC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) "dissenters"). The Company made an offer to the dissenters on March 14, 2000 and the dissenters made a counteroffer in late March. On May 26, 2000, the Company agreed to a settlement with the dissenters to purchase 62,549 shares of common stock for a total of $980,800, including interest. The settlement closed on June 30, 2000 and the shares are held by the Company as treasury stock. A shareholder holding 36,889 shares of common stock agreed to withdraw his dissent. (7) HEDGING ACTIVITIES In February 2000, the Company entered into fixed price swap agreements covering 2,000 barrels of oil per day for the period March through October 2000 at a weighted average NYMEX West Texas Intermediate price of $25.96 per barrel. During the six month period ending June 30, 2000, the Company's oil revenues were reduced by the effect of our hedging activities by $101,000. The fair market value of the open position at June 30, 2000 was approximately ($47,480). As of December 31, 2000 and the period ended June 30, 2001, the Company did not have any open derivative instruments or hedging activities. However, the Company cannot assure that such instruments or activities will not be put into place in the future. (8) ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards (FASB) issued SFAS No., 141, "Business Combinations' and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain intangible assets in a business combination be recognized as assets apart from goodwill. The company is required to implement SFAS No. 141 for all business combinations for which the date of acquisition is July 1, 2001 or later. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the impairment of goodwill and that intangible assets other than goodwill should be amortized over their useful lives. Implementation of SFAS No. 142 is required for fiscal year 2002. The Company does not anticipate the adoption of SFAS 142 to have a material adverse impact on its financial position or results of operations. In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, standardizes the accounting for and disclosures of derivative instruments, including certain derivative instruments embedded in other contracts. The statement is effective for the Company's financial statements on January 1, 2001. As of December 31, 2000 and the period ended June 30, 2001, the Company did not have any open derivative instruments or hedging activities. However, the Company cannot assure that such instruments or activities will not be put into place in the future. (9) PROPERTY DIVESTMENTS During the second quarter of 2001, the Company sold non-strategic properties for net cash proceeds of approximately $11.7 million, resulting in a gain of $6.7 million. The Company will attempt to acquire replacement properties in order to defer the tax gain on the sales of these properties in accordance with the Like-Kind Exchange regulations of the Internal Revenue Service. At June 30, 2001 the Company has $6.7 million in like-kind escrow accounts pending the identification and acquisition of the replacement properties. If the Company is not successful in acquiring replacement properties, the funds in escrow will be used to reduce borrowings under the Company's credit facility. 7 (10) SUBSEQUENT EVENT During July 2001, the Company divested additional non-strategic assets for net cash proceeds of approximately $25.7 million, resulting in an approximate gain of $9.1 million. The Company will attempt to acquire replacement properties in order to defer the tax gain on the sales of these properties in accordance with the Like-Kind Exchange regulations of the Internal Revenue Service. At June 30, 2001 the Company has $6.7 million in like-kind escrow accounts pending the identification and acquisition of the replacement properties. If the Company is not successful in acquiring replacement properties, the funds in escrow will be used to reduce borrowings under the Company's credit facility. During July 2001, and in conjunction with the property divestments described in the preceding paragraph, the Company's borrowing base under its Credit Facility was reduced to $155 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This quarterly report on Form 10-QSB 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. Such forward-looking statements involve risks and uncertainties and other factors beyond the control of the Company. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. OVERVIEW We are engaged in the acquisition, development, production and exploration of oil and natural gas reserves. Our properties are concentrated in East Texas and the Gulf Coast region, both onshore and in the shallow waters of the Gulf of Mexico. We also own significant properties in the Permian and San Juan basins and in the Mid-continent region. Our management and technical staff have substantial experience in each of these areas. As of December 31, 2000, on a pro forma basis including the subsequent acquisition of Classic, we had at that date estimated total net proved reserves of 354 Bcfe, of which approximately 81% were natural gas and approximately 74% were proved developed, with an estimated PV-10 value of $1.23 billion (using SEC pricing parameters at December 31, 2000.) LIQUIDITY AND CAPITAL RESOURCES We believe that our cash flows from operations are adequate to meet the requirements of operating our business. However, future cash flows are subject to a number of variables, including our level of production and prices, and we cannot assure that operations and other capital resources will provide cash in sufficient amounts to maintain planned levels of capital expenditures. Our principal operating sources of cash include sales of natural gas and oil production. For the year 2001, we have budgeted approximately $63 million for development and exploration capital expenditures. Through June 30, 2001, the Company has expended approximately $30 million of its capital budget. We are obligated to pay dividends of approximately $740,000 per year on the Series D Preferred Stock, which we may pay in either cash or in additional shares of Series D Preferred Stock during the three years ending February 1, 2003. We are obligated to pay interest on the convertible subordinated notes of approximately $1.2 million per year. Our primary source of financing for acquisitions has been proceeds from property sales and borrowings under our credit facility (the "Credit Facility"), discussed below. We believe we will have sufficient cash flow from operations and borrowings under our credit facility to meet our obligations and operating needs for the current year. We also believe that we have the ability to raise additional equity or debt financing and otherwise access the capital markets should those sources of capital prove insufficient to execute our strategic objectives. However, future cash flows are subject to a number of variables, including our level of production and prices, and we cannot assure you 8 that operations and other capital resources will provide cash of sufficient amounts to maintain planned levels of capital expenditures. The Facility provides for a borrowing base which is redetermined on a semi- annual basis, and as of June 30, 2001, was set at $170 million. At July 31, 2001, the borrowing base had been reduced to $155 million in connection with the divestment of certain non-strategic assets by the Company as described in Note10 of the Consolidated Financial Statements. Interest under the Facility is based upon either the bank's prime rate plus a low of zero to a high of 50 basis points or LIBOR plus basis points increasing from a low of 150 to a high of 212.5 as amounts outstanding increase as a percentage of the borrowing base. At June 30, 2001, we were paying an average of approximately 6.09 % per annum interest on the entire principal balance of the Facility of $89 million. The Facility matures on May 31, 2003. The borrowings under the Facility are secured by substantially all of our properties. In connection with this Facility, we are required to adhere to certain affirmative and negative covenants. The loan agreement contains a number of dividend restrictions and restrictive covenants which, among other things, require the maintenance of a minimum current ratio and interest coverage ratio. At June 30, 2001, the Company was in compliance with the terms of the Facility. We generally sell our oil at local field prices paid by the principal purchasers of oil. The majority of our natural gas production is sold at spot prices. Accordingly, we are generally subject to the commodity prices for these resources as they vary from time to time. As of June 30, 2001, the Company does not have any derivative instruments or hedging activities that will impact 2001 operations and therefore does not expect any income statement or balance sheet impact for 2001. However, the Company cannot assure that such instruments or activities will not be put into place in the future. Due to our significant property and corporate acquisitions in 2000 and 2001, and our current capital structure, comparisons of our results of operations for interim periods in 2001 can be difficult. You should read the following discussion and analysis together with our audited consolidated financial statements and the related notes for the fiscal year ended December 31, 2000, filed in our 2000 Form 10-KSB. The following table reflects certain summary operating data for the periods presented:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- ----------------- 2001 2000 2001 2000 ------ ------ ------- ------- Net Production Data : Oil and Liquids (MBbls)................ 272 291 572 599 Natural Gas (MMcf)..................... 6,312 4,052 11,935 7,631 Equivalent Production (MMcfe).......... 7,944 5,798 15,367 11,225 Average Sales Price: (1) Oil and Liquids (per Bbl).............. $25.90 $25.19 $ 26.59 $ 24.89 Natural Gas (per Mcf).................. 4.62 3.46 $ 5.81 $ 3.04 Equivalent price (per Mcfe)............ 4.56 3.68 $ 5.50 $ 3.39 Expenses ($ per Mcfe): Lease operations....................... $ 0.60 $ 0.75 $ 0.59 $ 0.70 Production, severance and ad valorem... 0.30 0.24 $ 0.36 $ 0.25 Gathering, transportation and other.... 0.13 0.07 $ 0.13 $ 0.07 General and administrative............. 0.23 0.27 $ 0.22 $ 0.27 Depreciation and depletion (2)......... 0.98 0.80 $ 0.95 $ 0.76
(1) Includes effect of our hedging activities. (2) Represents depreciation, depletion and amortization, excluding impairments. 9 THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Oil and Gas Revenues. Revenues from oil and gas operations increased by 67% to $36.8 million for the three months ended June 30, 2001, compared to $22.0 million for the same period during 2000. The increase is attributable to the Company's significant revenue growth via acquisitions and drilling as well as higher commodity prices received by the Company during the period. Gain on Property Sales. Gains on sales of properties for the three months ending June 30, 2001 increased to $6.7 million compared to $0.02 million during the same period of 2000. The increase is a result of the Company's divestment of non-strategic oil and gas properties. Production Expense. Production expense for the three months ended June 30, 2001, increased by 34% to $8.2 million compared to $6.1 million during the same period of 2000. Lease operating expenses on an $/MCFE basis decreased to $0.60/MCFE from $0.75/MCFE. Lower per unit operating costs associated with the Company's acquired properties and higher per unit operating costs of properties sold by the Company are attributed to the current period decrease. Higher realized commodity prices during the three months ended June 30, 2001 of $4.56/MCFE vs. $3.68/MCFE in 2000 is the principal reason for the increase in taxes. General and Administrative Expense. General and administrative expense for the three months ended June 30, 2001 increased by $0.2 million compared to the same period in 2000. The increase is attributable to increased staffing levels as a result of the Company's significant growth from acquisitions. Depreciation, Depletion and Amortization Expense. Depreciation, depletion and amortization expense ("DD&A") for the three months ended June 30, 2001 was $7.7 million compared to $4.6 million for the same period of 2000. The additional DD&A recorded is again attributed to the Company's significant production growth from acquisitions. Income Taxes. For the three months ended June 30, 2001, the Company recorded a tax provision of $9.1 million compared to a tax provision of $1.6 million during the same period in 2000. The provision recorded in 2001 represents the Company's net income for the three months ended at its expected effective tax rate for 2001 of approximately 38%. Dividends to Preferred Stockholders. Dividends to preferred stockholders of approximately $0.2 million in the three months ended June 30, 2001 decreased from $0.3 million for the three months ended June 30, 2000. The decrease in dividends was due to the redemption of the Series C Preferred Stock at September 30, 2000. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Oil and Gas Revenues. Revenues from oil and gas operations increased by 118% to $85.6 million for the six months ended June 30, 2001, compared to $39.3 million for the same period during 2000. The increase is attributable to the Company's significant revenue growth via acquisitions and drilling as well as higher commodity prices received by the Company during the period. Gain on Property Sales. Gains on sales of properties for the three months ending June 30, 2001 increased to $6.8 million compared to $0.03 million during the same period of 2000. The increase is a result of the Company's divestment of non-strategic oil and gas properties. Production Expense. Production expense for the six months ended June 30, 2001, increased by 46% to $16.6 million compared to $11.4 million during the same period of 2000. Lease operating expenses on an $/MCFE basis decreased to $0.59/MCFE from $0.70/MCFE, while production, severance and ad valorem taxes increased to $0.36/MCFE from $0.25/MCFE. Lower per unit operating costs associated with the Company's acquired properties and higher per unit operating costs of properties sold by the Company are attributed to the current period decrease. Higher realized commodity prices during the six months ended June 30, 2001 of $5.50/MCFE vs. $3.39/MCFE in 2000 is the principal reason for the increase in taxes. 10 General and Administrative Expense. General and administrative expense for the six months ended June 30, 2001 increased by $0.3 million compared to the same period in 2000. The increase is attributable to increased staffing levels as a result of the Company's significant growth from acquisitions. Depreciation, Depletion and Amortization Expense. Depreciation, depletion and amortization expense ("DD&A") for the six months ended June 30, 2001 was $14.5 million compared to $8.5 million for the same period of 2000. The additional DD&A recorded is again attributed to the Company's significant production growth from acquisitions. Income Taxes. For the six months ended June 30, 2001, the Company recorded a tax provision of $20.4 million compared to a tax provision of $4.1 million during the same period in 2000. The provision recorded in 2001represents the Company's net income for the six months ended at its expected effective tax rate for 2001 of approximately 38%. Dividends to Preferred Stockholders. Dividends to preferred stockholders of approximately $0.4 million in the six months ended June 30, 2001 decreased from $0.6 million for the six months ended June 30, 2000. The decrease in dividends was due to the redemption of the Series C Preferred Stock at September 30, 2000. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES Kaiser-Francis Oil Company, C.J. Lett, III, Weskids, L.P., Alvin V. Shoemaker (collectively referred to as the "Major Stockholders"), W/E Energy Company L.L.C. (formerly known as 3TEC Energy Company L.L.C.) and the Company entered into a Stockholders' Agreement dated as of August 27, 1999 (the "Stockholders' Agreement"). On May 30, 2000, the parties to the Stockholders Agreement entered into a First Amendment to Shareholders' Agreement (the "Amendment") which added ECIC Corporation, EnCap Energy Capital Fund III-B, EnCap Energy Acquisition III- B, and BOCP Energy Partners, L.P. as parties to the Stockholders' Agreement. The Stockholders' Agreement and the Amendment contained provisions allowing W/E and the Major Shareholders to designate members of the Board of Directors. The Amendment provided if any of the parties percentage of beneficial ownership of common stock fell below three and one-half percent (3.5%) then such parties' rights and obligations under the Stockholders' Agreement would terminate. C.J. Lett, III, Weskids, L.P. and Alvin V. Shoemaker were no longer considered Major Stockholders subject to the Stockholders' Agreement as their beneficial ownership of common stock fell below three and one-half percent (3.5%). On April 30, 2001, the remaining parties to the Stockholders' Agreement, Kaiser- Francis Oil Company, W/E Energy Company L.L.C., the Company, ECIC Corporation, EnCap Energy Capital Fund III-B, EnCap Energy Acquisition III-B, Inc. and BOCP Energy Partners, L.P., entered into an Agreement To Terminate Shareholders' Agreement whereby the Stockholders' Agreement was terminated. Amendments to the Company's Certificate of Incorporation and Bylaws were approved by the stockholders of the Company at the Company's 2001 Annual Meeting: (i) to provide for a classified Board of Directors; (ii) to provide that directors may be removed only for cause by the affirmative votes of the holders of at least two-thirds of the outstanding shares entitled to vote; and (iii) to provide that a subsequent amendment, repeal or adoption of any provisions inconsistent with those provisions of the Certificate of Incorporation and Bylaws covered by the proposed amendments would require a vote by holders of not less than 80% of the voting power of the Company. The purpose and intended effect of the amendments are to enhance the continuity and stability of the Company's management by making it more difficult for stockholders to remove or change the incumbent members of the Board of Directors. The amendments also render the Company a less attractive target for an unfriendly acquisition by an outsider by making it more difficult for such a person to obtain control of the Company and thereafter change the respective sections of the Certificate of Incorporation and Bylaws amended. The amendments are intended to encourage persons seeking to acquire control of the Company to initiate such efforts through negotiations with the Company's Board of Directors. The amendments are also intended to increase the bargaining leverage of the Board of Directors, on behalf of the Company, in any negotiations concerning a potential change of control of the Company. 11 The amendments will, however, make more difficult or discourage a proxy contest for the assumption of control by a substantial stockholder or group of stockholders and thus could increase the likelihood that incumbent directors will retain their positions. The amendments may also have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company in a manner that would be unfriendly to the incumbent Board of Directors, even though such attempt might be beneficial to the Company's stockholders. Thus, the overall effect of the amendments may be to discourage an unsolicited tender offer which would result in the assumption of control by a holder or holders of a large block of the Company's shares and the removal of incumbent management. In addition, an amendment to the Company's Certificate of Incorporation was approved by the stockholders of the Company at the Company's Annual Meeting requiring that all stockholder action be taken at a stockholders' meeting and not be taken by written consent of the stockholders. The Amendment gives all of the Company's stockholders the opportunity to participate in a proposed stockholder action. The Board of Directors also believesthat the amendment will prevent sudden stockholder action to remove the entire Board of Directors and would thereby preserve the Board of Directors' ability to negotiate with a potential takeover bidder on behalf of the Company's stockholders. The amendment will, however, permit the Board of Directors to delay, until the next annual stockholders' meeting, action favored by the holders of a majority of the outstanding stock. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company was held May 14, 2001, adjourned until June 12, 2001, and further adjourned until June 14, 2001 for the purpose of voting on the following items: 1. The amendment of Article Fifth of the Certificate of Incorporation: (a) to divide the Board of Directors into three classes, (b) to provide that directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the voting power of the Company, and (c) to provide that Article Fifth may not be amended or repealed, nor a provision adopted inconsistent with Article Fifth, without the affirmative vote of the holders of at least 80% of the voting power of the Company. 2. Subject to stockholder approval of Proposal 1. above, the amendment of the Bylaws: (a) to divide the Board of Directors into three classes, (b) to provide that directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the voting power of the Company, and (c) to provide that the proposed amendments to the Bylaws may not be amended or repealed, nor a provision adopted inconsistent with the Bylaws amendments, without the affirmative vote of the holders of at least 80% of the voting power of the Company. 3. The election of the seven directors nominated by the Company under a non-cumulative voting system to serve for terms ranging from one to three years if Proposals 1. and 2. above were approved by the stockholders and to provide that the same persons would be elected for a term of one year if Proposals 1. and 2. above were not approved by the stockholders. 4. The amendment of the Certificate of Incorporation to require that all stockholder action be taken at a stockholders' meeting. 5. The ratification of the appointment of KPMG, LLP as the independent accountants of the Company for the current fiscal year. 6. The approval of the 3TEC Energy Corporation 2001 Stock Option Plan. 7. The approval of the 3TEC Energy Corporation 2000 Non-Employee Directors' Stock Option Plan. 12 The following table summarizes the tabulation of votes with respect to the foregoing matters:
For Against Abstain --------- --------- --------- Proposal 1: Amending the Certificate of 7,411,429 4,376,780 8,039 Incorporation: (a) dividing the Board of Directors into three classes, (b) providing that directors may be removed only for cause by the affirmative vote of the holders of at inconsistent with Article Fifth, without the affirmative vote of the holders of at least 80% of the voting power of the Company Proposal 2: Amending the Bylaws: (a) dividing 7,374,760 4,413,984 7,514 the Board of Directors into three classes, (b) providing that directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the voting power of the Company, and (c) to provide that the proposed amendments to the Bylaws may not be amended or repealed, nor a provision adopted inconsistent with the Bylaws amendments, without the affirmative vote of the holders of at least 80% of the voting power of the Company For Withheld ---------- -------- Proposal 3: Election of seven (7) directors for one (1) to three (3) year terms as follows: Floyd C. Wilson one (1) year 10,233,461 572,417 R.A. Walker one (1) year 10,233,451 572,427 Stephen W. Herod one (1) year 10,233,437 575,441 Gary R. Christopher two (2) years 10,233,444 575,434 Larry L. Helm two (2) years 10,233,454 575,424 David B. Miller three (3) years 10,233,473 575,404 D. Martin Phillips three (3) years 10,233,473 575,404 For Against Abstain --------------- ---------- ------- Proposal 4: Amendment of the Certificate of Incorporation 7,478,199 4,310,167 7,892 to require all stockholder action be taken at a stockholder's meeting Proposal 5: Ratification of the appointment of KPMG, LLP 10,477,732 306,416 5,436 as the Company's independent auditors for the current fiscal year
13 Proposal 6: Approval of the 3TEC Energy Corporation 6,863,289 3,765,049 161,246 2001 Stock Option Plan Proposal 7: Approval of the 3TEC Energy Corporation 6,875,025 3,789,020 155,539 2000 Non-Employee Directors' Stock Option Plan
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The following documents are filed as exhibits to this report: 2.1 Agreement and Plan of Merger, dated December 21, 1999, by and between 3TEC Energy Corporation, 3TM Acquisition L.L.C., Magellan Exploration, LLC and ECIC Corporation, EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III- B, Inc., BOCP Energy Partners, L.P., and Pel-Tex Partners, L.L.C. (Incorporated by reference to Exhibit C to Form DEF14A, filed January 11, 2000.) 2.2 Agreement and Plan of Merger, dated November 24, 1999, by and between 3TEC Energy Corporation, a Delaware corporation, and Middle Bay Oil Company, Inc., an Alabama corporation. (Incorporated by reference to Exhibit A to Form DEF14A, filed October 25, 1999.) 2.3 Form of Purchase Agreement between and among Middle Bay Oil Company, Inc. and private sellers of the properties managed by Floyd Oil Company. (Incorporated by reference to Exhibit 2.1 to Form 8-K filed December 7, 1999.) 2.4 Real Estate Exchange Agreement by and between Middle Bay Oil Company, Inc. and Floyd Oil Company. (Incorporated by reference to Exhibit 2.1 to Form 8-K/A filed December 17, 1999.) 2.5 First Amendment to Agreement and Plan of Merger, effective as of January 14, 2000, by and among 3TEC Energy Corporation, 3TM Acquisition L.L.C., Magellan Exploration, LLC, ECIC Corporation, EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., and Pel-Tex Partners, L.L.C. (Incorporated by reference to Exhibit 2.1 to Form 8-K filed February 4, 2000.) 2.6 Second Amendment to Agreement and Plan of Merger, effective as of February 2, 2000, by and among 3TEC Energy Corporation, 3TM Acquisition L.L.C., Magellan Exploration, LLC, ECIC Corporation, EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., and Pel-Tex Partners, L.L.C. (Incorporated by reference to Exhibit 2.2 to Form 8-K filed February 4, 2000.) 2.7 Form of Agreement of Sale and Purchase by and between C.W. Resources, Inc., Westerman Royalty, Inc., and Carl A. Westerman and 3TEC Energy Corporation. (Incorporated by Reference to Exhibit 10.32 to Form S-2 filed April 28, 2000.) 2.8 Form of Stock Purchase Agreement by and between 3TEC Energy Corporation and Classic Resources, Inc., Natural Gas Partners IV, L.P., Natural Gas Partners V, L.P., and certain individual signatories. (Incorporated by reference to Exhibit 2.1 to Form 8-K filed February 13, 2001.) 3.1 Certificate of Incorporation of 3TEC Energy Corporation. (Incorporated by reference to Exhibit 3.1 Form 8-K/A filed December 6, 1999.) 3.2 Certificate of Amendment to the Certificate of Incorporation of 3TEC Energy Corporation. (Incorporated by reference to Form 3.3 10-KSB filed March 30, 2000.) 14 3.3 Certificate of Merger of Middle Bay Oil Company, Inc. into 3TEC Energy Corporation. (Incorporated by reference to Exhibit 3.3 Form 8-K/A filed December 16, 1999.) 3.4 Bylaws of the Company. (Incorporated by reference to Exhibit C of the Company's definitive proxy statement filed October 25, 1999.) 3.5 Certificate of Amendment of the Certificate of Incorporation of 3TEC Energy Corporation, dated June 14, 2001.* 3.6 Amendment No. 2 to Bylaws of 3TEC Energy Corporation.* 4.1 Certificate of Designation of Series B Preferred Stock of 3TEC Energy Corporation. (Incorporated by reference to Exhibit 3.1 to Form 8-K/A filed December 16, 1999.) 4.2 Certificate of Designation of Series D Preferred Stock of 3TEC Energy Corporation. (Incorporated by reference to Exhibit 4.3 to Form 10-QSB filed May 15, 2000.) 10.1 Securities Purchase Agreement, dated July 1, 1999 by and between the Company and 3TEC Energy Corporation. (Incorporated by reference to Exhibit C to the definitive Proxy Statement filed July 19, 1999.) 10.2 Securities Purchase Agreement, dated August 27, 1999 by and between the Company and Shoemaker Family Partners, LP. (Incorporated by reference to Exhibit 10.2 to Form 10-QSB filed November 15, 1999.) 10.3 Securities Purchase Agreement, dated August 27, 1999 by and between the Company and Shoeinvest II, LP. (Incorporated by reference to Exhibits to Exhibit 10.3 to Form 10-QSB filed November 15, 1999.) 10.4 Securities Purchase Agreement, dated October 19, 1999 between The Prudential Insurance Company of America and the Company. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed November 2, 1999.) 10.5 Shareholders Agreement, dated August 27, 1999 by and among the Company, 3TEC Energy Corporation and the Major Shareholders. (Incorporated by reference to Exhibit 10.5 to Form 10-QSB filed November 15, 1999.) 10.6 Registration Rights Agreement, dated August 27, 1999 by and among the Company, 3TEC Energy Corporation, the Major Shareholders, Shoemaker Family Partners, LP and Shoeinvest II, LP. (Incorporated by reference to Exhibit 10.6 to Form 10-QSB filed November 15, 1999.) 10.7 Amendment to Registration Rights Agreement, dated October 19, 1999 by and among the Company, W/E Energy Company, L.L.C. f/k/a 3TEC Energy Company L.L.C., f/k/a 3TEC Energy Corporation, Shoemaker Family Partners, LP, Shoeinvest II, LP, and The Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10.2 to Form 8-K filed November 2, 1999.) 10.8 Participation Rights Agreement, dated October 19, 1999 by and among the Company, The Prudential Insurance Company of America and W/E Energy Company L.L.C. (Incorporated by reference to Exhibit 10.3 to Form 8-K filed November 2, 1999.) 10.9 Employment Agreement, dated April 15, 2000 by and between Floyd C. Wilson and the Company. (Incorporated by reference to Exhibit 10.9 to Form S-2 filed April 28, 2000.) 10.10 Employment Agreement, dated May 1, 2000, by and between R.A. Walker and the Company. (Incorporated by reference to Exhibit 10.9 to Form S-2 filed April 28, 2000.) 10.11 Restated Credit Agreement by and among Middle Bay Oil Company, Inc., Enex Resources Corporation and Middle Bay Production Company, Inc. as borrowers, and Bank One, Texas, N.A. and other institutions as lenders. (Incorporated by reference to Exhibit 10.1 to Form 8-K/A filed December 17, 1999.) 15 10.12 Subordination Agreement, dated August 27, 1999 by and among Shoemaker Family Partners, LP, Compass Bank, and Bank of Oklahoma, National Association. (Incorporated by reference to Exhibit 10.15 to Form 10-QSB filed November 15, 1999.) 10.13 Subordination Agreement, dated August 27, 1999 by and among Shoeinvest II, LP, Compass Bank, and Bank of Oklahoma, National Association. (Incorporated by reference to Exhibit 10.16 to Form 10-QSB filed November 15, 1999.) 10.14 Letter Amendment No. 1 to Middle Bay Oil Company, Inc. Securities Purchase Agreement, dated November 23, 1999, by and between Middle Bay Oil Company, Inc. (n/k/a 3TEC Energy Corporation) and The Prudential Insurance Company of America (Incorporated by reference to Exhibit 10.21 to Form S-2 filed April 28, 2000 and replacing the unexecuted Exhibit 10.17 of Form 10-QSB filed November 15, 1999.) 10.15 Intercreditor Agreement, dated as of November 23, 1999, among Middle Bay Oil Company, Inc., Bank One Texas, N.A. and 3TEC Energy Company L.L.C. (Incorporated by reference to Exhibit 10.18 to Form S-2 filed April 28, 2000.) 10.16 Intercreditor Agreement, dated as of November 23, 1999, among Middle Bay Oil Company, Inc., Bank One Texas, N.A. and Shoemaker Family Partners, LP. (Incorporated by reference to Exhibit 10.18 to Form S-2 filed April 28, 2000.) 10.17 Intercreditor Agreement, dated as of November 23, 1999, among Middle Bay Oil Company, Inc., Bank One Texas, N.A. and Shoeinvest II, LP. (Incorporated by reference to Exhibit 10.20 to Form S-2 filed April 28, 2000.) 10.18 Amendment to Securities Purchase Agreement, dated as of November 23, 1999, among Middle Bay Oil Company, Inc. and 3TEC Energy Company L.L.C. (Incorporated by reference to Exhibit 10.22 to Form S-2 filed April 28, 2000.) 10.19 Amendment to Securities Purchase Agreement, dated as of November 23, 1999, among Middle Bay Oil Company, Inc. and Shoemaker Family Partners, LP. (Incorporated by reference to Exhibit 10.23 to Form S-2 filed April 28, 2000.) 10.20 Amendment to Securities Purchase Agreement, dated as of November 23, 1999, among Middle Bay Oil Company, Inc. and Shoeinvest II, LP. (Incorporated by reference to Exhibit 10.24 to Form S-2 filed April 28, 2000.) 10.21 Amended and Restated 1995 Stock Option and Stock Appreciation Rights Plan. (Incorporated by reference to Exhibit B to Form DEF 14A filed May 5, 1997.) 10.22 Amendment No. 1 to the Amended and Restated 1995 Stock Option and Stock Appreciation Rights Plan. (Incorporated by reference to Exhibit B to Form DEF 14A filed May 5, 1998.) 10.23 1999 Stock Option Plan. (Incorporated by reference to Exhibit E to Form DEF 14A filed October 25, 1999.) 10.24 2000 Stock Option Plan (Incorporated by reference to Exhibit A to Form DEF 14A filed on May 1, 2000.) 10.25 Second Restated Credit Agreement among 3TEC Energy Corporation, Enex Resources Corporation, Middle Bay Production Company, Inc., and Magellan Exploration, LLC, as Borrowers, and Bank One, Texas, N.A. and the Institutions named therein, as Lenders, Bank One, Texas, N.A., as Administrative Agent, Bank of Montreal as Syndication Agent and Banc One Capital Markets, Inc., as Arranger, dated May 31, 2000. (Incorporated by reference to Exhibit 10.28 to Form S-2/A filed September 6, 2000.) 10.26 First Amendment to Shareholders' Agreement by and among 3TEC Energy Corporation, the W/E Shareholders and the Major Shareholders, dated May 30, 2000. (Incorporated by reference to Exhibit 10.29 to Form S-2/A filed September 6, 2000.) 16 10.27 Third Restated Credit Agreement among 3TEC Energy Corporation, Enex Resources Corporation and 3TEC/CRI Corporation, as Borrowers, and Bank One, N.A. and the Institutions named therein, as Lenders, Bank One, N.A., as Administrative Agent, Bank of Montreal as Syndication Agent and Banc One Capital Markets, Inc., as Arranger, dated March 12, 2001. _______________ * Filed herewith (b) The following reports were filed on Form 8-K during the second quarter of 2001: On April 16, 2001, the Company filed a Form 8-K/A under Items 2 and 7 amending the description of the agreement entered to acquire the stock of Classic Resources, Inc. and to include the audited financial statements. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized, as of August 8, 2001. 3TEC ENERGY CORPORATION (Registrant) By: /s/ Floyd C. Wilson ------------------- Floyd C. Wilson Chairman and Chief Executive Officer By: /s/ R.A. Walker --------------- R.A. Walker President, Chief Financial Officer, Director By: /s/ Shane M. Bayless -------------------- Shane M. Bayless Vice President-Controller, Treasurer and Principal Accounting Officer 18