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 March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10578
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VINTAGE PETROLEUM, INC.
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(Exact name of registrant as specified in charter)
Delaware 73-1182669
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 West Seventh Street Tulsa, Oklahoma 74119-1029
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(Address of principal executive offices) (Zip Code)
(918) 592-0101
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
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 registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 7, 2001
-------------------------- --------------------------
Common Stock, $.005 Par Value 63,013,516
-1-
PART I
FINANCIAL INFORMATION
-2-
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except shares
and per share amounts)
(Unaudited)
ASSETS
------
March 31, December 31,
2001 2000
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 61,717 $ 19,506
Accounts receivable -
Oil and gas sales.................................... 110,756 146,770
Joint operations..................................... 7,802 6,267
Derivative financial instruments....................... 4,644 -
Prepaids and other current assets...................... 16,794 13,946
---------- ------------
Total current assets............................... 201,713 186,489
---------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, successful efforts method...... 1,759,632 1,734,003
Oil and gas gathering systems and plants............... 19,644 19,252
Other.................................................. 20,989 19,636
---------- ------------
1,800,265 1,772,891
Less accumulated depreciation, depletion and
amortization......................................... 695,682 667,837
---------- ------------
1,104,583 1,105,054
---------- ------------
OTHER ASSETS, net........................................ 48,381 46,854
---------- ------------
$1,354,677 $ 1,338,397
========== ============
See notes to unaudited consolidated financial statements.
-3-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2001 2000
---------- ------------
CURRENT LIABILITIES:
Revenue payable........................................... $ 57,427 $ 60,519
Accounts payable - trade.................................. 30,858 43,225
Current income taxes payable.............................. 62,745 43,187
Short-term revolving debt................................. 5,629 3,400
Other payables and accrued liabilities.................... 48,348 61,961
---------- ------------
Total current liabilities............................... 205,007 212,292
---------- ------------
LONG-TERM DEBT.............................................. 399,257 464,229
---------- ------------
DEFERRED INCOME TAXES....................................... 51,443 33,252
---------- ------------
OTHER LONG-TERM LIABILITIES................................. 3,731 3,767
---------- ------------
STOCKHOLDERS' EQUITY, per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding...................... - -
Common stock, $.005 par, 160,000,000 shares authorized,
62,961,966 and 62,801,416 shares issued and
outstanding, respectively............................... 315 314
Capital in excess of par value............................ 321,018 319,893
Retained earnings......................................... 372,258 303,449
Accumulated other comprehensive income.................... 1,648 1,201
---------- ------------
695,239 624,857
---------- ------------
$1,354,677 $ 1,338,397
========== ============
See notes to unaudited consolidated financial statements.
-4-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
-------------------
2001 2000
-------- --------
REVENUES:
Oil and gas sales...................................................... $206,879 $139,524
Gas marketing.......................................................... 59,323 18,462
Oil and gas gathering.................................................. 8,109 3,418
Other income........................................................... 1,179 987
-------- --------
275,490 162,391
-------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes............................ 47,856 35,575
Exploration costs...................................................... 2,203 2,304
Gas marketing.......................................................... 57,326 17,527
Oil and gas gathering.................................................. 8,355 2,668
General and administrative............................................. 11,979 9,003
Depreciation, depletion and amortization............................... 27,591 21,613
Interest............................................................... 10,917 13,415
-------- --------
166,227 102,105
-------- --------
Income before income taxes and cumulative effect of change in
accounting principle............................................... 109,263 60,286
-------- --------
PROVISION FOR INCOME TAXES:
Current................................................................ 22,238 14,228
Deferred............................................................... 16,327 6,352
-------- --------
38,565 20,580
-------- --------
Income before cumulative effect of change in accounting principle.... 70,698 39,706
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, net of income taxes of $644................................. - (1,422)
-------- --------
NET INCOME............................................................... $ 70,698 $ 38,284
======== ========
BASIC INCOME PER SHARE:
Income before cumulative effect of change in accounting principle...... $ 1.12 $ .63
Cumulative effect of change in accounting principle.................... - (.02)
-------- --------
Net income............................................................. $ 1.12 $ .61
======== ========
DILUTED INCOME PER SHARE:
Income before cumulative effect of change in accounting principle...... $ 1.10 $ .62
Cumulative effect of change in accounting principle.................... - (.02)
-------- --------
Net income............................................................. $ 1.10 $ .60
======== ========
Weighted Average Common Shares Outstanding:
Basic.................................................................. 62,898 62,412
======== ========
Diluted................................................................ 64,055 63,788
======== ========
See notes to unaudited consolidated financial statements.
-5-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
AND COMPREHENSIVE INCOME
------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------
(In thousands)
(Unaudited)
Capital Accumulated
Common Stock In Excess Other
---------------- of Par Retained Comprehensive
Shares Amount Value Earnings Income Total
-------- ------ --------- -------- ------------- --------
Balance at December 31, 2000..... 62,801 $314 $319,893 $303,449 $ 1,201 $624,857
Cumulative effect of adoption of
SFAS No. 133.................... - - - - 14,915 14,915
Comprehensive income:
Net income...................... - - - 70,698 - 70,698
Foreign currency translation
adjustment.................... - - - - (2,390) (2,390)
Change in value of unrealized
derivative gains.............. - - - - (12,078) (12,078)
--------
Total comprehensive income...... - - - - - 56,230
--------
Exercise of stock options and
resulting tax effects........... 161 1 1,125 - - 1,126
Cash dividends declared
($.03 per share)................ - - - (1,889) - (1,889)
-------- ------ --------- -------- ------------- --------
Balance at March 31, 2001......... 62,962 $315 $321,018 $372,258 $ 1,648 $695,239
======== ====== ========= ======== ============= ========
See notes to unaudited consolidated financial statements.
-6-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------
2001 2000
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 70,698 $ 38,284
Adjustments to reconcile net income to cash provided by operating activities -
Depreciation, depletion and amortization............................................... 27,591 21,613
Exploration costs...................................................................... 2,203 2,304
Provision for deferred income taxes.................................................... 16,327 6,352
Cumulative effect of change in accounting principle.................................... - 1,422
Foreign currency translation gain...................................................... (147) -
Gain on disposition of assets.......................................................... (26) -
-------- ---------
116,646 69,975
Decrease in receivables................................................................ 34,478 3,048
Increase (decrease) in payables and accrued liabilities................................ (17,693) 14,982
Other.................................................................................. (3,491) 5,594
-------- ---------
Cash provided by operating activities................................................ 129,940 93,599
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -
Oil and gas properties................................................................. (26,825) (23,272)
Gathering systems and other............................................................ (1,745) (386)
Other.................................................................................... (1,473) (1,171)
-------- ---------
Cash used by investing activities.................................................... (30,043) (24,829)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock..................................................................... 1,126 132
Advances on revolving credit facility and other borrowings............................... 12,427 7,032
Payments on revolving credit facility and other borrowings............................... (66,965) (110,324)
Dividends paid........................................................................... (1,884) (1,560)
Other.................................................................................... (2,390) -
-------- ---------
Cash used by financing activities.................................................... (57,686) (104,720)
-------- ---------
Net increase (decrease) in cash and cash equivalents....................................... 42,211 (35,950)
Cash and cash equivalents, beginning of period............................................. 19,506 42,687
-------- ---------
Cash and cash equivalents, end of period................................................... $ 61,717 $ 6,737
======== =========
See notes to unaudited consolidated financial statements.
-7-
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
March 31, 2001 and 2000
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of Vintage Petroleum, Inc. and its
wholly- and majority-owned subsidiaries and its proportionately consolidated
general partner interests in various joint ventures (collectively, the
"Company"). Management believes that all material adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation have been
made. Certain 2000 amounts have been reclassified to conform with the 2001
presentation. These reclassifications have no impact on net income. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any, at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. These financial statements and notes should be read in conjunction
with the 2000 audited financial statements and related notes included in the
Company's 2000 Annual Report on Form 10-K, Item 8, Financial Statements and
Supplementary Data.
2. SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
Under the successful efforts method of accounting, the Company capitalizes
all costs related to property acquisitions and successful exploratory wells, all
development costs and the costs of support equipment and facilities. All costs
related to unsuccessful exploratory wells are expensed when such wells are
determined to be non-productive; other exploration costs, including geological
and geophysical costs, are expensed as incurred. The Company recognizes gain or
loss on the sale of properties on a field basis.
Unproved leasehold costs are capitalized and are reviewed periodically for
impairment. Costs related to impaired prospects are charged to expense. If oil
and gas prices decline in the future, some of these unproved prospects may not
be economic to develop, which could lead to increased impairment expense.
Costs of development dry holes and proved leaseholds are amortized on the
unit-of-production method based on proved reserves on a field basis. The
depreciation of capitalized production equipment and drilling costs is based on
the unit-of-production method using proved developed reserves on a field basis.
Estimated abandonment costs, net of salvage value, are included in the
depreciation and depletion calculation.
-8-
The Company reviews its proved oil and gas properties for impairment on a
field basis. For each field, an impairment provision is recorded whenever events
or circumstances indicate that the carrying value of those properties may not be
recoverable. The impairment provision is based on the excess of carrying value
over fair value. Fair value is defined as the present value of the estimated
future net revenues from production of total proved and risk-adjusted probable
and possible oil and gas reserves over the economic life of the reserves, based
on the Company's expectations of future oil and gas prices and costs, consistent
with the method used for acquisition evaluations. Prior to 2001, the Company
considered only proved oil and gas reserves in determining fair value. The
change to total risk-adjusted reserves had no material effect on the Company's
financial statements for the period ended March 31, 2001. In estimating the
future net revenues, the Company assumed that the current oil and gas price
environment would decrease to more historical levels over a short period of time
and thereafter, escalate annually. The Company assumed operating costs would
escalate annually beginning at current levels. Due to the volatility of oil and
gas prices, it is possible that the Company's assumptions regarding oil and gas
prices may change in the future and may result in future impairment provisions.
No impairment provision related to proved oil and gas properties was required
for the first three months of either 2001 or 2000.
Hedging
The Company periodically uses hedges (swap agreements) to reduce the impact
of oil and natural gas price fluctuations. Gains or losses on swap agreements
are recognized as an adjustment to sales revenue when the related transactions
being hedged are finalized. Gains or losses from swap agreements that do not
qualify for accounting treatment as hedges are recognized currently as other
income or expense. The cash flows from such agreements are included in operating
activities in the consolidated statements of cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended in June 1999 by Statement No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 and in June 2000 by Statement No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133 ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. Companies
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
Upon adoption of SFAS No. 133 on January 1, 2001, the Company recorded a
transition asset of approximately $18.5 million related to cash flow hedges in
place that are used to reduce the volatility in commodity prices for portions of
the Company's forecasted oil production. Additionally, the Company recorded, net
of tax, an adjustment to accumulated other comprehensive income (Stockholders'
Equity section of the balance sheet) of approximately $14.9 million. The amount
recorded to accumulated other comprehensive income will be relieved over time
and taken to the income statement as the physical transactions being hedged are
finalized. A significant portion of the Company's cash flow hedges in place at
January 1, 2001, had settled as of March 31, 2001, with the actual cash flow
impact recorded in "Oil and gas sales" on the Company's income statement.
-9-
Statements of Cash Flows
During the three months ended March 31, 2001 and 2000, the Company made
cash payments for interest totaling approximately $6.3 million, and $8.9
million, respectively. Cash payments made during the first three months of 2001
and 2000 for U.S. Federal and state income taxes were approximately $41,000 and
$425,000, respectively. The Company made cash payments of approximately $2.3
million and $1.3 million during the first three months of 2001 and 2000,
respectively, for foreign income taxes, primarily in Argentina.
Earnings Per Share
The Company applies Financial Accounting Standards Board Statement No. 128,
Earnings Per Share. Basic earnings per common share were computed by dividing
net income by the weighted average number of shares outstanding during the
period. Diluted earnings per common share for the first quarters of 2001 and
2000 were computed assuming the exercise of all dilutive options, as determined
by applying the treasury stock method. In addition, for the three months ended
March 31, 2001 and 2000, the Company had outstanding stock options for 638,000
and 1,584,000 additional shares of the Company's common stock, respectively,
with average exercise prices of $21.82 and $17.82, respectively, which were
antidilutive.
Lease Operating Expense
For the three months ended March 31, 2001, the Company recorded in lease
operating expenses gross production taxes and transportation and storage
expenses of approximately $5.1 million and $2.8 million, respectively. For the
three months ended March 31, 2000, the Company recorded in lease operating
expenses gross production taxes and transportation and storage expenses of
approximately $3.4 million and $1.8 million, respectively.
Foreign Currency
Foreign currency transactions and financial statements are translated in
accordance with Statement of Financial Accounting Standards No. 52, Foreign
Currency Translation. The Company uses the U.S. dollar as its functional
currency, except for the Canadian subsidiary, which uses the Canadian dollar.
Adjustments arising from translation of the Canadian subsidiary's financial
statements are reflected in accumulated other comprehensive income. Transaction
gains and losses that arise from exchange rate fluctuations applicable to
transactions denominated in a currency other than the Company's functional
currency are included in the results of operations as incurred.
Cumulative Effect of Change in Accounting Principle
The Company adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB No. 101"), in the fourth quarter of
2000, effective January 1, 2000. SAB No. 101 requires oil inventories held in
storage facilities to be valued a cost. Cost is defined as lifting costs plus
depreciation, depletion and amortization. The Company previously followed
industry practice by valuing oil inventories at market. The cumulative effect
reduced net income by $1.4 million, net of income tax effects of approximately
$0.6 million. The first three months of 2000 have been restated to give effect
to this change in accounting principle. Additional volatility in quarterly and
annually reported earnings may occur in the future as a result of fluctuations
in oil inventory levels.
-10-
Transportation and Storage Costs
The Company adopted Emerging Issues Task Force Issue 00-10, Accounting for
Shipping and Handling Fees and Costs ("EITF 00-10") in the fourth quarter of
2000. EITF 00-10 requires that transportation and storage costs be shown as an
expense in the statement of operations and not deducted from revenues. The
Company previously followed industry practice by deducting transportation and
storage costs from revenues. The Company now records transportation and storage
costs as lease operating costs. The first three months of 2000 have been
restated to reflect the adoption of EITF 00-10. The adoption of EITF 00-10 did
not impact net income.
Comprehensive Income
The Company applies the provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). The Company
had no non-owner changes in equity other than net income during the three months
ended March 31, 2000. The Company had negative foreign currency translation
adjustments of approximately $2.4 million for the three months ended March 31,
2001, which it has included in accumulated other comprehensive income in the
Stockholders' Equity section of the accompanying balance sheet. The Company also
recorded under SFAS No. 133 a change in unrealized derivative gains of
approximately $12.1 million, related to oil swaps, reducing the unrealized
gains, net of tax, to $2.8 million at March 31, 2001.
3. SEGMENT INFORMATION
The Company's reportable business segments have been identified based on
the differences in products or services provided. Revenues for the exploration
and production segment are derived from the production and sale of natural gas
and crude oil. Revenues for the gathering/plant segment arise from the
transportation, processing and sale of natural gas, crude oil and plant
products. The gas marketing segment generates revenue by earning fees through
the marketing of Company produced gas volumes and the purchase and resale of
third party produced gas volumes. The Company evaluates the performance of its
operating segments based on operating income before corporate general and
administrative costs and interest costs.
-11-
Operations in the gathering/plant and gas marketing segments are in the
United States. The Company operates in the oil and gas exploration and
production segment in the United States, Canada, South America and Yemen.
Summarized financial information for the Company's reportable segments for the
first quarters of 2001 and 2000 is shown in the following table:
Exploration and Production
----------------------------------------------------------
Other
U.S. Canada Argentina Bolivia Ecuador Foreign
--------- ------- --------- -------- ------- -------
2001 - 1/st/ Quarter
----------------------------------
Revenues from external customers.. $123,840 $ 5,621 $ 67,480 $ 4,386 $ 6,064 $ -
Intersegment revenues............. - - - - - -
Depreciation, depletion and
amortization expense........... 13,911 1,658 9,558 1,006 562 -
Operating income.................. 78,416 2,046 44,057 2,495 3,405 217
Total assets...................... 524,490 55,131 447,633 122,763 52,781 23,993
Capital investments............... 11,876 1,658 13,974 536 2,137 228
Long-lived assets................. 473,154 50,388 405,810 97,049 43,214 23,312
2000 - 1/st/ Quarter
----------------------------------
Revenues from external customers.. $ 74,871 $ - $ 55,144 $ 2,053 $ 7,873 $ -
Intersegment revenues............. - - - - - -
Depreciation, depletion and
amortization expense........... 12,384 - 6,609 1,248 533 -
Operating income (loss)........... 38,828 - 37,811 (1,495) 6,220 (77)
Total assets...................... 517,799 - 375,025 113,655 61,654 9,567
Capital investments............... 7,062 - 6,987 6,060 610 2,955
Long-lived assets................. 466,770 - 341,664 91,415 49,986 9,406
Gathering/ Gas
Plant Marketing Corporate Total
---------- --------- --------- ----------
2001 - 1/st/ Quarter
-----------------------------------
Revenues from external customers... $ 8,109 $59,323 $ 667 $ 275,490
Intersegment revenues.............. 332 783 - 1,115
Depreciation, depletion and
amortization expense............ 306 - 590 27,591
Operating income (loss)............ (553) 1,998 78 132,159
Total assets....................... 12,084 24,653 91,149 1,354,677
Capital investments................ 392 - 1,352 32,153
Long-lived assets.................. 5,954 - 5,702 1,104,583
2000 - 1/st/ Quarter
-----------------------------------
Revenues from external customers... $ 3,418 $18,462 $ 570 $ 162,391
Intersegment revenues.............. 550 490 - 1,040
Depreciation, depletion and
amortization expense............ 369 - 470 21,613
Operating income................... 381 934 102 82,704
Total assets....................... 10,430 7,693 28,550 1,124,373
Capital investments................ 21 - 365 24,060
Long-lived assets.................. 6,781 - 4,669 970,691
Intersegment sales are priced in accordance with terms of existing
contracts and current market conditions. Capital investments include expensed
exploratory costs. Corporate general and administrative costs and interest costs
are not allocated to the operating income (loss) of the segments.
-12-
4. COMMITMENTS AND CONTINGENCIES
Through its December 2000 acquisition of Cometra Energy (Canada) Ltd.
("Cometra"), the Company assumed the drilling obligations of Cometra's wholly-
owned subsidiary, Cometra Trinidad Limited. These obligations require the
acquisition of 15 line kilometers of 2-D seismic, 40 square kilometers of 3-D
seismic and drilling of three exploratory wells. As of March 31, 2001, all
seismic obligations have been fulfilled and site preparation for the first two
exploratory wells had begun with spudding of both wells scheduled for the second
quarter of 2001.
The Company had approximately $8.7 million in letters of credit outstanding
at March 31, 2001. These letters of credit relate primarily to various
obligations for acquisition and exploration activities in South America and
bonding requirements of various state regulatory agencies for U.S. oil and gas
operations. The Company's availability under its revolving credit facility is
reduced by the outstanding letters of credit.
The Company is a defendant in various lawsuits and is a party to
governmental proceedings from time to time arising in the ordinary course of
business. In the opinion of management, none of the various pending lawsuits and
proceedings should have a material adverse impact on the Company's financial
position or results of operations.
5. SUBSEQUENT EVENT
On May 2, 2001, the Company completed the acquisition of Canadian-based
Genesis Exploration Ltd. ("Genesis") for total consideration of $593 million,
including transaction costs and the assumption of the estimated net indebtedness
of Genesis at closing (the "Genesis Acquisition"). The cash portion of the
acquisition price was paid through advances under the Company's revolving credit
facility and cash on hand. The Genesis Acquisition will be accounted for using
purchase accounting.
The Company estimates that it acquired 62.2 million barrels of oil
equivalent (BOE) of proved reserves in the transaction with Genesis consisting
of approximately 27.7 million barrels of oil and 207.2 Bcf of gas. Current net
daily production, after estimated royalties, from Genesis properties is about
17,800 BOE, composed of approximately 71 MMcf of gas and 6,060 barrels of oil.
The reserves acquired in the Genesis transaction are located primarily in the
provinces of Alberta and Saskatchewan with a significant exploration exposure in
the Northwest Territories.
In addition to reserves, the Company acquired over one million net
undeveloped acres principally located in the areas of Alberta and Saskatchewan
with a significant portion, aggregating to 440,000 net acres, in the Northwest
Territories. Also, the Genesis Acquisition brings with it over 600 square miles
of 3-D seismic and over 15,000 miles of 2-D seismic. Capital of $58 million has
been budgeted for the work activity planned for the remaining eight months of
2001.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. The following table reflects the Company's oil and gas
production and its average oil and gas sales prices for the periods presented:
Three Months Ended
March 31,
----------------------
2001 2000
-------- ----------
Production:
Oil (MBbls) -
U.S. .................. 2,185 2,223
Argentina ............. 2,476(a) 1,921(b)
Ecuador ............... 337(a) 329(b)
Bolivia ............... 23(a) 18(b)
Canada ................ 59 -
Total ............... 5,080(a) 4,491(b)
Gas (MMcf) -
U.S. .................. 8,561 8,642
Argentina ............. 2,042 1,483
Bolivia ............... 1,867 1,126
Canada ................ 830 -
Total ............... 13,300 11,251
Total MBOE ............... 7,297 6,366
Average prices:
Oil (per Bbl) -
U.S. .................. $ 25.68(c) $ 24.32(d)
Argentina ............. 26.05(c) 27.24
Ecuador ............... 17.98 23.94
Bolivia ............... 30.66 27.55
Canada ................ 26.39 -
Total ............... 25.38(c) 25.55(d)
Gas (per Mcf) -
U.S. .................. $ 7.85 $ 2.36
Argentina ............. 1.45 1.90
Bolivia ............... 1.97 1.39
Canada ................ 4.89 -
Total ............... 5.86 2.20
------------------
(a) Total production for the three months ended March 31, 2001, before the
impact of changes in inventories was 5,163 MBbls (Argentina - 2,544
MBbls, Ecuador - 350 MBbls, Bolivia - 25 MBbls).
(b) Total production for the three months ended March 31, 2000, before the
impact of changes in inventories was 4,765 MBbls (Argentina - 2,218
MBbls, Ecuador - 305 MBbls, Bolivia - 19 MBbls).
(c) Reflects the impact of oil hedges which increased the Company's first
quarter 2001 U.S., Argentina and total average oil prices per Bbl by
$0.62, $1.88 and $1.19, respectively.
(d) Reflects the impact of oil hedges which decreased the Company's first
quarter 2000 U.S. and total average oil prices per Bbl by $1.18 and
$0.58, respectively.
-14-
Average U.S. and Canada oil prices received by the Company fluctuate
generally with changes in the NYMEX reference price for oil. The Company's
Argentina oil production is sold at West Texas Intermediate spot prices as
quoted on the Platt's Crude Oil Marketwire (approximately equal to the NYMEX
reference price) less a specified differential. The Company's Ecuador production
is sold to various third party purchasers at West Texas Intermediate spot prices
less a specified differential. The Company experienced a one percent decrease in
its average oil price, including the impact of hedging activities (seven percent
decrease excluding hedging impact), during the first quarter of 2001 as compared
to the same period of 2000. The Company's realized average oil price for the
first three months of 2001 (before hedges) was approximately 84 percent of the
NYMEX reference price compared to 89 percent for the same period of 2000.
The Company participated in oil hedges covering 2.16 MMBbls and 1.31 MMBbls
during the first three months of 2001 and 2000, respectively. The impact of the
2001 hedges increased the Company's U.S. average oil price for the first three
months of 2001 by 62 cents to $25.68 per Bbl, its Argentina average oil price by
$1.88 to $26.05 per Bbl and its overall average oil price by $1.19 to $25.38 per
Bbl. The impact of the 2000 hedges reduced the Company's U.S. average oil price
for the first three months of 2000 by $1.18 to $24.32 per Bbl, and its overall
average oil price by 58 cents to $25.55 per Bbl.
Average U.S. gas prices received by the Company fluctuate generally with
changes in spot market prices, which may vary significantly by region as
evidenced by the significantly higher gas prices in California during the first
quarter 2001 due to the localized power shortage. The Company's Bolivia average
gas price is tied to a long-term contract under which the base price is adjusted
for changes in specified fuel oil indexes. In Argentina, the Company's average
gas price is primarily determined by the realized price of oil from its El
Huemul concession; however, this contract expires at the end of 2001. The
Company anticipates securing long-term contracts for this gas during 2001 and it
expects future gas prices to be at lower levels than the current contract. The
Company's Canada gas is generally sold at spot market prices as reflected by the
AECO gas price index. The Company's total average gas price for the first three
months of 2001 was 166 percent higher than the same period of 2000.
The Company has previously engaged in oil and gas hedging activities and
intends to continue to consider various hedging arrangements to realize
commodity prices which it considers favorable. The Company has entered into
various oil hedges (swap agreements) for a total of 1.375 MMBbls of oil at a
weighted average price of $29.61 per Bbl (NYMEX reference price) for the last
three quarters of 2001. The Company continues to monitor oil and gas prices and
may enter into additional oil and gas hedges or swaps in the future. The
following table reflects the barrels currently hedged and the corresponding
weighted average NYMEX reference prices by quarter for the remainder of 2001:
NYMEX
Reference Price
Price
Quarter Ending Barrels Per Bbl
------------------- ------- ---------------
June 30, 2001 455,000 $30.66
September 30, 2001 460,000 29.61
December 31, 2001 460,000 28.58
-15-
Relatively modest changes in either oil or gas prices significantly impact
the Company's results of operations and cash flow. However, the impact of
changes in the market prices for oil and gas on the Company's average realized
prices may be reduced from time to time based on the level of the Company's
hedging activities. Based on first quarter 2001 oil production, a change in the
average oil price realized, before hedges, by the Company of $1.00 per Bbl would
result in a change in net income and cash flow before income taxes on an annual
basis of approximately $3.2 million and $5.0 million, respectively. A 10 cent
per Mcf change in the average price realized, before hedges, by the Company for
gas would result in a change in net income and cash flow before income taxes on
an annual basis of approximately $3.3 million and $5.3 million, respectively,
based on first quarter 2001 gas production.
Period to Period Comparison
Three Months ended March 31, 2001, Compared to Three Months ended March 31, 2000
The Company reported net income of $70.7 million for the three months ended
March 31, 2001, compared to net income of $38.3 million for the same period in
2000. A 166 percent increase in average gas prices received by the Company and a
15 percent increase in production on a BOE basis were primarily responsible for
the significant increase in its net income.
Oil and gas sales increased $67.4 million (48 percent), to $206.9 million
for the first three months of 2001 from $139.5 million for the same period of
2000. A 166 percent increase in average gas prices, coupled with an 18 percent
increase in gas production, accounted for an increase of $53.2 million. A 13
percent increase in oil production, partially offset by a one percent decrease
in average oil prices, accounted for an additional increase of $14.2 million.
The Company had a 13 percent increase in oil production primarily as a result of
2000 and 2001 exploitation activities in Argentina and volumes associated with
its Argentina Cuyo basin properties acquired in September 2000. The Company's
gas production rose by 18 percent due primarily to the gas production from the
Canadian properties acquired through the purchase of 100 percent of the
outstanding common stock of Cometra Energy (Canada) Ltd. (the "Cometra
Acquisition") in December 2000, increased production in Bolivia as a result of
increased takes into the Bolivia-to-Brazil pipeline and increased gas production
in the Company's Argentina concessions.
Lease operating expenses, including production taxes, increased $12.3
million (35 percent), to $47.9 million for the first three months of 2001 from
$35.6 million for the same period of 2000. The increase in lease operating
expenses is due primarily to increased production as a result of the Company's
2000 drilling programs, an increase in production taxes due to higher product
prices, increased lease power and field services costs, certain one-time repair
costs and costs associated with properties acquired through the Cometra
Acquisition. Lease operating expenses per equivalent barrel produced increased
to $6.56 in the first quarter of 2001 from $5.59 for the same period in 2000. As
the result of a Securities and Exchange Commission mandate, transportation and
storage costs billed to the Company have been reclassified to lease operating
expenses for all periods shown. These costs had been previously reported as a
reduction of oil and gas revenues consistent with oil and gas industry practice.
This reclassification added 38 cents and 28 cents to the reported lease
operating expense per BOE for the first three months of 2001 and 2000,
respectively.
-16-
Exploration costs decreased $0.1 million (4 percent), to $2.2 million for
the first quarter of 2001 from $2.3 million for the same period of 2000. During
the first quarter of 2001, the Company's exploration costs included $1.5 million
for unsuccessful exploratory drilling and leasehold impairments, and $0.7
million for seismic and other geological and geophysical costs. Exploration
expenses for the first quarter of 2000 consisted of $2.1 million for
unsuccessful exploratory drilling and $0.2 million for lease impairments.
General and administrative expenses increased $3.0 million (33 percent), to
$12.0 million for 2001 from $9.0 million for the same period of 2000, due
primarily to personnel additions and consulting costs in conjunction with the
Company's higher level of capital expenditures, bonuses paid to the Company's
international employees in February 2001 and costs associated with the Company's
new Canadian operations acquired in December 2000. The Company's G&A per BOE for
the first quarter of 2001 was $1.64 compared to $1.41 for the same period of
2000.
Depreciation, depletion and amortization increased $6.0 million (28
percent), to $27.6 million for the first quarter of 2001 from $21.6 million for
the same period of 2000, primarily due to a 15 percent increase in total
production. The Company's average oil and gas DD&A rate per equivalent barrel
produced increased from $3.25 in the first quarter of 2000 to $3.65 in the first
quarter of 2001.
Interest expense decreased $2.5 million (19 percent), to $10.9 million for
the first quarter of 2001 from $13.4 million for the same period of 2000,
primarily as a result of a 23 percent decrease in the Company's total average
outstanding debt due to the Company's significant repayment of outstanding debt
from its significantly increased cash flow in excess of capital expenditures.
The Company's average interest rate for its outstanding debt for the first
quarter of 2001 was 9.10 percent compared to 8.59 percent in the same period of
2000 reflecting the impact of the smaller amount of floating rate long-term debt
outstanding quarter over quarter. The Company had $9.3 million and $5.0 million
of accrued interest payable at March 31, 2001, and December 31, 2000,
respectively, included in other payables and accrued liabilities.
Capital Expenditures
During the first quarter of 2001, the Company's total oil and gas capital
expenditures were $30.4 million. In North America, the Company's non-acquisition
oil and gas capital expenditures totaled $12.4 million. Exploration activities
accounted for $5.6 million of the North America capital expenditures with
exploitation activities contributing $6.8 million. During the first quarter of
2001, the Company's international non-acquisition oil and gas capital
expenditures totaled $17.0 million, including $14.1 million in Argentina on
exploitation activities and $2.1 million in Ecuador, principally on
exploitation. The Company also spent a combined $0.5 million in Bolivia and
Yemen during the first quarter of 2001. This sizeable decrease from 2000
spending in these two countries is the result of the completion of the Bolivia
drilling program in 2000 and the Company's current evaluation stage of the 2000
Yemen drilling program results.
As of March 31, 2001, the Company had total unevaluated oil and gas
property costs of approximately $47.5 million consisting of undeveloped
leasehold costs of $30.8 million and exploratory drilling in progress of $16.7
million. Approximately $20.8 million of the unevaluated costs are associated
with the Company's Yemen drilling program. Future exploration expense and
earnings may be impacted to the extent any of the exploratory drilling is
determined to be unsuccessful.
-17-
On May 2, 2001, the Company completed the Genesis Acquisition for total
consideration of $593 million, including transaction costs and the assumption of
the estimated net indebtedness of Genesis at closing. The cash portion of the
acquisition price was paid through advances under the Company's revolving credit
facility and cash on hand.
The timing of most of the Company's capital expenditures is discretionary
with no material long-term capital expenditure commitments. Consequently, the
Company has a significant degree of flexibility to adjust the level of such
expenditures as circumstances warrant. The Company uses internally-generated
cash flow to fund capital expenditures other than significant acquisitions. The
Company's non-acquisition capital expenditure budget for 2001 is currently set
at $278 million, including $58 million for expenditures on the newly acquired
Genesis properties. The Company does not have a specific acquisition budget
since the timing and size of acquisitions are difficult to forecast. The Company
is actively pursuing additional acquisitions of oil and gas properties. In
addition to internally-generated cash flow and advances under its revolving
credit facility, the Company may seek additional sources of capital to fund any
future significant acquisitions (see "Liquidity"), however, no assurance can be
given that sufficient funds will be available to fund the Company's desired
acquisitions.
Liquidity
Internally generated cash flow and the borrowing capacity under its
revolving credit facility are the Company's major sources of liquidity. In
addition, the Company may use other sources of capital, including the issuance
of additional debt securities or equity securities, to fund any major
acquisitions it might secure in the future and to maintain its financial
flexibility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. Since
1990, in conjunction with the purchase of substantial oil and gas assets, the
Company completed five public equity offerings as well as three public debt
offerings, which provided the Company with aggregate net proceeds of
approximately $643 million.
Under the Second Amended and Restated Credit Agreement dated November 30,
2000 (the "Bank Facility"), certain banks have provided to the Company a $625
million unsecured revolving credit facility. The Bank Facility establishes a
borrowing base determined by the banks' evaluation of the Company's oil and gas
reserves. The amount available to be borrowed under the Bank Facility is limited
to the lesser of the facility size or the borrowing base, which are both
currently set at $625 million. The Company's current borrowing base of $625
million is before consideration of the Genesis properties. As a result of the
Genesis Acquisition, the Company expects its borrowing base to be increased, but
cannot predict at this time by how much.
Outstanding advances under the Bank Facility bear interest payable
quarterly at a floating rate based on Bank of Montreal's alternate base rate (as
defined) or, at the Company's option, at a fixed rate for up to six months based
on the Eurodollar market rate ("LIBOR"). The Company's interest rate increments
above the alternate base rate and LIBOR vary based on the level of outstanding
senior debt to the borrowing base. As of March 31, 2001, the Company had no
borrowings outstanding under its Bank Facility, excluding outstanding letters of
credit of approximately $8.7 million. Subsequent to the closing of the Genesis
Acquisition, the Company had outstanding borrowings of $562 million, excluding
letters of credit. The Company must pay a commitment fee ranging from 0.325 to
0.50 percent per annum on the unused portion of the banks' commitment.
-18-
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's oil and gas reserves. If the sum
of outstanding senior debt exceeds the borrowing base, as redetermined, the
Company must repay such excess. Final maturity of the Bank Facility is November
30, 2005.
Subsequent to the closing of the Genesis Acquisition, the unused portion of
the Bank Facility, before consideration of the positive impact of the Genesis
Acquisition on the Company's borrowing base, was approximately $54 million. The
unused portion of the Bank Facility and the Company's internally generated cash
flow provide liquidity which may be used to finance future capital expenditures,
including acquisitions. As additional acquisitions are made and such properties
are added to the borrowing base, the banks' determination of the borrowing base
and their commitments may be increased.
The Company's internally generated cash flow, results of operations and
financing for its operations are dependent on oil and gas prices. For the first
quarter of 2001, approximately 70 percent of the Company's production was oil.
Realized oil prices for the period decreased by one percent as compared to the
same period of 2000 and total production on a BOE basis increased by 15 percent.
As a result, the Company's earnings and cash flows materially increased compared
to the first quarter of 2000. To the extent oil prices decline, the Company's
earnings and cash flow from operations may be adversely impacted. However, the
Company believes that its cash flows and unused availability under the Bank
Facility are sufficient to fund its planned capital expenditures for the
foreseeable future.
Inflation
In recent years inflation has not had a significant impact on the Company's
operations or financial condition.
Income Taxes
The Company incurred a current provision for income taxes of approximately
$22.2 million and $14.2 million for the first three months of 2001 and 2000,
respectively. The total provision for U.S. income taxes is based on the Federal
corporate statutory income tax rate plus an estimated average rate for state
income taxes. Earnings of the Company's foreign subsidiaries are subject to
foreign income taxes. No U.S. deferred tax liability will be recognized related
to the unremitted earnings of these foreign subsidiaries as it is the Company's
intention, generally, to reinvest such earnings permanently.
Change in Accounting Principles
The Company adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB No. 101"), in the fourth quarter of
2000, effective January 1, 2000. SAB No. 101 requires oil inventories held in
storage facilities to be valued at cost. Cost is defined as lifting costs plus
depreciation, depletion and amortization. The Company previously followed
industry practice by valuing oil inventories at market. The cumulative effect
reduced net income by $1.4 million, net of income tax effects of $0.6 million.
The first three months of 2000 have been restated to give effect to this change
in accounting principle. Additional volatility in quarterly and annually
reported earnings may occur in the future as a result of the required adoption
of SAB No. 101 and fluctuations in oil inventory levels.
-19-
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended in June 1999 by Statement No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 and in June 2000 by Statement No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133 ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. Companies
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
Upon adoption of SFAS No. 133 on January 1, 2001, the Company recorded a
transition asset of $18.5 million related to cash flow hedges in place that are
used to reduce the volatility in commodity prices for portions of the Company's
forecasted oil production. Additionally, the Company recorded, net of tax, an
adjustment to accumulated other comprehensive income (Stockholders' Equity
section of the balance sheet) of $14.9 million. The amount recorded to
accumulated other comprehensive income will be relieved over time and taken to
the income statement as the physical transactions being hedged are finalized.
Foreign Operations
For information on the Company's foreign operations, see "Foreign Currency
and Operations Risk" under Item 3 of this Form 10-Q.
Forward-Looking Statements
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements in this Form 10-Q, other than
statements of historical facts, that address activities, events or developments
that the Company expects, believes or anticipates will or may occur in the
future, including production, operating costs and product price realization
targets, future capital expenditures (including the amount and nature thereof),
the drilling of wells, reserve estimates, future production of oil and gas,
future cash flows, future reserve activity and other such matters are forward-
looking statements. Although the Company believes the expectations expressed in
such forward-looking statements are based on reasonable assumptions within the
bounds of its knowledge of its business, such statements are not guarantees of
future performance and actual results or developments may differ materially from
those in the forward-looking statements.
Factors that could cause actual results to differ materially from those in
forward-looking statements include: oil and gas prices; exploitation and
exploration successes; continued availability of capital and financing; general
economic, market or business conditions; acquisition opportunities (or lack
thereof); changes in laws or regulations; risk factors listed from time to time
in the Company's reports and other documents filed with the Securities and
Exchange Commission; and other factors. The Company assumes no obligation to
publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise.
-20-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------
The Company's operations are exposed to market risks primarily as a result
of changes in commodity prices, interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.
Commodity Price Risk
The Company produces, purchases and sells crude oil, natural gas,
condensate, natural gas liquids and sulfur. As a result, the Company's financial
results can be significantly impacted as these commodity prices fluctuate widely
in response to changing market forces. The Company has previously engaged in oil
and gas hedging activities and intends to continue to consider various hedging
arrangements to realize commodity prices which it considers favorable. During
2000, the Company entered into various oil hedges (swap agreements) for a total
of 3.5 MMBbls of oil at a weighted average NYMEX reference price of $30.76 per
Bbl for the calendar year 2001. The fair value of commodity swap agreements is
the amount at which they could be settled, based on quoted market prices. At
March 31, 2001, the Company would have received approximately $4.6 million to
terminate its oil swap agreements then in place for the last three quarters of
2001 covering a total 1.375 MMBbls of oil at an average NYMEX reference price of
$29.61 per Bbl. The Company continues to monitor oil and gas prices and may
enter into additional oil and gas hedges or swaps in the future.
Interest Rate Risk
The Company's interest rate risk exposure results primarily from short-term
rates, mainly LIBOR based borrowings from its commercial banks. To reduce the
impact of fluctuations in interest rates, the Company maintains a portion of its
total debt portfolio in fixed rate debt. At March 31, 2001, the amount of the
Company's fixed rate debt was 100 percent of its total long-term debt. In the
past, the Company has not entered into financial instruments such as interest
rate swaps or interest rate lock agreements. However, it may consider these
instruments to manage the impact of changes in interest rates based on
management's assessment of future interest rates, volatility of the yield curve
and the Company's ability to access the capital markets in a timely manner.
The following table provides information about the Company's long-term debt
principal payments and weighted-average interest rates by expected maturity
dates:
Fair
Value
There- at
2001 2002 2003 2004 2005 after Total 03/31/01
------ ------ ---- ---- -------- -------- -------- ---------
Long-Term Debt:
Fixed rate (in thousands)..... - - - - $149,807 $249,450 $399,257 $ 420,234
Average interest rate......... - - - - 9.0% 9.3% 9.2% -
Variable rate (in thousands).. - - - - - - - -
Average interest rate......... - - - - - - - -
-21-
Foreign Currency and Operations Risk
International investments represent, and are expected to continue to
represent, a significant portion of the Company's total assets. The Company has
international operations in Argentina, Bolivia, Ecuador, Canada and Yemen. For
the first quarter of 2001, the Company's exploration and production operations
in Argentina accounted for approximately 24 percent of the Company's revenues,
33 percent of the Company's operating income and 33 percent of its total assets.
During the first quarter of 2001, the Company's operations in Argentina
represented its only foreign operations accounting for more than 10 percent of
its revenues or operating income or total assets. The Company continues to
identify and evaluate international opportunities, but currently has no binding
agreements or commitments to make any material international investment. As a
result of such significant foreign operations, the Company's financial results
could be affected by factors such as changes in foreign currency exchange rates,
weak economic conditions or changes in the political climate in these foreign
countries.
Since 1999, Argentina's economy has been in recession. In an effort to
regain control of the economy, President Fernando de la Rua recently appointed
Domingo Cavallo as Minister of Economy. Mr. Cavallo was then granted emergency
powers by Congress to introduce reforms to achieve an economic reactivation by
restoring growth and competitiveness and avoiding a debt restructuring with the
IMF. Mr. Cavallo's immediate measures rely upon a cyclical improvement in tax
revenue, clamping down on tax evasion, lowering tariffs on imported capital
goods to lower the costs of investment and a tax on financial transactions. The
new Economy Minister has also proposed for the peso to shift from fixed parity
with the U.S. dollar to a link with a basket of currencies including the euro
and its main trading partners.
All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are denominated in Argentine pesos. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur,
its revenues would be unaffected and its operating costs would not be
significantly increased. At the present time, there are no foreign exchange
controls preventing or restricting the conversion of Argentine pesos into
dollars.
Since the mid-1980's, Bolivia has been undergoing major economic reform,
including the establishment of a free-market economy and the encouragement of
foreign private investment. Economic activities that had been reserved for
government corporations were opened to foreign and domestic private investments.
Barriers to international trade have been reduced and tariffs lowered. A new
investment law and revised codes for mining and the petroleum industry, intended
to attract foreign investment, have been introduced.
On February 1, 1987, a new currency, the Boliviano ("Bs"), replaced the
peso at the rate of one million pesos to one Boliviano. The exchange rate is set
daily by the Government's exchange house, the Bolsin, which is under the
supervision of the Bolivian Central Bank. Foreign exchange transactions are not
subject to any controls. The US$:Bs exchange rate at March 31, 2001, was
US$1:Bs6.49. The Company believes that any currency risk associated with its
Bolivian operations would not have a material impact on the Company's financial
position or results of operations.
-22-
In Ecuador, President Gustavo Naboa and Congress continue policy debates on
the broad-based program of economic reform to stem the decline in economic
activity and to strengthen economic growth. The legal basis for many of the
reforms is the Ley Fundamental para la Transformacion Economica del Ecuador (the
"economic transformation law") enacted in March 2000, which mandated
dollarization of the economy. As a result of this reform, all of the Company's
Ecuadorian revenues and costs are U.S. dollar based. The second phase of the
economic transformation law (known as Trole II), which was intended to bring
significant tax and labor reform and a defined privatization program to increase
inflows of foreign direct investment, was recently rejected by Congress. The
government is planning alternative methods to reduce the projected fiscal
deficit and increase investment. Although the current political environment has
slowed decisive policymaking, fixed investment, driven by construction of the
new heavy oil pipeline (the O.C.P.), should see a significant increase in 2001.
With the Cometra Acquisition in December 2000 and the Genesis Acquisition
in May 2001, the Company now has significant producing operations in Canada. The
Company views the operating environment in Canada as stable and the economic
stability as good. A majority of the Company's Canadian revenues and costs are
denominated in Canadian dollars, and while the value of the Canadian dollar does
fluctuate in relation to the U.S. dollar, the Company believes that any currency
risk associated with its Canadian operations would not have a material impact on
the Company's financial position or results of operations. The US$:C$ exchange
rate at March 31, 2001, was US$1:C$1.5784 as compared to US$1:C$1.4995 at
December 31, 2000.
-23-
PART II
OTHER INFORMATION
-24-
Item 1. Legal Proceedings
-----------------
For information regarding legal proceedings, see the Company's Form
10-K for the year ended December 31, 2000.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
not applicable
Item 5. Other Information
-----------------
A copy of the Company's press release dated May 1, 2001, and a copy of
each of the two press releases dated May 3, 2001, are attached as
exhibits hereto and are incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
99.1 Press release dated May 1, 2001, issued by the Company
announcing the successful acquisition of Genesis
Exploration Ltd.
99.2 Press release dated May 3, 2001, issued by the Company
announcing first quarter 2001 earnings.
99.3 Press release dated May 3, 2001, issued by the Company
announcing completion of the acquisition of Genesis
Exploration Ltd., revision of capital budget and revised
targets for 2001.
b) Reports on Form 8-K
None
-25-
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.
VINTAGE PETROLEUM, INC.
-----------------------
(Registrant)
DATE: May 7, 2001 /s/ Michael F. Meimerstorf
------------- -------------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
-26-
Exhibit Index
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
------- ----------------------------------------------------------------
99.1 Press release dated May 1, 2001, issued by the Company announcing
the successful acquisition of Genesis Exploration Ltd.
99.2 Press release dated May 3, 2001, issued by the Company announcing
first quarter 2001 earnings.
99.3 Press release dated May 3, 2001, issued by the Company announcing
completion of the acquisition of Genesis Exploration Ltd.,
revision of capital budget and revised targets for 2001.