UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ______________
Commission File Number: 1-11675
TRITON ENERGY LIMITED
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS NONE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CALEDONIAN HOUSE
MARY STREET, P.O. BOX 1043
GEORGE TOWN
GRAND CAYMAN, CAYMAN ISLANDS NONE
(Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 345-949-0050
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
New York Stock Exchange
Ordinary Shares, $.01 par value
Securities registered pursuant to Section 12(g) of the Act:
None.
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. X
-----
THE AGGREGATE MARKET VALUE OF THE OUTSTANDING ORDINARY SHARES HELD
BY NON-AFFILIATES OF THE REGISTRANT AT MARCH 17, 1999 (FOR SUCH
PURPOSES ONLY, ALL DIRECTORS AND EXECUTIVE OFFICERS ARE PRESUMED TO BE
AFFILIATES) WAS APPROXIMATELY $244.9 MILLION, BASED ON THE CLOSING SALES PRICE
OF $7 ON THE NEW YORK STOCK EXCHANGE.
AS OF MARCH 17, 1999, 36,662,819 ORDINARY SHARES OF THE
----------
REGISTRANT WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT PERTAINING TO THE 1999 ANNUAL MEETING OF
SHAREHOLDERS OF TRITON ENERGY LIMITED ARE INCORPORATED BY REFERENCE INTO PART
III HEREOF.
<PAGE>
TRITON ENERGY LIMITED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Form 10-K Item Page
- -------------- ----
PART I
ITEMS 1. and 2. Business and Properties 2
ITEM 3. Legal Proceedings 18
ITEM 4. Submission of Matters to a Vote of Security Holders 20
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
ITEM 6. Selected Financial Data 25
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 26
ITEM 7.A. Quantitative and Qualitative Disclosures about Market Risk 40
ITEM 8. Financial Statements and Supplementary Data 42
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 42
PART III
ITEM 10. Directors and Executive Officers of the Registrant 43
ITEM 11. Executive Compensation 43
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 43
ITEM 13. Certain Relationships and Related Transactions 43
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 44
</TABLE>
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
Triton Energy Limited is an international oil and gas exploration and
production company. The Company's principal properties, operations, and oil and
gas reserves are located in Colombia and Malaysia-Thailand. The Company is
exploring for oil and gas in these areas, as well as in southern Europe, Africa
and the Middle East.
Triton Energy Limited was incorporated in the Cayman Islands in 1995 to
become the parent holding company of Triton Energy Corporation, a corporation
formed in Texas in 1962 and reincorporated in Delaware in 1995. The Company's
principal executive offices are located at Caledonian House, Mary Street, George
Town, Grand Cayman, Cayman Islands, and its telephone number is (345) 949-0050.
The terms "Company" and "Triton" when used in this report mean Triton Energy
Limited and its subsidiaries and other affiliates through which Triton conducts
its business, unless the context otherwise implies. Information regarding the
Company can be obtained by contacting the Company's Investor Relations
department at Triton Energy, 6688 North Central Expressway, Suite 1400, Dallas,
Texas 75206, telephone number (214) 691-5200, or at the Company's web site,
www.tritonenergy.com.
CERTAIN DEVELOPMENTS IN 1998
Sale of Triton Pipeline Colombia, Inc.
-------------------------------------------
In February 1998, the Company sold Triton Pipeline Colombia, Inc., ("TPC")
a wholly owned subsidiary that held the Company's 9.6% equity interest in the
Colombian pipeline company, Oleoducto Central S. A. ("OCENSA"). See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and note 5 of Notes to Consolidated Financial Statements.
Sale of Interest in Block A-18 of the Malaysia-Thailand Joint Development
---------------------------------------------------------------------------
Area
---
In July 1998, the Company signed an agreement providing financing for the
development of the Company's gas reserves on Block A-18 of the Malaysia-Thailand
Joint Development Area. Under terms of the agreement, consummated in August
1998, the Company sold to a subsidiary of the Atlantic Richfield Company
("ARCO") one-half of the shares of the subsidiary through which the Company
owned its 50% share of Block A-18. See " - Oil and Gas Properties -
Malaysia-Thailand" below, "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and note 5 of Notes to
Consolidated Financial Statements.
<PAGE>
Restructure of Operations
---------------------------
In July 1998, the Company commenced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back
exploration-related expenditures. The plan contemplated the closing of foreign
offices in four countries, the elimination of approximately 105 positions, or
41% of the worldwide workforce, and the relinquishment or other disposal of
several exploration licenses. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and notes 3 and 4 of Notes to
Consolidated Financial Statements.
Stock Purchase Agreement with an Affiliate of Hicks, Muse, Tate & Furst
---------------------------------------------------------------------------
Incorporated
- ------------
In August 1998, the Company and HM4 Triton, L.P. ("HM4 Triton"), an
affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into
a stock purchase agreement (the "Stock Purchase Agreement") that provided for a
$350 million equity investment in the Company. The investment was effected in
two stages, resulting in the issuance of 1,822,500 shares of 8% convertible
preference shares ("8% Preference Shares") in September 1998 (all of which were
issued to HM4 Triton) and an additional 3,177,500 8% Preference Shares in
January 1999 (of which 3,114,863 shares were issued to HM4 Triton and the
remainder of which were issued to the public in a rights offering). Each 8%
Preference Share is convertible at any time at the option of the holder into
four ordinary shares of the Company (subject to certain antidilution
protections). The Company and HM4 Triton also entered into a Shareholders
Agreement (the "Shareholders Agreement") pursuant to which, among other things,
HM4 Triton (and its designated transferees, collectively) may designate a
certain number of nominees for election to the Company's Board of Directors.
Pursuant to the Shareholders Agreement, in September 1998, the size of the
Company's Board of Directors was set at ten, and HM4 Triton exercised its right
to designate four out of such ten directors. In addition, the Shareholders
Agreement provides that, for so long as HM4 Triton and its affiliates continue
to hold a certain minimum number of ordinary shares (assuming conversion of 8%
Preference Shares into ordinary shares), the Company may not take certain
actions without the consent of HM4 Triton, including entering into any merger or
sale of substantial assets and paying dividends on ordinary shares or other
shares ranking junior to the 8% Preference Shares, other than regular dividends
on the Company's 5% convertible preference shares ("5% Preference Shares"). See
"Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and notes 2, 13 and 20 of Notes to Consolidated
Financial Statements.
OIL AND GAS PROPERTIES
Colombia
--------
Through the Company's wholly owned subsidiaries, Triton Colombia, Inc. and
Triton Resources Colombia, Inc. (collectively, "Triton Colombia"), the Company
has varying participation interests in six licenses in Colombia.
<PAGE>
Cusiana and Cupiagua Fields
Contract Terms. In the Andean foothills of the Llanos Basin area in
---------------
eastern Colombia, Triton Colombia holds a 12% interest in the SDLA, Tauramena
and Rio Chitamena contract areas, covering approximately 66,000, 36,300 and
6,700 acres, respectively, where an active development program is being carried
out in the Cusiana and Cupiagua fields (the "Fields"). The area is located
approximately 160 kilometers (100 miles) northeast of Bogota . Triton's partners
in these areas are Empresa Colombiana De Petroleos ("Ecopetrol"), the Colombian
national oil company, with a 50% interest, BP Exploration Company (Colombia)
Limited ("BP"), the operator, with a 19% interest, and TOTAL Exploratie en
Produktie Maatschippij B.V. ("TOTAL"), also with a 19% interest. Triton's net
revenue interest is approximately 9.6% after governmental royalties. Triton's
net revenue is reduced by up to 0.36% pursuant to an agreement with an original
co-investor, subject to Triton being reimbursed for a proportionate share of
related expenditures.
The Company and its private partners have secured the right to produce
oil and gas from the SDLA and Tauramena contract areas through the years 2010
and 2016, respectively, and from the Rio Chitamena contract area through 2015 or
2019, depending on contract interpretation. In July 1994, Triton Colombia, BP,
TOTAL and Ecopetrol entered into an Integral Plan for the Unified Exploitation
of the Cusiana Oil Structure in the SDLA, Tauramena and Rio Chitamena
Association Contract Areas. Under the plan, the parties have agreed to develop
the Cusiana oil structure in a technically efficient and cooperative manner
during three consecutive periods of time. During the initial period (ending
with the expiration of the SDLA association contract in 2010), petroleum
produced from the unified area will be owned by the parties according to their
interests in each contract area.
In the first quarter of 2005, an independent determination of the
original barrels of oil equivalent ("BOE") of petroleum in place under the
unified area and under each association contract will be made. Then a "tract
factor" will be calculated for each association contract. Each tract factor
will be the amount of original BOEs of petroleum in place under the particular
association contract as a percentage of the total original BOEs under the
unified area. Each party's unified area interest during the second period
(commencing from the expiration of the SDLA association contract in 2010) and
during the final period (commencing from the termination of the second
association contract to termination) will be the aggregate of that party's
interest in each remaining association contract multiplied by the tract factor
for each such contract.
Recent Drilling Results. In the Cusiana Field, during 1998, Triton
-------------------------
Colombia and its working interest partners completed an additional seven wells,
bringing the total completions to date to 40 producing wells, 12 gas injection
wells and two water injection wells. The gas injection wells recycle to the
Mirador formation most of the gas that is associated with the oil production to
increase the oil recoverable during the life of the field. The water injection
wells inject the field's produced water into the Barco and Guadalupe formations
for disposal and pressure maintenance. There are currently five drilling rigs
operating in the Cusiana Field, and the Company expects that eight oil
production and water or gas injection wells will be completed during 1999.
In the Cupiagua Field, during 1998, Triton Colombia and its working
interest partners completed an additional six wells, bringing the total
completions to date to 18 producing wells and five gas injection wells. There
are currently six drilling rigs operating in the Cupiagua Field, and the Company
expects that eleven oil production and water or gas injection wells will be
completed during 1999.
In January 1998, the sidetrack of the suspended Cusiana-5 well,
referred to as the Cupiagua-EXP well, was completed as a discovery of the
Cupiagua South extension of the Cupiagua Field. The well penetrated the Mirador
and Barco formations and confirmed the upthrown block of the Cupiagua lower
plate. The logs and other data taken from the well confirmed that the
hydrocarbon accumulation has a different oil/water contact than either the core
of the Cupiagua Field or the lower plate discovered in the Cupiagua K-5 well,
drilled in late 1995. The reservoir discovered by the Cupiagua-EXP well was
designated the Cupiagua South Field, which was granted commerciality by
Ecopetrol and placed on production in June 1998.
Production Facilities and Pipelines. The production facilities in the
-----------------------------------
Cusiana Field have been completed. The components of the Cusiana Central
Processing Facility (CPF) consist of a long term test facility, four early
production units, and two 80,000 barrels of oil per day ("BOPD") production
trains, which brought the production capacity of the Cusiana CPF to
approximately 320,000 BOPD. Currently, the production of the Cusiana Field is
limited by the gas handling capacity of the Cusiana CPF of about 1,400 million
cubic feet of gas per day.
In 1998, the two 100,000 BOPD production trains at the Cupiagua CPF
were completed and put in operation, which process the condensate and gas
production from the Cupiagua producing wells. The gas handling capacity of the
Cupiagua CPF is approximately 840 million cubic feet of gas per day and a third
compression unit is being installed, which is designed to bring the Cupiagua gas
handling capacity to approximately 1,300 million cubic feet of gas per day.
Crude oil and condensate produced from the Cusiana and Cupiagua
fields, as well as crude oil from other third parties, are transported to the
Caribbean port of Covenas through the 832-kilometer (520-mile) pipeline system
operated by OCENSA. OCENSA is a Colombian company formed by Triton Pipeline
Colombia, Inc., a wholly owned subsidiary of the Company until its sale in
February 1998, Ecopetrol, BP Colombia Pipelines Ltd., Total Pipeline Colombie,
S.A., IPL Enterprises (Colombia) Inc. and TCPL International Investments Inc.
Other Areas in Colombia
Triton owns rights to three additional licenses in Colombia. In the
Middle Magdalena Valley basin and adjacent foothills, Triton owns a 50% interest
(before certain royalties and government participation) in the El Pinal contract
area, which covers approximately 36,000 acres (after a partial relinquishment in
1998) approximately 330 kilometers (205 miles) north of Bogota . In the southern
part of El Pinal, Triton discovered and confirmed the Liebre Field with two
wells (the Liebre-1 and -2). Liebre-1 ceased production in June 1998 while
Liebre-2 continues to produce approximately 160 BOPD.
In June 1995, the Company was awarded the Guayabo A and B association
contracts, with Deminex Colombia Petroleum Gmbh acquiring a 50% interest in
1996. The area is located approximately 150 kilometers (93 miles) north of
Bogota. The Guayabo A block covers approximately 167,000 acres. The Guayabo B
block was reduced in size to approximately 148,000 acres after a
mandatory relinquishment at the end of the first exploration phase. The Company
expects to spud an exploratory well in the Guayabo A block during 1999. In
the Guayabo B block, the Company is currently conducting a surface geology
program to satisfy the commitments for the second exploration phase
ending in 1999.
Malaysia-Thailand
-----------------
Through the Company's 50% owned subsidiaries, Triton Oil Company of
Thailand (JDA) Limited and Triton Oil Company of Thailand (collectively,
"Triton Thailand"), the Company has a participating interest in Block A-18 of
the Malaysia-Thailand Joint Development Area in the Gulf of Thailand. ARCO owns
the remaining shares of Triton Thailand. To date, eight fields have been
discovered on the block. The operator is Carigali-Triton Operating Company Sdn.
Bhd. ("CTOC"), a company owned equally by Triton Thailand and Petronas Carigali
(JDA) Sdn. Bhd. ("Carigali"), a subsidiary of the Malaysian national oil
company.
Contract Terms
In April 1994, Triton Thailand signed a production-sharing contract
covering the offshore area designated as Block A-18 of the Malaysia-Thailand
Joint Development Area. The contract area in the Gulf of Thailand, which
encompasses approximately 731,000 acres, had been the subject of overlapping
claims between Malaysia and Thailand. The other parties to the
production-sharing contract are the Malaysia-Thailand Joint Authority (the
"MTJA"), which has been established by treaty to administer the Joint
Development Area, and Carigali. The treaty provides for the development of the
Joint Development Area that includes Block A-18. Triton Thailand previously held
a license from Thailand that covered part of the Joint Development Area.
The term of the contract is 35 years, subject to possible
relinquishment of certain areas and subject to the treaty between Malaysia and
Thailand creating the MTJA remaining in effect. Triton and Carigali have the
right to explore for oil and gas for the first five years of the contract. The
contract provides that if there is a discovery of natural gas (not associated
with crude oil), and if the MTJA agrees, the contractors will be able to hold
that gas field without production for an additional five-year period, provided
the contractors submit to the MTJA an acceptable development plan for the field.
The contractors then have a five-year period from the MTJA's acceptance of the
development plan to develop the field, and have the right to produce gas from
the field for 20 years plus a number of years equal to the number of years, if
any, prior to the end of the holding period that gas production commenced (or
until the termination of the contract, if earlier). The contract grants to the
operators the right to produce oil from an oil field for 25 years (or until the
termination of the contract, if earlier). Any areas not developed and producing
within the periods provided will be relinquished. The MTJA has approved the
gas-holding area applications for the Bulan, Bumi, Cakerawala and Suriya Fields,
which, together represent approximately 91% of the proved reserves of Block A-18
as of December 31, 1998.
As oil and gas are produced, the MTJA is entitled to a 10% royalty. Up
to 50% of each unit of production is considered "cost oil" or "cost gas" and
will be allocated to the contractors to the extent of their recoverable costs,
with the balance considered "profit oil" or "profit gas" to be divided 50% to
the MTJA and 50% to the contractors (i.e., 25% to Carigali and 25% to Triton
Thailand). Triton Thailand's share of production is subject to an additional
royalty equal to 0.75% of Block A-18 production. Tax rates imposed by the MTJA
on behalf of the governments of Malaysia and Thailand are 0% for the first eight
years of production, 10% for the next seven years of production and 20% for any
remaining production.
The MTJA has agreed, subject to government approval, to extend the
five-year exploration period by three years (provided that the holding period
for any discovery in the additional three-year period would not extend beyond
the tenth anniversary of the contract) and to increase the percentage of each
unit of production that is considered "cost oil" or "cost gas" from 50% to 60%
for the Cakerawala Field and the Bulan Field, the fields planned for first-phase
development. The 35-year term of the contract is not affected.
The parties to the contract executed a "heads of agreement" in April
1998 contemplating a definitive gas-sales agreement for the sale of natural gas
from the block. Buyers of the gas would be the Petroleum Authority of Thailand
(PTT), the Thailand national oil company, and Petroliam Nasional Berhad
(PETRONAS), the Malaysian national oil company, on an equal basis. The
representatives of each of the parties have agreed to present an agreed form of
gas-sales agreement to their respective Boards of Directors and the governments
of Malaysia and Thailand for approval, but there can be no assurance as to
whether, or when, a definitive gas-sales agreement will be approved or executed.
Agreements with ARCO
In August 1998, the Company sold to ARCO for $150 million one-half of
the shares of the subsidiary through which the Company owns its interest in
Triton Thailand. The Company's agreements with ARCO require ARCO to pay the
future exploration and development costs attributable to Triton Thailand's
interest in Block A-18, up to $377 million or until first production from a gas
field, after which the Company and ARCO would each pay 50% of such costs. The
agreements provide that the Company will recover its investment in recoverable
costs in the project, approximately $101 million, and that ARCO will recover its
investment in recoverable costs, on a first-in, first-out basis from the cost
recovery portion of future production. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and note 5 of Notes
to Consolidated Financial Statements.
Recent Drilling Results
During 1998, two wells were drilled on Block A-18. The Senja-2
appraisal well was drilled approximately five kilometers (3 miles) east of the
Senja-1 discovery well drilled in 1997. The Senja-2 well encountered 118 feet of
net pay, 14.5 feet of which were tested. By comparison, the Senja-1 discovery
well encountered 213 feet of net pay. During a single test of a selected zone,
the Senja-2 well flowed at a maximum daily rate of 2 million cubic feet of gas
and 59 barrels of condensate. The Bulan-3 appraisal well was drilled
approximately three kilometers (1.9 miles) north of the Bulan-1 discovery well
drilled in 1996. The Bulan-3 well encountered 143 feet of net pay which was
evaluated with wireline tools and the well was abandoned without drill stem
testing.
<PAGE>
Development Plan
In December 1997, the MTJA approved the field development plan for the
Cakerawala Field. Initial development plans call for three wellhead platforms,
a production platform, a living quarters platform, a floating storage and
off-loading vessel for oil and condensate and 35 development wells. The Company
expects that development of the field will commence following execution of a
definitive gas-sales agreement and that development will take approximately 30
to 36 months to complete.
Ecuador
-------
The Company holds a 55% interest in Block 19, which covers approximately
494,000 acres located in the Andean foothills of the Oriente Basin. Triton's
partners in the block are Vintage Petroleum Ecuador, Inc., with a 30% interest,
and Ranger Oil Limited, with a 15% interest. The partners' remaining work
program commitments for Block 19 consist of the drilling of one exploratory well
by November 2000.
Greece
------
The Company has signed two leases with Hellenic Petroleum, the national oil
company of Greece, with the Company having an 88% interest in each lease and
Hellenic Petroleum the remaining 12% interest. The Gulf of Patraikos contract
area covers approximately 519,000 acres located offshore between the western
coast of Greece and the offshore Ionian islands of Lefkas, Kefalonia and
Zakynthos in water depths of up to 1,700 feet. The lease provides a primary
exploration term expiring in September 2001 with a commitment of 2,000
kilometers (1,250 miles) of new 2D seismic and the drilling of one exploratory
well for a total expenditure of not less than $13.5 million. The Company has
reprocessed approximately 3,000 kilometers (1,900 miles) of existing 2D seismic
and plans to acquire approximately 1,000 kilometers (625 miles) of new 2D
seismic in 1999.
The Aitoloakarnania contract area covers approximately 956,000 acres
located onshore in western Greece. The lease provides a primary exploration term
expiring in September 1999 with a commitment of 200 kilometers of 2D seismic and
the drilling of two exploratory wells for a total expenditure of not less than
$13.25 million. The Company has reprocessed approximately 660 kilometers (410
miles) of existing 2D seismic and acquired approximately 200 kilometers (125
miles) of new 2D seismic, and has applied for a one-year extension of the
obligation to drill the exploratory wells.
Italy
-----
The Company holds interests in six licenses in Italy comprising three
offshore blocks in the Adriatic Sea and three onshore blocks in the Southern
Apennines. Applications for two other onshore blocks were withdrawn in 1998.
The Company has a 40% interest in each of the contiguous DR71 and DR72
licenses covering approximately 493,000 acres in the Adriatic Sea located 45
kilometers (28 miles) offshore the city of Brindisi. Triton's partners in these
licenses are Enterprise Oil Italiana, S.p.A. ("Enterprise"), the operator, with
a 45% interest, and Mobil Oil Italiana S.p.A. ("Mobil"), with a 15% interest.
During 1998, the Company and its working interest partners drilled the Giove-1
well. The well was drilled to a total depth of 3,458 feet but was prematurely
abandoned due to a gas blowout and mechanical failure. A replacement well,
Giove-2, was drilled to a total depth of 4,285 feet and encountered oil and gas.
Additional work is required to evaluate the commercial potential of the
licenses. In March 1999, Mobil notified Enterprise and Triton of its intent to
withdraw and not enter the second exploration period of the DR71 and DR72
licenses. The Company expects that it will receive at least its proportionate
share of Mobil's interest in the blocks, and may acquire all of Mobil's interest
depending on Enterprise's response to the Mobil notice.
In 1998, Triton acquired a 20% interest in a third offshore license,
FR33AG. The license covers approximately 71,600 acres and is adjacent to the
DR71 and DR72 licenses. Eni S.p.A. is operator, with a 50% interest, and
Enterprise holds the remaining 30% interest. The license provides a primary
exploration term expiring in September 2004 with a commitment of 250 km (156
miles) of new 2D seismic and the drilling of one exploratory well.
In the southern Apennine Mountains, the Company has an interest in three
contiguous licenses, Fosso del Lupo, Valsinni and Masseria de Sole, covering
approximately 101,000 acres in the Matera province. The Company is the operator,
with a 50% interest, and Union Texas Adriatic holds the remaining 50% interest.
The licenses provide a primary exploration term expiring in August 2002 and
provide a combined work commitment of approximately 200 km (120 miles) of new 2D
seismic and the drilling of three exploratory wells. The Company plans to
acquire approximately 50 kilometers (30 miles) of seismic data over the licenses
in 1999.
Equatorial Guinea
------------------
The Company has signed production-sharing contracts covering two contiguous
blocks (Blocks F and G) with the Republic of Equatorial Guinea. The contracts
give the Company the right to explore and develop an area covering approximately
1.3 million acres located offshore and southwest of the town of Bata in water
depths of up to 5,200 feet. They provide an exploration term expiring in April
2000 with a commitment of 2,000 kilometers (1,250 miles) of seismic and the
drilling of one exploratory well, which the Company intends to drill in 1999.
The Company has acquired approximately 5,600 kilometers (3,500 miles) of 2D
seismic followed by a further 660 kilometers of infill 2D seismic and two site
surveys.
Madagascar
----------
The Company has signed a production-sharing contract with the Office of
National Mines and Strategic Industries in Madagascar covering the Ambilobe
Block. The block (approximately 4.3 million acres, after a partial
relinquishment in 1998) is located directly offshore from Ambilobe in water
depths of up to 11,500 feet. The Company has acquired approximately 3,000
kilometers (1,875 miles) of new 2D seismic.
<PAGE>
Oman
----
In 1998, the Company signed a production sharing contract for Block 40,
covering approximately 1.3 million acres located offshore in the Straits of
Hormuz. The contract provides an exploration term expiring in June 2001 with a
commitment of the drilling of one exploratory well. Triton is currently
reprocessing approximately 4,100 kilometers (2,600 miles) of existing 2D
seismic.
1998 Reduction in Exploration Activities
--------------------------------------------
In July 1998, the Company announced a plan to restructure operations,
reduce overhead costs and substantially scale back exploration-related capital
expenditures. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and notes 3 and 4 of Notes to Consolidated
Financial Statements. As a result of the scale back in exploration and in some
cases for technical reasons, during 1998 and early 1999, the Company effected,
or commenced the steps necessary for, the following:
- - Colombia - relinquished its interest in the Las Amelias license.
- - China - ceased its exploration efforts and closed its local offices.
- - Guatemala - ceased its exploration efforts and closed its local office, and
the Company is in the process of relinquishing its interest in its blocks.
- - Indonesia - sold its interest in the Blora production-sharing contract.
- - Madagascar - relinquished its interest in the Cap St. Marie Block.
- - Oman - relinquished its interest in Block 22.
- - Tunisia - withdrew from its interest in the Medjerda production sharing
contract.
- - England - closed its regional office.
RESERVES
The following table sets forth a summary of the estimated oil and gas
reserves of the Company at December 31, 1998, and is based on separate estimates
of the Company's net proved reserves prepared by the independent petroleum
engineers, DeGolyer and MacNaughton, with respect to the proved reserves in the
Cusiana and Cupiagua fields in Colombia, and by the Company's internal petroleum
engineers with respect to the proved reserves in Malaysia-Thailand on Block A-18
in the Gulf of Thailand and the Liebre Field in Colombia. This table sets forth
the estimated net quantities of proved developed and undeveloped oil and gas
reserves and total proved oil and gas reserves owned by the Company. For
additional information regarding the Company's reserves, including the
standardized measure of future net cash flows, see note 25 of Notes to
Consolidated Financial Statements. Oil reserves data include natural gas liquids
and condensate.
<PAGE>
Net proved reserves at December 31, 1998, were:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
---------------- ----------------- -----------------
OIL GAS OIL GAS OIL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF)
------- ------- ------- -------- -------- --------
Colombia (1) 86,039 12,284 49,288 --- 135,327 12,284
Malaysia-Thailand (2) --- --- 8,017 570,312 8,017 570,312
------- ------- ------- -------- -------- --------
Total 86,039 12,284 57,305 570,312 143,344 582,596
======= ======= ======= ======== ======== ========
</TABLE>
- ---------------------
(1) Includes liquids to be recovered from Ecopetrol as reimbursement for
precommerciality expenditures.
(2) As of December 31, 1998, the Company did not have a contract for the
sale of gas to be produced from its interest in the Malaysia-Thailand Joint
Development Area. In estimating its reserves attributable to such interest, the
Company assumed that production from the interest would be sold at the initial
base price for natural gas specified in the heads of agreement entered into in
April 1998. There can be no assurance that the price to be provided in any gas
contract will be equal to the price used in the Company's calculations.
Reserve estimates are approximate and may be expected to change as
additional information becomes available. Furthermore, estimates of oil and gas
reserves, of necessity, are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data, as well as the
projection of future rates of production and the timing of development
expenditures. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced, and there can be no assurance that the proved
undeveloped reserves will be developed within the periods anticipated.
No estimates of total proved net oil or gas reserves have been filed by the
Company with, or included in any report to, any United States authority or
agency pertaining to the Company's individual reserves since the beginning of
the Company's last fiscal year.
OIL AND GAS OPERATIONS
Production and Sales
----------------------
The following table sets forth the net quantities of oil and gas produced
by the Company for the years ended December 31, 1998, 1997 and 1996. The table
includes production attributable to the Company's 49.9% ownership interest in
Crusader Limited ("Crusader") through the date of its sale in 1996, as well as
the minority interests in Crusader's consolidated subsidiaries. The production
and sales information relating to properties or subsidiary or affiliate
ownership interests acquired or disposed of is reflected in the table only since
or up to the effective dates of their respective acquisitions or sales, as the
case may be. Certain information concerning the Company's revenues, assets and
certain other data by geographical area is contained in note 22 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
OIL PRODUCTION (1) GAS PRODUCTION
----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ----- ----- -----
(MBBLS) (MMCF)
Colombia (2) 9,979 5,776 5,738 503 802 298
Indonesia (3) --- --- 95 --- --- ---
United States (4) --- --- 20 --- --- 475
Crusader (5):
Australia --- --- 134 --- --- 1,744
----- ----- ----- ----- ----- -----
Total 9,979 5,776 5,987 503 802 2,517
===== ===== ===== ===== ===== =====
</TABLE>
____________________
(1) Includes natural gas liquids and condensate.
(2) Includes Ecopetrol reimbursement barrels and excludes 3.1 million, 2.5
million and .7 million barrels of oil produced and delivered for the years ended
December 31, 1998, 1997 and 1996, respectively, in connection with the Company's
forward oil sale in May 1995. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations" and
note 6 of Notes to Consolidated Financial Statements.
(3) In May 1996, the Company sold substantially all of the assets of Triton
Indonesia, Inc.
(4) In March 1996, Triton sold its domestic royalty and mineral interests.
(5) In 1996, the Company sold all of its interest in Crusader.
The following tables summarize for the years ended December 31, 1998, 1997
and 1996: (i) the average sales price per barrel of oil and per Mcf of natural
gas; (ii) the average sales price per equivalent barrel of production; (iii) the
depletion cost per equivalent barrel of production; and (iv) the production cost
per equivalent barrel of production:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE SALES PRICE AVERAGE SALES PRICE
PER BARREL OF OIL (1) PER MCF OF GAS
------------------------ -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- -----
Colombia (4) $12.31 $17.54 $19.62 $0.99 $1.15 $2.56
Indonesia --- --- 19.54 --- --- ---
United States --- --- 16.00 --- --- 1.15
Crusader:
Australia --- --- 19.95 --- --- 1.69
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER EQUIVALENT BARREL (2)
----------------------------------------------------------------------------
AVERAGE SALES PRICE DEPLETION (3) PRODUCTION COST
------------------------- ------------------------ -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------- ------------------------ -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- ----- ----- ----- ------
Colombia (4) $12.27 $17.37 $19.58 $4.07 $3.67 $2.83 $5.97 $6.47 $ 5.66
Indonesia --- --- 19.54 --- --- 0.52 --- --- 15.89
United States --- --- 8.75 --- --- 5.59 --- --- 3.25
Crusader:
Australia --- --- 13.23 --- --- 3.47 --- --- 4.10
</TABLE>
____________________
(1) Includes natural gas liquids and condensate.
(2) Natural gas has been converted into equivalent barrels of oil based on six
Mcf of natural gas per barrel of oil.
(3) Includes depreciation calculated on the unit of production method for
support equipment and facilities.
(4) Includes barrels delivered under the forward oil sale which are recorded
at $11.56 per barrel upon delivery. Excludes the full cost ceiling limitation
writedown in 1998 totaling $241 million.
Competition
-----------
The Company encounters strong competition from major oil companies
(including government-owned companies), independent operators and other
companies for favorable oil and gas concessions, licenses, production-sharing
contracts and leases, drilling rights and markets. Additionally, the governments
of certain countries in which the Company operates may, from time to time, give
preferential treatment to their nationals. The oil and gas industry as a whole
also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual consumers. The principal
means of competition in the sale of oil and gas are product availability, price
and quality. While it is not possible for the Company to state precisely its
competitive position in the oil and gas industry, the Company believes that it
represents a minor competitive factor.
Markets
-------
Crude oil, natural gas, condensate and other oil and gas products generally
are sold to other oil and gas companies, government agencies and other
industries. The Company does not believe that the loss of any single customer or
contract pursuant to which oil and gas are sold would have a long-term material,
adverse effect on the revenues from the Company's oil and gas operations.
In Colombia, crude oil is exported through the Caribbean port of Covenas
where it is sold at prices based on United States prices, adjusted for quality
and transportation. The oil produced from the Cusiana and Cupiagua fields is
transported to the export terminal by pipeline.
For a discussion of certain factors regarding the Company's markets and
potential markets that could affect future operations, see note 20 of Notes to
Consolidated Financial Statements.
<PAGE>
ACREAGE
The following table shows the total gross and net developed and undeveloped
oil and gas acreage held by Triton at December 31, 1998. "Gross" refers to the
total number of acres in an area in which the Company holds an interest without
adjustment to reflect the actual percentage interest held therein by the
Company. "Net" refers to the gross acreage as adjusted for working interests
owned by parties other than the Company.
"Developed" acreage is acreage spaced or assignable to productive wells.
"Undeveloped" acreage is acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas, regardless of whether such acreage contains proved reserves.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE (1)
------------ -------------
GROSS NET GROSS NET
----- ----- ------ -----
(In thousands)
Colombia 109 13 350 175
Malaysia-Thailand --- --- 731 183
Ecuador --- --- 494 272
Greece --- --- 1,475 1,298
Italy --- --- 667 262
Oman(2) --- --- 1,322 1,322
Equatorial Guinea --- --- 1,306 1,306
Madagascar --- --- 4,300 4,300
----- ----- ------ -----
Total 109 13 10,645 9,118
===== ===== ====== =====
</TABLE>
____________________
(1) Triton's interests in certain of this acreage may expire if not
developed at various times in the future pursuant to the terms and provisions of
the leases, licenses, concessions, contracts, permits or other agreements under
which it was acquired.
(2) Excludes 2.0 million acres (gross and net) attributable to Block 22,
which was relinquished in 1999.
PRODUCTIVE WELLS AND DRILLING ACTIVITY
In this section, "gross" wells refers to the total number of wells drilled
in an area in which the Company holds any interest without adjustment to reflect
the actual ownership interest held. "Net" refers to the gross number of wells
drilled adjusted for working interests owned by parties other than the Company.
At December 31, 1998, in Colombia, Triton held gross and net working
interests in 80 and 9.86 productive wells, respectively, which include 17 gross
(2.04 net) gas-injection wells and two gross (.24 net) water-injection wells.
<PAGE>
The following tables set forth the results of the oil and gas well drilling
activity on a gross basis for wells in which the Company held an interest for
the years ended December 31, 1998, 1997 and 1996.
GROSS EXPLORATORY WELLS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRODUCTIVE (1) DRY TOTAL
------------------------ ----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
Colombia 1 1 3 --- 1 --- 1 2 3
Malaysia-Thailand 2 5 7 --- --- --- 2 5 7
Argentina --- --- --- --- --- 2 --- --- 2
Italy --- --- --- 2 --- 1 2 --- 1
Guatemala --- --- --- --- 1 --- --- 1 ---
China --- --- --- 1 --- 1 1 --- 1
Ecuador --- --- --- --- 1 --- --- 1 ---
Tunisia --- --- --- 1 --- --- 1 --- ---
Crusader (2):
Australia --- --- 14 --- --- 4 --- --- 18
---- ---- ---- ---- ---- ---- ---- ---- ----
Total 3 6 24 4 3 8 7 9 32
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
GROSS DEVELOPMENT WELLS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRODUCTIVE (1) DRY TOTAL
------------------------ ----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
Colombia 13 18 15 --- --- --- 13 18 15
Malaysia-Thailand --- --- --- --- --- --- --- --- ---
Crusader (2):
Australia --- --- 2 --- --- --- --- --- 2
---- ---- ---- ---- ---- ---- ---- ---- ----
Total 13 18 17 --- --- --- 13 18 17
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
__________________
(1) A productive well is producing or capable of producing oil and/or gas in
commercial quantities. Multiple completions have been counted as one well. Any
well in which one of the multiple completions is an oil completion is classified
as an oil well.
(2) In 1996, the Company sold all of its interest in Crusader.
<PAGE>
The following tables set forth the results of drilling activity on a net
basis for wells in which the Company held an interest for the years ended
December 31, 1998, 1997 and 1996 (those wells acquired or disposed of since
January 1, 1996, are reflected in the following tables only since or up to the
effective dates of their respective acquisitions or sales, as the case may be):
NET EXPLORATORY WELLS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRODUCTIVE (1) DRY TOTAL
----------------------- ----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
Colombia (2) 0.12 0.12 0.36 --- 0.50 --- 0.12 0.62 0.36
Malaysia-Thailand (3) 1.00 2.50 3.50 --- --- --- 1.00 2.50 3.50
Argentina --- --- --- --- --- 2.00 --- --- 2.00
Italy --- --- --- 0.80 --- 0.40 0.80 --- 0.40
Guatemala --- --- --- --- 0.60 --- --- 0.60 ---
China --- --- --- 0.50 --- 0.50 0.50 --- 0.50
Ecuador --- --- --- --- 0.55 --- --- 0.55 ---
Tunisia --- --- --- 0.50 --- --- 0.50 --- ---
Crusader (4):
Australia --- --- 0.34 --- --- 0.10 --- --- 0.44
---- ---- ---- ---- ---- ---- ---- ---- ----
Total 1.12 2.62 4.20 1.80 1.65 3.00 2.92 4.27 7.20
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
NET DEVELOPMENT WELLS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRODUCTIVE (1) DRY TOTAL
------------------------ ----------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
Colombia (2) 1.56 2.16 1.80 --- --- --- 1.56 2.16 1.80
Malaysia-Thailand --- --- --- --- --- --- --- --- ---
Crusader (4):
Australia --- --- 0.05 --- --- --- --- --- 0.05
---- ---- ---- ---- ---- ---- ---- ---- ----
Total 1.56 2.16 1.85 --- --- --- 1.56 2.16 1.85
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
__________________
(1) A productive well is producing or capable of producing oil and/or gas in
commercial quantities. Multiple completions have been counted as one well. Any
well in which one of the multiple completions is an oil completion is classified
as an oil well.
(2) Adjusted to reflect the national oil company participation at
commerciality for the Cusiana and Cupiagua fields.
(3) The interest in the wells drilled in 1998 was not reduced to take into
account the sale of the Company's interest in Block A-18 to ARCO because such
sale occurred after the drilling of the wells.
(4) Adjusted to reflect the Company's 49.9% interest in Crusader, which was
sold in 1996.
OTHER PROPERTIES
The Company leases or owns office space and other properties for its
operations in various parts of the world. For additional information on the
Company's leases, including its office leases, see note 21 of Notes to
Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
Certain information contained in this report, as well as written and oral
statements made or incorporated by reference from time to time by the Company
and its representatives in other reports, filings with the Securities and
Exchange Commission, press releases, conferences or otherwise, may be deemed to
be "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions
of that section. Forward-looking statements include statements concerning the
Company's and management's plans, objectives, goals, strategies and future
operations and performance and the assumptions underlying such forward-looking
statements. Forward-looking statements may be identified, without limitation, by
the use of the words "anticipates," "estimates," "expects," "believes,"
"intends," "plans" and similar expressions. These statements include information
regarding drilling schedules; expected or planned production capacity; the
closing of branch offices; future production of the Fields; the negotiation of a
gas-sales contract, completion of development and commencement of production in
Malaysia-Thailand; the Company's capital budget and future capital requirements;
the Company's meeting its future capital needs; future general and
administrative expense and the portion to be capitalized; future interest
expense and the portion to be capitalized; the Company's realization of its
deferred tax asset; the level of future expenditures for environmental costs;
the outcome of regulatory and litigation matters; the impact of Year 2000
issues; the estimated fair value of derivative instruments, including the equity
swap; and proven oil and gas reserves and discounted future net cash flows
therefrom. These statements are based on current expectations and involve a
number of risks and uncertainties, including those described in the context of
such forward-looking statements and in notes 20 and 21 of Notes to Consolidated
Financial Statements. Actual results and developments could differ materially
from those expressed in or implied by such statements due to these and other
factors.
EMPLOYEES
At March 17, 1999, the Company employed approximately 145 full-time
employees.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company at March 17, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SERVED WITH
-----------
THE COMPANY
-----------
NAME AGE POSITION WITH THE COMPANY SINCE
- ---------------------- --- --------------------------------- -----------
James C. Musselman 51 President and Chief Executive
Officer 1998
Robert B. Holland, III 46 Executive Vice President, General
Counsel and Secretary 1993
A.E. Turner, III 50 Chief Operating Officer 1994
</TABLE>
Mr. Musselman was elected director of the Company in May 1998, and was
elected Chief Executive Officer in October 1998. Mr. Musselman has served as
Chairman, President and Chief Executive Officer of Avia Energy Development, LLC,
a private company engaged in gas fractioning and drilling, since September 1994.
From June 1991 to September 1994, Mr. Musselman was the President and Chief
Executive Officer of Lone Star Jockey Club, LLC, a company formed to organize a
horse racetrack facility in Texas.
Mr. Turner was elected Chief Operating Officer in March 1999, and prior to
that served as Senior Vice President, Operations, of the Company since March
1994. From 1988 to February 1994, Mr. Turner served in various positions with
British Gas Exploration & Production, Inc., including Vice President and General
Manager of operations in Africa and the Western Hemisphere from October 1993.
Mr. Holland has served as General Counsel and Secretary of the Company
since January 1993, and has served as Executive Vice President since March 1999.
Mr. Holland also served as Chief Operating Officer of the Company from October
1998 to March 1999 when he relinquished the title to Mr. Turner, interim Chief
Executive Officer from July 1998 to October 1998 and Senior Vice President from
January 1993 to July 1998.
All executive officers of the Company are elected annually by the Board of
Directors of the Company to serve in such capacities until removed or their
successors are duly elected and qualified. There are no family relationships
among the executive officers of the Company.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
In July through October 1998, eight lawsuits were filed against the Company
and Thomas G. Finck and Peter Rugg, in their capacities as Chairman and Chief
Executive Officer and Chief Financial Officer, respectively. Each case was filed
on behalf of a putative class of persons and/or entities who purchased the
Company's securities between March 30, 1998, and July 17, 1998, inclusive, and
seeks recovery of compensatory damages, fees and costs. The cases allege
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, and Rule 10b-5 promulgated thereunder in connection with disclosures
concerning the Company's properties, operations, and value relating to a
prospective sale of the Company or of all or a part of its assets. Additionally,
one case alleges negligent misrepresentation and seeks recovery of punitive
damages. Each lawsuit was filed in the United States District Court for the
Eastern District of Texas, Texarkana Division.
On September 21, 1998, a motion for consolidation and for appointment as
lead plaintiffs and for approval of selection of lead counsel was filed. With
the exception of the request for consolidation, which has been agreed to, the
motion is presently pending. Also pending is the Company's motion to dismiss or
transfer for improper venue. The consolidated action is styled In re: Triton
Energy Limited Securities Litigation. The Company believes it has meritorious
defenses to these claims and intends to vigorously defend these actions. No
discovery has been taken at this time, however, and the ultimate outcome is not
currently predictable. There can be no assurance that the litigation will be
resolved in the Company's favor. An adverse result could have a material adverse
effect on the Company's financial position or results of operations.
During the quarter ending September 30, 1995, the United States
Environmental Protection Agency (the "EPA") and Justice Department advised the
Company that one of its domestic oil and gas subsidiaries, as a potentially
responsible party for the clean-up of the Monterey Park, California, Superfund
site operated by Operating Industries, Inc., could agree to contribute
approximately $2.8 million to settle its alleged liability for certain remedial
tasks at the site. The offer did not address responsibility for any groundwater
remediation. The subsidiary was advised that if it did not accept the
settlement offer, it, together with other potentially responsible parties, may
be ordered to perform or pay for various remedial tasks. After considering the
cost of possible remedial tasks, its legal position relative to potentially
responsible parties and insurers, possible legal defenses and other factors, the
subsidiary declined to accept the offer.
In October 1997, the EPA advised the Company that the estimated cost of
the clean-up of the site would be approximately $217 million to be allocated
among the 280 known operators. The subsidiary's share would be approximately $1
million based upon a volumetric allocation, but there can be no assurance that
any allocation of liability to the subsidiary would be made on a volumetric
basis.
On August 22, 1997, the Company was sued in the Superior Court of the State
of California for the County of Los Angeles, by David A. Hite, Nordell
International Resources Ltd., and International Veronex Resources, Ltd. The
Company and the plaintiffs were adversaries in a 1990 arbitration proceeding in
which the interest of Nordell International Resources Ltd. in the Enim oil field
in Indonesia was awarded to the Company (subject to a 5% net profits interest
for Nordell) and Nordell was ordered to pay the Company nearly $1 million. The
arbitration award was followed by a series of legal actions by the parties in
which the validity of the award and its enforcement were at issue. As a result
of these proceedings, the award was ultimately upheld and enforced.
The current suit alleges that the plaintiffs were damaged in amounts
aggregating $13 million primarily because of the Company's prosecution of
various claims against the plaintiffs as well as its alleged misrepresentations,
infliction of emotional distress, and improper accounting practices. The suit
seeks specific performance of the arbitration award, damages for alleged fraud
and misrepresentation in accounting for Enim field operating results, an
accounting for Nordell's 5% net profit interest, and damages for emotional
distress and various other alleged torts. The suit seeks interest, punitive
damages and attorneys fees in addition to the alleged actual damages. On
September 26, 1997, the Company removed the action to the United States
District Court for the Central District of California. On August 31, 1998, the
United States District Court for the Central District of California dismissed
all claims asserted by the plaintiffs other than claims for malicious
prosecution and abuse of the legal process, which the court held could not be
subject to a motion to dismiss. A trial date has been set for April 27, 1999.
The Company has filed a writ with the 9th Circuit Court of Appeal requesting
that the district court be directed to enter an order granting summary judgment
in the Company's favor. The Company believes the remaining claims under the suit
are without merit and intends vigorously to defend it.
The Company is also subject to litigation that is incidental to its
business.
CERTAIN FACTORS
None of the legal matters described above is expected to have a material
adverse effect on the Company's consolidated financial position. However, this
statement of the Company's expectation is a forward-looking statement that is
dependent on certain events and uncertainties that may be outside of the
Company's control. Actual results and developments could differ materially from
the Company's expectation, for example, due to such uncertainties as jury
verdicts, the application of laws to various factual situations, the actions
that may or may not be taken by other parties and the availability of insurance.
In addition, in certain situations, such as environmental claims, one defendant
may be responsible for the liabilities of other parties. Moreover, circumstances
could arise under which the Company may elect to settle claims at amounts that
exceed the Company's expected liability for such claims in an attempt to avoid
costly litigation. Judgments or settlements could, therefore, exceed any
reserves.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company during the fourth quarter of the
year ended December 31, 1998, to security holders, through the solicitation of
proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Ordinary Shares
- ----------------
Triton's ordinary shares are listed on the New York Stock Exchange and are
traded under the symbol OIL. Set forth below are the high and low closing sales
prices of Triton's ordinary shares as reported on the New York Stock Exchange
Composite Tape for the periods indicated:
<TABLE>
<CAPTION>
CALENDAR PERIODS HIGH LOW
- ---------------- -------- --------
<S> <C> <C>
1999:
First Quarter* 8 5/8 5 1/4
1998:
First Quarter 36 3/4 25 13/16
Second Quarter 42 5/8 33 5/16
Third Quarter 36 3/4 9 15/16
Fourth Quarter 12 7/16 7 5/16
1997:
First Quarter 52 1/2 38 1/4
Second Quarter 45 13/16 32 3/8
Third Quarter 48 38 3/16
Fourth Quarter 44 7/8 27 5/8
________________________
*Through March 17, 1999.
</TABLE>
Triton has not declared any cash dividends on its ordinary shares since
fiscal 1990. The holders of ordinary shares are entitled to receive such
dividends as are declared by the Board of Directors. Under applicable corporate
law, the Company may pay dividends or make other distributions to its
shareholders in such amounts as appear to the directors to be justified by the
profits of the Company or out of the Company's share premium account if the
Company has the ability to pay its debts as they come due.
The Company's current intent is to retain earnings for use in the Company's
business and the financing of its capital requirements. The payment of any
future cash dividends on the ordinary shares is necessarily dependent upon the
earnings and financial needs of the Company, along with applicable legal and
contractual restrictions. Triton is prohibited from paying cash dividends on the
ordinary shares under its credit facilities. In addition, the Shareholders
Agreement between the Company and HM4 Triton provides that for so long as HM4
Triton and its affiliates own a certain number of ordinary shares (assuming
conversion of all 8% Preference Shares held by HM4 Triton and its affiliates),
Triton cannot pay a dividend on the ordinary shares without HM4 Triton's
consent. Finally, the terms of the 8% Preference Shares and the 5% Preference
Shares prohibit the payment of dividends on the ordinary shares unless full
cumulative dividends on all such outstanding preference shares have been paid in
full or set aside for payment.
At March 17, 1999, there were 4,212 record holders of the Company's
ordinary shares.
Preference Shares
- ------------------
As of March 17, 1999, the Company had outstanding 209,639 shares of its 5%
Preference Shares and 5,000,000 shares of its 8% Preference Shares. Each 5%
Preference Share may be converted into one Triton ordinary share and bears a
cash dividend, which has priority over dividends on Triton's ordinary shares,
equal to 5% per annum on the redemption price of $34.41 per share, payable
semi-annually on March 30 and September 30 of each year. The 5% Preference
Shares have priority over Triton ordinary shares upon liquidation, and may be
redeemed at Triton's option at any time for cash equal to the redemption price.
Any shares of 5% Preference Shares that remain outstanding on March 30, 2004,
must be redeemed at the redemption price, either for cash or, at the Company's
option, for Triton ordinary shares. See note 13 of Notes to Consolidated
Financial Statements.
Each 8% Preference Share may be converted into four Triton ordinary shares
and bears an annual dividend equal to 8% on the redemption price of $70 per
share, payable for each semi-annual period ending June 30 and December 30,
commencing June 30, 1999. At the Company's option, dividends may be paid in cash
or by the issuance of additional whole shares of 8% Preference Shares. If a
dividend is to be paid in additional shares, the number of additional shares to
be issued in payment of the dividend will be determined by dividing the amount
of the dividend by $70, with amounts in respect of any fractional shares to be
paid in cash. Holders of 8% Preference Shares are entitled to vote with the
holders of ordinary shares on all matters submitted to the shareholders of the
Company for a vote, with each 8% Preference Share entitling its holder to a
number of votes equal to the number of ordinary shares into which it could be
converted at that time. The 8% Preference Shares can be redeemed by the Company
commencing September 30, 2001, but only if the market value of the ordinary
shares meets certain targets at the time of redemption (but if the Company
redeems any shares, it must redeem all of the shares). Under the provisions of
the Company's Articles of Association, the terms of the 8% Preference Shares can
be amended with the approval of the holders of at least two-thirds of the 8%
Preference Shares voting separately as a class.
Pursuant to the Shareholders Agreement between the Company and HM4 Triton,
in September 1998, the size of the Company's Board of Directors was set at ten,
and HM4 Triton exercised its right to designate four out of such ten directors.
The Shareholders Agreement provides that, in general, for so long as the entire
Board of Directors consists of ten members, HM4 Triton (and its designated
transferees, collectively) may designate four nominees for election to the Board
(with such number of designees increasing or decreasing proportionately with any
change in the total number of members of the Board and with any fractional
directorship rounded up to the next whole number). The right of HM4 Triton (and
its designated transferees) to designate nominees for election to the Board will
be reduced if the number of ordinary shares held by HM4 Triton and its
affiliates (assuming conversion of 8% Preference Shares into ordinary shares)
represents less than certain specified percentages of the number of ordinary
shares (assuming conversion of 8% Preference Shares into ordinary shares)
purchased by HM4 Triton pursuant to the Stock Purchase Agreement.
The Shareholders Agreement also provides that, for so long as HM4 Triton
and its affiliates continue to hold a certain minimum number of ordinary shares
(assuming conversion of 8% Preference Shares into ordinary shares), the Company
may not take certain actions without the consent of HM4 Triton, including (i)
amending its Articles of Association or the terms of the 8% Preference Shares
with respect to the voting powers, rights or preferences of the holders of 8%
Preference Shares, (ii) entering into a merger or similar business combination
transaction, or effecting a reorganization, recapitalization or other
transaction pursuant to which a majority of the outstanding ordinary shares or
any 8% Preference Shares are exchanged for securities, cash or other property,
(iii) authorizing, creating or modifying the terms of any series of securities
that would rank equal to or senior to the 8% Preference Shares, (iv) selling or
otherwise disposing of assets comprising in excess of 50% of the market value of
the Company, (v) paying dividends on ordinary shares or other shares ranking
junior to the 8% Preference Shares, other than regular dividends on the
Company's 5% Preference Shares, (vi) incurring or guaranteeing indebtedness
(other than certain permitted indebtedness), or issuing preference shares,
unless the Company's leverage ratio at the time, after giving pro forma effect
to such incurrence or issuance and to the use of the proceeds, is less than 2.5
to 1, (vii) issuing additional shares of 8% Preference Shares, other than in
payment of accumulated dividends on the outstanding 8% Preference Shares, (viii)
issuing any shares of a class ranking equal or senior to the 8% Preference
Shares, (ix) commencing a tender offer or exchange offer for all or any portion
of the ordinary shares or (x) decreasing the number of shares designated as 8%
Preference Shares. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Requirements" and notes 2, 13 and 20 of Notes to Consolidated Financial
Statements.
Shareholder Rights Plan
- -------------------------
The Company has adopted a Shareholder Rights Plan pursuant to which
preference share rights attach to all ordinary shares at the rate of one right
for each ordinary share. Each right entitles the registered holder to purchase
from the Company one one-thousandth of a Series A Junior Participating
Preference Share, par value $.01 per share ("Junior Preference Shares"), of the
Company at a price of $120 per one one-thousandth of a share of such Junior
Preference Shares, subject to adjustment. Generally, the rights only become
distributable 10 days following public announcement that a person has acquired
beneficial ownership of 15% or more of Triton's ordinary shares or 10 business
days following commencement of a tender offer or exchange offer for 15% or more
of the outstanding ordinary shares; provided that, pursuant to the terms of the
plan, any acquisition of Triton shares by HM4 Triton or its affiliates,
including Hicks Muse, will not result in the distribution of rights unless
and until HM4 Triton's ownership of Triton shares is reduced below certain
levels. If, among other events, any person becomes the beneficial owner of 15%
or more of Triton's ordinary shares (except as provided with respect to HM4
Triton), each right not owned by such person generally becomes the right to
purchase such number of ordinary shares of the Company equal to the number
obtained by dividing the right's exercise price (currently $120) by 50% of the
market price of the ordinary shares on the date of the first occurrence. In
addition, if the Company is subsequently merged or certain other extraordinary
business transactions are consummated, each right generally becomes a
right to purchase such number of shares of common stock of the acquiring
person equal to the number obtained by dividing the right's exercise price by
50% of the market price of the common stock on the date of the first occurrence.
Under certain circumstances, the Company's directors may determine that a
tender offer or merger is fair to all shareholders and prevent the rights from
being exercised. At any time after a person or group acquires 15% or more of the
ordinary shares outstanding (other than with respect to HM4 Triton) and prior
to the acquisition by such person or group of 50% or more of the outstanding
ordinary shares or the occurrence of an event described in the prior paragraph,
the Board of Directors of the Company may exchange the rights (other than rights
owned by such person or group which will become void), in whole or in part, at
an exchange ratio of one ordinary share, or one one-thousandth of a Junior
Preference Share, per right (subject to adjustment). The Company has the ability
to amend the rights (except the redemption price) in any manner prior to the
public announcement that a 15% position has been acquired or a tender offer has
been commenced. The Company will be entitled to redeem the rights at $0.01 a
right at any time prior to the time that a 15% position has been acquired. The
rights will expire on May 22, 2005, unless earlier redeemed by the Company.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial and oil and gas data on a
historical basis. The financial information for 1998 does not reflect the
issuance by the Company on January 4, 1999, of 3,177,500 8% Preference Shares
for proceeds totaling $218.1 million, net of closing costs. Pro forma total
assets and shareholders' equity, as adjusted to give effect to the issuance of
the 8% Preference Shares, totaled $974.2 million and $441.9 million at
December 31, 1998, respectively. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and notes 2, 13 and
20 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AS OF OR FOR YEAR ENDED
DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995
---------- ----------- ---------- ----------
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
Sales and other operating revenues (1) $ 228,618 $ 149,496 $ 133,977 $ 107,472
Earnings (loss) from continuing operations (1) (2) (187,504) 5,595 23,805 6,541
Earnings (loss) before extraordinary items (187,504) 5,595 23,805 2,720
Net earnings (loss) (2) (187,504) (8,896) 22,609 2,720
Average ordinary shares outstanding 36,609 36,471 35,929 35,147
Basic earnings (loss) per ordinary share:
Continuing operations (1) (2) $ (5.21) $ 0.14 $ 0.64 $ 0.16
Before extraordinary item (5.21) 0.14 0.64 0.05
Net earnings (loss) (5.21) (0.26) 0.61 0.05
Diluted earnings (loss) per ordinary share:
Continuing operations (1) (2) $ (5.21) $ 0.14 $ 0.62 $ 0.16
Before extraordinary item (5.21) 0.14 0.62 0.05
Net earnings (loss) (5.21) (0.25) 0.59 0.05
BALANCE SHEET DATA (IN THOUSANDS):
Net property and equipment $ 556,122 $ 835,506 $ 676,833 $ 524,381
Total assets 756,133 1,098,039 914,524 824,167
Long-term debt, including current maturities (3) 427,492 573,687 416,630 402,503
Shareholders' equity 223,807 296,620 300,644 246,025
CERTAIN OIL AND GAS DATA (4) :
Production
Sales volumes (Mbbls) (5) 9,979 5,776 5,987 6,303
Forward oil sale deliveries (Mbbls) 3,050 2,462 701 409
---------- ----------- ---------- ----------
Total revenue barrels (Mbbls) 13,029 8,238 6,688 6,712
========== =========== ========== ==========
Gas (MMcf) 503 802 2,517 5,312
Average sales price
Oil (per bbl) (6) $ 12.31 $ 17.54 $ 19.61 $ 16.60
Gas (per Mcf) $ 0.99 $ 1.15 $ 1.69 $ 1.64
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AS OF OR AS OF OR
FOR YEAR FOR SEVEN AS OF OR FOR
ENDED MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 31,
---------
1994 1994 1994
--------- --------- ---------
(unaudited)
OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
Sales and other operating revenues (1) $ 32,952 $ 20,736 $ 43,208
Earnings (loss) from continuing operations (1) (2) (49,610) (26,630) (4,597)
Earnings (loss) before extraordinary items (52,701) (27,708) (9,341)
Net earnings (loss) (2) (52,701) (27,708) (9,341)
Average ordinary shares outstanding 34,916 34,944 34,775
Basic earnings (loss) per ordinary share:
Continuing operations (1) (2) $ (1.43) $ (0.78) $ (0.13)
Before extraordinary item (1.52) (0.81) (0.27)
Net earnings (loss) (1.52) (0.81) (0.27)
Diluted earnings (loss) per ordinary share:
Continuing operations (1) (2) $ (1.43) $ (0.78) $ (0.13)
Before extraordinary item (1.52) (0.81) (0.27)
Net earnings (loss) (1.52) (0.81) (0.27)
BALANCE SHEET DATA (IN THOUSANDS):
Net property and equipment $399,658 $399,658 $308,498
Total assets 619,201 619,201 616,101
Long-term debt, including current maturities (3) 315,515 315,515 294,753
Shareholders' equity 237,195 237,195 263,422
CERTAIN OIL AND GAS DATA (4) :
Production
Sales volumes (Mbbls) (5) 2,534 1,488 2,886
Forward oil sale deliveries (Mbbls) --- --- ---
--------- --------- ---------
Total revenue barrels (Mbbls) 2,534 1,488 2,886
========= ========= =========
Gas (MMcf) 5,516 3,427 9,078
Average sales price
Oil (per bbl) (6) $ 15.26 $ 16.41 $ 15.15
Gas (per Mcf) $ 1.51 $ 1.44 $ 1.44
</TABLE>
_________________
(1) Operating data for the year ended December 31, 1994 (unaudited), the
seven months ended December 31, 1994, and the year ended May 31, 1994, are
restated to reflect the aviation sales and services segment as discontinued
operations in 1995.
(2) Gives effect to the writedown of assets and loss provisions on a pretax
basis of $328.6 million, $46.2 million, $1.1 million, $14.7 million, $1.0
million and $45.8 million for the years ended December 31, 1998, 1996, 1995 and
1994 (unaudited), the seven months ended December 31, 1994, and the year ended
May 31, 1994, respectively.
(3) Includes current maturities totaling $14.0 million, $130.4 million,
$199.6 million, $1.3 million, $.3 million and $.3 million at December 31, 1998,
1997, 1996, 1995 and 1994, and May 31, 1994, respectively.
(4) Information presented includes the 49.9% equity investment in Crusader
Limited until its sale in 1996.
(5) Includes natural gas liquids and condensate.
(6) Includes barrels delivered under the forward oil sale, which are recognized
in oil and gas sales at $11.56 per barrel upon delivery.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CERTAIN DEVELOPMENTS
--------------------
During 1998 and early 1999, several events had a significant impact on
the Company and its financial condition and results of operations. These events
are discussed in detail in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report, and
are summarized below:
- - February 1998 sale of TPC, a wholly owned subsidiary that held the
Company's 9.6% equity interest in the Colombian pipeline company, OCENSA, for
net proceeds of $97.7 million.
- - Significantly lower prices for crude oil, resulting in writedowns in June
1998 and December 1998, of the carrying amount of evaluated oil and gas
properties in Colombia through the application of the full cost ceiling test
limitation, totaling approximately $241 million.
- - July 1998 agreements with ARCO providing financing for the development of
the Company's gas reserves on Block A-18 of the Malaysia-Thailand Joint
Development Area through (1) the sale to ARCO of one-half of the shares of the
subsidiary through which the Company owned its 50% share of Block A-18 for net
proceeds of $142 million, which was consummated in August 1998, and (2) the
agreement of ARCO to pay the future exploration and development costs
attributable to Triton's and ARCO's collective interest in Block A-18, up to
$377 million or until first production from a gas field.
- - July 1998 announcement of a plan to restructure operations, reduce
overhead costs and substantially scale back exploration-related capital
expenditures, including the closing of foreign offices in four countries, the
elimination of approximately 41% of the workforce and the relinquishment or
disposal of several exploration licenses, resulting in writedowns of assets
totaling approximately $77 million and special charges totaling approximately
$18 million.
- - August 1998 Stock Purchase Agreement with HM4 Triton, an affiliate of
Hicks Muse, which provided for the issuance by the Company of 5,000,000 8%
Preference Shares for aggregate gross proceeds of $350 million, completed in two
stages in September 1998 and January 1999.
LIQUIDITY AND CAPITAL REQUIREMENTS
----------------------------------
HICKS MUSE TRANSACTION
In August 1998, the Company and HM4 Triton entered into the Stock
Purchase Agreement that provided for a $350 million equity investment in the
Company. The investment was effected in two stages. At the closing of the first
stage in September 1998 (the "First Closing"), the Company issued to HM4 Triton
1,822,500 shares of 8% Preference Shares for $70 per share (for proceeds of
$116.8 million, net of transaction costs). Pursuant to the Stock Purchase
Agreement, the second stage was effected through a rights offering for 3,177,500
shares of 8% Preference Shares at $70 per share, with HM4 Triton being obligated
to purchase any shares not subscribed. At the closing of the second stage, which
occurred on January 4, 1999 (the "Second Closing"), the Company issued an
additional 3,177,500 8% Preference Shares for proceeds totaling $218.1 million,
net of closing costs (of which, HM4 Triton purchased 3,114,863 shares).
CASH AND CASH EQUIVALENTS; CASH FLOWS
Proceeds from the First Closing, completed in September 1998, are reflected
in the audited financial statements for the year ended December 31, 1998.
Proceeds from the Second Closing, completed on January 4, 1999, are reflected
only in the unaudited pro forma financial information as of December 31, 1998,
presented below and in the Pro Forma Consolidated Balance Sheet as of December
31, 1998, shown on page F-4.
Pro forma cash and cash equivalents and pro forma working capital, as
adjusted to give effect to the issuance of the 8% Preference Shares,
totaled $237.2 million and $196.6 million at December 31, 1998, respectively.
Cash and cash equivalents, on an actual basis, totaled $19.1 million and
$13.5 million at December 31, 1998 and 1997, respectively, and working capital
deficit was $21.4 million and $115.2 million at December 31, 1998 and 1997,
respectively. Current liabilities included deferred income totaling $35.3
million at December 31, 1998 and 1997, related to a forward oil sale
consummated in 1995.
The following summary table reflects cash flows of the Company for the
years ended December 31, 1998, 1997 and 1996, and on a Pro Forma basis for 1998
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRO FORMA
1998 1998 1997 1996
--------- -------- --------- ---------
Net cash provided (used) by operating activities $ 1,670 $ 1,670 $ (97,416) $ 80,705
Net cash provided (used) by investing activities $ 84,352 $ 84,352 $(212,700) $(105,518)
Net cash provided (used) by financing activities $137,993 $(80,071) $ 313,368 $ (12,978)
</TABLE>
Operating Activities
- ------------------------------------------------
Cash flows provided by operating activities for the year ended
December 31, 1998, benefited from increased production from the Fields in
Colombia. Gross production from the Fields averaged approximately 350,000 BOPD
during 1998 compared with 220,000 BOPD and 175,000 BOPD during 1997 and 1996,
respectively. The increased production was partially offset by a significantly
lower average realized oil price. During 1998, 1997 and 1996, the Company's
average realized oil price was $12.31, $17.54 and $19.61, respectively. See
"Results of Operations - Oil and Gas Sales" below.
The Company's reported cash flows from operating activities for the
year ended December 31, 1997, were reduced by $124.8 million, which was
attributable to interest accreted with respect to the Company's Senior
Subordinated Discount Notes due November 1, 1997 (the "1997 Notes"), and the 9
3/4 % Senior Subordinated Discount Notes due December 31, 2000 (the "9 3/4%
Notes"), through the dates of retirement in the second quarter of 1997.
<PAGE>
Investing Activities
- ---------------------
The Company's capital expenditures and other capital investments were
$180.1 million, $219.2 million and $252.7 million during the years ended
December 31, 1998, 1997 and 1996, respectively, primarily for exploration and
development of the Fields in Colombia, and for exploration in Block A-18 of the
Malaysia-Thailand Joint Development Area in the Gulf of Thailand and in other
areas. Proceeds from asset sales were $267 million, $5.9 million and $146.6
million during 1998, 1997 and 1996, respectively. See "Results of Operations"
below and note 5 of Notes to Consolidated Financial Statements.
Financing Activities
---------------------
1998
----
On September 30, 1998, the Company issued to HM4 Triton 1,822,500 8%
Preference Shares for $70 per share, or total proceeds of $127.6 million (before
transaction costs of $10.8 million). Each 8% Preference Share is convertible at
any time at the option of the holder into four ordinary shares of the Company
(subject to certain antidilution protections). Holders of 8% Preference Shares
are entitled to receive, when and if declared by the Board of Directors,
cumulative dividends at a rate per annum equal to 8% of the liquidation
preference of $70 per share, payable for each semi-annual period ending June 30
and December 30, commencing June 30, 1999. At the Company's option, dividends
may be paid in cash or by the issuance of additional whole shares of 8%
Preference Shares.
During 1998, the Company borrowed $162.5 million and repaid $360.1
million under revolving lines of credit, notes payable and long-term debt. At
December 31, 1998, the Company had two $25 million credit facilities that expire
in March 1999 and a $50 million credit facility that expires in May 1999.
1997
- ----
In April 1997, the Company issued $400 million aggregate face value of
senior indebtedness to refinance other indebtedness. The senior indebtedness
consisted of $200 million face amount of 8 3/4% Senior Notes due April 15, 2002
(the "2002 Notes"), at 99.942% of the principal amount (resulting in $199.9
million aggregate net proceeds) and $200 million face amount of 9 1/4% Senior
Notes due April 15, 2005 (the "2005 Notes" and, together with the 2002 Notes,
the "Senior Notes"), at 100% of the principal amount for total aggregate net
proceeds of $399.9 million before deducting transaction costs of approximately
$1 million.
In May and June 1997, the Company offered to purchase all of its
outstanding 1997 Notes and 9 3/4% Notes, which resulted in the retirement of the
1997 Notes and substantially all of the 9 3/4% Notes. The remainder of the
9 3/4% Notes were retired in 1998. During the year ended December 31,
1997, the Company borrowed $630 million and repaid $321.5 million under
revolving lines of credit, notes payable and long-term debt (including
the Senior Notes).
<PAGE>
1996
- ----
During the year ended December 31, 1996, the Company borrowed $53.9 million
and repaid $70.9 million under revolving lines of credit and long-term debt.
FUTURE CAPITAL NEEDS
For internal planning purposes, the Company's capital spending program
for the year ending December 31, 1999, is approximately $117 million, excluding
capitalized interest, of which approximately $83 million relates to the Fields
and $34 million relates to the Company's exploration activities in other parts
of the world. The Company expects to fund its capital expenditures for 1999 with
the proceeds from the issuance of the 8% Preference Shares and cash flow from
operations. In connection with the sale to ARCO of one-half of the shares
through which the Company owned its interest in Block A-18 of the
Malaysia-Thailand Joint Development Area in August 1998, ARCO agreed to pay the
future exploration and development costs attributable to the Company's and
ARCO's collective interest in Block A-18, up to $377 million or until first
production from a gas field.
In connection with the issuance of the 8% Preference Shares to HM4
Triton in September 1998, the Company and HM4 Triton entered into the
Shareholders Agreement pursuant to which, among other things, HM4 Triton (and
its designated transferees, collectively) may designate a certain number of
nominees for election to the Board. In addition, the Shareholders Agreement
provides that, for so long as HM4 Triton and its affiliates continue to hold a
certain minimum number of ordinary shares (assuming conversion of 8% Preference
Shares into ordinary shares), the Company may not take certain actions without
the consent of HM4 Triton, including (i) amending its Articles of Association or
the terms of the 8% Preference Shares with respect to the voting powers, rights
or preferences of the holders of 8% Preference Shares, (ii) entering into a
merger or similar business combination transaction, or effecting a
reorganization, recapitalization or other transaction pursuant to which a
majority of the outstanding ordinary shares or any 8% Preference Shares are
exchanged for securities, cash or other property, (iii) authorizing, creating or
modifying the terms of any series of securities that would rank equal to or
senior to the 8% Preference Shares, (iv) selling or otherwise disposing of
assets comprising in excess of 50% of the market value of the Company, (v)
paying dividends on ordinary shares or other shares ranking junior to the 8%
Preference Shares, other than regular dividends on the Company's 5% Preference
Shares, (vi) incurring or guaranteeing indebtedness (other than certain
permitted indebtedness), or issuing preference shares, unless the Company's
leverage ratio at the time, after giving pro forma effect to such incurrence or
issuance and to the use of the proceeds, is less than 2.5 to 1, (vii) issuing
additional shares of 8% Preference Shares, other than in payment of accumulated
dividends on the outstanding 8% Preference Shares, (viii) issuing any shares of
a class ranking equal or senior to the 8% Preference Shares, (ix) commencing a
tender offer or exchange offer for all or any portion of the ordinary shares or
(x) decreasing the number of shares designated as 8% Preference Shares.
As a result of HM4 Triton's ownership of 8% Preference Shares and
ordinary shares and the rights conferred upon HM4 Triton and its designees
pursuant to the Shareholders Agreement, HM4 Triton has significant influence
over the actions of the Company and will be able to influence, and in some cases
determine, the outcome of matters submitted for approval of the shareholders.
The existence of HM4 Triton as a shareholder of the Company may make it more
difficult for a third party to acquire, or discourage a third party from seeking
to acquire, a majority of the outstanding ordinary shares. A third party would
be required to negotiate any such transaction with HM4 Triton, and the interests
of HM4 Triton as a shareholder may be different from the interests of the other
shareholders of the Company.
In conjunction with the sale of TPC to an unrelated third party (the
"Purchaser") in February 1998, the Company entered into a five year equity swap
with a creditworthy financial institution (the "Counterparty"). The issuance to
HM4 Triton of the 8% Preference Shares resulted in the right of the Counterparty
to terminate the equity swap prior to the end of its five year term. In January
1999, the Counterparty exercised its right and designated April 2000 as the
termination date of the equity swap. Upon the expiration of the equity swap in
April 2000, the Company expects that the Purchaser will sell the TPC shares.
Under the terms of the equity swap with the Counterparty, upon any sale by the
Purchaser of the TPC shares, the Company will receive from the Counterparty, or
pay to the Counterparty, an amount equal to the excess or deficiency, as
applicable, of the difference between 97% of the net proceeds from the
Purchaser's sale of the TPC shares and the notional amount of $97 million. There
can be no assurance that the value the Purchaser may realize in any sale of the
TPC shares will equal the value of the shares estimated by the Company for
purposes of valuing the equity swap. The Company has no right or obligation to
repurchase the TPC shares at any time, but the Company is not prohibited from
offering to purchase the shares if the Purchaser offers to sell them. See "-
Results of Operations - Other Income and Expenses" below and "Item 7A.
Quantitative and Qualitative Disclosures about Market Risk."
RESULTS OF OPERATIONS
---------------------
YEAR ENDED DECEMBER 31, 1998,
COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Oil and Gas Sales
--------------------
Oil and gas sales in 1998 totaled $160.9 million, an 11% increase from
1997, due to higher production, which was partially offset by significantly
lower average realized oil prices. Total revenue barrels, including production
related to barrels delivered under the forward oil sale, totaled 13 million
barrels in 1998, an increase of 58%, compared to the prior year, resulting in an
increase in revenues of $84.2 million. The increased production was primarily
due to the start-up in late 1997 of two new 80,000 BOPD oil-production units at
the Cusiana central processing facility. In addition, two 100,000 BOPD
oil-production units at the Cupiagua central processing facility began
production during the second half of 1998. The average realized oil price was
$12.31 and $17.54 in 1998 and 1997, respectively, a decrease of 30% for 1998,
resulting in lower revenues of $68.3 million compared to 1997. The lower
average realized oil price resulted from a significant decrease in the 1998
average WTI oil price.
<PAGE>
Gain on Sale of Oil and Gas Assets
-----------------------------------------
In July 1998, the Company and ARCO signed an agreement providing
financing for the development of the Company's gas reserves on Block A-18 of the
Malaysia-Thailand Joint Development Area. Under terms of the agreement,
consummated in August 1998, the Company sold to a subsidiary of ARCO for $150
million one-half of the shares of the subsidiary through which the Company owned
its 50% share of Block A-18. The Company received net proceeds of $142 million
and recorded a gain of $63.2 million.
The agreements also require ARCO to pay the future exploration and
development costs attributable to the Company's and ARCO's collective interest
in Block A-18, up to $377 million or until first production from a gas field,
after which the Company and ARCO would each pay 50% of such costs.
Additionally, the agreements require ARCO to pay the Company an additional $65
million each at July 1, 2002, and July 1, 2005, if certain specific development
objectives are met by such dates, or $40 million each if the objectives are met
within one year thereafter. The agreements provide that the Company will
recover its investment in recoverable costs in the project, approximately $101
million, and that ARCO will recover its investment in recoverable costs, on a
first-in, first-out basis from the cost-recovery portion of future production.
In December 1998, the Company sold its Bangladesh subsidiary for $4.5
million and recorded a gain of the same amount. In June 1997, the Company sold
its Argentine subsidiary for cash proceeds of $4.1 million and recognized a gain
of $4.1 million.
Costs and Expenses
--------------------
Operating expenses increased $22.2 million in 1998, and depreciation,
depletion and amortization increased $22 million, primarily due to higher
production volumes, including barrels delivered under the forward oil sale. The
Company pays lifting costs, production taxes and transportation costs to the
Colombian port of Covenas for barrels to be delivered under the forward oil
sale.
The Company's operating costs per oil equivalent-barrel, which include
field operating expenses, pipeline tariffs and production taxes, were $5.97 and
$6.47 in 1998 and 1997, respectively. Operating expenses on a per
equivalent-barrel basis were lower primarily due to higher production volumes
and a decrease in production taxes of $7.8 million. Beginning in 1998, no
production taxes are assessed on production from the Cusiana Field. The Company
is required to pay production taxes on production from the Cupiagua Field
equating to approximately 5.5%, 4% and 2.5% of gross realized oil prices during
1998, 1999 and 2000, respectively. These improvements to operating costs were
partially offset by an increase in OCENSA pipeline tariffs which totaled $49.9
million or $4.08 per barrel, and $28.7 million or $3.69 per barrel, in 1998 and
1997, respectively. OCENSA imposes a tariff on shippers from the Fields (the
"Initial Shippers"), which is estimated to recoup: the total capital cost of the
project over a 15-year period; its operating expenses, which include all
Colombian taxes; interest expense; and the dividend to be paid by OCENSA to its
shareholders. Any shippers of crude oil who are not Initial Shippers are
assessed a premium tariff on a per-barrel basis, and OCENSA will use revenues
from such tariffs to reduce the Initial Shippers' tariff. The OCENSA pipeline
expansion was completed at the end of 1997. At such time, the full cost of the
pipeline was included in the tariff computation, which was the primary
contributor to the higher 1998 tariffs.
General and administrative expense before capitalization decreased
$13.8 million to $47.2 million in 1998, while capitalized general and
administrative costs were $20.6 million and $32.4 million in 1998 and 1997,
respectively. General and administrative expenses, and the portion capitalized,
decreased as a result of restructuring activities undertaken in the third
quarter of 1998 to reduce overhead costs and exploration expenses. The Company
is continuing its efforts to reduce its general and administrative expenses and
exploration expenses. As a result, the Company expects that gross general and
administrative expense and the portion of general and administrative expense
that will be capitalized will decrease in 1999.
In June and December 1998, the carrying amount of the Company's evaluated
oil and gas properties in Colombia was written down by $105.4 million ($68.5
million, net of tax) and $135.6 million ($115.9 million net of tax),
respectively, through application of the full cost ceiling limitation as
prescribed by the Securities and Exchange Commission ("SEC"), principally as a
result of a decline in oil prices. No adjustments were made to the Company's
reserves in Colombia as a result of the decline in prices. The SEC ceiling test
was calculated using the June 30, and December 31, 1998, WTI oil prices of
$14.18 per barrel and $12.05 per barrel, respectively, that, after a
differential for Cusiana crude delivered at the port of Covenas in Colombia,
resulted in a net price of approximately $13 per barrel and $11 per barrel,
respectively. An additional writedown may be required if oil prices fall below
the December 31, 1998, level at later quarter end dates.
During 1998, the Company evaluated the recoverability of its approximate
6.6% investment in a Colombian pipeline company, Oleoducto de Colombia S.A.
("ODC"), which is accounted for under the cost method. Based on an analysis of
the future cash flows expected to be received from ODC, the Company expensed the
carrying value of its investment totaling $10.3 million in writedown of assets.
In July 1998, the Company commenced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back
exploration-related expenditures. The plan contemplated the closing of foreign
offices in four countries, the elimination of approximately 105 positions, or
41% of the worldwide workforce, and the relinquishment or other disposal of
several exploration licenses.
In conjunction with the plan to restructure operations and scale back
exploration-related expenditures, the Company assessed its investments in
exploration licenses and determined that certain investments were impaired. As
a result, unevaluated oil and gas properties and other assets totaling $77.3
million ($72.6 million, net of tax) were expensed in writedown of assets. The
writedown included $27.2 million and $22.5 million related to exploration
activity in Guatemala and China, respectively. The remaining writedowns related
to the Company's exploration projects in certain other areas of the world.
As a result of the restructuring, the Company recognized special
charges totaling $18.3 million ($15 million and $3.3 million in the third and
fourth quarters, respectively). At December 31, 1998, approximately 105
positions had been eliminated, three foreign offices had closed and eight
licenses had been relinquished, sold or their commitments renegotiated. The
Company expects to close the remaining office and dispose of six other licenses
during 1999.
Of the $18.3 million in special charges, $14.5 million related to the
reduction in workforce, and represented the estimated costs for severance,
benefit continuation and outplacement costs, which will be paid over a period of
up to two years according to the severance formula. During 1998, the Company
paid $7.4 million in severance, benefit continuation and outplacement costs. A
total of $2.1 million of special charges related to the closing of foreign
offices, and represented the estimated costs of terminating office leases and
the write-off of related assets. The remaining special charges of $1.7 million
primarily related to the write-off of other surplus fixed assets resulting from
the reduction in workforce. As of December 31, 1998, no changes had been made to
the Company's estimate of the total restructuring expenditures to be incurred.
The remaining liability related to restructuring activities was $7.9 million at
December 31, 1998.
Other Income and Expenses
----------------------------
In February 1998, the Company sold TPC, a wholly owned subsidiary that
held the Company's 9.6% equity interest in the Colombian pipeline company,
OCENSA, to an unrelated third party (the "Purchaser") for $100 million. Net
proceeds were approximately $97.7 million after $2.3 million of expenses. The
sale resulted in a gain of $50.2 million. TPC's investment in OCENSA, totaling
$47.4 million at December 31, 1997, was included in assets held for sale.
Gross interest expense for 1998 and 1997 totaled $46.4 million and
$49.7 million, respectively, while capitalized interest for 1998 decreased $2.6
million to $23.2 million. The decrease in capitalized interest is primarily due
to the writedown of unevaluated property totaling $73.9 million in June 1998 and
a sale of 50% of the Company's Block A-18 project in August 1998. The Company
expects the portion of interest expense that will be capitalized will be lower
in 1999 due to the Company's reduced exploration activities and the effect of
the ARCO transaction.
Other income, net, included foreign exchange gains of $2.1 million and
$9.5 million in 1998 and 1997, respectively, primarily related to noncash
adjustments to deferred tax liabilities in Colombia associated with devaluation
of the Colombian peso versus the U.S. dollar. In 1998 and 1997, the Company
recognized gains of $7.6 million and $1.4 million, respectively, on the sale of
corporate assets in addition to the ARCO and TPC transactions. During 1998 and
1997, the Company recorded an unrealized gain (loss) of $.4 million and ($9.7
million), respectively, representing the change in the fair value of the call
options purchased in anticipation of a forward oil sale. In addition, during
1998, the Company recorded an expense of $3.3 million in other income, net,
related to the net payments made under and the change in the fair value of the
equity swap entered into in conjunction with the sale of TPC. Net payments made
(or received) under the equity swap, and any fluctuations in the fair values of
the call options and the equity swap, in future periods will affect other income
in such periods. See "Item 7A. Quantitative and Qualitative Disclosures About
Market Risk."
<PAGE>
Income Taxes
-------------
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes," requires that the Company make projections about
the timing and scope of certain future business transactions in order to
estimate recoverability of deferred tax assets primarily resulting from the
expected utilization of net operating loss carryforwards ("NOLs"). Changes in
the timing or nature of actual or anticipated business transactions, projections
and income tax laws can give rise to significant adjustments to the Company's
deferred tax expense or benefit that may be reported from time to time. For
these and other reasons, compliance with SFAS 109 may result in significant
differences between tax expense for income statement purposes and taxes actually
paid.
The income tax provision for 1998 included a foreign deferred tax
benefit totaling $57 million compared with foreign deferred tax expense of $16
million in 1997. The benefit recognized in 1998 primarily resulted from the
writedown of oil and gas properties. Additionally, the income tax provision
included deferred tax expense in the United States totaling $1.5 million,
compared with a benefit of $7.9 million in 1997. Current taxes related to the
Company's Colombian operations were $4.4 million and $3.4 million in 1998 and
1997, respectively.
At December 31, 1998, the Company had U.S. NOLs of approximately
$415.6 million compared with NOLs of approximately $406.8 million, and certain
separate return limitation years ("SRLY") operating loss carryforwards of $40.6
million, at December 31, 1997. The NOLs expire from 1999 to 2012. See note 11
of Notes to Consolidated Financial Statements. At December 31, 1998, the
Company's Colombian operations and other foreign operations had NOLs and other
credit carryforwards totaling $42.3 million and $31.7 million, respectively,
that will expire between 1999 and 2008.
The Company recorded a deferred tax asset of $100.9 million, net of a
valuation allowance of $93.6 million, at December 31, 1998. The valuation
allowance was primarily attributable to management's assessment of the
utilization of NOLs in the U.S., the expectation that other tax credits will
expire without being utilized, and certain temporary differences will reverse
without a benefit to the Company. The minimum amount of future taxable income
necessary to realize the deferred tax asset is approximately $246 million and
$42 million in the U.S. and Colombia, respectively. Although there can be no
assurance the Company will achieve such levels of income, management believes
the deferred tax asset will be realized through increasing income from its
operations.
Extraordinary Item
-------------------
In May and June 1997, the Company completed a tender offer and consent
solicitation with respect to its 1997 Notes and 9 3/4% Notes that resulted in
the retirement of the 1997 Notes and substantially all of the 9 1/4% Notes. The
Company's results of operations for 1997 included an extraordinary expense of
$14.5 million, net of a $7.8 million tax benefit, associated with the
extinguishment of the 1997 Notes and 9 3/4% Notes. The remainder of the 9 3/4%
Notes were retired in 1998.
<PAGE>
Subsequent Event
-----------------
On January 4, 1999, the Company issued 3,177,500 8% Preference Shares for
$70 per share, or total proceeds of $222.4 million (before closing expenses of
$4.3 million). See "- Liquidity and Capital Requirements - Hicks Muse
Transaction" above.
YEAR ENDED DECEMBER 31, 1997,
COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Oil and Gas Sales
--------------------
Oil and gas sales were $145.4 million and $129.8 million in 1997 and
1996, respectively. Revenues in Colombia increased $18.3 million in 1997 due to
higher production ($35 million). Total revenue barrels, including barrels
delivered under the forward oil sale, increased from 6.4 million barrels in 1996
to 8.2 million barrels in 1997. Volume increases were partially offset by lower
average realized oil prices ($16.7 million) reflecting the increased deliveries
under the forward oil sale and a decrease in the 1997 average WTI oil price,
compared with the prior year. Forward oil sale deliveries, scheduled in 1995
and recorded at $11.56 per barrel, were 29% of total revenue barrels in 1997,
compared with 10% of the Company's total revenue barrels in 1996. In April
1997, the Company's delivery requirement under the forward oil sale increased
from 58,425 barrels per month to 254,136 barrels per month, which had an adverse
effect on the Company's earnings and cash flows on a per-barrel basis during
1997. Oil and gas sales from properties sold in early 1996 aggregated $2.7
million.
Gain on Sale of Oil and Gas Assets
-----------------------------------------
In June 1997, the Company sold its Argentine subsidiary for cash
proceeds of $4.1 million and recognized a gain of $4.1 million. In March 1996,
the Company sold its royalty interest in U.S. properties for $23.8 million based
on an effective date of January 1, 1996, and recognized a gain of $4.1 million.
Costs and Expenses
--------------------
Operating expenses increased $14.7 million in 1997, and depreciation,
depletion and amortization increased $11.2 million, primarily due to higher
production volumes, including barrels delivered under the forward oil sale.
The Company's operating costs per oil equivalent-barrel were $6.47 and $5.77 in
1997 and 1996, respectively. Increased per-barrel costs resulted from higher
OCENSA pipeline tariffs. During 1997, construction of OCENSA's pipeline system
was completed, although its facilities were not utilized to their capacity due
to delays in escalating production in the Fields. During 1997 and 1996, the
Company paid production taxes on production from the Cusiana Field totaling $8.5
million, or $1.28 per barrel, and $8.4 million, or $1.40 per barrel,
respectively.
General and administrative expenses before capitalization increased
$10.5 million to $61 million in 1997, primarily due to growth of the Company's
operations. Capitalized general and administrative costs were $32.4 million and
$24.6 million in 1997 and 1996, respectively. The increased capitalized costs
reflect the Company's increased exploration activities in 1997.
In 1996, the Company's oil and gas properties and other assets in
Argentina were written down $43 million following a review of technical
information that indicated the acreage portfolio did not meet the Company's
exploration objectives.
Other Income and Expenses
----------------------------
Interest expense increased $8 million primarily due to higher average
debt outstanding during 1997. Capitalized interest totaled $25.8 million and
$27.1 million in 1997 and 1996, respectively.
Other income in 1997 included a foreign exchange gain of $9.5 million
primarily on deferred tax liabilities in Colombia, compared with a foreign
exchange loss of $.6 million in 1996. During 1997 and 1996, the Company recorded
an unrealized gain (loss) of ($9.7 million) and $11 million, respectively,
representing the change in the fair market value of call options purchased in
anticipation of a forward oil sale. Other income in 1996 included a $10.4
million gain on the sale of the Company's shareholdings in Crusader Limited, a
$7.6 million benefit for settlement of a lawsuit in which the Company was
plaintiff, and a loss provision of $3.2 million for certain legal matters.
Income Taxes
-------------
The income tax provision for 1997 included foreign deferred taxes
totaling $16 million, primarily related to the Company's Colombian operations,
compared with foreign deferred taxes of $15.4 million in 1996. Additionally,
the income tax provision included a deferred tax benefit in the United States
totaling $7.9 million, compared with a benefit of $23.5 million in 1996.
Current taxes related to the Company's Colombian operations were $3.4 million
and $5.5 million in 1997 and 1996, respectively.
Exploration Operations
-----------------------
Costs related to acquisition, holding and initial exploration of
licenses in countries with no proved reserves are initially capitalized,
including internal costs directly identified with acquisition, exploration and
development activities. The Company's exploration licenses are periodically
assessed for impairment on a country-by-country basis. If the Company's
investment in exploration licenses within a country where no proved reserves are
assigned is deemed to be impaired, the licenses are written down to estimated
recoverable value. If the Company abandons all exploration efforts in a country
where no proved reserves are assigned, all acquisition and exploration costs
associated with the country are expensed. The Company's assessments of whether
its investment within a country is impaired and whether exploration activities
within a country will be abandoned are made from time to time based on its
review and assessment of drilling results, seismic data and other information it
deems relevant. Due to the unpredictable nature of exploration drilling
activities, the amount and timing of impairment expense are difficult to predict
with any certainty. Financial information concerning the Company's assets at
December 31, 1998, including capitalized costs by geographic area, is in note 22
of Notes to Consolidated Financial Statements.
Environmental Matters
---------------------
The Company is subject to extensive environmental laws and
regulations. These laws regulate the discharge of oil, gas or other materials
into the environment and may require the Company to remove or mitigate the
environmental effects of the disposal or release of such materials at various
sites. The Company believes that the level of future expenditures for
environmental matters, including clean-up obligations, is impractical to
determine with a precise and reliable degree of accuracy. Management believes
that such costs, when finally determined, will not have a material adverse
effect on the Company's operations or consolidated financial condition.
Recent Accounting and Disclosure Pronouncements
-----------------------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires enterprises
to recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The requisite accounting for
changes in the fair value of a derivative will depend on the intended use of the
derivative and the resulting designation. The Company must adopt SFAS 133
effective January 1, 2000. Based on the Company's outstanding derivatives
contracts, the Company believes that the impact of adopting this standard would
not have a material adverse effect on the Company's operations or consolidated
financial condition. However, no assurances can be given with regard to the
level of the Company's derivatives activities at the time SFAS 133 is adopted or
the resulting effect on the Company's operations or consolidated financial
condition.
Information Systems and the Year 2000
-------------------------------------
The Year 2000 issue involves circumstances where a computerized system
may not properly recognize or process date-sensitive information on or after
January 1, 2000. The Company began a formal process in 1998 to identify those
internal computerized systems that are not Year 2000 compliant, prioritize those
business-critical computerized systems that need remediation or replacement,
test compliance once the appropriate corrective measures have been implemented,
and develop any contingency plans where considered necessary.
The Company's information technology infrastructure consists of
desktop Pentium class Intel based PC systems, servers and Sparc-UNIX based
computers and off-the-shelf software packages. The systems are networked via
Microsoft NT 4.0 and other telecommunications equipment. The Company does not
use mini or mainframe computer systems and uses only off-the-shelf software
products. The PBX and phone system is a standard off-the-shelf phone system with
voice mail capability. Additionally, telefax and copier machines are additional
business tools used by the Company in conducting its day-to-day activities.
The Company has substantially completed its assessment of the Year
2000 readiness of its internal computerized systems. The next phase will include
installing upgrades to its off-the-shelf financial and operational software
applications, hardware and telecommunications equipment. The Company expects
that such remediation procedures will be completed by the second quarter of
1999. The last phase will include testing of newly upgraded systems to ensure
compliance with Year 2000 date recognition and the development of contingency
plans. The Company expects to complete this last phase by the third quarter of
1999.
All of the Company's sales are derived from oil and gas production
from the Fields, which is heavily dependent upon the operation of the Fields by
BP Exploration Company (Colombia) Limited (the "Operator") and the
transportation of oil through OCENSA, a Colombian pipeline company. The Company
is monitoring progress of the Operator of the Fields and OCENSA on their
activities related to the Year 2000. At this time, the Company expects that
field operations will not be interrupted due to improper recognition of the Year
2000 by computerized systems of the Operator of the Fields or OCENSA.
The Company also relies on other oil and gas partners, vendors, and
financial institutions in its daily operations. The Company believes it has
identified those third-party relationships that could have a material adverse
effect on the Company's results of operations and financial position should
their computerized systems not be compliant for the Year 2000. The Company is
in the process of surveying the identified third parties on their readiness for
the Year 2000 and will establish appropriate alternatives, if needed, where
noncompliance may pose a risk to the Company's operations.
The Company does not believe that the costs to resolve any Year 2000
issues will be material. To date, the Company has incurred approximately
$150,000 on Year 2000 matters and it expects that the total cost, primarily
consulting fees, will not exceed $700,000.
The failure to correct a material Year 2000 problem by the Company,
its partners or other vendors could result in an interruption of the Company's
normal business activities or operations, including production in the Fields or
transportation of the Company's crude oil to the port of Covenas. Any
interruptions could result in a material adverse effect on the Company's results
of operations, cash flows and financial condition. Due to the inherent
uncertainties relating to the effect of the Year 2000 on the Company's
operations, it is difficult to predict what impact, if any, noncompliance with
the Year 2000 issue will have on the Company's results of operations, cash flows
and financial condition.
As the Company progresses further through its Year 2000 analysis, it
intends to develop contingency plans for risks that could cause a material
adverse effect on the Company's results of operations, cash flows and financial
condition.
Certain Factors That Could Affect Future Operations
---------------------------------------------------
Certain information contained in this report, as well as written and
oral statements made or incorporated by reference from time to time by the
Company and its representatives in other reports, filings with the Securities
and Exchange Commission, press releases, conferences or otherwise, may be deemed
to be "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions
of that section. Forward-looking statements include statements concerning the
Company's and management's plans, objectives, goals, strategies and future
operations and performance and the assumptions underlying such forward-looking
statements. Forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "estimates," "expects," "believes,"
"intends," "plans" and similar expressions. These statements include
information regarding drilling schedules; expected or planned production
capacity; the closing of branch offices; future production of the Fields; the
negotiation of a gas-sales contract, completion of development and commencement
of production in Malaysia-Thailand; the Company's capital budget and future
capital requirements; the Company's meeting its future capital needs; future
general and administrative expense and the portion to be capitalized; future
interest expense and the portion to be capitalized; the Company's realization of
its deferred tax asset; the level of future expenditures for environmental
costs; the outcome of regulatory and litigation matters; the impact of Year 2000
issues; the estimated fair value of derivative instruments, including the equity
swap; and proven oil and gas reserves and discounted future net cash flows
therefrom. These statements are based on current expectations and involve a
number of risks and uncertainties, including those described in the context of
such forward-looking statements, and in notes 20 and 21 of Notes to Consolidated
Financial Statements. Actual results and developments could differ materially
from those expressed in or implied by such statements due to these and other
factors.
<PAGE>
ITEM 7. A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Commodity Risk
- ---------------
The Company's primary commodity market risk exposure is to changes in the
pricing applicable to its oil production, which is normally priced with
reference to a defined benchmark, such as light, sweet crude oil traded on the
New York Mercantile Exchange (WTI). Actual prices received vary from the
benchmark depending on quality and location differentials. The markets for
crude oil historically have been volatile and are likely to continue to be
volatile in the future. During the three year period ended December 31, 1998,
WTI oil prices fluctuated between a low price of $10.72 per barrel and a high
price of $26.62 per barrel.
From time to time, it is the Company's policy to use financial market
transactions, including swaps, collars and options, with creditworthy
counterparties, primarily to reduce the risk associated with the pricing of a
portion of its projected oil production. The policy is structured to underpin
the Company's planned revenues and results of operations. The Company may also
enter into financial market transactions to benefit from its assessment of the
future prices of its production relative to other benchmark prices.
During the year ended December 31, 1998, the Company did not have any
outstanding financial market transactions to hedge against oil price
fluctuations. During the years ended December 31, 1997 and 1996, markets
provided the Company the opportunity to realize WTI benchmark oil prices on
average $2.35 per barrel and $4.68 per barrel, respectively, above the WTI
benchmark oil price the Company set as part of its annual plan for the period.
As a result of financial and commodity market transactions settled during the
years ended December 31, 1997 and 1996, the Company's risk management program
resulted in an average net realization of approximately $.11 per barrel and
$1.21 per barrel, respectively, lower than if the Company had not entered into
such transactions. Realized gains or losses from the Company's price risk
management activities are recognized in oil and gas sales at the time of
settlement of the underlying hedged transaction.
In anticipation of entering into the forward oil sale, in 1995 the Company
purchased WTI benchmark call options to retain the ability to benefit from WTI
price increases above a weighted average price of $20.42 per barrel. The
volumes and expiration dates on the call options coincide with the volumes and
delivery dates of the forward oil sale. During the years ended December 31,
1998, 1997 and 1996, the Company recorded an unrealized gain (loss) of $.4
million, ($9.7 million) and $11 million, respectively, in other income, net,
related to the change in the fair market value of the call options. The Company
used a sensitivity analysis technique to evaluate the hypothetical effect that
changes in WTI oil prices may have on the fair value of these call options. At
December 31, 1998, the potential decrease in fair value, assuming a ten percent
adverse movement in WTI oil prices, would not have a material adverse effect on
the Company's consolidated financial position or results of operations.
<PAGE>
Interest Rate Risk
- --------------------
Equity Swap
------------
In conjunction with the sale of TPC, the Company entered into an
equity swap with a creditworthy financial institution (the "Counterparty"). The
equity swap has a notional amount of $97 million and requires the Company to
make quarterly floating LIBOR-based payments on the notional amount to the
Counterparty. In exchange, the Counterparty is required to make payments to the
Company equivalent to 97% of the dividends TPC receives in respect of its equity
interest in OCENSA. The Company's LIBOR-based payments commenced in March 1998,
and OCENSA commenced paying dividends in September 1998. OCENSA's first
dividend was attributable to the four month period ending June 1998. During the
year ended December 31, 1998, the Company made payments to the Counterparty
totaling $5.9 million and received payments from the Counterparty totaling $2.6
million.
The equity swap is carried in the Company's financial statements at fair
value during its term, which, as amended, will expire April 14, 2000. The value
of the equity swap in the Company's financial statements is equal to the
estimated fair value of the shares of OCENSA owned by TPC. Because there is no
public market for the shares of OCENSA, the Company estimates their value using
a discounted cash flow model applied to the distributions expected to be paid in
respect of the OCENSA shares. The discount rate applied to the estimated cash
flows from the OCENSA shares is based on a combination of current market rates
of interest, a credit spread for OCENSA's debt, and a spread to reflect the
preferred stock nature of the OCENSA shares. During the year ended December 31,
1998, the Company recorded an expense of $3.3 million in other income, net,
related to the net payments made under and the change in the fair market value
of the equity swap. The Company also evaluated the potential effect that
near-term changes in interest rates could have on the fair value of the equity
swap. Based upon an analysis utilizing the actual discount rate in effect as of
December 31, 1998, and assuming a ten percent adverse movement in the discount
rate, the potential decrease in the fair value of the equity swap at December
31, 1998, would be approximately $6.6 million. Net payments made (or received)
under the equity swap, and any fluctuations in the fair value of the equity
swap, in future periods, will affect other income in such periods. There can be
no assurance that changes in interest rates, or in other factors that affect the
value of the OCENSA shares and/or the equity swap, will not have a material
adverse effect on the carrying value of the equity swap.
Upon the expiration of the equity swap in April 2000, the Company
expects that the Purchaser will sell the TPC shares. Under the terms of the
equity swap with the Counterparty, upon any sale by the Purchaser of the TPC
shares, the Company will receive from the Counterparty, or pay to the
Counterparty, an amount equal to the excess or deficiency, as applicable, of the
difference between 97% of the net proceeds from the Purchaser's sale of the TPC
shares and the notional amount of $97 million. There can be no assurance that
the value the Purchaser may realize in any sale of the TPC shares will equal the
value of the shares estimated by the Company for purposes of valuing the equity
swap. To the extent that 97% of the Purchaser's sale proceeds exceeds the
notional amount, the Company will record a gain, and to the extent 97% of the
Purchaser's sale proceeds is less than the notional amount, the Company will
record an expense. The Company has no right or obligation to repurchase the TPC
shares at any time, but the Company is not prohibited from offering to purchase
the shares if the Purchaser offers to sell them.
Indebtedness of the Company
------------------------------
The Company believes its interest rate exposure on debt is not
significant since only $32.6 million out of total debt of $432.5 million at
December 31, 1998, has floating interest rate obligations, of which $14.5
million was repaid in January 1999.
Foreign Currency Risk
- -----------------------
The Company derives substantially all of its consolidated revenues
from international operations. A risk inherent in international operations is
the possibility of realizing economic currency-exchange losses when transactions
are completed in currencies other than U.S. dollars. The Company's risk of
realizing currency-exchange losses currently is largely mitigated because the
Company receives U.S. dollars for sales of its petroleum products in Colombia.
With respect to expenditures denominated in currencies other than the U.S.
dollar, the Company generally converts U.S. dollars to the local currency near
the applicable payment dates to minimize exposure to losses caused by holding
foreign currency deposits. During the three-year period ended December 31,
1998, the Company did not realize any material foreign exchange losses from its
international operations.
The Company evaluated the potential effect that reasonably possible
near-term changes in foreign exchange rates may have on the fair value of
foreign currency denominated assets. Based on analysis utilizing the actual
foreign currency exchange rates at December 31, 1998, and assuming a ten percent
adverse movement in exchange rates, the potential decrease in fair value of
foreign currency denominated assets does not have a material adverse effect on
the Company's consolidated financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the Company's directors and nominees for
election as directors of the Company is incorporated herein by reference from
the Proxy Statement for the 1999 Annual Meeting of Shareholders of the Company
(the "Proxy Statement"), specifically the discussion under the heading "Election
of Directors." The Company expects that the Proxy Statement will be publicly
available and mailed in April 1999. Certain information as to executive officers
is included herein under Items 1 and 2, "Business and Properties - Executive
Officers." The discussion under "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The discussion under "Management Compensation" in the Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussion under "Security Ownership of Management and Certain
Shareholders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The discussion under "Management Compensation - Certain Transactions" in
the Proxy Statement is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Financial Statements: The financial statements filed as part of
this report are listed in the "Index to Financial Statements and Schedules" on
page F-1 hereof.
2. Financial Statement Schedules: The financial statement schedules
filed as part of this report are listed in the "Index to Financial Statements
and Schedules" on page F-1 hereof.
3. Exhibits required to be filed by Item 601 of Regulation S-K. (Where
the amount of securities authorized to be issued under any of Triton Energy
Limited's and any of its subsidiaries' long-term debt agreements does not exceed
10% of the Company's assets, pursuant to paragraph (b)(4) of Item 601 of
Regulation S-K, in lieu of filing such as exhibits, the Company hereby agrees to
furnish to the Commission upon request a copy of any agreement with respect to
such long-term debt.)
<TABLE>
<CAPTION>
<S> <C>
3.1 Memorandum of Association. (1)
3.2 Articles of Association. (1)
4.1 Specimen Share Certificate of Ordinary Shares, $.01 par value, of the Company. (2)
4.2 Rights Agreement dated as of March 25, 1996, between Triton and The Chase
Manhattan Bank, as Rights Agent, including, as Exhibit A thereto, Resolutions
establishing the Junior Preference Shares. (1)
4.3 Resolutions Authorizing the Company's 5% Convertible Preference Shares. (3)
4.4 Amendment No. 1 to Rights Agreement dated as of August 2, 1996, between Triton
Energy Limited and The Chase Manhattan Bank, as Rights Agent. (4)
4.5 Amendment No. 2 to Rights Agreement dated as of August 30, 1998, between Triton
Energy Limited and The Chase Manhattan Bank, as Rights Agent. (5)
4.6 Unanimous Written Consent of the Board of Directors authorizing a Series of
Preference Shares. (6)
4.7 Amendment No. 3 to Rights Agreement dated as of January 5, 1999, between Triton
Energy Limited and The Chase Manhattan Bank, as Rights Agent. (7)
10.1 Amended and Restated Retirement Income Plan. (8)(27)
10.2 Amendment to the Retirement Income Plan dated August 1, 1998. (9)(27)
10.3 Amendment to Amended and Restated Retirement Income Plan dated
December 31, 1996. (10)(27)
10.4 Amended and Restated Supplemental Executive Retirement Income Plan. (11)(27)
10.5 1981 Employee Non-Qualified Stock Option Plan. (12)(27)
10.6 Amendment No. 1 to the 1981 Employee Non-Qualified Stock Option Plan. (13)(27)
10.7 Amendment No. 2 to the 1981 Employee Non-Qualified Stock Option Plan. (12)(27)
10.8 Amendment No. 3 to the 1981 Employee Non-Qualified Stock Option Plan. (8)(27)
10.9 1985 Stock Option Plan. (14)(27)
10.10 Amendment No. 1 to the 1985 Stock Option Plan. (12)(27)
10.11 Amendment No. 2 to the 1985 Stock Option Plan. (8)(27)
10.12 Amended and Restated 1986 Convertible Debenture Plan. (8)(27)
10.13 1988 Stock Appreciation Rights Plan. (15)(27)
10.14 1989 Stock Option Plan. (16)(27)
10.15 Amendment No. 1 to 1989 Stock Option Plan. (12)(27)
10.16 Amendment No. 2 to 1989 Stock Option Plan. (8)(27)
10.17 Second Amended and Restated 1992 Stock Option Plan.(17)(27)
10.18 Form of Amended and Restated Employment Agreement with Triton Energy Limited
and certain officers. (11)(27)
10.19 Amended and Restated Employment Agreement among Triton Energy Limited, Triton
Exploration Services, Inc. and Robert B. Holland, III. (6)(27)
10.20 Form of Amended and Restated Employment Agreement among Triton Energy Limited,
Triton Exploration Services, Inc. and each of Peter Rugg and Al E. Turner. (6)(27)
10.21 Letter Agreement among Triton Energy Limited, Triton Exploration Services, Inc.
and Robert B. Holland, III dated December 17, 1998. (27)(28)
10.22 Letter Agreement among Triton Energy Limited, Triton Exploration Services, Inc.
and Peter Rugg dated December 10, 1998. (27)(28)
10.23 Form of Bonus Agreement between Triton Exploration Services, Inc. and each of
Al E. Turner, Robert B. Holland, III, and Peter Rugg dated July 15, 1998. (27)(28)
10.24 Amended and Restated 1985 Restricted Stock Plan. (8)(27)
10.25 First Amendment to Amended and Restated 1985 Restricted Stock Plan. (18)(27)
10.26 Second Amendment to Amended and Restated 1985 Restricted Stock Plan. (17)(27)
10.27 Executive Life Insurance Plan. (19)(27)
10.28 Long Term Disability Income Plan. (19)(27)
10.29 Amended and Restated Retirement Plan for Directors. (14)(27)
10.30 Contract for Exploration and Exploitation for Santiago de Atalayas I with an effective
date of July 1, 1982, between Triton Colombia, Inc., and Empresa Colombiana
De Petroleos. (14)
10.31 Contract for Exploration and Exploitation for Tauramena with an effective date of July
4, 1988, between Triton Colombia, Inc., and Empresa Colombiana De Petroleos. (14)
10.32 Summary of Assignment legalized by Public Instrument No. 1255 dated September 15,
1987 (Assignment is in Spanish language). (15)
10.33 Summary of Assignment legalized by Public Instrument No. 1602 dated June 11, 1990
(Assignment is in Spanish language). (15)
10.34 Summary of Assignment legalized by Public Instrument No. 2586 dated September 9,
1992 (Assignment is in Spanish language). (15)
10.35 401(K) Savings Plan. (8)(27)
10.36 Amendment to the 401(k) Savings Plan dated August 1, 1998. (9)(27)
10.37 Amendment to 401(k) Savings Plan dated December 31, 1996. (10)(27)
10.38 Contract between Malaysia-Thailand and Joint Authority and Petronas Carigali
SDN.BHD. and Triton Oil Company of Thailand relating to Exploration and Production
of Petroleum for Malaysia-Thailand Joint Development Area Block A-18. (20)
10.39 Triton Crude Purchase Agreement between Triton Colombia, Inc. and Oil Co., LTD.
dated May 25, 1995. (21)
10.40 Credit Agreement among Triton Colombia, Inc., Triton Energy Corporation,
NationsBank, N.A. (Carolinas) and Export-Import Bank of the United States. (18)
10.41 Amendment No. 1 to Credit Agreement among Triton Colombia, Inc., Triton Energy
Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United
States. (18)
10.42 Amendment No. 2 to Credit Agreement among Triton Colombia, Inc., Triton Energy
Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United
States. (17)
10.43 Amendment No. 3 to Credit Agreement among Triton Colombia, Inc., Triton Energy
Corporation, NationsBank, N.A. (Carolinas) and Export-Import Bank of the United
States. (10)
10.44 Form of Indemnity Agreement entered into with each director and officer of the
Company. (6)
10.45 Description of Performance Goals for Executive Bonus Compensation. (22)(27)
10.46 Stock Purchase Agreement dated September 2, 1997, between The Strategic
Transaction Company and Triton International Petroleum, Inc. (11)
10.47 Fourth Amendment to Stock Purchase Agreement dated February 2, 1998, between
The Strategic Transaction Company and Triton International Petroleum, Inc. (11 )
10.48 Amended and Restated 1997 Share Compensation Plan. (27)(28)
10.49 First Amendment to Amended and Restated Retirement Plan for Directors. (11 )(27)
10.50 First Amendment to Second Amended and Restated 1992 Stock Option Plan. (23)(27)
10.51 Second Amendment to Second Amended and Restated 1992 Stock Option Plan.
(11)(27)
10.52 Amended and Restated Indenture dated July 25, 1997, between Triton Energy
Limited and The Chase Manhattan Bank. (24)
10.53 Amended and Restated First Supplemental Indenture dated July 25, 1997,
between Triton Energy Limited and The Chase Manhattan Bank relating
to the 8 3/4% Senior Notes due 2002. (24)
10.54 Amended and Restated Second Supplemental Indenture dated July 25, 1997,
between Triton Energy Limited and The Chase Manhattan Bank relating
to the 9 1/4% Senior Notes due 2005. (24)
10.55 Share Purchase Agreement dated July 17, 1998 ,among Triton Energy Limited, Triton
Asia Holdings, Inc., Atlantic Richfield Company and ARCO JDA Limited. (9)
10.56 Shareholders Agreement dated August 3, 1998, among Triton Energy Limited, Triton
Asia Holdings, Inc., Atlantic Richfield Company, and ARCO JDA Limited. (9)
10.57 Stock Purchase Agreement dated as of August 31, 1998, between Triton Energy
Limited and HM4 Triton, L.P. (6)
10.58 Shareholders Agreement dated as of September 30, 1998, between Triton Energy
Limited and HM4 Triton, L.P. (6)
10.59 Financial Advisory Agreement dated as of September 30, 1998, between Triton Energy
Limited and Hicks, Muse & Co. Partners, L.P. (6)
10.60 Monitoring and Oversight Agreement dated as of September 30, 1998, between Triton
Energy Limited and Hicks, Muse & Co. Partners, L.P. (6)
10.61 Severance Agreement dated as of July 15, 1998, between Thomas G. Finck and Triton
Energy Limited. (6) (27)
12.1 Computation of Ratio of Earnings to Fixed Charges. (28)
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preference
Dividends. (28)
21.1 Subsidiaries of the Company. (28)
23.1 Consent of PricewaterhouseCoopers LLP. (28)
23.2 Consent of DeGolyer and MacNaughton. (28)
24.1 The power of attorney of officers and directors of the Company (set forth on the
signature page hereof). (28)
27.1 Financial Data Schedule. (28)
99.1 Heads of Agreement for the Supply of Gas from Block A-18 of the Malaysia-Thailand Joint Development Area. (10)
99.2 Rio Chitamena Association Contract. (25)
99.2 Rio Chitamena Purchase and Sale Agreement. (25)
99.3 Integral Plan - Cusiana Oil Structure. (25)
99.4 Letter Agreements with co-investor in Colombia. (25)
99.5 Colombia Pipeline Memorandum of Understanding. (25)
99.6 Amended and Restated Oleoducto Central S.A. Agreement dated as of March 31,
1995. (26)
</TABLE>
____________________
<TABLE>
<CAPTION>
<S> <C>
(1) Previously filed as an exhibit to the Company's Registration Statement on Form S-3
(No 333-08005) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A
dated March 25, 1996, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's and Triton Energy Corporation's
Registration Statement on Form S-4 (No. 333-923) and incorporated herein
by reference.
(4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A
(Amendment No. 1) dated August 14, 1996, and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A
(Amendment No. 2) dated October 2, 1998, and incorporated herein by reference.
(6) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, and incorporated herein
by reference.
(7) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A
(Amendment No. 3) dated January 31, 1999, and incorporated herein by reference.
(8) Previously filed as an exhibit to Triton Energy Corporation's Quarterly
Report on Form 10-Q for the quarter ended November 30, 1993, and incorporated
by reference
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and incorporated herein by reference.
(12) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1992 ,and incorporated herein by reference.
(13) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1989, and incorporated by reference herein.
(14) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1990, and incorporated herein by reference.
(15) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1993, and incorporated by reference herein.
(16) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1988, and incorporated herein by
reference.
(17) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by reference.
(18) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, and incorporated herein by
reference.
(19) Previously filed as an exhibit to Triton Energy Corporation's Annual Report on Form
10-K for the fiscal year ended May 31, 1991, and incorporated herein by reference.
(20) Previously filed as an exhibit to Triton Energy Corporation's current report on Form
8-K dated April 21, 1994, and incorporated by reference herein.
(21) Previously filed as an exhibit to Triton Energy Corporation's Current Report on Form
8-K dated May 26, 1995, and incorporated herein by reference.
(22) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, and incorporated herein by
reference.
(23) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated herein by reference.
(24) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, and incorporated herein by reference.
(25) Previously filed as an exhibit to Triton Energy Corporation's current report on Form
8-K/A dated July 15, 1994, and incorporated by reference herein.
(26) Previously filed as an exhibit to Triton Energy Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by
reference.
(27) Management contract or compensatory plan or arrangement.
(28) Filed herewith.
</TABLE>
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed by the undersigned thereunto duly authorized on the 17th day
of March, 1999.
TRITON ENERGY LIMITED
By:/s/ James C. Musselman
-------------------------------------
James C. Musselman
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Triton Energy Limited (the "Company") hereby constitutes and
appoints James C. Musselman, Robert B. Holland, III, and Bernard Gros-Dubois,
or any of them (with full power to each of them to act alone), his true
and lawful attorney-in-fact and agent, with full power of substitution, for him
and on his behalf and in his name, place and stead, in any and all
capacities, to sign, execute, and file any and all documents relating to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998, including any and all amendments and supplements thereto, with any
regulatory authority, granting unto said attorneys, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the 17th day of
March, 1999.
Signatures Title
---------- -----
/s/Bernard Gros-Dubois Vice President
-----------------------------
Bernard Gros-Dubois (Principal Accounting and
Financial Officer)
/s/Thomas O. Hicks Chairman of the Board
- ------------------------------
Thomas O. Hicks
/s/James C. Musselman President and Chief Executive Officer
- ------------------------------
James C. Musselman (Principal Executive Officer)
/s/Sheldon R. Erikson Director
- ------------------------------
Sheldon R. Erikson
/s/Jack D. Furst Director
- ------------------------------
Jack D. Furst
/s/Fitzgerald S. Hudson Director
- ------------------------------
Fitzgerald Hudson
Director
- ------------------------------
John R. Huff
/s/Michael E. McMahon Director
- ------------------------------
Michael E. McMahon
/s/C. Lamar Norsworthy Director
- ------------------------------
C. Lamar Norsworthy
/s/C. Richard Vermillion Director
- ------------------------
C. Richard Vermillion
/s/J. Otis Winters Director
- ------------------------------
J. Otis Winters
<PAGE>
TRITON ENERGY LIMITED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
PAGE
-----
TRITON ENERGY LIMITED AND SUBSIDIARIES:
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations - Years ended December 31, 1998, 1997,
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets - Pro Forma December 31, 1998 (Unaudited), and
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1998,
1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . F-7
SCHEDULE:
II - Valuation and Qualifying Accounts - Years ended December 31, 1998,
1997 and 1996 F- 50
</TABLE>
All other schedules are omitted as the required information is inapplicable or
presented in the consolidated financial statements or related notes.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Triton Energy Limited
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Triton
Energy Limited and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 2, 1999
<PAGE>
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
SALES AND OTHER OPERATING REVENUES:
Oil and gas sales $ 160,881 $145,419 $129,795
Gain on sale of oil and gas assets 67,737 4,077 4,182
---------- --------- ---------
228,618 149,496 133,977
---------- --------- ---------
COSTS AND EXPENSES:
Operating 73,546 51,357 36,654
General and administrative 26,653 28,607 25,945
Depreciation, depletion and amortization 58,811 36,828 25,640
Writedown of assets 328,630 --- 42,960
Special charges 18,324 --- ---
---------- --------- ---------
505,964 116,792 131,199
---------- --------- ---------
OPERATING INCOME (LOSS) (277,346) 32,704 2,778
Gain on sale of Triton Pipeline Colombia 50,227 --- ---
Interest income 3,258 5,178 6,703
Interest expense, net (23,228) (23,858) (15,897)
Other income, net 8,480 2,872 27,361
---------- --------- ---------
38,737 (15,808) 18,167
---------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (238,609) 16,896 20,945
Income tax expense (benefit) (51,105) 11,301 (2,860)
---------- --------- ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM (187,504) 5,595 23,805
Extraordinary item - extinguishment of debt --- (14,491) (1,196)
---------- --------- ---------
NET EARNINGS (LOSS) (187,504) (8,896) 22,609
DIVIDENDS ON PREFERENCE SHARES 3,061 400 985
---------- --------- ---------
EARNINGS (LOSS) APPLICABLE TO ORDINARY SHARES $(190,565) $ (9,296) $ 21,624
========== ========= =========
Average ordinary shares outstanding 36,609 36,471 35,929
========== ========= =========
BASIC EARNINGS (LOSS) PER ORDINARY SHARE:
Earnings (loss) before extraordinary item $ (5.21) $ 0.14 $ 0.64
Extraordinary item - extinguishment of debt --- (0.40) (0.03)
---------- --------- ---------
BASIC EARNINGS (LOSS) $ (5.21) $ (0.26) $ 0.61
========== ========= =========
DILUTED EARNINGS (LOSS) PER ORDINARY SHARE:
Earnings (loss) before extraordinary item $ (5.21) $ 0.14 $ 0.62
Extraordinary item - extinguishment of debt --- (0.39) (0.03)
---------- --------- ---------
DILUTED EARNINGS (LOSS) $ (5.21) $ (0.25) $ 0.59
========== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRO FORMA
ASSETS DECEMBER 31, DECEMBER 31,
-------------------------------
1998 1998 1997
------------- ------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 237,186 $ 19,122 $ 13,451
Trade receivables, net 9,554 9,554 12,963
Other receivables 48,415 48,415 52,162
Inventories, prepaid expenses and other 1,655 1,655 5,219
Assets held for sale --- --- 58,178
------------- ------------- -------------
TOTAL CURRENT ASSETS 296,810 78,746 141,973
Property and equipment, at cost, net 556,122 556,122 835,506
Deferred income taxes 100,916 100,916 87,148
Other assets 20,349 20,349 33,412
------------- ------------- -------------
$ 974,197 $ 756,133 $ 1,098,039
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 14,027 $ 14,027 $ 130,375
Short-term borrowings 5,000 5,000 54,600
Accounts payable and accrued liabilities 45,892 45,892 36,964
Deferred income 35,254 35,254 35,254
------------- ------------- -------------
TOTAL CURRENT LIABILITIES 100,173 100,173 257,193
Long-term debt, excluding current maturities 413,465 413,465 443,312
Deferred income taxes 4,169 4,169 50,968
Deferred income and other 14,519 14,519 49,946
SHAREHOLDERS' EQUITY:
5% preference shares, par value $.01; authorized 420,000
shares; issued 209,639 and 218,285 shares at December 31,
1998 and 1997, respectively, stated value $34.41 7,214 7,214 7,511
8% preference shares, par value $.01; authorized 11,000,000
shares; issued 1,822,500 shares (pro forma 5,000,000 shares)
at December 31, 1998, stated value $70 350,000 127,575 ---
Ordinary shares, par value $.01; authorized 200,000,000
shares; issued 36,643,478 and 36,541,064 shares at
December 31, 1998 and 1997, respectively 366 366 365
Additional paid-in capital 571,502 575,863 588,454
Accumulated deficit (485,085) (485,085) (297,581)
Accumulated other non-owner changes in shareholders' equity (2,126) (2,126) (2,126)
------------- ------------- -------------
441,871 223,807 296,623
Less cost of ordinary shares in treasury --- --- 3
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 441,871 223,807 296,620
Commitments and contingencies (note 21) --- --- ---
------------- ------------- -------------
$ 974,197 $ 756,133 $ 1,098,039
============= ============= =============
</TABLE>
The Company uses the full cost method to account for its oil- and gas-producing
activities.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(187,504) $ (8,896) $ 22,609
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities:
Depreciation, depletion and amortization 58,811 36,828 25,640
Amortization of deferred income (35,254) (28,467) (8,105)
Gain on sale of oil and gas assets (67,737) (4,077) (4,182)
Gain on sale of Triton Pipeline Colombia (50,227) --- ---
Writedown of assets 328,630 --- 42,960
Payment of accreted interest on extinguishment of debt --- (124,794) ---
Extraordinary loss on extinguishment of debt, net of tax --- 14,491 1,196
Amortization of debt discount --- 7,949 15,897
Deferred income taxes (55,592) 8,078 (8,115)
Gain on sale of other assets (7,590) (1,409) (11,649)
Other, net 3,962 6,100 (4,862)
Changes in working capital:
Marketable debt securities - trading --- 1,856 4,149
Receivables 7,371 (2,408) (5,048)
Inventories, prepaid expenses and other 902 (62) (787)
Accounts payable and accrued liabilities 5,898 (2,605) 11,002
---------- ---------- ----------
Net cash provided (used) by operating activities 1,670 (97,416) 80,705
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and investments (180,054) (219,216) (252,684)
Proceeds from sale of oil and gas assets 147,027 4,077 22,624
Proceeds from sale of Triton Pipeline Colombia 97,656 --- ---
Proceeds from sales of other assets 22,353 1,822 15,881
Proceeds from sale of investments and marketable securities --- 2,000 38,507
Proceeds from sale of shareholdings in Crusader --- --- 69,583
Other (2,630) (1,383) 571
---------- ---------- ----------
Net cash provided (used) by investing activities 84,352 (212,700) (105,518)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving lines of credit and long-term debt 162,530 620,413 53,911
Payments on revolving lines of credit and long-term debt (350,511) (321,515) (70,884)
Short-term notes payable, net (9,600) 9,600 ---
Issuance of 8% preference shares, net 115,329 --- ---
Issuances of ordinary shares 2,544 5,260 5,874
Other (363) (390) (1,879)
---------- ---------- ----------
Net cash provided (used) by financing activities (80,071) 313,368 (12,978)
---------- ---------- ----------
Effect of exchange rate changes on cash and equivalents (280) (849) (211)
---------- ---------- ----------
Net increase (decrease) in cash and equivalents 5,671 2,403 (38,002)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 13,451 11,048 49,050
---------- ---------- ----------
CASH AND EQUIVALENTS AT END OF YEAR $ 19,122 $ 13,451 $ 11,048
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
---------------------- -------------------- --------------------
OWNER SOURCES OF SHAREHOLDERS' EQUITY:
5% PREFERENCE SHARES:
Balance at beginning of period $ 7,511 $ 8,515 $ 14,109
Conversion of 5% preference shares (297) (1,004) (5,594)
---------- ---------- ----------
Balance at end of period 7,214 7,511 8,515
---------- ---------- ----------
8% PREFERENCE SHARES:
Balance at beginning of period --- --- ---
Issuances of 1,822,500 shares at $70 per share 127,575 --- ---
---------- ---------- ----------
Balance at end of period 127,575 --- ---
---------- ---------- ----------
ORDINARY SHARES:
Balance at beginning of period 365 363 35,927
Exercise of employee stock options and debentures 1 2 81
Conversion of 5% preference shares --- --- 153
Reduction in par value --- --- (35,783)
Other, net --- --- (15)
---------- ---------- ----------
Balance at end of period 366 365 363
---------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 588,454 582,581 516,326
Cash dividends, 5% preference shares (368) (400) (985)
Cash dividends, 8% preference shares (2,693) --- ---
Exercise of employee stock options and debentures 2,548 3,831 7,974
Conversion of 5% preference shares 297 1,004 5,441
Reduction in par value --- --- 35,783
Transaction costs for issuance of
8% preference shares (12,370) --- ---
Sale of shareholdings in Crusader --- --- 20,413
Other, net (5) 1,438 (2,371)
---------- ---------- ----------
Balance at end of period 575,863 588,454 582,581
---------- ---------- ----------
TREASURY SHARES:
Balance at beginning of period (3) (2) (338)
Retirement of treasury shares 5 --- 204
Other, net (2) (1) 132
---------- ---------- ----------
Balance at end of period --- (3) (2)
---------- ---------- ----------
TOTAL OWNER SOURCES OF SHAREHOLDERS' EQUITY 711,018 596,327 591,457
---------- ---------- ----------
NON-OWNER SOURCES OF SHAREHOLDERS' EQUITY:
ACCUMULATED DEFICIT:
Balance at beginning of period (297,581) (288,685) (311,294)
Net earnings (loss) (187,504) $(187,504) (8,896) $(8,896) 22,609 $22,609
---------- ---------- ----------
Balance at end of period (485,085) (297,581) (288,685)
---------- ---------- ----------
ACCUMULATED OTHER NON-OWNER CHANGES IN
SHAREHOLDERS' EQUITY:
Balance at beginning of period (2,126) (2,128) (8,705)
Foreign currency translation adjustments:
Sale of shareholdings in Crusader --- --- 4,890
Translation rate changes --- --- 1,600
Valuation reserve on marketable securities --- 2 87
---------- -------- -------
Other non-owner changes in shareholders' equity --- --- 2 2 6,577 6,577
---------- ---------- ---------- -------- ---------- -------
Non-owner changes in shareholders' equity $(187,504) $(8,894) $29,186
========== ======== =======
Balance at end of period (2,126) (2,126) (2,128)
---------- ---------- ----------
TOTAL NON-OWNER SOURCES OF
SHAREHOLDERS' EQUITY (487,211) (299,707) (290,813)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY $ 223,807 $ 296,620 $ 300,644
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TRITON ENERGY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT FOR SHARE,
PER SHARE AND PER BARREL DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Triton Energy Limited ("Triton") is an international oil and gas exploration and
production company. The term "Company" when used herein means Triton and its
subsidiaries and other affiliates through which the Company conducts its
business. The Company's principal properties, operations, and oil and gas
reserves are located in Colombia and Malaysia-Thailand. The Company is
exploring for oil and gas in these areas, as well as in southern Europe, Africa,
and the Middle East. All sales are currently derived from oil and gas
production in Colombia.
Triton, a Cayman Islands company, was incorporated in 1995 to become the parent
holding company of Triton Energy Corporation, a Delaware corporation ("TEC").
On March 25, 1996, the stockholders of TEC approved the merger of a wholly owned
subsidiary of Triton with and into TEC (the "Reorganization"). Pursuant to the
Reorganization, Triton became the parent holding company of TEC and each share
of common stock, par value $1.00, and 5% preferred stock of TEC outstanding on
March 25, 1996, was converted into one Triton ordinary share, par value $.01,
and one 5% Triton preference share, respectively. The Reorganization has been
accounted for as a combination of entities under common control.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Triton and its
majority-owned subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation. The Company also consolidates its
proportionate share of assets, liabilities and results of operations for oil and
gas ventures. The investment in a previously owned 49.9% affiliate in which the
Company exercised significant influence over operating and financial policies
was accounted for using the equity method. Investments in less than 20%-owned
affiliates are accounted for using the cost method.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less.
Investments in marketable debt securities are reported at fair value except for
those investments that management has the positive intent and the ability to
hold to maturity. Investments available-for-sale are classified based on the
stated maturity of the securities, and changes in fair value are reported as a
separate component of shareholders' equity. Trading investments are classified
as current regardless of the stated maturity of the underlying securities, and
changes in fair value are reported in other income, net. Investments that will
be held to maturity are classified based on the stated maturity of the
securities.
PROPERTY AND EQUIPMENT
The Company follows the full cost method of accounting for exploration and
development of oil and gas reserves, whereby all acquisition, exploration and
development costs are capitalized. Individual countries are designated as
separate cost centers. All capitalized costs plus the undiscounted estimated
future development costs of proved reserves are depleted using the
unit-of-production method based on total proved reserves applicable to each
country. A gain or loss is recognized on sales of oil and gas properties only
when the sale involves significant reserves.
Costs related to acquisition, holding and initial exploration of licenses in
countries with no proved reserves are initially capitalized, including internal
costs directly identified with acquisition, exploration and development
activities. Costs related to production, general overhead or similar activities
are expensed. The Company's exploration licenses are periodically assessed for
impairment on a country-by-country basis. If the Company's investment in
exploration licenses within a country where no proved reserves are assigned is
deemed to be impaired, the licenses are written down to estimated recoverable
value. If the Company abandons all exploration efforts in a country where no
proved reserves are assigned, all acquisition and exploration costs associated
with the country are expensed. Due to the unpredictable nature of exploration
drilling activities, the amount and timing of impairment expense are difficult
to predict with any certainty.
The net capitalized costs of oil and gas properties for each cost center, less
related deferred income taxes, cannot exceed the sum of (i) the estimated future
net revenues from the properties, discounted at 10%; (ii) unevaluated costs not
being amortized; and (iii) the lower of cost or estimated fair value of unproved
properties being amortized; less (iv) income tax effects related to differences
between the financial statement basis and tax basis of oil and gas properties.
The estimated costs, net of salvage value, of dismantling facilities or projects
with limited lives or facilities that are required to be dismantled by contract,
regulation or law, and the estimated costs of restoration and reclamation
associated with oil and gas operations are included in estimated future
development costs as part of the amortizable base.
Support equipment and facilities are depreciated using the unit-of-production
method based on total reserves of the field related to the support equipment and
facilities. Other property and equipment, which includes furniture and
fixtures, vehicles and leasehold improvements, are depreciated principally on a
straight-line basis over estimated useful lives ranging from 3 to 20 years.
Repairs and maintenance are expensed as incurred, and renewals and improve-ments
are capitalized.
<PAGE>
ENVIRONMENTAL MATTERS
Environmental costs are expensed or capitalized depending on their future
economic benefit. Costs that relate to an existing condition caused by past
operations and have no future economic benefit are expensed. Liabilities for
future expenditures of a noncapital nature are recorded when future
environmental expenditures and/or remediation is deemed probable, and the costs
can be reasonably estimated. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value.
INCOME TAXES
Deferred tax liabilities or assets are recognized for the anticipated future tax
effects of temporary differences between the financial statement basis and the
tax basis of the Company's assets and liabilities using the enacted tax rates in
effect at yearend. A valuation allowance for deferred tax assets is recorded
when it is more likely than not that the benefit from the deferred tax asset
will not be realized.
REVENUE RECOGNITION
Oil and gas revenues are recognized at the point of first measurement after
production, which is generally upon delivery into field storage tank/processing
facilities or pipelines. Cost reimbursements arising from carried interests
granted by the Company are revenues to the extent the reimbursements are
contingent upon and derived from production. Obligations arising from net
profit interest conveyances are recorded as operating expenses when the
obligation is incurred.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the designated functional currency for all of the Company's
foreign operations, except for foreign operations of a formerly owned affiliate
where the local currency was used as the functional currency. The cumulative
translation effects from translating balance sheet accounts from the functional
currency into U.S. dollars are included as a separate component of shareholders'
equity.
RISK MANAGEMENT
Oil and natural gas sold by the Company are normally priced with reference to a
defined benchmark, such as light, sweet crude oil traded on the New York
Merchantile Exchange (West Texas Intermediate or "WTI"). Actual prices received
vary from the benchmark depending on quality and location differentials. From
time to time, it is the Company's policy to use financial market transactions,
including swaps, collars and options, with creditworthy counterparties,
primarily to reduce risk associated with the pricing of a portion of the oil and
natural gas that it sells. The Company may also enter into financial market
transactions to benefit from its assessment of the future prices of its
production relative to other benchmark prices.
Gains or losses on financial market transactions that qualify for hedge
accounting are recognized in oil and gas sales at the time of settlement of the
underlying hedged transactions. Premiums paid for financial market contracts
are capitalized and amortized as operating expenses over the contract period.
Changes in the fair market value of financial market transactions that do not
qualify for hedge accounting are reflected as noncash adjustments to other
income, net in the period the change occurs. Realized gains or losses on
financial market transactions that do not qualify for hedge accounting are
recorded in oil and gas sales.
The Company occasionally enters into foreign exchange contracts to reduce risk
of unfavorable exchange-rate movements. The gains or losses arising from
currency exchange contracts offset foreign exchange gains or losses on the
underlying assets or liabilities or are deferred and offset against the carrying
value of the firm commitment.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," encourages, but does not require, the adoption of
a fair value-based method of accounting for employee stock-based compensation
transactions. The Company has elected to apply the provisions of Accounting
Principles Board Opinion No. 25 ("Opinion 25"), "Accounting for Stock Issued to
Employees," and related interpretations, in accounting for its stock-based
compensation plans. Under Opinion 25, compensation cost is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant above the amount an employee must pay to acquire the stock.
EARNINGS PER ORDINARY SHARE
Basic earnings (loss) per ordinary share amounts were computed by dividing net
earnings (loss) after deduction of dividends on preference shares by the
weighted average number of ordinary shares outstanding during the period. Prior
to the Company's sale of its investment in Crusader Limited ("Crusader") in July
1996, the Company's proportionate shares owned by Crusader were not considered
outstanding for purposes of determining weighted average number of shares
outstanding. Diluted earnings (loss) per ordinary share assumes the conversion
of all securities that are exercisable or convertible into ordinary shares that
would dilute the basic earnings per ordinary share during the period.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 established standards
for the reporting and display of comprehensive income and its components,
specifically net income and all other changes in shareholders' equity except
those resulting from investments by and distributions to shareholders. The
Company, which adopted the standard beginning January 1, 1998, has elected to
display comprehensive income (or non-owner changes in shareholders' equity) in
the Consolidated Statement of Shareholders' Equity. This statement does not
have any effect on the Company's results of operations or financial position.
RECENT ACCOUNTING AND DISCLOSURE PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires enterprises to recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The requisite accounting for changes in the
fair value of a derivative will depend on the intended use of the derivative and
the resulting designation. The Company must adopt SFAS 133 effective January 1,
2000. Based on the Company's outstanding derivatives contracts, the Company
believes that the impact of adopting this standard would not have a material
adverse effect on the Company's operations or consolidated financial condition.
However, no assurances can be given with regard to the level of the Company's
derivatives activities at the time SFAS 133 is adopted or the resulting effect
on the Company's operations or consolidated financial condition.
THE USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
RECLASSIFICATIONS
Certain previously reported financial information has been reclassified to
conform to the current period's presentation.
2. PRO FORMA BALANCE SHEET - 8% PREFERENCE SHARES ISSUANCE
In August 1998, the Company and HM4 Triton, L.P. ("HM4 Triton"), an affiliate
of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into a stock
purchase agreement (the "Stock Purchase Agreement") that provided for a $350
million equity investment in the Company. The investment was effected in two
stages. At the closing of the first stage in September 1998 (the "First
Closing"), the Company issued to HM4 Triton 1,822,500 shares of 8% convertible
preference shares ("8% Preference Shares") for $70 per share (for proceeds of
$116.8 million, net of transaction costs). Pursuant to the Stock Purchase
Agreement, the second stage was effected through a rights offering for 3,177,500
shares of 8% Preference Shares at $70 per share, with HM4 Triton being obligated
to purchase any shares not subscribed. At the closing of the second stage, which
occurred on January 4, 1999 (the "Second Closing"), the Company issued an
additional 3,177,500 8% Preference Shares for proceeds totaling $218.1 million,
net of closing costs (of which, HM4 Triton purchased 3,114,863 shares).
Proceeds from the First Closing, completed in September 1998, are reflected in
the audited financial statements for the year ended December 31, 1998. Proceeds
from the Second Closing, completed on January 4, 1999, are only reflected in the
unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1998, shown on
page F-4.
3. WRITEDOWN OF ASSETS
Writedown of assets is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DECEMBER 31,
------------------------
1998 1997 1996
-------- ----- -------
Evaluated oil and gas properties (SEC ceiling test) $241,005 $ --- $ ---
Unevaluated oil and gas properties 73,890 --- 39,963
Other assets 13,735 --- 2,997
-------- ----- -------
$328,630 $ --- $42,960
======== ===== =======
</TABLE>
In June and December 1998, the carrying amount of the Company's evaluated oil
and gas properties in Colombia was written down by $105.4 million ($68.5
million, net of tax) and $135.6 million ($115.9 million, net of tax),
respectively, through application of the full cost ceiling limitation as
prescribed by the Securities and Exchange Commission ("SEC"), principally as a
result of a decline in oil prices. No adjustments were made to the Company's
reserves in Colombia as a result of the decline in prices. The SEC ceiling test
was calculated using the June 30, and December 31, 1998, WTI oil prices of
$14.18 per barrel and $12.05 per barrel, respectively, that, after a
differential for Cusiana crude delivered at the port of Covenas in Colombia,
resulted in a net price of approximately $13 per barrel and $11 per barrel,
respectively. An additional writedown may be required if oil prices fall below
the December 31, 1998, level at later quarter end dates.
In conjunction with the plan to restructure operations and scale back
exploration-related expenditures, the Company assessed its investments in
exploration licenses and determined that certain investments were impaired. As
a result, unevaluated oil and gas properties and other assets totaling $77.3
million ($72.6 million, net of tax) were expensed in June 1998. The writedown
included $27.2 million and $22.5 million related to exploration activity in
Guatemala and China, respectively. The remaining writedowns related to the
Company's exploration projects in certain other areas of the world.
During 1998, the Company evaluated the recoverability of its approximate 6.6%
investment in a Colombian pipeline company, Oleoducto de Colombia S.A. ("ODC"),
which is accounted for under the cost method. Based on an analysis of the
future cash flows expected to be received from ODC, the Company expensed the
carrying value of its investment totaling $10.3 million.
In 1996, the Company's oil and gas properties and other assets in Argentina were
written down $40 million and $3 million, respectively, following a review of
technical information that indicated the acreage portfolio did not meet the
Company's exploration objectives.
4. SPECIAL CHARGES
In July 1998, the Company commenced a plan to restructure the Company's
operations, reduce overhead costs and substantially scale back
exploration-related expenditures. The plan contemplated the closing of foreign
offices in four countries, the elimination of approximately 105 positions, or
41% of the worldwide workforce, and the relinquishment or other disposal of
several exploration licenses. As a result of the restructuring, the Company
recognized special charges totaling $18.3 million ($15 million and $3.3 million
in the third and fourth quarters, respectively). At December 31, 1998,
approximately 105 positions had been eliminated, three foreign offices had
closed and eight licenses had been relinquished, sold or their commitments
renegotiated. The Company expects to close the remaining office and dispose of
six other licenses during 1999.
Of the $18.3 million in special charges, $14.5 million related to the reduction
in workforce, and represented the estimated costs for severance, benefit
continuation and outplacement costs, which will be paid over a period of up to
two years according to the severance formula. During 1998, the Company paid
$7.4 million in severance, benefit continuation and outplacement costs. A total
of $2.1 million of special charges related to the closing of foreign offices,
and represented the estimated costs of terminating office leases and the
write-off of related assets. The remaining special charges of $1.7 million
primarily related to the write-off of other surplus fixed assets resulting from
the reduction in workforce. As of December 31, 1998, no changes had been made to
the Company's estimate of the total restructuring expenditures to be incurred.
The remaining liability related to restructuring activities was $7.9 million at
December 31, 1998.
5. ASSET DISPOSITONS
In December 1998, the Company sold its Bangladesh subsidiary for cash proceeds
of $4.5 million and recognized a gain of $4.5 million in gain on sale of oil and
gas assets.
In July 1998, the Company and Atlantic Richfield Company ("ARCO") signed an
agreement providing financing for the development of the Company's gas reserves
on Block A-18 of the Malaysia-Thailand Joint Development Area. Under terms of
the agreement, consummated in August 1998, the Company sold to a subsidiary of
ARCO for $150 million one-half of the shares of the subsidiary through which the
Company owned its 50% share of Block A-18. The Company received net proceeds of
$142 million and recorded a gain of $63.2 million in gain on the sale of oil and
gas assets.
The agreements also require ARCO to pay the future exploration and development
costs attributable to the Company's and ARCO's collective interest in Block
A-18, up to $377 million or until first production from a gas field, after which
the Company and ARCO would each pay 50% of such costs. Additionally, the
agreements require ARCO to pay the Company an additional $65 million each at
July 1, 2002, and July 1, 2005, if certain specific development objectives are
met by such dates, or $40 million each if the objectives are met within one year
thereafter. The agreements provide that the Company will recover its investment
in recoverable costs in the project, approximately $101 million, and that ARCO
will recover its investment in recoverable costs, on a first-in, first-out basis
from the cost-recovery portion of future production.
In February 1998, the Company sold Triton Pipeline Colombia, Inc. ("TPC"), a
wholly owned subsidiary that held the Company's 9.6% equity interest in the
Colombian pipeline company, Oleoducto Central S. A. ("OCENSA"), to an unrelated
third party (the "Purchaser") for $100 million. Net proceeds were approximately
$97.7 million after $2.3 million of expenses. The sale resulted in a gain of
$50.2 million. TPC's investment in OCENSA, totaling $47.4 million at December
31, 1997, was included in assets held for sale.
In conjunction with the sale of TPC, the Company entered into an equity swap
with a creditworthy financial institution (the "Counterparty"). The equity swap
has a notional amount of $97 million and requires the Company to make quarterly
floating LIBOR-based payments on the notional amount to the Counterparty. In
exchange, the Counterparty is required to make payments to the Company
equivalent to 97% of the dividends TPC receives in respect of its equity
interest in OCENSA. The Company's LIBOR-based payments commenced in March 1998,
and OCENSA commenced paying dividends in September 1998. OCENSA's first
dividend was attributable to the four month period ending June 1998. During the
year ended December 31, 1998, the Company made payments to the Counterparty
totaling $5.9 million and received payments from the Counterparty totaling $2.6
million.
The equity swap is carried in the Company's financial statements at fair value
during its term, which as amended, will expire April 14, 2000. The value of the
equity swap in the Company's financial statements is equal to the estimated fair
value of the shares of OCENSA owned by TPC. Because there is no public market
for the shares of OCENSA, the Company estimates their value using a discounted
cash flow model applied to the distributions expected to be paid in respect of
the OCENSA shares. The discount rate applied to the estimated cash flows from
the OCENSA shares is based on a combination of current market rates of interest,
a credit spread for OCENSA's debt, and a spread to reflect the preferred stock
nature of the OCENSA shares. During the year ended December 31, 1998, the
Company recorded an expense of $3.3 million in other income, net, related to the
net payments made under and the change in the fair market value of the equity
swap. Net payments made (or received) under the equity swap, and any
fluctuations in the fair value of the equity swap, in future periods, will
affect other income in such periods. There can be no assurance that changes in
interest rates, or in other factors that affect the value of the OCENSA shares
and/or the equity swap, will not have a material adverse effect on the carrying
value of the equity swap.
Upon the expiration of the equity swap in April 2000, the Company expects that
the Purchaser will sell the TPC shares. Under the terms of the equity swap with
the Counterparty, upon any sale by the Purchaser of the TPC shares, the Company
will receive from the Counterparty, or pay to the Counterparty, an amount equal
to the excess or deficiency, as applicable, of the difference between 97% of the
net proceeds from the Purchaser's sale of the TPC shares and the notional amount
of $97 million. There can be no assurance that the value the Purchaser may
realize in any sale of the TPC shares will equal the value of the shares
estimated by the Company for purposes of valuing the equity swap. To the extent
that 97% of the Purchaser's sale proceeds exceeds the notional amount, the
Company will record a gain, and to the extent 97% of the Purchaser's sale
proceeds is less than the notional amount, the Company will record an expense.
The Company has no right or obligation to repurchase the TPC shares at any time,
but the Company is not prohibited from offering to purchase the shares if the
Purchaser offers to sell them.
In June 1997, the Company sold its Argentine subsidiary for cash proceeds of
$4.1 million and recognized a gain of $4.1 million in gain on sale of oil and
gas assets.
In June and July 1996, the Company sold its 49.9% shareholdings in Crusader for
total cash proceeds of $69.6 million in conjunction with a May 1996 take-over
bid for the outstanding shares of Crusader. The Company recorded a total gain
of $10.4 million in other income, net, and an increase to additional paid-in
capital of $20.4 million, representing the Company's proportion of Triton
ordinary shares owned by Crusader that were previously treated as Triton owned.
In March 1996, the Company sold its royalty interests in U.S. properties for
$23.8 million based on an effective date of January 1, 1996. The Company
recorded the resulting gain of $4.1 million in gain on sale of oil and gas
assets.
6. FORWARD SALE OF COLOMBIAN OIL PRODUCTION
In May 1995, the Company sold 10.4 million barrels of oil from the Cusiana and
Cupiagua fields (the "Fields") in Colombia in a forward oil sale. Under the
terms of the sale, the Company received approximately $87 million of the
approximately $124 million net proceeds and is entitled to receive substantially
all of the remaining proceeds (now held in various interest-bearing reserve
accounts) when the Company's Cusiana and Cupiagua fields project becomes
self-financing, as defined in the agreement, which is expected in 1999, and when
certain other conditions are met. At December 31, 1998, proceeds held in
interest-bearing reserve accounts of $31.9 million and $1.1 million have been
recorded as current and long-term receivables, respectively. The Company has
recorded the net proceeds as deferred income and will recognize such revenue
when the barrels of oil are delivered during a five-year period that began in
June 1995. Under the terms of the agreement, the Company must deliver to the
buyer 58,425 barrels per month through March 1997 and 254,136 barrels per month
from April 1997 to March 2000.
7. OTHER RECEIVABLES
Other receivables consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
----------------
1998 1997
------- -------
Receivable from the forward oil sale $31,932 $31,770
Receivable from insurance 8,413 1,852
Receivable from partners 2,007 11,152
Other 6,063 7,388
------- -------
$48,415 $52,162
======= =======
</TABLE>
At December 31, 1998, the Company had recorded a receivable from its insurance
carriers of $8.4 million associated with claims on previously drilled wells.
8. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
Oil and gas properties, full cost method:
Evaluated $ 608,616 $ 518,580
Unevaluated 90,918 130,626
Support equipment and facilities 289,659 250,193
Other 18,915 25,121
--------- ---------
1,008,108 924,520
Less accumulated depreciation and depletion 451,986 89,014
--------- ---------
$ 556,122 $ 835,506
========= =========
</TABLE>
In 1998, the carrying amount of the Company's evaluated oil and gas properties
was written down by $241 million through application of the full cost ceiling
limitation as prescribed by the SEC as a result of the decline in oil prices.
Additionally, unevaluated oil and gas properties were written down $73.9 million
during 1998 in conjunction with a plan to restructure the Company's operations.
See note 3 - Writedown of Assets.
The Company capitalizes interest on qualifying assets, principally unevaluated
oil and gas properties and major development projects in progress. Capitalized
interest amounted to $23.2 million, $25.8 million and $27.1 million in the years
ended December 31, 1998, 1997 and 1996, respectively. The Company capitalized
general and administrative expenses related to exploration and development
activities of $20.6 million, $32.4 million, and $24.6 million in the years ended
December 31, 1998, 1997 and 1996, respectively.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
----------------
1998 1997
------- -------
Accounts payable, principally trade $ 9,144 $ 5,819
Accrued interest payable 8,160 9,449
Accrued special charges 7,869 ---
Accrued exploration and development 4,598 12,903
Dividends payable 2,693 ---
Litigation and environmental matters 2,064 2,715
Other 11,364 6,078
------- -------
$45,892 $36,964
======= =======
</TABLE>
10. DEBT
SHORT-TERM BORROWINGS
At December 31, 1998, the Company had outstanding borrowings totaling $5 million
under a $25 million unsecured bank revolving credit facility. Borrowings bear
interest at various spreads over the Eurodollar rate or, at the option of the
Company, at LIBOR or prime. The interest rate on short-term borrowings at
December 31, 1998, was 7.75%.
At December 31, 1997, the Company had outstanding borrowings totaling $45
million under two unsecured revolving credit facilities and outstanding
borrowings of $9.6 million under a $10 million unsecured demand promissory note
with a bank that renews monthly. The weighted average interest rates on
short-term borrowings outstanding at December 31, 1997, was 7.3%.
<PAGE>
LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DECEMBER 31,
------------------------
1998 1997
-------- --------
Senior Notes due 2005 $200,000 $200,000
Senior Notes due 2002 199,924 199,900
Term credit facility maturing 2001 22,568 31,595
Revolving credit facility maturing 1999 5,000 17,500
Revolving credit facility maturing 1998 --- 119,900
Other notes and capitalized leases --- 4,792
-------- --------
427,492 573,687
Less current maturities 14,027 130,375
-------- --------
$413,465 $443,312
======== ========
</TABLE>
In April 1997, the Company issued $400 million aggregate face value of senior
indebtedness to refinance other indebtedness. The senior indebtedness consisted
of $200 million face amount of 8 3/4% Senior Notes due April 15, 2002 (the "2002
Notes"), at 99.942% of the principal amount (resulting in $199.9 million
aggregate net proceeds) and $200 million face amount of 9 1/4% Senior Notes due
April 15, 2005 (the "2005 Notes" and, together with the 2002 Notes, the "Senior
Notes"), at 100% of the principal amount, for total aggregate net proceeds of
$399.9 million before deducting transaction costs of approximately $1 million.
Interest on the Senior Notes is payable semi-annually on April 15 and October
15. The Senior Notes are redeemable at any time at the option of the Company,
in whole or in part, and contain certain covenants limiting the incurrence of
certain liens, sale/leaseback transactions, and mergers and consolidations.
In November 1995, a subsidiary signed an unsecured term credit facility with a
bank supported by a guarantee issued by the Export-Import Bank of the United
States ("EXIM") for $45 million, which matures in January 2001. Principal and
interest payments are due semi-annually on January 15 and July 15 and borrowings
bear interest at LIBOR plus .25%, adjusted on a semi-annual basis. At December
31, 1998, the Company had outstanding borrowings of $22.6 million under the
facility.
During 1997, the Company signed an unsecured bank revolving credit facility
providing for borrowings of up to $50 million that, as amended, matures in May
1999. Borrowings bear interest at various spreads over the Eurodollar rate or,
at the Company's option, at LIBOR or prime. At December 31, 1998, the Company
had outstanding borrowings of $5 million under the facility.
At December 31, 1997, the Company had outstanding borrowings of $119.9 million
and letters of credit for $4.5 million under a $125 million unsecured bank
revolving credit facility. The facility was repaid and terminated in 1998.
In May and June 1997, the Company completed a tender offer and consent
solicitation with respect to its Senior Subordinated Discount Notes due November
1, 1997 ("1997 Notes") and 9 3/4% Senior Subordinated Discounted Notes due
December 15, 2000 ("9 3/4% Notes") that resulted in the retirement of the 1997
Notes and substantially all of the 9 3/4 % Notes. The Company's results of
operations included an extraordinary expense of $14.5 million, net of a $7.8
million tax benefit, associated with the extinguishment of the 1997 Notes and
the 9 3/4% Notes. The Company's reported cash flows from operating activities
for the year ended December 31, 1997, were reduced by $124.8 million, which
was attributable to the interest accreted with respect to the 1997 Notes and
the 9 3/4 % Notes through the dates of retirement. The remainder of the
9 3/4% Notes were retired in 1998.
During 1996, the Company purchased in the open market $30 million face value of
its 1997 Notes and realized an extraordinary expense of $1.2 million, net of a
$.6 million tax benefit.
The Company amortizes debt issue costs over the life of the borrowing using the
interest method. Amortization related to the Company's debt-issue costs was
$2.9 million, $2 million and $3.6 million in the years ended December 31, 1998,
1997 and 1996, respectively. The aggregate maturities of long-term debt for the
five years during the period ending December 31, 2003, are as follows: 1999 --
$14 million; 2000 -- $9 million; 2001 -- $4.5 million; 2002 -- $199.9 million;
and 2003 -- nil.
11. INCOME TAXES
The components of earnings (loss) from continuing operations before income taxes
and extraordinary item were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ---------
Cayman Islands $ 82,995 $ (12,969) $ (452)
United States (24,003) (31,694) (16,641)
Foreign - other (297,601) 61,559 38,038
---------- --------- ---------
$(238,609) $ 16,896 $ 20,945
========== ========= =========
</TABLE>
Pursuant to the Reorganization in March 1996, Triton, a Cayman Islands company,
became the parent holding company of TEC, a Delaware corporation. As a result,
the Company's corporate domicile became the Cayman Islands.
<PAGE>
The components of the provision for income taxes on continuing operations were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
--------- -------- ---------
Current:
Cayman Islands $ --- $ --- $ ---
United States --- (7) (172)
Foreign - other 4,487 3,230 5,427
--------- -------- ---------
Total current 4,487 3,223 5,255
--------- -------- ---------
Deferred:
Cayman Islands --- --- ---
United States 1,457 (7,929) (23,489)
Foreign - other (57,049) 16,007 15,374
--------- -------- ---------
Total deferred (55,592) 8,078 (8,115)
--------- -------- ---------
Total $(51,105) $11,301 $ (2,860)
========= ======== =========
</TABLE>
A reconciliation of the differences between the Company's applicable statutory
tax rate and the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- --------
Tax provision at statutory tax rate 0.0 % 0.0 % 0.0 %
Increase (decrease) resulting from:
Net change in valuation allowance 3.9 % 263.0 % (111.6)%
Recognition of outside basis adjustments --- % --- % (20.3)%
Foreign items without tax benefit (34.9)% 77.8 % 25.8 %
Income subject to tax in excess of statutory rate 32.6 % 36.9 % 58.4 %
Current year change in NOL/credit carryforwards (4.8)% (356.7)% (59.2)%
Temporary differences:
Oil and gas basis adjustments 25.7 % 32.5 % 80.6 %
Reimbursement of pre-commerciality costs (1.1)% 13.2 % 10.9 %
Other --- % 0.2 % 1.8 %
-------- -------- --------
21.4 % 66.9 % (13.6)%
======== ======== ========
</TABLE>
<PAGE>
The components of the net deferred tax asset and liability were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
OTHER OTHER
U.S. COLOMBIA FOREIGN U.S. COLOMBIA FOREIGN
--------- --------- --------- --------- --------- ---------
Deferred tax asset:
Net operating loss carryforwards $145,475 $ 7,992 $ 7,219 $156,579 $ 10,088 $ 8,187
Depreciable/depletable property 1,252 27,730 --- 2,046 --- ---
Credit carryforwards 1,731 6,813 --- 1,726 3,986 ---
Reserves 2,502 --- --- 1,090 --- ---
Other 1,505 --- --- 799 --- ---
--------- --------- --------- --------- --------- ---------
Gross deferred tax asset 152,465 42,535 7,219 162,240 14,074 8,187
Valuation allowances (65,881) (27,730) --- (75,092) --- ---
--------- --------- --------- --------- --------- ---------
Net deferred tax asset 86,584 14,805 7,219 87,148 14,074 8,187
--------- --------- --------- --------- --------- ---------
Deferred tax liability:
Depreciable/depletable property --- --- (11,388) --- (58,143) (15,086)
Other (473) --- --- --- --- ---
--------- --------- --------- --------- --------- ---------
Net deferred tax asset (liability) 86,111 14,805 (4,169) 87,148 (44,069) (6,899)
Less current deferred tax asset (liability) --- --- --- --- --- ---
--------- --------- --------- --------- --------- ---------
Noncurrent deferred tax asset (liability) $ 86,111 $ 14,805 $ (4,169) $ 87,148 $(44,069) $ (6,899)
========= ========= ========= ========= ========= =========
</TABLE>
At December 31, 1998, the Company had net operating loss ("NOLs") and depletion
carryforwards for U.S. tax purposes of $415.6 million and $20.3 million,
respectively. The U.S. NOLs expire from 1999 through 2012 as follows:
<TABLE>
<CAPTION>
<S> <C>
NOLS
EXPIRING
BY YEAR
---------
May 1999 $ 16,745
May 2000 19,571
May 2001 30,389
May 2002 22,670
May 2003 20,566
May 2004 - May 2012 305,668
---------
$ 415,609
=========
</TABLE>
At December 31, 1998, the Company's Colombian operations and other foreign
operations had NOLs and other credit carryforwards totaling $42.3 million and
$31.7 million, respectively. The NOLs expire from 1999 through 2008.
The deferred tax valuation allowance of $93.6 million at December 31, 1998, is
primarily attributable to management's assessment of the utilization of NOLs in
the U.S., the expectation that other tax credits will expire without being
utilized, and certain temporary differences will reverse without a benefit to
the Company. The minimum amount of future taxable income necessary to realize
the deferred tax asset is approximately $246 million and $42 million in the U.S.
and Colombia, respectively. Although there can be no assurance the Company will
achieve such levels of income, management believes the deferred tax asset will
be realized through increasing income from its operations.
If certain changes in the Company's ownership should occur, there would be an
annual limitation on the amount of NOLs that can be utilized. To the extent a
change in ownership does occur, the limitation is not expected to materially
impact the utilization of such carryforwards.
12. EMPLOYEE BENEFITS
PENSION PLANS
The Company has a defined benefit pension plan covering substantially all
employees in the United States. The benefits are based on years of service and
the employee's final average monthly compensation. Contributions are intended
to provide for benefits attributed to past and future services. The Company
also has a Supplemental Executive Retirement Plan ("SERP") that is unfunded and
provides supplemental pension benefits to a select group of management and key
employees.
<PAGE>
The funding status of the plans follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
------------------- -------------------
DEFINED DEFINED
BENEFIT SERP BENEFIT SERP
PLAN PLAN PLAN PLAN
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 6,008 $ 6,621 $ 4,849 $ 5,288
Service cost 560 799 343 489
Interest cost 438 607 375 408
Amendments --- 434 --- ---
Actuarial loss/(gain) 472 913 756 699
Benefits paid (377) (1,617) (315) (263)
Curtailment gain (666) (1,178) --- ---
--------- -------- --------- --------
Benefit obligation at end of year 6,435 6,579 6,008 6,621
--------- -------- --------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 5,531 --- 4,789 ---
Actual return on plan assets 1,446 --- 921 ---
Company contribution 468 1,617 136 263
Benefits paid (377) (1,617) (315) (263)
--------- -------- --------- --------
Fair value of plan assets at end of year 7,068 --- 5,531 ---
--------- -------- --------- --------
Reconciliation:
Funded status 633 (6,579) (477) (6,621)
Unrecognized actuarial (gain)/loss (908) 480 250 745
Unrecognized transition (asset)/obligation (8) 695 (10) 1,288
Unrecognized prior service cost 373 253 598 133
--------- -------- --------- --------
Prepaid/(accrued) pension cost 90 (5,151) 361 (4,455)
--------- -------- --------- --------
Adjustment for minimum liability --- --- --- (326)
--------- -------- --------- --------
Adjusted prepaid/(accrued) pension cost $ 90 $(5,151) $ 361 $(4,781)
========= ======== ========= ========
</TABLE>
A summary of the components of pension expense follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------- ------- -------
Components of net periodic pension cost:
Service cost $1,359 $ 832 $ 767
Interest cost 1,045 783 736
Expected return on plan assets (481) (416) (375)
Amortization of transition obligation 591 166 166
Amortization of prior service cost 538 67 66
------- ------- -------
Net periodic pension cost $3,052 $1,432 $1,360
======= ======= =======
</TABLE>
<PAGE>
The projected benefit obligations at December 31, 1998 and 1997, assume a
discount rate of 6.75% and 7.5%, respectively, and a rate of increase in
compensation expense of 5%. The expected long-term rate of return on assets is
9% for the defined benefit plan. During 1998, work-force reductions resulted in
the recognition of additional prior service cost of $.2 million each for the
defined benefit plan and the SERP plan and additional transition obligation of
$.4 million for the SERP plan.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1994, the Company amended and restated the employee stock
ownership plan to form a 401(k) plan (the "Plan"). The Company recognizes
expense based on actual amounts contributed to the Plan.
13. SHAREHOLDERS' EQUITY
5% PREFERENCE SHARES
In connection with the acquisition of the minority interest in Triton Europe in
1994, the Company designated a series of 550,000 preferred shares (522,460
shares issued) as 5% preferred stock, no par value, with a stated value of
$34.41 per share. Pursuant to the Reorganization, Triton converted each share
of 5% preferred stock into one 5% convertible preference share ("5% Preference
Shares"), par value $.01. Each share of the Company's 5% Preference Shares is
convertible into one Triton ordinary share and bears a cash dividend, which has
priority over dividends on Triton's ordinary shares, equal to 5% per annum on
the redemption price of $34.41 per share, payable semi-annually on March 30 and
September 30 of each year. The 5% Preference Shares have priority over Triton
ordinary shares upon liquidation, and may be redeemed at Triton's option at any
time on or after March 30, 1998, for cash equal to the redemption price. Any
shares that remain outstanding on March 30, 2004, must be redeemed at the
redemption price, either for cash or, at the Company's option, for Triton
ordinary shares. At December 31, 1998, 1997 and 1996, 209,639, 218,285 and
247,469 5% Preference Shares were outstanding, respectively.
8% PREFERENCE SHARES
In August 1998, the Company entered into the Stock Purchase Agreement with HM4
Triton. The First Closing, as contemplated by the Stock Purchase Agreement,
occurred on September 30, 1998, pursuant to which the Company issued to HM4
Triton 1,822,500 shares of 8% Preference Shares for $70 per share, or total
proceeds of $127.6 million (before expenses of $10.8 million). Each 8%
Preference Share is convertible at any time at the option of the holder into
four ordinary shares of the Company (subject to certain antidilution
protections). Holders of 8% Preference Shares are entitled to receive, when and
if declared by the Board of Directors, cumulative dividends at a rate per annum
equal to 8% of the liquidation preference of $70 per share, payable for each
semi-annual period ending June 30 and December 30, commencing June 30, 1999. At
the Company's option, dividends may be paid in cash or by the issuance of
additional whole shares of 8% Preference Shares. Holders of 8% Preference
Shares are entitled to vote with the holders of ordinary shares on all matters
submitted to the shareholders of the Company for a vote, with each share of 8%
Preference Share entitling its holder to a number of votes equal to the number
of ordinary shares into which it could be converted at that time.
ORDINARY SHARES
Changes in issued ordinary shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
----------- ---------- -----------
Balance at beginning of year 36,541,064 36,342,181 35,927,279
Exercise of employee stock options
and debentures 47,238 133,736 258,333
Issuances under stock plans 46,648 35,961 9,910
Conversion of 5% preference shares 8,646 29,184 162,548
Other, net (118) 2 (15,889)
----------- ---------- -----------
Balance at end of year 36,643,478 36,541,064 36,342,181
=========== ========== ===========
</TABLE>
Changes in ordinary shares held in treasury were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
-------- -------- --------
Balance at beginning of year 73 40 26,635
Purchase of treasury shares 64 33 91
Transfer of shares to employee benefit plans --- --- (10,797)
Retirement of treasury shares (137) --- (15,889)
-------- -------- --------
Balance at end of year --- 73 40
======== ======== ========
</TABLE>
SHAREHOLDER RIGHTS PLAN
The Company has adopted a Shareholder Rights Plan pursuant to which preference
share rights attach to all ordinary shares at the rate of one right for each
ordinary share. Each right entitles the registered holder to purchase from the
Company one one-thousandth of a Series A Junior Participating Preference Share,
par value $.01 per share ("Junior Preference Shares"), of the Company at a price
of $120 per one one-thousandth of a share of such Junior Preference Shares,
subject to adjustment. Generally, the rights only become distributable 10 days
following public announcement that a person has acquired beneficial ownership of
15% or more of Triton's ordinary shares or 10 business days following
commencement of a tender offer or exchange offer for 15% or more of the
outstanding ordinary shares; provided that, pursuant to the terms of the plan,
any acquisition of Triton shares by HM4 Triton or its affiliates, including
Hicks, Muse, Tate & Furst Incorporated, will not result in the distribution of
rights unless and until HM4 Triton's ownership of Triton shares is reduced below
certain levels. If, among other events, any person becomes the beneficial owner
of 15% or more of Triton's ordinary shares (except as provided with respect to
HM4 Triton), each right not owned by such person generally becomes the right to
purchase such number of ordinary shares of the Company equal to the number
obtained by dividing the right's exercise price (currently $120) by 50% of the
market price of the ordinary shares on the date of the first occurrence. In
addition, if the Company is subsequently merged or certain other extraordinary
business transactions are consummated, each right generally becomes a right to
purchase such number of shares of common stock of the acquiring person equal to
the number obtained by dividing the right's exercise price by 50% of the market
price of the common stock on the date of the first occurrence.
Under certain circumstances, the Company's directors may determine that a tender
offer or merger is fair to all shareholders and prevent the rights from being
exercised. At any time after a person or group acquires 15% or more of the
ordinary shares outstanding (other than with respect to HM4 Triton) and prior
to the acquisition by such person or group of 50% or more of the outstanding
ordinary shares or the occurrence of an event described in the prior paragraph,
the Board of Directors of the Company may exchange the rights (other than rights
owned by such person or group which will become void), in whole or in part, at
an exchange ratio of one ordinary share, or one one-thousandth of a Junior
Preference Share, per right (subject to adjustment). The Company has the ability
to amend the rights (except the redemption price) in any manner prior to the
public announcement that a 15% position has been acquired or a tender offer has
been commenced. The Company will be entitled to redeem the rights at $0.01 a
right at any time prior to the time that a 15% position has been acquired. The
rights will expire on May 22, 2005, unless earlier redeemed by the Company.
14. STOCK COMPENSATION PLANS
STOCK OPTION PLANS
Options to purchase ordinary shares of the Company may be granted to officers
and employees under various stock option plans. The exercise price of each
option is equal to or greater than the market price of the Company's ordinary
shares on the date of grant. Grants generally become exercisable in 25%
cumulative annual increments beginning one year from the date of issuance and
generally expire during a period from 5 to 10 years after the date of grant,
depending on terms of the grant. In addition, each non-employee director
receives an option to purchase 15,000 shares each year. These grants become
exercisable at the date of the grant and expire at the end of 10 years. At
December 31, 1998 and 1997, shares available for grant were 2,521,133 and
1,040,965, respectively.
A summary of the status of the Company's stock option plans is presented below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ -------- ------------ -------- ------------ --------
Outstanding at beginning of year 4,449,435 $39.05 3,854,046 $38.81 3,177,304 $35.49
Granted 2,894,603 20.56 744,250 39.99 971,000 47.97
Exercised (47,238) 29.30 (83,736) 30.76 (216,333) 30.40
Canceled (3,239,593) 38.39 (65,125) 46.09 (77,925) 40.74
------------ ------------ ------------
Outstanding at end of year 4,057,207 26.51 4,449,435 39.05 3,854,046 38.81
============ ============ ============
Options exercisable at year-end 2,804,584 2,728,254 2,042,492
Weighted average fair value of options:
Granted at market prices $ 6.12 $ 16.37 $ 19.89
Granted at greater than market prices $ 2.84 $ --- $ ---
</TABLE>
On December 2, 1998, the Compensation Committee approved the grant of new stock
options totaling 440,103 shares with an exercise price of $14.50 to
substantially all of its employees. Each participating employee was granted
options in an amount equal to one-half of any options then held by the employees
with an exercise price greater than $30.00 per share and the options with an
exercise price greater than $30.00 per share expired.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -------------------------
WEIGHTED
RANGE AVERAGE WEIGHTED WEIGHTED
OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES DEC. 31, 1998 LIFE PRICE DEC. 31, 1998 PRICE
- -------------- -------------- ----------- --------- -------------- ---------
$ 8.38 - 19.88 1,780,453 4.7 years $ 15.66 646,330 $ 15.02
25.13 - 39.63 1,581,504 3.9 years 30.23 1,526,504 30.36
40.25 - 49.13 386,250 4.2 years 41.47 342,750 41.60
50.25 - 52.25 309,000 4.9 years 51.24 289,000 51.29
-------------- --------------
4,057,207 2,804,584
============== ==============
</TABLE>
<PAGE>
CONVERTIBLE DEBENTURE PLAN
Under the Company's Amended and Restated Convertible Debenture Plan, executive
officers of the Company have from time to time purchased from the Company
convertible debentures convertible into Ordinary Shares at a conversion price
equal to the market value of the Ordinary Shares at the date of purchase. The
consideration for the convertible debentures given by each executive officer was
a personal promissory note payable to the Company in a principal amount equal to
the principal amount of the convertible debentures purchased. In July 1998, the
Company agreed with each of its executive officers to exchange the Company's
interest in the officer's note for the officer's interest in the convertible
debentures. In connection with his severance from the Company, the Company
redeemed the convertible debentures held by a former executive officer in
accordance with their terms. As a result, all outstanding debentures, totaling
$14.2 million, were cancelled.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan that provides for the award of
ordinary shares to key officers and employees. Under the terms of the plan,
employees can choose each semi-annual period to have up to 15% of their annual
gross or base compensation withheld to purchase the Company's ordinary shares.
The purchase price of the stock is 85% of the lower of its beginning of period
or end of period market price. Under the plan, the Company sold 46,648 shares
and 24,961 shares to employees for the years ended December 31, 1998 and 1997,
respectively.
FAIR VALUE OF STOCK COMPENSATION
The Company applies Opinion 25 in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans,
convertible debenture plan and stock purchase plan. Had the Company elected to
recognize compensation expense consistent with the fair value-based methodology
in SFAS 123, the Company's net income and earnings per share would have been as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---------- --------- -------
Net earnings (loss) applicable to ordinary shares:
As reported $(190,565) $ (9,296) $21,624
Pro forma (200,147) (16,802) 17,414
Basic earnings (loss) per ordinary share:
As reported $ (5.21) $ (0.26) $ 0.61
Pro forma (5.47) (0.46) 0.48
Diluted earnings (loss) per ordinary share:
As reported $ (5.21) $ (0.25) $ 0.59
Pro forma (5.47) (0.46) 0.47
</TABLE>
The fair value of each option or debenture granted was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1998, 1997 and 1996: dividend yield of
0%; expected volatility of approximately 40%, 26% and 27%, respectively;
risk-free interest rates of approximately 5%, 6% and 6%, respectively; and an
expected life of approximately four to seven years.
STOCK APPRECIATION RIGHTS PLAN
The Company has a stock appreciation rights ("SARs") plan which authorizes the
granting of SARs to non-employee directors of the Company. Upon exercise, SARs
allow the holder to receive the difference between the SARs' exercise price and
the fair market value of the ordinary shares covered by SARs on the exercise
date and expire at the earlier of 10 years or a date based on the termination of
the holder's membership on the board of directors. At December 31, 1998, SARs
covering 20,000 ordinary shares, with an exercise price of $8.00 per share, were
outstanding.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS, RISK MANAGEMENT
AND CREDIT RISK CONCENTRATIONS
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998 and 1997, the Company's financial instruments included
cash, cash equivalents, short-term receivables, long-term receivables,
short-term and long-term debt, and financial market transactions. The fair
value of cash, cash equivalents, short-term receivables and short-term debt
approximated carrying values because of the short maturities of these
instruments. The fair values of the Company's long-term receivables and
financial market transactions, based on broker quotes and discounted cash flows,
approximated the carrying values. The estimated fair value of long-term debt,
based on quoted market prices and market data for similar instruments, was $397
million (carrying value - $428 million) and $596 million (carrying value - $574
million) at December 31, 1998 and 1997, respectively.
RISK MANAGEMENT
Oil and natural gas sold by the Company are normally priced with reference to a
defined benchmark, such as light, sweet crude oil traded on the New York
Mercantile Exchange (WTI). Actual prices received vary from the benchmark
depending on quality and location differentials. From time to time, it is the
Company's policy to use financial market transactions, including swaps, collars
and options, with creditworthy counterparties primarily to reduce risk
associated with the pricing of a portion of the oil and natural gas that it
sells. The policy is structured to underpin the Company's planned revenues and
results of operations. The Company may also enter into financial market
transactions to benefit from its assessment of the future prices of its
production relative to other benchmark prices. There can be no assurance that
the use of financial market transactions will not result in losses.
During the year ended December 31, 1998, the Company did not have any
outstanding financial market transactions to hedge against oil price
fluctuations. During the years ended December 31, 1997 and 1996, markets
provided the Company the opportunity to realize WTI benchmark oil prices on
average $2.35 per barrel and $4.68 per barrel, respectively, above the WTI
benchmark oil price the Company set as part of its annual plan for the period.
As a result of financial and commodity market transactions settled during the
years ended December 31, 1997 and 1996, the Company's risk management program
resulted in an average net realization of approximately $.11 per barrel and
$1.21 per barrel, respectively, lower than if the Company had not entered into
such transactions.
In anticipation of entering into a forward oil sale, in 1995 the Company
purchased WTI benchmark call options to retain the ability to benefit from
future WTI price increases above a weighted average price of $20.42 per barrel.
The volumes and expiration dates on the call options coincide with the volumes
and delivery dates of the forward oil sale. During the years ended December 31,
1998, 1997 and 1996, the Company recorded an unrealized gain (loss) of $.4
million, ($9.7 million) and $11 million, respectively, in other income, net
related to the change in the fair market value of the call options. Future
fluctuations in the fair market value of the call options will continue to
affect other income as noncash adjustments.
CONCENTRATION OF CREDIT RISK
Financial instruments that are potentially subject to concentrations of credit
risk consist of cash equivalents, receivables and financial market transactions.
The Company places its cash equivalents and financial market transactions with
high credit-quality financial institutions. The Company believes the risk of
incurring losses related to credit risk is remote.
The Company sells its crude oil production from the Fields through an agreement
with a third party to approximately 10 to 15 buyers located primarily in the
United States. The Company does not believe that the loss of any single
customer or a termination of the agreement with the third party would have a
long-term material, adverse effect on its operations.
<PAGE>
16. OTHER INCOME, NET
Other income, net is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
-------- -------- --------
Gain on sale of corporate assets $7,593 $1,414 $---
Equity swap (3,283) --- ---
Foreign exchange gain (loss) 2,113 9,549 (561)
Change in fair market value of WTI
benchmark call options 366 (9,689) 10,987
Proceeds from legal settlements --- 765 7,624
Gain on sale of shareholdings in Crusader --- --- 10,417
Loss provisions (750) --- (3,193)
Other 2,441 833 2,087
-------- -------- --------
$ 8,480 $ 2,872 $27,361
======== ======== ========
</TABLE>
During 1998 and 1997, the Company sold certain corporate assets for cash
proceeds of $20.6 million and $1.8 million, respectively. In 1998 and 1997, the
Company recognized foreign exchange gains of $2.1 million and $9.5 million,
respectively, primarily noncash adjustments to deferred tax liabilities in
Colombia associated with devaluation of the Colombian peso versus the U.S.
dollar.
17. EARNINGS PER ORDINARY SHARE
For the year ended December 31, 1998, the computation of diluted net loss per
ordinary share was antidilutive, and therefore, the amounts reported for basic
and diluted net loss per ordinary share were the same.
<PAGE>
The following table reconciles the numerators and denominators of the basic and
diluted earnings per ordinary share computation for earnings from continuing
operations for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- -------------
YEAR ENDED DECEMBER 31, 1997:
Earnings before extraordinary item $ 5,595
Less: Preference share dividends (400)
-------------
Earnings available to ordinary shareholders 5,195
Basic earnings per ordinary share 36,471 $ 0.14
=============
Effect of dilutive securities
Stock options --- 457
Convertible debentures --- 80
------------- -------------
Earnings available to ordinary shareholders
and assumed conversions $ 5,195
=============
Diluted earnings per ordinary share 37,008 $ 0.14
============= =============
YEAR ENDED DECEMBER 31, 1996:
Earnings from continuing operations $ 23,805
Less: Preference share dividends (985)
-------------
Earnings available to ordinary shareholders 22,820
Basic earnings per ordinary share 35,929 $ 0.64
=============
Effect of dilutive securities
Stock options --- 843
Convertible debentures --- 147
------------- -------------
Earnings available to ordinary shareholders
and assumed conversions $ 22,820
=============
Diluted earnings per ordinary share 36,919 $ 0.62
============= =============
</TABLE>
At December 31, 1998, 1,822,500 shares of 8% Preference Shares and 209,639
shares of 5% Preference Shares were outstanding. Each 8% Preference Share is
convertible any time into four ordinary shares, subject to adjustment in certain
events. Each 5% Preference Share is convertible any time into one ordinary
share, subject to adjustment in certain events. The 8% Preference Shares and 5%
Preference Shares were not included in the computation of diluted earnings per
ordinary share because the effect of assuming conversion was antidilutive. The
Company issued an additional 3,177,500 8% Preference Shares in January 1999,
which will affect diluted earnings per share in future periods. See note 2, Pro
Forma Balance Sheet - 8% Preference Share Issuance.
<PAGE>
18. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash payments and noncash investing and financing
activities follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
-------- -------- --------
Cash paid during the year for:
Interest (net of amount capitalized) $24,517 $133,265 $ ---
Income taxes 4,339 4,666 200
Noncash financing activities:
Conversion of preference shares into
ordinary shares $ 297 $ 1,004 $ 5,594
</TABLE>
At December 31, 1998, the Company had an accrual of $2.7 million for dividends
declared with respect to the 8% Preference Shares, which was paid during 1999.
Cash paid for interest in 1997 included $124.8 million of interest accreted with
respect to the 1997 Notes and the 9 3/4% Notes through the dates of retirement.
Proceeds from the sale of available-for-sale securities were $2 million and
$19.5 million in the years ended December 31, 1997 and 1996, respectively.
19. RELATED PARTY TRANSACTIONS
Pursuant to a financial advisory agreement (the "Financial Advisory Agreement")
between Triton and Hicks, Muse & Co. Partners L.P., an affiliate of Hicks Muse
("Hicks Muse Partners"), the Company paid Hicks Muse Partners transaction fees
aggregating approximately $9.6 million for services as financial advisor to the
Company in connection with the First Closing contemplated by the Stock Purchase
Agreement. In accordance with the terms of the Financial Advisory Agreement, the
Company has retained Hicks Muse Partners as its exclusive financial advisor in
connection with any Sale Transaction (defined below) unless Hicks Muse Partners
and the Company agree to retain an additional financial advisor in connection
with any particular Sale Transaction. The Financial Advisory Agreement requires
the Company to pay a fee to Hicks Muse Partners in connection with any Sale
Transaction (unless the Chief Executive Officer of the Company elects not to
retain a financial advisor) in an amount equal to the lesser of (i) the amount
of fees then charged by first-tier investment banking firms for similar advisory
services rendered in similar transactions or (ii) 1.5% of the Transaction Value
(as defined in the Financial Advisory Agreement); provided that such fee will be
divided equally between Hicks Muse Partners and any additional financial advisor
which the Company and Hicks Muse Partners agree will be retained by the Company
with respect to any such transaction. A "Sale Transaction" is defined as any
merger, sale of securities representing a majority of the combined voting power
of the Company, sale of assets of the Company representing more than 50% of the
total market value of the assets of the Company and its subsidiaries or other
similar transaction. The Company is also required to reimburse Hicks Muse
Partners for reasonable disbursements and out-of-pocket expenses of Hicks Muse
Partners incurred in connection with its advisory services.
Pursuant to a monitoring agreement (the "Monitoring Agreement") between Triton
and Hicks Muse Partners, Hicks Muse Partners will provide financial oversight
and monitoring services as requested by the Company and the Company will pay to
Hicks Muse Partners an annual fee of $.5 million. In addition, the Company will
reimburse Hicks Muse Partners for reasonable disbursements and out-of-pocket
expenses incurred by Hicks Muse Partners or its affiliates for the account of
the Company or in connection with the performance of its services. During the
year ended December 31, 1998, the Company paid Hicks Muse Partners $.1 million
under the terms of the Monitoring Agreement.
The Financial Advisory Agreement and the Monitoring Agreement will remain in
effect until the earlier of (i) September 30, 2008, or (ii) the date on which
HM4 Triton and its affiliates cease to own beneficially, directly or indirectly,
at least 5% of the Company's outstanding Ordinary Shares (determined after
giving effect to the conversion of all 8% Preference Shares held by HM4 Triton
and its affiliates). The Company has agreed to indemnify Hicks Muse Partners
with respect to liabilities incurred as a result of Hicks Muse Partners'
performance of services for the Company pursuant to the Financial Advisory
Agreement and the Monitoring Agreement.
20. CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
Certain information contained in this report, as well as written and oral
statements made or incorporated by reference from time to time by the Company
and its representatives in other reports, filings with the Securities and
Exchange Commission, press releases, conferences or otherwise, may be deemed to
be "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and are subject to the "Safe Harbor" provisions
of that section. Forward-looking statements include statements concerning the
Company's and management's plans, objectives, goals, strategies and future
operations and performance and the assumptions underlying such forward-looking
statements. Forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "estimates," "expects," "believes,"
"intends," "plans" and similar expressions. These statements include
information regarding drilling schedules; expected or planned production
capacity; the closing of branch offices; future production of the Fields; the
negotiation of a gas-sales contract, completion of development and commencement
of production in Malaysia-Thailand; the Company's capital budget and future
capital requirements; the Company's meeting its future capital needs; future
general and administrative expense and the portion to be capitalized; future
interest expense and the portion to be capitalized; the Company's realization of
its deferred tax asset; the level of future expenditures for environmental
costs; the outcome of regulatory and litigation matters; the impact of Year 2000
issues; the estimated fair value of derivative instruments, including the equity
swap; and proven oil and gas reserves and discounted future net cash flows
therefrom. These statements are based on current expectations and involve a
number of risks and uncertainties, including those described in the context of
such forward-looking statements, as well as those presented below. Actual
results and developments could differ materially from those expressed in or
implied by such statements due to these and other factors.
CERTAIN FACTORS RELATING TO THE OIL AND GAS INDUSTRY
The Company's strategy is to focus its exploration activities on what the
Company believes are relatively high-potential prospects. No assurance can be
given that these prospects contain significant oil and gas reserves or that the
Company will be successful in its exploration activities thereon. The Company
follows the full cost method of accounting for exploration and development of
oil and gas reserves whereby all acquisition, exploration and development costs
are capitalized. Costs related to acquisition, holding and initial exploration
of licenses in countries with no proved reserves are initially capitalized,
including internal costs directly identified with acquisition, exploration and
development activities. The Company's exploration licenses are periodically
assessed for impairment on a country-by-country basis. If the Company's
investment in exploration licenses within a country where no proved reserves are
assigned is deemed to be impaired, the licenses are written down to estimated
recoverable value. If the Company abandons all exploration efforts in a country
where no proved reserves are assigned, all acquisition and exploration costs
associated with the country are expensed. The Company's assessments of whether
its investment within a country is impaired and whether exploration activities
within a country will be abandoned are made from time to time based on its
review and assessment of drilling results, seismic data and other information it
deems relevant. Due to the unpredictable nature of exploration drilling
activities, the amount and timing of impairment expense are difficult to predict
with any certainty. Financial information concerning the Company's assets at
December 31, 1998, including capitalized costs by geographic area, is set forth
in note 22.
The markets for oil and natural gas historically have been volatile and are
likely to continue to be volatile in the future. Oil and natural-gas prices
have been subject to significant fluctuations during the past several decades in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. These factors include the level of consumer
product demand, weather conditions, domestic and foreign government regulations,
political conditions in the Middle East and other production areas, the foreign
supply of oil and natural gas, the price and availability of alternative fuels,
and overall economic conditions. It is impossible to predict future oil and gas
price movements with any certainty.
The Company's oil and gas business is also subject to all of the operating risks
normally associated with the exploration for and production of oil and gas,
including, without limitation, blowouts, cratering, pollution, earthquakes,
labor disruptions and fires, each of which could result in substantial losses to
the Company due to injury or loss of life and damage to or destruction of oil
and gas wells, formations, production facilities or other properties. In
accordance with customary industry practices, the Company maintains insurance
coverage limiting financial loss resulting from certain of these operating
hazards. Losses and liabilities arising from uninsured or underinsured events
would reduce revenues and increase costs to the Company. There can be no
assurance that any insurance will be adequate to cover losses or liabilities.
The Company cannot predict the continued availability of insurance, or its
availability at premium levels that justify its purchase.
The Company's oil and gas business is also subject to laws, rules and
regulations in the countries where it operates, which generally pertain to
production control, taxation, environmental and pricing concerns, and other
matters relating to the petroleum industry. Many jurisdictions have at various
times imposed limitations on the production of natural gas and oil by
restricting the rate of flow for oil and natural-gas wells below their actual
capacity. There can be no assurance that present or future regulation will not
adversely affect the operations of the Company.
The Company is subject to extensive environmental laws and regulations. These
laws regulate the discharge of oil, gas or other materials into the environment
and may require the Company to remove or mitigate the environmental effects of
the disposal or release of such materials at various sites. The Company does
not believe that its environmental risks are materially different from those of
comparable companies in the oil and gas industry. Nevertheless, no assurance
can be given that environmental laws and regulations will not, in the future,
adversely affect the Company's consolidated results of operations, cash flows or
financial position. Pollution and similar environmental risks generally are not
fully insurable.
CERTAIN FACTORS RELATING TO INTERNATIONAL OPERATIONS
The Company derives substantially all of its consolidated revenues from
international operations. Risks inherent in international operations include
loss of revenue, property and equipment from such hazards as expropriation,
nationalization, war, insurrection and other political risks; trade protection
measures; risks of increases in taxes and governmental royalties; and
renegotiation of contracts with governmental entities; as well as changes in
laws and policies governing operations of other companies. Other risks inherent
in international operations are the possibility of realizing economic
currency-exchange losses when transactions are completed in currencies other
than U.S. dollars and the Company's ability to freely repatriate its earnings
under existing exchange control laws. To date, the Company's international
operations have not been materially affected by these risks.
CERTAIN FACTORS RELATING TO COLOMBIA
The Company is a participant in significant oil and gas discoveries in the
Fields, located approximately 160 kilometers (100 miles) northeast of Bogota,
Colombia. Development of reserves in the Fields is ongoing and will require
additional drilling. Pipelines connect the major producing fields in Colombia
to export facilities and to refineries.
From time to time, guerrilla activity in Colombia has disrupted the operation of
oil and gas projects causing increased costs. Such activity increased over the
last year, causing delays in the development of the Cupiagua Field. Although
the Colombian government, the Company and its partners have taken steps to
maintain security and favorable relations with the local population, there can
be no assurance that attempts to reduce or prevent guerrilla activity will be
successful or that guerrilla activity will not disrupt operations in the future.
Colombia is among several nations whose progress in stemming the production and
transit of illegal drugs is subject to annual certification by the President of
the United States. The President of the United States has announced that
Colombia would be certified. There can be no assurance that, in the future,
Colombia will receive certification or a national interest waiver. The
consequences of the failure to receive certification or a national interest
waiver generally include the following: all bilateral aid, except
anti-narcotics and humanitarian aid, would be suspended; the Export-Import Bank
of the United States and the Overseas Private Investment Corporation would not
approve financing for new projects in Colombia; U.S. representatives at
multilateral lending institutions would be required to vote against all loan
requests from Colombia, although such votes would not constitute vetoes; and the
President of the United States and Congress would retain the right to apply
future trade sanctions. Each of these consequences could result in adverse
economic consequences in Colombia and could further heighten the political and
economic risks associated with the Company's operations in Colombia. Any
changes in the holders of significant government offices could have adverse
consequences on the Company's relationship with the Colombian national oil
company and the Colombian government's ability to control guerrilla activities
and could exacerbate the factors relating to foreign operations discussed above.
CERTAIN FACTORS RELATING TO MALAYSIA-THAILAND
The Company is a partner in a significant gas exploration project located in the
Gulf of Thailand approximately 450 kilometers northeast of Kuala Lumpur and 750
kilometers south of Bangkok as a contractor under a production-sharing contract
covering Block A-18 of the Malaysia-Thailand Joint Development Area. Test
results to date indicate that significant gas and oil deposits lie within the
block. Development of gas production is in the planning stage, but is expected
to take several years and require the drilling of additional wells and the
installation of production facilities. Pipelines also will be required to be
connected between Block A-18 and ultimate markets. The terms under which any
gas produced from the Company's contract area in Malaysia-Thailand is sold may
be affected adversely by the present monopoly, gas-purchase and transportation
conditions in both Malaysia and Thailand. In connection with the sale to a
subsidiary of ARCO of one-half of the shares of the Company's subsidiary that
held its interest in Block A-18, ARCO agreed to pay the future exploration and
development costs attributable to the Company's and ARCO's collective interest
in Block A-18, up to $377 million or until first production from a gas field,
after which the Company and ARCO would each pay 50% of such costs. See note 5 -
Asset Dispositions.
INFLUENCE OF HICKS MUSE
In connection with the issuance of the 1,822,500 shares of 8% Preference Shares
to HM4 Triton in September 1998, the Company and HM4 Triton entered into a
shareholders agreement (the "Shareholders Agreement") pursuant to which, among
other things, the size of the Company's Board of Directors was set at ten, and
HM4 Triton exercised its right to designate four out of such ten directors. The
Shareholders Agreement provides that, in general, for so long as the entire
Board of Directors consists of ten members, HM4 Triton (and its designated
transferees, collectively) may designate four nominees for election to the Board
(with such number of designees increasing or decreasing proportionately with any
change in the total number of members of the Board and with any fractional
directorship rounded up to the next whole number). The right of HM4 Triton (and
its designated transferees) to designate nominees for election to the Board will
be reduced if the number of ordinary shares held by HM4 Triton and its
affiliates (assuming conversion of 8% Preference Shares into ordinary shares)
represents less than certain specified percentages of the number of ordinary
shares (assuming conversion of 8% Preference Shares into ordinary shares)
purchased by HM4 Triton pursuant to the Stock Purchase Agreement.
The Shareholders Agreement provides that, for so long as HM4 Triton and its
affiliates continue to hold a certain minimum number of ordinary shares
(assuming conversion of 8% Preference Shares into ordinary shares), the Company
may not take certain actions without the consent of HM4 Triton, including (i)
amending its Articles of Association or the terms of the 8% Preference Shares
with respect to the voting powers, rights or preferences of the holders of 8%
Preference Shares, (ii) entering into a merger or similar business combination
transaction, or effecting a reorganization, recapitalization or other
transaction pursuant to which a majority of the outstanding ordinary shares or
any 8% Preference Shares are exchanged for securities, cash or other property,
(iii) authorizing, creating or modifying the terms of any series of securities
that would rank equal to or senior to the 8% Preference Shares, (iv) selling or
otherwise disposing of assets comprising in excess of 50% of the market value of
the Company, (v) paying dividends on ordinary shares or other shares ranking
junior to the 8% Preference Shares, other than regular dividends on the
Company's 5% Preference Shares, (vi) incurring or guaranteeing indebtedness
(other than certain permitted indebtedness), or issuing preference shares,
unless the Company's leverage ratio at the time, after giving pro forma effect
to such incurrence or issuance and to the use of the proceeds, is less than 2.5
to 1, (vii) issuing additional shares of 8% Preference Shares, other than in
payment of accumulated dividends on the outstanding 8% Preference Shares, (viii)
issuing any shares of a class ranking equal or senior to the 8% Preference
Shares, (ix) commencing a tender offer or exchange offer for all or any portion
of the ordinary shares or (x) decreasing the number of shares designated as 8%
Preference Shares.
As a result of HM4 Triton's ownership of 8% Preference Shares and ordinary
shares and the rights conferred upon HM4 Triton and its designees pursuant to
the Shareholder Agreement, HM4 Triton has significant influence over the actions
of the Company and will be able to influence, and in some cases determine, the
outcome of matters submitted for approval of the shareholders. The existence of
HM4 Triton as a shareholder of the Company may make it more difficult for a
third party to acquire, or discourage a third party from seeking to acquire, a
majority of the outstanding ordinary shares. A third party would be required to
negotiate any such transaction with HM4 Triton, and the interests of HM4 Triton
as a shareholder may be different from the interests of the other shareholders
of the Company.
COMPETITION
The Company encounters strong competition from major oil companies (including
government-owned companies), independent operators and other companies for
favorable oil and gas concessions, licenses, production-sharing contracts and
leases, drilling rights and markets. Additionally, the governments of certain
countries where the Company operates may from time to time give preferential
treatment to their nationals. The oil and gas industry as a whole also competes
with other industries in supplying the energy and fuel requirements of
industrial, commercial and individual consumers.
MARKETS
Crude oil, natural gas, condensate, and other oil and gas products generally are
sold to other oil and gas companies, government agencies and other industries.
The availability of ready markets for oil and gas that might be discovered by
the Company and the prices obtained for such oil and gas depend on many factors
beyond the Company's control, including the extent of local production and
imports of oil and gas, the proximity and capacity of pipelines and other
transportation facilities, fluctuating demands for oil and gas, the marketing of
competitive fuels, and the effects of governmental regulation of oil and gas
production and sales. Pipeline facilities do not exist in certain areas of
exploration and, therefore, any actual sales of discovered oil or gas might be
delayed for extended periods until such facilities are constructed.
LITIGATION
The outcome of litigation and its impact on the Company are difficult to predict
due to many uncertainties, such as jury verdicts, the application of laws to
various factual situations, the actions that may or may not be taken by other
parties and the availability of insurance. In addition, in certain situations,
such as environmental claims, one defendant may be responsible, or potentially
responsible, for the liabilities of other parties. Moreover, circumstances could
arise under which the Company may elect to settle claims at amounts that exceed
the Company's expected liability for such claims in order to avoid costly
litigation. Judgments or settlements could, therefore, exceed any reserves.
<PAGE>
21. COMMITMENTS AND CONTINGENCIES
For internal planning purposes, the Company's capital spending program for the
year ending December 31, 1999, is approximately $117 million, excluding
capitalized interest, of which approximately $83 million relates to the Fields
and $34 million relates to the Company's exploration activities in other parts
of the world.
During the normal course of business, the Company is subject to the terms of
various operating agreements and capital commitments associated with the
exploration and development of its oil and gas properties. It is management's
belief that such commitments, including the capital requirements in Colombia and
other parts of the world discussed above, will be met without any material
adverse effect on the Company's operations or consolidated financial condition.
The Company leases office space, other facilities and equipment under various
operating leases expiring through 2002. Total rental expense was $2.1 million,
$2 million and $2 million for the years ended December 31, 1998, 1997 and 1996,
respectively. At December 31, 1998, the minimum payments required under terms
of the leases are as follows 1999 -- $1.8 million; 2000 -- $1.1 million; 2001 --
$.1 million; and 2002 -- nil.
GUARANTEES
At December 31, 1998, the Company had guaranteed loans of approximately $1.4
million for a Colombian pipeline company in which the Company has an ownership
interest. The Company also guaranteed performance of $21.6 million in future
exploration expenditures in various countries. These commitments are backed
primarily by unsecured letters of credit.
ENVIRONMENTAL MATTERS
The Company is subject to extensive environmental laws and regulations. These
laws regulate the discharge of oil, gas or other materials into the environment
and may require the Company to remove or mitigate the environmental effects of
the disposal or release of such materials at various sites. The Company believes
that the level of future expenditures for environmental matters, including
clean-up obligations, is impracticable to determine with a precise and reliable
degree of accuracy. Management believes that such costs, when finally
determined, will not have a material adverse effect on the Company's operations
or consolidated financial condition.
LITIGATION
In July through October 1998, eight lawsuits were filed against the Company and
Thomas G. Finck and Peter Rugg, in their capacities as Chairman and Chief
Executive Officer and Chief Financial Officer, respectively. Each case was
filed on behalf of a putative class of persons and/or entities who purchased the
Company's securities between March 30, 1998, and July 17, 1998, inclusive, and
seeks recovery of compensatory damages, fees and costs. The cases allege
violations of securities laws in connection with disclosures concerning the
Company's properties, operations, and value relating to a prospective sale of
the Company or of all or a part of its assets. Additionally, one case alleges
negligent misrepresentation and seeks recovery of punitive damages. On September
21, 1998, a motion for consolidation and for appointment as lead plaintiffs and
for approval of selection of lead counsel was filed with respect to the cases.
With the exception of the request for consolidation, which has been agreed to,
the motion is presently pending. Also, pending is the Company's motion to
dismiss or transfer for improper venue.
The Company believes it has meritorious defenses to these claims and intends to
vigorously defend these actions. No discovery has been taken at this time,
however,and the ultimate outcome is not currently predictable. There can be
no assurance that the litigation will be resolved in the Company's favor. An
adverse result could have a material adverse effect on the Company's
financial position or results of operations.
The Company is subject to certain other litigation matters, none of which are
expected to have a material, adverse effect on the Company's operations or
consolidated financial condition.
22. GEOGRAPHIC INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way enterprises report information about
operating segments and related disclosures about products and services,
geographic areas and major customers. The Company adopted SFAS 131 in 1998.
Information for 1997 and 1996 has been restated from the prior year's
presentation in order to conform to the 1998 presentation.
Triton's operations are primarily related to crude oil and natural-gas
exploration and production. The Company's principle properties, operations and
oil and gas reserves are located in Colombia and Malaysia-Thailand. The Company
is exploring for oil and gas in these areas, as well as in southern Europe,
Africa and the Middle East. All sales are currently derived from oil and gas
production in Colombia. Financial information about the Company's operations by
geographic area is presented below:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE
MALAYSIA- AND
COLOMBIA THAILAND EXPLORATION OTHER TOTAL
---------- ----------- ------------- ----------- -----------
YEAR ENDED DECEMBER 31, 1998:
Sales and other operating revenues $ 160,881 $ 63,237 $ 4,500 $ --- $ 228,618
Operating income (loss) (220,697) 62,538 (79,827) (39,360) (277,346)
Depreciation, depletion and amortization 53,641 49 176 4,945 58,811
Writedown of assets 251,312 --- 76,664 654 328,630
Capital expenditures 106,624 25,158 47,516 756 180,054
Assets 468,533 86,928 88,852 111,820 756,133
YEAR ENDED DECEMBER 31, 1997:
Sales and other operating revenues $ 145,419 $ --- $ 4,077 $ --- $ 149,496
Operating income (loss) 59,719 (536) (6,312) (20,167) 32,704
Depreciation, depletion and amortization 31,186 60 505 5,077 36,828
Capital expenditures 129,589 37,328 47,842 4,457 219,216
Assets 712,512 148,780 110,561 126,186 1,098,039
YEAR ENDED DECEMBER 31, 1996:
Sales and other operating revenues $ 127,071 $ --- $ 6,906 $ --- $ 133,977
Operating income (loss) 70,874 (509) (44,098) (23,489) 2,778
Depreciation, depletion and amortization 19,061 38 807 5,734 25,640
Writedown of assets --- --- 42,960 --- 42,960
Capital expenditures 160,131 53,679 29,036 9,838 252,684
Assets 629,978 113,364 57,849 113,333 914,524
</TABLE>
During 1998, the Company sold one-half of the shares of the subsidiary through
which the Company owned its 50% share of Block A-18 resulting in a gain of $63.2
million which is included in Malaysia-Thailand sales and other operating
revenues and operating profit (loss). See note 5 --Asset Dispositions.
Colombia operating profit (loss) for the year ended December 31, 1998, included
an SEC full cost ceiling limitation writedown of $241 million. Additionally,
Exploration operating profit (loss) included writedowns of oil and gas
properties and other assets in Guatemala ($27.2 million) and China ($22.5
million) for the year ended December 31, 1998. Exploration operating profit
(loss) for the year ended December 31, 1996, included a writedown of $43 million
for the Company's oil and gas properties and other assets in Argentina. See
note 3 - Writedown of Assets.
At December 31, 1998, corporate assets were principally cash and cash
equivalents, the U.S. deferred tax asset and other fixed assets. Exploration
assets included $43.9 million, $14.9 million, $10.8 million and $10.2 million of
capitalized costs in Italy, Greece, Equatorial Guinea and Oman, respectively.
<PAGE>
23. SUBSEQUENT EVENT
On January 4, 1999, the Company issued 3,177,500 8% Preference Shares for $70
per share, or total proceeds of $222.4 million (before closing expenses of $4.3
million). See note 2, Pro Forma Balance Sheet - 8% Preference Shares Issuance.
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
------- ---------- -------- ----------
YEAR ENDED DECEMBER 31, 1998:
Sales and other operating revenues $36,175 $ 36,378 $105,862 $ 50,203
Gross profit (loss) 8,409 (180,179) 73,751 (134,350)
Net earnings (loss) 42,912 (150,062) 47,208 (127,562)
Basic earnings (loss) per ordinary share 1.17 (4.10) 1.28 (3.55)
Diluted earnings (loss) per ordinary share 1.16 (4.10) 1.28 (3.55)
YEAR ENDED DECEMBER 31, 1997:
Sales and other operating revenues $33,759 $ 32,569 $ 36,993 $ 46,175
Gross profit 15,095 13,645 14,583 17,988
Net earnings (loss) before extraordinary item 3,486 (308) 6,201 (3,784)
Net earnings (loss) 3,486 (14,799) 6,201 (3,784)
Basic earnings (loss) per ordinary share:
Before extraordinary item 0.09 (0.01) 0.16 (0.10)
Net earnings (loss) 0.09 (0.41) 0.16 (0.10)
Diluted earnings (loss) per ordinary share:
Before extraordinary item 0.09 (0.01) 0.16 (0.10)
Net earnings (loss) 0.09 (0.41) 0.16 (0.10)
</TABLE>
Gross profit (loss) is comprised of sales and other operating revenues less
operating expenses, depreciation, depletion and amortization, and writedowns
pertaining to operating assets.
In the fourth quarter of 1998, the Company recorded a writedown of $115.9
million, net of tax, related to the application of the full cost ceiling
limitation as prescribed by the SEC. See note 3 - Writedown of Assets.
25. OIL AND GAS DATA (UNAUDITED)
The following tables provide additional information about the Company's oil and
gas exploration and production activities.
<PAGE>
RESULTS OF OPERATIONS
The results of operations for oil- and gas-producing activities, considering
direct costs only, follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MALAYSIA- TOTAL
COLOMBIA THAILAND OTHER WORLDWIDE
---------- ---------- --------- -----------
YEAR ENDED DECEMBER 31, 1998:
Revenues $ 160,881 $ 63,237 $ 4,500 $ 228,618
Costs:
Production costs 73,546 --- --- 73,546
General operating expenses 2,460 --- --- 2,460
Depletion 53,304 --- --- 53,304
Writedown of assets 251,312 --- 76,664 327,976
Income tax benefit (76,048) --- (22,527) (98,575)
---------- ---------- --------- -----------
Results of operations $(143,693) $ 63,237 $(49,637) $ (130,093)
========== ========== ========= ===========
YEAR ENDED DECEMBER 31, 1997:
Revenues $ 145,419 $ --- $ 4,077 $ 149,496
Costs:
Production costs 51,357 --- --- 51,357
General operating expenses 2,886 --- --- 2,886
Depletion 30,729 --- --- 30,729
Income tax expense 22,167 --- 1,223 23,390
---------- ---------- --------- -----------
Results of operations $ 38,280 $ --- $ 2,854 $ 41,134
========== ========== ========= ===========
YEAR ENDED DECEMBER 31, 1996:
Revenues $ 127,071 $ --- $ 6,906 $ 133,977
Costs:
Production costs 34,822 --- 1,832 36,654
General operating expenses 1,909 --- 1,327 3,236
Depletion 18,515 --- 603 19,118
Writedown of assets --- --- 42,960 42,960
Income tax expense (benefit) 25,766 --- (12,888) 12,878
---------- ---------- --------- -----------
Results of operations $ 46,059 $ --- $(26,928) $ 19,131
========== ========== ========= ===========
</TABLE>
Malaysia-Thailand revenues for the year ended December 31, 1998, included a gain
of $63.2 million from the sale of one-half of the shares of the subsidiary
through which the Company owned its 50% share of Block A-18. Other revenues for
the years ended December 31, 1998, 1997, and 1996, included gains of $4.5
million, $4.1 million, and $4.1 million from the sale of the Company's
Bangladesh subsidiary, Argentine subsidiary, and royalty interests in U.S.
properties, respectively.
Depletion includes depreciation on support equipment and facilities calculated
on the unit-of-production method.
<PAGE>
COSTS INCURRED AND CAPITALIZED COSTS
The costs incurred in oil and gas acquisition, exploration and development
activities and related capitalized costs follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MALAYSIA- TOTAL
COLOMBIA THAILAND OTHER WORLDWIDE
--------- --------- --------- ---------
DECEMBER 31, 1998:
Costs incurred:
Property acquisition $ --- $ --- $ 500 $ 500
Exploration 2,886 21,215 48,756 72,857
Development 83,088 1,026 --- 84,114
Depletion per equivalent
barrel of production 4.07 --- --- 4.07
Cost of properties at year-end:
Unevaluated $ --- $ 20,392 $ 70,526 $ 90,918
========= ========= ========= =========
Evaluated $467,147 $ 65,102 $ 76,367 $608,616
========= ========= ========= =========
Support equipment and
facilities $289,659 $ --- $ --- $289,659
========= ========= ========= =========
Accumulated depletion and
depreciation at year-end $360,324 $ --- $ 76,367 $436,691
========= ========= ========= =========
DECEMBER 31, 1997:
Costs incurred:
Property acquisition $ --- $ --- $ 3,128 $ 3,128
Exploration 7,583 36,373 47,864 91,820
Development 62,251 187 --- 62,438
Depletion per equivalent
barrel of production 3.67 --- --- 3.67
Cost of properties at year-end:
Unevaluated $ 2,172 $ 30,327 $ 98,127 $130,626
========= ========= ========= =========
Evaluated $396,774 $114,243 $ 7,563 $518,580
========= ========= ========= =========
Support equipment and
facilities $250,193 $ --- $ --- $250,193
========= ========= ========= =========
Accumulated depletion and
depreciation at year-end $ 66,250 $ --- $ 7,563 $ 73,813
========= ========= ========= =========
DECEMBER 31, 1996:
Costs incurred:
Property acquisition $ --- $ --- $ 600 $ 600
Exploration 18,875 60,955 33,103 112,933
Development 39,902 470 --- 40,372
Depletion per equivalent
barrel of production 2.83 --- 3.11 2.84
Cost of properties at year-end:
Unevaluated $ 2,487 $ 30,500 $ 50,010 $ 82,997
========= ========= ========= =========
Evaluated $338,955 $ 77,512 $ 48,630 $465,097
========= ========= ========= =========
Support equipment and
facilities $194,116 $ --- $ --- $194,116
========= ========= ========= =========
Accumulated depletion and
depreciation at year-end $ 35,723 $ --- $ 48,630 $ 84,353
========= ========= ========= =========
</TABLE>
A summary of costs excluded from depletion at December 31, 1998, by year
incurred follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
DECEMBER 31,
----------------------------------
1995 AND
TOTAL 1998 1997 1996 PRIOR
-------- ------- ------- ------- -------
Property acquisition $ 2,800 $ 500 $ 1,700 $ 600 $ ---
Exploration 127,290 45,244 40,398 37,098 4,550
Capitalized interest 25,930 14,051 11,758 106 15
-------- ------- ------- ------- -------
Total worldwide $156,020 $59,795 $53,856 $37,804 $ 4,565
======== ======= ======= ======= =======
</TABLE>
The Company excludes from its depletion computation property acquisition and
exploration costs of unevaluated properties and major development projects in
progress. The excluded costs include $85.5 million ($65.1 million and $20.4
million classified as evaluated and unevaluated, respectively) for Block A-18 in
the Malaysia-Thailand Joint Development Area that will become depletable once
production begins, which is estimated to occur between 30-36 months after
signing of a gas-sales contract. Additionally, excluded costs include
exploration costs of $29.5 million, $12.2 million, $10.8 million, $10 million
and $8.1 million in Italy, Greece, Equatorial Guinea, Oman and Madagascar,
respectively. At this time, the Company is unable to predict either the timing
of the inclusion of these costs and the related oil and gas reserves in its
depletion computation or their potential future impact on depletion rates.
Drilling or other exploration activities are being conducted in each
of these cost centers.
OIL AND GAS RESERVE DATA (OIL RESERVES ARE STATED IN THOUSANDS OF BARRELS AND
GAS RESERVES ARE STATED IN MILLIONS OF CUBIC FEET.)
The following tables present the Company's estimates of its proved oil and gas
reserves. The estimates for the proved reserves in the Fields in Colombia were
prepared by the Company's independent petroleum engineers, DeGolyer and
MacNaughton. The estimates for the proved reserves in Malaysia-Thailand and the
Liebre Field in Colombia were prepared by the Company's internal petroleum
reservoir engineers. The Company emphasizes that reserve estimates are
approximate and are expected to change as additional information becomes
available. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced, and there can be no assurance that the proved
undeveloped reserves will be developed within the periods anticipated. As of
December 31, 1998, the Company did not have a contract for the sale of gas to be
produced from its interest in the Malaysia-Thailand Joint Development Area. In
estimating its reserves attributable to such interest, the Company assumed that
production from the interest would be sold at the initial base price for natural
gas specified in the Heads of Agreement entered into in April 1998. There can be
no assurance that the price to be provided in any gas contract will be equal to
the price used in the Company's calculations.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COLOMBIA MALAYSIA-THAILAND OTHER TOTAL WORLDWIDE
----------------- ------------------- ---------------- --------------------
OIL GAS OIL GAS OIL GAS OIL GAS
-------- ------- -------- --------- ------- ------- -------- ----------
PROVED DEVELOPED AND
UNDEVELOPED RESERVES:
AS OF DECEMBER 31, 1995 121,426 15,690 --- --- 764 6,957 122,190 22,647
Revisions 270 (403) --- --- --- --- 270 (403)
Sales (548) (338) --- --- (649) (6,482) (1,197) (6,820)
Extensions and discoveries 19,900 --- 24,700 871,100 --- --- 44,600 871,100
Production (5,738) (298) --- --- (115) (475) (5,853) (773)
-------- ------- -------- --------- ------- ------- -------- ----------
AS OF DECEMBER 31, 1996 135,310 14,651 24,700 871,100 --- --- 160,010 885,751
Revisions 14,157 770 (2,000) (7,600) --- --- 12,157 (6,830)
Sales --- --- --- --- --- --- --- ---
Extensions and discoveries 2,308 --- 7,100 360,300 --- --- 9,408 360,300
Production (5,776) (802) --- --- --- --- (5,776) (802)
-------- ------- -------- --------- ------- ------- -------- ----------
AS OF DECEMBER 31, 1997 145,999 14,619 29,800 1,223,800 --- --- 175,799 1,238,419
Revisions (693) (1,832) (6,583) (41,588) --- --- (7,276) (43,420)
Sales --- --- (15,200) (625,400) --- --- (15,200) (625,400)
Extensions and discoveries --- --- --- 13,500 --- --- --- 13,500
Production (9,979) (503) --- --- --- --- (9,979) (503)
-------- ------- -------- --------- ------- ------- -------- ----------
AS OF DECEMBER 31, 1998 135,327 12,284 8,017 570,312 --- --- 143,344 582,596
======== ======= ======== ========= ======= ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
MALAYSIA-
COLOMBIA THAILAND TOTAL WORLDWIDE
-------------- -------------- ---------------
OIL GAS OIL GAS OIL GAS
------ ------ ------ ------ ------ ------
PROVED DEVELOPED RESERVES AT:
DECEMBER 31, 1996 67,193 11,146 --- --- 67,193 11,146
====== ====== ====== ====== ====== ======
DECEMBER 31, 1997 81,931 14,619 --- --- 81,931 14,619
====== ====== ====== ====== ====== ======
DECEMBER 31, 1998 86,039 12,284 --- --- 86,039 12,284
====== ====== ====== ====== ====== ======
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH INFLOWS AND CHANGES THEREIN
The following table presents for the net quantities of proved oil and gas
reserves a standardized measure of discounted future net cash inflows discounted
at an annual rate of 10%. The future net cash inflows were calculated in
accordance with Securities and Exchange Commission guidelines. Future cash
inflows were computed by applying year-end prices of oil and gas relating to the
Company's proved reserves to the estimated year-end quantities of those
reserves. Future price changes were considered only to the extent provided by
contractual agreements in existence at year-end.
Future production and development costs were computed by estimating those
expenditures expected to occur in developing and producing the proved oil and
gas reserves at the end of the year, based on year-end costs. The Company
emphasizes that the future net cash inflows should not be construed as
representative of the fair market value of the Company's proved reserves. The
meaningfulness of the estimates is highly dependent upon the accuracy of the
assumptions upon which they were based. Actual future cash inflows may vary
materially.
In connection with the sale to ARCO of one-half of the shares of the subsidiary
through which the Company owned its 50% share of Block A-18, ARCO agreed to pay
the Company an additional $65 million each at July 1, 2002, and July 1, 2005, if
certain specific development objective are met by such dates, or $40 million
each if the objectives are met within one year thereafter. Future cash inflows
for Malaysia-Thailand at December 31, 1998, include incentive payments of $65
million each in July 2002 and July 2005. As of December 31, 1998, the Company
did not have a contract for the sale of gas to be produced from its interest in
the Malaysia-Thailand Joint Development Area. In estimating discounted future
net cash inflows attributable to such interest, the Company assumed that
production from the interest would be sold at the initial base price for natural
gas specified in the Heads of Agreement entered into in April 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MALAYSIA- TOTAL
COLOMBIA THAILAND WORLDWIDE
---------- ---------- ----------
DECEMBER 31, 1998:
Future cash inflows $1,481,065 $1,555,929 $3,036,994
Future production and
development costs 734,025 695,575 1,429,600
---------- ---------- ----------
Future net cash inflows before
income taxes $ 747,040 $ 860,354 $1,607,394
========== ========== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $ 415,127 $ 253,535 $ 668,662
Future income taxes discounted at
10% per annum 3,909 8,917 12,826
---------- ---------- ----------
Standardized measure of discounted
future net cash inflows $ 411,218 $ 244,618 $ 655,836
========== ========== ==========
DECEMBER 31, 1997:
Future cash inflows $2,524,291 $4,078,609 $6,602,900
Future production and
development costs 1,142,382 1,883,881 3,026,263
---------- ---------- ----------
Future net cash inflows before
income taxes $1,381,909 $2,194,728 $3,576,637
========== ========== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $ 852,421 $ 427,463 $1,279,884
Future income taxes discounted at
10% per annum 173,785 36,756 210,541
---------- ---------- ----------
Standardized measure of discounted
future net cash inflows $ 678,636 $ 390,707 $1,069,343
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MALAYSIA- TOTAL
COLOMBIA THAILAND WORLDWIDE
---------- ---------- ----------
DECEMBER 31, 1996:
Future cash inflows $3,519,893 $2,530,702 $6,050,595
Future production and
development costs 1,283,851 1,188,981 2,472,832
---------- ---------- ----------
Future net cash inflows before
income taxes $2,236,042 $1,341,721 $3,577,763
========== ========== ==========
Future net cash inflows before
income taxes discounted at 10%
per annum $1,283,158 $ 320,900 $1,604,058
Future income taxes discounted at
10% per annum 290,763 21,100 311,863
---------- ---------- ----------
Standardized measure of discounted
future net cash inflows $ 992,395 $ 299,800 $1,292,195
========== ========== ==========
</TABLE>
Changes in the standardized measure of discounted future net cash inflows
follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
Total worldwide:
Beginning of year $1,069,343 $1,292,195 $ 641,696
Sales, net of production costs (87,335) (94,062) (97,323)
Sales of reserves (70,543) --- (10,473)
Revisions of quantity estimates (29,321) 75,253 2,617
Net change in prices and production costs (579,212) (552,863) 228,349
Extensions, discoveries and improved recovery 6,516 42,918 1,125,733
Change in future development costs (46,633) (5,936) (652,902)
Development and facilities costs incurred 105,808 53,199 92,856
Accretion of discount 120,270 160,406 80,672
Changes in production rates and other (30,772) (3,089) 19,088
Net change in income taxes 197,715 101,322 (138,118)
----------- ----------- -----------
End of year $ 655,836 $1,069,343 $1,292,195
=========== =========== ===========
</TABLE>
<PAGE>
SCHEDULE II
TRITON ENERGY LIMITED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING CHARGED TO OTHER AT CLOSE
CLASSIFICATIONS OF YEAR EARNINGS ACCOUNTS DEDUCTIONS OF YEAR
- ------------------------- ----------- ------------ ----------- ------------ ---------
Year ended Dec. 31, 1996:
Allowance for doubtful
receivables $ 810 $ 35 $ --- $ (769) $ 76
=========== ============ =========== ============ =========
Allowance for deferred
tax asset $ 54,046 $ (23,389) $ --- $ --- $ 30,657
=========== ============ =========== ============ =========
Year ended Dec. 31, 1997:
Allowance for doubtful
receivables $ 76 $ --- $ --- $ (35) $ 41
=========== ============ =========== ============ =========
Allowance for deferred
tax asset $ 30,657 $ 44,435 $ --- $ --- $ 75,092
=========== ============ =========== ============ =========
Year ended Dec. 31, 1998:
Allowance for doubtful
receivables $ 41 $ --- $ --- $ (41) $ ---
=========== ============ =========== ============ =========
Allowance for deferred
tax asset $ 75,092 $ 18,519 $ --- $ --- $ 93,611
=========== ============ =========== ============ =========
</TABLE>
___________________
Note -- Deductions for the allowance for doubtful receivables in the year ended
December 31, 1996, related primarily to disposal of other assets.
EXHIBIT 10.21
ROBERT B. HOLLAND, III
Chief Operating Officer and
General Counsel
December 17, 1998
Mr. James C. Musselman
Triton Exploration Services
6688 N. Central Expressway, Suite 1400
Dallas, Texas 75206
Dear Jim:
This letter is intended to reflect the understanding that you and Jack Furst,
acting on behalf of the Board, and I have reached regarding my compensation.
I will receive 112,500 new options (50% of the options I now hold priced at $30
and above) priced at $14.50 as part of the grants approved by the Board on
December 2, 1998.
I will be paid the severance and SERP payments contemplated by Section 2.3-1 and
2.3-2 of my employment agreement (totaling $3,232,621) prior to expiration of
the rights offering, and the Company will thereafter have no further obligation
to me under Sections 2.3-1 or 2.3-2 of my employment agreement (i.e., the
severance and SERP sections) or under the SERP.
Thereafter I will remain employed in my current capacities, but I will no longer
receive a base salary. I will, however, be entitled to exercise any Options
held by me at the time my employment terminates for a period of five years after
the time of termination if the time of termination is on or after June 30, 1999
(or earlier if a Change of Control unrelated to the Hicks Muse investment shall
occur, or if I am terminated without Cause or if I terminate my employment for
Good Reason). Otherwise, any such Options shall be exercisable for one year
after the Date of Termination of my employment as provided by my employment
agreement.
Except as modified by this letter, my employment, indemnity and option
agreements shall remain in effect in accordance with their terms (the defined
terms used in this letter having the same meaning as under my employment
agreement).
If you are in agreement with the foregoing, please so indicate by executing and
returning the enclosed copy of this letter.
Very truly yours,
Robert B. Holland, III
ACCEPTED and AGREED as of
the date first written above.
TRITON EXPLORATION SERVICES, INC. TRITON ENERGY LIMITED as guarantor
By:_________________________________ By:
____________________________________
EXHIBIT 10.22
December 10, 1998
Mr. Peter Rugg
4 Glenheather Court
Dallas, Texas 75225
Dear Peter:
After consultation with tax advisors and appropriate Board members, Triton is
willing to commit to the following if accepted by you by December 15, 1998:
1. If your employment is terminated any time, for any reason other than by
Triton Exploration Services, Inc. (the "Company") for Cause (as defined in your
employment agreement), the Company will pay you $1 million as severance, and a
lump sum (determined by Milliman & Robertson) equal to the net present value of
your SERP benefits that are vested by years of service in satisfaction of its
obligations to you under the SERP.
2. In addition to any amounts payable under paragraph 1, if (x) your
employment is terminated any time, for any reason other than by the Company for
Cause (as defined in your employment agreement) and (y) you agree to enter into
a consulting agreement providing for services to be rendered by you for a period
of six months (but which will not require you to commit more than 25% of your
business time during such term unless you otherwise agree) and an agreement not
to compete for a term that is mutually agreeable to you and the Company (but not
less than six months or more than one year unless we otherwise agree) in forms
reasonably acceptable to each of us, the Company will pay you your current base
salary through the date of termination of your employment and will pay you a
lump sum of an amount that when added to the paragraph 1 amounts will equal $2
million. As additional compensation for your consulting services and agreement
not to compete, all options held by you at the time of termination of your
employment will be exercisable for three years after termination of your
employment.
3. Upon termination, you and the Company will enter into a severance
agreement with full mutual releases in the form used in the Company's July 1997
reduction in force and pursuant to which the Company will agree to pay directly
any COBRA payments to provide you and your dependents medical and dental health
insurance for a period of two years or until you are no longer eligible for
COBRA.
You and the Company acknowledge our mutual belief that the excise tax (the
"Excise Tax"), imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, will not apply to the payments contemplated by paragraphs 1 and 2 of
this letter agreement (the "Payments"). In the event that the Internal Revenue
Service asserts that an Excise Tax is due in respect of the Payments, however,
you will promptly notify the Company of such claim. Upon receipt of such notice,
the Company will have the right to require that you either pay the claim, in
which case (if you did not theretofore file a personal income tax return
reflecting the application of the Excise Tax) the Company will pay the amount of
the Excise Tax payable in respect of the Payments, or contest the claim, in
which case the Company will pay directly all costs and expenses (including, but
not limited to, additional interest and penalties and related legal, consulting
or other similar fees) incurred in connection with such contest, and if such
contest is unsuccessful, the Company will pay any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed in respect of
the Payments as a result of such contest. The Company will have the right to
control all proceedings taken in connection with such contest and you agree to
take such action in connection with contesting such claim as the Company shall
reasonably request, including, without limitation, accepting legal
representation by an attorney selected by the Company (who shall be reasonably
satisfactory to you).
If the foregoing is acceptable to you, please so indicate by signing the
enclosed copy, whereupon this letter agreement will become binding and will
supersede your employment agreement.
Very truly yours,
TRITON EXPLORATION SERVICES INC.
By: ____________________________________
Its: ____________________________________
TRITON ENERGY LIMITED, as guarantor
By: ____________________________________
Its: ____________________________________
________________________________________
PETER RUGG
EXHIBIT 10.23
TRITON EXPLORATION SERVICES, INC.
6688 North Central Expressway, Suite 1400
Dallas, Texas 75206
July 15, 1998
Re: Bonus Agreement
Dear :
In recognition of your efforts over the past few months, Triton Exploration
Services, Inc. (the Company) has awarded to you a bonus, subject to certain
conditions, of $200,000. The full amount of the bonus will be paid to you as
soon as practicable, but if you voluntarily terminate your employment, or if you
are terminated for cause, in the next year, all or a portion of the bonus must
be repaid, depending on the date of termination. Essentially, the bonus will
"vest" in 25% increments over the next year. As a result, if you leave, or if
you are terminated for cause, in the periods set forth below, you agree to repay
the portion of the bonus set forth below:
if termination occurs agreed repayment
----------------------- -----------------
prior to October 15, 1998 100%
on or after October 15, 1998 and prior to January 15, 1999 75%
on or after January 15, 1999 and prior to April 15, 1999 50%
on or after April 15, 1999 and prior to July 15, 1999 25%
on or after July 15, 1999 0%
For tax purposes, each vesting is essentially a forgiveness of debt, which
is taxable compensation to you in the tax year the vesting occurs. In addition,
interest will be deemed to accrue for tax purposes, and a deemed interest amount
will also be added to your compensation and subjected to federal and payroll tax
withholding. The Company will calculate federal income tax withholding and
applicable payroll taxes (FICA plus social security) and will issue an employee
receivable to you for that amount, which you will be obligated to pay to the
Company.
No repayment will be required if a change of control ( as defined in the
Amended and Restated Employment Agreement among Triton Energy Limited, the
Company and you dated as of July 15, 1998, as amended (the "Employment
Agreement")) occurs prior to termination of employment, if the Company
terminates your employment without cause, or if your employment is terminated as
a result of your death or disability. In addition, no repayment will be required
if you become entitled to terminate your employment with "Justification" as
defined in the Employment Agreement. This bonus is in recognition of your
efforts over the last few months and also is designed to provide you additional
incentive to lend your efforts to making the Company a success, but is not
intended to alter in any way the employment policies of the Company. Thus, you
will continue to be considered for discretionary bonuses as are other employees
of the Company. Of course, this bonus is not a guarantee of employment, and
either you or the Company will remain free to terminate your employment
relationship as you or the Company sees fit. Your agreement to repay the bonus
as set forth above will be evidenced by your signature below and your execution
and delivery of a promissory note evidencing your obligation.
Thank you again for your fine efforts.
Very truly yours,
on behalf of Triton
Exploration Services, Inc.
I agree to repay the bonus in the amounts set forth above, if applicable,
and to deliver a promissory note to evidence this obligation.
___________________________________
EXHIBIT 10.48
TRITON ENERGY LIMITED
AMENDED AND RESTATED 1997 SHARE COMPENSATION PLAN
Triton Energy Limited (the "Company") hereby establishes its Amended and
Restated 1997 Share Compensation Plan. Capitalized terms used herein are defined
in Article I. This Plan amends and restates the 1997 Share Compensation Plan,
initially adopted by the Company in 1997, as amended and restated by the Company
in December 1998.
The purpose of the Plan is to help the Company and its Subsidiaries attract
and retain Directors, Employees and Advisors and to provide such persons with a
proprietary interest in the Company, which will (a) increase the interest of the
Directors, Employees and Advisors in the Company's welfare; (b) furnish an
incentive to the Directors, Employees and Advisors to continue their services
for the Company or its Subsidiaries; and (c) provide a means through which the
Company or its Subsidiaries may attract able persons to enter its employ or
serve as Directors, Employees or Advisors.
ARTICLE I
Definitions
-----------
For the purpose of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
"Advisor" means any person performing services for the Company or any
Subsidiary of the Company, with or without compensation, to whom the Company
chooses to grant Stock Options or to whom the Company chooses to issue Elected
Shares or Restricted Shares in accordance with the Plan, provided that bona fide
---- ----
services must be rendered by such person and such services shall not be rendered
in connection with the offer or sale of securities in a capital-raising
transaction.
"Board" means the Board of Directors of the Company as constituted
from time to time.
"Cause" means an act or acts involving a felony, fraud, willful
misconduct, the commission of any act that causes or reasonably may be expected
to cause substantial injury to the Company, or other good cause. The term
"other good cause" shall include, but shall not be limited to, habitual
impertinence, a pattern of conduct that tends to hold the Company up to ridicule
in the community, conduct disloyal to the Company, conviction of any crime of
moral turpitude, and substantial dependence, as judged by the Committee, on
alcohol or any controlled substance. To the extent that a Participant is a
party to a written employment agreement with the Company or any Subsidiary that
contains a provision setting forth consequences for termination for cause and a
definition of cause, such definition shall control with respect to benefits
granted hereunder.
"Change in Control" means the occurrence of any of the following
events: (i) there shall be consummated (x) any consolidation, amalgamation or
merger of the Company in which (I) the Company is not the continuing or
surviving corporation or (II) where the Company is the continuing or surviving
corporation, the Company's Ordinary Shares outstanding immediately prior to the
merger would be converted into cash, securities or other property, or the
holders of the Company's Ordinary Shares immediately prior to the merger would
represent less than a majority of the common stock or ordinary shares of the
surviving corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation), in one transaction or a series of related transactions, of all,
or substantially all, of the assets of the Company, (ii) the shareholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company, (iii) any "person" (as such term is defined in Section 3(a)(9) or
Section 13(d)(3) under the 1934 Act) or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company or any
successor of the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee), becomes, without the
prior approval of the Board, a beneficial owner for purposes of Rule 13d-3
promulgated under the 1934 Act, directly or indirectly, of securities of the
Company representing 25.0% or more of the Company's then outstanding securities
having the right to vote in the election of Directors of the Company, or (iv)
during any period of two consecutive years, individuals who, at the beginning of
such period constituted the entire Board, cease for any reason (other than
death) to constitute a majority of the Directors of the Company, unless the
election, or the nomination for election, by the Company's shareholders, of each
new Director of the Company was approved by a vote of at least two-thirds of the
Directors of the Company then still in office who were Directors of the Company
at the beginning of the period.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee or committees appointed or designated
by the Board or another Committee in accordance with Section 2.1 of the Plan.
"Date of Grant" means the effective date on which a Stock Option is
awarded to a Director, Employee, or Advisor as set forth in the Stock Option
Agreement.
"Director" means a member of the Board.
"Disability" means an event whereby a Participant is rendered unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment in accordance with policies as may be
determined from time to time by the Committee.
"Elected Share Agreement" means an agreement between the Company and a
Participant with respect to the issuance of Elected Shares.
"Elected Shares" means Ordinary Shares issued to a Participant under
Article IV.
"Employee" means an employee of the Company or of any Subsidiary.
"Fair Market Value" of an Ordinary Share means (i) the closing price
per share on the principal stock exchange on which the Ordinary Shares are
traded, or (ii) if not listed for trading on a stock exchange, the mean between
the closing or average (as the case may be) bid and asked prices per Ordinary
Share on the over-the-counter market, whichever is applicable.
"Incentive Stock Option" means an option to purchase Ordinary Shares
granted to a Participant and which is intended to be treated as an "incentive
stock option" under Section 422 of the Code.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Non-Employee Director" means a Director of the Company who is not an
Employee.
"Nonqualified Stock Option" means any Stock Option that does not
qualify as an Incentive Stock Option.
"Ordinary Shares" means the Ordinary Shares, par value $.01 per share,
of the Company or in the event that the outstanding Ordinary Shares are
hereafter changed into or exchanged for shares or other securities of the
Company or another issuer, such other shares or securities.
"Participant" means any Employee, Director or Advisor who is, or who
is proposed to be, a recipient of a Stock Option, Elected Shares or Restricted
Shares.
"Plan" means this Triton Energy Limited 1997 Share Compensation Plan,
as amended from time to time.
"Restricted Shares" means Ordinary Shares issued to a Participant
pursuant to Article VII.
"Retirement" of a Participant shall be deemed to be retirement in
accordance with policies as may be determined from time to time by the
Committee.
"Restricted Share Agreement" means an agreement between the Company
and a Participant with respect to the issuance of Restricted Shares.
"Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, as
amended from time to time, or any successor provision.
"Section 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder from time to time.
"Section 162(m) Exception" means the exception under Section 162(m)
for "qualified performance-based compensation."
"Stock Options" means any and all Incentive Stock Options and
Nonqualified Stock Options granted pursuant to Article V of the Plan.
"Stock Option Agreement" means an agreement between the Company and a
Participant with respect to one or more Stock Options.
"Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, and "Subsidiaries" means more than one of any such
corporations.
ARTICLE II
Administration; Eligibility
---------------------------
2.1 Administration. The Plan shall be administered by a committee or
--------------
committees of Directors appointed by the Board, each of which may delegate all
or any of a portion of its powers with respect to the Plan to a committee of
Directors, whether or not then serving on the appointing committee; provided
that, with respect to any Stock Option that is intended to satisfy the
requirements of the Section 162(m) Exception, such committee shall consist of at
least such number of Directors as are required from time to time to satisfy the
Section 162(m) Exception, and each such committee member shall qualify as an
"outside director" within the meaning of Section 162(m). Any member of any such
committee may be removed at any time, with or without cause, by resolution of
the Board. Any vacancy occurring in the membership of the committee may be
filled by appointment by the Board.
The Committee shall select one of its members (if more than one) to act as
its Chairman, and shall make such rules and regulations for its operation as it
deems appropriate. A majority of the Committee shall constitute a quorum and
the act of a majority of the members of the Committee present at a meeting at
which a quorum is present shall be the act of the Committee. Subject to the
terms hereof, the Committee shall have complete discretion and authority to (i)
designate from time to time the persons to whom Stock Options will be granted
and Elected Shares and Restricted Shares will be issued, (ii) interpret the
Plan, (iii) prescribe, amend, and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, to determine the terms, details
and provisions of each Stock Option Agreement, Elected Share Agreement and
Restricted Share Agreement, (iv) modify or amend any Stock Option Agreement,
Elected Share Agreement and Restricted Share Agreement or modify, amend or waive
any terms, conditions or restrictions applicable to any Stock Option, Elected
Shares or Restricted Shares, and (v) make such other determinations and, subject
to the terms of the Plan, take such other action as it deems necessary or
advisable. In this regard, the Committee shall consider and give appropriate
weight to input from representatives of management of the Company regarding the
contributions or potential contributions to the Company of certain of the
Participants or potential Participants. Except as provided below, any
interpretation, determination, or other action made or taken by the Committee
shall be final, binding, and conclusive on all interested parties, including the
Company and all Participants.
2.2 Eligibility. Any Director, Employee and Advisor whose judgment,
-----------
initiative, and efforts contributed or may be expected to contribute to the
successful performance of the Company is eligible to participate in the Plan;
provided that only Employees shall be eligible to receive Incentive Stock
Options. The Committee's determinations under the Plan (including without
limitation determinations of which persons, if any, are to receive Stock
Options, Elected Shares and Restricted Shares, the form, amount and timing of
such Stock Options, Elected Shares and Restricted Shares, the terms and
provisions of such Stock Options, Elected Shares and Restricted Shares and any
agreements evidencing same) need not be uniform and may be made by it
selectively among Employees, Directors and/or Advisors who receive, or are
eligible to receive, Stock Options, Elected Shares and Restricted Shares under
the Plan.
ARTICLE III
Shares Subject to Plan
----------------------
The Committee may not grant Stock Options or issue Elected Shares or
Restricted Shares under the Plan for more than 2,600,000 Ordinary Shares, in the
aggregate (as may be adjusted in accordance with Article XI or XII hereof), and
no Participant shall be eligible to receive more than 50% of such shares. Shares
to be distributed and sold may be made available from either authorized but
unissued Ordinary Shares or Ordinary Shares held by the Company in its treasury.
Shares that by reason of the expiration or unexercised termination of a Stock
Option or forfeited Elected Shares or Restricted Shares are no longer subject to
issuance to the Participant may be reofferred under the Plan.
ARTICLE IV
Elected Shares
--------------
4.1 Eligibility. The Committee shall have complete discretion to select
-----------
the particular Directors, Employees and Advisors to whom Elected Shares may be
issued, if any; provided that Non-Employee Directors are automatically eligible
to elect to receive Elected Shares as provided under this Article IV.
4.2 Election to Receive Elected Shares. Each Participant eligible to
------------------------------------
receive Elected Shares may make an irrevocable election (an "Election") either
(a) to receive a grant of Ordinary Shares in a number determined by the
Committee from time to time in an amount or amounts determined by the Committee
(whether in a fixed amount or by formula) or (b) not to participate in this
Article IV. With respect to the participation by Non-Employee Directors, each
such Director is automatically eligible to elect to receive a grant of 1,000
Elected Shares in conjunction with an election to receive a grant of Stock
Options to purchase 10,000 Ordinary Shares pursuant to Section 5.7 of the Plan,
except as provided in Section 5.7 of the Plan.
4.3 Written Election. Unless the Committee otherwise provides, any
-----------------
Participant eligible for Elected Shares and electing to participate shall make
his or her election in writing delivered to the Secretary of the Company (which
written election may be in the form of an Elected Share Agreement) no later than
January 31 of the year with respect to which such Participant's compensation
will be applied toward the issuance of Elected Shares; provided that with
respect to Non-Employee Directors electing to participate for the 1997 year,
such election shall be made no later than May 15, 1997; and provided further,
that with respect to Non-Employee Directors elected to the Board for the first
time, such election shall be made no later than ten (10) days following the date
of his or her election to the Board. A Participant participating in this Article
IV may revoke or change his or her election by filing a new election with the
Secretary of the Company. Any revocation or change in election by a Participant
shall not be effective for any period with respected to which Elected Shares
have been issued to such Participant.
4.4 Issuance of Shares. Unless the Committee otherwise provides and
--------------------
except as provided below with respect to Non-Employee Directors, on each date on
which a payment of compensation to a Participant is due, Ordinary Shares shall
be issued to such Participant in an amount determined by the Committee pursuant
to Section 4.1. With respect to each Non-Employee Director electing to receive
Elected Shares pursuant to Section 4.2, the Ordinary Shares shall be issued on
such date as the Committee may specify,, or as soon thereafter is reasonably
practicable (although the date specified by the Committee shall be deemed the
date of issuance); provided that, with respect to Non-Employee Directors
electing to participate for the 1997 year, 1,000 Ordinary Shares shall be issued
on such date as any necessary prior approvals are obtained, or as soon
thereafter as is reasonably practicable (although the date specified in the
applicable Elected Share Agreement shall be deemed the date of issuance); and
provided further, that with respect to a Non-Employee Director elected to the
Board for the first time who elects to participate for the year in which he or
she is elected, 1,000 shares shall be issued on such date as any necessary prior
approvals are obtained, or as soon thereafter is reasonably practicable
(although the date of delivery of his or her election to the Plan Administrator
shall be deemed the date of issuance). All Electing Shares issued or deemed
issued pursuant to this Article IV shall be deemed outstanding for all purposes
as of the date of their deemed issuance; provided that, with respect to Elected
Shares issued to Non-Employee Directors pursuant to this Section 4.4, unless the
Committee otherwise specifies, for a period of one year from the date of deemed
issuance, such Elected Shares shall not be sold, transferred or otherwise
disposed of, and shall not be pledged or otherwise hypothecated, and if for any
reason other than death, disability or Retirement, such Non-Employee Director is
not a Director of the Company at the end of such one-year term, then such shares
shall be forfeited and returned to the Company. The issuance of Elected Shares
shall be evidenced by Elected Share Agreements setting forth the total number of
shares to be issued and such other terms, restrictions and provisions as are
consistent with the Plan.
ARTICLE V
Stock Options
-------------
5.1 Eligibility. The Committee shall, from time to time, select the
-----------
particular Directors, Employees and Advisors to whom the Stock Options provided
under this Article V are to be granted.
5.2 Grant of Stock Options. All grants of Stock Options under this
-------------------------
Article V shall be awarded by the Committee at such times and for such amounts
as the Committee may determine. In the discretion of the Committee, any grant to
an Employee may be in the form of an Incentive Stock Option (subject to the
requirements of the Code). The grant of Stock Options shall be evidenced by
Stock Option Agreements setting forth the total number of shares subject to each
Stock Option, the option exercise price, the term of the Stock Option, and such
other terms and provisions as are consistent with the Plan.
5.3 Option Exercise Price. The exercise price for a Stock Option
-----------------------
granted under this Article V shall be determined by the Committee and shall be
an amount not less than 100% of the Fair Market Value per Ordinary Share on the
Date of Grant. Notwithstanding anything to the contrary in this Section 5.3,
the exercise price of each Stock Option granted under the Plan shall not be less
than the par value per share of an Ordinary Share.
5.4 Option Period. The option period for each Stock Option granted
--------------
under this Article V will begin and terminate on the respective dates specified
by the Committee. No Stock Option granted under the Plan may be exercised at
any time after its term. The Committee may provide that Stock Options granted
under this Article V may vest and be exercised in installments and upon such
terms, conditions and restrictions as it may determine.
5.5 Payment. Full payment for shares purchased upon exercise of a
-------
Stock Option shall be made (i) in cash, (ii) by certified or cashier's check,
(iii) if permitted by the Committee, by Ordinary Shares, (iv) if permitted by
the Committee, and if permitted under applicable law, by delivery of a
promissory note for the purchase price, which note shall provide for full
personal liability of the maker and shall contain such other terms and
provisions as the Committee may determine, including without limitation the
right to repay the note partially or wholly with Ordinary Shares, (v) by
delivery of a copy of irrevocable instructions from the Participant to a broker
or dealer, reasonably acceptable to the Company, to sell certain of the shares
purchased upon exercise of the Stock Option or to pledge them as collateral for
a loan and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price or (vi) if permitted by the Committee, and
to the extent permitted under applicable law, by any combination of the
foregoing. If any portion of the purchase price or a note given at the time of
exercise is paid in Ordinary Shares, those shares shall be valued at the then
Fair Market Value.
5.6 Exercise of Stock Option. Stock Options granted under the Plan may
------------------------
be exercised during the option period, at such times and in such amounts, in
accordance with the terms and conditions and subject to such restrictions as are
set forth herein and in the applicable Stock Option Agreements.
The Committee shall have the right to accelerate the time at which any
Stock Option granted under this Article V shall become vested and exercisable.
Subject to such administrative regulations as the Committee may from time
to time adopt, a Stock Option will be deemed exercised for purposes of the Plan
when (i) written notice of exercise has been received by the Company (which
notice shall set forth the number of Ordinary Shares with respect to which the
Stock Option is to be exercised and the date of exercise thereof) and (ii)
payment of the Option Exercise Price is received by the Company in accordance
with Section 5.5 above; provided that, with respect to a cashless exercise of
any Stock Option (in accordance with clause (v) of Section 5.5 above), such
Stock Option will be deemed exercised for purposes of the Plan on the date of
sale of the Ordinary Shares received upon exercise.
5.7 Automatic Grant of Stock Options.
------------------------------------
(a) Grant of Stock Options. In addition to the options provided for in this
----------------------
Article V, throughout the term of this Plan, on such date or dates in January of
each year as the Committee may specify (and the Committee shall specify the Date
of Grant or the manner in which the Date of Grant shall be determined based on
the election by each Non-Employee Director), each Non-Employee Director of the
Company shall be entitled to elect to receive either (i) 1,000 Elected Shares
pursuant to Section 4.2 of the Plan and a Nonqualified Stock Option to purchase
10,000 Ordinary Shares or (ii) a Nonqualified Stock Option to purchase 15,000
Ordinary Shares. In addition, if a person is first appointed or elected as a
Non-Employee Director other than at a date that would permit him or her to
participate in the election provided in the first sentence of this paragraph
(a), then on the date of such appointment or election the Committee shall grant
to such Non-Employee Director a Nonqualified Stock Option to purchase 15,000
Ordinary Shares. Notwithstanding anything in the foregoing to the contrary, in
no event shall any Holder Designee (as defined in that certain Shareholders
Agreement dated as of September 30, 1998 between the Company and HM4 Triton,
L.P.) who is an employee, principal or director of HM4 Triton, L.P. or Hicks,
Muse, Tate & Furst Incorporated be entitled to elect to receive Elected
Shares pursuant to the second sentence of Section 4.2 of the Plan or
Stock Options pursuant to this Section 5.7(a), whether on an annual basis or
upon his or her first appointment or election as a Non-Employee Director.
(b) Option Exercise Price. The exercise price for a Stock Option granted
----------------------
under this Section 5.7 shall be equal to 100% of the Fair Market Value of an
Ordinary Share on the Date of Grant. Notwithstanding anything to the contrary
in this paragraph, the exercise price of each Stock Option granted pursuant to
this Section 5.7 shall not be less than the par value of an Ordinary Share.
(c) Option Period. The option period for each Stock Option granted under
--------------
this Section 5.7 will terminate ten years from the Date of Grant. No Stock
Option granted under this Section 5.7 may be exercised at any time after its
term.
(d) Exercise of Stock Option. Except only as specifically provided
---------------------------
elsewhere in this Plan and as set forth in any Stock Option Agreement, each
Stock Option granted under this Section 5.7 shall be fully vested and
exercisable as to all of the Ordinary Shares covered thereby on the Date of
Grant.
ARTICLE VI
Limitations on Incentive Stock Options
--------------------------------------
Notwithstanding the terms of Article V hereof, the following provisions of
this Article VI shall apply to all Incentive Stock Options granted under the
Plan.
6.1 Stock Ownership Limitation. In the case of an Incentive Stock
----------------------------
Option, the Stock Option Agreement shall include provisions that may be
necessary to assure that the option is an incentive stock option under the Code.
No Incentive Stock Option may be granted to an Employee who owns more than 10%
of the total combined voting power of all classes of shares of the Company or
its Subsidiaries. This limitation will not apply if the option price is at
least 110% of the fair market value of the Ordinary Shares on the Date of Grant
and the option is not exercisable more than five years from the Date of Grant.
6.2 Limitation on Exercise of Incentive Stock Options. To the extent
---------------------------------------------------
required by the Code for incentive stock options, the exercise of Incentive
Stock Options granted under the Plan shall be subject to the $100,000 calendar
year limit as set forth in Section 422(d) of the Code.
6.3 Limitation on Incentive Stock Option Characterization. To the
----------------------------------------------------------
extent that any Stock Option fails to qualify as an Incentive Stock Option, such
Stock Option will be considered a Nonqualified Stock Option.
ARTICLE VII
RESTRICTED SHARES
-----------------
Section 7.1 Eligibility. The Committee shall have complete discretion
-----------
to select the particular Directors, Employees and Advisors to whom Restricted
Shares may be issued, if any.
Section 7.2 Transfer Restrictions. Subject to the terms, provisions
----------------------
and conditions of the Plan, the Committee shall, upon the approval of the
issuance of Restricted Shares, determine the number of shares to be issued to
each Participant and to prescribe the form of the instruments evidencing any
issuance of Restricted Shares and the legend, if any, to be affixed to the
certificates representing Restricted Shares. Restricted Shares shall not be
sold, transferred or otherwise disposed of, and shall not be pledged or
otherwise hypothecated (any such sale, transfer or other disposition, pledge or
other hypothecation being referred to as "to dispose of" or a "disposition"), by
any Participant except as permitted under any conditions imposed by the
Committee in connection with the issuance thereof. The Committee may require any
Participant to whom Restricted Shares are issued to execute and deliver to the
Company a stock power in blank with respect to the shares issued and may require
that the Company retain possession of the certificates for shares with respect
to which the restrictions have not lapsed.
Section 7.3 Notice to Company of Section 83(b) Election. Any
-------------------------------------------------
Participant who exercises the election under Section 83(b) of the Code to have
his receipt of shares of Restricted Shares taxed currently without regard to the
restrictions shall give notice to the Company of such election immediately upon
making the election. Such an election must be made within thirty days of the
effective date of issuance and cannot be revoked except with the consent of the
Internal Revenue Service, as required by the treasury regulations under the
Code.
Section 7.4 Withholding. The Company is authorized to withhold any tax
-----------
required to be withheld from the amount considered as taxable compensation to
the Participant. In the event that funds are not otherwise available to cover
any required withholding tax, the Participant shall be required to provide such
funds before shares shall be issued to him.
ARTICLE VIII
Termination of Employment or Service
------------------------------------
In the event a Participant who is an Employee shall cease to be employed by
the Company or a Subsidiary, or a Participant who is a Director or Advisor shall
cease to serve as a Director or Advisor, for any reason other than death,
Retirement, Disability or for Cause, (i) the Committee shall have the ability to
accelerate the vesting of the Participant's Stock Option and the lapse of any
transfer restrictions imposed on Restricted Shares or Elected Shares in its sole
discretion, and (ii) such Participant's Stock Option shall be exercisable (to
the extent exercisable on the date of termination of employment or service as a
Director or Advisor, or, if the Committee, in its discretion, has accelerated
the vesting of such Stock Option, to the extent exercisable following such
acceleration) (a) if such Stock Option is an Incentive Stock Option, at any time
within three months after the date of termination of employment, unless by its
terms the Stock Option expires earlier; or (b) if such Stock Option is a
Nonqualified Stock Option, at any time within one year after the date of
termination of employment or service as a Director or Advisor, unless by its
terms the Stock Option expires earlier or unless the Committee agrees, in its
sole discretion, to further extend the term of such Nonqualified Stock Option.
In addition, a Participant's Stock Option may be exercised and any transfer
restrictions imposed on a Participant's Restricted Shares and Elected Shares
shall lapse as follows in the event such Participant ceases to serve as an
Employee, Director or Advisor due to death, Disability, Retirement or for Cause:
(a) Death. Except as otherwise limited by the Committee at the time of
-----
the grant of a Stock Option or the issuance of Elected Shares or Restricted
Shares, if a Participant dies while employed by the Company or a Subsidiary, or
while serving as a Director or Advisor, or within three months after ceasing to
be an Employee, Director or Advisor, his Stock Option shall become fully vested
and exercisable on the date of his death and shall expire three years
thereafter, unless by its terms it expires sooner or the Committee agrees, in
its sole discretion, to further extend the term of such Stock Option (other than
an Incentive Stock Option), and any transfer restrictions imposed on a
Participant's Restricted Shares or Elected Shares shall lapse. During such
period, the Stock Option may be fully exercised, to the extent that it remains
unexercised on the date of death, by the Participant's personal representative
or by the distributees to whom the Participant's rights under the Stock Option
shall pass by will or by the laws of descent and distribution.
(b) Retirement. If a Participant ceases to be employed by the Company
----------
or a Subsidiary, or ceases to serve as a Director or Advisor, as a result of
Retirement, (i) the Committee shall have the ability to accelerate the vesting
of the Participant's Stock Option and the lapse of any transfer restrictions
imposed on Restricted Shares or Elected Shares in its sole discretion, and (ii)
the Participant's Stock Option shall be exercisable (to the extent exercisable
on the effective date of such retirement or, if the vesting of such Stock Option
has been accelerated, to the extent exercisable following such acceleration) (a)
if such Stock Option is an Incentive Stock Option, at any time three months
after the effective date of such Retirement, unless by its terms the Stock
Option expires earlier, and (b) if such Stock Option is a Nonqualified Stock
Option at any time within one year after the effective date of such Retirement,
unless by its terms the Stock Option expires sooner or the Committee agrees, in
its sole discretion, to further extend the term of such Nonqualified Stock
Option.
(c) Disability. If a Participant ceases to be employed by the Company
----------
or a Subsidiary, or ceases to serve as a Director or Advisor, as a result of
Disability, the Participant's Stock Option shall become fully vested and
exercisable and shall expire 12 months thereafter, unless by its terms it
expires sooner or, unless the Committee agrees, in its sole discretion, to
extend the term of such Stock Option (other than an Incentive Stock Option), and
any transfer restrictions imposed on a Participant's Restricted Shares or
Elected Shares shall lapse.
(d) Cause. If a Participant ceases to be employed by the Company or a
-----
Subsidiary, or ceases to serve as a Director or Advisor, because the Participant
is terminated for Cause, the Participant's Stock Option shall automatically
expire, and any Restricted Shares and Elected Shares as to which the transfer
restrictions imposed thereon have not lapsed shall be returned and forfeited to
the Company, unless the Committee otherwise agrees in its sole discretion.
Notwithstanding anything in the foregoing to the contrary, with respect to any
Nonqualified Stock Option granted to a Non-Employee Director pursuant to Section
5.7, if a Participant ceases to serve as a Director for any reason (other than
removal for Cause), such Nonqualified Stock Option shall remain exercisable for
a period of five years thereafter, unless by its terms the Nonqualified Stock
Option expires sooner or the Committee agrees, in its sole discretion, to
further extend the term of such Nonqualified Stock Option.
ARTICLE IX
Amendment or Discontinuance
---------------------------
The Plan may be amended or discontinued by the Board or the Committee,
without the approval of the shareholders or Participants; provided that no
termination or amendment of the Plan may, without the consent of the Participant
to whom any Stock Option has theretofore been granted or Elected Shares or
Restricted Shares have been issued, adversely affect the rights of such
Participant with respect to such Stock Option, Elected Shares or Restricted
Shares.
ARTICLE X
Term
----
The Plan may be terminated at any time by action of the Board or the
Committee; provided that such termination will not adversely affect the terms of
any outstanding Stock Options, Restricted Shares or Elected Shares.
ARTICLE XI
Capital Adjustments
-------------------
If at any time while the Plan is in effect or unexercised Stock Options are
outstanding there shall be any increase or decrease in the number of issued and
outstanding Ordinary Shares, or there shall be a change in the issued and
outstanding Ordinary Shares, through the declaration of a share dividend or
through any recapitalization, stock split, combination, or exchange of Ordinary
Shares, then and in such event:
(i) Any Elected Shares and Restricted Shares issued or deemed
issued hereunder will be deemed outstanding and affected in the same manner as
the outstanding Ordinary Shares (provided that any securities or other property
distributed or deemed distributed in respect of Restricted Shares or Elected
Shares shall be subject to the transfer restrictions then imposed on the
underlying Restricted Shares or Elected Shares);
(ii) An appropriate adjustment shall be made in the maximum number
of Ordinary Shares then subject to being awarded under grants pursuant to the
Plan, to the end that the same proportion of the Company's issued and
outstanding Ordinary Shares shall continue to be subject to being so awarded;
and
(iii) Appropriate adjustments shall be made in the number of
Ordinary Shares and the exercise price per share thereof then subject to
purchase pursuant to each Stock Option previously granted and unexercised, to
the end that the same proportion of the Company's issued and outstanding
Ordinary Shares in each instance shall remain subject to purchase at the same
aggregate exercise price.
Any fractional shares resulting from any adjustment made pursuant to this
Article XI shall be rounded to the nearer whole share for the purposes of such
adjustment. Except as otherwise expressly provided herein, the issuance by the
Company of shares of any class, or securities convertible into shares of any
class, either in connection with direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
or exercise price of Ordinary Shares then subject to outstanding Stock Options
granted under the Plan.
ARTICLE XII
Recapitalization, Merger and Consolidation
------------------------------------------
(a) The existence of this Plan shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger, share exchange or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference shares ranking prior to or otherwise affecting the Ordinary
Shares or the rights thereof (or any rights, options or warrants to purchase
same), or the dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
(b) Subject to any required action by the shareholders, if the
Company shall be the surviving or resulting corporation in any merger, share
exchange or consolidation, any outstanding Stock Option granted hereunder shall
pertain to and apply to the securities or rights (including cash, property or
assets) to which a holder of the number of Ordinary Shares subject to the Stock
Option would have been entitled.
(c) In the event of any merger, share exchange or consolidation
pursuant to which the Company is not the surviving or resulting corporation,
there shall be substituted for each Ordinary Share subject to the unexercised
portions of such outstanding Stock Option that number of shares of each class of
shares or other securities or that amount of cash, property or assets of the
surviving or consolidated company which were distributed or distributable to the
shareholders of the Company in respect of each Ordinary Share held by them, such
outstanding Stock Options to be thereafter exercisable for such shares,
securities, cash or property in accordance with their terms.
(d) In the event of a Change in Control of the Company, then,
notwithstanding any other provision in the Plan to the contrary, the vesting of
all unvested installments of Stock Options outstanding shall thereupon
automatically be accelerated and all such Stock Options shall become exercisable
in full and any transfer restrictions remaining applicable to Restricted Shares
shall automatically lapse.
(e) In case the Company shall, at any time while any Stock Option
under this Plan shall be in force and remain unexpired, (i) sell all or
substantially all of its property, or (ii) dissolve, liquidate, or wind up its
affairs, then each Participant may thereafter receive upon exercise thereof (in
lieu of each Ordinary Share which such Participant would have been entitled to
receive) the same kind and amount of any securities or assets as may be
issuable, distributable or payable upon any such sale, dissolution, liquidation,
or winding up with respect to each Ordinary Share. In the event that the
Company shall, at any time prior to the expiration of any Stock Option, make any
partial distribution of its assets in the nature of a partial liquidation,
spin-off or other special distribution, then the Committee may make or provide
for such adjustment in the number of Ordinary Shares covered by outstanding
Stock Options, in the exercise price applicable to such Stock Options and/or in
the kind of shares covered thereby that the Committee, in its sole discretion,
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of rights of Participants that otherwise would result therefrom.
ARTICLE XIII
Options in Substitution for Stock Options
-----------------------------------------
Granted by Other Corporations
-----------------------------
Stock Options may be granted under the Plan from time to time in
substitution for stock options held by employees of a corporation who become or
are about to become Employees of the Company or a Subsidiary as the result of a
merger or consolidation of the employing corporation with the Company or a
Subsidiary, the acquisition by either of the foregoing of stock of the employing
corporation as the result of which it becomes a Subsidiary or a sale of
substantially all of the assets of the employing corporation. The terms and
conditions of the substitute options so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Committee at the time of
grant may deem appropriate to conform, in whole or in part, to the provisions of
the options in substitution for which they are granted.
ARTICLE XIV
Miscellaneous Provisions
------------------------
14.1 Transferability of Stock Options.
------------------------------------
(a) Incentive Stock Options. Incentive Stock Options may not be
-------------------------
transferred or assigned other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the Participant only by
the Participant or the Participant's legally authorized representative, and each
Stock Option Agreement in respect of an Incentive Stock Option shall so provide.
The designation by a Participant of a beneficiary will not constitute a transfer
of the Stock Option. The Company may waive or modify any limitation contained
in this Section that is not required for compliance with Section 422 of the
Code.
(b) Nonqualified Stock Options. The Committee may, in its sole
---------------------------
discretion, provide in any Stock Option Agreement with respect to Nonqualified
Stock Options (or in an amendment to any existing Stock Option Agreement) such
provisions regarding transferability of the Nonqualified Stock Options as the
Committee, in its sole discretion, deems appropriate.
14.2 Investment Intent. The Company may require that there be
------------------
presented to and filed with it by any Participant(s) under the Plan, such
evidence as it may deem necessary to establish that the Stock Options granted or
the Ordinary Shares to be issued, purchased or transferred are being acquired
for investment and not with a view to their distribution.
14.3 No Right to Continue Employment. Nothing in the Plan or the grant
-------------------------------
of any Stock Option or the issuance of any Elected Shares or Restricted Shares
confers upon any Director, Officer, Employee or Advisor the right to continue in
the employ or service of the Company or interferes with or restricts in any way
the right of the Company to discharge or remove any Director, Officer, Employee
or Advisor at any time (subject to any contract rights of such person).
14.4 Shareholders' Rights. The holder of a Stock Option shall have
---------------------
none of the rights or privileges of a shareholder except with respect to shares
which have been actually issued.
14.5 Tax Withholding.
----------------
(a) Whenever Ordinary Shares are to be issued in satisfaction of a
Stock Option granted hereunder, the Company shall have the right to require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state, local or other withholding tax requirements (whether so required to
secure for the Company an otherwise available tax deduction or otherwise) prior
to the delivery of any certificate or certificates for such shares.
(b) When a Participant is required to pay to the Company an amount
required to be withheld under applicable tax laws in connection with a Stock
Option, such payment may be made (i) in cash, (ii) by check, (iii) if permitted
by the Committee, by delivery to the Company of Ordinary Shares already owned by
the Participant having a Fair Market Value on the date the amount of tax to be
withheld is to be determined (the "Tax Date") equal to the amount required to be
withheld, (iv) if permitted by the Committee, through the withholding by the
Company of a portion of the Ordinary Shares acquired upon the exercise of the
Stock Options having a Fair Market Value on the Tax Date equal to the amount
required to be withheld, or (v) in any other form of valid consideration, as
permitted by the Committee in its discretion.
(c) As a condition to the issuance of Ordinary Shares covered by
any Incentive Stock Option, the Company may require the party exercising such
Stock Option to give a written representation to the Company, which is
satisfactory in form and substance to its counsel and upon which the Company may
reasonably rely, that he or she will report to the Company any disposition of
such shares prior to the expiration of the holding periods specified by Section
422(a)(1) of the Code. If and to the extent that the realization of income in
such a disposition imposes upon the Company federal, state, local or other
withholding tax requirements, or any such withholding is required to secure for
the Company an otherwise available tax deduction, the Company shall have the
right to require that the recipient remit to the Company an amount sufficient to
satisfy those requirements; and the Company may require as a condition to the
issuance of Ordinary Shares covered by an Incentive Stock Option that the party
exercising such Stock Option give a satisfactory written representation
promising to make such a remittance.
14.6 Indemnification of Board and Committee. No member of the Board or
--------------------------------------
the Committee, nor any officer or Employee of the Company acting on behalf of
the Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
Employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination or interpretation.
14.7 Government Regulations. Notwithstanding any of the provisions
-----------------------
hereof, or of any written agreements evidencing Stock Options, Elected Shares or
Restricted Shares granted or issued hereunder, the obligation of the Company to
issue, sell and deliver shares and remove any restrictions on any Elected Shares
or Restricted Shares shall be subject to all applicable laws, rules and
regulations and to such approvals by any government agencies or national
securities exchanges as may be required. The Participant shall not exercise any
Stock Option, and the Company shall not be obligated to issue any shares or
remove restrictions on any Elected Shares or Restricted Shares, if such
exercise, issuance or removal would constitute a violation by the Participant or
the Company of any provision of any law or regulation of any governmental
authority or any agreement with any stock exchange.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
effective as of the 2nd day of December, 1998.
TRITON ENERGY LIMITED
By: ______________________________
James C. Musselman, President
and Chief Executive Officer
Attest:
______________________________
Robert B. Holland, III,
Secretary
EXHIBIT 12.1
TRITON ENERGY LIMITED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SEVEN
MONTHS YEAR
ENDING ENDING
YEAR ENDING DECEMBER 31, DECEMBER 31, MAY 31,
-------------------------------------------
1998 1997 1996 1995 1994 1994
---------- --------- --------- --------- ---------- ----------
Fixed charges, as defined
Interest charges $ 50,253 $ 50,625 $ 43,884 $ 41,305 $ 20,285 $ 26,951
Preferred dividend requirements of
subsidiaries adjusted to pre-tax basis --- --- --- --- --- 364
---------- --------- --------- --------- ---------- ----------
Total fixed charges $ 50,253 $ 50,625 $ 43,884 $ 41,305 $ 20,285 $ 27,315
========== ========= ========= ========= ========== ==========
Earnings, as defined (2):
Earnings (loss) from continuing operations
before income taxes, minority interest and
extraordinary item $(238,609) $ 16,896 $ 20,945 $ 16,600 $ (22,834) $ (23,104)
Fixed charges, above 50,253 50,625 43,884 41,305 20,285 27,315
Less interest capitalized (23,215) (25,818) (27,102) (16,211) (11,833) (16,863)
Plus undistributed (earnings) loss of affiliates --- --- (118) 2,249 4,102 (645)
Less preferred dividend requirements of
subsidiaries adjusted to pre-tax basis --- --- --- --- --- (364)
---------- --------- --------- --------- ---------- ----------
$(211,571) $ 41,703 $ 37,609 $ 43,943 $ (10,280) $ (13,661)
========== ========= ========= ========= ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES (1) (2) --- 0.8 0.9 1.1 --- ---
========== ========= ========= ========= ========== ==========
____________________
</TABLE>
(1) Earnings were inadequate to cover fixed for the years ended December 31,
1998, 1997 and 1996 by $261,824,000, $8,922,000 and $6,275,000, respectively,
for the seven months ended December 31, 1994 by $30,565,000 and for the year
ended May 31, 1994 by $40,976,000.
(2) Earnings reflect nonrecurring writedowns and loss provisions of
$348,064,000, $46,153,000 and $1,058,000 for the years ended December 31, 1998,
1996 and 1995, respectively, $984,000 for the seven months ended December 31,
1994 and $45,754,000 for the year ended May 31, 1994. Nonrecurring gains from
the sale of assets and other gains aggregated $125,617,000, $6,253,000,
$22,189,000, $13,617,000 and $56,193,000 for the years ended December 31, 1998,
1997, 1996 and 1995 and May 31, 1994, respectively. The ratio of earnings to
fixed charges if adjusted to remove nonrecurring items, would have been 0.2,
0.7, 1.4 and 0.8 for the years ended December 31, 1998, 1997, 1996 and 1995,
respectively. Without nonrecurring items, earnings would have been inadequate
to cover fixed charges for the years ended December 31, 1998, 1997 and 1995 by
$39,377,000, $15,175,000 and $9,921,000, respectively, for the seven months
ended December 31, 1994 by $29,581,000 and for the year ended May 31, 1994 by
$51,415,000.
EXHIBIT 12.2
TRITON ENERGY LIMITED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE
DIVIDENDS
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SEVEN
MONTHS YEAR
ENDING ENDING
YEAR ENDING DECEMBER 31, DECEMBER 31, MAY 31,
-------------------------------------------
1998 1997 1996 1995 1994 1994
---------- --------- --------- --------- ---------- ----------
Fixed charges, as defined:
Interest charges $ 50,253 $ 50,625 $ 43,884 $ 41,305 $ 20,285 $ 26,951
Preference dividend requirements of
the Company 3,061 400 985 802 449 ---
Preferred dividend requirements of
subsidiaries adjusted to pre-tax basis --- --- --- --- --- 364
---------- --------- --------- --------- ---------- ----------
Total fixed charges $ 53,314 $ 51,025 $ 44,869 $ 42,107 $ 20,734 $ 27,315
========== ========= ========= ========= ========== ==========
Earnings, as defined (2):
Earnings (loss) from continuing operations
before income taxes, minority interest and
extraordinary item $(238,609) $ 16,896 $ 20,945 $ 16,600 $ (22,834) $ (23,104)
Fixed charges, above 53,314 51,025 44,869 42,107 20,734 27,315
Less interest capitalized (23,215) (25,818) (27,102) (16,211) (11,833) (16,863)
Plus undistributed (earnings) loss of affiliates --- --- (118) 2,249 4,102 (645)
Less preference dividend requirements of
the Company and its subsidiaries adjusted
to pre-tax basis (3,061) (400) (985) (802) (449) (364)
---------- --------- --------- --------- ---------- ----------
$(211,571) $ 41,703 $ 37,609 $ 43,943 $ (10,280) $ (13,661)
========== ========= ========= ========= ========== ==========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERENCE DIVIDENDS (1) (2) --- 0.8 0.8 1.0 --- ---
========== ========= ========= ========= ========== ==========
____________________
</TABLE>
(1) Earnings were inadequate to cover combined fixed charges and preference
dividends for the years ended December 31, 1998, 1997 and 1996 by $264,885,000,
$9,322,000 and $7,260,000, respectively, for the seven months ended December 31,
1994 by $31,014,000 and for the year ended May 31, 1994 by $40,976,000.
(2) Earnings reflect nonrecurring writedowns and loss provisions of
$348,064,000, $46,153,000 and $1,058,000 for the years ended December 31, 1998,
1996 and 1995, respectively, $984,000 for the seven months ended December 31,
1994 and $45,754,000 for the year ended May 31, 1994. Nonrecurring gains from
the sale of assets and other gains aggregated $125,617,000, $6,253,000,
$22,189,000, $13,617,000 and $56,193,000 for the years ended December 31, 1998,
1997, 1996 and 1995 and May 31, 1994, respectively. The ratio of earnings to
combined fixed charges and preference dividends if adjusted to remove
nonrecurring items, would have been 0.2, 0.7, 1.4 and 0.7 for the years ended
December 31, 1998, 1997, 1996 and 1995, respectively. Without nonrecurring
items, earnings would have been inadequate to cover combined fixed charges and
preference dividends for the years ended December 31, 1998, 1997 and 1995 by
$42,438,000, $15,575,000 and $10,723,000, respectively, for the seven months
ended December 31, 1994 by $30,030,000 and for the year ended May 31, 1994 by
$51,415,000.
EXHIBIT 21.1
TRITON ENERGY LIMITED
Subsidiaries Schedule
<TABLE>
<CAPTION>
<S> <C>
NAME. . . . . . . . . . . . . . . . . . . . . JURISDICTION
OF ORGANIZATION
Triton Algeria, Inc.. . . . . . . . . . . . . Cayman Islands
Triton Angola, Inc. . . . . . . . . . . . . . Cayman Islands
Triton Asia Holdings, Inc.. . . . . . . . . . Cayman Islands
Triton Australia, Inc.. . . . . . . . . . . . Cayman Islands
Triton Brazil, Inc. . . . . . . . . . . . . . Cayman Islands
Triton Cambodia, Inc. . . . . . . . . . . . . Cayman Islands
Triton China, Inc. LLC. . . . . . . . . . . . Cayman Islands
Triton China Resources, Inc.. . . . . . . . . Cayman Islands
Triton Colombia, Inc. . . . . . . . . . . . . Cayman Islands
Triton Domestic Oil & Gas Corp. . . . . . . . Nevada
Triton Ecuador, Inc. LLC. . . . . . . . . . . Cayman Islands
Triton Energy Corporation . . . . . . . . . . Delaware
Triton Energy Limited . . . . . . . . . . . . Cayman Islands
Triton Equatorial Guinea, Inc.. . . . . . . . Cayman Islands
Triton Exploration (Malaysia) Sdn. Bhd. . . . Malaysia
Triton Exploration Services, Inc. . . . . . . Delaware
Triton Guatemala S.A. . . . . . . . . . . . . British Virgin Islands
Triton Hellas Exploration and Exploitation of
Hydrocarbons Anonymous Industrial Technical
and Commercial Company. . . . . . . . . . . . Greece
Triton International Finance, Inc.. . . . . . Cayman Islands
Triton International Oil Corporation. . . . . Cayman Islands
Triton International Oil Corporation. . . . . Delaware
Triton International Petroleum, Inc.. . . . . Cayman Islands
Triton Italy, Inc.. . . . . . . . . . . . . . Cayman Islands
Triton Madagascar, Inc. . . . . . . . . . . . Cayman Islands
Triton Mediterranean Oil & Gas N.V. . . . . . Netherlands
Triton Oil Company of Malaysia, Inc.. . . . . Cayman Islands
Triton Oil Company of Thailand Ltd. Co. . . . Texas
Triton Oil Company of Thailand (JDA) Limited. Cayman Islands
Triton Oman, Inc. . . . . . . . . . . . . . . Cayman Islands
Triton Oman Resources, Inc. . . . . . . . . . Cayman Islands
Triton Resources Argentina, Inc.. . . . . . . Cayman Islands
Triton Resources Colombia, Inc. . . . . . . . Cayman Islands
Triton Resources (UK) Limited . . . . . . . . United Kingdom
Triton Tunisia, Inc.. . . . . . . . . . . . . Cayman Islands
Triton Ventures, Inc. . . . . . . . . . . . . Cayman Islands
WWS Viators Corporation . . . . . . . . . . . Delaware
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-59567,
333-11703, 333-11703-01, and 333-67843) and to the incorporation by reference in
the Registration Statements on Form S-8 (Nos. 2-80978, 33-4042, 33-27203,
33-29498, 33-46968, 33-51691, 333-08005 and 333-27313) of Triton Energy Limited
of our report dated February 2, 1999 appearing on page F-2 of this Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
March 26, 1999
EXHIIT 23.2
DeGOLYER and MacNAUGHTON
One Energy Square
Dallas, Texas 75206
March 22, 1999
Triton Energy Limited
Caledonian House
Mary Street
P.O. Box 1043
George Town
Grand Cayman, Cayman Islands
Gentlemen:
We hereby consent to (i) the use of the information contained in our
"Appraisal Report, as of December 31, 1998, on Certain Properties in Colombia
owned by Triton Colombia Incorporated," under the caption "Items 1 and 2 -
Business and Properties - Reserves" and in note 25 of the Notes to the
Consolidated Financial Statements under the caption "Oil and Gas Reserve Data"
in the Form 10-K of Triton Energy Limited for the year ended December 31, 1998,
and (ii) the references to our firm under such captions. Our estimates of
reserves, however, for the Cusiana and Cupiagua fields have been aggregated in
the Form 10-K with other Colombian reserves for which we have not prepared
estimates.
Very truly yours,
DeGOLYER and MacNAUGHTON
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12/31/98
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,122
<SECURITIES> 0
<RECEIVABLES> 9,554
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,746
<PP&E> 1,008,108
<DEPRECIATION> 451,986
<TOTAL-ASSETS> 756,133
<CURRENT-LIABILITIES> 100,173
<BONDS> 413,465
0
134,789
<COMMON> 366
<OTHER-SE> 88,652
<TOTAL-LIABILITY-AND-EQUITY> 756,133
<SALES> 160,881
<TOTAL-REVENUES> 228,618
<CGS> 73,546
<TOTAL-COSTS> 73,546
<OTHER-EXPENSES> 387,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,228
<INCOME-PRETAX> (238,609)
<INCOME-TAX> (51,105)
<INCOME-CONTINUING> (187,504)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,504)
<EPS-PRIMARY> (5.21)
<EPS-DILUTED> (5.21)
</TABLE>
