SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q/A
(Amendment No.1)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER: 1-11675
TRITON ENERGY LIMITED
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS NONE
---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
Organization)
CALEDONIAN HOUSE, MARY STREET, P.O. BOX 1043, GEORGE TOWN, GRAND CAYMAN, CAYMAN
ISLANDS
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (345) 949-0050
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of Shares
Title of Each Class Outstanding at July 30, 1999
Ordinary Shares, par value $0.01 per share 35,750,410
----------------------------
TRITON ENERGY LIMITED AND SUBSIDIARIES
Triton Energy Limited (the "Company") hereby amends Item 1 of its Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1999. The Company
is amending this report to reflect a revision in the method pursuant to
which the Company accounts for accumulated dividends on preference shares
for purposes of determining earnings applicable to ordinary shares and
earnings per share. The Company has included the dividends accumulated
during each quarter in respect of its preference shares, whether or not
declared for purposes of arriving at earnings applicable to ordinary
shares, rather than including accumulated dividends only in the quarter
when a dividend is declared, and is amending this report to reflect that
change. This change in accounting methodology does not affect any balance
sheet item or net earnings.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- ---------- --------- ----------
Oil and gas sales $59,622 $ 36,378 $108,792 $ 72,553
Costs and expenses:
Operating 19,186 21,081 38,162 36,768
General and administrative 4,843 6,495 9,778 14,184
Depreciation, depletion and amortization 15,285 12,804 30,656 24,883
Writedown of assets --- 182,672 --- 182,672
Special charges --- --- 1,220 ---
-------- ---------- --------- ----------
39,314 223,052 79,816 258,507
-------- ---------- --------- ----------
Operating income (loss) 20,308 (186,674) 28,976 (185,954)
Gain on sale of Triton Pipeline Colombia --- --- --- 50,227
Interest income 2,660 757 5,238 1,492
Interest expense, net (5,954) (5,154) (11,937) (10,320)
Other income (loss), net (716) 1,536 207 3,028
-------- ---------- --------- ----------
(4,010) (2,861) (6,492) 44,427
-------- ---------- --------- ----------
Earnings (loss) before income taxes 16,298 (189,535) 22,484 (141,527)
Income tax expense (benefit) 5,415 (39,473) 9,714 (34,377)
-------- ---------- --------- ----------
Net earnings (loss) 10,883 (150,062) 12,770 (107,150)
Accumulated dividends on preference shares 6,972 90 13,945 184
-------- ---------- --------- ----------
Earnings (loss) applicable to
ordinary shares $ 3,911 $ (150,152) $ (1,175) $(107,334)
======== ========== ========= ==========
Average ordinary shares outstanding 36,350 36,595 36,505 36,581
======== ========== ========= ==========
Basic and diluted earnings (loss)
per ordinary share $ 0.11 $ (4.10) $ (0.03) $ (2.93)
======== ========== ========= ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS JUNE 30, DECEMBER 31,
1999 1998
------------ ----------
(UNAUDITED)
Current assets:
Cash and equivalents $ 213,013 $ 19,122
Trade receivables, net 17,663 9,554
Other receivables 20,921 48,415
Inventories, prepaid expenses and other 3,671 1,655
------------ ----------
Total current assets 255,268 78,746
Property and equipment, at cost, less accumulated depreciation
and depletion of $478,950 for 1999 and $451,986 for 1998 571,002 556,122
Deferred taxes and other assets 111,408 121,265
------------ ----------
$ 937,678 $ 756,133
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 9,027 $ 19,027
Accounts payable and accrued liabilities 37,697 45,892
Deferred income 26,441 35,254
------------ ----------
Total current liabilities 73,165 100,173
Long-term debt, excluding current maturities 408,962 413,465
Deferred income taxes 5,655 4,169
Other 5,284 14,519
Shareholders' equity:
5% Preference shares, stated value $34.41 7,214 7,214
8% Preference shares, stated value $70.00 363,753 127,575
Ordinary shares, par value $0.01 359 366
Additional paid-in capital 547,727 575,863
Accumulated deficit (472,315) (485,085)
Accumulated other non-owner changes in shareholders' equity (2,126) (2,126)
------------ ----------
Total shareholders' equity 444,612 223,807
Commitments and contingencies (note 9) --- ---
------------ ----------
$ 937,678 $ 756,133
============ ==========
</TABLE>
The Company uses the full cost method to account for its oil and gas producing
activities.
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------- ----------
Cash flows from operating activities:
Net earnings (loss) $ 12,770 $(107,150)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization 30,656 24,883
Additional proceeds from forward oil sale 30,000 ---
Amortization of deferred income (17,627) (17,627)
Gain on sale of Triton Pipeline Colombia --- (50,227)
Writedown of assets --- 182,672
Deferred income taxes 7,158 (35,727)
Other 609 (1,585)
Changes in working capital pertaining to operating activities (13,529) 10,069
--------- ----------
Net cash provided by operating activities 50,037 5,308
--------- ----------
Cash flows from investing activities:
Capital expenditures and investments (50,326) (97,849)
Proceeds from sale of Triton Pipeline Colombia --- 97,656
Proceeds from sale of assets 1,465 12,953
Other 2,026 (899)
--------- ----------
Net cash provided (used) by investing activities (46,835) 11,861
--------- ----------
Cash flows from financing activities:
Proceeds from revolving lines of credit and long-term debt --- 114,005
Payments on revolving lines of credit and long-term debt (14,514) (135,588)
Short-term notes payable, net --- 10,000
Issuances of 8% preference shares, net 217,805 ---
Issuances of ordinary shares 97 1,939
Repurchase of ordinary shares (9,685) ---
Dividends paid on preference shares (2,875) (187)
--------- ----------
Net cash provided (used) by financing activities 190,828 (9,831)
--------- ----------
Effect of exchange rate changes on cash and equivalents (139) (265)
--------- ----------
Net increase in cash and equivalents 193,891 7,073
Cash and equivalents at beginning of period 19,122 13,451
--------- ----------
Cash and equivalents at end of period $213,013 $ 20,524
========= ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
OWNER SOURCES OF SHAREHOLDERS' EQUITY:
5% PREFERENCE SHARES:
Balance at December 31, 1998 $ 7,214
Conversion of 5% preference shares ---
----------
Balance at June 30, 1999 7,214
----------
8% PREFERENCE SHARES:
Balance at December 31, 1998 127,575
Issuance of 3,177,500 shares at $70 per share 222,425
Stock dividend, 196,624 shares at $70 per share 13,763
Conversion of 8% preference shares (10)
----------
Balance at June 30, 1999 363,753
----------
ORDINARY SHARES:
Balance at December 31, 1998 366
Repurchase of shares (8)
Issuances under stock plans 1
----------
Balance at June 30, 1999 359
----------
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1998 575,863
Stock dividend, 8% preference shares (13,765)
Repurchase of ordinary shares (9,677)
Transaction costs for issuance of 8% preference shares (4,620)
Cash dividends, 5% preference shares (180)
Other 106
----------
Balance at June 30, 1999 547,727
----------
TOTAL OWNER SOURCES OF SHAREHOLDERS' EQUITY 919,053
----------
NON-OWNER SOURCES OF SHAREHOLDERS' EQUITY:
ACCUMULATED DEFICIT:
Balance at December 31, 1998 (485,085)
Net earnings 12,770
----------
Balance at June 30, 1999 (472,315)
----------
ACCUMULATED OTHER NON-OWNER CHANGES IN SHAREHOLDERS' EQUITY:
Balance at December 31, 1998 (2,126)
Other non-owner changes in shareholders' equity ---
----------
Balance at June 30, 1999 (2,126)
----------
TOTAL NON-OWNER SOURCES OF SHAREHOLDERS' EQUITY (474,441)
----------
TOTAL SHAREHOLDERS' EQUITY AT JUNE 30, 1999 $ 444,612
==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
TRITON ENERGY LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. 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 currently are derived from oil and gas
production in Colombia.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements of the Company contain all adjustments of a normal
recurring nature necessary to present fairly the Company's financial position as
of June 30, 1999, and the results of its operations for the three and six months
ended June 30, 1999 and 1998, its cash flows for the six months ended June 30,
1999 and 1998, and shareholders' equity for the six months ended June 30, 1999.
The results for the three and six months ended June 30, 1999, are not
necessarily indicative of the final results to be expected for the full year.
The condensed consolidated financial statements should be read in conjunction
with the Notes to Consolidated Financial Statements, which are included as part
of the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
Certain other previously reported financial information has been reclassified to
conform to the current period's presentation.
2. 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 $217.8 million,
net of closing costs (of which, HM4 Triton purchased 3,114,863 shares).
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 of each year. 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. The first dividend
period was the period from January 4, 1999, to June 30, 1999. The Company's
Board of Directors elected to pay the dividend for that period in additional
shares resulting in the issuance of approximately 196,600 8% Preference Shares.
The declaration of a dividend in cash or additional shares for any period should
not be considered an indication as to whether the Board will declare dividends
in cash or additional shares in future periods. 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.
3. FORWARD OIL SALE
In April 1999, the Company received substantially all of the remaining proceeds,
approximately $30 million, from the forward oil sale consumated in May 1995.
The delivery requirement under the forward oil sale will be completed March 31,
2000. The remaining deferred income is reported in current liabilities and will
be amortized as barrels are delivered through March 31, 2000.
4. SHARE REPURCHASE
In April 1999, the Company's Board of Directors authorized a share repurchase
program enabling the Company to repurchase up to ten percent of the Company's
36.7 million outstanding ordinary shares. Purchases of ordinary shares by the
Company began in April and may be made from time to time in the open market or
through privately negotiated transactions at prevailing market prices depending
on market conditions. The Company has no obligation to repurchase any of its
outstanding shares and may discontinue the share repurchase program at
management's discretion. As of June 30, 1999, the Company had purchased 799,300
ordinary shares for $9.7 million. The Company cancelled and returned the
repurchased ordinary shares to the status of authorized but unissued shares.
5. 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 during the third and fourth
quarters of 1998. 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. 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. At June 30, 1999, all of the positions had been
eliminated, all designated foreign offices had closed and twelve licenses had
been relinquished, sold or their commitments renegotiated. The Company expects
to dispose of two other licenses during 1999. Since July 1998, the Company has
paid $11.2 million in severance, benefit continuation and outplacement costs.
As of June 30, 1999, no changes had been made to the Company's estimate of the
total restructuring expenditures to be incurred. At June 30, 1999, the
remaining liability related to the restructuring activities undertaken in 1998
was $3.1 million.
In March 1999, the Company accrued special charges of $1.2 million related to an
additional 15% reduction in the number of employees resulting from the
Company's continuing efforts to reduce costs. The special charges consisted of
$1 million for severance, benefit continuation and outplacement costs and $.2
million related to the write-off of surplus fixed assets. Since March 1999, the
Company has paid $.2 million in severance, benefit continuation and outplacement
costs. At June 30, 1999, the remaining liability related to the restructuring
activities undertaken in 1999 was $.7 million.
6. WRITEDOWN OF ASSETS
Writedown of assets is summarized as follows:
<TABLE>
<CAPTION>
THREE AND SIX
MONTHS ENDED
JUNE 30, 1998
--------------
<S> <C>
Evaluated oil and gas properties (SEC ceiling test) $ 105,354
Unevaluated oil and gas properties 73,890
Other assets 3,428
--------------
$ 182,672
==============
</TABLE>
In June 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) 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, 1998, West Texas Intermediate ("WTI") oil price of
$14.18 per barrel 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.
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.
7. ASSET DISPOSITIONS
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.
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 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 six months
ended June 30, 1999 and 1998, the Company recorded an expense of $.8 million, in
other income, net, related to the net payments made (or received) 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. 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 when the
Purchaser offers to sell them.
8. EARNINGS PER ORDINARY SHARE
The Company has revised its method pursuant to which it accounts for
accumulated dividends on preference shares for purposes of determining earnings
applicable to ordinary shares and earnings per share. The Company has included
the dividends accumulated during each quarter in respect of its preference
shares, whether or not declared for purposes of arriving at earnings applicable
to ordinary shares, rather than including accumulated dividends only in the
quarter when a dividend is declared. This revision does not affect any balance
sheet item or net earnings. For the three months ended June 30, 1999, the
earnings (loss) per ordinary share amounts previously reported were $(0.08) on a
basic and diluted basis. There were no changes to earnings per ordinary share
for other periods presented.
For the six months ended June 30, 1999 and the three and six months ended
June 30, 1998, the computation of diluted net loss per ordinary share was
antidilutive, and therefore, the amounts for basic and diluted net loss
per ordinary share where the same.
The following table reconciles the numberators and denominators of the basic
and diluted earnings per ordinary share computation for earnings from
continuing operations for the three months ended June 30, 1999
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
THREE MONTHS ENDED JUNE 30, 1999:
<S> <C> <C> <C>
Net earnings $ 10,883
Less: Accumulated dividends on
preference shares (6,972)
-----------
Earnings available to ordinary shareholders 3,911
Basic earnings per ordinary share 36,350 $ 0.11
=========
Effect of dilutive securities:
Stock options --- 55
----------- -------------
Earnings available to ordinary shareholders
and assumed conversions $ 3,911
===========
Diluted earnings per ordinary share 36,405 $ 0.11
============= =========
</TABLE>
At June 30, 1999, approximately 5,196,500 shares of 8% Preference Shares
and approximately 209,600 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.
9. COMMITMENTS AND CONTINGENCIES
In January 1999, the Company approved a capital spending program for the year
ending December 31, 1999, of approximately $117 million, excluding capitalized
interest, of which approximately $83 million related to the Cusiana and Cupiagua
fields (the "Fields"), and $34 million related 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.
See Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Requirements.
GUARANTEES
At June 30, 1999, 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 $19.5 million in future exploration
expenditures in various countries. These commitments are backed primarily by
unsecured letters of credit.
<PAGE>
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 an unspecified amount 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 its disclosures have
been accurate 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 also subject to litigation that is incidental to its business.
10. 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; 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 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 acquisition
and exploration efforts in a country where no proved reserves are assigned, all
exploration costs associated with the country are expensed. The Company's
assessments of whether its investment within a country is impaired and whether
acquisition and 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 of Notes to Consolidated
Financial Statements in Triton's Annual Report on Form 10-K for the year ended
December 31, 1998.
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, explosions, uncontrollable flows of
oil, gas or well fluids, pollution, earthquakes, formations with abnormal
pressures, 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. In addition, the
Company could be held liable for environmental damages caused by previous owners
of its properties or its predecessors. 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
the risk of expropriation, nationalization, war, revolution, border disputes,
renegotiation or modification of existing contracts, import, export and
transportation regulations and tariffs; taxation policies, including royalty and
tax increases and retroactive tax claims; exchange controls, currency
fluctuations and other uncertainties arising out of foreign government
sovereignty over the Company's international operations; laws and policies of
the Untied States affecting foreign trade, taxation and investment; and the
possibility of having to be subject to the exclusive jurisdiction of foreign
courts in connection with legal disputes and the possible inability to subject
foreign persons to the jurisdiction of courts in the United States. 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 few years, 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. In March 1999, the President of the United States 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 (280 miles) northeast of Kuala
Lumpur and 750 kilometers (470 miles) south of Bangkok as a contractor under a
production-sharing contract covering Block A-18 of the Malaysia-Thailand Joint
Development Area. Development of gas production is in the planning stages, 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, at which time the Company and ARCO would each pay 50% of such
costs.
INFLUENCE OF HICKS MUSE
In connection with the issuance of 8% Preference Shares to HM4 Triton, 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.
POSSIBLE FUTURE ACQUISITIONS
The Company's strategy includes the possible acquisition of additional reserves,
including through possible future business combination transactions. There can
be no assurance as to the terms upon which any such acquisitions would be
consummated or as to the affect any such transactions would have on the
Company's financial condition or results of operations. Such acquisitions, if
any, could involve the issuance of the Company's equity securities, which could
have a dilutive effect on the current shareholders. Furthermore, any such
acquisitions could require substantial financial expenditures that would need to
be financed through cash on hand, cash flow from operations or the issuance of
debt or equity securities. The Company may not be able to acquire companies or
oil and gas properties using its equity as currency. In the case of cash
acquisitions, the Company may not be able to generate sufficient cash flow from
operations or obtain debt or equity financing sufficient to fund future
acquisitions of reserves.
To facilitate a possible future securities issuance or issuances, the Company
has filed with the Securities and Exchange Commission a shelf registration
statement under which the Company could issue up to an aggregate of $250 million
debt or equity securities when the registration statement becomes effective.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRITON ENERGY LIMITED
By:/s/W. Greg Dunlevy
---------------------------
W. Greg Dunlevy
Vice President, Finance
Date: August 1, 2000
