<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NUMBER 333-4122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
RUTHERFORD-MORAN OIL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 1311 76-0499690
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
5 GREENWAY PLAZA, SUITE 220
HOUSTON, TEXAS 77046
(713) 622-5555
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MICHAEL D. MCCOY
RUTHERFORD-MORAN OIL CORPORATION
5 GREENWAY PLAZA, SUITE 220
HOUSTON, TEXAS 77046
(713) 622-5555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Christopher E. H. Dack, Esq. Christine B. LaFollette, Esq.
FULBRIGHT & JAWORSKI L.L.P. ANDREWS & KURTH L.L.P.
1301 McKinney, Suite 5100 4200 Texas Commerce Tower
Houston, Texas 77010-3095 Houston, Texas 77002
(713) 651-5151 (713) 220-4200
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used in
connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical in all respects except
that they contain different front cover pages.
The form of U.S. Prospectus is included herein and is followed by the front
cover page to be used on the International Prospectus which differs from that in
the U.S. Prospectus. The front cover page for the International Prospectus
included herein is labeled "Alternate Front Cover Page for International
Prospectus."
<PAGE>
RUTHERFORD--MORAN OIL CORPORATION
------------------------
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-1 ITEM AND CAPTION LOCATION OR PROSPECTUS CAPTION
- ---------------------------------------------------------------------- -----------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front Outside Front Cover Page
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover Pages of Prospectus;
Risk Factors
3. Summary Information, Risk Factors, and Ratio of Earnings to Prospectus Summary; Risk Factors
Fixed Charges
4. Use of Proceeds Use of Proceeds; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Certain
Related Party Transactions
5. Determination of Offering Price Outside Front Cover Page of Prospectus; Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered Capitalization; Description of Capital Stock
10. Interests of Named Experts and Counsel Not applicable
11. Information with Respect to the Registrant Outside Front Cover Page; Prospectus Summary; Risk Factors;
The Company; Use of Proceeds; Capitalization; Selected
Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Business
and Properties; Management; Certain Related Party
Transactions; Security Ownership of Management;
Description of Capital Stock; Shares Eligible for Future
Sale; Combined Financial Statements
12. Disclosure of Commission Position on Indemnification for Not Applicable
Securities Act Liabilities
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS Subject to Completion
Dated June 19, 1996
4,000,000 SHARES
[LOGO]
RUTHERFORD-MORAN OIL CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
All of the Common Stock offered hereby is being offered by Rutherford-Moran Oil
Corporation ("RMOC" or the "Company"). Of the 4,000,000 shares of Common Stock
offered, 3,200,000 shares are being offered initially in the United States and
Canada by the U.S. Underwriters (the "U.S. Underwriters") and 800,000 shares are
being offered initially outside the United States and Canada in a concurrent
offering by the International Managers (the "International Managers" and,
together with the U.S. Underwriters, the "Underwriters"). See "Underwriting."
The Offerings are contingent upon consummation of certain share exchanges and
transactions. See "The Transactions." Following the Offerings, Patrick R.
Rutherford and John A. Moran (collectively the "Principal Stockholders") will
own directly or indirectly approximately 76.0% of the outstanding shares of
Common Stock (or 74.3% if the U.S. Underwriters' over-allotment option is
exercised in full).
Prior to the Offerings, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price will be between
$20 and $22 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market,
under the symbol "RMOC."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------------------------------------------
Total (3) $ $ $
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1)The Company and the Principal Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2)Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3)The Company has granted the U.S. Underwriters an option to purchase up to an
additional 600,000 shares of Common Stock, on the same terms as set forth above,
solely to cover over-allotments, if any. If such option is exercised in full,
the total Price to Public, Underwriting Discount, and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock being offered by this Prospectus are being offered by
the U.S. Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the U.S. Underwriters, and subject to approval of certain legal
matters by Andrews & Kurth L.L.P., counsel for the Underwriters. It is expected
that delivery of the shares of Common Stock will be made against payment
therefor on or about , 1996 at the offices of J.P. Morgan Securities
Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
, 1996
<PAGE>
DESCRIPTION OF THE MAP ON THE INSIDE FRONT PAGE UNDER THE TITLE OF:
"RUTHERFORD-MORAN B8/32 CONCESSION GULF OF THAILAND 1.3 MILLION ACRES"
The map depicts the Gulf of Thailand showing the relative locations of Bangkok,
Khanom, the Block B8/32 Concession, the Satun, Erawan, Pailin and Bongkot
fields, and the 34", 36" and 33" pipelines. An enlargment of the Block B8/32
Concession area shows the relative locations of the North Benchamas, Benchamas,
Pakakrong, Maliwan, Pattalung, Tantawan and Yungthong fields, the 34" and 36"
pipelines running north-south through and along the western portion of Block
B8/32, the FPSO and the 33-mile spur pipeline running east-west across the
central portion of the Block connecting the 36" pipeline to the FPSO. Also
indicated on the map are shaded areas depicting the areas for proposed 3-D
seismic, unexplored blocks, exploration, development and prospects.
2
<PAGE>
No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
No action has been or will be taken in any jurisdiction by the Company or by any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
In this Prospectus, references to "dollar" and "$" are to United States dollars,
and the terms "United States" and "U.S." mean the United States of America, its
states, its territories, its possessions and all areas subject to its
jurisdiction.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................................... 4
Risk Factors.......................................... 9
The Company........................................... 15
The Transactions...................................... 15
Use of Proceeds....................................... 17
Dividend Policy....................................... 17
Capitalization........................................ 18
Dilution.............................................. 19
Selected Historical and Unaudited Pro Forma
Financial Data..................................... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 21
Business and Properties............................... 25
Management............................................ 39
<CAPTION>
PAGE
<S> <C>
Certain Related Party Transactions.................... 43
Certain Relationships................................. 44
Security Ownership of Management...................... 45
Description of Capital Stock.......................... 46
Shares Eligible for Future Sale....................... 48
Certain United States Federal Tax Considerations for
Non-U.S. Holders of Common Stock................... 49
Underwriting.......................................... 52
Legal Matters......................................... 54
Experts............................................... 54
Available Information................................. 54
Certain Definitions................................... 55
Index to Financial Statements......................... F-1
Summary Reserve Report................................ A-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Prior to the Offerings, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company intends to furnish stockholders with annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. CERTAIN OIL AND GAS RELATED TERMS ARE DEFINED UNDER "CERTAIN
DEFINITIONS." UNLESS OTHERWISE NOTED HEREIN, THE INFORMATION CONTAINED IN THIS
PROSPECTUS ASSUMES THE U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED. AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK, AND INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER THE HEADING "RISK FACTORS." UNLESS THE CONTEXT INDICATES OTHERWISE,
REFERENCES IN THIS PROSPECTUS TO "RMOC" OR THE "COMPANY" ARE TO RUTHERFORD-MORAN
OIL CORPORATION, A DELAWARE CORPORATION, AND ITS SUBSIDIARIES, AFTER GIVING
EFFECT TO THE TRANSACTIONS DESCRIBED UNDER "THE TRANSACTIONS."
THE COMPANY
Rutherford-Moran Oil Corporation, a Delaware corporation ("RMOC" or the
"Company"), is an independent energy company engaged in the acquisition,
exploration, development and production of oil and gas properties in Southeast
Asia. Currently the Company's exploration and development activities are
entirely in the Gulf of Thailand and are conducted through its subsidiary, Thai
Romo Limited, a limited liability company existing under the laws of Thailand
("Thai Romo").
The Company is one of four concessionaires in Block B8/32 (sometimes referred to
as the "Block" or the "Concession") currently covering approximately 1.3 million
acres in the central portion of the Gulf of Thailand. Subsidiaries of Pogo
Producing Company ("Pogo") and Maersk Olie og Gas AS ("Maersk") and The
Sophonpanich Co. Limited ("Sophonpanich") are currently the other
concessionaires (together with the Company, the "Concessionaires") in the Block.
The Company was instrumental in identifying the Block as a viable prospect and
organizing the Concessionaires to submit a joint bid for the Block. The Company
and two of the Concessionaires, Pogo and Sophonpanich (collectively the
"Tantawan Concessionaires"), own all of the interests in the Tantawan production
area (the "Tantawan Field"), which is located on the eastern border of the
Block. The Company, as a non-operator, owns a 46.34% interest in the Tantawan
Field and a 31.66% interest in the remainder of the Block. The other
Concessionaires own interests in the Tantawan Field and the remainder of the
Block equal to or smaller than those of the Company. As of January 1, 1996, the
Company had net proved undeveloped reserves of 246 Bcfe, 74% of which were in
the southern portion of the Tantawan Field. Appraisal wells drilled by the
Concessionaires in three established areas within the Block (Tantawan, Benchamas
and Pakakrong) have tested at prolific flow rates of hydrocarbons and
established the potential for significant additional reserves in those areas.
The Tantawan Concessionaires have entered into a 30-year Gas Sales Agreement
(the "GSA") with the Petroleum Authority of Thailand ("PTT"), and production is
expected to commence in January 1997.
BUSINESS STRATEGY
The Company's business strategy is to increase its reserve base and production
through exploration, development and acquisition primarily in Southeast Asia.
The Company focuses its exploration efforts in countries and areas that offer:
(i) large reserve potential, (ii) manageable geologic risk, (iii) proximity to
infrastructure, (iv) growing local market demand for petroleum products and (v)
favorable business climates.
The Company believes the characteristics of the Block fit well within the
Company's strategy of seeking properties with large reserve potential. Block
B8/32 is situated within the Pattani Basin, which has seen major hydrocarbon
discoveries over the past 24 years. The surface area of Block B8/32 currently
covers an area of approximately 1.3 million acres, subject to relinquishment of
unexplored acreage, unless extended before August 1, 1997. A comparison to the
U.S. Gulf of Mexico would result in an equivalent acreage position of
approximately 260 Federal Offshore Louisiana Blocks. Management believes Block
B8/32 contains significant unexplored areas that provide the Company with
additional exploration opportunities and potential reserve growth for the
foreseeable future. In addition, the Company believes that the close proximity
of the Block to infrastructure, its long-term natural gas marketing arrangements
already in place, the growing Thai demand for petroleum products and the
favorable business climate of Thailand are all consistent with the Company's
strategy.
Management believes its role as one of the leaders of the Block B8/32 project,
its knowledge of the geology of the area, its important Thai relationships
developed over the past decade, its large ownership interest, and its close
working relationships with its co-Concessionaires will allow the Company to
continue to have considerable influence on the exploration and development
activities in the Block. See "Business and Properties--History of the Company's
Gulf of Thailand Block B8/32 Operations."
4
<PAGE>
BUSINESS ACTIVITIES
The Company has identified a number of exploration and development prospects
within Block B8/32, which include the Tantawan and Benchamas fields and the
Pakakrong prospect.
TANTAWAN. Through May 31, 1996, the Company has participated in drilling a
total of 14 exploration wells and 15 development wells in the Tantawan Field,
all but one of which have encountered hydrocarbons. Of the 28 wells that
encountered hydrocarbons, 24 are deemed capable of commercial flow rates. All of
these successful wells have been drilled in the southern portion of the Tantawan
Field, and have encountered an average of 170 feet of net pay. As of January 1,
1996, net proved undeveloped reserves for the Tantawan Field were 181 Bcfe.
Cumulatively, a total of 28 zones have been tested and have yielded 254.4 MMcfd
of natural gas and 21.4 Mbpd of oil and condensate. A sixteenth development well
is currently being drilled, and an additional four development wells and five
appraisal wells are currently planned to be drilled in 1996. Approval to produce
oil and gas from the Tantawan Field (covering approximately 68,000 acres) was
given by the Thai Petroleum Committee and the Ministry of Industry in August
1995. All gas from the Tantawan Field will be sold to PTT under the GSA. Under
the GSA, PTT is required to purchase from the Tantawan Concessionaires at least
75 MMcfd of gas for the first year of production (expected to commence in
January 1997) rising to at least 85 MMcfd in the second year. An oil sales
agreement with PTT is under negotiation, and the Tantawan Concessionaires expect
that all oil produced will be sold to PTT.
Under the development plan for the Tantawan Field, two platforms and production
facilities will be installed by August 1996, with installation of additional
platforms after first production. The oil and gas will be separated on each
platform and processed on a Floating Production, Storage and Offloading vessel
("FPSO") currently under construction and scheduled for delivery in December
1996. Oil will be exported via tankers, and gas will be transported through a
33-mile spur pipeline currently under construction by PTT and expected to be
completed in July 1996. Production is expected to commence in January 1997.
BENCHAMAS. Through May 31, 1996, the Concessionaires have drilled a total of
four exploration wells in the Benchamas field, all of which have encountered
hydrocarbons. Additional appraisal wells are currently planned to be drilled in
1996. To date, all wells drilled by the Concessionaires along an 18 mile
North-South axis of the Benchamas field have identified reserves. The four
successful wells have encountered an average of 225 feet of net pay. As of
January 1, 1996, net proved undeveloped reserves of 65 Bcfe were assigned to two
of the successful wells. Cumulatively, a total of 12 zones have been tested and
have yielded 103.3 MMcfd of natural gas and 17.5 Mbpd of oil and condensate. The
Concessionaires acquired a 104 square mile 3-D seismic survey of the Benchamas
field in 1993, and in August 1996 will acquire additional 3-D seismic data,
which the Company expects will better define the extent of the northern portion
of the Benchamas field. Thereafter, the Company plans to participate in drilling
additional appraisal wells and refine a development plan for the Benchamas
field. The Company's preliminary plan of development for the Benchamas field
avails itself of the infrastructure of the nearby Tantawan Field and
contemplates the installation of satellite wellhead platforms and a central
processing facility platform with a daily capacity of 150 MMcf of natural gas,
25 MBbl of oil and condensate and 25 MBbl of water. The Company expects that the
Concessionaires will apply for approval to develop the Benchamas field in late
1996 with production to commence in 1998.
PAKAKRONG AND OTHER AREAS WITHIN BLOCK B8/32. Exploration efforts also continue
on those portions of the Block outside the Tantawan and Benchamas fields.
Through May 31, 1996, the Concessionaires have drilled three exploration wells
outside the Tantawan and Benchamas fields, all of which encountered
hydrocarbons, including two wells on the Pakakrong structure that are deemed
capable of commercial flow rates. Widespread seismic anomalies that are
associated with the same sequence identified as productive in the Benchamas
field are present in Pakakrong. Additionally, the Pakakrong wells encountered
and tested hydrocarbons at depths considerably shallower than found to date by
the Concessionaires elsewhere within Block B8/32. In addition to the Benchamas
field and the Pakakrong prospect, the Concessionaires have identified several
other potentially promising seismic structures on the approximately 1.2 million
acres currently outside the Tantawan Field.
OTHER ACTIVITIES. In the future, the Company intends to capitalize on its
experience in the Block by identifying and prudently pursuing additional oil and
gas investment opportunities in the Gulf of Thailand. The Company also is
currently reviewing exploratory prospects in other parts of Southeast Asia.
RISK FACTORS
For a discussion of risks associated with the Company's business activities,
including commencement of production and estimating quantities of hydrocarbons,
see "Risk Factors."
5
<PAGE>
THE TRANSACTIONS
The business of the Company has been conducted through Thai Romo and
Rutherford-Moran Exploration Company, a Texas corporation ("RMEC"), whose only
activity is in the Concession through an ownership interest in Thai Romo.
Immediately before consummation of the Offerings, certain transactions will take
place to effect exchanges of shares of Common Stock of the Company for (i)
shares of common stock of each of Thai Romo and RMEC (the "Share Exchanges") and
(ii) certain notes issued by Thai Romo (the "Note Exchanges"). The Company will
concurrently consummate the following transactions: (i) the Share Exchanges and
the Note Exchanges, (ii) a loan to RMEC of $24.6 million for (A) the payment of
$12.2 million in principal and interest on the notes issued by RMEC to its
shareholders, including Messrs. Rutherford and Moran, and (B) the redemption
from Messrs. Rutherford and Moran of a portion of their RMEC shares for $12.4
million, (iii) a transfer of the Thai Romo shares and notes received from all
Thai Romo shareholders except RMEC to Thai Romo Holdings, Inc., a Delaware
corporation wholly owned by the Company ("TRH"), in exchange for TRH stock, (the
transactions referred to in clauses (i) through (iii) are collectively referred
to herein as the "Transactions"), and (iv) the Offerings. As a result of the
Transactions, the Company will own 100% of RMEC and, except for five qualifying
shares, will own through RMEC and TRH 100% of Thai Romo. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity."
In the Share Exchanges, all of the shareholders of RMEC, including Messrs.
Rutherford and Moran, who own 50.0% and 47.2% of RMEC's shares, respectively,
will exchange all of the outstanding shares of common stock of RMEC that have
not previously been redeemed, for an aggregate of 12,051,082 shares of Common
Stock. Concurrently with the exchange of RMEC shares, all of the shareholders of
Thai Romo (other than RMEC) will exchange (i) all of their shares of common
stock of Thai Romo and (ii) $9.3 million in aggregate principal amount of notes
issued by Thai Romo, for an aggregate of 8,903,580 shares of Common Stock,
except that an affiliate of an executive officer of the Company and two
affiliates of each of Messrs. Rutherford and Moran will each retain one share of
Thai Romo as a qualifying share to satisfy minimum shareholder requirements
under Thai law. Immediately following the Share Exchanges and the Note
Exchanges, the Company will transfer the Thai Romo shares and notes received
from all Thai Romo shareholders except RMEC to TRH in exchange for TRH stock.
The Offerings are each contingent upon consummation of the Transactions.
Following consummation of the Transactions and the Offerings, Messrs. Rutherford
and Moran will own directly or indirectly 38.6% and 37.4%, respectively, or an
aggregate of approximately 76.0%, of the outstanding shares of Common Stock (or
74.3% if the U.S. Underwriters' over-allotment option is exercised in full). See
"The Transactions," "Use of Proceeds," "Certain Related Party Transactions" and
"Certain Relationships."
6
<PAGE>
THE OFFERINGS
The offering of 3,200,000 shares of Common Stock initially being offered in the
United States and Canada (the "U.S. Offering") and the offering of 800,000
shares of Common Stock initially being offered outside the United States and
Canada (the "International Offering") are collectively referred to herein as the
"Offerings."
<TABLE>
<S> <C>
COMMON STOCK OFFERED (1):
U.S. Offering................................................. 3,200,000 shares
International Offering........................................ 800,000 shares
TOTAL OFFERINGS (1)............................................... 4,000,000 shares
COMMON STOCK OUTSTANDING AFTER THE OFFERINGS (1)(2)............... 25,000,000 shares
USE OF PROCEEDS................................................... To repay all existing bank
indebtedness of approximately
$47.9 million and to lend $24.6
million to RMEC for the repayment
of notes and the redemption of
RMEC shares held by the Principal
Stockholders in connection with
the Transactions, with the
remainder to fund capital
expenditures and for general
corporate purposes.
LISTING........................................................... The Common Stock has been
approved for quotation on the
Nasdaq National Market.
PROPOSED NASDAQ NATIONAL MARKET SYMBOL............................ "RMOC"
</TABLE>
- ------------
(1) The Offerings are contingent upon consummation of the Transactions. See "The
Transactions." Assumes the U.S. Underwriters' over-allotment option for up to
600,000 shares of Common Stock is not exercised. See "Underwriting."
(2) Includes 44,338 shares of restricted stock to be issued to employees of the
Company at the time of the Offerings, but does not include the remainder of the
550,000 shares reserved for issuance pursuant to the Company's 1996 Key Employee
Stock Plan and 1996 Non-Employee Director Stock Option Plan. See
"Management--Key Employee Stock Plan" and "Non-Employee Director Stock Option
Plan."
SUMMARY OIL AND GAS RESERVE DATA
The following table sets forth information with respect to the Company's proved
undeveloped reserves as estimated by Ryder Scott Company, independent petroleum
engineers ("Ryder Scott"), after giving effect to the Transactions. In preparing
such estimates as of December 31, 1995, Ryder Scott used $18.71 per Bbl of oil
and $2.02 per Mcf of gas, the prices that the Company estimated that it would
have received at December 31, 1995 had the Tantawan and Benchamas fields been
producing at such time. For additional information relating to the Company's
reserves, see "Risk Factors--Uncertainties in Estimating Reserves and Future Net
Cash Flows," "Business and Properties--Proved Undeveloped Reserves and Estimated
Net Cash Flows," Notes to Combined Financial Statements and the Summary Reserve
Report of Ryder Scott included as Appendix A to this Prospectus.
<TABLE>
<S> <C> <C> <C>
--------------------------------
DECEMBER 31,
1993 1994 1995
--------- --------- ----------
TOTAL NET PROVED UNDEVELOPED RESERVES
Oil and condensate (MBbls) 5,425 7,674 18,997
Natural gas (MMcf) 33,474 56,739 131,607
Natural gas equivalent (MMcfe) 66,024 102,783 245,589
PRESENT VALUE (DISCOUNTED AT 10%) OF ESTIMATED FUTURE NET CASH FLOWS, BEFORE INCOME
TAXES (IN THOUSANDS) $ 17,166 $ 52,112 $ 131,631
</TABLE>
7
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The summary historical financial data set forth below for the Company have been
derived from the audited and unaudited financial statements and notes thereto
contained elsewhere in this Prospectus. The unaudited pro forma balance sheet
data assume the consummation of the Transactions and the Offerings and are not
necessarily indicative of the results that actually would have been obtained if
such Transactions and Offerings had occurred on March 31, 1996, or of future
results. See "The Transactions" and "Use of Proceeds." The pro forma financial
data should be read in conjunction with the more detailed unaudited pro forma
consolidated balance sheet, including notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
DOLLARS IN THOUSANDS 1993 1994 1995 1995 1996
--------- --------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income $ 24 $ 6 $ 5 -- --
Expenses:
Interest expense 76 107 190 $ 37 $ 414
Depreciation expense -- 2 5 -- 2
Salaries and wages 113 109 114 21 35
General and administrative 74 181 208 48 53
--------- --------- ----------- ----------- -----------
Total expenses 263 399 517 106 504
--------- --------- ----------- ----------- -----------
Net loss $(239) $(393) $(512 ) $(106) $(504)
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
-----------------------------------------------------------
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
DOLLARS IN THOUSANDS 1993 1994 1995 1995 1996
--------- --------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Cash flows provided by (used in) operating activities $ 67 $ (197) $ (1,681 ) $(1,173) $(1,754)
Cash flows used in investing activities (6,469) (8,178) (36,787 ) (1,433) (9,695)
Cash flows provided by financing activities 4,763 8,696 47,876 2,427 4,515
-----------------------------------------------------------
AT DECEMBER 31, AT MARCH 31, 1996
<CAPTION>
DOLLARS IN THOUSANDS 1994 1995
--------- --------- ACTUAL PRO FORMA
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $ (3,504) $ (32,900) $(43,098) $19,272
Oil and gas properties, at cost 18,944 55,951 65,748 65,748
Total assets 19,427 67,669 73,287 87,941
Stockholders' equity 15,484 23,269 22,765 83,172
</TABLE>
8
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of risk.
The following factors should be carefully considered, together with the
information provided elsewhere in this Prospectus, in evaluating an investment
in the Common Stock offered hereby.
PROPERTIES UNDER DEVELOPMENT
Development of Block B8/32 is not completed and production therefrom has not
commenced. Production from the Tantawan Field is expected to commence in January
1997, contingent upon various factors including timely delivery of the FPSO by
its lessor, the completion of pipelines being constructed by PTT, and ongoing
development drilling and field facilities construction by the Tantawan
Concessionaires and their contractors, which factors are in large part beyond
the control of the Company. On August 1, 1997, unless extended, the
Concessionaires are required to relinquish the remaining exploration acreage of
the Block and will retain only those areas for which production approvals have
been applied for or granted. The properties in the Block are not fully developed
and do not have a large amount of proved reserves attributable to them. Although
the Company believes that these properties have potential for significant
reserve additions from presently contemplated exploration and development
activities, the success of such activities cannot be assured. The ultimate value
of these properties, and thus of the Common Stock, will depend not only upon the
commencement of production but also upon the success of such activities. Also,
there can be no assurance that wells would be able to sustain production rates
commensurate with the drill stem tests. In addition, the geology of the Tantawan
Field and other areas in Block B8/32 is highly complex with considerable
faulting, which may or may not appear on 3-D seismic interpretation. See
"--Substantial Capital Requirements."
PROPERTY CONCENTRATION
All of the Company's reserves are located within the Thailand Petroleum
Concession for Block B8/32. The Concession and regulations promulgated pursuant
to Thai law (collectively, "Concession Obligations") contain requirements
regarding quality of service, capital expenditures, legal status of the
Concessionaires, restrictions on transfer and encumbrance of assets and other
restrictions. Failure to comply with these Concession Obligations could result,
under certain circumstances, in the revocation of the Concession. Termination or
revocation of the Concession for any reason would have a material adverse effect
on the Company. Initially, the Company's sole source of operating revenue will
be from the expected sale of production from wells in the Tantawan Field in
Block B8/32. This concentration of operations increases the Company's exposure
to any regional events that may increase costs, reduce availability of equipment
or supplies, restrict drilling activities, reduce demand or limit or delay
production. The adverse impact that any of these risks may have upon the Company
is increased due to the close geographic proximity of the Company's properties
and the small number of properties held by the Company. Increased development of
proved reserves in Block B8/32 will not reduce this concentration. See "Business
and Properties."
SINGLE CUSTOMER
All oil and natural gas produced from the Tantawan Field is expected to be sold
to PTT, which maintains a monopoly over oil and gas transmission and
distribution in Thailand. The Concessionaires are required to give first
priority to the Thai government to purchase the oil and natural gas produced by
the Concessionaires. Failure of PTT or the Concessionaires to comply with the
terms of the purchase contracts would have a material adverse effect on the
Company. See "Business and Properties-- Marketing."
DEVELOPMENT STAGE COMPANY
The Company and its predecessors have been in existence since 1990 and their
activities to date have been limited to oil and gas exploration and development
activities in the Gulf of Thailand without any oil or natural gas production;
therefore, prospective investors have limited historical financial information
about the Company upon which to base an evaluation of the Company's performance
and an investment in the Common Stock offered hereby. In addition, prospective
investors should be aware of the difficulties encountered by enterprises in the
development stage, like the Company, especially in view of the highly
competitive nature of the oil and gas industry and in view of the fact that to
date the Company's operations have been in a limited geographic area.
9
<PAGE>
LACK OF PROFITABLE OPERATIONS
To date, the Company's exploration and development activities have not generated
revenues, causing the Company to incur losses as it has expended funds to start
up its operations. In addition, because the Company's natural gas and oil
production is not expected to commence until 1997, the Company expects that it
will continue to incur losses for the remainder of 1996 and into 1997. Drilling
activities are subject to many risks, including that no commercially productive
reservoirs will be encountered. See "--Reserve Exploration, Development and
Production Risks." There can be no assurance that any well drilled by the
Company will be productive or that the Company will recover all or any portion
of its investment. The Company's ability to generate income or positive cash
flow will depend upon the success of its exploration and development drilling
program. Further, the drilling of several dry holes, without an increase in
current reserves, could require a write-down of the Company's oil and natural
gas properties if all costs of acquisition, exploration and development of
reserves (net of depreciation, depletion and amortization) exceed the present
value of the estimated future net cash flow from the Company's proved reserves
calculated in accordance with the applicable requirements of the Securities and
Exchange Commission ("SEC"). To the extent cash flow from operations does not
significantly increase and external sources of capital become limited or
unavailable, the Company's ability to make the necessary capital investment to
maintain or expand its asset base would be impaired. See "--Substantial Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET CASH FLOWS
Proved reserves of oil and natural gas are estimated quantities that geological
and engineering data demonstrate with reasonable certainty to be economically
producible under existing conditions. There are numerous uncertainties inherent
in estimating quantities and values of proved undeveloped reserves and in
projecting future rates of production and the timing of development
expenditures, including factors involving reservoir engineering, pricing and
both operating and regulatory constraints, especially for the stage of
development and complex and faulted nature of Block B8/32. Reserve assessment is
a subjective process of estimating the recovery from underground accumulations
of hydrocarbons that cannot be measured in an exact way. All reserve estimates
are to some degree speculative, and various classifications of reserves only
constitute attempts to define the degree of speculation involved. The accuracy
of any reserve estimate is a function of available data, engineering and
geological interpretations and judgments based on the data, and assumptions
regarding oil and gas prices. Accordingly, as further information is acquired
for Block B8/32, reserve estimates are likely to differ from the quantities of
hydrocarbons that are ultimately recovered. The reserve data included in this
Prospectus are based upon volumetric information as no production history exists
from wells within the Block. Results of drilling, testing and production history
from the Company's wells and changes in oil and natural gas prices and cost
estimates subsequent to the date of its reserve estimates could require
substantial adjustments, either upward or downward, to those estimates. Any
downward adjustment could adversely affect the Company's financial condition,
future prospects and market value of its Common Stock.
The present value of future net cash flows referred to in this Prospectus should
not be construed as the current market value of the estimated oil and natural
gas reserves attributable to the Company's properties. In accordance with
applicable requirements of the SEC, the estimated discounted future net cash
flows from proved reserves are generally based on prices and costs as of the
date of the estimate, whereas actual future prices and costs may be materially
higher or lower, especially in light of the early stage of development of Block
B8/32. Actual future net cash flows also will be affected by factors such as the
amount and timing of actual production, supply and demand for oil and gas,
curtailments or increases in consumption by purchasers, actual amounts paid
pursuant to the Concession including royalties and Special Remuneratory
Benefits, which vary from zero to 75% of Annual Petroleum Profits (as defined
below) and changes in governmental regulations and taxation. The timing of
actual future net cash flows from proved undeveloped reserves, and thus their
actual present value, will be affected by the timing of both the production and
the incurrence of expenses in connection with development and production of oil
and gas properties. In addition, the 10% discount rate, which is required by the
SEC to be used to calculate discounted future net cash flows for reporting
purposes, is not necessarily the most appropriate discount rate based on
interest rates in effect from time to time and risks associated with the Company
or the oil and gas industry in general.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital expenditures
for the acquisition, exploration, development and production of oil and natural
gas reserves. Since its inception, the Company has financed these expenditures
primarily with cash generated by loans from stockholders, bank borrowings, and
the sale of common stock. The Company intends to make an
10
<PAGE>
aggregate of approximately $60.0 million in capital expenditures in 1996, which,
the Company believes, based on current estimates, includes all capital
expenditures required for the commencement of production in 1997. The Company
believes that it will have sufficient cash provided by anticipated borrowings
under its proposed credit facility and the Offerings to fund such planned
capital expenditures. If, after production commences, revenues or reserves
decline, the Company may have limited ability to expend the capital necessary to
undertake or complete future drilling programs. There can be no assurance that
debt or equity financing or cash generated by operations will be available or
that, if available it will be on terms acceptable to the Company, or sufficient
to meet these requirements or for other corporate purposes. Moreover, future
activities may require the Company to alter its capitalization significantly.
See "--Reserve Exploration, Development and Production Risks," "--Reliance on
Development of Additional Reserves," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Capital Resources and
Liquidity" and "Business and Properties--History of the Company's Gulf of
Thailand Block B8/32 Operations" and "Current Fields and Prospects."
RESERVE EXPLORATION, DEVELOPMENT AND PRODUCTION RISKS
The Company's oil and gas exploration, development and planned production
operations involve risks normally incident to such activities, including
blowouts, oil spills and fires (each of which could result in damage to or
destruction of wells, production facilities or other property, or injury to
persons), geologic uncertainties and unusual or unexpected formations and
pressures, which may result in dry holes, failure to produce oil or gas in
commercial quantities or inability to fully produce discovered reserves. The
Company's offshore operations are also subject to hazards inherent in marine
operations, such as capsizing, sinking, grounding, collision and damage from
severe weather conditions. Oil and gas exploration may involve unprofitable
efforts, not only from dry wells, but from wells that are productive but do not
produce sufficient net revenues to return a profit after drilling, operating and
other costs. Completion of a well does not assure a profit on the investment or
recovery of drilling, completion and operating costs. In addition, drilling
hazards or environmental damage could greatly increase the cost of operations,
and various field operating conditions may adversely affect the Company's
production from successful wells. These conditions include delays in obtaining
regulatory approvals, shut-in of connected wells resulting from extreme weather
conditions, insufficient storage or transportation capacity or other geological
and mechanical conditions. While close well supervision and effective
maintenance operations can contribute to maximizing production rates over time,
production delays and declines from normal field operating conditions cannot be
eliminated and can be expected to adversely affect revenue and cash flow levels
to varying degrees.
In the event that the required reserves or production rates of natural gas at a
specified quality level are not delivered, then the Company and the other
Tantawan Concessionaires will be obliged to contribute to PTT's capital costs
incurred in the construction of the 33-mile spur pipeline. Also, under the GSA,
the Tantawan Concessionaires' liability for failure to deliver the minimum
contracted daily rate is limited to PTT's right to take from subsequent
deliveries an amount equal to the quantity of natural gas not delivered at 75%
of the contracted price.
Although the Company maintains insurance coverage that it believes is in
accordance with customary industry practice, it is not fully insured against
certain of these risks, either because such insurance is not available or
because of high premium costs. The occurrence of a significant event that the
Company is not fully insured against could have a material adverse effect on the
Company's financial position and results of operations.
RELIANCE ON DEVELOPMENT OF ADDITIONAL RESERVES
The Company must continually acquire, explore for and develop new hydrocarbon
reserves to replace those to be produced and sold. Without successful
development and exploratory drilling for, or acquisition of, reserves, the
Company's reserve base and revenues will decline when production commences.
Drilling activities are subject to numerous risks, including the risk that no
commercially viable oil or natural gas accumulations will be encountered. The
decision to purchase a property interest or explore or develop a property will
depend in part on geophysical and geological analyses and engineering studies,
the results of which may be inconclusive or subject to varying interpretations.
The cost of drilling, completing and operating wells is often uncertain.
Drilling may be curtailed, delayed or canceled as a result of many factors,
including title problems, weather conditions, compliance with government
permitting requirements, shortages of or delays in obtaining equipment,
reductions in product prices or limitations in the market for products. Wells
may be shut in for lack of a market or due to inadequacy or unavailability of
pipeline or tanker storage capacity.
11
<PAGE>
MARKET CONDITIONS AND CHANGING OIL AND GAS PRICES
The revenues expected to be generated by the Company's future operations will be
highly dependent upon the prices of, and demand for, oil and natural gas.
Natural gas produced from the Company's Tantawan Field is subject to the GSA
with PTT with prices subject to semi-annual adjustment based on movements in,
among other things, currency exchange rates, oil prices and inflation. The price
received by the Company for its oil and gas production and the level of
production will depend on numerous factors beyond the Company's control,
including the condition of the world economy, political and regulatory
conditions in Thailand and other oil and gas producing countries and the actions
of the Organization of Petroleum Exporting Countries. Decreases in the prices of
oil and gas could have an adverse effect on the carrying value of the Company's
proved reserves and the Company's revenues, profitability, cash flow and
borrowing base availability under the proposed credit facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity."
In order to manage its exposure to price risks in the marketing of its oil and
natural gas, the Company has entered into crude oil swaps and may enter into
other financial swaps and oil and natural gas futures contracts as hedging
devices. Such contracts may expose the Company to the risk of financial loss in
certain circumstances, including instances when production is less than
expected, the contract purchasers fail to purchase or deliver the contracted
quantities of oil or natural gas, or a sudden, unexpected event materially
impacts oil or natural gas prices. Such contracts may also restrict the ability
of the Company to benefit from unexpected increases in oil and natural gas
prices. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources and Liquidity."
INTERNATIONAL OPERATIONS AND CURRENCY
The Company expects that sales outside the United States will account for all of
its revenue. Certain risks are inherent in international operations, such as
difficulties in management, unexpected changes in regulatory requirements,
tariffs and other trade barriers, unique local technical requirements, risk of
political instability, potentially adverse tax consequences and the burdens of
complying with foreign legislation. There is no assurance that such factors will
not have an adverse effect on the Company's financial condition or on its
results of operations. See "Business and Properties--Tax Regulation."
Currently all of the Company's sales are expected to be recognized in Baht, the
Thai currency. Accordingly, fluctuations in the exchange rates between Baht and
U.S. dollars could have an adverse effect on the Company's financial condition
or on the results of its operations. See "Business and Properties--Marketing."
GOVERNMENT REGULATION
The Company's business is currently regulated by the laws and regulations of the
Kingdom of Thailand relating to the development, production, marketing, pricing,
transportation and storage of natural gas and crude oil, taxation and
environmental and safety matters. The Company does not believe that
environmental regulations will have any material adverse effect on its capital
expenditures, results of operations or competitive position, and does not
anticipate that any material expenditures will be required to enable it to
comply with existing laws and regulations. However, the modification of existing
laws or regulations or the adoption of new laws or regulations curtailing
exploratory or developmental drilling for oil and gas for economic,
environmental or other reasons could have a material adverse effect on the
Company's operations.
The Company's assets and operations are subject to various political, economic
and other uncertainties, including, among other things, the risks of war,
expropriation, nationalization, renegotiation or nullification of existing
concessions and contracts, taxation policies, foreign exchange and repatriation
restrictions, changing political conditions, international monetary
fluctuations, currency controls and foreign governmental regulations that favor
or require the awarding of drilling contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. In addition, in the event of a dispute arising from
foreign operations, the Company may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the U.S. The Company may also be hindered or prevented
from enforcing its rights with respect to a governmental instrumentality because
of the doctrine of sovereign immunity. See "Business and Properties--Thai
Concession Terms."
COMPETITION
The oil and gas industry is highly competitive. The Company's competitors for
the acquisition, exploration, production and development of oil and natural gas
properties in Southeast Asia, and for capital to finance such activities,
include companies that
12
<PAGE>
have greater financial and personnel resources available to them than the
Company. The Company's ability to acquire additional properties, to discover
reserves and to participate in drilling opportunities in the future will be
dependent upon its ability to select and evaluate suitable properties and to
consummate transactions in a highly competitive environment. See "Business and
Properties--History of the Company's Gulf of Thailand Block B8/32 Operations."
DEPENDENCE ON KEY PERSONNEL AND MANAGEMENT OF GROWTH
Successful implementation of the Company's business plan will result in an
increase in the level of responsibility for key personnel. To manage its growth
effectively, the Company will be required to continue to implement and improve
its operating and financial systems and controls and to expand and manage its
employee base. There can be no assurance that the management, technical
personnel, systems and controls currently in place or to be implemented will be
adequate for such growth or that any steps taken to hire personnel or to improve
such systems and controls will be sufficient. There can be no assurance that the
Company will be able to attract or retain key personnel. The Company does not
maintain "key person" life insurance policies on any of its key personnel.
The success of the Company will be highly dependent on senior management
personnel. Loss of the services of any of these individuals could have an
adverse impact on the Company's operations. There can be no assurance regarding
the future affiliation of any of these senior management personnel or that there
will not be competition between the Company and such individuals. See "Certain
Relationships."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offerings, Messrs. Rutherford and Moran will own directly
and indirectly in the aggregate approximately 76.0% of the outstanding Common
Stock (or 74.3% if the U.S. Underwriters' over-allotment option is exercised in
full). Accordingly, Messrs. Rutherford and Moran will be able to elect all of
the directors of the Company and to control the Company's management, operations
and affairs, including the ability to effectively prevent or cause a change in
control of the Company. See "Security Ownership of Management," "Certain Related
Party Transactions" and "Shares Eligible for Future Sale."
BENEFITS OF THE OFFERINGS TO PRINCIPAL STOCKHOLDERS
In addition to the benefits to be derived from the Company becoming publicly
held with a market for Common Stock, the Principal Stockholders of RMEC will
benefit from the application of the proceeds of the Offerings in that the
Company will use $12.4 million of the net proceeds to fund the redemption by
RMEC from Messrs. Rutherford and Moran of certain RMEC shares and will use $12.2
million of the net proceeds to fund the repayment by RMEC of loans to existing
stockholders of RMEC, including Messrs. Rutherford and Moran. In addition, the
Principal Stockholders will have unrealized potential gains in the value of
their investments in RMEC and Thai Romo, based upon the difference between the
amount of such investments and aggregate value of their shares of Common Stock
based upon the initial offering price of the Common Stock. The total investment
by Messrs. Rutherford and Moran for acquiring shares of Common Stock in the
Transactions is approximately $9 million and their shares would have a value of
approximately $399 million based upon an assumed initial offering price of
$21.00 per share. See "The Transactions" and "Use of Proceeds."
ABSENCE OF PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq National
Market, there can be no assurance that an active trading market will develop or
continue upon completion of the Offerings. The initial public offering price of
the Common Stock will be determined by negotiations between the Company and the
representatives of the Underwriters and may not be indicative of the market
price of the Common Stock after the Offerings. For a discussion of the factors
to be considered in determining the initial public offering price, see
"Underwriting." The market price of the Common Stock could be subject to
significant fluctuations in response to variations in quarterly and yearly
operating results, the success of the Company's business strategy, general
trends in the oil and gas industry, competition, changes in federal regulations
affecting the Company or the oil and gas industry and other factors. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of affected companies. These broad fluctuations may
adversely affect the market price of the Common Stock.
13
<PAGE>
ADVERSE EFFECT ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the Offerings, there will be outstanding 25,000,000 shares
of Common Stock. Sales of a substantial number of shares of Common Stock by the
Company or its existing stockholders may adversely affect the market price of
the Common Stock. Following the expiration of the lock-up agreements with the
Underwriters with respect to the Offerings, each of the Company's directors,
executive officers and existing stockholders who will hold upon completion of
the Offerings approximately 84% of the outstanding shares of Common Stock (82%
if the U.S. Underwriters' over-allotment option is exercised in full) may sell
such shares subject to the requirements of Rule 144 under the Securities Act of
1933 (the "Securities Act"). In addition, the Principal Stockholders will have
rights to require the Company to register their shares in a public offering.
Sales of a substantial amount of Common Stock, or a perception that such sales
may occur, could adversely affect the prevailing market price of the Common
Stock. See "Shares Eligible for Future Sale," "Certain Related Party
Transactions" and "Underwriting."
DILUTION
A purchaser of Common Stock in the Offerings will experience an immediate and
substantial dilution of $17.67 per share in the net tangible book value of its
shares. See "Dilution."
NO ANTICIPATED DIVIDENDS
The Company expects to retain cash generated from future operations to support
its cash needs and does not anticipate the payment of any dividends on the
Common Stock for the foreseeable future. In addition, dividends or distributions
by Thai Romo may be restricted by Thai Romo's credit facility. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business and Properties--Tax Regulation--Certain
Thailand Tax Consequences."
TAXES
Thai Romo will be required to pay Thai Petroleum Income Tax (currently 50% of
net profits), royalties and other amounts to the Thai government for any
production of reserves in Thailand. See "Business and Properties--Tax
Regulation--Certain Thailand Tax Consequences." It is possible that the amount
of Thai Petroleum Income Tax treated as a creditable tax for United States
federal income tax purposes will be less than 35%, with the result that the
Company will owe residual United States federal income taxes on its pro rata
share of Thai Romo's net taxable income allocated to the Company. Moreover, it
is expected that the Company will be subject to the United States federal
alternative minimum tax on its pro rata share of Thai Romo's net taxable income
allocated to the Company because the alternative minimum tax foreign tax credit
will not fully offset the Company's alternative minimum taxable income. See
"Business and Properties--Tax Regulation--Certain United States Federal Income
Tax Consequences to the Company."
ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK
The Company's Certificate of Incorporation, Bylaws and employee benefit plans
contain provisions which may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company's Board of Directors
has the authority to issue shares of Preferred Stock in one or more series and
to fix the rights and preferences of the shares of any such series without
shareholder approval. Any series of Preferred Stock is likely to be senior to
the Common Stock with respect to dividends, liquidation rights and possibly,
voting. The Company has no present plans to issue any preferred stock to
discourage any change of control. However, the ability to issue Preferred Stock
could have the effect of discouraging unsolicited acquisition proposals. The
Company's 1996 Key Employee Stock Plan contains provisions that allow for, among
others, the acceleration of vesting or payment of awards granted under such plan
in the event of a "change of control," as defined in such plan. The Company has
entered into a severance agreement with an executive officer allowing for cash
payments upon termination of employment following a change in control of the
Company. Because the Company's Principal Stockholders can currently (and after
the Offerings will continue to be able to) elect all directors of the Company
and control the outcome of all matters submitted to a vote of stockholders,
these provisions currently have limited significance. See "Description of
Capital Stock" and "Management-- Severance Arrangement."
14
<PAGE>
THE COMPANY
The Company is an independent energy company engaged in the acquisition,
exploration, development and production of oil and gas properties in Southeast
Asia. Currently the Company's exploration activities are entirely in the Gulf of
Thailand and are conducted through its subsidiary, Thai Romo.
The Company is one of four Concessionaires in Block B8/32 currently covering
approximately 1.3 million acres in the central portion of the Gulf of Thailand.
Subsidiaries of Pogo and Maersk and Sophonpanich are currently the other
Concessionaires in the Block. The Company was instrumental in identifying the
Block as a viable prospect and organizing the Concessionaires to submit a joint
bid for the Block. The Company and two of the Concessionaires, Pogo and
Sophonpanich, own all of the interests in the Tantawan Field, which is located
on the eastern border of the Block. The Company, as a non-operator, owns a
46.34% interest in the Tantawan Field and a 31.66% interest in the remainder of
the Block. The other Concessionaires own interests in the Tantawan Field and the
remainder of the Block equal to or smaller than those of the Company. As of
January 1, 1996, the Company had net proved undeveloped reserves of 246 Bcfe,
74% of which were in the southern portion of the Tantawan Field. See "Business
and Properties--History of the Company's Gulf of Thailand Block B8/32
Operations."
The Company's principal executive offices are located at 5 Greenway Plaza, Suite
220, Houston, Texas 77046, and its telephone number is (713) 622-5555.
THE TRANSACTIONS
RMOC was incorporated in the State of Delaware on March 8, 1996 to acquire and
own all of the outstanding shares of common stock of TRH and RMEC. TRH was
incorporated in the state of Delaware on May 23, 1996, to hold all of the
outstanding shares of common stock of Thai Romo other than the Thai Romo shares
held by RMEC and a nominal number of qualifying Thai Romo shares. RMEC was
formed as a Texas corporation in 1990 under the name Rutherford/Moran Oil
Corporation, changed to its current name in April 1996 and following the
Offerings will reincorporate in the State of Delaware. RMEC's only activity in
the Concession has been holding an interest in Thai Romo. Thai Romo, a limited
liability company formed in Thailand in 1991, is one of the four Concessionaires
and one of the three Tantawan Concessionaires.
The Company will concurrently consummate the following transactions: (i) the
Share Exchanges and the Note Exchanges as described below, (ii) a loan to RMEC
of $24.6 million for (A) the payment of $12.2 million in principal and interest
on the notes issued by RMEC to its shareholders, including Messrs. Rutherford
and Moran, and (B) the redemption from Messrs. Rutherford and Moran of a portion
of their RMEC shares for $12.4 million (the "Redemption"), (iii) a transfer of
the Thai Romo shares and notes received from all Thai Romo shareholders except
RMEC to TRH in exchange for TRH stock (the transactions referred to in clauses
(i) through (iii) are collectively referred to herein as the "Transactions"),
and (iv) the Offerings.
All of the shareholders of RMEC, including Messrs. Rutherford and Moran who own
50.0% and 47.2% of RMEC's shares, respectively, will exchange all of the
outstanding shares of common stock of RMEC that have not previously been
redeemed, for an aggregate of 12,051,082 shares of Common Stock. Concurrently
with the exchange of RMEC shares, all of the shareholders of Thai Romo (other
than RMEC) will exchange (i) all of their shares of common stock of Thai Romo
and (ii) $9.3 million in aggregate principal amount of notes issued by Thai
Romo, for an aggregate of 8,903,580 shares of Common Stock, except that an
affiliate of an executive officer of the Company and two affiliates of each of
Messrs. Rutherford and Moran will each retain one qualifying share of Thai Romo
to satisfy minimum shareholder requirements under Thai law. Immediately
following the Share Exchanges and the Note Exchanges, the Company will transfer
the Thai Romo shares and notes received from all Thai Romo shareholders except
RMEC to TRH in exchange for TRH Stock. After the Transactions, RMOC will be the
parent company of TRH and RMEC and will control the oil and gas activities of
RMEC, TRH and Thai Romo. All Thai Romo shares will be subject to provisions of
the Articles of Association of Thai Romo restricting the transfer thereof and
subject to a pledge under the Company's credit facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity" and "Business and Properties--Tax
Regulation--Certain United States Federal Income Tax Consequences to the
Company."
The Offerings are each conditioned upon consummation of the Transactions.
Following consummation of the Transactions and the Offerings, Messrs. Rutherford
and Moran will each own directly or indirectly 38.6% and 37.4%, respectively, or
an aggregate of approximately 76.0%, of the outstanding shares of Common Stock
(an aggregate of 74.3% if the U.S. Underwriters' over-allotment option is
exercised in full). See "Use of Proceeds," "Certain Related Party Transactions"
and "Certain Relationships."
15
<PAGE>
The effective ownership structure of the Company before and after the
consummation of the Transactions and the Offerings is shown in the following
charts:
[CHART]
- ------------
(1) Prior to the Transactions, Messrs. Rutherford, Moran and Sidney F. Jones,
Jr., hold 50%, 47.2% and 2.8% of the outstanding shares of RMEC, respectively.
(2) Other shareholders include Red Oak Holdings, Inc., an affiliate of the
Company's lender, RMOC, TRH and affiliates of Michael D. McCoy, Sidney F. Jones,
Jr. and Susan R. Rutherford.
[CHART]
- ------------
(1) After the Transactions, Messrs. Rutherford and Moran will hold 38.6% and
37.4% of the outstanding shares of RMOC, respectively (assuming the U.S.
Underwriters' over-allotment option is not exercised).
DESCRIPTIONS OF THE CHARTS REFLECTING OWNERSHIP STRUCTURE ON PAGE 16:
OWNERSHIP BEFORE OFFERINGS: the chart shows that RMEC, Patrick R. Rutherford and
affiliates, John A. Moran and affiliates and other shareholders own 57.5%,
17.4%, 17.5% and 7.6% of Thai Romo, respectively.
OWNERSHIP AFTER OFFERINGS: the charts shows that RMOC owns 100% of the capital
stock TRH and of RMEC, which in turn own 43% and 57% of the shares of Thai Romo,
respectively.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $77.7 million (or $89.4 million if the U.S. Underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $21.00 per share and after deducting estimated underwriting discounts
and expenses payable by the Company.
The Company intends to use approximately $47.9 million of the net proceeds of
the Offerings to repay all of the outstanding bank indebtedness of Thai Romo,
which was incurred to fund the exploration and the initial development
activities in the Block. At May 31, 1996, the outstanding bank indebtedness of
the Company consists of $42.5 million, due June 28, 1996 with an annual interest
rate of the LIBOR rate plus 4% (9.4% at May 31, 1996) and $5.4 million due June
30, 1996, with an interest rate, at the Company's option, of the prime rate plus
1% or the LIBOR rate plus 2.75% (8.25% at May 31, 1996). After such repayment,
the Company's existing credit facilities will terminate and, subject to
negotiation of definitive agreements, it expects to have borrowing availability
under a proposed credit facility. See "Risk Factors--Substantial Capital
Requirements." For a description of the terms of the existing and proposed
credit facilities, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources and Liquidity."
The Company intends to lend to RMEC $24.6 million of the net proceeds of the
Offerings to enable RMEC to repay outstanding indebtedness under certain demand
notes, including notes held by Messrs. Rutherford and Moran, and to redeem
certain RMEC shares held by Messrs. Rutherford and Moran. See "The
Transactions." At May 31, 1996, the outstanding indebtedness to Messrs.
Rutherford and Moran was $4.3 million and $4.0 million, respectively and is due
on demand. Of the total outstanding indebtedness to Messrs. Rutherford and Moran
of $8.3 million, $1.4 million incurred prior to 1995 accrues interest at a prime
rate (8.25% at May 31, 1996) and $6.9 million incurred during 1995 accrues
interest at a prime rate plus 1% (9.25% at May 31, 1996). In addition, prior to
the Offerings an additional $3.0 million of indebtedness will be outstanding
under demand notes that will bear interest at a prime rate, which notes in an
amount of $1.5 million and $1.4 million will be held by Messrs. Rutherford and
Moran, respectively. For a description of the purpose of such indebtedness as
well as the terms of such indebtedness, see "Certain Related Party
Transactions." The Company intends to use the remaining net proceeds from the
Offerings to fund capital expenditures and for general corporate purposes.
DIVIDEND POLICY
The Company has not paid cash dividends since its formation and does not
anticipate that cash dividends will be paid in the foreseeable future since the
Company presently intends to retain any future earnings from Thai Romo's
operations to finance the development and growth of its business. The
declaration and payment in the future of any cash dividends will be at the
discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements and financial position of the Company, any
restrictions in the Company's credit facility and any future loan covenants,
general economic conditions and other pertinent factors.
17
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1996 the historical capitalization
of the Company and as adjusted to give effect, as of that date, to the
consummation of the Transactions and the issuance of shares of Common Stock in
the Offerings (based on an assumed initial public offering price of $21.00 per
share) and the application of the estimated net proceeds thereof as described in
"Use of Proceeds." This table should be read in conjunction with "The
Transactions," "Selected Historical and Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity," and the Combined Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<S> <C> <C>
----------------------
AT MARCH 31, 1996
<CAPTION>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Debt:
Loans from stockholders $ 8,490 --
Notes payable to a bank 38,900 --
--------- -----------
Total short term debt 47,390 --
--------- -----------
Stockholders'/partners' equity:
Preferred Stock, 10,000,000 shares authorized,
no shares issued and outstanding, $0.01 par value -- --
Partners' equity(1) 11,640 --
Common Stock, 5,000,000 shares authorized,
1,250,000 issued and outstanding, $1 par value(2) 1,250 --
Common Stock, 40,000,000 shares authorized,
25,000,000 issued and outstanding, $0.01 par value(3) -- $ 250
Additional paid-in capital 11,520 82,922
Deficit accumulated during the development stage(4) (1,645) --
--------- -----------
Total stockholders'/partners' equity 22,765 83,172
--------- -----------
Total capitalization $ 70,155 $ 83,172
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) Share capital in excess of par is considered shareholder loans. For purposes
of the above table, capital in excess of par of approximately $9,900,000 is
reported as partners' equity consistent with the presentation used in the
financial statements included elsewhere in this Prospectus.
(2) The Actual amount reflects the outstanding common stock of RMEC.
(3) The As Adjusted amount reflects the aggregate par value of the Common Stock
that will be outstanding after the Offerings. Assumes the U.S. Underwriters'
over-allotment option for up to 600,000 shares of Common Stock is not exercised,
see "Underwriting." Assumes 44,338 shares of restricted stock to be issued to
employees of the Company contemporaneously with the Offerings are outstanding,
but not any of the remaining shares reserved for issuance pursuant to the
Company's 1996 Key Employee Stock Plan and 1996 Non-Employee Director Stock
Option Plan, see "Management--Key Employee Stock Plan" and "--Non-Employee
Director Stock Option Plan."
(4) The deficit accumulated during the development stage has been reclassified
to additional paid-in capital as required in instances where RMEC, an
S-corporation, and Thai Romo, a tax partnership, become subject to federal
income taxes through RMOC.
18
<PAGE>
DILUTION
"Dilution" means the difference between the initial public offering price per
share of Common Stock and the pro forma net tangible book value per share of
Common Stock after giving effect to the Transactions and the Offerings. "Net
tangible book value per share" at any date is determined by dividing total
tangible assets less total liabilities at such date by the total number of
shares of Common Stock outstanding at such date. At March 31, 1996, the
Company's net tangible book value per share of Common Stock after giving effect
to the Transactions and the Offerings was $3.33 per share.
<TABLE>
<S> <C> <C>
--------------------
Assumed initial public offering price per share of Common Stock $ 21.00
Net tangible book value per share at March 31, 1996 before the Transactions
and the Offerings(1) $ 1.08
Increase in net tangible book value per share attributable to new investors 2.25
---------
Pro forma net tangible book value per share after the Transactions and the
Offerings(2) 3.33
---------
Dilution per share to new investors $ 17.67
---------
---------
</TABLE>
If the U.S. Underwriters' over-allotment option is exercised in full, the
increase in net tangible book value per share attributable to the Transactions
and the Offerings, pro forma net tangible book value, as adjusted, per share
after the Transactions and the Offerings, and dilution per share to new
investors would be $2.63, $3.71 and $17.29, respectively.
- ------------
(1) Determined by dividing the 21,000,000 shares of Common Stock outstanding
immediately prior to the Offerings into the net tangible book value allocable to
such shares.
(2) Determined by dividing the total number of 25,000,000 shares of Common Stock
assumed to be outstanding after the Offerings into the pro forma tangible net
worth of the Company allocable to such shares, after giving effect to the
application of the net proceeds of the Offerings (assuming the U.S.
Underwriters' over-allotment option is not exercised).
The following table sets forth, as of March 31, 1996, the differences between
the existing stockholders of the Company and the new investors with respect to
the number of shares of Common Stock purchased or to be purchased from the
Company, the average price per share, and the total consideration paid or to be
paid.
<TABLE>
<CAPTION>
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE
SHARES PURCHASED(1) PRICE PER TOTAL CONSIDERATION
NUMBER PERCENT SHARE AMOUNT PERCENT
--------- --------- ---------- ---------- ---------
Initial Stockholders(2) 21,000,000 84.0% $ .26 $5,402,302(3) 6.0%
Investors in the Common Stock Offerings 4,000,000 16.0 21.00 84,000,000 94.0
--------- --------- ---------- ---------- ---------
Total 25,000,000 100.0% $ 3.58 $89,402,302 100.0%
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
</TABLE>
- ------------
(1) Assumes that the U.S. Underwriters do not exercise their over-allotment
option.
(2) The initial stockholders of the Company upon the consummation of the
Transactions are Messrs. Rutherford and Moran, limited partnerships and
corporations controlled by Messrs. Rutherford, Moran and an officer and other
investors.
(3) Total consideration for the initial stockholders represents the net assets
and liabilities contributed as of March 31, 1996.
19
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth selected combined financial data for the Company
as of the dates and for the periods indicated. The combined data were derived
from available audited and unaudited financial statements of the Company. The
unaudited pro forma balance sheet data assume the consummation of the
Transactions and the Offerings and are not necessarily indicative of the results
that actually would have been obtained if such Transactions and the Offerings
had occurred on March 31, 1996, or of future results. See "The Transactions" and
"Use of Proceeds." The data set forth in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the more detailed unaudited pro forma consolidated
balance sheet, including notes thereto, and the Combined Financial Statements.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION
THREE MONTHS ENDED MARCH TO
YEARS ENDED DECEMBER 31, 31, MARCH 31,
DOLLARS IN THOUSANDS 1991 1992 1993 1994 1995 1995 1996 1996
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Interest income $ 76 $ 55 $ 24 $ 6 $ 5 -- -- $ 167
Expenses:
Interest expense -- 183 76 107 190 $ 37 $ 414 970
Depreciation expense -- -- -- 2 5 -- 2 10
Salaries and wages -- 10 113 109 114 21 35 381
General and
administrative 86 111 74 181 208 48 53 723
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Total expenses 86 304 263 399 517 106 504 2,084
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Net loss $(10) $(249) $(239) $(393) $(512) $(106) $(504) $(1,917)
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
Pro forma net loss per
common share $ (.02) $ (.02)
--------- -----------
--------- -----------
--------------------------------------------------------------------------------------------------
INCEPTION
THREE MONTHS ENDED MARCH TO
YEARS ENDED DECEMBER 31, 31, MARCH 31,
DOLLARS IN THOUSANDS 1991 1992 1993 1994 1995 1995 1996 1996
----------- ----------- ----------- --------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOW DATA:
Cash flows provided by (used
in) operating activities $ 460 $ (150) $ 67 $ (197) $ (1,681) $(1,173) $(1,754) $ (3,303)
Cash flows used in investing
activities (1,207) (3,185) (6,469) (8,178) (36,787) (1,433) (9,695) (65,473)
Cash flows provided by
financing activities 3,473 2,330 4,763 8,696 47,876 2,427 4,515 71,673
-------------------------------------------------------------------------------------
AT DECEMBER 31, AT MARCH 31, 1996
DOLLARS IN THOUSANDS 1991 1992 1993 1994 1995 ACTUAL PRO FORMA
----------- ----------- ----------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
Working capital (deficit) $ 505 $ (211) $(2,334) $(3,504) $(32,900) $(43,098) $19,272
Oil and gas properties, at
cost 930 4,406 10,895 18,944 55,951 65,748 65,748
Total assets 3,700 6,179 11,034 19,427 67,669 73,287 87,941
Stockholders' equity 1,459 4,219 8,689 15,484 23,269 22,765 83,172
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited and
unaudited Combined Financial Statements of the Company and notes thereto and
other financial information included elsewhere in this Prospectus.
OVERVIEW
To date, the Company's exploration and development activities have not generated
revenues. As a result, the Company's historical results of operations and
period-to-period comparisons of such results and certain financial data may not
be meaningful or indicative of future results. In this regard, future results of
the Company will be materially dependent upon the success of the Company's
operations within Block B8/32. Due to the nature of the Company's business
activities and the general risks relating to exploratory and development
drilling for crude oil and natural gas, there can be no assurance as to the
success of these efforts.
The Company uses the full cost method of accounting for its investment in its
interest in oil and gas properties. Under the full cost method of accounting,
all costs of acquisition, exploration and development of oil and natural gas
reserves are capitalized into a "full cost pool" as incurred, and properties in
the pool are depleted and charged to operations using the unit-of-production
method based on the ratio of current production to total proved oil and natural
gas reserves. To the extent that such capitalized costs (net of depreciation,
depletion and amortization) exceed the present value (using a 10% discount rate)
of estimated future net cash flow from proved oil and gas reserves, after income
tax effects, such excess costs are charged to earnings. Once incurred, a
write-down of oil and gas properties is not reversible at a later date even if
crude oil or natural gas prices increase.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
The Company's net loss of $503,962 for the three months ended March 31, 1996
increased from the Company's net loss of $106,406 for the three months ended
March 31, 1995 due to increases in interest expense.
Interest expense of $414,098 for the three months ended March 31, 1996 increased
compared to $36,980 for the three months ended March 31, 1995. This increase is
due to the significant additions of debt incurred under loans from stockholders
and notes payable to a bank. Balances under such loan facilities were $47.4
million and $5.2 million at March 31, 1996 and March 31, 1995, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The Company's net loss of $512,000 in 1995 increased compared to the Company's
net loss of $393,000 in 1994 due to increases in interest expense and general
and administrative expenses.
Interest expense of $190,000 for 1995 increased compared to $107,000 in 1994.
This increase is due to the significant additions of debt incurred under loans
from stockholders. Balances under such loan facilities were $8.5 million and
$1.5 million at December 31, 1995 and 1994, respectively.
General and administrative expenses of $208,000 for 1995 increased compared to
$181,000 in 1994. This increase is due to increased legal costs incurred for
general corporate purposes.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
The Company's net loss of $393,000 in 1994 increased compared to the Company's
net loss of $239,000 in 1993 due to increases in interest expense and general
and administrative expenses.
Interest expense of $107,000 for 1994 increased compared to $76,000 in 1993.
This increase is due to an increase in variable interest rates from 1993 to
1994.
General and administrative expenses of $181,000 for 1994 increased compared to
$74,000 in 1993. This increase is due to additional rent and additional legal
fees incurred for general corporate purposes.
21
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
During the period from the inception of the Company on September 21, 1990
through March 31, 1996, the Company invested approximately $65,000,000 primarily
in development and exploration activities conducted in Block B8/32 and the
acquisitions of interests in or rights to the Concession. For such period, the
Company has had negative operating cash flow. The Company's working capital
deficit of $43,100,000 at March 31, 1996 represents an increase of $10,200,000
from the working capital deficit of $32,900,000 at December 31, 1995. Since its
inception, the Company has financed its growth with a combination of bank and
shareholder loans and the sale of common stock.
In November 1994, Thai Romo entered into a loan agreement with a commercial
lender (the "Loan Facility Agreement") under which Thai Romo could borrow up to
$5,000,000 at any time during the period from November 1994 to the final
maturity date in April 1995. Through a series of amendments to the Loan Facility
Agreement, the credit line available to Thai Romo has been increased to
$47,000,000, and the current maturity date under the Loan Facility Agreement, as
amended, is June 28, 1996. Each Thai Romo shareholder has pledged its shares in
Thai Romo and its shareholder loan notes from Thai Romo to secure the
obligations of Thai Romo under the Loan Facility Agreement. Additionally, all
Thai Romo shareholders, as sponsors, have entered into a sponsor subordination
and support agreement with the lender pursuant to which all indebtedness of Thai
Romo to the sponsors is subordinated to Thai Romo's obligations under the Loan
Facility Agreement. The current interest rate under the Loan Facility Agreement,
as amended, is the LIBOR rate quoted by the lender, plus 4%. At December 31,
1995, and March 31, 1996, the amounts outstanding under the Loan Facility
Agreement were $21,000,000 and $33,900,000, respectively, and such amounts
accrued interest at an annual rate of 9.6825% and 9.6%, respectively. The
Company plans to use a portion of the proceeds from the Offerings to repay all
outstanding indebtedness under the Loan Facility Agreement, which was
$42,500,000 at May 31, 1996, and terminate such facility.
In September 1995, RMEC obtained a line of credit from the same commercial
lender to borrow up to $5,000,000 ("Line of Credit"). This amount was increased
in November 1995 to $15,000,000 with a maturity date, as amended, of June 30,
1996. Repayment of the Line of Credit has been guaranteed by Messrs. Rutherford
and Moran. The interest rate on amounts borrowed under the Line of Credit is, at
RMEC's option, determined with reference to the prime rate or LIBOR rate quoted
by the lender plus a margin that changes with the amount of the outstanding
unpaid balance. At December 31, 1995 and March 31, 1996 the amounts outstanding
under the Line of Credit were $13,400,000 and $5,000,000, respectively, and such
amounts were accruing interest at an annual rate of 9.6% and 8.75%,
respectively. The Company plans to use a portion of the proceeds from the
Offerings to repay all outstanding indebtedness under the Line of Credit, which
was $5,400,000 at May 31, 1996, and terminate such facility.
An affiliate of such commercial lender owns a 5% interest in Thai Romo and,
pursuant to the Share Exchanges and Note Exchanges, such affiliate will receive
1,034,913 shares of Common Stock. See "The Transactions" and "Certain Related
Party Transactions."
The Company is currently negotiating a $100,000,000 revolving credit facility
(the "Revolving Credit Facility") with a commercial lender for the purpose of
financing ongoing development of Block B8/32 as well as for general corporate
purposes. The proposed Revolving Credit Facility will be subject to borrowing
base limitations and will have a three year final maturity. Initial availability
under the Revolving Credit Facility will be $60,000,000. The commercial lender
intends to syndicate the credit with a group of financial institutions
acceptable to the Company.
The borrowing base, which principally relates to the value of the Company's oil
and natural gas reserve base, will be subject to semi-annual redeterminations
each May 1 and November 1. In addition to semi-annual redeterminations, the
Company and the lenders may each request one additional redetermination in each
12 month period. The lenders will have discretion in determining the reserve
value of the borrowing base. Decreases in oil and natural gas prices could
result in a reduction in the borrowing base, thereby reducing availability under
the Revolving Credit Facility, and, under certain circumstances, requiring the
Company to repay outstanding loans in excess of the reduced borrowing base. The
Company will be required to pay certain fees, including a commitment fee of .5%
per annum on the average daily balance of the unused borrowing base.
Under the terms of the Revolving Credit Facility, outstanding borrowings will
bear interest, at the Company's option, based on the base rate of the commercial
lender, or a reserve adjusted Eurodollar rate plus a margin of 1.75%. Interest
periods of 30, 60, 90 or 180 days may be elected by the Company on Eurodollar
loans. The Revolving Credit Facility will be guaranteed by TRH,
22
<PAGE>
RMEC and Thai Romo and secured by a pledge of the Company's shares in TRH and
RMEC and a pledge by TRH and RMEC of their respective Thai Romo shares and Thai
Romo promissory notes. Thai Romo may be required to provide additional
collateral.
Documentation of the Revolving Credit Facility will contain customary provisions
relating to lender yield protection, market disruption or unavailability of
Eurodollar funds, general and special indemnities, capital adequacy protection,
break funding protection, and similar customary provisions. The Revolving Credit
Facility will contain covenants restricting the activities of the Company,
including among others, restrictions on investments, disposition of assets,
indebtedness and the granting of liens, restrictions on dividends and
distributions and an agreement to remain within its current line of business.
Following commencement of production in the Tantawan Field, the Company will be
required to maintain an interest coverage ratio of not less than 3:1. Failure to
comply with such covenants and restrictions would constitute an event of default
under the Revolving Credit Facility.
Definitive agreements evidencing the Revolving Credit Facility have not been
entered into and, therefore, the terms and structure outlined above could change
and the Revolving Credit Facility, as described, may not be consummated.
To develop and explore Block B8/32, the Company anticipates capital expenditures
of approximately $60,000,000 for fiscal 1996, which, the Company believes, based
on current estimates, includes all capital expenditures required for the
commencement of production in 1997. Of such capital expenditures, approximately
$47,000,000 is budgeted for development of the Tantawan Field. For the remaining
seven months of 1996, the Company anticipates capital expenditures, general and
administrative expenses and other working capital requirements to total
approximately $45,000,000. The Company anticipates that it will finance such
capital expenditures, general and administrative expenses and other working
capital requirements, with bank borrowings under the Revolving Credit Facility
and the remainder of the net proceeds of the Offerings. See "Use of Proceeds."
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," in March 1995. This
statement requires, among other things, that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This statement also requires
that assets be grouped at the lowest level for which revenues can be measured
and evaluated for possible impairment. The statement is not applicable to the
oil and gas properties of companies that account for oil and gas properties
under the full cost method of accounting. The Company accounts for its oil and
gas properties under the full cost method and thus is not required to adopt
Statement No. 121 in accounting for impairments of its oil and gas properties.
Should the Company engage in activities other than exploration and production,
evaluation of revenue producing assets related to these activities would be
subject to the provisions of Statement No. 121.
On October 23, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company adopted this standard in 1996 and will disclose the pro forma net
income/(loss) and earnings/(loss) per share amounts assuming the fair value
method was adopted on January 1, 1995 in its financial statements as of and for
the year ended December 31, 1996. The adoption of this standard will not impact
the Company's consolidated results of operations or financial position.
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
Currently annual inflation in terms of the decrease in the general purchasing
power of the dollar is running much below the general annual inflation rates
experienced in the past. While the Company, like other companies, continues to
be affected by fluctuations in the purchasing power of the dollar, such effect
is not currently considered significant.
The Company does not currently hold significant amounts of cash, cash
equivalents, long-term financial instruments or investments denominated in
foreign currencies. Prior to or upon commencement of oil and natural gas
production, the Company may have such holdings. See "Business and
Properties--Marketing." Since the Thai Baht/U.S. dollar exchange rate has
historically been stable, the Company does not intend to mitigate the foreign
currency risks associated with such holdings through currency rate hedging
transactions such as currency swaps, options, futures or other derivative
financial instruments.
23
<PAGE>
CHANGING OIL PRICES
The Company is dependent on crude oil prices, which have historically been
volatile. The Company uses crude oil price swaps and other similar arrangements
to hedge against potential adverse effects of fluctuations in future prices for
the Company's future oil production. While the swaps are intended to reduce the
Company's exposure to declines in the market price of crude oil, they may limit
the Company's gain from increases in the market price. At March 31, 1996, the
crude oil price swap agreements were for the Company's oil production of one
million barrels (MMBbl) of aggregate oil volumes for April through December 1997
at a weighted average price of $15.92 per Bbl and 1.75 MMBbl of aggregate oil
volumes for January through December 1998 at a weighted average of $15.92 per
Bbl. At March 31, 1996, the Company estimates the cost of unwinding this
position to be $1,745,650 ($1,159,290 at May 30, 1996). Embedded within the
crude oil price swaps, the Company has provided to the affiliate of the lender a
swap option for 1.25 MMBbl of aggregate oil volumes for January through December
1999 at a price of $18.30 per Bbl. The Company has accounted for the swap option
separately as it does not qualify as a hedge. Future changes in the swap
option's value will be recorded in the Statement of Operations. At March 31,
1996, the Company estimates the value of this position to be $693,280 ($537,500
at May 30, 1996) and has recorded the amount as a liability on the Balance
Sheet. See "Business and Properties--Marketing."
24
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
The Company is an independent energy company engaged in the acquisition,
exploration, development and production of oil and gas properties in Southeast
Asia. Currently the Company's exploration and development activities are
entirely in the Gulf of Thailand and are conducted through its subsidiary, Thai
Romo.
The Company is one of four Concessionaires in Block B8/32 currently covering
approximately 1.3 million acres in the central portion of the Gulf of Thailand.
Thaipo Limited, a subsidiary of Pogo ("Thaipo"), Maersk Oil (Thailand) Ltd., a
subsidiary of Maersk ("Maersk Oil"), and Sophonpanich are currently the other
Concessionaires in the Block. The Company was instrumental in identifying the
Block as a viable prospect and organizing the Concessionaires to submit a joint
bid for the Block. The Company and two of the Concessionaires, Thaipo and
Sophonpanich, own all of the interests in the Tantawan Field, which is located
on the eastern border of the Block. The Company, as a non-operator, owns a
46.34% interest in the Tantawan Field and a 31.66% interest in the remainder of
the Block. The other Concessionaires own interests in the Tantawan Field and the
remainder of the Block equal to or smaller than those of the Company. As of
January 1, 1996, the Company had net proved undeveloped reserves of 246 Bcfe,
74% of which were in the southern portion of Tantawan Field. Appraisal wells
drilled by the Concessionaires in three established areas within the Block
(Tantawan, Benchamas and Pakakrong) have tested at prolific flow rates of
hydrocarbons and established the potential for significant additional reserves
in those areas. The Tantawan Concessionaires have entered into the GSA with PTT,
and production is expected to commence in January 1997.
BUSINESS STRATEGY
The Company's business strategy is to increase its reserve base and production
through exploration, development and acquisition primarily in Southeast Asia.
The Company focuses its exploration efforts in countries and areas that offer:
(i) large reserve potential, (ii) manageable geologic risk, (iii) proximity to
infrastructure, (iv) growing local market demand for petroleum products and (v)
favorable business climates.
The Company believes the characteristics of the Block fit well within the
Company's strategy of seeking properties with large reserve potential. Block
B8/32 is situated within the Pattani Basin, which has seen major hydrocarbon
discoveries over the past 24 years. The surface area of Block B8/32 currently
covers an area of approximately 1.3 million acres, subject to relinquishment of
unexplored acreage, unless extended before August 1, 1997. A comparison to the
U.S. Gulf of Mexico would result in an equivalent acreage position of
approximately 260 Federal Offshore Louisiana Blocks. Management believes Block
B8/32 contains significant unexplored areas that provide the Company with
additional exploration opportunities and potential reserve growth for the
foreseeable future. In addition, the Company believes that the close proximity
of the Block to infrastructure, its long-term natural gas marketing arrangements
already in place, the growing Thai demand for petroleum products and the
favorable business climate of Thailand are all consistent with the Company's
strategy.
Management believes its role as one of the leaders of the Block B8/32 project,
its knowledge of the geology of the area, its important Thai relationships
developed over the past decade, its large ownership interest, and its close
working relationships with its co-Concessionaires will allow the Company to
continue to have considerable influence on the exploration and development
activities in the Block. In the future, the Company intends to capitalize on its
experience in Block B8/32 by identifying and prudently pursuing additional oil
and gas investment opportunities in the Gulf of Thailand. See "--Joint Operating
Agreement-- Area of Mutual Interest." The Company is also currently reviewing
exploratory prospects in other parts of Southeast Asia. See "Business and
Properties--History of the Company's Gulf of Thailand Block B8/32 Operations."
HISTORY OF THE COMPANY'S GULF OF THAILAND BLOCK B8/32 OPERATIONS
Patrick R. Rutherford has actively participated in the oil and gas exploration
and production business as an independent operator since 1959. In the 1980s, Mr.
Rutherford participated directly in exploration licenses or concessions located
in Morocco and Tunisia. In 1988, Mr. Rutherford and Mr. Moran formed a venture
to pursue exploration opportunities in the Gulf of Thailand. After
identification of Block B8/32 as a viable prospect, Pogo and Maersk joined the
Company to serve as co-Concessionaires, and thereafter, the parties submitted a
joint bid for Block B8/32 in October 1990.
25
<PAGE>
In August 1991, Thai Romo, Thaipo and Maersk Oil were awarded Petroleum
Concession No. 1/2534/36 for Block B8/32 in the central portion of the Gulf of
Thailand. Subsequent to the award, Sophonpanich became one of the
Concessionaires by acquiring an interest in the Concession as a co-venturer.
Maersk Oil was designated as Operator for operations in the Block pursuant to a
Joint Operating Agreement among the Concessionaires.
In March 1995, Thai Romo, Thaipo and Sophonpanich acquired Maersk's interest in
the Tantawan Field of Block B8/32. Thaipo was designated as Operator of the
Tantawan Field. The Ministry of Industry approved the transfer of the interest
and the designation of a separate operator for the Tantawan Field effective
March 1995. Thaipo, Thai Romo and Sophonpanich agreed that the Tantawan Field
would be operated pursuant to the terms of a separate Joint Operating Agreement
with provisions substantially similar to those of the original Joint Operating
Agreement. Maersk has informed its co-Concessionaires that it is reviewing other
companies' interest in acquiring Maersk Oil and has invited a selected number of
companies to submit bids. If Maersk elects to sell Maersk Oil, the other
Concessionaires would have a preferential right to acquire an interest in Maersk
Oil pursuant to the Joint Operating Agreement among the parties. See "--Joint
Operating Agreement (Remainder of Block B8/32)." In addition, if Maersk elects
to sell Maersk Oil, such sale could result in a change in the operator for the
remainder of Block B8/32 outside the Tantawan Field. Current interests in the
Tantawan Field and the remainder of Block B8/32 are as follows:
<TABLE>
<S> <C>
TANTAWAN FIELD
-----------------------
Thaipo Limited (Pogo)-Operator 46.34%
Thai Romo Limited (RMOC) 46.34%
The Sophonpanich Co., Limited 7.32%
REMAINDER OF BLOCK
B8/32
-----------------------
Maersk Oil (Thailand) Limited-Operator 31 2/3%
Thaipo Limited (Pogo) 31 2/3%
Thai Romo Limited (RMOC) 31 2/3%
The Sophonpanich Co., Limited 5%
</TABLE>
The designation of the area allowed for production at the Tantawan Field,
covering approximately 68,000 acres, was granted to Thaipo, as Operator on
behalf of the Tantawan Concessionaires, by the Thai Petroleum Committee and the
Ministry of Industry on August 23, 1995.
In accordance with the Thai Petroleum Act, the Concessionaires relinquished 50%
of the exploration acreage of the Block on August 1, 1995. Unless the Concession
is extended, the Concessionaires will be required to relinquish the remaining
exploration acreage on August 1, 1997. Relinquishment will exclude areas for
which production approvals have been applied for or granted. The Company will
acquire additional 3-D seismic data in July 1996, and after interpretation of
the data, the Company intends to drill additional prospects to minimize the
amount of acreage relinquished. The Company believes that the Concessionaires
will not lose any attractive exploration acreage as a result of the required
relinquishment. All financial obligations and work commitments for the
Concession, which in the aggregate exceeded $35 million, have been satisfied,
other than certain payments associated with production. See "--Current Fields
and Prospects" and "--Thai Concession Terms."
ENERGY DEMAND IN THAILAND
From 1991 to 1995, Thailand's real gross domestic product (GDP) increased at a
compound annual growth rate of approximately 8%. According to Thailand's
National Energy Policy Office (NEP), energy demand increased at a compound
annual growth rate of approximately 11% during the same five year period. Energy
growth in excess of GDP growth reflects the nature of Thailand's economy, one
characterized by increasing per capita energy consumption and increasing
industrialization. To meet the country's energy demand the government of
Thailand has actively encouraged the development of domestic energy sources.
Much of the annual increase in gas supply over the next five years will be
provided by new sources of gas coming on stream from the Gulf of Thailand.
REGIONAL GEOLOGY
Block B8/32 is located on the western side of the Pattani Basin, which is
believed to have developed as a result of the Permo-Triassic collision of the
continents of India and Asia. The collision developed a tectonic regime in
Thailand which formed a conjugate set of major strike-slip faults trending
northwest to southeast and northeast to southwest together with a set of north
to
26
<PAGE>
south trending normal faults. The regional strain field accompanying the
shearing had a major component of east-west extension which created the Pattani
Basin and its gas rich structures to the south (E.G., Erawan, Pailin and Satun).
Management believes the Tantawan and Benchamas fields are a northern
continuation of the same trend. The eastern boundary of Block B8/32 is located
near the axis of the Pattani Basin. The Basin extends north-northeast through
the eastern one-third of Block B8/32 and extends southward through Unocal's
extensive holdings. The basin is bounded to the west by the Ko Kra Ridge, a
dominant paleo high.
Regional structural dip towards the Pattani Basin center is interrupted by
north-south trending normal faults. These fault zones are related to basement
relief features. Oil and natural gas traps in Block B8/32 are typically related
to highly faulted graben systems, structural closure on tilted fault blocks and
anticlinal structures between east-west dipping faults and stratigraphic traps.
The main reservoir sands in Block B8/32 are fluvial channel sands, point bar
sands, alluvial fans and deltas associated with lacustrine depositional
environments.
CURRENT FIELDS AND PROSPECTS
Since 1992, the Company along with its co-Concessionaires have drilled 15
development wells and 21 exploratory wells in Block B8/32. Thirteen of the
development wells and 17 exploratory wells have been successful. Of the 30
successful wells drilled to date, drillstem tests ("DSTs") have been run on 12
wells. A summary of DST results and estimated date of first production is
presented below. DST results may not be indicative of potential future
production rates or the quantities ultimately produced and sold, if any.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
TOTAL
TOTAL CONCESSION SUCCESSFUL
SUCCESSFUL DST RATES WELLS DATE OF
WELLS TESTED --------------------- DRILLED ESTIMATED
THROUGH ZONES GAS THROUGH MAY INITIAL
MAY 31, 1996 TESTED (MMCFD) 31, 1996 PRODUCTION
- -------------------- --------- ---------- ----------- -------------
OIL AND
CONDENSATE
(MBPD)
---------
Tantawan 24 January 1997
1 5 6.3 25.8
2 6 1.7 70.3
3 5 8.7 40.7
4 3 1.4 32.0
5 4 1.5 24.5
7 3 1.5 45.3
8 2 .3 15.8
--------- --------- ----------
28 21.4 254.4
Benchamas 4 1998
1 5 4.9 45.3
3 4 7.5 33.2
4 3 5.1 24.8
--------- --------- ----------
12 17.5 103.3
Pakakrong 2 To be
determined
1 2 .7 25.5
2 3 1.6 .1
--------- --------- ----------
5 2.3 25.6
</TABLE>
The Company estimates that in 1996, it will invest a total of approximately
$60.0 million in connection with its drilling and development program, of which
approximately $47.0 million is budgeted for the development of the Tantawan
Field. The Company anticipates that it will finance such capital expenditures
with borrowings under the proposed Revolving Credit Facility and the proceeds of
the Offerings. The Company intends to use the cash flow generated initially from
the Tantawan Field and subsequently from the Company's interests in other Block
B8/32 properties, which it anticipates will be developed, together with funds
from other sources to further develop these and the other properties in its
development program. The actual expenditures on each project in the drilling and
development program may vary materially from the Company's estimates as a result
of the actual costs incurred and changes in the drilling and development
program, including the acceleration of the development of
27
<PAGE>
certain projects and prospects based on actual drilling results. Additional
costs, if any, are currently anticipated to be funded from cash provided by
future operations, working capital or funds from other sources. See "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
TANTAWAN FIELD. The Tantawan Field is located on the eastern border of Block
B8/32. The field is a complex faulted graben which extends for 21 miles north to
south, averages 5 miles east to west and lies on the western side of the Pattani
Basin axis. At this time only the southern 40% of the estimated total graben
structure has been fully mapped and as of January 1, 1996 has 181 Bcfe of proved
undeveloped reserves assigned to it. The Company believes that the producing
trend found in the southern portion of the Tantawan Field extends through the
North Tantawan prospect to cover the entire graben complex. As is typical of
many fields in the Gulf of Thailand, reserves are only considered proved when a
fault block is drilled. As a result, it is expected that proved reserves will
continue to increase as more wells are drilled.
Through May 31, 1996, 14 exploration and 15 development wells have been drilled
in the Tantawan Field, all but one of which encountered hydrocarbons. Of the 28
wells that encountered hydrocarbons, 24 are deemed capable of commercial flow
rates. All of these successful wells have been drilled in the southern portion
of the Tantawan Field, and have encountered an average of 170 feet of net pay.
The Tantawan-1 well was the first well drilled on the Block by the Company and
its co-Concessionaires. The well was spudded in September 1992 and reached a
total depth of 11,022 feet. Five DSTs were conducted which produced cumulative
rates of 6.3 Mbpd of crude oil and condensate and 25.8 MMcfd of natural gas. A
sixth DST was conducted on a nonproductive sand in order to obtain information
on water salinities. The Tantawan-1 discovery led to the acquisition in the
first quarter of 1993 of a 70 square mile 3-D seismic survey over the southern
portion of the Tantawan Field. In the fourth quarter of 1993, two appraisal
wells in the Tantawan Field were drilled and successfully tested. During 1994,
five additional appraisal wells were drilled in the Tantawan Field and an 85
mile 3-D seismic survey was acquired and processed over the North Tantawan
prospect. DSTs were conducted on seven Tantawan Field wells. Cumulatively, the
28 zones tested yielded 254.4 MMcfd of natural gas and 21.4 Mbpd of crude oil
and condensate. No assurance can be given that the wells will be able to sustain
production rates commensurate with the DST's. Fluid analyses indicate liquid
gravities ranging from 35 API to 40 API with the gas having an average heating
value of 1,065 Btu/scf and a CO(2) content of approximately 8%. A sixteenth
development well is currently being drilled, and an additional four development
wells and five appraisal wells are currently planned to be drilled in 1996.
Construction of offshore platforms and pipelines for the Tantawan Field is under
way. See "--Production Facilities."
BENCHAMAS FIELD. Outside of the Tantawan Field, the Benchamas field has
attracted the most exploration attention by the Concessionaires. The Benchamas
field is located in the north central portion of the Block approximately 35
miles northwest of Tantawan-1.
In the fourth quarter of 1993, a 104 square mile 3-D seismic survey was acquired
over the Benchamas field. Based on these data, the Benchamas-1 well was spudded
in April 1995 and drilled to a total depth of 10,155 feet. Five DSTs were
conducted yielding cumulative rates of 45.3 MMcfd of natural gas and 4.9 Mbpd of
oil and condensate. The Benchamas-2A well, a directional well, located
approximately 11 miles south of Benchamas-3, penetrated and logged two sands
with a total of 53 feet of hydrocarbons, which were not tested. The Benchamas-3
well, drilled in December 1995, was the second well on the Benchamas structure
and was located approximately 5 miles north of the Benchamas-1. Four DSTs were
conducted across some of the sands encountered yielding 33.2 MMcfd of natural
gas and 7.5 Mbpd of oil and condensate. The Benchamas-4 well, drilled in January
1996, was located more than 2 miles north of the Benchamas-3 and encountered
hydrocarbons in several sands. DSTs conducted on three of the sands yielded
cumulative flow rates of 24.8 MMcfd of natural gas and 5.1 Mbpd of oil and
condensate. No assurance can be given that the wells would be able to sustain
production rates commensurate with the DSTs.
To date, all wells drilled by the Concessionaires have been along the north to
south axis of the Benchamas field and have established reserves along its entire
length. The four successful wells have an average net pay of 225 feet.
Cumulatively the 12 zones tested yielded 103.3 MMcfd of natural gas and 17.5
Mbpd of oil and condensate. Fluid analyses indicate liquid gravity of 40 API
with the gas having an average heating value of 1,150 Btu/scf and a CO(2)
content of approximately 8%. As of January 1, 1996 proved reserves of 65 Bcfe
had been assigned to two of the four wells drilled.
PAKAKRONG PROSPECT. In late 1995, a 100 square mile 3-D seismic survey of the
Pakakrong prospect was acquired, processed and interpreted. The prospect is
centered 8.5 miles southwest of the Benchamas-1 well. Widespread seismic
anomalies that are associated with the same sequence that has proven productive
in Benchamas field are present in Pakakrong. Additionally, production tests in
the two Pakakrong wells drilled in early 1996 have established potential
commercial reservoirs at depths considerably shallower than found to date
elsewhere within the Block.
28
<PAGE>
DSTs conducted in Pakakrong-1 yielded cumulative flow rates of 25.5 MMcfd of
natural gas and 0.7 Mbpd of oil or condensate. Three DSTs were conducted in the
Pakakrong-2 well. Two of the tests conducted across intervals at 7,400 feet and
7,670 feet produced substantial quantities of CO(2), approximately 60% and 80%,
respectively. The third test, conducted at a depth of 4,200 feet yielded a flow
of 1.6 Mbpd. Based on seismic interpretation, it is believed that this zone may
be the same zone observed but not tested in the Pakakrong-1 well located one
mile northwest. No assurance can be given that the wells will be able to sustain
production rates commensurate with the DSTs. As of the date of this Prospectus,
no estimated reserves from this prospect have been included in the Company's
proved reserves.
OTHER EXPLORATION PROSPECTS. In addition to Tantawan, Benchamas and Pakakrong,
several other promising prospects and seismic structures have been identified,
although no proved reserves have been included in the Company's reserve summary.
All are either graben systems, buried hill, half-graben or a combination of two
of the above structural styles. All prospects and leads are elongated in a
north-south direction.
-NORTH TANTAWAN. This prospect is believed to be a continuation
of the structure identified in the southern portion of the
Tantawan Field. 3-D seismic has been acquired and is in process
of being interpreted in detail.
-NORTH BENCHAMAS. This prospect is believed to be a continuation
of the Benchamas field to the north. Its trap type is a
combination buried hill and graben system. A 3-D seismic survey
to further define this prospect will be acquired in August 1996.
It is anticipated that this survey will offer additional drill
sites north of the Benchamas-4 well.
-MALIWAN. This prospect is a keystone graben system south of the
Benchamas field that is believed to be approximately 15.5 miles
in length and average 3 miles in width. The east flank of the
system is also prospective with an easterly dipping upthrown
fault play. A 3-D seismic survey is scheduled to be acquired
immediately following the North Benchamas survey.
-PATTALUNG PROSPECT. This prospect is a half-graben system
similar to Pakakrong with a series of keystone grabens running
down the center and is believed to be 37 miles in length and up
to 5 miles wide. Pattalung-1, drilled by Unocal in 1981, drilled
the center of the keystone graben. Significant oil and gas shows
were found in the lower Miocene sands. Recent analysis of the
Pattalung-1 log indicates several intervals to be hydrocarbon
bearing.
-YUNGTHONG. Yungthong-1 was the first well drilled outside the
Tantawan Field area by the Concessionaires. This well, located 22
miles southeast of the Tantawan Field, was abandoned as non-
commercial after testing low rates of gas and condensate from
several zones. Further evaluation of the Yungthong area will be
conducted in the future.
In addition to the above prospects, further potential remains within Block
B8/32. The Company believes that (i) 2-D seismic indicates the presence of
several other graben systems which are not presently defined as "prospects" and
(ii) the discovery and testing of relatively shallow producible hydrocarbons at
Pakakrong supports the prospective nature of other shallow formations. The
Company intends to pursue such activities prior to the scheduled relinquishment
(which may be extended) of the remaining exploration acreage in the Concession
on August 1, 1997.
PRODUCTION FACILITIES
Under the development plan for the Tantawan Field, two platforms and production
facilities will be installed prior to first production, with installation of
additional platforms planned following first production. The oil and natural gas
will be separated on each platform and processed on a Floating Production,
Storage and Offloading vessel ("FPSO"), currently under construction and
scheduled for delivery in December 1996. Oil will be exported via tankers, and
gas will be discharged into a 33-mile spur pipeline currently under construction
by PTT and expected to be completed in July 1996. Development drilling commenced
in August 1995, and production is expected to commence in January 1997, subject
to various contingencies beyond the Company's control.
PLATFORMS. The first two production platforms will be four-pile, twelve slot
units designed for drilling with either a jack-up or tender assisted rig.
Wellhead fluids will be separated at each production platform into three
streams: high pressure gas,
29
<PAGE>
intermediate pressure gas and low pressure oil and water. As required, natural
gas will be drawn off the intermediate pressure system, compressed, and fed back
down the wells to provide gas lift to optimize oil recovery. Hydrocarbons will
be fed into flowlines which will run between each platform and a Pipeline End
Manifold (PLEM) located at the FPSO.
FPSO. The FPSO is being used to facilitate a fast track development of the
Tantawan Field and provide cost savings given the lack of an offshore oil
pipeline infrastructure. The FPSO used for the Tantawan development will be
under the management of an affiliate of Single Buoy Moorings Inc. ("SBM"), one
of the largest builders and operators of FPSOs. Another affiliate of SBM will
own the vessel and lease it under a bareboat charter to another affiliate,
Tantawan Production B.V., who will in turn lease it under a Bareboat Charter
Agreement (the "Charter") to Tantawan Services L.L.C. ("TS"), a company
currently owned by Thaipo, which may eventually be owned by the Tantawan
Concessionaires. The Company intends to acquire an interest in TS after
production commences. All FPSO costs (including the vessel, detailed design
engineering and all equipment purchased for the FPSO) will be borne directly by
SBM. The final cost of the installed and commissioned FPSO will be recovered by
SBM in the bareboat charter day rate over the term of the Charter. The initial
term of the Charter is for ten years, subject to extension, with an anticipated
commencement date in mid-December 1996. In addition, TS has a purchase option on
the FPSO throughout the term of the Charter. TS has also contracted with another
company, SBM Marine Services Thailand Ltd. ("FPSO Operator"), to operate the
FPSO on a reimbursable basis throughout the initial term of the Charter.
Performance of both the Charter and the agreement to operate the FPSO are
non-recourse to TS and the Company. However, TS's performance is secured by a
lien on any hydrocarbons stored on the FPSO and is guaranteed severally by each
of the Tantawan Concessionaires. The Company's guarantee is limited to its
percentage interest in the Tantawan Field (currently 46.34%).
The FPSO production facilities will include process facilities for separation
and treatment of the produced fluids, and compressors for gas. This equipment is
very similar to that utilized on conventional fixed platforms, except for
features that allow the equipment to function while subjected to the roll and
pitch of the FPSO. The production system will be capable of processing 150 MMcfd
(expandable to 300 MMcfd) of natural gas, 50 Mbpd of crude oil and condensate
and 25 Mbpd of produced water. Oil and condensate will be processed to an export
quality for storage on the FPSO and then offloaded to shuttle tankers. Natural
gas will be dehydrated and compressed for export via a 24 inch 33-mile spur
pipeline. Water will be cleaned to below 20 parts per million of oil in water
and discharged overboard.
The FPSO will provide sufficient storage for optimum offloading of oil to export
tankers, as well as provide spare capacity in the event of unscheduled delays in
tanker arrival. The storage capacity will be 1,000 MBbl, of which 700 MBbl will
comprise saleable crude, 200 MBbl will be required to store ballast water to
control hull stresses and 100 MBbl will be used to store oily water which does
not meet the discharge concentration criteria. Oil stored on the FPSO will be
offloaded periodically to export tankers using the tandem system where the
tankers are moored end to end. It is anticipated that the offtake tankers will
be provided by PTT.
The FPSO Operator will be responsible for the operation and maintenance of the
FPSO. Thaipo will provide a limited number of crew who will handle platform and
well operations. The crew, along with the FPSO Operator's personnel will be
housed on the FPSO. The terms and conditions of the agreement governing the
installation and operation of the FPSO will be set out in an Operating Agreement
between TS (as the Charterer) and the FPSO Operator.
BENCHAMAS PRODUCTION FACILITIES. A preliminary plan of development for the
Benchamas field contemplates the installation of satellite wellhead platforms, a
central processing facility platform with a daily capacity of 150 MMcf of
natural gas, 25 MBbl of oil and condensate and 25 MBbl of water and a living
quarters platform. Full wellstream production will flow through a gathering
system to the processing platform where the natural gas, oil and water will be
separated. The Company expects the Concessionaires will apply for approval to
develop the Benchamas field in late 1996 with production to commence in 1998.
The natural gas will be dehydrated, metered and compressed for delivery through
a 16 inch 32-mile pipeline which will tie directly into PTT's 33-mile spur
pipeline currently under construction. The crude oil and condensate will flow
through a 10 inch 32-mile pipeline to the import PLEM at the Tantawan FPSO for
additional processing, storage and sales. Any produced water will be treated to
meet minimum specifications and discharged.
PTT FACILITIES. PTT will supply those facilities required to transport the
sales gas from the export PLEM to PTT's main 36 inch diameter pipeline,
currently under construction, connecting the offshore Erawan field with Rayong,
Thailand. This will include facilities necessary to receive gas at the export
PLEM, the 24 inch 33-mile spur pipeline, and any communication equipment
installed by PTT on the FPSO. PTT has announced that its estimated budget for
its facilities is $40 million.
30
<PAGE>
MARKETING
GAS SALES AGREEMENT. Under the terms of the Concession, the government of
Thailand has first priority to purchase oil and natural gas produced from Block
B8/32. PTT is currently the sole purchaser of natural gas in Thailand and buys
all gas at the well-head from private producers. PTT also maintains a monopoly
over natural gas transmission and distribution in the country. The GSA was
signed on November 7, 1995, requiring PTT to purchase a yearly aggregate amount
from the Tantawan Concessionaires of at least 75 MMcfd gas for the first year of
production (expected to commence in January 1997) rising to at least 85 MMcfd in
the second year and thereafter determined by dividing the Field Reserves (as
defined in the GSA) by 6,000, which if such rate exceeds 125 MMcfd, such rates
are subject to further negotiation. The GSA terminates on the earlier of (i)
termination of the petroleum production period, (ii) the date when there are no
field reserves remaining, and (iii) 30 years from the contractual delivery date.
Under the GSA, which is a take or pay agreement, contracted deliveries of gas to
PTT are required to commence at the completion of a 72-hour production test or
on March 31, 1997. There is a run-in period from January 1, 1997 until March 31,
1997 during which time the parties to the GSA must use best endeavors to deliver
and take the contracted amount of natural gas. In the event that the required
reserves or production rates of natural gas at a specified quality level are not
delivered, then Thai Romo and the other Tantawan Concessionaires will be obliged
to contribute to PTT's capital costs incurred in the construction of the 24 inch
33-mile spur pipeline. Also, under the GSA, the Tantawan Concessionaires'
liability for failure to deliver the minimum contracted daily rate is limited to
PTT's right to take from subsequent deliveries an amount equal to the quantity
of natural gas not delivered at 75% of the contracted price. Based on prior DSTs
on wells within the Tantawan Field, the Company expects that it will be able to
meet the deliverability requirements for the GSA and that the production system
will be capable of handling such capacity. See "Risk Factors."
The natural gas price is based on formulae which provide adjustments to the base
price for natural gas on each April 1 and October 1. Adjustments will be made to
reflect changes in (i) the exchange rate, based on Baht/U.S. dollar buying and
selling rates of commercial banks published by the Bank of Thailand, (ii)
wholesale prices in Thailand, (iii) the U.S. producer price index for oil field
machinery and tools, and (iv) medium fuel oil prices. The currency of payment is
Baht. Fluctuations of greater than 5% in the Baht/U.S. dollar exchange rate are
taken into account when adjusting the prices in respect of the producer price
index for oil field machinery and tools and for changes to the medium fuel oil
price. The base price was estimated to be equivalent to approximately $2.00 per
Mcf at March 1, 1996.
OIL SALES. The Company expects that oil and condensate from Tantawan will be
purchased by PTT, which has the right of first refusal on any hydrocarbon
liquids produced domestically. The terms and conditions of a sales agreement are
under negotiation.
THAI CONCESSION TERMS
TERM. The Concession provides for an exploration period of six years ending July
31, 1997, which may be renewed upon agreement between the parties for an
additional three-year term. At the end of the initial exploration term on July
31, 1997, Thai petroleum law permits the government to grant, upon application
by the Concessionaires, an additional three-year exploration term on up to 50%
of the Concession acreage that has not been previously designated as a
production area or relinquished, subject to certain terms and conditions
including the agreement to undertake a work program and the payment of fees and
rentals to be negotiated.
Before the expiration of the exploration period, the Concessionaires may pay
surface reservations fees to retain acreage subject to forfeiture. Any fees
payable will be at the rate prescribed by Department of Mineral Resources on the
date of submission of the application for the surface reservation.
If production does not commence within four years of the designation of the
production area, the production period will be deemed expired. For the Tantawan
Field, production must commence by August 1999, unless an extension is granted
on the basis that the delay was not due to the fault of the Tantawan
Concessionaires. The petroleum production period for producing areas extends
twenty years from the date of termination of the exploration period plus a
10-year extension, subject to agreement on the terms thereof.
PRODUCTION BONUSES. Pursuant to the terms of the Concession, the Concessionaires
are required to make the following payments ("Production Bonuses") to the
Ministry of Finance: (i) $2 million upon the first production of petroleum from
the Block; (ii) $3 million when petroleum production from the Block reaches an
average of 50,000 barrels of crude oil equivalent per day in any one calendar
month; and (iii) $7.5 million when the petroleum production from the Concession
area reaches an average of 100,000 barrels of crude oil equivalent per day in
any calendar month.
31
<PAGE>
SALE TO THAI GOVERNMENT AND PREFERENCE FOR LOCAL SERVICES. The Concessionaires
are required to give first priority to the Thai government to purchase the oil
and natural gas produced by the Concessionaires. See "--Marketing--Gas Sales
Agreement." The Concessionaires also are required to give preference to the use
of local contractors, materials and equipment available in Thailand with regard
to transport vehicles and other matters related to the petroleum operation and
must also employ and train Thai nationals at all operational levels.
ROYALTIES. The following table summarizes the monthly royalties required to be
paid based on barrels of oil equivalent produced within Block B8/32 (natural gas
is converted to an equivalent under the royalty using a ratio of 10 MMbtu of
natural gas to one barrel of oil):
<TABLE>
<S> <C>
PERCENT OF VALUE
OF PRODUCT SOLD
MONTHLY VOLUME OF PRODUCT (IN BARRELS) OR DISPOSED
- -------------------------------------------------------------------- -----------------
Not exceeding 60,000 5.00%
Portion exceeding 60,000 but not exceeding 150,000 6.25
Portion exceeding 150,000 but not exceeding 300,000 10.00
Portion exceeding 300,000 but not exceeding 600,000 12.50
Portion exceeding 600,000 15.00
</TABLE>
SPECIAL REMUNERATORY BENEFIT. The Concessionaires are required to pay a Special
Remuneratory Benefit (the "Benefit") under the Thai Petroleum Act. The Benefit
is calculated annually on a block-by-block basis. No Benefit is payable if the
block has no Annual Petroleum Profit (as defined to be hydrocarbon revenues net
of, among other things, royalties, Production Bonuses, capital expenses and
operating expenses). The Benefit, expressed as a percentage of Annual Petroleum
Profit, varies from zero to 75%, depending on the level of annual revenue per
meter drilled in the Block.
TERMINATION AND REVOCATION. The Concession terminates (i) upon the termination
of the petroleum production period; (ii) when the Effective Concession Area (as
defined in the Concession) ceases to exist by virtue of the provisions of the
Petroleum Act B.E.2514, which governs statutory percentage relinquishment, or
through the voluntary relinquishment made by the Concessionaires; (iii) upon
revocation of the Concession; or (iv) upon termination of the Concessionaires'
status as a juristic person (I.E., subject to the jurisdiction of Thai courts).
Under the Petroleum Act, the Concession may be revoked by the Ministry of
Industry if the Concessionaires (i) fail to furnish the Production Bonuses or
pay the royalties, the Benefits or income taxes; (ii) become bankrupt; or (iii)
fail to comply with good petroleum industry practice or to conduct petroleum
operations with due diligence or violate certain other provisions of the
Concession (including giving special priority to Thai nationals) or of the
Petroleum Act (such as restrictions on transfer). Also, all production, storage
and transportation equipment and facilities must be turned over to the Thai
government at the end of the production term.
JOINT AND SEVERAL LIABILITY. Under the terms of the Concession, each of the
Concessionaires is jointly and severally liable for the obligations of the
Concessionaires, including payment of income taxes, under the Concession.
JOINT OPERATING AGREEMENT (TANTAWAN)
As a result of Maersk's decision not to participate in the development of the
Tantawan Field, the Tantawan Concessionaires entered into a separate joint
operating agreement effective as of March 3, 1995 with regard to the operation
of the Tantawan Field (the "JOA Tantawan").
OPERATOR AND OPERATING COMMITTEE. Thaipo was designated as Operator. The
Operator has the exclusive right and is obligated to conduct all operations on
behalf of the Tantawan Concessionaires relating to the Tantawan Field including
but not limited to the preparation and implementation of proposed work programs,
budgets and authorizations for expenditure, planning for obtaining for all
requisite services and materials, providing to each of the Tantawan
Concessionaires reports, data and information concerning the operation in the
Tantawan Field, subject to the supervision of the Operating Committee. The
Operating Committee consists of one representative of each Tantawan
Concessionaire with the Operator as the Chairman. Each party has a percentage
vote on the Operating Committee equal to its percentage interest. For
information on the percentage interest of each party, see "Business and
Properties--History of the Company's Gulf of Thailand Block B8/32 Operations."
All decisions of the Operating Committee require the affirmative votes of two or
more non-affiliated parties having an aggregate percentage interest of not less
than 51%. The approval of the Operating Committee is required with regard to the
general outline of all work programs, appraisal and development operations and
the budgets pertaining to operations in the Tantawan Field.
INSURANCE AND LITIGATION. The Operator has the obligation to obtain and
maintain all required insurance in respect of the operation in the Tantawan
Field. Liability for losses, damages, injury or other claims from operations
under the JOA Tantawan is to be borne by the Tantawan Concessionaires in
proportion to their percentage interests in the operation except for gross
negligence or willful misconduct of a Tantawan Concessionaire, in which case
such party will be solely liable.
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<PAGE>
APPRAISAL AND DEVELOPMENT OPERATIONS. If all the Tantawan Concessionaires agree
to participate in drilling a proposed appraisal or development well, the
Operator is to drill the well as a joint operation. If less than all, but two or
more of the Tantawan Concessionaires having a combined percentage interest of
51% elect to participate in a proposed operation, the operation is to be
conducted as a non-consent operation in which case the participating party has
the option of either limiting its participation to its percentage interest or to
pay and bear its proportionate part of the non-participating party's interest.
NON-CONSENT OPERATIONS. Upon commencement of non-consent operations, each
non-participating party's percentage interest and leasehold operating rights in
the non-consent operations and title to the petroleum produced therefrom is to
be owned by and vested in each participating party in proportion to its
participating interest prior to reversion, after recoupment of costs by the
participating parties out of the non-participating party's share of the proceeds
under the Concession, to the non-participating party. The participating parties
may recoup up to 1200% or 800%, in the case of appraisal operations and
development operations, respectively, of the share of the costs of the
non-participating party had the non-participating party participated.
DEFAULT. Under the JOA Tantawan, if any party fails to pay in full its
percentage interest share of any payment of cash required to be made pursuant to
a cash call, the non-defaulting parties are responsible to pay a proportion of
the amount defaulted in the same proportion that its percentage interest bears
to the total percentage interests of the non-defaulting parties. Failure by any
non-defaulting party to pay its share constitutes default by that non-defaulting
party.
DISPOSAL AND WITHDRAWAL. The JOA Tantawan limits the sale or transfer of
interests in the Tantawan Field including the sale or transfer of 50% or more of
the voting stock of any party to any third party who is not an affiliate. Such
sale or transfer is deemed to be a disposal of such party's interest under the
Concession and the JOA Tantawan. A disposal may not reduce the level of a
party's interest to less than 10%. The parties to the JOA Tantawan have a
preferential right to acquire the disposing party's interest. The disposing
party remains liable to the other parties for all obligations attaching to the
disposed interest. A Tantawan Concessionaire may voluntarily withdraw from the
JOA Tantawan provided that the other Tantawan Concessionaires are offered to
purchase the withdrawing party's interest in the proportion of each party's
interest in the Tantawan Field and the interest is not subject to any
encumbrances. The withdrawing party remains liable for its percentage interest
share of all outstanding expenditures and liability of any work program and
budget approved by the Operating Committee.
SEVERAL LIABILITY. Under the JOA Tantawan, the liability of the Tantawan
Concessionaires in the conduct of the joint operations in the Tantawan Field is
several. Each party agrees to indemnify each of the other parties, to the extent
of its percentage interest, for any claim or liability to any person not a party
thereto arising from or in connection with the JOA Tantawan.
JOINT OPERATING AGREEMENT (REMAINDER OF BLOCK B8/32)
The Company, Thaipo, Maersk Oil and Sophonpanich are parties to the Joint
Operating Agreement dated August 1, 1991 (the "JOA").
OPERATOR AND THE OPERATING COMMITTEE. Maersk Oil was appointed Operator for the
remainder of the Block. Terms and conditions under the JOA relating to the
Operator and the Operating Committee are substantially similar to those in the
JOA Tantawan, except all decisions of the Operating Committee require the
affirmative votes of two or more non-affiliated parties having an aggregate
percentage interest of not less than 60%. For information on percentage interest
of each party, see "Business and Properties--History of the Company's Gulf of
Thailand Block B8/32 Operations."
INSURANCE AND LITIGATION. Terms and conditions relating to insurance and
litigation under the JOA are substantially similar to those in the JOA Tantawan.
SOLE RISK OPERATIONS. Sole risk operations are defined in the JOA as those
operations proposed to the Operating Committee but not approved. These
operations may be carried out at the sole risk and expense of the sole risk
participants with non-participating parties relinquishing their interests in a
discovery or in the case of an appraisal well, a penalty equal to 600% of the
costs incurred by the sole risk participant from 50% of such non-participating
parties' share of production. In addition, the sole risk participants are
required to indemnify the non-sole risk participants, to the extent of their
respective percentage interest, against all claims brought by any third party in
connection with the sole risk operations.
DEFAULT. Terms and conditions relating to default under the JOA are
substantially similar to those in the JOA Tantawan.
DISPOSAL AND WITHDRAWAL. Terms and conditions relating to disposal and
withdrawal of interest in the remainder of the Block are substantially similar
to those in the JOA Tantawan. For information regarding a potential disposal by
Maersk of Maersk Oil, see "--History of the Company's Gulf of Thailand Block
B8/32 Operations."
33
<PAGE>
AREA OF MUTUAL INTEREST. An Area of Mutual Interest ("AMI") is established by
the JOA to cover the entire area over which the Thai government claims
jurisdiction to issue petroleum concessions except the Andaman Sea. If any party
of the JOA intends to apply or join in an application for a concession, or to
acquire any interest in a concession upon any area within the AMI, the other
parties to the JOA are entitled to participate therein.
SEVERAL LIABILITY. Under the JOA, the liability of the Concessionaires in the
conduct of the joint operations in the Block is several. Each party agrees to
indemnify each of the other parties, to the extent of its percentage interest,
for any claim or liability to any person not a party thereto arising from or in
connection with the JOA.
PROVED UNDEVELOPED RESERVES AND ESTIMATED NET CASH FLOWS
Presented below are estimates of the Company's proved undeveloped oil and
natural gas reserves and the Present Value of Proved Reserves (as defined in
"Certain Definitions") after giving effect to the Transactions. The reserve
estimates were prepared by Ryder Scott, independent petroleum engineers. For
additional information, see the Summary Reserve Report of Ryder Scott included
as Appendix A to this Prospectus. The estimates were prepared in accordance with
SEC regulations.
<TABLE>
<S> <C> <C> <C>
-------------------------------
DECEMBER 31,
1993 1994 1995
--------- --------- ---------
TOTAL NET PROVED UNDEVELOPED RESERVES
Oil and condensate (MBbls) 5,425 7,674 18,997
Natural gas (MMcf) 33,474 56,739 131,607
Natural gas equivalent (MMcfe) 66,024 102,783 245,589
PRESENT VALUE (DISCOUNTED AT 10%) OF ESTIMATED FUTURE NET CASH FLOWS,
BEFORE INCOME TAXES (IN THOUSANDS) $ 17,166 $ 52,112 $ 131,631
</TABLE>
There are numerous uncertainties inherent in estimating quantities of proved
undeveloped reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer, especially for the stage of development and complex and faulted nature
of Block B8/32. 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.
Results of drilling, testing and production subsequent to the date of an
estimate may justify revision of the estimate. Accordingly, as further
information is acquired for Block B8/32, reserve estimates are likely to be
different from the quantities of oil and gas that are ultimately recovered. In
addition, the reserve data included in this Prospectus are based upon,
volumetric information rather than production as no production history from the
wells within the Block exists. See "Risk Factors."
RESERVE QUANTITIES. The preceding table sets forth historical estimates of the
Company's combined proved undeveloped reserves, after giving effect to the
Transactions. The Company has no proved developed reserves. Proved developed
reserves are reserves that can be expected to be recovered from existing wells
with existing equipment and operating methods. Proved undeveloped reserves are
proved reserves that are expected to be recovered from new wells drilled to
known reservoirs on undrilled acreage where the existence or recoverability of
reserves can be estimated with reasonable certainty, or from existing wells
where a relatively major expenditure is required for recompletion. The Company
has interest in certain tracts that may have substantial additional hydrocarbon
quantities which cannot be classified as proved. The Company has active
exploration and development drilling programs which may result in the
reclassification of significant additional quantities as proved reserves.
RESERVE VALUES. The preceding table sets forth estimated future net cash flows
from the production and sale of the Company's estimated proved undeveloped
reserves and the present value thereof (discounted at 10%). The estimated future
net cash flows are computed after giving effect to estimated future development
and production costs, based on year-end costs and assuming the continuation of
existing economic conditions. The calculation does not take into account the
effect of delay in commencement of production, various cash outlays, including
general and administrative costs and interest expense, and does not give effect
to estimated future income taxes. See "Note 8 of the Notes to Combined Financial
Statements." In addition, production facilities for the Tantawan Field are not
completed and no development plans for the Benchamas field have been submitted
to or approved by the Thai government.
The prices used in the information presented above were based on oil and natural
gas prices estimated that the Company would have received at the end of each
reported period without escalation. The prices as of December 31, 1995 were
$2.02 per Mcf of natural gas and $18.71 per barrel of crude oil, compared to
prices at December 31, 1994 and 1993 of $2.25 and $2.40, respectively, per Mcf
of natural gas and $18.00 and $13.00, respectively, per barrel of crude oil. In
preparing the 1995 estimates, Ryder Scott used prices that the Company estimates
that it would have received at December 31, 1995 had the Tantawan and Benchamas
fields been producing at such time.
34
<PAGE>
In computing the present value of the estimated future net cash flows, a
discount rate of 10% was used pursuant to SEC regulations to reflect the timing
of those net cash flows. Present value, regardless of the discount rate used, is
materially affected by assumptions about timing of future production, which may
prove to have been inaccurate. The preceding reserve value data represent
estimates only, which are subject to uncertainty given the current energy
markets.
Additional reserve information is included in "Note 8 of the Notes to Combined
Financial Statements" (the "Supplementary Information") accompanying the Notes
to the Company's Combined Financial Statements presented elsewhere in this
Prospectus. The estimates of future net cash flows from the Company's proved
undeveloped reserves set forth in the preceding table and elsewhere in this
Prospectus differ from the comparable quantities in the table of the
Standardized Measure of Discounted Future Net Cash Flows included in the
Supplementary Information since the Supplementary Information gives effect to
estimated future income taxes.
During 1995, no estimates by the Company of its total proved net oil and natural
gas reserves were filed with or included in reports to any Federal authority or
agency.
OIL AND NATURAL GAS ACTIVITIES
PRODUCTIVE WELLS. As of January 1, 1996, the Company owned interests in the
following wells capable of production pending completion and installation of
production facilities:
<TABLE>
<CAPTION>
--------------------
<S> <C> <C>
GROSS NET
--------- ---
Oil & Gas Wells 13 5.1
</TABLE>
DRILLING ACTIVITY. The following table sets forth the number of gross and net
productive and dry development wells and exploratory wells drilled by the
Company during the years indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS EXPLORATORY NET DEVELOPMENT NET EXPLORATORY
DEVELOPMENT WELLS
WELLS WELLS WELLS
-------------------- -------------------- -------------------- --------------------
YEAR SUCCESSFUL DRY SUCCESSFUL DRY SUCCESFUL DRY SUCCESSFUL DRY
--------- --- --------- --- --------- --- --------- ---
1995 7 - 3 1 3.2 - .9 .5
1994 - - 4 1 - - 1.3 .3
1993 - - 2 2 - - .6 .6
</TABLE>
From January 1, 1996 to May 31, 1996, the Company drilled 8 gross (3.7 net)
development wells, 6 of which were successful, and 7 gross (2.8 net) exploration
wells, all of which were successful.
ACREAGE. The following table summarizes the Company's interest in developed and
undeveloped oil and natural gas acreage as of December 31, 1995:
<TABLE>
<CAPTION>
- -------------------------------------------
<S> <C> <C> <C>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
(1) (2)
GROSS NET GROSS NET
- --------- --- ---------- ---------
- - 1,351,639 438,115
</TABLE>
(1)"Developed acreage" consists of lease acres spaced or assignable to
production on which wells have been drilled or completed to a point that would
permit production of commercial quantities of oil and natural gas.
(2)None of the Company's net undeveloped acreage will need to be relinquished in
1996. See "Business and Properties--Current Fields and Prospects--Benchamas
Field."
TAX REGULATION
GENERAL
Anticipated profits derived from Thai Romo's operations will be subject to
taxation in both Thailand and the United States. In addition, the Share
Exchanges and the Note Exchanges will have certain tax consequences for the
Company and TRH. For purposes of the disclosure under this caption "--Tax
Regulation," the Share Exchanges and the Note Exchanges shall be deemed to
include the transfer of Thai Romo shares and notes (other than such securities
held by RMEC) from the Company to TRH in
35
<PAGE>
exchange for TRH stock. See "The Transactions." The taxation of Thai Romo's
profits and the tax consequences of the Share Exchanges and the Note Exchanges
will directly affect the Company, RMEC and TRH, but will not directly affect any
purchaser of shares of the Common Stock in the Offerings.
The discussion regarding certain Thailand tax consequences to Thai Romo, RMEC,
TRH and the Company set forth below is based on the advice of Baker & McKenzie,
special Thailand tax counsel to the Company, and the discussion regarding
certain United States federal income tax consequences to the Company, RMEC and
TRH set forth below is based on the advice of Fulbright & Jaworski L.L.P.,
United States tax counsel to the Company. No opinions of tax counsel have been
requested or received with respect to the Thailand and United States tax
consequences to Thai Romo, RMEC, TRH and the Company discussed below.
CERTAIN THAILAND TAX CONSEQUENCES
TAX CONSEQUENCES TO THAI ROMO. Under the Petroleum Income Tax Act B.E. 2514 and
(No.4) B.E. 2532, Thai Romo's net profits derived from the petroleum business
are subject to Thai income tax at the rate specified by the Royal Decree
Prescribing Petroleum Income Tax Rates B.E. 2514, which must not be lower than
50% and not be higher than 60% of such net profits. Under the Royal Decree, the
Thai income tax rate to be imposed on Thai Romo's anticipated net profits
derived from its petroleum business is 50%.
In computing Thai Romo's anticipated net profits from its petroleum business
that will be subject to Thai tax, any interest paid on loans by Thai Romo to any
lenders or shareholders, whether or not resident or doing business in Thailand,
is not deductible. Royalties to be paid by Thai Romo to the Ministry of Industry
that are required under the Concession are deductible in computing Thai Romo's
net profits from its petroleum business.
TAX CONSEQUENCES TO RMEC, TRH AND THE COMPANY. Interest on loans paid by Thai
Romo to lenders or shareholders who are not residents of, or doing business in,
Thailand generally is subject to Thai withholding tax at the rate of 15%. The
Notes received by the Company and then transferred to TRH in the Note Exchanges
and the Notes held by RMEC do not bear interest. Under Thailand tax law, no
interest should be imputed with respect to such Notes; therefore, no Thai
interest withholding tax should be imposed on Thai Romo's repayment of the Notes
to RMEC and TRH.
Dividends paid by Thai Romo to its shareholders out of its net profits from the
petroleum business should be exempt from Thailand dividend withholding tax.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY, RMEC AND
TRH
THE SHARE EXCHANGES AND NOTE EXCHANGES. The Share Exchanges and the Note
Exchanges should not result in the recognition of gain or loss to the Company,
RMEC or TRH. The Share Exchanges and the Note Exchanges should qualify under
Code Section 351 as transfers of property by the former shareholders of RMEC and
by the former shareholders and Noteholders of Thai Romo to the Company in
exchange for Common Stock in the Company, followed by the transfer of this
property (other than the stock of RMEC) by the Company to TRH in exchange for
common stock in TRH. Accordingly, the aggregate tax bases of the RMEC stock, the
Thai Romo stock and the Notes received by the Company would be the same as the
aggregate tax bases of the shares of such stock and the Notes in the hands of
the former RMEC shareholders and the former Noteholders and shareholders of Thai
Romo immediately prior to the Share Exchanges and the Note Exchanges, increased
by the amount of gain, if any, recognized by such former RMEC and Thai Romo
securityholders in the Share Exchanges and the Note Exchanges. Further, the
aggregate tax bases of the shares of Thai Romo stock and the Notes received by
TRH from the Company would be the same as the aggregate tax bases of these
shares and Notes in the hands of the Company immediately prior to the exchange
with TRH.
CLASSIFICATION OF THAI ROMO. For United States federal income tax purposes, the
shareholders of Thai Romo before the Share Exchanges and Note Exchanges have
treated Thai Romo as a partnership rather than a corporation. After the Share
Exchanges and Note Exchanges, the Company, RMEC and TRH intend to continue to
treat Thai Romo as a partnership for United States federal income tax purposes,
although such treatment will not be free from doubt. To continue to qualify as a
partnership for United States federal income tax purposes after the Share
Exchanges and Note Exchanges, Thai Romo must not possess the corporate
characteristics of continuity of life and free transferability of interests as a
result of provisions in the Articles of Association of Thai Romo that are
enforceable under Thai law. Therefore, in connection with the Share Exchanges
and Note Exchanges, the Articles of Association of Thai Romo will be amended to
provide that no shareholder may transfer a share in Thai
36
<PAGE>
Romo to anyone who is not already a shareholder in Thai Romo. Notwithstanding
the previous sentence, a transfer of shares of Thai Romo to any person which
results from or forms part of the enforcement of any pledge of the shares of
Thai Romo is permitted and shall, upon receiving written notice from the
relevant transferee of shares, be registered by Thai Romo in its share register
book. The Articles of Association will also be amended to provide that the first
to occur of (a) the bankruptcy of any shareholder of Thai Romo, or (b) RMEC or
TRH ceasing for any reason to be a shareholder of Thai Romo, will cause an
automatic dissolution of Thai Romo unless, in either event, Thai Romo is
continued by the consent of not less than a majority in interest of the
remaining shareholders.
In the event that RMEC or TRH ceased for any reason to be a shareholder of Thai
Romo or any shareholder of Thai Romo became bankrupt, Baker & McKenzie, special
Thai counsel to the Company, has advised that Thai Romo would be automatically
dissolved under Thai law without further shareholder action, unless not less
than a majority of the remaining shareholders of Thai Romo voted to continue
Thai Romo. It is anticipated that RMEC and TRH will enter into a written
agreement with a commercial lender in which they will agree not to voluntarily
cease to be a shareholder of Thai Romo without the advance written consent of
the lender. This separate agreement with such lender will restrict the right of
RMEC or TRH to unilaterally cause the automatic dissolution of Thai Romo, but
will not affect the power of RMEC or TRH under Thai Romo's Articles of
Association to unilaterally cause such a dissolution.
If Thai Romo is treated as a partnership, each of TRH, RMEC and the other
shareholders of Thai Romo will be treated as partners in Thai Romo. Each such
partner will be required to take into account its allocable share of the items
of income, gain, loss, deduction and credit of Thai Romo, determined under
United States tax accounting rules, in determining its United States federal
income tax liability, regardless of the amount of cash dividends, if any, paid
by Thai Romo with respect to its shares. Thai Romo's functional currency is
presently, and is anticipated to continue to be, the United States dollar.
Therefore, allocations of income, gain, loss, deduction and credit of Thai Romo
to its partners will be reported in United States dollars, and no significant
currency exchange gains or losses are expected to be recognized as a result of
such allocations. Foreign tax credits allocated to each of RMEC and TRH are
expected to partially offset the United States federal income tax liability of
RMEC and TRH attributable to the net income of Thai Romo. See "--Creditability
of Thai Petroleum Income Tax" and "--Alternative Minimum Tax," discussed below.
If Thai Romo were treated as a corporation for United States federal income tax
purposes, TRH and RMEC generally would not be required to take into income any
amounts with respect to Thai Romo until Thai Romo paid dividends or other items
of income to its shareholders. If as a result of amendments to Thai Romo's
Articles of Association that restrict the transfer of Thai Romo shares and
provide for RMEC and TRH withdrawal as a dissolution event, Thai Romo's
classification for United States federal income tax purposes changes from that
of a partnership to a corporation, such change in classification might be
treated as an outbound taxable transfer of partnership assets to a foreign
corporation. Although the outbound transfer might be taxable to the former
shareholders of Thai Romo who were shareholders when the change in
classification occurred, neither the Company, TRH nor RMEC should recognize any
significant gain or loss as the result of any such change in classification of
Thai Romo. If Thai Romo were treated as a corporation for United States federal
income tax purposes, the United States federal income tax liability of TRH and
RMEC arising from dividends, if any, paid by Thai Romo to its shareholders would
be expected to be partially offset by Code section 902 foreign tax credits
attributable to Thai taxes paid by Thai Romo. See "--Creditability of Thai
Petroleum Income Tax" and "--Alternative Minimum Tax," discussed below.
CREDITABILITY OF THAI PETROLEUM INCOME TAX. Various provisions of the United
States Internal Revenue Code, including sections 901(b), 901(e), 901(f), 904 and
907(a), and the regulations promulgated thereunder, reduce the amount of foreign
tax credit otherwise available to a domestic corporation that is deemed to pay
its pro rata share of foreign taxes paid by a partnership (i.e., Thai Romo) to a
foreign government on foreign mineral income. The regulations under section
901(b) may cause a reduction in creditable foreign tax below the United States
corporate tax rate, with the result that the reduced foreign tax credit will not
fully offset the United States tax liability imposed on the United States
corporation's foreign source mineral income. The regulations under section 901
treat any taxpayer who has, directly or indirectly through a controlled person,
a concession to extract foreign government-owned petroleum as having received a
specific economic benefit from the foreign government. Persons who have received
a specific economic benefit are defined by the regulations as "dual capacity
taxpayers."
The section 901 regulations generally treat a portion of any foreign levy paid
by a dual capacity taxpayer as payment in the nature of a royalty for the
economic benefit, rather than as a creditable foreign tax. The dual capacity
taxpayer is required to affirmatively demonstrate to the Internal Revenue
Service the portion of the foreign levy that qualifies as a creditable tax by
using one of various methods. Under the "safe harbor" method, the taxpayer is
permitted to make an irrevocable election for all
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taxable years to determine the portion of the foreign levy that qualifies as a
creditable tax by reference to the general tax rate that applies in the foreign
country to persons who are not dual capacity taxpayers. The Company, on behalf
of TRH and RMEC, presently intends to elect to use the safe harbor method to
determine the amount of Thai Petroleum Income Tax paid by Thai Romo that will
qualify as a creditable tax, but such intention may change if another method
appears more favorable at the time the election is required to be made.
The safe harbor method is intended to yield a qualifying tax credit amount that
is roughly equal to the amount of generally imposed income tax (i.e., the
general corporate income tax) in Thailand that would have been required to be
paid by Thai Romo if it had not been a dual capacity taxpayer and if the general
corporate income tax had allowed a deduction for the specific economic benefit
amount. The calculations required to determine the precise amount of Thai tax
that would be creditable under the safe harbor method may, in certain cases,
substitute gross income and deductions that would have been included and
deducted, respectively, under the Thai general corporate income tax for amounts
that in fact will be included and deducted under the Thai Petroleum Income Tax
Act based on the future operations of Thai Romo. Therefore, it is impossible to
accurately determine in advance what portion, if any, of the Thai Petroleum
Income Tax would be deemed to be non-creditable under the safe harbor method. It
is possible, however, that under the safe harbor method, the amount of Thai
Petroleum Income Tax treated as a creditable tax will be less than 35%, with the
result that TRH and RMEC will owe residual United States income taxes on their
pro rata shares of Thai Romo's net taxable income allocated to them, even though
Thai Romo would have paid Thai Petroleum Income Tax at the rate of 50%.
ALTERNATIVE MINIMUM TAXABLE INCOME. In addition to the provisions discussed
above, which generally limit the amount of foreign taxes that can be credited
against the United States tax liability of RMEC and TRH, special rules apply for
purposes of computing the alternative minimum tax. In general, the alternative
minimum tax foreign tax credit can only offset up to 90% of a corporation's
alternative minimum taxable income. Therefore, even if RMEC and TRH pay little
or no regular corporate tax, they probably will be subject to alternative
minimum tax at the rate of 20% on the 10% of their alternative minimum taxable
income that is not eligible for offset by the alternative minimum tax foreign
tax credit.
CONSOLIDATED FEDERAL INCOME TAX RETURNS BY THE COMPANY AND RMEC. After the
Share Exchanges, RMEC, TRH and the Company intend to file consolidated United
States federal income tax returns. Therefore, items of Thai Romo's income, gain,
loss, deduction and credit allocated to RMEC and TRH will be included in the
Company's consolidated federal income tax return. Dividends, if any, and
interest paid by RMEC and TRH to the Company generally will be eliminated in the
preparation of the Company's consolidated federal income tax returns.
EMPLOYEES
As of May 31, 1996, the Company had 13 full-time employees, none of whom is
represented by any labor union.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors is currently composed of three members and will
be expanded to seven members prior to the Offerings.
The following table sets forth the names, ages and titles of the Company's
directors and executive officers as of the time of the Offerings.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John A. Moran (1)(2)(4) 64 Chairman of the Board
Patrick R. Rutherford 62 President, Chief Executive Officer and Director
(1)(2)(4)
Michael D. McCoy (1)(3) 43 Executive Vice President, Chief Operating Officer and Director
David F. Chavenson 43 Vice President and Chief Financial Officer
Gregory Nelson 49 Vice President, Exploration
Howard Gittis (1)(4)(5) 62 Director
Jere W. McKenny (2)(3)(5) 67 Director
Harry C. Lee (3)(4)(5) 64 Director
Chote Sophonpanich (2)(3)(5) 54 Director
</TABLE>
- ------------
(1)Member of the Executive Committee
(2)Member of the Nominating Committee
(3)Member of the Audit Committee of the Board of Directors
(4)Member of the Compensation Committee of the Board of Directors
(5)To be elected immediately prior to the closing of the Offerings
The Board of Directors will be elected by the stockholders of the Company at
annual stockholders' meetings. In addition, pursuant to the Company's Restated
Certificate of Incorporation, the Board has the exclusive right to fill
directorships resulting from vacancies or increases in the number of directors.
Cumulative voting will not apply to the election of directors.
Each executive officer has been elected to serve until his successor is duly
appointed or elected by the Board of Directors or his earlier removal or
resignation from office.
The following provides information with respect to the business experience of
the executive officers and existing and proposed directors of the Company.
JOHN A. MORAN has been Chairman of the Board of RMOC since its inception. He has
been President of RMEC since September 1993. Since April 1967, Mr. Moran has
been a Director and Officer of the Dyson-Kissner-Moran Corporation, a private
holding company engaged primarily in the manufacturing and distribution of
industrial and consumer products and a developer of commercial and industrial
real estate on the east coast of the United States ("DKM"). Since 1967 until his
retirement in 1992, Mr. Moran has been successively, Vice President, Executive
Vice President, President, Chairman of the Board and Chairman of the Executive
Committee of DKM. Prior to joining what was then the Dyson-Kissner Corporation,
Mr. Moran was a Vice President of Blyth & Co., Inc., investment bankers, in
their New York and Los Angeles offices. Mr. Moran is a Director of Bessemer
Securities Corporation, New York City and the Coleman Company of Golden,
Colorado. He holds a B.S. in Banking and Finance from the University of Utah and
an honorary L.L.B. from that institution. He is a member and former Chairman of
the National Advisory Council of the University of Utah, and a former Director
of the United Nations Association and trustee of the Brooklyn Museum. He is a
member of the Chief Executives Organization and The Foreign Policy Association.
PATRICK R. RUTHERFORD has been President and Chief Executive Officer of RMOC
since its inception. He has been Chairman of the Board of RMEC since its
incorporation. Since 1973, he has been Chairman of the Board and part owner of
Rutherford Oil Corporation (an oil and gas exploration and production company
that serves as operator of wells located in Texas and Louisiana and of producing
platforms in the Gulf of Mexico). He also served on the Board of Regents of West
Texas State University and was President of the Houston Speech and Hearing
Center. He has also served as a director of First Interstate Bank of Texas,
Texas Commerce Bancshares, OKC Corporation, Olix Company, The University of
Texas Health Science Center Development Board, the Geological Foundation of the
University of Houston, and he was one of the founding directors of Southwest
Airlines.
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<PAGE>
MICHAEL D. MCCOY has been Executive Vice President and Chief Operating Officer
of RMOC since its inception. He has been Executive Vice President and Director
of RMEC since September 1990. Prior to joining the Company, Mr. McCoy served as
Manager of Land and Legal of Rutherford Oil Corporation. Mr. McCoy received his
B.A. degree from The University of Texas in 1974 and J.D. degree from South
Texas College of Law in 1977.
DAVID F. CHAVENSON has been Vice President and Chief Financial Officer of the
Company since April 1996. Mr. Chavenson was Treasurer of ORYX Energy Company, an
oil and gas exploration and production company (previously Sun Exploration and
Production Co.) ("ORYX"), from 1993 to April 1996. Prior to that, during his 18
years with ORYX, he served as Assistant Treasurer and Manager of Corporate
Finance, Manager of Financial Analysis and Senior Financial Specialist of ORYX.
Mr. Chavenson holds a B.A. in Economics from Dickinson College and received an
M.B.A. from Harvard Business School.
GREGORY NELSON has been Vice President, Exploration of RMOC since its inception.
From 1984 to 1992, Mr. Nelson was employed by Rutherford Oil Corporation as an
explorationist. From 1977 to 1984, Mr. Nelson was with Mobil Oil Corporation.
His duties at Mobil included exploration, with both geological and geophysical
responsibility, in the Gulf of Mexico and North Africa. His last position at
Mobil was Manager of Production Geology, North Texas and San Juan Basin, New
Mexico. He has a B.A. in Geology from Winona State College and pursued post
graduate studies in geology at The Ohio State University from 1974 to 1977.
HOWARD GITTIS will be elected, and has consented to serve, as a director of the
Company immediately prior to the closing of the Offerings. Mr. Gittis is the
Vice Chairman & Chief Administrative Officer of MacAndrews & Forbes Holdings,
Inc., a diversified holding company with interests in consumer products,
financial services, entertainment, and publishing. His other directorships
include Andrews Group Incorporated, Consolidated Cigar Corporation, First
Nationwide Holdings Inc., First Nationwide Bank, a Federal Savings Bank, Mafro
Consolidated Group Inc., Mafro Worldwide Corporation, New World Television Inc.,
Power Control Technologies Inc., Revlon, Inc., Revlon Consumer Products
Corporation, the Loral Corporation and Jones Apparel Group. Prior to joining
MacAndrews & Forbes in 1985, Mr. Gittis was a partner at the Philadelphia law
firm of Wolf, Block, Schorr and Soils-Cohen ("Wolf Block") where he had served
as Chairman of the Executive Committee. His tenure at Wolf Block lasted over 25
years and concentrated on general litigation, real estate, and corporate
acquisition and divestiture work. Mr. Gittis is a member of the Board of
Overseers of the University of Pennsylvania Law School, a Trustee of Temple
University and a member of the Board of Visitors of Temple University School of
Law. Mr. Gittis holds two degrees from the University of Pennsylvania, a B.S. in
Economics and an L.L.B. from the Law School.
JERE W. MCKENNY will be elected, and has consented to serve, as a director of
the Company immediately prior to the closing of the Offerings. Prior to his
retirement in 1993, Mr. McKenny was President and Chief Operating Officer for
Kerr-McGee Corporation ("Kerr-McGee") for nine years. He also served as
President, Vice Chairman of the Board, Vice President--Exploration and Vice
President--Oil and Gas Exploration of the company during his forty years'
employment with Kerr-McGee. Mr. McKenny is serving on the School of Geology and
Geophysics Advisory Board, College of Business Administration Board of Advisors
and College of Engineering Board of Visitors Advisory Board of the University of
Oklahoma and serving on the Executive Committee and Board of Directors of Allied
Arts Foundation. Mr. McKenny holds a B.S. and an M.S. in Geological Engineering
from the University of Oklahoma.
HARRY C. LEE will be elected, and has consented to serve, as a director of the
Company immediately prior to the closing of the Offerings. Mr. Lee is an energy
resources consultant in the area of oil and gas exploration and production.
Before his retirement in 1993, Mr. Lee was with Unocal Corporation ("Unocal")
for 34 years. During his tenure at Unocal, Mr. Lee served in various executive
and managerial functions at both parent and subsidiary levels of the company,
including Energy Resources Vice President--Operations for major international
and domestic business units from 1992 to 1993, President of Unocal International
Oil & Gas Division 1988 to 1992, and Vice President and General Manager of Union
Oil Company of Indonesia 1978 to 1982. Mr. Lee holds a B.S. in Geology and an
M.S. in Geology from University of Oklahoma.
CHOTE SOPHONPANICH will be elected, and has consented to serve, as a director of
the Company immediately prior to the closing of the Offerings. Mr. Sophonpanich
is Executive Chairman of Green Spot (Thailand) Co. Ltd. and Chairman of
Krungdhep Sophon Public Company Ltd., Eternal Petrochemicals Co. Ltd. and C.S.
Capital Ltd., all of which are companies organized under the laws of the Kingdom
of Thailand. He is serving as a non-executive director of the Bangkok Bank with
which he has been affiliated since 1966. Mr. Sophonpanich is also a director of
Chote Chalit Co. Ltd., Shangri-la Hotel Public Company Ltd., Siam Food Products
Public Company Ltd., The Sophonpanich Co. Ltd., a Concessionaire, Thoresen
Agency Public Company Ltd., Union Plastic Public Company Ltd., Union Textile
Industries Public Company Ltd., Wilson Insurance Ltd. in Thailand. He
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also is serving as a non-executive director of companies outside of Thailand,
such as Bangkok Investments Ltd. and its subsidiaries of Cayman Island, First
Overseas Bangkok Investments Pte. Ltd. of Singapore and Stelux Co. Ltd. of Hong
Kong. Mr. Sophonpanich graduated from the University of Sydney with a Bachelor's
degree in Economics.
COMMITTEES
Pursuant to the Company's Bylaws, the Board has established standing Audit,
Compensation, Executive and Nominating Committees. The Audit Committee
recommends to the Board the selection and discharge of the Company's independent
auditors, reviews the professional services performed by the auditors, the plan
and results of the auditing engagement and the amount of fees charged for audit
services performed by the auditors, and evaluates the Company's system of
internal accounting controls. The Compensation Committee recommends to the Board
the compensation to be paid to the Company's directors, executive officers and
key employees and administers the compensation plans for the Company's executive
officers. The Executive Committee acts on behalf of the Board between regularly
scheduled meetings of the Board. The Nominating Committee is responsible for
recommending to the Board the slate of director nominees to be voted on by the
stockholders of the Company.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $15,000 per year for
serving on the Board of Directors, $1,500 for each board meeting attended and
$750 for each committee meeting attended.
EXECUTIVE COMPENSATION
The following table contains compensation data for the Chief Executive Officer
and the other executive officers of the Company whose total salary and bonus
exceeded $100,000 for the year ended December 31, 1995.
1995 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
--------------------------------------
<S> <C> <C> <C>
ANNUAL COMPENSATION
--------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL
POSITION SALARY BONUS COMPENSATION(1)
---------- --------- ---------------
Patrick R. Rutherford -- -- --
Michael D. McCoy $ 154,000 $ 30,000 --
Gregory Nelson 87,350 20,000 --
</TABLE>
- ------------
(1)Excludes perquisites of less than the lesser of 10% of total annual
compensation or $50,000.
KEY EMPLOYEE STOCK PLAN
The Company has established an incentive stock option and restricted stock plan,
the Rutherford-Moran Oil Corporation 1996 Key Employee Stock Plan (the "1996
Plan"), pursuant to which options to purchase shares of Common Stock and awards
of restricted shares of Common Stock will be available for future grants.
The 1996 Plan is designed to provide certain full-time key employees, including
officers and employee-directors of the Company, with additional incentives to
promote the success of the Company's business and to enhance the Company's
ability to attract and retain the services of qualified persons. The 1996 Plan
will be administered by the Compensation Committee or such other committee of no
less than two persons (the "Committee") appointed by the Board of Directors.
Committee members may not be employees of the Company and must not have been
eligible to participate under the 1996 Plan for a period of at least one year
prior to being appointed to the Committee. Under the Plan, options to purchase
Common Stock and restricted stock awards up to an aggregate of 500,000 shares of
Common Stock may be granted by the Committee. The maximum number of shares
subject to options that may be issued to, and the maximum number of shares
subject to restricted stock awards that may be granted to, any employee during
any year is 75,000 and 50,000 shares, respectively. The exercise price of an
option granted pursuant to the 1996 Plan may not be less than the fair market
value of the Common Stock on the date of grant. In the case of a grant of an
option designated as an "Incentive Option" to an employee who owns ten percent
or more of the outstanding shares of Common Stock (a "10% Stockholder"), the
exercise price of each such option under the 1996 Plan may not be less than 110%
of the fair
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<PAGE>
market value of the Common Stock on the date of the grant. No option may be
granted under the 1996 Plan with a duration of more than ten years. In the case
of a 10% Stockholder, no option designated as an "Incentive Option" may be
granted with a duration of more than five years. Options designated as
"Incentive Options" under the 1996 Plan may be treated as such only to the
extent that the aggregate fair market value of the stock with respect to which
options are exercisable for the first time by the option holder in any calendar
year, under the 1996 Plan or any other incentive stock option plan of the
Company, does not exceed $100,000 valued as of the date of grant. Under the 1996
Plan, the Committee may issue shares of restricted stock to employees for no
payment by the employee or for a payment below the fair market value on the date
of grant. The restricted stock is subject to certain restrictions described in
the 1996 Plan, with no restrictions continuing for more than ten years from the
date of the award. The 1996 Plan may be amended by the Board of Directors
without any requirement of stockholder approval, except as required by Rule
16b-3 under the Exchange Act ("Rule 16b-3") to obtain the benefits under such
Rule and the incentive option rules of the Internal Revenue Code of 1986. To
date, no options or restricted stock awards have been granted under the 1996
Plan. Contemporaneously with the Offerings, the Company intends to grant options
exercisable for 45,000, 23,250 and 18,750 shares of Common Stock to Messrs.
McCoy, Chavenson and Nelson, respectively, at the initial public offering price.
In addition, the Company intends to grant to Messrs. McCoy, Chavenson and Nelson
restricted stock awards in the amount of 20,000, 5,813 and 9,000 shares,
respectively. These executive officers will not be required to make any payment
for these restricted stock awards, which will vest over five years in 20%
increments. Restrictions on transfer and forfeiture provisions upon termination
of employment will apply to the restricted stock covered by these awards for a
period of up to five years, after which time the restrictions will lapse and all
of the stock will be owned by the employees free of further restrictions under
the 1996 Plan.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company has established the Rutherford-Moran Oil Corporation 1996
Non-Employee Director Stock Option Plan (the "1996 Director Plan"), pursuant to
which options to purchase shares of Common Stock will be available for future
grant to non-employee directors. The 1996 Director Plan is designed to enhance
the Company's ability to attract and retain the services of qualified persons as
directors and to provide such directors with a direct proprietary interest in
the success of the Company. The 1996 Director Plan will be administered by the
Board of Directors of the Company. Under the 1996 Director Plan, an aggregate of
50,000 shares of Common Stock will be available for grant of options to purchase
Common Stock. The exercise price of an option granted pursuant to the 1996
Director Plan may not be less than the fair market value of the Common Stock on
the date of grant. No option may be granted under such Plan with a duration of
more than ten years. The 1996 Director Plan generally may be amended by the
Board of Directors without any requirement of stockholder approval except to the
extent required by Rule 16b-3 to qualify for the benefits of such Rule. To date,
no options have been granted under the 1996 Director Plan. Contemporaneously
with the Offerings, the Company intends to grant options to each non-employee
director to acquire 2,500 shares of Common Stock at an exercise price equal to
the per share price to the public for Common Stock to be acquired in the
Offerings as set forth on the cover page of this Prospectus. Thereafter, the
1996 Director Plan provides for the annual grant of an option to acquire 1,000
shares of Common Stock to each non-employee director serving on the Board of
Directors following each annual meeting of the stockholders.
401(K) PLAN
The Company intends to adopt a 401(k) Plan (the "401(k) Plan") under which
substantially all U.S. employees of the Company and its subsidiaries who have
completed at least six months of service are eligible to participate. The 401(k)
Plan will permit eligible employees to contribute up to 15 percent of their
annual compensation subject to a maximum dollar amount established in accordance
with Section 401(k) and other provisions of the Internal Revenue Code of 1986.
SEVERANCE ARRANGEMENT
As the Company's Chief Financial Officer, Mr. Chavenson is compensated at a base
salary of $155,000 per year and is eligible for incentive bonuses of up to 35%
of his annual base salary, subject to review and adjustment by the Board. In the
event Mr. Chavenson's employment with the Company is terminated without Cause
(as defined below), he is entitled to receive (i) payment of one year of his
base salary and bonus (if any), (ii) one year of medical, dental and life
insurance coverage, (iii) the right to vest immediately all stock options and
restricted stock under the 1996 Plan; (iv) relocation assistance, and (v)
outplacement benefits. "Cause" is defined as (i) any material failure by Mr.
Chavenson after written notice to perform his duties when such failure shall
have continued for 30 days after receipt of such notice, (ii) commission of
fraud by Mr. Chavenson
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<PAGE>
against the Company, its affiliates or customers, or (iii) conviction of Mr.
Chavenson of a felony offense or a crime involving moral turpitude. In the event
Mr. Chavenson's employment with the Company is terminated following a Change of
Control (as defined in the 1996 Plan), he is entitled to (i) payment of two
years of base salary and bonus (if any), (ii) two years of medical, dental and
life insurance coverage, (iii) relocation assistance, and (iv) outplacement
benefits.
CERTAIN RELATED PARTY TRANSACTIONS
STOCKHOLDER LOANS TO RMEC AND TRANSACTIONS
During the period June 1, 1991 through March 31, 1996, the current shareholders
of RMEC advanced funds to RMEC in exchange for certain unsecured, demand
promissory notes (the "Promissory Notes"). The Promissory Notes relating to
advances made prior to 1995 accrue interest at a prime rate (the "Prime Rate")
while Promissory Notes relating to advances made during 1995 accrue interest at
the Prime Rate plus one percent. During the period June 1, 1991 through March
31, 1996, RMEC repaid principal and accrued interest on the Promissory Notes
held by Messrs. Rutherford and Moran totalling $2.5 million. At March 31, 1996,
the outstanding principal on the Promissory Notes owed to each of Messrs.
Rutherford and Moran and Sidney F. Jones, Jr., a director of RMEC, totalled
$4,254,226, $4,035,768 and $200,337, respectively.
Prior to the Offerings, RMEC acquired 32,608.5 shares in Thai Romo along with
the corresponding shareholders loans for such shares, which represented a 3%
interest in Thai Romo for approximately $3,000,000 pursuant to a certain
stockholders agreement among the stockholders of Thai Romo. Such shares were
acquired from Red Oak Holdings, Inc., an affiliate of a commercial lender of the
Company. The purchase price for such shares was provided by loans of $1,500,000,
$1,416,000 and $84,000 from Messrs. Rutherford, Moran and Jones, respectively.
The terms of the notes evidencing such loans are identical to the Promissory
Notes.
All of the Promissory Notes described above, in an aggregate principal amount of
$11,500,000 plus accrued interest, will be paid out of the proceeds from the
Offerings. See "The Transactions," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships" for a discussion of certain additional transactions and
agreements between the Company and Messrs. Rutherford and Moran.
MANAGEMENT SERVICES AGREEMENT
On July 7, 1995, Thai Romo signed a Management Services Agreement (the "MSA")
with RMEC. Under the MSA, RMEC is to provide managerial services in the oil and
gas business to Thai Romo, including general managerial services, financial
management, plans and projects advice and assistance, personnel management and
advice and assistance in interpreting and complying with government regulations
and legislation. As compensation for the services provided, RMEC is to receive
payment of all expenses incurred, including but not limited to travel expenses,
salaries, bonuses and overhead. The term of the MSA is one year and renewable
automatically for successive terms of one year unless terminated by either party
with or without cause. For the year ended December 31, 1995, Thai Romo paid RMEC
$187,508 under the MSA. Messrs. Rutherford and Moran owned 50% and 45%,
respectively, of the outstanding stock of RMEC during such period. For the three
months ended March 31, 1996, Thai Romo paid RMEC $92,142.
ARRANGEMENTS WITH RUTHERFORD OIL CORPORATION
Historically, Rutherford Oil Corporation ("Rutherford Oil"), which is controlled
by Patrick R. Rutherford, obtained certain oil and gas related and medical
insurance on behalf of the Company and performed certain payroll related
services for the Company. The Company has reimbursed Rutherford Oil for its out
of pocket expenses relating to such insurance and services, which aggregated
approximately $460,746, $366,304 and $730,536 during 1993, 1994 and 1995,
respectively. Since January 1, 1996, Rutherford Oil no longer obtained such
insurance or performed such services on behalf of the Company.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement between the Company and Messrs.
Rutherford, Moran, McCoy and Susan R. Rutherford, wife of Mr. Rutherford
(collectively, the "Registration Group"), the Registration Group has the right
to demand registration under the Securities Act of any or all of the shares of
the Common Stock they beneficially own. Such demand rights
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<PAGE>
are first exercisable 180 days after the date of this Prospectus, and must be
exercised for at least 5% of the Common Stock covered by the Registration Rights
Agreement. The Company may be required to effect up to five such demand
registrations, and the expenses of any such demand registration shall be borne
by the selling stockholders. The Company is not obligated to take any action to
register shares of Common Stock beneficially owned by the Registration Group (i)
during the period starting 30 days prior to the Company's estimated date of
filing of, and ending 90 days after the effective date of, any other
registration statement filed by the Company under the Securities Act; (ii) more
than once during any six-month period; and (iii) for up to 90 days after a
request from the Registration Group if an officer of the Company certifies that
the Board of Directors of the Company has determined that such registration
would interfere with a material transaction then being pursued by the Company.
In addition, except in certain circumstances and subject to certain limitations,
if the Company proposed to register any shares of Common Stock under the
Securities Act, the Registration Group will be entitled to require the Company
to include all or a portion of the shares of Common Stock it owns in such
registration. The expenses of any such "piggyback" registration, other than
underwriting discounts and commissions and transfer tax relating to Common Stock
to be sold by the Registration Group will be borne by the Company. In addition,
the Company has agreed to indemnify any underwriter and selling stockholder in
connection with any registration made pursuant to the Registration Rights
Agreement against certain liabilities, including liabilities under the
Securities Act.
CERTAIN RELATIONSHIPS
The Company and Messrs. Rutherford and Moran have in the past entered into
significant loans and other transactions and agreements incident to the
Company's businesses. Such transactions and agreements have related to, among
other things, the financing of acquisition, exploration and development
activities of the Company and the provisions of certain insurance procurement
and payroll services. The Company believes that such transactions with Messrs.
Rutherford and Moran and their affiliates were on terms at least as favorable to
the Company as could have been obtained from unaffiliated third parties.
Following the Offerings and the Transactions, it is the intention of Messrs.
Rutherford and Moran and the Company that the Company continue to operate as an
independent entity. However, it is possible that Mr. Rutherford or Mr. Moran or
their affiliates may enter into intercompany transactions from time to time in
the future which may involve conflicts of interest. In any event, the Company
intends that the terms of any such future transactions and agreements will be at
least as favorable to the Company as could be obtained from unaffiliated third
parties.
Following the closing of the Offerings, there will be no restrictions on the
ability of officers and directors of the Company to compete with the Company.
Although none of the officers or directors has any current intention to compete
with the Company, there can be no assurance that they will not compete with the
Company in the future. The Company's officers and directors, in their individual
capacity, are or may become officers, directors, controlling shareholders and/or
partners of other entities involved in business similar to that in which the
Company engages or which may in the future enter into transactions with the
Company. See "Management." Thus, there exists the potential for conflicts of
interests between the Company, on the one hand, and an officer, director and/or
controlling stockholder or an entity which any such person controls, on the
other hand. Mr. Rutherford has advised the Company that his affiliated company
that conducts oil and gas activity in the U.S., does not currently intend to
engage in the acquisition and development of, or exploration for, oil and gas
outside of the U.S.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of the closing of the Offerings, beneficial
ownership of shares of Common Stock by each of the Company's directors, the
Company's Chief Executive Officer, each of the Company's other executive
officers named in the 1995 Summary Compensation Table and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
BENEFICIAL OWNERSHIP
<CAPTION>
BENEFICIAL OWNER SHARES (1) PERCENT
----------- ---------
<S> <C> <C>
John A. Moran (2) 9,348,607 37.4%
Patrick R. Rutherford (3) 9,663,007 38.6
Michael D. McCoy (4) 199,485 *
Gregory Nelson 9,000 *
Howard Gittis (5) -- --
Jere W. McKenny (5) -- --
Harry C. Lee (5) -- --
Chote Sophonpanich (5) -- --
Executive officers and directors as a
group 19,225,912 76.9%
</TABLE>
- ------------
* Less than one percent.
(1) Assuming the U.S. Underwriter's over-allotment option is not exercised.
Share ownership includes awards of restricted stock pursuant to the 1996 Plan
based on an assumed initial public offering price of $21.00 per share. Ownership
of such shares will not vest until the end of the fifth year following the date
of grant; however, recipients will be entitled to vote and receive dividends, if
any, with respect to such shares commencing with the date of grant.
(2) Includes 3,671,204 shares owned directly by JAMTHAI, Inc. (a Delaware
corporation owned by Mr. Moran) and THAIJAM, L.P. (a Delaware limited
partnership of which JAMTHAI, Inc. is the general partner). The corporate
address of each of such entities is 5 Greenway Plaza, Suite 220, Houston, Texas
77046.
(3) Includes 3,645,161 shares owned directly by PRRTHAI, Inc. (a Delaware
corporation owned by Mr. Rutherford) and THAIPRR, L.P. (a Delaware limited
partnership of which PRRTHAI, Inc. is the general partner) but does not include
144,587 shares owned by SRRTHAI, Inc. (a Delaware corporation controlled by Mr.
Rutherford's spouse) for which Mr. Rutherford disclaims beneficial ownership.
The corporate address of each of such entities is 5 Greenway Plaza, Suite 220,
Houston, Texas 77046.
(4) Includes 179,485 shares owned directly by MDMTHAI, Inc., a Texas corporation
owned by Mr. McCoy.
(5) To be elected immediately prior to the closing of the Offerings.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $0.01 par value, and 10,000,000 shares of preferred stock, $0.01
par value per share. Upon consummation of the Offerings, 25,000,000 shares of
Common Stock will be issued and outstanding (25,600,000 shares if the U.S.
Underwriters, over-allotment option is exercised in full). A total of 550,000
shares of Common Stock will be reserved for grants of options and stock awards
under the 1996 Plan and 1996 Director Plan. No shares of Preferred Stock are
issued and outstanding.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share in the
election of directors and on all other matters on which stockholders are
entitled or permitted to vote. Such holders are not entitled to vote
cumulatively for the election of directors. Holders of a majority of the shares
of Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. After the Offerings, Messrs. Rutherford and
Moran will beneficially own approximately 76.0% of the issued and outstanding
Common Stock (or 74.3% if the U.S. Underwriters' over-allotment option is
exercised in full). Accordingly, if such shareholders vote together, they will
be able to elect all of the Company's directors and approve or, with respect to
matters requiring majority approval of the stockholders, influence, all other
matters requiring stockholder approval. Holders of Common Stock have no
redemption, conversion, preemptive or other subscription rights.
In the event of liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in all of the assets of the
Company remaining, if any, after satisfaction of the debts and liabilities of
the Company and the preferential rights of the holders of the preferred stock,
if any, then outstanding. The outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby will be, upon payment therefor as
contemplated herein, validly issued, fully paid and nonassessable.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors of the Company out of funds legally available
therefor only after payment of, or provision for, full dividends (on a
cumulative basis, if applicable) on all outstanding shares of any series of
Preferred Stock and after the Company has made provision for any sinking funds
for any series of Preferred Stock. The Company's credit facility includes
financial covenants that may restrict the Company's ability to pay dividends on
its Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources and Liquidity." The
Company does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."
PREFERRED STOCK
Preferred Stock may be issuable in one or more series from time to time at the
discretion of the Board of Directors. The Board of Directors is authorized to
fix the respective designations, relative rights, preferences, qualifications,
restrictions and limitation of each series. The Board of Directors of the
Company, without obtaining stockholder approval, may issue shares of the
Preferred Stock with voting rights or conversion rights that could affect the
voting power of the holders of Common Stock. Although the Company has no current
plans to issue any preferred stock to discourage any change of control, the
issuance of Preferred Stock could have the effect of an anti-takeover device,
which could be used by the Board of Directors without further action on the part
of the holders of Common Stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF DIRECTOR LIABILITY
The Restated Certificate of Incorporation contains provisions that eliminate the
personal liability of its directors for monetary damages resulting from breaches
of their fiduciary duty other than liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, any unlawful payment of a dividend or
unlawful stock purchase or redemption under Section 174 of the Delaware General
Corporation Law ("DGCL") or any transaction from which the director derived an
improper personal benefit. The limitation of liability under state law does not
apply to liability under the federal securities laws. The Restated Certificate
of Incorporation and the Bylaws of the Company contain provisions requiring the
indemnification of the Company's directors and officers to the fullest extent
permitted by the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
46
<PAGE>
The Company will enter into indemnification agreements with each of the
directors of the Company. Pursuant to such agreements, the Company will agree to
indemnify and hold each such director harmless to the fullest extent permitted
by the DGCL, from any loss, damage or liability incurred in the course of its
respective service as a director of the Company. The Company will be required by
the indemnification agreement to advance litigation and related expenses to the
indemnified persons, subject to their undertaking to repay such amounts if it is
ultimately determined that they are not entitled to be indemnified by the
Company thereunder or otherwise. The amount paid by the Company is reducible by
the amount of insurance paid to or on behalf of such director with respect to
any event giving rise to indemnification. Each such director's right to
indemnification is to survive his respective death or termination as director
and is binding on any successor. The Company intends to obtain insurance
policies to protect officers and directors from certain liabilities, including
liabilities against which the Company cannot indemnify its directors and
officers.
ADVANCE NOTICE PROVISIONS FOR CERTAIN STOCKHOLDER ACTIONS
The Bylaws establish an advance notice procedure with regard to the nomination,
other than by or at the direction of the Board or a committee thereof, of
candidates for election as directors (the "Nomination Procedure") and with
regard to certain matters to be brought before an annual meeting of stockholders
of the Company (the "Business Procedure").
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Bylaws. If the Chairman or other officer
presiding at a meeting determines that other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at the meeting.
The Nomination Procedure requires that a stockholder give prior written notice,
in proper form, of a planned nomination for the Company Board to the Secretary
of the Company. The requirements as to the form and timing of that notice are
specified in the Bylaws. If the election inspectors determine that a person was
not nominated in accordance with the Nomination Procedure, such person will not
be eligible for election as a director.
Although the Company's Bylaws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or of any other
business desired by stockholders to be conducted at an annual or any other
meeting, the Bylaws (i) may have the effect of precluding a nomination for the
election of directors or precluding the conduct of business at a particular
annual meeting if the proper procedures are not followed, or (ii) may discourage
or deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or otherwise attempting to obtain control of the Company,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company and its stockholders.
STATUTORY PROVISION
As a Delaware corporation, the Company is subject to Section 203 of the DGCL. In
general, Section 203 prevents an "interested stockholder" (defined generally as
a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "Business Combination" (as defined in the DGCL) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the corporation not owned by
the interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
The three-year restriction will not apply to Mr. Rutherford or Mr. Moran because
the Board of Directors of the Company approved their share acquisitions prior to
such acquisitions. See "The Transactions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago Trust
Company of New York.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offerings, officers, directors and existing
stockholders of the Company will own approximately 84% of the outstanding Common
Stock (82% if the U.S. Underwriters' over-allotment option is exercised in
full). Officers, directors and each of the existing stockholders, including the
Principal Stockholders, of the Company, have agreed pursuant to "lock-up"
agreements that they will not, without the prior written consent of J.P. Morgan
Securities Inc., offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of any shares of Common Stock or any options exercisable
for Common Stock for a period of 180 days after the date of this Prospectus.
J.P. Morgan Securities Inc. may provide such written consent without notice to
the Company's stockholders or the Nasdaq National Market.
Upon completion of the Offerings, the Company will have 25,000,000 shares of
Common Stock outstanding (25,600,000 shares if the U.S. Underwriters'
over-allotment option is exercised in full). Of these shares, the 4,000,000
shares of Common Stock sold in the Offerings (4,600,000 shares if the U.S.
Underwriters' over-allotment option is exercised in full) will be freely
tradeable in the public market without restriction by persons other than
affiliates of the Company. The remaining 21,000,000 shares of the Common Stock
outstanding will be "restricted securities" within the meaning of Rule 144 under
the Securities Act. Consequently, such shares may not be resold unless they are
registered under the Securities Act or resold pursuant to an applicable
exemption from registration under the Securities Act, such as Rule 144.
The Company believes that all of the outstanding shares of Common Stock will be
immediately tradeable in accordance with the provisions of Rule 144 upon
expiration of the lock-up agreements described above. In general, under Rule 144
as currently in effect, a person (or persons whose shares are required to be
aggregated) who has been deemed to have beneficially owned, for at least two
years, shares of Common Stock that have not been registered under the Securities
Act or that were acquired from an "affiliate" of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the number of then outstanding shares of Common
Stock (approximately 250,000 shares upon completion of the Offerings if the U.S.
Underwriters' over-allotment option is not exercised) and the average weekly
reported trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 also are subject to certain notice and
manner-of-sale requirements and to the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not an "affiliate" of the Company during the three months prior to resale
and who has been deemed to have beneficially owned such shares for at least
three years is entitled to sell such shares under Rule 144 without regard to the
requirements discussed above. In addition, pursuant to the Registration Rights
Agreement, the Registration Group was granted rights entitling each of them,
under specified circumstances, to cause the Company to register for sale all or
part of their shares of Common Stock and to include such shares in any
registered public offering of Common Stock by the Company. See "Certain Related
Party Transactions--Registration Rights Agreement." The Company has granted
similar registration rights to Red Oak.
An aggregate of 550,000 shares of Common Stock are reserved for issuance to
employees, officers and directors of the Company pursuant to existing benefit
plans, of which 100,750 shares are anticipated to be subject to outstanding
stock options and 44,338 of which will be issued to employees of the Company
pursuant to restricted stock awards, upon the completion of the Offerings. See
"Management--Key Employee Stock Plan and Non-Employee Director Stock Option
Plan." The Company intends to file a registration statement on Form S-8 under
the Securities Act to register all of the shares of Common Stock then reserved
for future issuance under these plans. Shares acquired under such plans after
the effective date of the registration statement generally will be available for
resale by non-affiliates in the public market. Shares acquired by affiliates
under such plans may not be resold unless they are registered under the
Securities Act or resold pursuant to an applicable exemption from such
registration, such as Rule 144.
The Company has also agreed that it will not, without the prior written consent
of J.P. Morgan Securities Inc., offer for sale, sell or otherwise dispose of any
shares of Common Stock (other than shares of Common Stock issued pursuant to
employee benefit plans existing on the date hereof or pursuant to currently
outstanding options) or securities convertible into or exchangeable for Common
Stock or sell or grant options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options or restricted stock pursuant to
benefit plans existing on the date hereof) for a period of 180 days after the
date of this Prospectus. J.P. Morgan Securities Inc. may provide such written
consent without notice to the Company's stockholders or the Nasdaq National
Market.
48
<PAGE>
Prior to the Offerings, there has been no public market for the Common Stock and
no prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a summary of certain United States federal tax consequences of
the holding and disposition of shares of the Common Stock by Non-U.S. Holders,
as defined below. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury regulations promulgated
thereunder (the "Treasury Regulations"), judicial authority and current
administrative rulings and practice, all as in effect on the date hereof. All of
the foregoing are subject to change or reinterpretation and any such change or
reinterpretation, which could be retroactive in application, may affect the
validity of this discussion. NO OPINION OF TAX COUNSEL HAS BEEN REQUESTED OR
RECEIVED WITH RESPECT TO THE UNITED STATES TAX CONSEQUENCES SUMMARIZED BELOW. NO
RULINGS HAVE BEEN REQUESTED FROM THE UNITED STATES INTERNAL REVENUE SERVICE (THE
"INTERNAL REVENUE SERVICE") WITH RESPECT TO THESE MATTERS. Accordingly, no
assurance can be given as to the Internal Revenue Service's interpretation with
respect to these matters or that the conclusions discussed below would be
sustained by a court if challenged by the Internal Revenue Service.
For purposes of this summary, a "U.S. Holder" with respect to the Common Stock
is (i) an individual who is a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state thereof, or (iii) an estate or
trust the income of which is includable in gross income for United States
federal income tax purposes regardless of its source; and a "Non-U.S. Holder" is
any person other than a U.S. Holder.
This summary deals only with Common Stock held by Non-U.S. Holders as capital
assets. Further, the United States federal tax consequences to any particular
Non-U.S. Holder may be affected by matters not discussed below. In addition,
applicable double taxation treaties may alter the tax consequences discussed
below. There also may be state, local or foreign income tax or estate and gift
tax considerations applicable to each Non-U.S. Holder with respect to the Common
Stock.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS
NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL THE RELEVANT TAX
CONSEQUENCES TO ANY PARTICULAR NON-U.S. HOLDER WHO HOLDS OR DISPOSES OF THE
COMMON STOCK. IT SHOULD NOT BE INTERPRETED AS LEGAL OR TAX ADVICE TO ANY SUCH
NON-U.S. HOLDER. EACH NON-U.S. HOLDER IS URGED TO CONSULT HIS OWN TAX ADVISOR AS
TO THE CONSEQUENCES TO HIM OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF
COMMON STOCK OF THE COMPANY UNDER UNITED STATES FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.
DIVIDENDS
Under sections 871(i)(2)(B) and 881(d) of the Code, a percentage of any dividend
paid to a Non-U.S. Holder by a domestic corporation meeting an 80% foreign
business requirement test is exempt from United States federal income tax. The
percentage is the amount by which the foreign source gross income of the
domestic corporation from the active conduct of a trade or business in a foreign
country for a three-year testing period bears to the total gross income of such
domestic corporation for the testing period. For the foreseeable future, it is
expected that all of the Company's business will be conducted outside the United
States, and substantially all of its gross income will constitute foreign source
income from the active conduct of one or more trades or businesses outside the
United States. Therefore, based on the current business strategy of the Company,
it is expected that, for the forseeable future, substantially all of the
dividends, if any, paid by the Company to Non-U.S. Holders would be exempt from
United States federal income tax. The legislative history of sections
871(i)(2)(B) and 881(d) indicates that only the portion of a dividend that is
subject to United States federal income tax will be subject to withholding tax
at the 30% or lower treaty rate. Therefore, the rule of Treasury Regulation
section 1.1441-3(b)(1) that requires withholding of tax on the gross amount of
any dividend, notwithstanding that all or a portion of such dividend is not
taxable under sections 871 or 881, should not apply. As a result, only the
portion of any dividend that is paid by the Company and that is subject to
United States federal income tax will be subject to 30% or lower treaty rate
withholding according to the provisions described below.
49
<PAGE>
If the Company ceases to meet the 80% foreign business requirement, except as
provided below with respect to the payment of dividends to certain partnerships,
dividends paid to a Non-U.S. Holder with respect to the Common Stock will be
subject to withholding of United States federal income tax at a 30% rate, or
such lower rate as may be specified by an applicable income tax treaty. Under
currently effective Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of the country in
determining the applicability of a treaty for those purposes. However, on April
15, 1996, the Internal Revenue Service issued proposed Treasury Regulations (the
"Proposed Regulations") that, if adopted in proposed form, would require a
Non-U.S. Holder to file certain forms to obtain the benefit of any applicable
tax treaty providing for a lower rate of withholding tax on dividends. These
Proposed Regulations would require a Non-U.S. Holder to file a beneficial owner
withholding certificate, e.g., a Form W-8, to obtain the lower treaty rate. The
Proposed Regulations would apply to dividends paid after December 31, 1997,
subject to certain transition rules.
Except as may be otherwise provided in an applicable income tax treaty, a
Non-U.S. Holder will be taxed at ordinary federal income tax rates (on a net
income basis) on dividends that are effectively connected with the conduct of a
trade or business of the Non-U.S. Holder within the United States, and will not
be subject to the withholding tax described above. Certain certification
requirements must be complied with to claim an exemption from withholding on
effectively connected dividends. If the Non-U.S. Holder is a foreign
corporation, it may also be subject to a United States branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty. A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may apply for a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
If the Company ceases to meet the 80% foreign business requirement and the
holder of the Common Stock is a partnership, a withholding rate of 30% generally
applies, except as provided herein. The Company generally will not be required
to withhold on effectively connected dividends paid to a holder of the Common
Stock that is a domestic or foreign partnership engaged in a United States trade
or business; however, the partnership generally will be required to withhold tax
on any effectively connected dividend includable in the distributive share of
partnership income (the "Distributive Share") of a partner who is a Non-U.S.
Holder, whether or not distributed, at the highest applicable rate of United
States taxation (currently, 39.6% for a non-corporate partner and 35% for a
corporate partner). A holder of the Common Stock that is a domestic partnership
will be required to withhold tax at the 30% withholding tax rate (or applicable
treaty rate) on any non-effectively connected dividend includable in the
Distributive Share of a partner who is a Non-U.S. Holder, whether or not
distributed. Different withholding requirements may apply to partnerships, the
interests of which are publicly traded, and those partnerships are accordingly
advised to consult their tax advisors. Moreover, under the Proposed Regulations,
special withholding rules would apply to dividends paid to foreign partnerships.
The Proposed Regulations, if adopted in their present form, would require the
Company to withhold at the rate of 31% on dividends paid to a foreign
partnership unless the partnership furnished the Company an "intermediary
withholding certificate" containing appropriate withholding certificates for
each partner in the foreign partnership, or the foreign partnership furnished
the Company other appropriate forms claiming exemption from or reduction in 31%
withholding. Holders of the Common Stock that are foreign partnerships are
advised to consult their tax advisors regarding the special withholding rules in
the Proposed Regulations.
DISPOSITION OF STOCK
Non-U.S. Holders generally will not be subject to United States federal income
tax in respect of gain recognized on a disposition of the Common Stock unless
(i) the gain is effectively connected with a trade or business conducted by the
Non-U.S. Holder within the United States (in which case the branch profits tax
described under "--Dividends" above may also apply if the holder is a foreign
corporation), (ii) in the case of a Non-U.S. Holder who is a non-resident alien
individual and holds the Common Stock as a capital asset, the holder is present
in the United States for 183 or more days in the taxable year of the disposition
and certain other conditions are met, (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the United States federal tax law applicable
to certain United States expatriates or (iv) the Company is or has been a
"United States real property holding corporation" for federal income tax
purposes and, if the Common Stock is considered "regularly traded" during the
year of the disposition of the Common Stock, the Non-U.S. Holder held directly
or indirectly at any time during the five-year period ending on the date of
disposition more than five percent of the Common Stock. Management of the
Company does not believe that the Company is currently a U.S. real property
holding corporation and does not anticipate that the Company will become a
United States real property holding corporation within the foreseeable future.
Non-U.S. Holders who would be subject to United States federal income taxes with
respect to gain recognized on a sale or other disposition of the Common Stock
should consult applicable treaties, which may provide different rules.
50
<PAGE>
FEDERAL ESTATE TAXES
Common Stock that is owned or treated as being owned at the time of death by a
Non-U.S. Holder who is a non-resident alien individual will be included in the
Non-U.S. Holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Generally, dividends paid to Non-U.S. Holders outside the United States that are
subject to the 30% or treaty-reduced rate of withholding tax or are exempt, in
whole or in part, from withholding because of the 80% foreign business
requirement test applied to the Company, will be exempt from the 31% backup
withholding tax. As a general matter, information reporting and backup
withholding will not apply to a payment by or through a foreign office of a
foreign broker of the proceeds of a sale of Common Stock effected outside the
United States. However, information reporting requirements (but not backup
withholding) will apply to a payment by or through a foreign office of a broker
of the proceeds of a sale of Common Stock effected outside the United States
where that broker (i) is a United States person, (ii) is a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States or (iii) is a "controlled foreign
corporation" as defined in the Code (generally, a foreign corporation controlled
by United States shareholders), unless the broker has documentary evidence in
its records that the holder is a Non-U.S. Holder and certain conditions are met
or the holder otherwise establishes an exemption. Payment by a United States
office of a broker of the proceeds of a sale of Common Stock is subject to both
backup withholding and information reporting unless the holder certifies to the
payor in the manner required as to its non-United States status under penalties
of perjury or otherwise establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a separate
United States federal income tax. Rather, any amounts withheld under the backup
withholding rules will be allowed as a refund or credit against the holder's
United States federal income tax liability, if any, provided the required
information or appropriate claim for refund is filed with the Internal Revenue
Service.
51
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
U.S. Underwriters named below, for whom J.P. Morgan Securities Inc., Morgan
Stanley & Co. Incorporated, PaineWebber Incorporated and Smith Barney Inc. are
acting as representatives (the "U.S. Representatives"), have severally agreed to
purchase, and the Company has agreed to sell to them, and the International
Managers named below, for whom J.P. Morgan Securities Ltd., Morgan Stanley & Co.
International Limited, PaineWebber International (U.K.) Ltd., and Smith Barney
Inc. are acting as representatives (the "International Representatives" and
together with the U.S. Representatives, the "Representatives"), have severally
agreed to purchase and the Company has agreed to sell to them, the respective
numbers of shares of Common Stock set forth opposite their names below. The U.S.
Underwriters and the International Managers are collectively referred to as the
"Underwriters." Under the terms and conditions of the Underwriting Agreement,
the Underwriters are obligated to take and pay for all such shares of Common
Stock, if any are taken. Under certain circumstances, the commitments of
nondefaulting Underwriters may be increased as set forth in the Underwriting
Agreement.
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------
<S> <C>
J.P. Morgan Securities Inc..................................................................................
Morgan Stanley & Co. Incorporated...........................................................................
PaineWebber Incorporated....................................................................................
Smith Barney Inc............................................................................................
----------------
Subtotal 3,200,000
<CAPTION>
INTERNATIONAL MANAGERS NUMBER OF SHARES
----------------
<S> <C>
J.P. Morgan Securities Ltd..................................................................................
Morgan Stanley & Co. International Limited..................................................................
PaineWebber International (U.K.) Ltd........................................................................
Smith Barney Inc............................................................................................
----------------
Subtotal 800,000
----------------
TOTAL 4,000,000
----------------
----------------
</TABLE>
The U.S. Underwriters and the International Managers have entered into an
Agreement Between Syndicates (the "Agreement Between Syndicates") which provides
for the coordination of their activities. Pursuant to the Agreement Between
Syndicates, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares as they may mutually agree. The
price of any shares so sold shall be the offering price, less such amount as may
be mutually agreed upon by the U.S. Representatives and the International
Representatives, but not exceeding the selling concession to dealers applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the International Managers pursuant to the Agreement Between Syndicates, the
number of shares initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount appearing on the
cover page of this Prospectus with respect to the Offerings. Neither the U.S.
Underwriters nor the International Managers are obligated to purchase from the
other any unsold shares.
Pursuant to the Agreement Between Syndicates, each U.S. Underwriter has
represented and agreed that (i) it is not purchasing any Common Stock for the
account of anyone other than a United States or Canadian Person and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute any prospectus relating to the Offerings outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between Syndicates, each International Manager
has represented and agreed that (i) it is not purchasing Common Stock for the
account of
52
<PAGE>
any United States or Canadian Person and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any Common Stock or distribute
any prospectus relating to the Offerings within the United States or Canada or
to any United States or Canadian Person. The foregoing limitations do not apply
to certain transactions specified in the Agreement Between Syndicates, including
stabilization transactions and transactions between the U.S. Underwriters and
the International Managers pursuant to the Agreement Between Syndicates. As used
herein, "United States or Canadian Person" means any individual who is a
national or a resident of the United States or Canada or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or any political subdivision thereof (other than
a branch located outside the United States or Canada), and includes any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person.
Pursuant to the Agreement Between Syndicates, each U.S. Underwriter has
represented that it has not offered or sold, and agreed not to offer or sell,
any Common Stock, directly or indirectly, in Canada in contravention of the
securities laws of Canada or any province or territory thereof and has
represented that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made. Each U.S. Underwriter has
further agreed to send to any dealer who purchases from it any of the Common
Stock a notice stating in substance that, by purchasing such Common Stock, such
dealer represents and agrees that it has not offered or sold, and will not offer
or sell, directly or indirectly, any of such Common Stock in Canada or to, or
for the benefit of, any resident of Canada in contravention of the securities
laws of Canada or any province or territory thereof and that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the requirement
to file a prospectus in the province or territory of Canada in which such offer
is made, and that such dealer will deliver to any other dealer to whom it sells
any of such Common Stock a notice containing substantially the same statement as
is contained in this sentence.
Pursuant to the Agreement Between Syndicates, each International Manager has
represented and agreed that (i) it has not offered or sold and, prior to the
date six months after the date of the issue of the Common Stock, will not offer
or sell any Common Stock to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom the document may
otherwise lawfully be issued or passed on.
The Underwriters propose initially to offer the Common Stock directly to the
public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial public
offering of the Common Stock, the public offering price and such concession may
be changed.
The Company has granted to the U.S. Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 600,000 additional shares of Common Stock at the initial public offering
price, less the underwriting discount. The U.S. Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any. If the U.S.
Underwriters exercise their option, each U.S. Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
number of option shares as the number of shares of Common Stock to be purchased
by that U.S. Underwriter shown in the foregoing table bears to the total number
of shares of Common Stock initially offered by the U.S. Underwriters hereby.
The Company and the Principal Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company, its affiliates, each of its existing stockholders, including the
Principal Stockholders, and each of its officers and directors set forth under
the heading "Management," for themselves and their affiliates, have agreed with
the Underwriters not to offer, pledge to sell, file a registration statement
relating to, announce the intention to sell, sell, issue (in the case of the
Company), contract to sell, or otherwise dispose of any shares of Common Stock,
including any securities convertible into or exchangeable or exercisable for any
such shares, directly or indirectly, without the prior written consent of J.P.
Morgan Securities Inc. for a period of 180 days from the date of this Prospectus
other than, with respect to the Company, the shares issued in the
53
<PAGE>
Offerings or pursuant to the Transactions and shares or options therefor sold or
granted pursuant to employee benefit plans, resale of which shares or options
shall be restricted for a period of 180 days after the initial offering of the
shares. J.P. Morgan Securities Inc. may provide such written consent without
notice to the Company's stockholders or the Nasdaq National Market.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the trading symbol "RMOC."
The Representatives have informed the Company that the Underwriters do not
expect sales to accounts over which the Underwriters exercise discretionary
authority to exceed 5% of the total number of shares of Common Stock offered by
them.
Purchasers of shares offered hereby may be required to pay stamp taxes and other
charges in accordance with the laws and practice of the country of purchase in
addition to the initial public offering price.
Prior to the Offerings, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered hereby
was determined by agreement among the Company and the Underwriters. Among the
factors considered in making such determination will be the state of the economy
in Thailand and the United States and history of and the prospects for the
industry in which the Company competes, current and historical oil and gas
prices, an assessment of the Company's management, the present operations of the
Company, the absence of current operating revenue and losses due to exploration
and development expenditure of the Company, the prospects for future growth in
revenues and earnings of the Company, the general condition of the securities
markets at the time of the Offerings and the prices of similar securities of
generally comparable companies.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market subsequent
to the Offerings at or above the initial public offering price.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered hereby
will be passed upon for the Company by Fulbright & Jaworski L.L.P., Houston,
Texas, and for the Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The balance sheet of RMOC as of April 25, 1996, the combined financial
statements of RMEC and Thai Romo Limited, a development stage company, as of
December 31, 1994 and 1995, and for each of the years in the three-year period
ended December 31, 1995 and the period from September 21, 1990 (date of
inception) to December 31, 1995, have been included in the Prospectus and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
Information relating to the estimated proved undeveloped reserves of oil and gas
and the related estimates of future net cash flows and present values thereof
for certain periods included herein and in the Notes to the Financial Statements
of the Company have been audited by Ryder Scott, independent petroleum
engineers, and are included herein and incorporated by reference herein in
reliance upon the authority of such firm as an expert in petroleum engineering.
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement under the Act with
respect to the Common Stock offered hereby. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain items
of which are omitted in accordance with the rules and regulations of the SEC.
For further information with respect to the Company and the Common Stock,
reference is hereby made to the Registration Statement and such exhibits and
schedules filed as a part thereof, which may be inspected, without charge, at
the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at 7 World Trade Center, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement may be obtained from
the Public Reference Section of the SEC, upon payment of prescribed fees.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved.
54
<PAGE>
CERTAIN DEFINITIONS
The following are abbreviations and definitions of terms commonly used in the
oil and gas industry and this Prospectus. Unless otherwise indicated in this
Prospectus, natural gas volumes are stated at the legal pressure base of the
state or area in which the reserves are located and at 60 DEG. Fahrenheit.
"Appraisal well" means a well that is designed to delineate the extent of
hydrocarbon accumulations and to define locations for platforms.
"API" means the standard measure of the gravity of a hydrocarbon liquid as
defined by the American Petroleum Institute.
"Bcf" means billion cubic feet.
"Bcfe" means Bcf equivalent.
"BTU" means the standard measure of the heating value of natural gas.
"CO(2)" means the standard abbreviation for the inert gas carbon dioxide.
"Development well" means a well that is drilled to exploit the hydrocarbon
accumulation defined by an appraisal well.
"Dry well" or "dry hole" is an exploratory, a development or appraisal well
found to be incapable of producing either oil or gas in sufficient
quantities to justify completion as an oil or gas well.
"DST" means a drillstem test, the results of which cannot be relied upon.
"Exploration well" means a well that is designed to initially test the validity
of a seismic interpretation and to confirm the presence of hydrocarbons.
"Graben" is a segment of the earth's crust that when observed from above is
generally longer than wide, and has been down thrown along faults relative
to rocks on either side.
"Gross acre" is an acre in which an interest is owned.
"Mbpd" means thousand barrels per day.
"MBbl" means thousand barrels.
"Mcf" means thousand cubic feet.
"Mcfe" means Mcf equivalent crude oil and condensate are converted to Mcfes
using the ratio of six Mcf of natural gas to one Bbl of crude oil or
condensate.
"MMBbl" means million barrels.
"MMcf" means million cubic feet.
"MMcfd" means million cubic feet per day.
"MMcfe" means MMcf equivalents.
"Net" oil and gas wells are obtained by multiplying "gross" oil and gas wells by
the Company's working interest in the applicable properties.
"Net acres" is the sum of the fractional working interests owned in gross acres.
"Net pay" means the thickness of a hydrocarbon bearing zone after being
corrected for the angle of the penetrating wellbore and the structural dip
of the zone itself.
"Present Value of Proved Reserves" means the present value (discounted at 10%)
of estimated future net cash flows (before income taxes) of proved oil and
natural gas reserves.
"SCF" means standard cubic feet.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Information of Rutherford-Moran Oil Corporation (a Development
Stage Company) F-2
Unaudited Pro Forma Consolidated Balance Sheet F-3
Notes to Unaudited Pro Forma Consolidated Balance Sheet F-4
Balance Sheet of Rutherford-Moran Oil Corporation
Independent Auditors' Report F-5
Balance Sheet as of April 25, 1996 F-6
Notes to Balance Sheet F-7
Combined Financial Statements of Rutherford-Moran Exploration Company and Thai Romo Limited (a
Development Stage Company)
Independent Auditors' Report F-9
Combined Balance Sheets as of December 31, 1994 and 1995 F-10
Combined Statements of Operations for Years Ended December 31, 1993, 1994, 1995 and Inception
to
December 31, 1995 F-11
Combined Statements of Stockholders'/Partners' Equity for Inception to December 31, 1992 and
the Years Ended
December 31, 1993, 1994 and 1995 F-12
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994, 1995 and
Inception to
December 31, 1995 F-13
Notes to Combined Financial Statements F-14
Unaudited Condensed Combined Financial Statements of Rutherford-Moran Exploration Company and
Thai Romo Limited (a Development Stage Company)
Unaudited Condensed Combined Balance Sheets as of March 31, 1996 F-24
Unaudited Condensed Combined Statements of Operations for the three month periods ended March
31, 1995 and 1996 and Inception to March 31, 1996 F-25
Unaudited Condensed Combined Statements of Stockholders'/Partners' Equity for the year ended
December 31, 1995 and the three months ended March 31, 1996 F-26
Unaudited Condensed Combined Statements of Cash Flows for the three month periods ended March
31, 1995 and 1996 and Inception to March 31, 1996 F-27
Notes to Unaudited Condensed Combined Financial Statements F-28
</TABLE>
F-1
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA FINANCIAL INFORMATION
MARCH 31, 1996
The following unaudited pro forma consolidated balance sheet as of March 31,
1996 gives effect to the consummation of an offering of 4,000,000 shares of
common stock (the Offering) of Rutherford-Moran Oil Corporation (RMOC) for
proceeds of $84,000,000, less costs of the Offering of $6,280,000, and the
exchange of the common stock of Rutherford-Moran Exploration Company (RMEC) and
partners' interest in Thai Romo Limited (Thai Romo) for stock in RMOC as
described on page 6 in the Registration Statement as if they had occurred on
March 31, 1996. The exercise of the U.S. Underwriters' over-allotment option is
not reflected in the pro forma consolidated financial information.
The unaudited pro forma consolidated balance sheet is provided for informational
purposes only. The unaudited pro forma consolidated balance sheet presented is
based upon the historical combined balance sheet of RMEC and Thai Romo, and
should be read in conjunction with their audited and unaudited combined
financial statements and the related notes thereto which are included elsewhere
in this prospectus.
The pro forma data are based on assumptions and include adjustments as explained
in the notes to the unaudited pro forma consolidated balance sheet and the
actual recording of the transactions could differ. The actual recording of the
transactions will be based on actual proceeds and actual Offering costs of the
common stock to be issued and historical tax bases which could differ from the
estimates used in the unaudited pro forma consolidated balance sheet. The
unaudited consolidated pro forma data are not necessarily indicative of the
financial results that would have occurred had the transactions been effective
as of the date referred to above and should not be viewed as indicative of
operations in future periods. In addition, future results may vary significantly
from the results reflected in such statement due to commencement of production,
price and cost changes, financial instruments, agreements and other factors.
F-2
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
-----------------------------------------------------------
<S> <C> <C> <C> <C>
RUTHERFORD-MORAN
EXPLORATION
COMPANY AND
THAI ROMO RUTHERFORD-MORAN
RUTHERFORD-MORAN LIMITED OIL
OIL (HISTORICAL PRO FORMA CORPORATION
ASSETS CORPORATION COMBINED) ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- --------------
Current assets:
Cash $50,000 $ 2,896,998 $ 14,646,184(1) $17,593,182
Deposits -- 34,985 -- 34,985
Value added tax refund due -- 1,089,720 -- 1,089,720
Advances to operator -- 2,708,873 -- 2,708,873
-------------- -------------- ----------- --------------
Total current assets 50,000 6,730,576 14,646,184 21,426,760
Oil and gas properties, at cost -- 65,748,012 -- 65,748,012
Office furniture and fixtures -- 82,789 -- 82,789
Accumulated depreciation -- (9,412) -- (9,412)
-------------- -------------- ----------- --------------
Total property, plant and equipment -- 65,821,389 -- 65,821,389
Deferred costs -- 735,338 (42,058 (2) 693,280
-------------- -------------- ----------- --------------
Total assets $50,000 $73,287,303 $ 14,604,126 $87,941,429
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities -- $ 1,130,969 -- $ 1,130,969
Loans from stockholders -- 8,490,331 $(8,490,331 (2) --
Notes payable to a bank -- 38,900,000 (38,900,000 (2) --
Due to operator -- 1,023,806 -- 1,023,806
Accrued interest on loans from stockholders -- 283,485 (283,485 (2) --
-------------- -------------- ----------- --------------
Total current liabilities -- 49,828,591 (47,673,816) 2,154,775
Premium on written option -- 693,280 -- 693,280
Deferred taxes -- -- 1,921,072(3) 1,921,072
Stockholders'/Partners' equity:
Partners' equity -- 11,640,267 (11,640,267 (4) --
Preferred stock -- Rutherford-Moran Oil
Corporation -- -- -- --
Common stock -- Rutherford-Moran Exploration
Company -- 1,250,000 (1,250,000 (7) --
Common stock -- Rutherford-Moran Oil
Corporation $ 10 -- 249,990(7) 250,000
Additional paid-in capital 49,990 11,519,684 (3,607,649 (3)
(12,400,000 (5)
(3,000,000 (6)
(11,519,684 (7)
101,879,961(7) 82,922,302
Deficit accumulated during the development
stage -- (1,644,519) (42,058 (2)
3,607,649(3)
(1,921,072 (3) --
-------------- -------------- ----------- --------------
Total stockholders'/partners' equity 50,000 22,765,432 60,356,870 83,172,302
-------------- -------------- ----------- --------------
Total liabilities and
stockholders'/partners' equity $50,000 $73,287,303 $ 14,604,126 $87,941,429
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
F-3
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(1) To record the net proceeds received by RMOC for the issuance of 4,000,000
shares of common stock as follows:
<TABLE>
<S> <C>
Gross proceeds from Offering $84,000,000
Less:
Redemption of approximately 56,000 shares of RMEC 12,400,000
Retirement of loans from stockholders of RMEC 8,490,331
Payment of accrued interest 283,485
Exercise of Call Option 3,000,000
Retirement of notes payable to bank by Thai Romo 38,900,000
Estimated costs of Offering 6,280,000
----------
$14,646,184
----------
----------
</TABLE>
(2) To record the retirement of $8,490,331 of loans from stockholders of RMEC,
payment of related accrued interest of $283,485, and retirement of
$38,900,000 of notes payable to bank and expense unamortized deferred loan
acquisition costs.
(3) To record the estimated deferred tax liability recognized by RMEC and
expensed to its operations and the reclassification of the deficit
accumulated during the development stage to additional paid-in capital as
required in instances when RMEC, an S Corporation, and Thai Romo, a tax
partnership, become subject to federal income taxes through RMOC. The
deferred tax liability relates primarily to the excess of book basis over
tax basis of oil and gas properties.
(4) To record the exchange of Red Oak Holdings, Inc. (Red Oak), Patrick R.
Rutherford and affiliates, John A. Moran and affiliates, Sidney F. Jones,
Jr., Susan R. Rutherford and affiliates and Michael McCoy and affiliates
partners' interest in Thai Romo for approximately 8,903,580 shares of Common
Stock of RMOC; including $9,263,925 of Partners' Equity that is considered
stockholder loans under Kingdom of Thailand corporate practices.
(5) To record the redemption by RMOC of approximately 56,000 shares of RMEC held
by Patrick R. Rutherford and John A. Moran.
(6) To record the exercise by RMEC of the call option on Red Oak's ownership
interest in 3% of Thai Romo (Call Option).
(7) To record the issuance of 4,000,000 shares of common stock of RMOC from the
Offering, net of costs of the Offering, the exchange of RMEC common stock
for approximately 12,051,082 shares of common stock of RMOC and the exchange
of Thai Romo partners' equity for common stock of RMOC, as follows:
<TABLE>
<S> <C>
Gross proceeds from Offering $84,000,000
Estimated costs of Offering (6,280,000)
Thai Romo Partners' Equity contributed 11,640,267
Common stock of RMEC contributed 1,250,000
Additional paid-in capital of RMEC contributed 11,519,684
Less:
Par value of 24,999,000 shares RMOC common stock (249,990)
-----------
$101,879,961
-----------
-----------
</TABLE>
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rutherford-Moran Oil Corporation:
We have audited the accompanying balance sheet of Rutherford-Moran Oil
Corporation as of April 25, 1996. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Rutherford-Moran Oil Corporation as
of April 25, 1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
April 25, 1996
F-5
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
BALANCE SHEET
APRIL 25, 1996
<TABLE>
<S> <C>
ASSETS
Cash $ 50,000
---------
---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized --
Common stock, $.01 par value, 40,000,000 shares authorized,
1,000 shares issued and outstanding $ 10
Additional paid-in capital 49,990
---------
Total Stockholders' Equity $ 50,000
---------
---------
</TABLE>
See accompanying notes to balance sheet.
F-6
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO BALANCE SHEET
APRIL 25, 1996
(1) ORGANIZATION AND BUSINESS PURPOSE
Rutherford-Moran Oil Corporation (RMOC) is a Delaware corporation formed on
March 28, 1996 for the purpose of acquiring the common stock of
Rutherford-Moran Exploration Company (RMEC) and partners' interests in Thai
Romo Limited (Thai Romo) (the Transactions). RMEC holds a 54.45% interest in
Thai Romo. RMEC is owned by Patrick R. Rutherford, John A. Moran, and Sidney
F. Jones, Jr. Thai Romo is one of the concessionaires under the Petroleum
Concession No. 1/2534/36 (the Concession) awarded by the Ministry of
Industry in the Kingdom of Thailand for the development and production of
oil and gas reserves in offshore Block B8/32 in the central portion of the
Gulf of Thailand. In addition to RMEC, the partners of Thai Romo are:
<TABLE>
<S> <C>
Patrick R. Rutherford and affiliates 17.39%
John A. Moran and affiliates 16.90%
Red Oak Holdings, Inc. and affiliates 8.00%
Sidney F. Jones, Jr. and affiliates 1.88%
Susan R. Rutherford and affiliates 0.69%
Michael McCoy and affiliates 0.69%
</TABLE>
In completing the Transactions, RMOC expects to (i) issue 20,999,000 shares
of common stock to the stockholders of RMEC and the partners of Thai Romo,
(ii) utilize $24.6 million to enable redemption of RMEC shares from, and
repayment of principal and interest on RMEC notes held by, Patrick R.
Rutherford and John A. Moran and (iii) initiate a public issuance of
4,000,000 shares of common stock (the Offering). To facilitate the
Transactions and the Offering RMOC has amended its certificate of
incorporation to increase its authorized common and preferred stocks to
40,000,000 and 10,000,000, respectively. The amended certificate of
incorporation will give the Board of Directors authority to determine the
powers, preferences, rights, qualifications, limitations, and restrictions
of the preferred stock.
(2) STOCKHOLDERS' EQUITY
RMOC has authorized 1,000 shares of common stock with a par value of $.01
per share. Holders of common stock are entitled to receive dividends, out of
funds legally available, when declared by the Board of Directors of RMOC.
All shares of common stock have equal voting rights on the basis of one vote
per share on all matters to be voted upon by stockholders. Cumulative voting
for the election of directors is not permitted. Shares of common stock have
no preemptive, conversion, sinking fund or redemption provisions and are not
liable for further call or assessment.
(3) KEY EMPLOYEE STOCK PLAN
RMOC has established an incentive stock option and restricted stock plan
(the 1996 Plan), pursuant to which options to purchase up to 500,000 shares
of common stock and awards of restricted shares of common stock will be
available for grants. The exercise price of an option granted pursuant to
the 1996 Plan may not be less than the fair market value of the common stock
at the date of the grant.
(4) NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
RMOC has established a non-employee director stock option plan (the 1996
Director Plan), pursuant to which options to purchase up to 50,000 shares of
common stock will be available for future grant to non-employee directors.
The exercise price of an option granted pursuant to the 1996 Director Plan
may not be less than the fair market value of the common stock at the date
of the grant.
F-7
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
(5) 401(K) PLAN
RMOC intends to adopt a 401(k) Plan (the 401(k) Plan) under which
substantially all U.S. employees of RMOC and its subsidiaries who have
completed at least six months of service are eligible to participate. The
401(k) Plan will permit eligible employees to contribute up to 15 percent of
their annual compensation up to a maximum dollar amount established in
accordance with Section 401(k) and other provisions of the Internal Revenue
Code of 1986.
(6) SEVERANCE AGREEMENT
RMOC has a severance agreement with one of its officers that provides for
certain benefits in the event of dismissal without cause or in the event of
a change in control of RMOC.
(7) RELATED PARTY TRANSACTION
One of the directors to be elected to RMOC's Board of Directors is also a
director of a co-venturer in the Concession.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rutherford-Moran Exploration Company, and
The Partners
Thai Romo Limited
(A Development Stage Company):
We have audited the accompanying combined balance sheets of Rutherford-Moran
Exploration Company (formerly Rutherford/ Moran Oil Corporation) and Thai Romo
Limited, a development stage company, (the Company) as of December 31, 1994 and
1995, and the related combined statements of operations, stockholders'/partners'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995 and the period from September 21, 1990 (date of inception) to
December 31, 1995. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of
Rutherford-Moran Exploration Company and Thai Romo Limited as of December 31,
1994 and 1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995 and the period
from September 21, 1990 (date of inception) to December 31, 1995 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
March 20, 1996
F-9
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
----------------------------------
<S> <C> <C> <C>
AS OF DECEMBER 31,
1994 1995
---------- ----------
PRO FORMA
1995
----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 423,653 $9,831,224 $9,831,224
Deposits 10,980 35,403 35,403
Value added tax refund receivable -- 630,834 630,834
Advances to operator 4,582 1,001,889 1,001,889
---------- ---------- ----------
Total current assets 439,215 11,499,350 11,499,350
Oil and gas properties, at cost (full cost method) 18,944,214 55,950,869 55,950,869
Office furniture and fixtures 46,166 58,285 58,285
Accumulated depreciation (2,308) (7,531) (7,531)
---------- ---------- ----------
Net property, plant and equipment 18,988,072 56,001,623 56,001,623
Deferred loan acquisition costs (net of accumulated
amortization of $231,318 at December 31, 1995) -- 168,231 168,231
---------- ---------- ----------
$19,427,287 $67,669,204 $67,669,204
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 80,178 $ 369,400 $ 369,400
Loans from stockholders 1,497,506 8,490,331 8,490,331
Notes payable to a bank 1,400,000 34,384,989 34,384,989
Due to operator 860,551 976,694 976,694
Accrued interest on loans from stockholders 105,024 178,396 178,396
Accrued distributions to partners -- -- 15,400,000
---------- ---------- ----------
Total current liabilities 3,943,259 44,399,810 59,799,810
Stockholders'/Partners' equity:
Partners' equity 3,513,014 11,680,343 11,680,343
Common stock, 5,000,000 shares authorized; 1,250,000
shares issued and outstanding; $1 par value 1,250,000 1,250,000 1,250,000
Additional paid-in capital 11,519,684 11,519,684 (5,060,949)
Deficit accumulated during the development stage (798,670) (1,180,633) --
---------- ---------- ----------
Total stockholders'/partners' equity 15,484,028 23,269,394 7,869,394
Commitments and contingencies
---------- ---------- ----------
$19,427,287 $67,669,204 $67,669,204
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-10
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER
21, 1990
(DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, TO DECEMBER
1993 1994 1995 31, 1995
--------- --------- --------- -----------
Interest income $ 24,540 $ 6,682 $ 4,717 $ 166,671
Expenses:
Interest expense 76,487 107,002 189,589 555,783
Depreciation expense -- 2,308 5,223 7,531
Salaries and wages 113,429 108,862 114,272 346,563
General and administrative 74,090 181,127 207,649 670,030
--------- --------- --------- -----------
Total expenses 264,006 399,299 516,733 1,579,907
--------- --------- --------- -----------
Net loss $(239,466) $(392,617) $(512,016) $(1,413,236)
--------- --------- --------- -----------
--------- --------- --------- -----------
Pro forma loss data (unaudited)
Net loss as reported $(512,016)
Pro forma adjustment for federal income tax benefit --
---------
Pro forma net loss $(512,016)
---------
---------
Pro forma net loss per common share $ (.02)
---------
---------
Pro forma weighted average of common shares outstanding 21,792,589
---------
---------
</TABLE>
See accompanying notes to combined financial statements.
F-11
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
TOTAL ---------------------- ADDITIONAL DURING THE STOCKHOLDERS'/
PARTNERS' SHARES PAID-IN DEVELOPMENT PARTNERS'
EQUITY OUTSTANDING AMOUNT CAPITAL STAGE EQUITY
---------- ----------- --------- ---------- ---------- ----------
Balance at September 21, 1990
(date of inception) -- -- -- -- -- --
Capital contributions $2,736,221 1,250,000 $1,250,000 $2,422,869 -- $6,409,090
Capital distributions (2,008,000) -- -- -- -- (2,008,000)
Net loss (20,285) -- -- -- $ (248,852) (269,137)
---------- ----------- --------- ---------- ---------- ----------
Balance at December 31, 1992 707,936 1,250,000 1,250,000 2,422,869 (248,852) 4,131,953
Capital contributions 166,000 -- -- 4,719,000 -- 4,885,000
Capital distributions (197,200) -- -- -- -- (197,200)
Net loss (37,166) -- -- -- (202,300) (239,466)
---------- ----------- --------- ---------- ---------- ----------
Balance at December 31, 1993 639,570 1,250,000 1,250,000 7,141,869 (451,152) 8,580,287
Capital contributions 2,918,543 -- -- 4,377,815 -- 7,296,358
Net loss (45,099) -- -- -- (347,518) (392,617)
---------- ----------- --------- ---------- ---------- ----------
Balance at December 31, 1994 3,513,014 1,250,000 1,250,000 11,519,684 (798,670) 15,484,028
Capital contributions 8,297,382 -- -- -- -- 8,297,382
Net loss (130,053) -- -- -- (381,963) (512,016)
---------- ----------- --------- ---------- ---------- ----------
Balance at December 31, 1995 $11,680,343 1,250,000 $1,250,000 $11,519,684 $(1,180,633) $23,269,394
---------- ----------- --------- ---------- ---------- ----------
---------- ----------- --------- ---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER
21,
1990
(DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, TO DECEMBER
1993 1994 1995 31, 1995
---------- ---------- ----------- -----------
Cash flows from operating activities:
Net loss $ (239,466) $ (392,617) $ (512,016) $(1,413,236)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization -- 2,308 5,223 7,531
Increase in deposits (3,254) (174) (24,423) (35,403)
Increase in value added tax refund due -- -- (630,834) (630,834)
Increase in advances to operator -- (4,582) (997,307) (1,001,889)
Increase (decrease) in accounts payable and accrued
liabilities 35,430 (32,933) 362,594 547,796
Increase in due to operator 274,051 231,457 116,143 976,694
---------- ---------- ----------- -----------
Cash provided by (used in) operating activities 66,761 (196,541) (1,680,620) (1,549,341)
Cash flows from investing activities:
Investment in oil and gas properties (6,466,722) (8,158,813) (36,775,337) (55,719,551)
Other capital expenditures (2,664) (18,935) (12,119) (58,285)
---------- ---------- ----------- -----------
Cash used in investing activities (6,469,386) (8,177,748) (36,787,456) (55,777,836)
Cash flows from financing activities:
Capital contributions 4,885,000 7,296,358 7,897,833 26,488,281
Proceeds from loans from shareholders 224,908 -- 6,992,825 9,340,331
Payments on loans from shareholders (150,000) -- -- (850,000)
Capital distributions (197,200) -- -- (2,205,200)
Borrowings under bank notes -- 1,400,000 32,984,989 34,384,989
---------- ---------- ----------- -----------
Cash provided by financing activities 4,762,708 8,696,358 47,875,647 67,158,401
---------- ---------- ----------- -----------
Net increase (decrease) in cash (1,639,917) 322,069 9,407,571 9,831,224
Cash and cash equivalents, beginning of period 1,741,501 101,584 423,653 --
---------- ---------- ----------- -----------
Cash and cash equivalents, end of period $ 101,584 $ 423,653 $ 9,831,224 $ 9,831,224
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Supplemental disclosures of cash flow information --
cash paid during the period for interest $ 41,057 $ 220,113 $ 211,450 $ 472,620
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Supplemental disclosures of noncash investing and
financing activities:
Issuance of partnership interest in Thai Romo
Limited for loan acquisition costs -- -- $ 399,549 $ 399,549
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Capitalization of amortized loan acquisition
costs -- -- $ 231,318 $ 231,318
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION
The stockholders of Rutherford/Moran Oil Corporation (Rutherford/Moran) and
the partners of Thai Romo Limited (Thai Romo) have announced their intention
to consummate the exchange of their interests for shares of common stock of
a newly formed entity, Rutherford-Moran Oil Corporation (RMOC), during the
second quarter of 1996. In April 1996, Rutherford/Moran changed its name to
Rutherford-Moran Exploration Company (RMEC). RMOC will serve as the parent
company of RMEC and Thai Romo.
RMOC intends to initiate a public issuance of 16% of its common stock (the
Offering) in conjunction with the consummation of the exchange of RMEC
common stock and Thai Romo interests for common stock of RMOC. It is
contemplated that in conjunction with the public issuance, RMEC will redeem
for $12.4 million, approximately 56,000 shares of its common stock from
Patrick R. Rutherford and John A. Moran, majority stockholders of RMEC (the
Redemption), exercise RMEC's call option (Call Option) on 3% of the
partners' interest of Thai Romo held by Red Oak Holdings, Inc. (Red Oak) and
repay all outstanding debt owed stockholders and banks.
The combined financial statements include the accounts of RMEC and Thai Romo
(combined as the Company). All material intercompany accounts and
transactions have been eliminated in the combination. The combined financial
statements are presented due to the commonality of the stockholders and
partners of RMEC and Thai Romo.
The Company's planned principal operations have commenced, but there has
been no revenue; therefore, the Company is considered a development stage
company.
ORGANIZATION
RMEC was formed on September 21, 1990 (date of inception), for the purpose
of holding an interest in an oil and gas concession in Thailand through Thai
Romo. RMEC paid all of the expenses of the concession on behalf of Thai Romo
through November 4, 1993.
Effective September 24, 1990, the stockholders of RMEC elected to have it
treated as an S Corporation under the Internal Revenue Code of 1986, as
amended. As such, RMEC does not incur federal income taxes at the corporate
level, and its taxable income or loss is passed through to its stockholders
based on their interests. In the event of an examination of RMEC's tax
return, the income tax liability of the stockholders could be changed if an
adjustment to taxable income or loss is sustained by the taxing authorities.
In June 1991, Thai Romo was organized as a foreign corporation under the
laws of the Kingdom of Thailand for the purpose of holding an interest in an
oil and gas concession (the Concession). In August 1991, Thai Romo, with two
other companies, was awarded a petroleum concession to explore for petroleum
from the Ministry of Industry of Thailand. In March 1995, Thai Romo with two
other companies was granted a designated production area within the
Concession from the Ministry of Industry (the Tantawan Field). The
Concession outside of the Tantawan Field is operated by Maersk Oil
(Thailand) Ltd. (Maersk Oil). The Tantawan Field is operated by Thaipo
Limited (Thaipo), a wholly-owned subsidiary of Pogo Producing Company. In
November 1993, Thai Romo amended its Articles of Association so that it will
be treated as a partnership for U.S. income tax purposes. As such, Thai Romo
is not subject to federal income taxes. Income and losses earned by Thai
Romo are passed through to the partners on the basis of their interest in
Thai Romo. In the event of an examination of Thai Romo's tax return, the
income tax liability of the partners could be changed if an adjustment to
taxable income or loss is sustained by the taxing authorities. The reported
amount of oil and gas properties exceeds the tax basis in Thailand by
$14,989,000 at December 31, 1995. Thai Romo has net operating losses of
$11,294,500 which can be used to offset taxes in Thailand.
F-14
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Under Kingdom of Thailand corporate practices, share capital in excess of
par is considered shareholder loans. For purposes of the financial
statements, capital in excess of par of approximately $9,944,000 is reported
as Partners' Equity.
In addition to RMEC's 60% interest, Patrick R. Rutherford, John A. Moran,
and Sidney F. Jones, Jr. (the Partners) held 20%, 18%, and 2% interests,
respectively, in Thai Romo at December 31, 1994.
On July 7, 1995, the Partners entered into a series of transactions to sell
or transfer interests in Thai Romo to other related parties and affiliated
companies. In a noncash transaction, RMEC transferred a 2% ownership
interest in Thai Romo to Red Oak, an affiliate of the Company's lender in
lieu of loan acquisition costs valued at $399,549. On December 22, 1995 Red
Oak acquired a 6% ownership interest in Thai Romo for $3,096,000. RMEC has
the right, on or before April 30, 1999, to exercise a Call Option on
approximately 3% of Thai Romo's ownership interest held by Red Oak. The Call
Option price is calculated based on a formula at the call date.
The ownership of Thai Romo at December 31, 1995 as a result of the above is
as follows:
<TABLE>
<S> <C> <C>
RMEC 54.45%
Patrick R. Rutherford and affiliates 17.39
John A. Moran and affiliates 16.90
Red Oak Holdings, Inc. 8.00
Sidney F. Jones, Jr. and affiliates 1.88
Susan R. Rutherford and affiliates 0.69
Michael McCoy and affiliates 0.69
----------
100.00%
----------
----------
</TABLE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
As required by the rules and regulations of the Securities and Exchange
Commission (SEC), the unaudited pro forma combined balance sheet reflects
the accrual of the payment for the Redemption and Call Option. The unaudited
pro forma presentation is required in instances when distributions to
owners, whether declared or not, are to be paid out of proceeds of an
offering rather than from the current year's earnings. The unaudited pro
forma combined balance sheet also reflects the reclassification of the
deficit accumulated during the development stage to additional paid-in
capital as required by the SEC in instances when an S Corporation or tax
partnership becomes subject to federal income taxes.
Pro forma net loss reflects federal income taxes that would have been
recorded had the Company been subject to such taxes. Due to net operating
losses for financial statement purposes, and the anticipation that utilizing
net operating loss carryforwards in future periods will not be realized due
to the effective rate of foreign taxes, the Company has not recognized a tax
benefit for pro forma purposes. Such amounts have been included in the
statement of operations pursuant to the rules and regulations of the SEC for
instances when an S Corporation or tax partnership becomes subject to
federal income taxes. Pro forma net loss per common share is presented
giving effect to the number of shares, 792,589, whose proceeds would be
necessary to complete the Redemption and exercise the Call Option based on
the anticipated offering price of $21 per common share, and after conversion
of stockholders' equity of RMEC and partners' equity of Thai Romo for
21,000,000 common shares for RMOC.
The unaudited pro forma balance sheet reflects the Redemption and Call
Option. It is not a complete pro forma presentation of RMOC's intention to
initiate a public issuance of 16% of its common stock.
CASH AND CASH EQUIVALENTS
Cash includes all currency and any liquid investments with an original
maturity of three months or less.
F-15
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
OIL AND GAS PROPERTIES
Thai Romo utilizes the full cost method to account for its investment in oil
and gas properties. Under this method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves (including
such costs as leasehold acquisition costs, geological expenditures, dry hole
costs and tangible and intangible development costs and directly associated
internal costs) are capitalized into a "full cost pool" as incurred on a
country-by-country basis. Oil and gas properties, the estimated future
expenditures to develop proved reserves, and estimated future abandonment,
environmental and dismantlement costs are depleted and charged to operations
using the unit-of-production method based on the ratio of current production
to proved oil and gas reserves as estimated by engineering consultants. Thai
Romo's concession, a major development project, has had no production of the
reserves, and accordingly, no depreciation, depletion, or amortization of
oil and gas properties has been provided since the inception of Thai Romo.
Production is expected in 1997 at which time depletion will begin. Costs
directly associated with the acquisition and evaluation of unproved
properties are excluded from the amortization computation until it is
determined whether or not proved reserves can be assigned to the properties
or whether impairment has occurred. No costs were directly associated with
unproved properties as of or during 1994 and 1995. Dispositions of oil and
gas properties are recorded as adjustments to capitalized costs, with no
gain or loss recognized unless such adjustments would significantly alter
the relationship between capitalized costs and proved reserves of oil and
gas. To the extent that capitalized costs of oil and gas properties, net of
accumulated depreciation, depletion and amortization, exceed the discounted
future net revenues of proved oil and gas reserves on a country-by-country
basis, such excess capitalized costs would be charged to operations. No such
write-down in book value was required for the periods ending December 31,
1993, 1994 and 1995 or the period from September 21, 1990 (date of
inception) to December 31, 1995.
OFFICE FURNITURE AND FIXTURES
Office furniture and fixtures are stated at cost. Depreciation is calculated
using the straight-line method of depreciation over a useful life of 10
years.
REVENUE RECOGNITION
The Company anticipates entering into an agreement to sell crude oil
production to the Petroleum Authority of Thailand (PTT). Accordingly,
revenue will be recognized at the time of transfer to PTT. Inventory will be
recorded at the cost of production.
Natural gas revenues are recorded using the entitlement method, whereby any
production volumes received in excess of the Company's ownership percentage
in the property is recorded as a liability. If less than the Company's
entitlement is received, the underproduction is recorded as a receivable.
To date there has been no oil or gas production from the Concession.
GEOGRAPHICAL CONCENTRATION
The Concession is located in the Gulf of Thailand. Consequently,
substantially all of Thai Romo's assets are subject to regulation by the
government of Thailand. Political changes, such as increases in tax rates or
nationalization of strategic or other assets by the government of Thailand,
could adversely affect Thai Romo. It is reasonably possible that Thai Romo's
oil and gas producing operations could be delayed or disrupted.
USE OF ESTIMATES
Management of the Company have made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the reporting of
quantities of proved oil and gas reserves, and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
F-16
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
VALUE ADDED TAX REFUND RECEIVABLE
Expenditures on concession joint operations are assessed a value added tax
by the government of Thailand. Because the concession operators have
obtained an exemption from value added taxes, all value added taxes are
refundable. Accordingly, a refund due is recorded when value added taxes are
paid by the operator.
(2) THE CONCESSION
Thai Romo is one of the concessionaires under the Petroleum Concession No.
1/2534/36 (the Concession) awarded by the Ministry of Industry of the
Kingdom of Thailand for the development and production of oil and gas
reserves in offshore Block B8/32 in the central portion of the Gulf of
Thailand. The Concession was awarded on August 1, 1991 to Thai Romo, Thaipo,
and Maersk Oil, a wholly-owned subsidiary of Maersk Oil and Gas. Subsequent
to the award, the Sophonpanich Co., Limited (Sophonpanich) elected to
participate in the Concession as a co-venturer. On March 3, 1995, Maersk Oil
sold its interest in the Tantawan Field of the Concession to Thai Romo,
Thaipo and Sophonpanich (the Tantawan Concessionaires). Following the
transfer of interest, Thaipo became operator of the Tantawan Field. At
December 31, 1995, Thai Romo held a 46.34% interest in the Tantawan Field
and a 31 2/3% interest in the remainder of the Concession.
The production approval in respect of the Tantawan Field, covering
approximately 68,000 acres, was granted to Thaipo as Operator on behalf of
the Concessionaires by the Petroleum Committee and the Ministry of Industry
on August 23, 1995. Under the Concession, the production period runs for 20
years from the end of the exploration period which may be renewed subject to
agreement of the parties at the time of extension to the terms of such
extension. In accordance with the Thai Petroleum Act, the Concessionaires
relinquished 50% of the exploration acreage of the block on August 1, 1995.
The Concessionaires will be required to relinquish the remaining exploration
acreage on August 1, 1997, unless extended. Relinquishment will exclude
areas for which production approvals have been granted.
The Concessionaires signed a Joint Operating Agreement (JOA) effective as of
August 1, 1991 which defines the parties' respective interests, rights and
obligations in respect of any exploration, development, maintenance and
operation of the Concession.
Pursuant to the terms of the Concession the Concessionaires are required to
make certain payments to the Ministry of Finance (Production Bonuses)
including the following: (i) $2 million upon the first production of
petroleum from the Concession; (ii) $3 million when petroleum production
from Block B8/32 reaches 50,000 barrels of crude oil equivalent per day as
an average of one calendar month; (iii) $7.5 million when the petroleum
production from the Concession reaches an average of 100,000 barrels of
crude oil equivalent per day in any calendar month.
The Concessionaires are required to give first priority to Thailand's
government to purchase the oil and natural gas produced by the
Concessionaires. The Concessionaires are also required to give preference to
the use of local contractors, materials and equipment available in Thailand
with regard to transport vehicles and other matters related to the petroleum
operation and must also employ and train Thai nationals at all operational
levels.
A gas sales agreement (GSA) with PTT was signed on November 7, 1995. Under
the GSA, which is a take or pay agreement, contracted deliveries of gas to
PTT are required to commence at the earlier of the completion of a 72-hour
production test or March 31, 1997. There is a run-in period from January 1,
1997 until March 31, 1997 during which time the parties to the GSA must use
best endeavors to deliver and take sales gas. In the event that the required
reserves on production rates are not delivered, then Thai Romo and the
Tantawan partners will be obliged to contribute to PTT's capital costs
incurred in the construction of a 24 inch 33-mile gas pipeline. The Tantawan
Concessionaires' liability for failure to deliver the minimum contracted
daily rate is limited to PTT's right to take from subsequent deliveries an
amount equal to the quantity of gas not delivered at 75% of the contracted
price.
F-17
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The gas price is based on a formula which is designed to provide linkage to
movements in oil prices and inflation. Payments by PTT will be in Baht,
however the gas price formula protects the seller from movements in Baht/US
dollar exchange rates. The base price was estimated to be equivalent to
$2.00/Mcf at March 1, 1996.
The Company expects that oil and condensate from Tantawan will be purchased
by PTT, which has the right of first refusal on any hydrocarbon liquids
produced domestically. The terms and conditions of a sales agreement are
under negotiation.
The following table summarizes the monthly royalties required to be paid to
the Ministry of Industry based on monthly barrels of oil equivalent produced
on the Concession (natural gas is converted to an equivalent under the
royalty using a ratio of 10 million btu of natural gas to one barrel of
oil):
<TABLE>
<CAPTION>
PERCENT OF VALUE
OF
PRODUCT SOLD OR
MONTHLY VOLUME OF PRODUCT (IN BARRELS) DISPOSED
- ------------------------------------------------------------------------------------ -----------------
<S> <C>
Not exceeding 60,000 5.00%
Portion exceeding 60,000 but not exceeding 150,000 6.25
Portion exceeding 150,000 but not exceeding 300,000 10.00
Portion exceeding 300,000 but not exceeding 600,000 12.50
Portion exceeding 600,000 15.00
</TABLE>
The Concessionaires are required to pay a Special Remuneratory Benefit (the
Benefit) under the Thai Petroleum Act. The Benefit is calculated annually on
a block-by-block basis. No Benefit is payable if the Block has no Annual
Petroleum Profit (as defined to be hydrocarbon revenues net of, among other
things, royalties, Production Bonuses, capital expenses and operating
expenses). The Benefit, expressed as a percentage of Annual Petroleum
Profit, varies from zero to 75%, depending on the level of annual revenue
per meters drilled in the exploration block.
The Concession terminates (i) upon the termination of the petroleum
production period; (ii) when the effective concession area ceases to exist
by virtue of the provisions of the Petroleum Act B.E.2514, statutory
percentage relinquishment or through voluntary relinquishment made by the
Concessionaires; (iii) upon revocation of the Concession; or (iv) upon
termination of the Concessionaires' status as a juristic person. Under the
Petroleum Act the Concession may be revoked by the Ministry of Industry if
the Concessionaires (i) fail to furnish the Production Bonuses or pay the
royalties, the Benefits or income taxes; (ii) become bankrupt; or (iii) fail
to comply with good petroleum industry practice or to conduct petroleum
operations with due diligence or violate certain other provisions of the
Concession (including giving special priority to Thai nationals) or of the
Petroleum Act (such as restrictions on transfers). Also, all production,
storage and transportation equipment and facilities must be turned over to
the Thai government at the end of the production term.
F-18
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(3) LOANS FROM STOCKHOLDERS
RMEC has loans from stockholders at December 31, 1994 and 1995 as follows:
<TABLE>
<CAPTION>
-------------------------------------------
<S> <C> <C> <C> <C>
PAYMENT INTEREST
STOCKHOLDER TERMS RATE 1994 1995
- -------------------------------------------- ---------- --------- --------- ---------
Patrick R. Rutherford On demand Prime $ 748,753 $4,254,226
John A. Moran On demand Prime 748,753 4,035,768
Sidney F. Jones, Jr. On demand Prime -- 200,337
--------- ---------
$1,497,506 $8,490,331
--------- ---------
--------- ---------
</TABLE>
Interest of $76,487, $107,002 and $189,589 was expensed by RMEC under the
above loans in 1993, 1994, and 1995, respectively, and $555,783 was expensed
for the period from September 21, 1990 (date of inception) to December 31,
1995.
(4)
NOTES PAYABLE
In November 1994, Thai Romo signed a Loan Facility Agreement with a
commercial lender under which Thai Romo may borrow up to $5,000,000 at any
time during the period from November 1994 to the final maturity date in
April 1995. Pursuant to the provisions of a subordination and sponsor
support agreement, all the Partners, except for Mr. Jones, have agreed to be
liable for the Loan Facility in the event Thai Romo should dissolve under
the provisions of Article 43 of Thai Romo's Articles of Association. The
Loan Facility Agreement is secured by the stock of Thai Romo and certain of
the loans from stockholders. In December 1994, Thai Romo borrowed $1,400,000
under this Loan Facility Agreement. The annual interest rate on amounts
borrowed under the Loan Facility Agreement is the LIBOR rate plus 4%. During
July 1995, December 1995, and April 1996 Thai Romo amended the Loan Facility
Agreement to allow it to borrow up to $44,000,000 with a maturity date of
May 31, 1996 and to release the partners from liability under the
subordination and sponsor support agreement. At December 31, 1995 the amount
outstanding under the Loan Facility Agreement was $21,000,000.
In September 1995, RMEC obtained a Line of Credit from the same commercial
lender to borrow up to $5,000,000. This amount was increased in November
1995 to $15,000,000 with a maturity date of March 31, 1996. Borrowings under
such agreement are guaranteed by John A. Moran and Patrick R. Rutherford.
The annual interest rate on amounts borrowed under the Line of Credit is, at
RMEC's option:
<TABLE>
<CAPTION>
OUTSTANDING BALANCE ANNUAL INTEREST RATE
- --------------------------------------------------------------------- --------------------------------
<S> <C>
Up to $5 million Prime + 1/2% or LIBOR + 2 1/4%
Over $5 million and up to $10 million Prime + 3/4% or LIBOR + 2 1/2%
Over $10 million and up to $15 million Prime + 1% or LIBOR + 2 3/4%
</TABLE>
At December 31, 1995, the amount outstanding under this Line of Credit was
$13,384,989.
The Company is currently negotiating a credit facility with a commercial
lender for the purpose of financing current and future development costs,
pre-operational expenditures and associated financing costs in relation to
its interest in Block B8/32.
F-19
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents and value added tax refund
receivable approximates fair value because of the short maturity of these
instruments. The carrying amount of advances due to and due from operator
and accounts payable and accrued expenses approximates fair value because
they are generally paid or earned within sixty days. The carrying amount of
note payable to a bank and loans from stockholders approximates fair value
because they bear interest at variable market interest rates.
(6) LEASE COMMITMENTS
RMEC is subject to an office lease which expires in August 1999. The
commitment under this lease is as follows:
<TABLE>
<CAPTION>
YEAR
- ----------------------------------------------------------------------------------------------
<S> <C>
1996 $ 78,162
1997 78,162
1998 78,162
1999 52,108
Thereafter --
----------
$ 286,594
----------
----------
</TABLE>
Rental expense paid during 1993, 1994, and 1995 and the period from
September 21, 1990 (date of inception) to December 31, 1995 was $15,998,
$76,611, $67,186 and $187,826, respectively.
(7) RELATED PARTY TRANSACTIONS
Historically, Rutherford Oil Corporation (Rutherford Oil), which is
controlled by Patrick R. Rutherford, obtained certain oil and gas related
and medical insurance on behalf of the Company and performed certain payroll
related services for the Company. The Company has reimbursed Rutherford Oil
for its out of pocket expenses relating to such insurance and services,
which aggregated $460,746, $366,304, $730,536 and $1,589,853 during the
years ended December 31, 1993, 1994 and 1995 and the period from September
21, 1990 (date of inception) to December 31, 1995. Following the Offering,
it is anticipated that Rutherford Oil will no longer obtain such insurance
or perform such services on behalf of the Company.
(8) SUPPLEMENTAL OIL AND GAS INFORMATION - UNAUDITED
At December 31, 1995 the Concession accounted for 100% of the Company's
future net cash flows from proved reserves.
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on
estimates of year-end oil and gas reserve quantities and estimates of future
development costs and production schedules. The prices used in the reserve
estimates are prices the Company estimated it would have received at the
respective date had the Tantawan and Benchamas fields had been producing at
such time. All of the Company's reserves are located in the Gulf of
Thailand. Reserve quantities and future production are based primarily upon
reserve reports prepared by the independent petroleum engineering firm of
Ryder Scott Company. These estimates are inherently imprecise and subject to
substantial revision.
Estimates of future net cash flows from proved reserves of oil and gas were
made in accordance with Statement of Financial Accounting Standards No. 69,
DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES. The estimates are based
on
F-20
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
prices the Company estimated it would have received at the respective date
had the Tantawan and Benchamas fields been producing at such time. Estimated
future cash inflows are reduced by estimated future development and
production costs based on year-end cost levels, assuming continuation of
existing economic conditions, and by estimated future revenue tax expense.
Tax expense is calculated by applying the existing U.S. and Thailand
statutory tax rates, including any known future changes. The results of
these disclosures should not be construed to represent the fair market value
of the Company's oil and gas properties. A market value determination would
include many additional factors including: (i) anticipated future increases
or decreases in oil and gas prices and production and development costs;
(ii) an allowance for return on investment; (iii) the value of additional
reserves not considered proved at the present, which may be recovered as a
result of further exploration and development activities; and (iv) other
business risks.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. 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. Results of drilling, testing and production subsequent to the date
of an estimate may justify revision of the estimate. Accordingly, reserve
estimates are often different from the quantities of oil and gas that are
ultimately recovered.
In computing the present value of the estimated future net cash flows, a
discount factor of 10% was used pursuant to SEC regulations to reflect the
timing of those net cash flows. Present value, regardless of the discount
rate used, is materially affected by assumptions about timing of future
production, which may prove to have been inaccurate. The following reserve
value data represent estimates only, which are subject to uncertainty given
the current energy markets.
CAPITALIZED COSTS OF OIL AND GAS PRODUCING ACTIVITIES
The following table sets forth the aggregate amounts of capitalized costs
relating to the Company's oil and gas producing activities and the aggregate
amount of related accumulated depletion, depreciation and amortization as of
<TABLE>
<CAPTION>
the dates indicated.
----------------------
<S> <C> <C>
DECEMBER 31,
1994 1995
---------- ----------
Productive and nonproductive properties being amortized $18,944,214 $55,950,869
Less accumulated depletion, depreciation and amortization -- --
---------- ----------
Net capitalized costs $18,944,214 $55,950,869
---------- ----------
---------- ----------
</TABLE>
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
The following table reflects the costs incurred in oil and gas property
acquisition, exploration and development activities during the periods
<TABLE>
<CAPTION>
indicated.
---------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER
21, 1990
(DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, TO DECEMBER
1993 1994 1995 31, 1995
--------- --------- ---------- -----------
Property acquisition costs -- proved
properties -- -- $4,224,130 $4,224,130
Exploration costs $6,466,722 $8,158,813 26,600,412 45,544,626
Development cost -- -- 6,182,113 6,182,113
--------- --------- ---------- -----------
$6,466,722 $8,158,813 $37,006,655 5$5,950,869
--------- --------- ---------- -----------
--------- --------- ---------- -----------
</TABLE>
F-21
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the Company's interest in estimated total
proved oil and gas reserves for the years ended December 31, 1993, 1994 and
<TABLE>
<CAPTION>
1995.
--------------------
<S> <C> <C>
OIL GAS
(BBLS) (MMCF)
--------- ---------
QUANTITY OF OIL AND GAS RESERVES
- ------------------------------------------------------------------
Total proved reserves at December 31, 1992 2,576,907 10,668
New discoveries and extensions 2,847,906 22,806
--------- ---------
Total proved reserves at December 31, 1993 5,424,813 33,474
New discoveries and extensions 2,249,559 23,265
--------- ---------
Total proved reserves at December 31, 1994 7,674,372 56,739
New discoveries and extensions 7,634,009 43,376
Revisions of previous estimates 133,636 5,208
Purchases of reserves 3,554,975 26,284
--------- ---------
Total proved reserves at December 31, 1995 18,996,992 131,607
--------- ---------
--------- ---------
Proved developed reserves:
December 31, 1993 -- --
December 31, 1994 -- --
December 31, 1995 -- --
--------- ---------
--------- ---------
</TABLE>
Proved reserves are estimated quantities of natural gas, crude oil, and
condensate which geological and engineering data demonstrate, with
reasonable certainty, to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are proved reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following table reflects the Standardized Measure of Discounted Future
Net Cash Flows relating to the Company's interest in proved oil and gas
reserves as of December 31, 1993, 1994, and 1995:
<TABLE>
<CAPTION>
--------------------------------------
<S> <C> <C> <C>
DECEMBER 31,
<CAPTION>
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Future cash inflows $150,859,343 $265,802,176 $621,741,926
Future development costs (53,522,300) (94,154,910) (127,197,802)
Future production costs (52,807,823) (60,306,527) (207,352,390)
----------- ----------- ------------
Future net cash inflows before income taxes 44,529,220 111,340,739 287,191,734
Future income taxes (18,217,577) (48,947,252) (137,203,436)
----------- ----------- ------------
Future net cash flows 26,311,643 62,393,487 149,988,298
10% discount (13,134,116) (28,429,724) (74,669,364)
----------- ----------- ------------
Standardized measure of discounted future net
cash inflows $13,177,527 $33,963,763 $ 75,318,934
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-22
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Principal changes in the "Standardized Measure of Discounted Future Net Cash
Flows" attributable to the Company's proved oil and gas reserves for the
periods indicated are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER
21, 1990
(DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, TO DECEMBER
1993 1994 1995 31 1995
---------- ----------- ----------- -----------
New discoveries and extensions $10,379,842 $17,235,012 $52,371,715 $94,194,865
Revisions of quantity estimates -- -- 6,027,461 6,027,461
Purchases of reserves in place -- -- 27,181,548 27,181,548
Net changes in sales and transfer
prices, net of production costs (6,640,282) 8,521,499 (2,712,479) (831,262)
Accretion of discount 1,420,830 1,716,648 5,211,215 8,348,693
Net change in income taxes 1,621,406 (14,159,434) (38,163,241) (56,311,625)
Change in production rates (timing)
and other (2,202,209) 7,472,511 (8,561,048) (3,290,746)
---------- ----------- ----------- -----------
Net change $ 4,579,587 $20,786,236 $41,355,171 $ 75,318,934
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
F-23
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------
<S> <C> <C> <C>
DECEMBER
31,
1995
----------
MARCH 31, MARCH 31,
1996 1996
---------- PRO FORMA
----------
(UNAUDITED)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $9,831,224 $2,896,998 $2,896,998
Deposits 35,403 34,985 34,985
Value added tax refund receivable 630,834 1,089,720 1,089,720
Advances to operator 1,001,889 2,708,873 2,708,873
---------- ---------- ----------
Total current assets 11,499,350 6,730,576 6,730,576
Oil and gas properties, at cost (full cost method) 55,950,869 65,748,012 65,748,012
Office furniture and fixtures 58,285 82,789 82,789
Accumulated depreciation (7,531) (9,412) (9,412)
---------- ---------- ----------
Total property, plant and equipment 56,001,623 65,821,389 65,821,389
Deferred costs (net of accumulated amortization of $231,318 and
$357,491 at December 31, 1995 and March 31, 1996, respectively 168,231 735,338 735,338
---------- ---------- ----------
$67,669,204 $73,287,303 $73,287,303
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 369,400 $1,130,969 $1,130,969
Loans from stockholders 8,490,331 8,490,331 8,490,331
Notes payable to a bank 34,384,989 38,900,000 38,900,000
Due to operator 976,694 1,023,806 1,023,806
Accrued interest on loans from stockholders 178,396 283,485 283,485
Accrued distributions to partners -- -- 15,400,000
---------- ---------- ----------
Total current liabilities 44,399,810 49,828,591 65,228,591
Premium on written option -- 693,280 693,280
Stockholders'/Partners' equity:
Partners' equity 11,680,343 11,640,267 11,640,267
Common stock, 5,000,000 shares authorized; 1,250,000 shares
issued and outstanding; $1 par value 1,250,000 1,250,000 1,250,000
Additional paid-in capital 11,519,684 11,519,684 (5,524,835)
Deficit accumulated during the development stage (1,180,633) (1,644,519) --
---------- ---------- ----------
Total stockholders'/partners' equity 23,269,394 22,765,432 7,365,432
Commitments and contingencies
---------- ---------- ----------
$67,669,204 $73,287,303 $73,287,303
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-24
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------
<S> <C> <C> <C>
SEPTEMBER
21,
1990 (DATE
OF
INCEPTION)
THREE MONTHS ENDED TO
MARCH 31, MARCH 31,
1995 1996 1996
--------- --------- -----------
Interest income -- -- $ 166,671
Expenses:
Interest expense $ 36,980 $ 414,098 969,881
Depreciation expense -- 1,881 9,412
Salaries and wages 21,074 34,801 381,364
General and administrative 48,352 53,182 723,212
--------- --------- -----------
Total expenses 106,406 503,962 2,083,869
--------- --------- -----------
Net loss $(106,406) $(503,962) $(1,917,198)
--------- --------- -----------
--------- --------- -----------
Pro forma loss data (unaudited)
Net loss as reported $(503,962)
Pro forma adjustment for federal income tax benefit --
---------
Pro forma net loss $(503,962)
---------
---------
Pro forma net loss per common share $ (.02)
---------
---------
Pro forma weighted average of common shares outstanding 21,792,589
---------
---------
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-25
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
TOTAL ---------------------- ADDITIONAL DURING THE STOCKHOLDERS'/
PARTNERS' SHARES PAID-IN DEVELOPMENT PARTNERS'
EQUITY OUTSTANDING AMOUNT CAPITAL STAGE EQUITY
---------- ----------- --------- ---------- ---------- ----------
Balance at December 31, 1994 $3,513,014 1,250,000 $1,250,000 $11,519,684 $ (798,670) $15,484,028
Capital contributions 8,297,382 -- -- -- -- 8,297,382
Net loss (130,053) -- -- -- (381,963) (512,016)
---------- ----------- --------- ---------- ---------- ----------
Balance at December 31, 1995 $11,680,343 1,250,000 $1,250,000 $11,519,684 $(1,180,633) $23,269,394
---------- ----------- --------- ---------- ---------- ----------
---------- ----------- --------- ---------- ---------- ----------
Net loss (unaudited) (40,076) -- -- -- (463,886) (503,962)
---------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1996
(unaudited) $11,640,267 1,250,000 $1,250,000 $11,519,684 $(1,644,519) $22,765,432
---------- ----------- --------- ---------- ---------- ----------
---------- ----------- --------- ---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-26
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------
<S> <C> <C> <C>
SEPTEMBER
21,
1990 (DATE
OF
INCEPTION)
THREE MONTHS TO
ENDED MARCH 31, MARCH 31,
1995 1996 1996
---------- ---------- -----------
Cash flows from operating activities:
Net loss $ (106,406) $ (503,962) $(1,917,198)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization -- 1,881 9,412
(Decrease) increase in deposits (2,495) 418 (34,985)
Increase in value added tax refund receivable (149,641) (458,886) 1,089,720)
Increases in advances to operator (275,309) (1,706,984) (2,708,873)
Increase in accounts payable and accrued liabilities 221,826 866,658 1,414,454
Increase (decrease) in due to operator (860,551) 47,112 1,023,806
---------- ---------- -----------
Cash used in operating activities (1,172,576) (1,753,763) (3,303,104)
Cash flows from investing activities:
Investment in oil and gas properties (1,433,081) (9,670,970) (65,390,521)
Other capital expenditures -- (24,504) (82,789)
---------- ---------- -----------
Cash used in investing activities (1,433,081) (9,695,474) (65,473,310)
Cash flows from financing activities:
Capital contributions 130,720 -- 26,488,281
Proceeds from loans from shareholders 196,080 -- 9,340,331
Payments on loans from shareholders -- -- (850,000)
Capital contributions -- -- (2,205,200)
Borrowings under bank notes 2,100,000 13,550,000 47,934,989
Repayments of bank notes -- (9,034,989) (9,034,989)
---------- ---------- -----------
Cash provided by financing activities 2,426,800 4,515,011 71,673,412
---------- ---------- -----------
Net increase (decrease) in cash (178,857) (6,934,226) 2,896,998
Cash and cash equivalents, beginning of period 423,653 9,831,224 --
---------- ---------- -----------
Cash and cash equivalents, end of period $ 244,796 $2,896,998 $ 2,896,998
---------- ---------- -----------
---------- ---------- -----------
Supplemental disclosures of cash flow information -- cash paid
during the period for interest -- $ 284,177 $ 756,797
---------- ---------- -----------
---------- ---------- -----------
Supplemental disclosures of noncash investing and financing
activities:
Issuance of partnership interest in Thai Romo Limited for loan
acquisition costs -- -- $ 399,549
---------- ---------- -----------
---------- ---------- -----------
Capitalization of amortized loan acquisition costs -- $ 126,173 $ 357,491
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-27
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited combined financial statements include, in the
opinion of management, all adjustments of a normal recurring nature
necessary to present fairly the combined financial position of
Rutherford-Moran Exploration Company and Thai Romo Limited at March 31, 1996
and their results of operations and cash flows for the three months ended
March 31, 1995 and 1996. The financial statements should be read in
conjunction with the historical financial statements and notes to the
combined historical financial statements as of and for the year and period
ended December 31, 1995.
(2) PRINCIPLES OF PRESENTATION
The stockholders of Rutherford/Moran Oil Corporation (Rutherford/Moran) and
the partners of Thai Romo Limited (Thai Romo) have announced their intention
to consummate the exchange of their interests for shares of common stock of
a newly formed entity, Rutherford-Moran Oil Corporation (RMOC), during the
second quarter of 1996. In April 1996, Rutherford/Moran changed its name to
Rutherford-Moran Exploration Company (RMEC). RMOC will serve as the parent
company of RMEC and Thai Romo.
RMOC intends to initiate a public issuance of 16% of its common stock (the
Offering) in conjunction with the consummation of the exchange of RMEC
common stock and Thai Romo interests for common stock of RMOC. It is
contemplated that in conjunction with the public issuance, RMEC will redeem
for $12.4 million, approximately 56,000 shares of its common stock from
Patrick R. Rutherford and John A. Moran, majority stockholders of RMEC (the
Redemption), exercise RMEC's call option (Call Option) on 3% of the
partners' interest of Thai Romo held by Red Oak Holdings, Inc. (Red Oak) and
repay all outstanding debt owed stockholders and banks.
The combined financial statements include the accounts of RMEC and Thai Romo
(combined as the Company). All material intercompany accounts and
transactions have been eliminated in the combination. The combined financial
statements are presented due to the commonality of the stockholders and
partners of RMEC and Thai Romo.
The Company's planned principal operations have commenced, but there has
been no revenue; therefore, the Company is considered a development stage
company.
(3) ORGANIZATION
RMEC was formed on September 21, 1990 (date of inception) for the purpose of
holding an interest in an oil and gas concession (the Concession) in
Thailand through Thai Romo Limited (Thai Romo). RMEC paid all of the
expenses of the concession on behalf of Thai Romo through November 4, 1993.
Effective September 24, 1990, the stockholders of RMEC elected to have it
treated as an S Corporation under the Internal Revenue Code of 1986, as
amended. As such, RMEC does not incur federal income taxes at the corporate
level, and its taxable income or loss is passed through to its stockholders
based on their interests. In the event of an examination of RMEC's tax
return, the income tax liability of the stockholders could be changed if an
adjustment to taxable income or loss is sustained by the taxing authorities.
In June 1991, Thai Romo was organized as a foreign corporation under the
laws of the Kingdom of Thailand for the purpose of holding an interest in an
oil and gas concession. In August 1991, Thai Romo, with two other companies,
was awarded a petroleum concession to explore for petroleum from the
Ministry of Industry of Thailand. In March 1995, Thai Romo with two other
companies was granted a designated production area within the Concession
from the Ministry of Industry (the Tantawan Field). The Concession outside
of the Tantawan Field is operated by Maersk Oil (Thailand) Ltd.
F-28
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(Maersk Oil). The Tantawan Field is operated by Thaipo Limited (Thaipo), a
wholly-owned subsidiary of Pogo Producing Company. In November 1993, Thai
Romo amended its Articles of Association so that it will be treated as a
partnership for U.S. income tax purposes. As such, Thai Romo is not subject
to federal income taxes. Income and losses earned by Thai Romo are passed
through to the partners on the basis of their interest in Thai Romo. In the
event of an examination of Thai Romo's tax return, the income tax liability
of the partners could be changed if an adjustment to taxable income or loss
is sustained by the taxing authorities.
(4) UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
As required by the rules and regulations of the Securities and Exchange
Commission (SEC), the unaudited pro forma combined balance sheet reflects
the accrual of the payment for the Redemption and Call Option. The unaudited
pro forma presentation is required in instances when distributions to
owners, whether declared or not, are to be paid out of proceeds of an
offering rather than from the the current year's earnings. The unaudited pro
forma combined balance sheet also reflects the reclassification of the
deficit accumulated during the development stage to additional paid-in
capital as required by the SEC in instances when an S Corporation or tax
partnership becomes subject to federal income taxes.
Pro Forma net loss reflects federal income taxes that would have been
recorded had the Company been subject to such taxes. Due to net operating
losses for financial statement purposes, and the anticipation that utilizing
net operating loss carryforwards in future period will not be realized due
to the effective rate of foreign taxes, the Company has not recognized a tax
benefit for pro forma purposes. Such amounts have been included in the
statement of operations pursuant to the rules and regulations of the SEC for
instances when an S Corporation or tax partnership becomes subject to
federal income taxes. Pro Forma net loss per common share is presented
giving effect to the number of shares, 792,589 whose proceeds would be
necessary to complete the Redemption and exercise the Call Option based on
the anticipated offering price of $21 per common share, and after conversion
of stockholders' equity of RMEC and partners' equity of Thai Romo for
21,000,000 common shares for RMOC.
The unaudited pro forma balance sheet reflects the Redemption and Call
Option. It is not a complete pro forma presentation of RMOC's intention to
initiate a public issuance of 16% of its common stock.
(5) NOTES PAYABLE
The Company is currently negotiating a $100,000,000 revolving credit
facility (the "Revolving Credit Facility") with a commercial lender for the
purpose of financing ongoing development of Block B8/32 as well as for
general corporate purposes. The proposed Revolving Credit Facility will be
subject to borrowing base limitations and will have a three year final
maturity. Initial availability under the Revolving Credit Facility will be
$60,000,000. The commercial lender intends to syndicate the credit with a
group of financial institutions acceptable to the Company.
Under the terms of the Revolving Credit Facility, outstanding borrowings
will bear interest, at the Company's option, based on the base rate of the
commercial lender, or a reserve adjusted Eurodollar rate plus a margin of
1.75%. Interest periods of 30, 60, 90 or 180 days may be elected by the
Company on Eurodollar loans.
The Company will be required to pay certain fees, including a commitment fee
of .5% per annum on the average daily balance of the unused borrowing base.
Documentation of the Revolving Credit Facility will contain customary
provisions relating to lender yield protection, market disruption or
unavailability of Eurodollar funds, general and special indemnities, capital
adequacy protection, break funding protection, and similar customary
provisions. The Revolving Credit Facility will contain covenants restricting
the activities of the Company, including among others, restrictions on
investments, disposition of assets, indebtedness and the granting of
F-29
<PAGE>
RUTHERFORD-MORAN EXPLORATION COMPANY
(FORMERLY RUTHERFORD/MORAN OIL CORPORATION)
AND THAI ROMO LIMITED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
liens, restrictions on dividends and distributions and an agreement to
remain within its current line of business. Following commencement of
production in the Tantawan Field, the Company will be required to maintain
an interest coverage ratio of not less than 3:1. Failure to comply with such
covenants and restrictions would constitute an event of default under the
Revolving Credit Facility.
Definitive agreements evidencing the Revolving Credit Facility have not been
entered into and, therefore, the terms and structure outlined above could
change and the Revolving Credit Facility, as described, may not be
consummated.
(6) CRUDE OIL HEDGING ACTIVITIES
During the first quarter of 1996, the Company entered into crude oil price
swaps with an affiliate of its lender. The crude oil price swaps hedge
against potential adverse effects of fluctuations in future prices for the
Company's anticipated production volumes based on current engineering
estimates. The crude oil price swaps qualify as hedges and correlate to oil
production; therefore, any gains and losses will be recorded when the
related oil production has been delivered. Gains and losses on closed crude
oil price swap agreements will be deferred and amortized over the original
term of the agreement. Should the crude oil price swaps cease to become
recognized as a hedge, subsequent changes in value will be recorded in the
Statement of Operations. While the swaps are intended to reduce the
Company's exposure to declines in the market price of crude oil, they may
limit the Company's gain from increases in the market price. At March 31,
1996, the crude oil price swap agreements were for the Company's oil
production of one million barrels (MMBbl) of aggregate oil volumes for April
through December 1997 at a weighted average price of $15.92 per Bbl. At
March 31, 1996, the Company estimates the cost of unwinding this position to
be approximately $1,745,650.
Embedded within the crude oil price swaps, the Company has provided to the
affiliate of the lender a swap option for 1.25 MMBbl of aggregate oil
volumes for January through December 1999 at a price of $18.30 per Bbl. The
Company has accounted for the swap option separately as it does not qualify
as a hedge. Future changes in the swap option's value will be recorded in
the Statement of Operations. At March 31, 1996, the Company estimates the
value of this position to be $693,280 and has recorded the amount as a
liability on the Balance Sheet.
F-30
<PAGE>
APPENDIX A
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
February 5, 1996
Rutherford-Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Gentlemen:
At your request, we have prepared an estimate of the reserves, future production
and income attributable to certain leasehold and royalty interests of
Rutherford-Moran Oil Corporation (RMOC) as of January 1, 1996. The subject
properties are located offshore Thailand. The income data were estimated using
the Securities and Exchange Commission (SEC) guidelines for future cost and
price parameters.
The estimated reserves and future income amounts presented in this report are
related to hydrocarbon prices. December 1995 hydrocarbon prices were used in the
preparation of this report as required by SEC guidelines; however, actual future
prices may vary significantly from December 1995 prices. Therefore, volumes of
reserves actually recovered and amounts of income actually received may differ
significantly from the estimated quantities presented in this report. A summary
of the results of this study is shown below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold and Royalty Interests of
RUTHERFORD-MORAN OIL CORPORATION
As of January 1, 1996
----------------------------------------------------
<TABLE>
<CAPTION>
PROVED
UNDEVELOPED
--------------
<S> <C>
NET REMAINING RESERVES
Oil/Condensate - Barrels 18,996,992
Gas - MMCF 131,607
INCOME DATA
Future Gross Revenue $ 621,741,926
Deductions 334,550,192
--------------
Future Net Income (FNI) $ 287,191,734
Discounted FNI @ 10% $ 131,630,559
</TABLE>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes
are sales gas expressed in millions of cubic feet (MMCF) at the official
temperature and pressure bases of the areas in which the gas reserves are
located.
The deductions are comprised of the normal direct costs of operating the wells,
SRB tax, recompletion costs, development costs, and certain abandonment costs
net of salvage. The future net income is before the deduction of state and
federal income taxes and general administrative overhead, and has not been
adjusted for outstanding loans that may exist nor does it include any adjustment
for cash on hand or undistributed income. Liquid hydrocarbon reserves account
for approximately 57 percent and gas reserves account for the remaining 43
percent of total future gross revenue from proved reserves.
The discounted future net income shown above was calculated using a discount
rate of 10 percent per annum compounded semi-annually. The results shown above
are presented for your information and should not be construed as our estimate
of fair market value.
RESERVES INCLUDED IN THIS REPORT
The proved reserves presented in this report comply with the SEC's Regulation
S-X Part 210.4-10 Sec. (a) as clarified by subsequent Commission Staff
Accounting Bulletins, and are based on the following definitions and criteria:
A-1
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
February 5, 1996
Page 2
Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing conditions. Reservoirs are considered proved
if economic producibility is supported by actual production or formation
tests. In certain instances, proved reserves are assigned on the basis of a
combination of core analysis and electrical and other type logs which
indicate the reservoirs are analogous to reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation
test. The area of a reservoir considered proved includes (1) that portion
delineated by drilling and defined by fluid contacts, if any, and (2) the
adjoining portions not yet drilled that can be reasonably judged as
economically productive on the basis of available geological and engineering
data. In the absence of data on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the reservoir.
Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and
additional data become available. Proved natural gas reserves are comprised
of non-associated, associated, and dissolved gas. An appropriate reduction
in gas reserves has been made for the expected removal of natural gas
liquids, for lease and plant fuel, and the exclusion of non-hydrocarbon
gases if they occur in significant quantities and are removed prior to sale.
Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or
the operation of an installed program in the reservoir provides support the
the engineering analysis on which the project or program was based, and (2)
it is reasonably certain the project will proceed. Improved recovery
includes all methods for supplementing natural reservoir forces and energy,
or otherwise increasing ultimate recovery from a reservoir, including (1)
pressure maintenance, (2) cycling, and (3) secondary recovery in its
original sense. Improved recovery also includes the enhanced recovery
methods of thermal, chemical flooding, and the use of miscible and
immiscible displacement fluids. Estimates of proved reserves do not include
crude oil, natural gas, or natural gas liquids being held in underground
storage. Depending on the status of development, these proved reserves are
further subdivided into:
(i) "developed reserves" which are those proved reserves reasonably
expected to be recovered through existing wells with existing
equipment and operating methods, including (a) "developed producing
reserves" which are those proved developed reserves reasonably expected
to be produced from existing completion intervals now open for production
in existing wells, (b) "developed non-producing reserves" which are those
proved developed reserves which exist behind the casing of existing wells
which are reasonably expected to be produced through these wells in the
predictable future where the cost of making such hydrocarbons available
for production should be relatively small compared to the cost of a new
well; and
(ii)"undeveloped reserves" which are those proved reserves reasonably
expected to be recovered from new wells on undrilled acreage, from
existing wells where a relatively large expenditure is required, and from
acreage for which an application of fluid injection or other improved
recovery technique is contemplated where the technique has been proved
effective by actual tests in the area in the same reservoir. Reserves
from undrilled acreage are limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units are included only where it can
be demonstrated with reasonable certainty that there is continuity of
production from the existing productive formation.
ESTIMATES OF RESERVES
In general, the reserves included herein were estimated by the volumetric
method; however, other methods were used in certain cases where characteristics
of the data indicated such other methods were more appropriate in our opinion.
The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Moreover, estimates of
reserves may increase or decrease a result of future operations.
FUTURE PRODUCTION RATES
Test data and other related information were used to estimate the anticipated
initial production rates. Sales were estimated to commence at an anticipated
date furnished by RMOC. Locations which are not currently producing may start
producing earlier or later than anticipated in our estimates of their future
production rates.
A-2
<PAGE>
RUTHERFORD-MORAN OIL CORPORATION
February 5, 1996
Page 3
HYDROCARBON PRICES
RMOC furnished us with prices in effect at December 31, 1995 and these prices
were held constant. The gas price of $2.02 per MCF is the initial price under
RMOC's gas sales agreement. The liquid price of $18.71 per barrel is the
Singapore Tapis posting. In accordance with Securities and Exchange Commission
guidelines, changes in liquid and gas prices subsequent to December 31, 1995
were not taken into account in this report.
COSTS
Operating costs for the leases and wells in this report were supplied by RMOC
and include only those costs directly applicable to the leases or wells. When
applicable, the operating costs include a portion of general and administrative
costs including the Thailand office allocated directly to the leases and wells
under terms of operating agreements. Development costs were furnished to us by
RMOC and are based on authorizations for expenditure for the proposed work or
actual costs for similar projects. The current operating and development costs
were held constant throughout the life of the properties. The estimated net cost
of abandonment after salvage was included for these offshore properties where
abandonment costs net of salvage are significant. The estimates of the net
abandonment costs furnished by RMOC were accepted without independent
verification. No deduction was made for indirect costs such as general
administration and overhead expenses, loan repayments, interest expenses, and
exploration and development prepayments that are not charged directly to the
leases or wells.
GENERAL
While it may reasonably be anticipated that the future prices received for the
sale of production and the operating costs and other costs relating to such
production may also increase or decrease from existing levels, such changes
were, in accordance with rules adopted by the SEC, omitted from consideration in
making this evaluation.
The estimates of reserves presented herein were based upon a detailed study of
the properties in which RMOC owns an interest; however, we have not made any
field examination of the properties. No consideration was given in this report
to potential environmental liabilities which may exist nor were any costs
included for potential liability to restore and clean up damages, if any, caused
by past operating practices. RMOC has informed us that they have furnished us
all of the accounts, records, geological and engineering data, and reports and
other data required for this investigation. The ownership interests, prices, and
other factual data furnished by RMOC were accepted without independent
verification. The estimates presented in this report are based on data available
through December 1995.
Neither we nor any of our employees have any interest in the subject properties
and neither the employment to make this study nor the compensation is contingent
on our estimates of reserves and future income for the subject properties.
This report was prepared for the exclusive use of Rutherford-Moran Oil
Corporation. The data, work papers, and maps used in this report are available
for examination by authorized parties in our offices. Please contact us if we
can be of further service.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ FRED P. RICHOUX, P.E.
Fred P. Richoux, P.E.
Group Vice President
FPR/sw
A-3
<PAGE>
[LOGO]
<PAGE>
[ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
Subject to Completion
Dated June 19, 1996
4,000,000 SHARES
[LOGO]
RUTHERFORD-MORAN OIL CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
All of the Common Stock offered hereby is being offered by Rutherford-Moran Oil
Corporation ("RMOC" or the "Company"). Of the 4,000,000 shares of Common Stock
offered, 800,000 shares are being offered initially outside the United States
and Canada by the International Managers (the "International Managers") and
3,200,000 shares are being offered initially inside the United States and Canada
in a concurrent offering by the U.S. Underwriters (the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters"). See
"Underwriting." The Offerings are contingent upon consummation of certain share
exchanges and transactions. See "The Transactions." Following the Offerings,
Patrick R. Rutherford and John A. Moran (collectively the "Principal
Stockholders") will own directly or indirectly approximately 76.0% of the
outstanding shares of Common Stock (or 74.3% if the U.S. Underwriters'
over-allotment option is exercised in full).
Prior to the Offerings, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price will be between
$20 and $22 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National Market,
under the symbol "RMOC."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------------------------------------------
Total (3) $ $ $
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1)The Company and the Principal Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2)Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(3)The Company has granted the U.S. Underwriters an option to purchase up to an
additional 600,000 shares of Common Stock, on the same terms as set forth above,
solely to cover over-allotments, if any. If such option is exercised in full,
the total Price to Public, Underwriting Discount, and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock being offered by this Prospectus are being offered by
the International Managers, subject to prior sale, when, as and if delivered to
and accepted by the International Managers, and subject to approval of certain
legal matters by Andrews & Kurth L.L.P., counsel for the Underwriters. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor on or about , 1996 at the offices of J.P. Morgan
Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN SECURITIES LTD.
MORGAN STANLEY & CO.
INTERNATIONAL
PAINEWEBBER INTERNATIONAL
SMITH BARNEY INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 34,897
Accounting fees and expenses...................................... 200,000
NASD filing fee................................................... 10,160
Legal fees and expenses........................................... 225,000
NASDAQ listing fee................................................ 50,000
Printing costs.................................................... 200,000
Transfer agent and registrar's fees............................... 10,000
Miscellaneous..................................................... 9,943
---------
TOTAL......................................................... $ 740,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation contains a provision that
eliminates the personal liability of a director to the Company and its
stockholders for monetary damages for breach of his fiduciary duty as a director
to the extent currently allowed under the Delaware General Corporation Law. If a
director were to breach such duty in performing his duties as a director,
neither the Company nor its stockholders could recover monetary damages from the
director, and the only course of action available to the Company's stockholders
would be equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty. To the extent certain claims
against directors are limited to equitable remedies, the provision in the
Company's Restated Certificate of Incorporation may reduce the likelihood of
derivative litigation and may discourage stockholders or management from
initiating litigation against directors for breach of their fiduciary duty.
Additionally, equitable remedies may not be effective in many situations. If a
stockholder's only remedy is to enjoin the completion of the Board of Directors'
action, this remedy would be ineffective if the stockholder does not become
aware of a transaction or event until after it has been completed. In such a
situation, it is possible that the stockholders and the Company would have no
effective remedy against the directors. Under the Company's Restated Certificate
of Incorporation, liability for monetary damages remains for (i) any breach of
the duty of loyalty to the Company or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) payment of an improper dividend or improper repurchase of the
Company's stock under Section 174 of the Delaware General Corporation Law, or
(iv) any transaction from which the director derived an improper personal
benefit. The Company's Restated Certificate of Incorporation further provides
that in the event the Delaware General Corporation Law is amended to allow the
further elimination or limitation of the liability of directors, then the
liability of the Company's directors shall be limited or eliminated to the
fullest extent permitted by the amended Delaware General Corporation Law.
Under Section 54 of the Company's Bylaws as currently in effect, each person who
is or was a director or officer of the Company or a subsidiary of the Company,
or who serves or served any other enterprise or organization at the request of
the Company, shall be indemnified by the Company to the full extent permitted by
the Delaware General Corporation Law.
Under Delaware law, to the extent that a person is successful on the merits in
defense of a suit or proceeding brought against him by reason of the fact that
he is or was a director or officer of the Company, or serves or served any other
enterprise or organization at the request of the Company, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred in connection with such action.
Under Delaware law, to the extent an indemnified person is not successful in
defense of a third party civil suit or a criminal suit, or if such suit is
settled, such person shall be indemnified against both (i) expenses, including
attorneys' fees, and (ii) judgments, fines and amounts paid in settlement if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with respect to any criminal
action, had no reasonable cause to believe his conduct was unlawful, except that
if such person is adjudged to be liable in such a suit for negligence or
misconduct in the performance of his duty to the Company, he cannot be made
whole even for expenses unless the court determines that he is fully and
reasonably entitled to indemnity for such expenses.
II-1
<PAGE>
The Company intends to obtain insurance to protect officers and directors from
certain liabilities, including liabilities against which the Company cannot
indemnify its directors and officers.
The Company will enter into indemnification agreements with each of the
directors of the Company. Pursuant to such agreements, the Company will agree to
indemnify and hold each such director harmless to the fullest extent permitted
by law, from any loss, damage or liability incurred in the course of is
respective service as a director of the Company. The amount paid by the Company
is reducible by the amount of insurance paid to or on behalf of such director
with respect to any event giving rise to indemnification. Each such director's
right to indemnification is to survive his respective death or termination as
director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in the State of Delaware on March 8, 1996. On April
1, 1996, the Company issued 500 shares of its common stock, $.01 par value
("Common Stock"), to each of Patrick R. Rutherford and John A. Moran for cash
consideration of $50 per share. The Company was formed to acquire and own 100%
of the outstanding shares of common stock of Rutherford-Moran Exploration
Company ("RMEC") and all of the outstanding shares of common stock of Thai Romo
other than the Thai Romo shares held by RMEC and a nominal number of qualifying
Thai Romo shares. The acquisition of such shares will occur through a series of
share and note exchanges transactions (the "Share Exchanges") simultaneously
with the consummation of the Offerings. All of the shareholders of RMEC,
including Messrs. Rutherford and Moran who own 50% and 47.2% of RMEC's shares,
respectively, will exchange all of the outstanding shares of common stock of
RMEC for 12,051,082 shares of Common Stock. Concurrently with the RMEC share
exchange, all of the shareholders of Thai Romo (other than RMEC) will exchange
(i) all of their shares in common stock of Thai Romo and (ii) $9.3 million in
aggregate principal amount of notes issued by Thai Romo, for an aggregate of
8,903,580 shares of Common Stock, except that two affiliates of each of Messrs.
Rutherford and Moran and an affiliate of an executive officer of the Company
will each retain one qualifying share of Thai Romo to satisfy minimum
shareholder requirements under Thai law. Such unregistered exchanges of shares
of Common Stock were made in reliance upon the exemption contained in Section
4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
*1.1 Underwriting Agreement by and among the Company and the Underwriters.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company dated April 1, 1996.
**5.1 Opinion of Fulbright & Jaworski L.L.P.
*10.1 Ministry of Industry Petroleum Concession dated August 1, 1991, awarded to Thai
Romo, Thaipo and Maersk Oil.
*10.2 Ministry of Industry Supplementary Petroleum Concession (No. 1) to Petroleum
Concession No. 1/2534/36 dated March 6, 1992, awarded to Maersk Oil (Thailand) Ltd.
and Thaipo Limited and Thai Romo Limited.
*10.3 Ministry of Industry Supplementary Petroleum Concession (No. 2) to Petroleum
Concession No. 1/2534/36 dated September 4, 1995, awarded to Thaipo Limited and Thai
Romo Limited.
**10.4 Joint Operating Agreement to be effective as of March 3, 1995 among Thai Romo,
Thaipo and Sophonpanich.
*10.5 Joint Operating Agreement dated August 1, 1991 among Thai Romo, Thaipo, Maersk Oil
and Sophonpanich.
*10.6 Gas Sales Agreement dated November 7, 1995 between Petroleum of Authority of
Thailand, Thai Romo, Thaipo, and Sophonpanich.
*10.7 Management Services Agreement dated July 7, 1995 between Thai Romo and RMEC.
*10.8 Restated Loan Facility Agreement dated December 20, 1995, between Thai Romo and The
Chase Manhattan Bank, N.A., Bangkok Branch International Banking Facility, as
amended by the Letter Agreement dated April 24, 1996.
*10.9 Ninth Amendment Agreement dated May 28, 1996 among The Chase Manhattan Bank, N.A.,
Bangkok Branch, Thai Romo, RMEC and others.
*10.10 Bareboat Charter Agreement dated February 9, 1996 between Tantawan Production B.V.
and Tantawan Services, L.L.C.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*10.11 Operating Agreement between SBM Marine Services Thailand Ltd. and Tantawan Services,
L.L.C. dated February 9, 1996.
*10.12 Guaranty and Indemnity Agreement dated February 9, 1996, by Thai Romo to Tantawan
Production B.V.
*10.13 Guaranty and Indemnity Agreement dated February 9, 1996, by Thai Romo to SBM Marine
Services Thailand Ltd.
*10.14 1996 Key Employee Stock Plan (and form of option and stock agreements).
*10.15 1996 Non-Employee Director Stock Option Plan (and form of option agreement).
*10.16 Letter Agreement dated March 28, 1996 with David Chavenson.
*10.17 $15,000,000 Promissory Note dated November 6, 1995 to The Chase Manhattan Bank, N.A.
*10.18 Form of Shareholder Demand Promissory Note.
**10.19 Section 351 Exchange Agreement among the Company and the exchanging stockholders
listed therein.
*10.20 Registration Rights Agreement.
*10.21 Form of Indemnification Agreement.
*21.1 Subsidiaries of the Company.
**23.1 Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit 5.1).
**23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Ryder Scott.
*23.4 Consent of directors.
**23.5 Consent of Baker & McKenzie.
*24.1 Powers of Attorney (included in Part II of the original filing of this Registration
Statement).
*27.1 Financial Data Schedule.
</TABLE>
- ------------
*Previously filed as an Exhibit to this Registration Statement.
**Filed with this Amendment.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on June 19, 1996.
RUTHERFORD-MORAN OIL CORPORATION
By /s/ PATRICK R. RUTHERFORD
--------------------------------------
Patrick R. Rutherford
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ JOHN A. MORAN* Chairman of the Board June 19, 1996
--------------------------------------
John A. Moran
/s/ PATRICK R. RUTHERFORD President, Chief Executive Officer and Director June 19, 1996
-------------------------------------- (Principal Executive Officer)
Patrick R. Rutherford
/s/ MICHAEL D. MCCOY Executive Vice President, Chief Operating Officer June 19, 1996
-------------------------------------- and Director
Michael D. McCoy
/s/ DAVID F. CHAVENSON* Vice President and Chief Financial Officer June 19, 1996
-------------------------------------- (Principal Financial and Accounting Officer)
David F. Chavenson
*By: /s/ MICHAEL D. MCCOY
----------------------------------
Michael D. McCoy
(ATTORNEY-IN-FACT FOR PERSONS INDICATED)
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ---------- ---
<C> <S> <C>
*1.1 Underwriting Agreement by and among the Company and the Underwriters.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company dated April 1, 1996.
**5.1 Opinion of Fulbright & Jaworski L.L.P.
*10.1 Ministry of Industry Petroleum Concession dated August 1, 1991, awarded to Thai Romo, Thaipo and Maersk
Oil.
*10.2 Ministry of Industry Supplementary Petroleum Concession (No. 1) to Petroleum Concession No. 1/2534/36 dated
March 6, 1992, awarded to Maersk Oil (Thailand) Ltd. and Thaipo Limited and Thai Romo Limited.
*10.3 Ministry of Industry Supplementary Petroleum Concession (No. 2) to Petroleum Concession No. 1/2534/36 dated
September 4, 1995, awarded to Thaipo Limited and Thai Romo Limited.
**10.4 Joint Operating Agreement to be effective as of March 3, 1995 among Thai Romo, Thaipo and Sophonpanich.
*10.5 Joint Operating Agreement dated August 1, 1991 among Thai Romo, Thaipo, Maersk Oil and Sophonpanich.
*10.6 Gas Sales Agreement dated November 7, 1995 between Petroleum Authority of Thailand, Thai Romo, Thaipo, and
Sophonpanich.
*10.7 Management Services Agreement dated July 7, 1995 between Thai Romo and RMEC.
*10.8 Restated Loan Facility Agreement dated December 20, 1995, between Thai Romo and The Chase Manhattan Bank,
N.A., Bangkok Branch International Banking Facility, as amended by the Letter Agreement dated April 24,
1996.
*10.9 Ninth Amendment Agreement dated May 28, 1996 among The Chase Manhattan Bank, N.A., Bangkok Branch, Thai
Romo, RMEC and others.
*10.10 Bareboat Charter Agreement dated February 9, 1996 between Tantawan Production B.V. and Tantawan Services,
L.L.C.
*10.11 Operating Agreement between SBM Marine Services Thailand Ltd. and Tantawan Services, L.L.C. dated February
9, 1996.
*10.12 Guaranty and Indemnity Agreement dated February 9, 1996, by Thai Romo to Tantawan Production B.V.
*10.13 Guaranty and Indemnity Agreement dated February 9, 1996, by Thai Romo to SBM Marine Services Thailand Ltd.
*10.14 1996 Key Employee Stock Plan.
*10.15 1996 Non-Employee Director Stock Option Plan.
*10.16 Letter Agreement dated March 28, 1996 with David Chavenson.
*10.17 $15,000,000 Promissory Note dated November 6, 1995 to The Chase Manhattan Bank, N.A.
*10.18 Form of Shareholder Demand Promissory Note.
**10.19 Section 351 Exchange Agreement among the Company and the exchanging stockholders listed therein.
*10.20 Form of Registration Rights Agreement.
*10.21 Form of Indemnification Agreement.
*21.1 Subsidiaries of the Company.
**23.1 Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit 5.1).
**23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of Ryder Scott.
*23.4 Consent of directors.
**23.5 Consent of Baker & McKenzie.
*24.1 Powers of Attorney (included in Part II of the original filing of this Registration Statement).
*27.1 Financial Data Schedule.
</TABLE>
- ------------
*Previously filed as an Exhibit to this Registration Statement.
**Filed with this Amendment.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
June 14, 1996
Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Gentlemen:
We have acted as counsel for Rutherford--Moran Oil Corporation, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933 of 4,000,000 shares of the Company's common stock,
$.01 par value, and up to 600,000 shares of the Company's common stock, which
may be sold in the event the underwriters for the offering elect to exercise
their overallotment option (the "Shares"), to be offered upon the terms and
subject to the conditions set forth in the proposed Underwriting Agreement to be
entered into between the Company and J.P. Morgan Securities Inc., Morgan Stanley
& Co. Incorporated, PaineWebber Incorporated and Smith Barney Inc., as
representatives of the several U.S. underwriters named therein, and J.P. Morgan
Securities Ltd., Morgan Stanley & Co. International Limited, PaineWebber
International (U.K.) Ltd. and Smith Barney Inc., as representatives of the
international managers named therein (the "Underwriting Agreement").
In connection therewith, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Restated Certificate of
Incorporation of the Company, the By-laws of the Company, the records of
corporate proceedings with respect to the offering of the Shares and such other
documents and instruments as we have deemed necessary or appropriate for the
expression of the opinions contained herein. We also have examined the
Company's Registration Statement on Form S-1, as amended, covering the Shares
(the "Registration Statement") filed with the Securities and Exchange
Commission.
We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us, the conformity to original
documents of all records, certificates and other instruments submitted to us as
copies and the correctness of all statements of fact contained in all records,
certificates and other instruments that we have examined.
Based on the foregoing, and having regard for such legal considerations as
we have deemed relevant, we are of the opinion that the Shares proposed to be
issued by
<PAGE>
Rutherford--Moran Oil Corporation
June 14, 1996
Page 2
the Company have been duly and validly authorized for issuance and, when issued
in accordance with the terms of the Underwriting Agreement, will be duly and
validly issued, fully paid and nonassessable.
The opinions expressed herein relate solely to, are based solely upon and
are limited exclusively to the laws of the State of Delaware and the federal
laws of the United States of America, to the extent applicable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "Business
and Properties--Tax Regulation" and "Legal Matters" in the Prospectus included
as part of the Registration Statement.
Very truly yours,
Fulbright & Jaworski L.L.P.
-2-
<PAGE>
EXHIBIT 10.4
Execution Copy
JOINT OPERATING AGREEMENT
BETWEEN
THAIPO LIMITED
THAI ROMO LTD.
AND
SOPHON THAI GULF LIMITED
This AGREEMENT (the "Agreement") is made to be effective as of March 3,
1995 (the "Effective Date"), by and among THAIPO LIMITED, a limited company
organized under the laws of the Kingdom of Thailand, with its principal place of
business at 5 Greenway Plaza, Suite 2700, Houston, Texas, 77046-0504 ("Thaipo"),
THAI ROMO LTD., a limited company organized under the laws of the Kingdom of
Thailand, with its principal place of business at 5 Greenway Plaza, Suite 220,
Houston, Texas 77046 ("Thairomo") and SOPHON THAI GULF LIMITED, a limited
company organized under the laws of the Kingdom of Thailand, with its principal
place at 61/1 Soi Watana Sukhumvit 19, Bangkok 10110 ("Sophonpanich"). Thaipo,
Thairomo and Sophonpanich are sometimes referred to in this Agreement
individually as a "Party" and collectively as the "Parties."
WITNESSETH:
WHEREAS, Thaipo, Thairomo, Sophonpanich's parent company, The Sophonpanich
Co., Ltd. and Maersk Oil (Thailand) Ltd. ("Maersk") were parties to that certain
joint operating agreement effective as of August 1, 1990 (the "B8/32 JOA") under
which they conducted certain operations in the Gulf of Thailand as joint
venturers which culminated in their being awarded a concession from the Kingdom
of Thailand to explore for oil and gas on Block B8/32 in the Gulf of Thailand;
and
<PAGE>
WHEREAS, commencing in October 1992 with the successful drilling, testing
and completion of the Tantawan No. 1 well, the Parties and Maersk identified and
commenced delineation of the Tantawan and Tantawan North structures; and
WHEREAS, as a consequence of the successful drilling program in the
Tantawan and Tantawan North areas the Parties determined to press forward with
further exploration on and the development of the Tantawan and Tantawan North
structures, in which operations Maersk declined to participate; and
WHEREAS, as a result of its decision not to participate in the further
exploration on and the development of the Tantawan and Tantawan North areas,
Maersk elected to convey all of its right, title and interest in and to that
portion of the Block B8/32 Concession which is defined herein as the Tantawan
Area to the Parties resulting in each Party's percentage interest in the
Tantawan Area being the amount set forth in Section 3.1.1 of this Agreement and
to assign its right of operatorship in the Tantawan Area to Thaipo; and
WHEREAS, Maersk's assignment of its right, title and interest in and to the
Tantawan Area and the designation of Thaipo as the Operator of the Tantawan Area
was approved by the Kingdom of Thailand's Department of Mineral Resources on
April 7, 1995; and
WHEREAS, the Parties have determined that in connection with their
continued exploration for and development of the hydrocarbon reserves located on
the Tantawan Area, that it is necessary, appropriate and advisable to adopt a
new joint operating agreement delineating and setting forth the respective
rights, duties, responsibilities and liabilities of the Parties as they relate
to operations conducted on and to be conducted on or in connection with the
Tantawan Area subsequent to the Effective Date of this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements and obligations set out below and to be performed, the Parties
hereby agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, and its Exhibits, the following
meanings shall apply:
1.1 "Accounting Procedure" shall mean the procedure set out in EXHIBIT "A"
hereof, as from time to time amended in accordance with Article 1.3
thereof,
1.2 "Advance" shall mean each payment of cash required to be made pursuant
to a Cash Call;
<PAGE>
1.3 "AFE" shall mean an authorization for expenditure prepared by a Party
to estimate the costs to be incurred in conducting an operation under
this Agreement;
1.4 "Affiliate" of a Person shall mean any Person directly or indirectly
controlling, controlled by, or under common control with, such other
Person. As used herein, the term "control" means possession, directly
or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise; PROVIDED, HOWEVER, that
a Person shall not be deemed to control, or be in common control with,
another Person, either directly or indirectly, solely as a result of
such Person, or an officer director or employee of such Person, being
a director of the other Person, absent other indicia or evidence of
control;
1.5 "Agreed Interest Rate" shall mean the rate of interest compounded on a
monthly basis, at the rate per annum equal to the one (1) month term,
LIBOR rate for U.S. dollar deposits, as published by THE WALL STREET
JOURNAL or if not published, then by the FINANCIAL TIMES OF LONDON,
plus five percent (5%), applicable on the last Working Day prior to
the due date of payment and thereafter on the first Working Day of
each succeeding one (1) month term. If the aforesaid rate is contrary
to any applicable usury law, the rate of interest to be charged shall
be the maximum rate permitted by such applicable law;
1.6 "Appraisal Operation(s)" shall mean an operation that is conducted in
the Tantawan Area which is:
(a) proposed for an Objective Horizon that does not have a Producible
Well;
(b) proposed for an Objective Horizon that has a Producible Well, but
that will be penetrated at a location where the distance between
the vertical projection of the midpoint of the Objective Horizon
to be penetrated by the proposed well and the vertical projection
of the midpoint of the same Objective Horizon where it is
actually penetrated by a Producible Well will be at least two
thousand feet (2000') for a gas completion and at least one
thousand feet (1000') for an oil completion;
(c) proposed for an Objective Horizon that is unanimously agreed by
all Parties not to be in or part of an existing Producible
Reservoir;
(d) proposed as deeper drilling operations below the base of the
deepest Producible Reservoir on the Production Area in which it
is proposed;
<PAGE>
(e) proposed to penetrate the Objective Horizon at least five hundred
feet (500') outside of the boundary of a Production Area as such
boundary exists on the date that such well is proposed; or
(f) proposed by the Operator as an Appraisal Well;
1.7 "Appraisal Well" shall mean any well whose purpose, as determined by
the Party operating such well, at the time of commencement of drilling
such well is the determination of the extent or the volume of
Petroleum reserves contained in an existing Discovery;
1.8 "Baht" or "THB" shall mean the currency of the Kingdom of Thailand;
1.9 "Budget" shall mean the annual estimated expenditures for a Program;
1.10 "Cash Call" shall mean any request for payment of cash made by the
Operator to the Parties, or Participating Parties, as applicable, in
connection with operations under this Agreement in accordance with the
Accounting Procedure;
1.11 "Casing Point" shall mean the point in time at which a well has been
drilled to its objective depth, or mutually agreed lesser depth, and
sufficient Testing, in the opinion of the operator of such well, has
been performed to permit the Parties participating in such well to
reach the decision to attempt to Complete the well as a Producible
Well;
1.12 "Code" shall mean the United States Internal Revenue Code of 1986, as
amended;
1.13 "Completed Reservoir" shall mean a Reservoir in which a Completion is
made, or attempted;
1.14 "Completion" shall mean an operation intended to complete a well
through the Christmas tree as a producer of Petroleum in one or more
Producible Reservoirs including, but not limited to, the setting of
production casing, perforating, stimulating the well and production
Testing conducted in such operation. "Complete" and other derivatives
shall be construed accordingly;
1.15 "Concession Agreement" shall mean that certain agreement styled
Petroleum Concession No. 1/2534/36 covering Block B8/32 that was
awarded by the Ministry to Maersk, Thaipo and Thairomo on August 1,
1991, as supplemented by Supplementary Petroleum Concession No. 1 to
Petroleum Concession No. 1/2534/36 dated March 6, 1992 pursuant to
which Sophonpanich's parent, The Sophonpanich Co., Ltd., became a
party to Petroleum Concession No. 1/2534/36, as supplemented by
<PAGE>
Supplementary Petroleum Concession No. 2 to Petroleum Concession
No. 1/2534/36 dated September 4, 1995, as modified by that certain
letter from the Department of Mineral Resources Serial No. OrKor
0306/10332 dated August 23, 1995;
1.16 "Concession Area" shall mean that certain area in the Gulf of Thailand
designated as the Block B8/32 Concession and governed by the
Concession Agreement, as then in effect;
1.17 "Day" shall mean a calendar day;
1.18 "Deepening" shall mean an operation whereby a well is drilled or
attempted to be drilled pursuant to an approved AFE to an Objective
Depth below the shallower of (a) the deepest Objective Depth specified
in any previously approved AFE for drilling or Deepening such well or
such shallower depth at which further drilling or Deepening of such
well pursuant to all previously approved AFE's was actually
terminated, or (b) the deepest Producible Reservoir in which such well
has been Completed as a Producible Well. "Deepen" and other
derivatives shall be construed accordingly;
1.19 "Development Operation(s)" shall mean an operation other than an
Appraisal Operation;
1.20 "Development Plan" shall mean a general plan for the development of
Petroleum from a Production Area as presented to and approved by the
Department of Mineral Resources, with such changes or modifications as
may be (a) approved by the Operating Committee or (b) are permitted to
be made by the Operator pursuant to this Agreement;
1.21 "Development Proposal" shall mean a proposal by any Party to perform
any Development Operation which is not inconsistent with any
applicable Development Plan; provided that:
(a) a Development Proposal related to drilling operations may not
propose operations on or with respect to more than a single well,
and, except as otherwise provided by subparagraphs (b) or (c)
below, may propose the performance of one, and only one of the
following: the drilling, Sidetracking, Deepening, Completion,
Recompletion, Plugging Back or Reworking of a well, provided
further, however, that the forgoing shall not be interpreted as
prohibiting any Party from making multiple simultaneous
Development Proposals;
<PAGE>
(b) a Development Proposal to construct and install a Platform may
also include a proposal to construct and install such gathering
lines and facilities (which shall be deemed a part of the
Platform "Facilities" of such Platform) as shall be necessary to
transport Petroleum from the Platform to a FPSO or other
processing Facilities, if and as applicable, either directly or
through connections with existing gathering lines and facilities;
and an election by a Party to participate in constructing and
installing such Platform pursuant to Article 11 shall also
constitute an election to participate in the construction and
installation of such gathering lines and facilities pursuant to
such Development Proposal; and
(c) a Development Proposal to Complete a well may also include a
proposal to acquire and install any Facilities necessary to
produce Petroleum from such well (if the well is Completed as a
Producible Well); and an election by a Party to participate in
Completing such well pursuant to Article 10 shall also constitute
an election to participate in the acquisition and installation of
such Facilities pursuant to such Development Proposal;
1.22 "Development Well" shall mean any well drilled for the production of
Petroleum pursuant to a Development Plan or proposed as part of a
Development Operation;
1.23 "Discovery" shall mean any discovery of previously unknown reserves of
Petroleum which in the view of Parties possessing a simple majority
working interest is potentially capable of economic development;
1.24 "Disposal" shall mean a sale, hypothecation, disposal, assignment or
transfer by any Party of any part or proportion of its right, title or
working interest (whether legal or beneficial and whether for value or
not) in the Tantawan Area or any portion thereof, or any of its
operating rights under this Agreement, but shall not include the
creation and sale, assignment or transfer of overriding royalty or net
profits interests;
1.25 "Dollars" or "USD" shall mean United States Dollars, the currency of
the United States of America;
1.26 "Effective Date" shall have the meaning assigned to it in the first
paragraph of this Agreement,
1.27 "Execution Date" shall mean May , 1996, the date on which this
Agreement was executed by all of the Parties hereto.
<PAGE>
1.28 "Facilities" shall mean all equipment, fixtures and appurtenances
beyond the wellhead connections acquired for production of Petroleum
pursuant to this Agreement, including, without limitation, Platforms,
pipelines, fixtures and other appurtenances, whether or not located on
a Production Area and equipment for storage, treating, compression,
and production handling. Facilities shall also include pipelines,
barges, tankers, FPSOs and other vessels used for storing, offloading,
transporting and marketing Petroleum produced from a Production Area,
together with all necessary support facilities, whether or not located
in the Production Area;
1.29 "FPSO" shall mean a Floating Production, Storage and Offloading
facility, designed for and employed in the production, processing,
storage and delivery of Petroleum;
1.30 "Gas Balancing Agreement" shall mean that certain gas balancing
agreement attached as EXHIBIT "D" to this Agreement;
1.31 "Gross Negligence" or "Grossly Negligent" shall mean any act or
failure to act (whether sole, joint or concurrent) by a Person which
was intended to cause, or which was in reckless disregard of or wanton
indifference to, harmful consequences such Person knew, or should have
known, such act or failure would have on the safety or property of
another Person, but shall not include any error of judgment or mistake
made by any director, employee, agent or contractor of such Person in
the exercise, in good faith of any function, authority or discretion
conferred on the Person employing such under this Agreement;
1.32 "Joint Account" shall mean the account or accounts established and
maintained by the Operator, or a Person that it designates, to record
all Advances, expenditures and receipts in the conduct of the Joint
Operations;
1.33 "Joint Operations" shall mean all operations conducted in accordance
with this Agreement on behalf of all the Parties;
1.34 "Joint Petroleum" shall mean all Petroleum won and saved under the
Joint Operations;
1.35 "Joint Property" shall mean all property, whether real, personal or
intangible, acquired or held for use in connection with the Joint
Operations;
1.36 "Material" shall mean personal property, equipment or supplies used or
intended to be used in the operations under this Agreement;
<PAGE>
1.37 "Ministry" shall mean all Thai administrative or legislative entities
that have or purport to have authority in relation to the exploration
for, or production of Petroleum and any legislation, decrees,
procedures and/or rules applicable thereto;
1.38 "Month" shall mean a calendar month;
1.39 "Non-Consent Facility(ies)" shall mean a Facility that is leased,
acquired, constructed and/or installed pursuant to a Non-Consent
Operation and as to which the Participating Parties have not completed
recoupment of the amounts specified and provided for in Article 12;
1.40 "Non-Consent Operation(s)" shall mean an Appraisal Operation or a
Development Operation conducted by fewer than all Parties;
1.41 "Non-Consent Platform" shall mean a Platform constructed and installed
pursuant to a Non-Consent Operation and as to which the Participating
Parties have not completed recoupment of the amounts specified and
provided for in Article 12;
1.42 "Non-Consent Well" shall mean a well on which a Non-Consent Operation
has been conducted and as to which the Participating Parties in such
Non-Consent Operation have not completed recoupment of the applicable
amounts specified and provided for in Article 12;
1.43 "Non-Operator" shall mean a Party other than the Operator;
1.44 "Non-Participating Party" shall mean any Party other than a
Participating Party;
1.45 "Non-Participating Party's Share" shall mean the Participating
Interest that a Non-Participating Party would have had in an operation
if all Parties had participated in such operation;
1.46 "Objective Depth" shall mean the lesser of a depth sufficient to test
the Objective Horizon or the specific footage depth stated in the
applicable AFE;
1.47 "Objective Horizon" shall mean the interval consisting of the deepest
zone, formation, or horizon to be tested in drilling a well, in a
Deepening Operation, or in a Sidetracking Operation, as stated in the
applicable AFE;
1.48 "Operating Committee" shall mean the committee established pursuant to
Article 8;
<PAGE>
1.49 "Operator" shall mean the Party appointed and acting as such under
Article 4;
1.50 "Parent Company Guarantee(s)" shall mean those certain guarantee
agreements executed by the parent companies of the Parties in favor of
the Operator as set forth in EXHIBIT "B" to this Agreement.
1.51 "Participating Interest" shall mean the respective percentage of the
costs and risks of conducting an operation under this Agreement that a
Participating Party agrees, or is otherwise obligated, to pay or bear;
1.52 "Participating Party" shall mean a Party that executes an AFE for a
proposed operation or otherwise agrees, or becomes liable, to pay and
bear a share of the costs and risks of conducting an operation under
this Agreement;
1.53 "Party" or "Parties" shall mean the Parties to this Agreement as
identified in the first paragraph hereof, and their respective
authorized successors and assignees;
1.54 "Percentage Interest" shall mean, for each of the Parties, the
undivided percentage interest held from time to time by it in the
rights, duties, obligations and liabilities arising out of or relating
to any Production Area or its respective Production Approval;
1.55 "Person" shall mean an individual, a corporation, a limited liability
company, a partnership, an association, a trust, or any other entity
or organization, including a government or political subdivision or an
agency or instrumentality thereof;
1.56 "Petroleum" shall mean crude oil, natural gas, natural gas liquid, by-
products and other naturally occurring hydrocarbons in a free state,
whether solid, semi solid, liquid or gaseous, and it shall include all
heavy hydrocarbons which can be recovered in situ by thermal or
chemical processes, but shall not include coal, oil shale or other
kinds of rocks from which oil can be extracted by application of heat
or chemical process;
1.57 "Platform" shall mean an offshore structure, including a structure
that solely supports Facilities, whether fixed, compliant or floating,
and the components of that structure, including but not limited to,
caissons or well protectors, rising above the water line and used for
the exploration, development or production of Petroleum. The term
"Platform" shall also mean an offshore subsea structure or template
(excluding templates used for drilling operations) and any component
thereof (including, but not limited to, flowlines, umbilicals and
control systems, other than those
<PAGE>
installed in connection with completion of a well) that is attached to
the sea floor and used to obtain production of Petroleum;
1.58 "Plugging Back" shall mean a single operation whereby a deeper
Producible Reservoir is abandoned in order to attempt a Completion in
a shallower Producible Reservoir. Plug Back and other derivatives
shall be construed accordingly;
1.59 "Producible Reservoir" shall mean a Reservoir that is (a) in a single
and separate natural accumulation characterized by a distinct pressure
system, (b) not in oil or gas communication with another accumulation
of oil or gas, and (c) into which a Producible Well has been
Completed;
1.60 "Producible Well" shall mean a well that is drilled under this
Agreement and that is producing Petroleum or is or would be capable of
producing Petroleum in paying quantities, even if the well has been
plugged and abandoned;
1.61 "Production Area" shall mean any portion of a concession to which a
Production Approval relates;
1.62 "Production Approval(s)" shall mean an instrument authorizing
development, exploitation and operations within the Tantawan Area of
the Concession Area, as concluded between the Ministry of Industry of
the Kingdom of Thailand and the Parties and any extension, renewal or
amendment thereof agreed to in writing by the Parties;
1.63 "Program" shall mean any program of Joint Operations;
1.64 "Quarter" shall mean a period of three consecutive Months ending on
the 31st of March, 30th of June, 30th of September or the 31st of
December in any Year;
1.65 "Recompletion" shall mean an operation whereby a Completion in one
Producible Reservoir is abandoned in order to attempt a Completion in
a different Producible Reservoir within the existing wellbore.
"Recomplete" and other derivatives shall be construed accordingly;
1.66 "Reservoir" shall mean a stratum of earth containing or thought to
contain a common accumulation of Petroleum separately producible from
any other common accumulation of Petroleum;
1.67 "Reworking" shall mean an operation conducted in the wellbore of a
well after it is Completed in a Producible Reservoir to secure,
restore, maintain or improve production from one or more of the
Producible Reservoirs which is currently open to production in the
wellbore. Such operations
<PAGE>
include, but are not limited to, well stimulation operations, but
exclude any routine repair or maintenance work, or drilling,
Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of
a well. "Rework" and other derivatives shall be construed accordingly;
1.68 "Sidetracking" shall mean the directional control and intentional
deviation of a well from vertical so as to change the bottom hole
location, whether it be to the original Objective Depth or formation
or another bottom hole location not deeper than the stratigraphic
equivalent of the initial Objective Depth, unless the intentional
deviation is done to straighten the hole or to drill around junk in
the hole or to overcome other mechanical difficulties. "Sidetrack"
and other derivatives shall be construed accordingly;
1.69 "Tantawan Area" shall mean that certain Production Area being a
portion of the Concession Area described on EXHIBIT "C" hereto;
1.70 "Tantawan Approval" shall mean (a) that certain Production Approval
represented by a letter agreement from the Ministry dated August 23,
1995, Serial No. OrKor 0306/10332 designating the Tantawan Area as a
production area, as the same may be amended or modified by the
Ministry and (b) any unitizations or other combinations with other
concessions or Production Approvals granted by the Kingdom of Thailand
that may include any portion of the Tantawan Area;
1.71 "Testing" shall mean an operation intended to evaluate all or any
portion of a wellbore for the existence of, or its capacity to
produce, Petroleum. "Test" and other derivatives shall be construed
accordingly;
1.72 "Wilful Misconduct" shall mean, in relation to any Person, an
intentional and conscious, grossly negligent, or reckless, disregard
of:
(a) any provision of this Agreement; or
(b) any Program, not justifiable by any special circumstances;
but shall not include any error of judgment or mistake made by any
director, employee, agent or contractor of such Person in the
exercise, in good faith, of any function, authority or discretion
conferred upon such Person;
1.73 "Working Day" shall mean a Day on which banks in the city of Houston,
Texas are normally open for business;
<PAGE>
1.74 "Work Program" shall mean any plan of action that has been duly
authorized pursuant to this Agreement relating to exploration,
appraisal, development, production, transportation or storing of
Petroleum in or produced from a Production Area governed by this
Agreement, either as Joint Operations or as Non-Consent Operations;
1.75 "Year" shall mean a period of twelve (12) Months commencing with
January 1st and ending on the following December 31st according to the
Gregorian Calendar;
2. DURATION AND SCOPE
2.1 DURATION
2.1.1 This Agreement shall be deemed to have commenced on the
Effective Date, PROVIDED, HOWEVER, that costs, expenses and
liabilities incurred by the Operator prior to the Effective
Date in connection with planning, design, acquisition or
construction of Facilities to be located on the Tantawan
Area that were not charged to the Parties underneath the
B8/32 JOA but which would be appropriately incurred by the
Parties under this Agreement if such costs, expenses and
liabilities were incurred subsequent to the Effective Date
of this Agreement, shall be accounted for hereunder as if
incurred after the Effective Date.
This Agreement shall, subject to the provisions hereof, continue
in effect until the Concession Agreement in the Tantawan Area and all
Production Approvals covering a portion thereof terminate and until
all Joint Property (or other property that is used in Non-Consent
Operations) has been removed and disposed of and final settlement has
been made among the Parties and including, without limitation, until:
(a) all wells and Facilities, including Platforms, have been properly
abandoned in accordance with Article 20;
(b) all obligations, claims, arbitrations and lawsuits have been
settled or otherwise disposed of in accordance with Article 7.3
and Article 23.2; and
(c) the time relating to the protection of confidential information
and proprietary technology has expired in accordance with Article
16.
2.1.2 The provisions of this Agreement which for any reason
require action or forbearance after the expiration of the
term of this Agreement or the termination of this Agreement
for whatever
<PAGE>
cause (either generally or in respect of one Party by virtue
of that Party disposing of the whole of its Percentage
Interest) shall remain operative and in full force and
effect regardless of the expiry or termination of this
Agreement.
2.2 SCOPE
2.2.1 The scope of this Agreement shall extend to the exploration
for and the development and the production of Petroleum from
the in the Tantawan Area and to the separation, processing,
treatment, storage and transportation of the same and any
operations of any kind or nature and wherever located that
are ancillary thereto.
2.2.2 Notwithstanding the foregoing, this Agreement shall not extend to
any financing arrangements between the Parties or any of them or
any marketing arrangements between the Parties or any of them or
any arrangements between the Parties or any of them for sales of
Petroleum.
3. INTERESTS OF THE PARTIES
3.1 PERCENTAGE INTERESTS
3.1.1 Subject as hereinafter provided, the interests under
the Agreement and in the Tantawan Approval, all Joint
Property, all Joint Petroleum and all costs and obligations
incurred in the conduct of the Joint Operations shall be
owned and borne by the Parties in proportion to their
respective Percentage Interests which at the date hereof are
as follows:
THAIPO 46.34147%
THAIROMO 46.34146%
SOPHONPANICH 7.31707%
----------
100.00000%
3.2 COVENANTS UNDERTAKINGS AND RELATIONSHIPS
3.2.1 Subject to the overriding responsibility of the Operator
under Article 5.2.2 and the other provisions of this Agreement,
each Party hereby covenants and undertakes with each of the other
Parties that it will comply with all the provisions and
requirements of any applicable law and of the Concession
Agreement and will do all such acts and things within its control
as may be necessary to keep and maintain the Concession Agreement
in full force and effect insofar as the same covers and affects
the Tantawan Area and Tantawan Approval.
<PAGE>
3.2.2 The liability of the Parties hereunder shall be several and
not joint or collective. Each Party shall be responsible only
for its individual obligations hereunder. It is expressly agreed
that it is not the purpose or intention of this Agreement to
create, nor shall the same be construed as creating, any mining
partnership or other partnership of any kind whatsoever.
3.2.3 Subject to Article 5.10 and Article 7.2, each Party agrees
to indemnify each of the other Parties, to the extent of its
Percentage Interest or Participating Interest share, as
applicable, for any claim, obligation, cost, expense or liability
to any Person not being a Party hereto, arising from or in
connection with the Joint Operations and any Non-Consent
Operations to which it is a party, and such indemnity shall
include any direct costs and expenses incurred in respect of
and/or ancillary to such claim or liability which are payable to
any Person not a Party hereto.
3.3 U.S. TAXATION
3.3.1 The Parties do expressly agree that it is not the purpose or
intention of this Agreement to create, nor shall the same be
construed as creating, at any time, a partnership under U.S.
taxation law. Consequently it is the opinion of the Parties that
the activities of the Parties under this Agreement are excluded
from the application of all of the provisions of Subchapter K
(Chapter 1, Subtitle "A") of the Code.
3.3.2 If, in spite of Article 3.3.1 above, for United States
federal income tax purposes, this Agreement and the operations
under this Agreement are regarded as a partnership (and if the
Parties have not at such time unanimously agreed to form a tax
partnership) all Parties elect to be excluded from the
application of all of the provisions of Subchapter "K" (Chapter
1, Subtitle "A") of the Code as permitted and authorized by
Section 761 of the Code and the regulations promulgated under the
Code. To the extent required by Section 6231(a) (7) of the Code,
the Operator shall be authorized and directed to execute for such
Parties and entities controlled by the Parties as the Operator in
its discretion shall deem necessary, appropriate or advisable,
such documents, notices and other evidence of this election as
may be specifically required by the Internal Revenue Service,
including, but not by way of limitation, all of the returns,
statements, and the data required by United States Treasury
Regulations Section 1.761 and 1.6031-1) d) (2). Should there be
any requirement that any Party give further evidence of this
election, each Party shall execute such documents and furnish
such other evidence as may be required by the Internal Revenue
Service or as may be necessary to evidence this election.
<PAGE>
3.3.3 No Party shall give any notice or take any other action
inconsistent with the election made above. If any future income
tax laws of the United States contain provisions similar to those
in Subchapter "K" (Chapter 1, Subtitle "A") of the Code, under
which an election similar to that provided by Section 761 of the
Code is permitted, each Party shall make such election as may be
permitted or required by such laws. In making the foregoing
election, each U.S. Party states that the income derived by it
from operations under this Agreement can be adequately determined
without the computation of partnership taxable income.
3.3 .6 Irrespective of any other provisions of this Agreement, a
Party which is not subject to the income tax laws of the United
States shall not be required to do any act or execute any
instrument which might subject such Party to the taxation
jurisdiction of the United States of America.
4. THE OPERATOR
4.1 DESIGNATION
4.1.1 Thaipo is hereby designated as Operator under this
Agreement, and agrees to act on behalf of the Parties, including
actions to establish, organize and direct such Persons as the
Parties (or the Consenting Parties in the case of a Non-Consent
Operation) shall unanimously agree are necessary to accomplish
the purposes of this Agreement.
4.1.2 The Operator shall perform its duties under the supervision
of the Operating Committee as established under Article 8.
4.1.3 In the performance of its rights and duties as Operator, the
Operator does not assume and shall not be liable to the Parties
as their agent, employee, borrowed servant or in any fiduciary
capacity nor shall it be liable for any duties or obligations
beyond those specifically set out in this Agreement.
4.2 RESIGNATION AND REMOVAL
4.2.1 The Operator may resign at the end of any Month by giving
not less than one hundred and eighty (180) Days' notice to the
Parties or such shorter period of notice as the Operating
Committee may agree.
4.2.2 (a) If at any time the Operator is in material breach of
its obligations under this Agreement, the Non-Operators
may give written notice of such breach to the Operator
specifying the breach committed. Subject to Article
4.3, the Operator may be removed if the Operator has
failed to commence to rectify such breach within thirty
(30) Working Days of
<PAGE>
receipt of the Non-Operators' notice. In respect of any
decision of Non-Operators on any removal under this Article
such decision shall be made by the Operating Committee in
accordance with Article 8.
(b) The Operator shall resign forthwith upon all Non-Operators
other than Affiliates of the Operator giving notice to it
if:
(i) a receiver, conservator, liquidator or trustee of the
Operator is appointed by the order or decree of any
court or agency or supervisory authority having
jurisdiction and such decree or order remains in effect
for more than thirty (30) Days; or the Operator is
adjudicated bankrupt or insolvent; or a petition is
filed against the Operator under any bankruptcy,
reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereinafter in effect, and
is not dismissed within ninety (90) Days after such
filing;
(ii) the Operator files a petition in voluntary bankruptcy
or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under
any such law,
(iii)the Operator makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay
its debts generally as they become due, or consents to
the appointment of a receiver, trustee or liquidator of
the Operator or of all or any part of its property;
(iv) the Operator makes a Disposal of all of its Percentage
Interest in the Producing Areas governed by this
Agreement; or
(v) more than fifty percent (50%) of the common stock of
the Operator's ultimate corporate parent company is
acquired by an unaffiliated third party and, as a
result of such acquisition, there occurs (i) a majority
change in the then current board of directors of such
company, and (ii) a change in the chairmanship of such
company's board of directors.
<PAGE>
4.2.3 The resignation or removal of the Operator shall be without
prejudice to any rights, obligations or liabilities of the
Operator or the Parties which accrued during the period when the
Operator acted as such, and the Operator shall be entitled to
charge to the Joint Account costs and expenses incurred in
connection with the removal of Operator.
4.3 ELECTION OF SUCCESSOR
When the Operator is removed or resigns pursuant to Articles 4.2.1 or
4.2.2:
4.3.1 The Operating Committee shall as soon as possible appoint a
successor Operator pursuant to the voting procedure of Article 8.
4.3.2 If the Operator is removed, neither the Operator nor any
Affiliate of the Operator shall have the right to vote for itself
on the appointment of a successor Operator, nor to be considered
as a candidate to be the successor Operator.
4.3.3 The Operating Committee shall arrange for the taking of an
independent inventory of all Joint Property and Petroleum, and an
audit of the books and records of the removed Operator that
relate directly to its duties as Operator. Such inventory and
audit shall be completed, if possible, no later than the
effective date of the change of Operator. The costs and expenses
of such inventory and audit shall be charged to the Joint
Account.
4.3.4 The effective date for the resignation or removal of the
Operator shall be the date upon which any necessary approval by
the Ministry of the Operator's resignation or removal and its
replacement by the successor Operator is obtained.
4.3.5 Upon the effective date of the resignation or removal, the
successor Operator shall succeed to all duties, rights and
authority prescribed herein for the Operator. The former Operator
shall within thirty (30) Days after the effective date of
resignation transfer to the successor Operator custody of all
Joint Property, contracts, books of account, records and other
documents maintained by the Operator pertaining to the Tantawan
Area and to Joint Operations or Non-Consent Operations in its
capacity as Operator other than those books, records and
inventories maintained by the Operator as the owner of a
Percentage Interest. Upon delivery of the above-described
property and data, the former Operator shall be released and
discharged from all obligations and liabilities as Operator (but
not in any other capacity) accruing after such date.
5. AUTHORITY AND DUTIES OF OPERATOR
<PAGE>
5.1 RIGHTS
Subject to this Agreement, the Operator shall have the exclusive
right and is obliged to conduct, or to direct the conduct of; all
operations on behalf of the Parties, including both Joint Operations
and Non-Consent Operations, relating to the Tantawan Area or arising
under this Agreement, subject to the supervision of the Operating
Committee as described in Article 8 hereof.
5.2 DUTIES AND RESPONSIBILITIES
5.2.1 Subject to the supervision of the Operating Committee as
described in Article 8, the responsibilities of the Operator
shall include, but not be limited to:
(a) the preparation of proposed Work Programs, Budgets and AFEs
for submission to the Parties or Operating Committee, as
applicable, pursuant to the provisions of this Agreement;
(b) the implementation of such approved Work Programs and
Budgets as shall, together with the relevant AFE's, have
been approved by the Operating Committee;
(c) the providing to each of the Parties of reports, data and
information concerning the Joint Operations pursuant to the
provisions of this Agreement;
(d) the planning for and obtaining of all requisite services and
Material;
(e) the direction and control of statistical and accounting
services;
(f) generally the carrying out of all technical and advisory
services required for the efficient performance of the Joint
Operations;
(g) acquire all permits, consents, approvals, surface or other
rights that may be required for or in connection with
operations on or related to the Tantawan Area;
(h) subject to Article 22.3 hereof, pay to the government of the
Kingdom of Thailand for the Joint Account, within the
periods and in the manner prescribed in the Tantawan
Approval and all applicable laws and regulations, all
periodic
<PAGE>
payments, taxes, fees and other payments pertaining to
operations on or related to the Tantawan Area for the
production or transportation and marketing of Petroleum
therefrom that the Parties have not unanimously agreed will
be paid by each respective Party, but excluding any taxes
measured by the income of the Parties and royalties;
(i) collect for the Joint Account, all gas processing,
transportation, Facilities use and any other fees or charges
that may be chargeable to any Party under this Agreement or
any third Person that relates to the use of any Facilities
located on the Tantawan Area or which arise out of or are
related to operations conducted pursuant to this Agreement;
and
(j) take all measures that the Operator deems are necessary or
proper for the protection of life, health, the environment
and property.
5.2.2 The Operator shall conduct the Joint Operations in proper
and workmanlike manner in accordance with methods and practices
customarily used in good and prudent international oil and gas
field practice and with the degree of diligence and prudence
reasonably and ordinarily exercised by experienced operators
engaged in a similar activity under similar circumstances and
conditions. The Operator shall further do or cause to be done,
with due diligence, all such acts and things within its control
as may in its judgment be necessary to keep and maintain the
Tantawan Approval in full force and effect and shall conduct the
Joint Operations in compliance with the requirements of the
applicable law, the Tantawan Approval and any applicable
regulations. Operator shall never be required under this
Agreement to conduct an operation that it believes would be
unsafe or would endanger Persons or property.
5.3 LIENS AND ENCUMBRANCES
The Operator shall, in so far as it may be within its control, keep all
Joint Property and all Joint Petroleum free from all liens, charges and
encumbrances which may arise by reason of the conduct of the Joint
Operations.
5.4 EMPLOYEES AND CONTRACTORS
5.4.1 The Operator shall select and employ at such compensation as
the Operator deems reasonable, only those Persons, employees and
contractors which Operator shall deem reasonably necessary to
conduct Joint Operations or Non-Consent Operations.
<PAGE>
5.4.2 In connection with any single AFE totaling in excess of two
hundred and fifty thousand Dollars (USD 250,000) for Appraisal
Operations and in excess of five hundred thousand Dollars (USD
500,000) for Development Operations, the Operator shall establish
a competitive bidding process and provide any Party, at its
request, a list of the Persons bidding, their bids, information
as to the Person awarded the contract and a copy of the final
version of the contract awarded. Notwithstanding the foregoing
procedure, Operator shall consult with Non-Operators with respect
to all seismic acquisition, seismic processing and drilling
contracts before bidding and awarding such contracts.
5.4.3 In connection with any single AFE totaling in excess of one
million Dollars (USD 1,000,000) for Appraisal Operations and in
excess of two million five hundred thousand Dollars (USD
2,500,000) for Development Operations, Operator shall;
(a) Provide the Parties with a list of the competent entities
whom Operator proposes to invite to tender for any work to
be performed pursuant to such AFE;
(b) Consider to adjust the list by any competent entity whom the
Parties request to be considered within forty-eight (48)
hours, exclusive of Days that are not Working Days;
(c) Complete the tendering process within a reasonable period of
time;
(d) Prepare and circulate to the Parties a competitive bid
analysis, including the significant technical, commercial
and contractual terms to be agreed upon;
(e) Upon the request of a Participating Party, use reasonable
efforts to consult with such Participating Party regarding
the material terms of any contract that is to be executed in
connection with such AFE; and
(f) Upon the request of a Participating Party, provide such
Participating Party with a copy of the final version of the
contract.
Notwithstanding the above procedure, Operator shall consult with Non-
Operators with respect to all seismic acquisition, seismic processing and
drilling contracts before bidding and awarding such contracts.
<PAGE>
5.4.4 Nothing in this Agreement shall require the Operator to
select the lowest bid or tender in any particular instance and in
determining which bid or tender to select the Operator shall be
entitled to consider the technical as well as the financial
competitiveness of any bid or tender. The Operator shall be
entitled to use its own or its Affiliate's Material, equipment
and/or services in the performance of the Joint Operations,
provided that the terms and conditions under which such Material
or services are used shall be competitive with those terms and
conditions on which other similar Material or services are
available. Operator shall use its best efforts to see that any
contracts entered into by the Operator pursuant to this Agreement
are assignable by the Operator or such Affiliate; and, unless
unanimously otherwise agreed by all the Participating Parties,
every such contract shall provide, to the extent possible, that
the Participating Parties and their successors and assigns shall
be entitled to the benefit of all covenants, undertakings and
warranties made in such contract to the extent of their
applicable Participating Interest and shall be the owners, either
beneficial or legal, as applicable, in undivided interests in
proportion to their respective Participating Interests, of all
Material or Facilities provided or obtained pursuant to such
contract.
5.5 REPRESENTATION OF THE PARTIES
5.5.1 The Operator shall represent the Parties regarding any
matters or dealings with the Ministry and any other governmental
and/or regulatory authorities or third Persons insofar as the
same relate to the operations on the Tantawan Area, provided
that, subject to the other terms and conditions of this
Agreement, there is reserved to each Party the unfettered right
to deal with such governmental authorities in respect only of
matters relating to its own Percentage Interest; provided that
such Party shall in good faith endeavor to insure that such
dealings shall not have an adverse impact on the Concession
Agreement or any Joint Operations.
5.5.2 Any Non-Operator proposing to meet or otherwise deal with
the Ministry or any other governmental or regulatory authorities
in relation to any matter connected with or which may foreseeably
affect any operations on the Tantawan Area shall at least ten
(10) Working Days before such meeting or dealing notify the
Operator and, insofar as it may be within such Party's power,
arrange for, if reasonably possible, the Operator to attend or be
represented at such meeting and the Operator shall at all times
be kept fully informed of any and all dealings by Non-Operators
which may foreseeably affect the Joint Operations.
<PAGE>
5.5.3 Each of the Parties represents and warrants that as of the
Effective Date, except for purposes of financing as otherwise
disclosed to the other Parties in writing, it has not encumbered
any interest it may have in the Tantawan Area by any overriding
royalty, production payment, net profits interest, mortgage,
lien, security interest, or other burden or encumbrance as
contemplated in Article 22 hereof.
5.6 RECORDS
5.6.1 The Operator shall prepare and maintain proper books,
records and inventories of the Joint Operations which shall be
kept in compliance with the Accounting Procedure and with due
regard to the requirements of the Ministry, any applicable law,
regulations and the Concession Agreement.
5.6.2 Each of the Parties is responsible for maintaining its own
accounting records to comply with all legal requirements and to
support all fiscal returns or any other accounting reports
required by any governmental authority in regard to operations
conducted pursuant to this Agreement, except that the Operator
shall prepare and submit on behalf of the Parties those
accounting and other reports (if any) that are required by
statute (a) in the Kingdom of Thailand in respect of operations
on the Tantawan Area or (b) elsewhere where any Person employed
by the Operator or the Parties to conduct operations pursuant to
this Agreement is legally domiciled or is otherwise required to
file such reports.
5.7 REPORTS
5.7.1 The Operator shall:
(a) provide each Non-Operator on a timely basis all daily
drilling reports, well status reports and similar regular
technical and statistical reports as may be relevant to
operations as to which such Party is a Participating Party;
and
(b) timely make all reports concerning the operations on or
related to the Tantawan Area to the appropriate governmental
authorities as required by any applicable law, regulations
and the Concession Agreement and furnish copies of such
reports to Non-Operators as requested.
5.7.2 The Operator shall provide each Non-Operator copies of all
well logs and core analyses and the relevant engineering,
geological, geophysical, technical and other data and information
relating to
<PAGE>
operations as to which such Party is a Participating Party on a
timely basis and shall provide to any Participating Party who
requests the same and at the expense of that Participating Party
samples of any core or cores taken by Operator in operations as
to which such Party is a Participating Party.
5.8 EXPENDITURES AND ACTIONS
5.8.1 Subject to the other provisions of this Agreement including,
without limitation, Article 4.1.1, the Operator shall be
authorized to negotiate such agreements, make such expenditures,
incur such commitments for expenditure, establish such Persons
and take such actions as may be, in the judgment of the Operator,
necessary or desirable in order to implement any Work Program or
approved AFE hereunder.
5.8.2 In case of an emergency, as determined by the Operator
acting in good faith, the Operator is authorized to make any
expenditure or incur commitments for expenditure or take any
actions it deems necessary or desirable in the case of the
safeguarding of lives or property or the prevention or mitigation
of pollution. The Operator shall promptly notify all the Parties
of any such circumstances and the amount of expenditures and
commitments for expenditures so made and incurred and actions so
taken.
5.8.3 The Operator is also authorized in exceptional cases to make
any expenditure for Joint Operations during any Year not included
in an approved Program or not provided for in an approved Budget,
limited, however, to a total not exceeding two hundred and fifty
thousand Dollars (USD 250,000) as more fully provided in and
subject to the terms and provisions of Article 9.3.
5.9 ACCOUNTING
5.9.1 The Operator will adopt sound and consistent procedures of
accounting and will maintain adequate procedures to control
expenditures in the Joint Operations,
5.9.2 The Accounting Procedure attached hereto as EXHIBIT "A" is
hereby made part of this Agreement. In the event of any conflict
between any provision in the main body of this Agreement and any
provision in EXHIBIT "A", the provision in the main body of this
Agreement shall prevail.
<PAGE>
5.10 LIABILITY OF OPERATOR
5.10.1 Except as set out in this Article 5.10, the Party designated
as Operator shall bear no cost, expense or liability resulting
from performing the duties and functions of the Operator. Nothing
in this Article shall, however, be deemed to relieve the Party
designated as Operator from any cost, expense or liability for
its Participating Interest share of operations under this
Agreement.
5.10.2 The Parties shall be liable in proportion to their
Participating Interests and shall defend and indemnify Operator
and its Affiliates, contractors, consultants, agents, employees,
officers and directors (the "Indemnitees") from any and all
costs, expenses (including reasonable attorneys' fees) and
liabilities incident to claims, demands or causes of action of
every kind and character brought by or on behalf of any person or
entity for damage to or loss of property or the environment, or
for injury to, illness or death of any person or entity, which
damage, loss, injury, illness or death arises out of or is
incident to any act or failure to act by Indemnitees in the
conduct of or in connection with operations that are conducted on
or are related to the Tantawan Area or arise pursuant to
Operator's actions (or failure to take action) pursuant to this
Agreement, regardless of the cause of such damage, loss, injury,
illness or death and EVEN THOUGH CAUSED IN WHOLE OR IN PART BY A
PRE-EXISTING DEFECT, THE NEGLIGENCE (WHETHER SOLE, JOINT OR
CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF INDEMNITEE;
provided that Operator shall be responsible for any damage, loss,
injury, illness or death that is caused by its Gross Negligence
or Willful Misconduct.
5.10.3 Notwithstanding the foregoing under no circumstances shall
any Indemnitee (except as a Party to the extent of its
Participating Interest) bear any cost, expense or liability for
environmental, consequential, punitive or any other similar
indirect damages or losses, including but not limited to those
arising from business interruption, reservoir or formation
damage, inability to produce petroleum, loss of profits,
pollution control and environmental amelioration or
rehabilitation.
6. RIGHTS OF THE PARTIES
6.1 INSPECTION RIGHTS
Each Party, shall have the right to inspect, at all reasonable
times during usual business hours, all books, records and inventories
of any kind or nature maintained by or on behalf of the Operator that
relate to the Joint Operations other than those books, records and
inventories maintained by the Operator as the owner of a Percentage
Interest,
<PAGE>
provided that such Party gives the Operator not less than fourteen
(14) Days' prior notice of the date upon which it desires to make such
inspection and identifies the person or persons to conduct such
inspection.
6.2 ACCESS RIGHTS
Each Party shall have the right, at all reasonable times and at
its sole risk and expense, of access to the Tantawan Area and the
Joint Operations, PROVIDED THAT such Party gives the Operator
reasonable notice of the date when such access is required and
identifies the representative or representatives to whom such access
is to be granted; PROVIDED, FURTHER, that such Party shall not have
access to those portions of the Tantawan Area on which Non-Consent
Operations are being conducted with respect to which such Party is not
a Participating Party at such times as such Non-Consent Operations are
being conducted. The Party exercising its rights of access hereunder
shall indemnify and hold harmless the Operator, its Affiliates,
contractors, consultants, agents, employees, officers and directors,
and the other Parties against any and all claims howsoever caused in
respect of personal injury to or death of the Party's representatives,
notwithstanding that such injury or death was caused or contributed to
by the negligence of the Operator, its Affiliates, contractors,
consultants, agents, employees, officers or directors.
7. INSURANCE AND LITIGATION
7.1 INSURANCE
7.1.1 The Operator shall obtain and maintain in respect of the
Joint Operations and the Joint Property, all insurance required
under any applicable law or regulations.
7.1.2 No other insurance, including pollution liability insurance
coverage will be purchased for the Joint Account. Any Party may
procure and maintain at its own cost and expense such other
insurance as it shall determine, PROVIDED THAT each Party shall
maintain at all times during the conduct of operations under this
Agreement insurance of the types and in the amounts set forth on
EXHIBIT "F" hereto with an insurance company (a) of sound
financial standing rated B or higher by A.M. Best Company or (b)
which is approved by the Operator. Any such insurance shall inure
solely for the benefit of such Party procuring same; PROVIDED,
HOWEVER, that each such insurance policy shall contain a waiver
on the part of the insurance carrier of all rights, by
subrogation or otherwise, against each Party not named as an
insured in such policy, or if such
<PAGE>
waiver is not secured, the insured shall indemnify and hold
harmless each Party not named as an insured in such policy
against any claim of the insurance carrier arising against such
Party by subrogation or otherwise. Each Party shall Furnish to
the Operator annually, a certificate of insurance from a
reputable insurance broker evidencing the insurance required
pursuant to EXHIBIT "F".
7.1.3 The Operator shall use its reasonable efforts to require all
contractors performing work in respect of operations on or
related to the Tantawan Area to obtain and maintain any and all
insurance in the types and amounts required by all applicable
laws, rules and regulations, under the Tantawan Approval and as
the Operator may additionally require. Operator shall further use
its reasonable efforts to require all such contractor's insurance
policies to name the Parties as additional insureds and to obtain
from their insurer waivers of all rights or recourse against
Operator and Non-Operators.
7.1.4 In connection with any losses resulting from operations
under this Agreement, Operator shall: (a) furnish Non-Operators
with copies of accident reports as they are received; (b) notify
Non-Operators of the services of all summonses and legal
processes; (c) inform Non-Operators as to the status of any claim
or suit and of any payment made in connection therewith; or (d)
furnish Non-Operators with any other available information
required by it, or its insurance carrier, for the purpose of
fixing or adjusting premiums or to support any claim. Operator
will promptly advise Non-Operators of any claim whose potential
exposure may exceed the insurance limits or coverage provided for
under the Joint Account.
7.1.5 The cost of insurance in which all Parties participate
pursuant to Article 7.1.1 shall be for the Joint Account.
7.2 DAMAGE CLAIMS
Liability for losses, damages, injury, or death arising from
operations under this Agreement shall be borne by the Parties in
proportion to their Participating Interests in the operations out of
which such liability arises, except when such liability results from
the Gross Negligence or Willful Misconduct of a Party or Parties, in
which case such Party or Parties shall be solely liable. Each Party
who receives any such claim or demand arising from operations
hereunder shall promptly advise Operator and provide Operator full and
complete information with respect thereto. Operator shall give each of
the other Parties written notice of any such material claim or demand.
The settlement of any such claim involving operations hereunder shall
be within the sole discretion of Operator so long as the amount paid
in settlement of any
<PAGE>
claim does not exceed fifty thousand Dollars (USD 50,000). If
settlement can be made for a total payment in excess of fifty thousand
Dollars (USD 50,000), Operator may settle only upon agreement thereto
by all Participating Parties. Any sum paid in settlement of such a
claim shall be charged as an operating expense hereunder and shall be
borne in proportion to each Party's Percentage Interest or its
Participating Interest, whichever is applicable.
7.3 LITIGATION
7.3.1 The Operator shall notify the Parties of any dispute, claim,
litigation, lien, demand or judgment relating to the Joint
Operations. The Operator shall have the authority to prosecute,
defend, settle or compromise any claim, litigation, lien, demand
or judgment relating to the Joint Operations (other than as
between the Parties), provided that where the total amount in
dispute and/or the total amount of damages together with any
costs are estimated to exceed fifty thousand Dollars (USD
50,000), excluding attorney's fees, or such other amount as may
from time to time be determined by the Operating Committee, the
Operator shall have no such authority without the prior approval
of the Operating Committee unless in the opinion of the Operator
a failure to take immediate steps could prejudice the position of
the Parties. Each Non-Operator shall have the right to be
represented by its own counsel at its own expense in the
settlement, compromise or defense of such claims or suits.
7.3.2 Notwithstanding Article 7.3.1, each Party shall have the
right to participate in any such pursuit, prosecution, defense or
settlement conducted in accordance with Article 7.2 and Article
7.3.1 at its sole cost and expense; provided always that no Party
may settle its Participating Interest share of any claim without
first satisfying the Operating Committee that it can do so
without prejudicing the interests of the Joint Operations.
8. THE OPERATING COMMITTEE AND THE TANTAWAN APPROVAL
8.1 ESTABLISHMENT AND POWERS
To provide for the overall supervision and direction of Joint
Operations, there is established an Operating Committee composed of
representatives of the Parties as hereinafter provided. The Operating
Committee shall have the power and duty to authorize Joint Operations
that are necessary or desirable to fulfill the Tantawan Approve and to
properly explore and exploit the Tantawan Area in accordance with this
Agreement. The approval of the Operating Committee shall be required
with regard to the following matters:
<PAGE>
(a) operating policy and procedures of principal nature;
(b) the outline of all Work Programs, Appraisal Operations and
Development Operations and the Budgets pertaining thereto which
constitute Joint Operations; and
(c) such other matters relating to Joint Operations on or related to
the Tantawan Area as are elsewhere herein provided to be
submitted to or approved by the Operating Committee or which may
be submitted to the Operating Committee by agreement of the
Parties;
PROVIDED HOWEVER, in this regard that prior to execution and
delivery of this Agreement by the Parties, the Operator has
provided the other Parties such information, reports and AFE's as
would be required under the terms of this Agreement with
reference to decisions and actions taken by the Operator for the
Joint Account that are related to the development of the Tantawan
Area prior to the Execution Date of this Agreement, and the
Parties have agreed that all decisions and actions taken by the
Operator for the Joint Account that are related to the
development of the Tantawan Area prior to the Execution Date of
this Agreement shall be deemed to have been ratified and approved
by the Operating Committee as if approved in advance by the
Operating Committee in accordance with the provisions of this
Article 8.
8.2 REPRESENTATION
8.2.1 The Operating Committee shall consist of one representative
of each Party; PROVIDED, HOWEVER, that any Party which has a
Percentage Interest of less than five per cent (5%) must appoint
as its representative on the Operating Committee a current
representative of another Party which has a Percentage Interest
of five per cent (5%) or more unless the Operating Committee
shall authorize to that Party a separate representative on the
Operating Committee by an affirmative vote of all Parties other
than any Party which was an assignor or disposer of the
petitioning Party's Percentage Interest.
8.2.2 If the Percentage Interest of a Party whose rights of
representation are made conditional under this Article by virtue
of its having a Percentage Interest of less than five per cent
(5%) shall obtain an interest of five per cent (5%) or more, its
conditional rights of representation shall immediately cease to
have effect and that Party shall have an unconditional right of
representation on the Operating Committee.
<PAGE>
8.2.3 If a Party whose rights of representation are unconditional
under this Article by virtue of its having a Percentage Interest
of five per cent (5%) or more shall in any way reduce its
Percentage Interest or shall have its Percentage Interest reduced
to a level of less than five per cent (5%), its rights of
representation shall immediately cease to have effect and shall
become conditional on its Percentage Interest being restored at
any later time to a level of five per cent (5%) or more.
8.2.4 Each Party shall, as soon as possible after the Execution
Date of this Agreement, give notice to all the other Parties of
the name of its representative on the Operating Committee and of
one alternate to the representative. Such representative and/or
alternate may be replaced, from time to time, by like notice.
Representatives or their alternates may bring to meetings of the
Operating Committee such technical advisers as they consider
necessary. The representative of a Party or, in the absence of
the representative, his alternate, shall be deemed authorized to
represent and bind such Party with respect to any matter which is
within the powers of the Operating Committee.
8.3 CHAIRMAN
The representative of the Operator shall be the Chairman of the
Operating Committee and shall organize and conduct the meeting.
8.4 MEETINGS
8.4.1 The Operating Committee shall hold meetings not less than
once every Year (or more frequently as may be agreed by the
Operating Committee) at the Operator's offices in Houston, Texas
or at such place as may be agreed in advance by the Operating
Committee. The Chairman of the Operating Committee shall call
such meetings and shall give at least fourteen (14) Working Days'
notice of the time, place and date of each meeting, together with
an agenda and relevant data and information relating to the
matters to be considered at that meeting. By notice to all the
other Parties, any Party can advise of additional matters which
such Party desires to be considered at the meeting, and provided
such notice is given at least ten (10) Working Days before the
date of the meeting, those matters will be considered at the
meeting.
8.4.2. The Operating Committee shall hold a special meeting
(subject however to the provisions of Article 8.6.1(b) and 8.6.2
below) upon the request of any Party represented thereon. Such
request shall be made by notice to all the other Parties and
state the matter to be considered at that meeting. Upon receiving
such request the Operator shall without delay call a special
meeting for a date not less than seven (7) Working Day after
receipt of the request.
<PAGE>
8.4.3 For any meetings of the Operating Committee, the periods of
notice stipulated above may be waived in whole or in part with
the consent of all the Parties represented thereon.
8.5 MINUTES
The Chairman of the Operating Committee shall appoint a secretary
for the Operating Committee who will prepare the minutes of each
meeting and provide each Party represented thereon with a copy thereof
not more than fifteen (15) Days after the end of the meeting. Each
such Party shall notify all the other Parties of its acceptance or
non-acceptance of the minutes as a true and fair record of such
meeting within five (5) Working Days of receipt thereof. A Party
which fails to so notify the other Parties of its acceptance or
rejection of the minutes will be deemed to have approved the minutes.
The non-acceptance of the minutes as aforesaid shall not affect the
validity of decisions taken by the Operating Committee at the meeting
to which such minutes relate.
8.6 ACTION WITHOUT A MEETING
8.6.1 (a) If all the Parties agree in writing to determine any matter
without an actual meeting that would otherwise require submittal
to the Operating Committee at a meeting, the Parties may vote on
and determine any proposal which is submitted to the Parties by
notice to the Operator which they could validly determine at a
meeting of the Operating Committee if duly held for that purpose.
Each Party which fails to cast its vote within ten (10) Working
Days after the proposal is received by it shall be deemed to have
voted with the Operator on such proposal.
(b) If the Operator considers that any matter requires to be
determined within such a period as makes the holding of a meeting
impracticable, the Parties shall vote on such matter within
forty-eight (48) hours (exclusive of Days which are not Working
Days) after receipt of the proposal made by the Operator and
shall immediately notify the Operator of their vote. Failure to
cast and notify to the Operator the result of a vote within the
period aforesaid shall be deemed to have voted with the Operator
on the proposal.
8.6.2 The Operator shall give prompt notice of the votes cast and
any decision so taken shall be binding on the Parties
notwithstanding that any Party may have requested a special
meeting to discuss any such proposal.
<PAGE>
8.7 SUB-COMMITTEES
The Operating Committee may establish such advisory sub-
committees as it considers desirable from time to time. Each sub-
committee so established shall be given written terms of reference and
shall be subject to such procedures as the Operating Committee may
determine. The meetings of sub-committees will as far as possible be
arranged so that the minutes of such meetings can be presented in
sufficient time for consideration before the next following regular
meeting of the Operating Committee.
8.8. VOTING PROCEDURE
8.8.1 Subject to Article 4.3 and the other terms and provisions of
this Agreement, each Party shall have a percentage vote on all
proposals placed before the Operating Committee equal to its
Percentage Interest.
8.8.2 Save as otherwise provided in this Agreement, all decisions
of the Operating Committee shall be required to be made by the
affirmative votes of two or more non-Affiliated Parties having an
aggregate Percentage Interest of not less than fifty one percent
(51%) of the Percentage Interests present and voting on such
proposal.
8.9 EFFECT OF VOTE
The following decisions shall be taken only by unanimous consent
of all the Parties holding a Percentage Interest or, in the event of a
Default by any Party, in accordance with the provisions of Article 14:
(a) the renunciation or entire relinquishment of the Concession
Agreement as to the Tantawan Area or any Production Approval
covering any portion of the Tantawan Area; or
(b) any amendments or changes to this Agreement.
9. WORK PROGRAMS, BUDGETS AND AFE'S
9.1 ANNUAL PROGRAM AND BUDGET
9.1.1 The Operator shall, within ninety (90) Days after the
execution of this Agreement and thereafter annually not later
than 1st October submit to the Parties a proposed Work Program
and a Budget for the remainder of the initial Year and/or for the
next Year showing:
(a) the projects and work that the Operator currently anticipates
will be undertaken;
<PAGE>
(b) an estimate in Dollars of the total cost of the relevant work and
a subdivision of such total into main classifications of cost
distinguishing between costs previously approved under AFEs and
carried over from the previous Year and other costs; and
(c) the contingency sum proposed in Article 9.3 to be made available
for spending by the Operator on Joint Operations without need for
prior sanction under the AFE procedure specified below.
9.1.2 The proposed Work Program and Budget shall be subject to
consideration, revision and approval by the Operating Committee.
The Operating Committee shall approve a Work Program and Budget
for Joint Operations not later than the 15th of December prior to
the Year for which such Work Program and Budget are proposed.
9.1.3 At any time the Operator may, by notice to all the other
Parties, propose that an approved Work Program, Budget or AFE
related to Joint Operations be amended. To the extent that an
amendment is approved by the Operating Committee, the approved
Work Program, Budget or AFE shall be deemed amended accordingly,
provided always that any such amendment shall not invalidate any
authorized commitment or expenditure made by the Operator prior
thereto.
9.1.4 If the Operating Committee is unable to agree on a Work
Program and Budget for Joint Operations prior to the time when
the Program, as proposed, is to be implemented, the Operator
shall take only such actions for the Joint Account as are
necessary to maintain the Tantawan Approval in full force and
effector to prevent waste of Petroleum; PROVIDED, HOWEVER, the
provisions of this Article 9.1.4 shall in no way prohibit the
proposal or implementation of Non-Consent Operations as provided
pursuant to this Agreement.
9.2 AUTHORIZATION FOR EXPENDITURE
9.2.1 Except as otherwise provided in this Agreement and Article
2.3 in EXHIBIT "A" hereof, Operator, before entering into any
commitment or incurring any expenditure under an approved Work
Program shall, in accordance with the notice provisions of
Article 24, submit to and obtain the Participating Parties
approval of an AFE therefor.
9.2.2. An AFE shall include the information required by Article 7.2
of EXHIBIT "A" hereto.
<PAGE>
9.2.3 Approval of an AFE by the Participating Parties shall impose
an obligation on them to meet their Participating Interest shares
of any Advances in respect of the expenditure so authorized and
shall constitute full authority for the Operator to enter into
any commitment properly made in relation to the relevant AFE,
whether or not payments in respect of such commitments result in
the final cost of such commitments exceeding the estimated final
cost shown in the AFE, provided that if at any time it becomes
apparent that:
(a) commitments yet to be made will or are likely to cause the
estimated final cost to be exceeded by more than ten percent
(10%); or
(b) expenditure to be incurred under commitments already made
will cause the estimated final cost to be exceeded by more
than ten percent (10%);
the Operator shall immediately notify the Participating Parties and
shall provide the Participating Parties with an estimate of the
revised estimated final cost of the project contemplated by such AFE.
9.2.4 If the Operator requests the Participating Parties to
authorize an AFE which does not exceed two hundred and fifty
thousand Dollars (USD 250,000) for Appraisal Operations and which
does not exceed five hundred thousand Dollars (USD 500,000) for
Development Operations or such greater amounts as may be
determined by the Operating Committee, notwithstanding any other
provisions of this Agreement to the contrary, the AFE in question
shall be deemed to be approved and shall be binding on the
Participating Parties, notwithstanding any vote to the contrary
by any such Participating Parties.
9.3 CONTINGENCY SUM
The Operator shall be entitled to expend sums on individual items
out of the contingency sum which shall be the greater of the amount
authorized pursuant to Article :5.8.3 or such greater amount as may
have been approved as part of the relevant approved Budget, without
any AFE or other sanction; PROVIDED, HOWEVER, that:
(a) the Operator shall not be entitled to expend an amount in
excess of the total contingency sum;
(b) the Operator shall not be entitled to expend under this
Article 9.3 an amount in excess of fifty thousand Dollars
(USD 50,000) on any one item of expenditure;
<PAGE>
(c) at the end of each relevant Year any unappropriated balance of
the contingency sum shall be automatically canceled;
(d) no appropriations from the contingency sum shall be made to cover
any expenditure in the nature of the Operator's overhead; and
(e) appropriations made from the contingency sum shall be reported to
the Parties within thirty (30) Days after appropriation.
10. APPRAISAL OPERATIONS
10.1 OPERATIONS BY ALL PARTIES
Any Party may propose an Appraisal Operation by sending an AFE or
notifying the other Parties in accordance with Article 24. If all the
Parties agree to participate in drilling the proposed Appraisal Operation,
Operator shall drill same as a Joint Operation.
10.2 SECOND OPPORTUNITY TO PARTICIPATE
If fewer than all, but two (2) more Parties having a combined
Percentage Interest of fifty-one percent (51%) or more, elect to
participate, the proposing Party shall inform the Parties of the elections
made whereupon any Party originally electing not to participate may then
elect to participate by notifying the proposing Party within two (2)
Working Days after receipt of such information. If all the Parties agree to
participate in drilling the proposed Appraisal Operation, Operator shall
drill same as a Joint Operation.
10.3 OPERATIONS BY FEWER THAN ALL PARTIES
If less than all, but two (2) or more Parties having a combined
Percentage Interest of fifty-one (51%) or more, elect to participate in
such proposed Appraisal Operation, the proposing Party, immediately after
the expiration of the notice period in Article 10.2, above, shall advise
the Participating Parties of (a) the total interest of the Parties
approving such operation, and (b) its recommendation as to whether the
Participating Parties should proceed with the operation as proposed. Each
Participating Party, within two (2) Working Days after receipt of such
notice, shall advise the proposing Party of its desire to (a) limit its
participation to such Party's Percentage Interest, or (b) pay and bear its
proportionate part of the Non-Participating Parties' interest. Failure of a
Participating Party receiving such a notice to reply within the fixed
period shall constitute an election by that Party not to carry its
proportionate part of the Non-Participating Parties' interest. The
proposing Party, at its election, may withdraw such proposal if there is
insufficient participation, and shall promptly notify all Parties of such
decision. If the
<PAGE>
operation is fully-subscribed, it shall be conducted as a Non-Consent
Operation for the joint account of the Participating Parties. If the well
will be an Appraisal Well, then upon commencement of such drilling
operations (within one hundred twenty (120) Days after the last applicable
election date), each Non-Participating Party's interest and leasehold
operating rights in such operation and title to production therefrom shall
be owned by and vested in each Participating Party in proportion to its
Participating Interest for so long as the operations are conducted or
production is being obtained therefrom;
provided, however, that such rights shall revert to each Non-Participating
Party in accordance with the provisions of Article 12.
10.4 CASING POINT ELECTION
10.4.1 Upon reaching Casing Point in any well drilled under the
provisions of this Agreement (whether commenced as an Appraisal
or Development Operation), the Operator shall immediately notify
the other Participating Parties in accordance with Article 24, as
to its recommendations as to further operations thereon. Each
Participating Party, within forty-eight (48) hours after receipt
of such notice, or receipt of wireline logs, whichever is the
later, shall advise the Operator and the other Participating
Parties in accordance with Article 24 whether it accepts
Operator's recommendation or makes additional recommendations as
to further operations with respect to such well. If additional
recommendations are made, the Participating Parties shall have an
additional twenty-four (24) hours to respond.
10.4.2 If all Participating Parties elect to abandon the well at
that point, it shall be plugged and abandoned at their joint
risk, cost and expense. If less than all Participating Parties
elect to conduct a specific further operation, other than
plugging and abandoning the well, the Parties so electing shall
conduct such further operations as a Non-Consent Operation under
the provisions of Article 12. If at any time there is an
operation or alternative operation, other than plugging and
abandonment, proposed in connection with any well subject to this
Agreement, and in the event an operation or alternative operation
does not receive the approval of all Participating Party(s), then
any Participating Party(s) may proceed with such operation or
alternative operation if the cost and risk are fully subscribed.
The Operator shall conduct the operation or alternative operation
and the respective penalties set forth in Article 12 shall be
applicable to a Non-Participating Party. If there are differences
between the Participating Parties on the sequence of such
operation or alternative Operation, then the proposals shall be
conducted in the following order of priority:
<PAGE>
(a) proposals to do additional Testing, coring or logging. (If
conflicting proposals for operations are approved, the proposal
receiving the largest percentage of Participating Interest
approval shall take precedence, and in the event of a tie between
two (2) or more approved proposals, the approved proposal first
received by the Participating Parties shall take precedence.)
(b) proposals to attempt Completions, commencing at the Objective
Horizon, in ascending order. (If conflicting proposals are
approved, the operation proposed at the deepest depth shall take
precedence.)
(c) proposals to Plug Back and attempt Completion. (If conflicting
proposals are approved, the operation proposed at the deepest
depth shall take precedence.)
(d) proposals to Deepen the well. (If conflicting proposals are
approved, the operation proposed at the shallowest depth shall
take precedence.)
(e) proposals to Sidetrack the well. (If conflicting proposals for
operations are approved, the proposal receiving the largest
percentage of Participating Interest approval shall take
precedence, and in the event of a tie between two (2) or more
approved proposals, the approved proposal first received by the
Participating Parties shall take precedence.)
(f) proposals to perform other operations. (If conflicting proposals
for operations are approved, the proposal receiving the largest
percentage of Participating Interest approval shall take
precedence, and in the event of a tie between two (2) or more
approved proposals, the approved proposal first received by the
Participating Parties shall take precedence.)
(g) proposals to temporarily plug and abandon the well.
(h) proposals to permanently plug and abandon the well.
10.4.3 If the further operation that is approved by the
Participating Parties is other than to plug and abandon the well,
and if the well is subsequently abandoned as a dry hole, then the
Non-Participating Party as to such operation or alternative
operation shall bear its proportionate part of what would
otherwise have been the cost of plugging and abandoning the well
at the initial Objective Horizon.
<PAGE>
10.4.4 In the event that the well could be or has been Completed as
a Producible Well and a further operation is proposed to Deepen
the well, and as a result of such Deepening, the Producible Well
is thereby damaged to the extent that it is rendered incapable of
being Completed and produced at or above the deepest remaining
Producible Reservoir in such well, the Parties participating in
such Deepening shall be obligated, at their sole risk and
expense, to restore the well to a condition whereby a Completion
can be made at the deepest remaining Producible Reservoir in such
well prior to the Deepening operation, if practicable, or
otherwise to pay for the entire cost of drilling a replacement
well down to the deepest remaining Producible Reservoir in such
well.
10.5 WELLS PROPOSED BELOW DEEPEST PRODUCIBLE RESERVOIR
If a proposal is made to conduct an Appraisal Operation involving the
drilling or Deepening of a well to an Objective Horizon below the base of
the deepest Producible Reservoir, a Party may elect within the applicable
period to limit its participation in such operation down to the base of the
deepest Producible Reservoir. For purposes of this Article 10.5, a Party
who elects to limit its participation in the operation down to the deepest
Producible Reservoir shall be referred to as a "Shallow Participant" and a
Party who elects to participate in the entire operation shall be referred
to as a "Deep Participant." The Shallow Participant shall be a
Participating Party in, and shall pay and bear the costs and risks of each
operation to the base of the deepest Producible Reservoir, according to its
Participating Interest. The Shallow Participant shall be a Non-
Participating Party in each operation below the deepest Producible
Reservoir, and the operation shall be considered a Non-Consent Operation,
and the provisions of Article 12 shall apply to any such operations. In the
event that the well is damaged by any operations below the previously
existing deepest Producible Reservoir to the extent that it is rendered
incapable of being Completed and produced at or above such deepest
Producible Reservoir, the Deep Participants shall be obligated, at their
sole risk and expense, to restore the well to a condition whereby a
Completion can be made at the deepest Producible Reservoir as indicated by
Testing in such well prior to any operations below the deepest existing
Producible Reservoir, if practicable, or otherwise to pay for the entire
cost of drilling a replacement well down to the deepest existing Producible
Reservoir. If the well is completed and produces Petroleum from a Reservoir
below the previously existing deepest Producible Reservoir, the Deep
Participant shall reimburse the Shallow Participant for its share of the
actual well costs to the base of the previously existing deepest Producible
Reservoir. If the well is completed and produces Petroleum from a Reservoir
below the previously existing deepest Producible Reservoir, the Shallow
Participant shall reimburse the Deep Participant for its Participating
Interest share of the actual well costs to the base of the previously
existing Producible Reservoir in accordance with Article 12 upon the
earlier of the time that (a) the well is Plugged Back to a horizon above
the base of the deepest Producible Reservoir, as determined when
<PAGE>
the well was originally proposed, (b) the well is plugged and abandoned, or
(c) the amount to be recouped by the Deep Participants under Article 12 is
recovered.
11. DEVELOPMENT OPERATIONS
11.1 OPERATIONS BY ALL PARTIES
Any Party may propose Development Operations by giving notice of a
Developmental Proposal to the other Parties. If all Parties elect to
participate in the proposed operation, Operator shall conduct such
operation as a Joint Operation.
11.2 SECOND OPPORTUNITY TO PARTICIPATE
If fewer than all, but two (2) or more Parties having a combined
Percentage Interest of fifty-one percent (51%) or more, elect to
participate in such proposed Development Operation, the proposing Party
shall inform the Parties of the elections made whereupon any Party
originally electing not to participate may then elect to participate by
notifying the proposing Party within two (2) Working Days after receipt of
such information. If all the Parties agree to participate in the proposed
Development Operation, Operator shall conduct same as a Joint Operation.
11.3 OPERATIONS BY FEWER THAN ALL PARTIES
If after the second notice provided for in Article 11.2 above, less
than all but two (2) or more Parties having a combined Percentage Interest
of fifty-one percent (51%) or more, elect to participate in such
Development Operation, the proposing Party, immediately after the
expiration of the notice period in Article 11.2, above, shall advise the
Participating Parties of (a) the total interest of the Parties approving
such Development Operation, and (b) its recommendation as to whether the
Participating Parties should proceed with the operation as proposed. Each
Participating Party, within two (2) Working Days after receipt of such
notice, shall advise the proposing Party of its desire to (a) limit
participation to such Party's Percentage Interest, or (b) carry its
proportionate part of the Non-Participating Parties' interest. Failure of a
Participating Party receiving such a notice to reply within the fixed
period shall constitute an election by that Party not to carry its
proportionate part of the Non-Participating Parties' interest. The
proposing Party, at its election, may withdraw such proposal if there is
insufficient participation, and shall promptly notify all Parties of such
decision. If the Development Operation is fully-subscribed, it shall be
conducted as a Non-Consent Operation for the joint account of the
Participating Parties.
<PAGE>
11.4 TIMELY OPERATIONS
Unless otherwise provided, Development Operations that are approved
pursuant to this Article shall be commenced within ninety (90) Days
following the date upon which the last applicable election may be made. The
commencement date may be extended for a reasonable period, not to exceed
sixty (60) Days, by written notice form the Operator to all Parties, if
additional time is reasonably necessary to obtain appropriate Materials,
equipment, financing (if the proposed Development Operation contemplates
third Person financing by the Participating Parties as a condition to such
Development Operation) or required approvals from governmental or other
regulatory authorities. If no operations are begun within such time period,
the effect shall be as if the proposal had not been made. Development
Operations shall be deemed to have commenced (a) on the date the first to
occur of the contracts for design, fabrication, acquisition or
refurbishment of any Facilities contemplated as part of the Development
Operations is awarded or signed; or (b) on the date that charges begin
accruing pursuant to the terms of a drilling contract.
11.5 OPERATIONS FROM EXISTING NON-CONSENT PLATFORMS
Notwithstanding any contrary provisions of the foregoing Articles of
this Article 11, no Party may propose to conduct a Development Operation or
be a Participating Party in a Development Operation to be conducted from a
Platform which was constructed and installed as a Non-Consent Operation and
as to which recoupment and reversion has not occurred pursuant to Article
12 unless such Party was a Participating Party with respect to such Non-
Consent Operation. If any Participating Party with respect to such a Non-
Consent Platform desires to propose a Development Operation to be conducted
on or from such Platform, the provisions of the foregoing Articles of this
Article 11 shall be construed and applied as if the Participating Parties
with respect to such Non-Consent Platform were all of the "Parties" and as
if the "Percentage Interests" of such Participating Parties were equal to
their Participating interest share of a total of one hundred percent (100%)
of "Percentage Interests" held by such Participating Parties.
12. NON-CONSENT OPERATIONS
12.1 NON-CONSENT OPERATIONS
Operator shall conduct Non-Consent Operations subject to the
provisions of Article 12.8 at the sole risk and expense of the
Participating Parties, in accordance with the following provisions:
<PAGE>
12.1.1 NON-INTERFERENCE
Non-Consent Operations shall not interfere unreasonably with Joint
Operations.
12.1.2 MULTIPLE COMPLETION LIMITATIONS
Non-Consent Operations shall not be conducted in a well having
multiple completions unless: (a) each completion is owned by the same
Parties in the same proportions; (b) the well is incapable of producing
from any of its completions; or (c) all Participating Parties in the well
consent to such operations.
12.1.3 METERING
Separate metering devices shall be required to measure production from
each well or wells from which recoupment from a Non-Participating Party's
share of production is being effected by Participating Parties pursuant to
Article 12.2.1 and shall be provided and maintained at the expense of the
Participating Parties unless, subject to obtaining any necessary approval
from appropriate governmental authorities, all affected Parties agree that
such production may be determined upon the basis of appropriate well tests.
12.1.4 NON-CONSENT WELL
(a) Operations on a Non-Consent Well shall not be conducted in any
Producible Reservoir without approval of all Parties unless: (i)
the Producible Reservoir is designated in the notice as a
completion objective and (ii) the horizontal distance between the
vertical projections of the midpoint of the Producible Reservoir
in such wall and the same Producible Reservoir in an existing
well, if producible, will be at least one thousand (1,000) feet
if an oil-well completion or two thousand (2,000) feet if a gas-
well completion.
(b) Subject to the foregoing provisions of this Article, until the
Participating Parties in a Non-Consent Well have recouped the
amount to which they are entitled hereunder, they may conduct any
Reworking, Plugging Back, Sidetracking or Recompletion operation
on such well which they may desire. In such event, the cost of
such Reworking, Plugging Back Sidetracking or Recompletion
operation shall be subject to the penalty provisions of Article
12.2.1.
<PAGE>
12.1.5 COST INFORMATION
Operator shall, within one hundred twenty (120) Days after completion
of a Non-Consent Operation, furnish the Non-Participating Parties an
itemized statement of the cost of such Non-Consent Operation prepared in
accordance with the Accounting Procedures or copies of the monthly billings
made to the Participating Parties. Operator shall thereafter furnish to the
Non-Participating Parties a quarterly statement showing operating expenses
and any other costs or expenses subject to recoupment with respect to such
Non-Consent Operation pursuant to Articles 12.2.1 and 12.2.2, together with
a statement of the quantities of Petroleum produced in connection with such
Non-Consent Operation and the amount of proceeds from the sale of the Non-
Participating Parties' relinquished share of production of Petroleum from
each applicable well or wells related to such Non-Consent Operation for the
preceding quarter.
12.1.6 COMPLETIONS
For the purposes of determinations hereunder, each Completion shall be
considered a separate well.
12.1.7 LIENS
In the conduct of Non-Consent Operations, the Participating Parties
shall keep that portion of the Tantawan Area not involved in the Non-
Consent Operation free and clear of liens and encumbrances.
12.2 VESTING OF INTEREST
Upon commencement of Non-Consent Operations, each Non-Participating
Party's Percentage Interest and leasehold operating rights in the Non-
Consent Operation and title to the Petroleum produced therefrom (including,
without limitation, all Petroleum produced from all Wells drilled from or
producing through a Non-Consent Platform prior to reversion of such
Platform as provided for under Article 12.2. 1) shall be owned by and
vested in each Participating Party in proportion to its Participating
Interest for as long as the operations originally proposed are being
conducted or production is being obtained therefrom, subject to the
following:
12.2.1 RECOUPMENT AND REVERSION
Such interest, rights, and title shall revert to each Non-
Participating Party when the Participating Parties have recouped out of the
Non-Participating Party's share of the proceeds of production from such
Non-Consent Operations an amount which equals:
<PAGE>
(a) If such operations are Appraisal Operations, twelve hundred
percent (1200%) of the Non-Participating Party's Share of the
cost of such Non-Consent Operations (except as provided below),
including, if applicable, the cost of equipping the Non-Consent
Well through the wellhead connections and the cost of any
Facilities installed or acquired as a part of such Non-Consent
Operation as proposed in the applicable proposal for such
Appraisal Operation, as well as the cost of any subsequent
Reworking, Plugging Back, Sidetracking or Recompletion operation
performed in a Non-Consent Well prior to recoupment by the
Participating Parties as provided for in Article 12.1.4(b);
(b) If such operations are Development Operations, eight hundred
percent (800%) of the Non-Participating Party's Share of the cost
of such Non-Consent Operations (except as provided below),
including, if applicable, the cost of equipping the Non-Consent
Well through the wellhead connections and the cost of any
Facilities installed or acquired as a part of such Non-Consent
Operation as proposed in the applicable Development Proposal, as
well as the cost of any subsequent Reworking, Plugging Back,
Sidetracking or Recompletion operation performed in a Non-Consent
Well prior to recoupment by the Participating Parties as provided
for in Article 12.1.4(b);
(c) If such operation is the acquisition, construction and/or
installation of Facilities not included as part of an Appraisal
Operation or a Development Operation in accordance with Articles
12.2.1(a) or (b) above, six hundred percent (600%) of the Non-
Participating Party's Share of the cost of such Non-Consent
Facilities;
(d) Two hundred percent (200%) of the Non-Participating Party's Share
of the charges for the right to use an existing Platform and/or
Facilities payable pursuant to Article 12.4.1 (if applicable);
and
(e) The Non-Participating Party's Share of the cost of marketing and
operating and maintenance expenses, royalties, and severance,
gathering, production, excise and ad valorem or property taxes
payable with respect to the Non-Consent Well, Platform, Facility
or production of Petroleum from which recoupment is being
effected hereunder (as applicable) prior to completion of such
recoupment.
Upon the recoupment of the amounts provided for in this Article 12.2.1
by the Participating Parties in a Non-Consent Operation, each Non-
Participating Party shall become a Participating Party in the applicable
Non-Consent Well or
<PAGE>
Wells, or Non-Consent Facility, and the Petroleum produced therefrom or
processed therethrough which vested in the Participating Parties upon
commencement of such Non-Consent Operations pursuant to Article 12.2 shall
revert to such Non-Participating Parties
12.2.2 METHOD OF RECOUPMENT
The recoupment of amounts applicable to any Non-Consent Well under
Article 12.2.1 shall be recoverable out of each Non-Participating Party's
Share of production as follows:
(a) If the Non-Consent Well is an Appraisal Operation and is
completed as a producer, then the above amounts shall be
recoverable, with respect to said well, not only out of each Non-
Participating Party's Share of production therefrom, but also out
of fifty percent (50%) of each Non-Participating Party's Share of
first production attributable to the new Producible Reservoirs
encountered in the Non-Consent Well in any and all wells
subsequently drilled on the Production Area and Completed in such
Reservoirs;
(b) If the Non-Consent Well is an Appraisal Operation and is not
completed as a producer, but otherwise qualifies as a Producible
Well, then the above amounts shall be recoverable, with respect
to said well, out of fifty percent (50%) of each Non-
Participating Party's Share of first production attributable to
the new Producible Reservoirs encountered in such Non-Consent
Well in any and all wells subsequently drilled on the Production
Area and Completed in such Reservoirs;
(c) If the Non-Consent Well is a Development Operation, the
recoupment of amounts applicable to such Non-Consent Operation
shall be recoverable out of each Non-Participating Party's Share
of Petroleum produced from such Non-Consent Well, subject to
Article 11.3 below;
(d) The recoupment of amounts applicable to a Non-Consent Operation
for the installation, acquisition and/or construction of a Non-
Consent Facility shall be recoverable out of each Non-
Participating Party's Share of Petroleum drilled from, or
producing or processed through such Facility;
and, with respect to Articles 12.2.2(a) and (b) above, the provisions
herein for the relinquishment and reverting of each Non-Participating
Party's Share of the operating rights and production shall also apply, with
respect to such fifty percent (50%) interest, to said subsequently drilled
well or wells.
<PAGE>
12.2.3 NON-PRODUCTION REVERSION
If a Non-Consent Well results in a dry hole or ceases to produce in
paying quantities before the Participating Parties recoup the amount to
which they are entitled, and provided a proposal to Deepen the Non-Consent
Well is not made in accordance with Article 12.3, each Non-Participating
Party's operating rights shall revert, except that the well shall be
abandoned and plugged at the sole risk and expense of the Participating
Parties. Any sum realized from salvage in excess of amounts to be recouped
from the well shall be credited to the Participating Parties. Similarly, if
all wells drilled from or producing through a Non-Consent Platform shall be
dry holes or shall cease producing in paying quantities before the
Participating Parties recoup the amounts to which they are entitled, Non-
Participating Parties operating rights as to such wells shall revert;
provided that such Non-Consent Platform and each such well shall be
abandoned (and plugged as to wells) at the sole risk and expense of the
applicable Participating Parties. Any sum realized from salvage in excess
of amounts to be recouped from a well or Platform (as applicable) shall be
credited to the applicable Participating Parties.
12.2.4 ORDER OF RECOUPMENT
(a) The recoupment of amounts applicable to Non-Consent Operations
arising under Articles 12.2.1(d) and (e) shall be recoverable out
of each Non-Participating Party's Share of Petroleum produced
from the Non-Consent Well to which such production is
attributable prior to the application of any proceeds from the
sale of such Petroleum to recoupment of amounts payable to the
Participating Parties pursuant to Articles 12.2.1(a), (b) or (c);
(b) The recoupment of amounts applicable to a Non-Consent Operation
for the acquisition, construction and or installation of
Facilities pursuant to Articles 12.2.1(a) or (b) shall be
recoverable out of each Non-Participating Party's Share of
Petroleum produced from each well (as determined on a well by
well basis) drilled from or produced through such Facility after,
and only after, completion of recoupment pursuant to Articles
12.2.1(a) and (b) of all amounts to be recouped from such Non-
Participating Party's Share of Petroleum produced from each such
respective well on which a Non-Consent Operation has been
performed; and
(c) The recoupment of amounts applicable to a Non-Consent Operation
for the acquisition, construction and/or installation of
Facilities pursuant to Article 12.2.1(c) shall be recoverable out
of each Non-Participating Party's Share of Petroleum produced
from each well (as determined on a well by well basis) drilled
from or produced through such Facility simultaneously with
recoupment of amounts
<PAGE>
for Facilities pursuant to Articles 12.2.1(a) and (b) and
12.2.4(b); such recoupment to be recovered, on a pro rata basis,
with amounts attributable to recoupment under Article 12.2.1(c)
equaling the percentage that such amount bears in relation to the
total amount to be recouped in regard to Non-Consent Operations
for the acquisition, construction and/or installation of
Facilities pursuant to Articles 12.2.1(a),(b) and (c).
12.3 DEEPENING OF NON-CONSENT WELL
If, after a Non-Consent Well has been drilled to its Objective Depth,
any Participating Party proposes to Deepen such Non-Consent Well, a Non-
Participating Party may participate by notifying the Operator within thirty
(30) Days (forty-eight (48) hours if rig is on location) after receiving
the proposal that it will join in the Deepening operation and by paying to
the Participating Parties an amount equal to such Non-Participating Party's
share of the actual costs incurred in the drilling and casing of such well
to the point at which such Deepening operation is commenced. The
Participating Parties shall continue to be entitled to recoup, solely out
of the proceeds of production from the non-consent portion of the well, the
full sum specified in Article 12.2.1 applicable to such Non-Consent Well
less the amount paid under this Article.
12.4 ALLOCATION OF PLATFORM COSTS TO NON-CONSENT OPERATIONS
Non-Consent Operations shall be subject to further conditions as
follows:
12.4.1 CHARGES
If a Non-Consent Well is drilled from an existing Platform, the
Participating Parties in such well shall pay to the Operator for credit to
the owners of such Platform a charge for the right to use the Platform and
its Facilities as follows:
(a) Such Participating Parties shall pay a sum equal to that portion
of the total cost of the Platform, which one Platform slot bears
to the total number of slots on the Platform. If the Non-Consent
Well is abandoned, the right of Participating Parties to use that
Platform slot shall terminate, unless such Participating Parties
commence drilling a substitute well from the same slot within
ninety (90) Days after abandonment; and
(b) If the Non-Consent Well production is handled through Facilities,
the Participating Parties shall pay a sum to the Participating
Parties in such Facilities equal to that portion of the total
cost of such Facilities which one well bears to the total number
of wells
<PAGE>
utilizing the Facilities as of the date of commencement of such
production from the Non-Consent Well.
12.4.2 OPERATING AND MAINTENANCE CHARGES
The Participating Parties shall pay all costs necessary to connect a
Non-Consent Well to the Facilities and that proportionate part of the
expense of operating and maintaining the Facilities applicable to the Non-
Consent Well. Platform operating and maintenance expenses shall be
allocated equally to all wells served, and operating and maintenance
expenses for the Facilities shall be allocated equally to all producing
wells served.
12.4.3 PAYMENTS
Payment of sums pursuant to Article 12.4.1 is not a purchase of an
additional interest in the Platform or Facilities. Such payments shall be
included in the total amount which the Participating Parties are entitled
to recoup out of production from the Non-Consent Well as provided in
Article 12.2.1(d).
12.5 NON-CONSENT OPERATIONS TO MAINTAIN THE TANTAWAN APPROVAL
A license maintenance operation is defined for the purposes of this
Article as one required to maintain the Tantawan Approval or a portion
thereof in force and effect, at its expiration date or otherwise. This
shall include, but not be limited to, a well proposed to be drilled when
any governmental agency having jurisdiction requires operations to avoid
loss or forfeiture of all or any portion of the Tantawan Approval. A Party
electing not to participate in a license maintenance operation will assign
effective as of the date such operation is commenced to the Participating
Parties in the proportions in which the Participating Parties participate
therein, all of its rights, title and interest in and to the Tantawan
Approval or such portion thereof as the license maintenance operation would
preserve, free and clear of any burdens thereon including, without
limitation, over-riding royalty interests, liens or other encumbrances
created by the assigning Party, but shall not be relieved of any accrued
obligations as to the Tantawan Area or such portion thereof assigned
pursuant to this Article 12.5 prior to the acceptance of such assignment.
If more than one well should be proposed and drilled, either of which would
maintain the Tantawan Approval or such jeopardized portion thereof, an
assignment shall not be required from any Party participating in any one of
such wells, but as to those wells in which it fails to participate, any
such failure shall be governed by the applicable provisions of Articles 10
and 11. There shall be no minimum Participating Percentage Interest
approval necessary to conduct a license maintenance operation.
<PAGE>
12.6 ALLOCATION OF COSTS BETWEEN PRODUCIBLE RESERVOIRS
For the purpose of allocating costs of any well in which the ownership
is not the same for the entire depth thereof, the costs of drilling,
completing and equipping said well shall be allocated upon the basis set
forth in EXHIBIT "E".
12.7 OPERATOR
With but one exception, the designated Operator hereunder shall
operate all wells drilled as a Non-Consent Operation. If the Non-Consent
well is drilled from anything other than a Platform, and if the designated
Operator is a Non-Participating Party therein, the Participating Party
owning the largest Participating Interest shall serve as Operator for the
drilling and completion of such well, unless the Participating Parties
agree otherwise. Upon the completion of any such well as a Producible Well
(completion through christmas tree), the well shall be turned over to the
designated Operator for further operations.
13. FACILITIES AND MAINTENANCE
13.1 APPROVAL
Any Party may propose the acquisition, lease, construction or
installation of Facilities including, without limitation, the modification,
expansion, upgrade or replacement of existing Facilities, by notice to the
other Parties with an AFE containing information adequate to describe the
proposed Facilities and the estimated costs. The affirmative vote of two
(2) or more Parties having a combined Participating Interest of fifty-one
percent (51%) or more, in the wells to be served, directly or indirectly,
by such Facility at the time of such acquisition, lease, construction or
installation shall constitute approval which shall be binding on all owners
of the wells to be served and shall require said owners to bear the costs
of such acquisition, lease, construction or installation in proportion to
their Participating Interests in the wells to be served by such Facilities;
PROVIDED, HOWEVER, nothing hereunder shall limit a Party's rights under
Article 15.1; and PROVIDED FURTHER that a Party shall not be required to
pay for facilities that serve the same purpose as its Facilities
constructed pursuant to Article 15.1.
13.2 CONTRACTS
Subject to the other provisions of this Agreement, the Operator shall
acquire, construct or install Facilities which may be required for
operations agreed upon. Subject to the other provisions of thin Agreement,
the Operator may enter into contracts with independent contractors for the
lease, acquisition, installation, management and construction of said
Facilities.
<PAGE>
13.3 OWNERSHIP
Facilities that are acquired, leased, installed or constructed in
connection with operations on the Tantawan Area or under this Agreement
shall be beneficially owned by the Participating Parties in proportion to
their Participation Interest in the acquisition, lease, installation or
construction of such Facilities. All costs and risks incurred for such
Facilities shall be paid and borne by the Participating Parties.
13.4 MAINTENANCE OPERATIONS
Notwithstanding anything in this Agreement to the contrary, a proposed
maintenance operation requiring the approval of the Participating Parties
shall be binding on all Parties entitled to Participate if one (1) or more
Parties having a combined Participation Interest forty percent (40%) or
more elect to participate in the proposed maintenance operation. For
purposes of this Article 13.4, a maintenance operation is defined as a
routine repair intended to maintain or preserve the condition of the
Facilities, Platforms and other property acquired in connection with
operation on the Tantawan Area or under this Agreement.
14. DEFAULT
14.1 FAILURE TO PAY
14.1.1 If any Party or Participating Party (a "Defaulting Party")
fails to pay in full its Percentage Interest or Participating
Interest share, as applicable, of any Advance by the due date as
provided in the Accounting Procedure (the "Default Date"):
(a) the Operator shall within fifteen (15) Working Days of the
Default Date notify all the Parties or Participating Parties, as
applicable, of such default (the "Default Notice");
(b) each Party or Participating Party, as applicable, other than the
Defaulting Party (a "Non-Defaulting Party") shall contribute, as
hereinafter provided, a share of the amount in default (the
"Default Amount") in the proportion that its Percentage Interest
or Participating Interest, as applicable, bears to the total of
the Percentage Interests or Participating Interests, as
applicable, of the Non-Defaulting Parties (the "Proportionate
Default Amount"). Pending receipt of such additional
contributions, the Operator may make arrangements to meet any
commitments falling due by borrowing the necessary finds from
outside sources or by making the necessary funds available itself
and all costs of any such funds shall be included in the Default
Amount; funds made available by
<PAGE>
the Operator and/or its Affiliates shall bear interest calculated
on a day to day basis at the Agreed Interest Rate;
(c) within three (3) Working Days following the notification by the
Operator under (a) above the Operator shall notify all of the
Parties, or the Participating Parties, as applicable, of the
Proportionate Default Amount that each of the Non-Defaulting
Parties is to contribute to the amount in default and shall make
a further Cash Call accordingly to take effect on the expiry of
the six (6) Working Days specified in (d) below; and
(d) if such default continues for more than six (6) Working Days
after the date of notification by the Operator under (a) above,
each of the Non-Defaulting Parties shall on the Working Day next
following such sixth Working Day pay its Proportionate Default
Amount, and thereafter shall continue to pay, in addition to its
Percentage Interest share of subsequent Advances the same
proportion of that part of all such subsequent Advances
attributable to the Defaulting Party until such time as the
Defaulting Party has remedied its default in full or until
forfeiture, as hereinafter provided, and failure by any Party to
make such payments shall likewise and with the same results
render that Party in default.
14.1.2 No Party shall be entitled at any time to call into question
any aspect of the Default Notice or its service on the Defaulting
Party other than on the grounds that (a) the Defaulting Party had
paid in full its share of any Advance by the Default Date as
aforesaid, (b) that any failure to pay the Default Amount by the
Defaulting Party was not continuing at the date of service of the
Default Notice, or (c) that the Default Notice was not served on
the Defaulting Party.
14.1.3 In the event of a forfeiture of all of the rights, title and
interest of the Defaulting Party or its Affiliates in the
Tantawan Approval, the Facilities, and all other property, real
and personal, tangible and intangible, that relate to operations
conducted (a) on the Tantawan Area and (b) under this Agreement
(collectively, the "Defaulting Party's Interest"), the Default
Amount shall be increased to include the estimated future cost to
abandon any of such Defaulting Party's Interest.
14.2 REMEDY OF DEFAULT
The Defaulting Party shall have the right to remedy the default at any
time prior to forfeiture, as hereinafter provided, by payment in full to
the Operator or, if the Non-Defaulting Parties have paid any amounts under
Article
<PAGE>
14.1.1(d), the Non-Defaulting Parties, in proportion to the amounts so
paid by them, of all amounts in respect of which the Defaulting Party is in
default (including the Default Amount and all Advances attributable to the
Defaulting Party which the Non-Defaulting Parties have become liable to pay
in terms of Article 14. 1.1(d)) together with interest thereon calculated
on a day to day basis at the Agreed Interest Rate, as provided in Article
6.1.4 of the Accounting Procedure.
14.3 CONTINUATION OF DEFAULT
14.3.1 If any default continues for more than ten (10) Days after
the date of notification by the Operator under Article 14.1.1(a)
then for so long as the default so continues, the Defaulting
Party shall not be entitled to any of its share of the Petroleum
to which it would otherwise be entitled under this Agreement that
is produced and saved from the Tantawan Area or the revenues
resulting from the sale thereof which shall instead be owned pro
rata by the Non-Defaulting Parties.
14.3.2 During the continuation of any default, the Defaulting Party
shall not be entitled to be represented at meetings of the
Operating Committee nor to vote thereat (so that the voting
interest of each Non-Defaulting Party shall be in the proportion
which its Percentage Interest bears to the total of the
Percentage Interest of the Non-Defaulting Parties) and shall have
no further access to any data and information relating to the
Joint Operations or any Non-Consent Operations to which it is
Participating Party. The Defaulting Party shall be bound by
decisions of the Operating Committee with respect to Joint
Operations and the Non-Defaulting Participating Parties with
respect to Non-Consent Operations that are made during the
continuation of the default.
14.3.3 In the event that the default continues for more than thirty
(30) Days after the Default Date then, without prejudice to any
other rights of the Non-Defaulting Parties to recover the Default
Amount, any of the Non-Defaulting Parties may elect to acquire,
effective as of the Default Date, as beneficial owner and free of
any liens, charges and encumbrances by notice to the Defaulting
Party given within fifteen (15) Days after such period of thirty
(30) Days, its portion of the Defaulting Party's Interest to
which it is entitled (without regard to or compliance with
Article 18.1 of this Agreement), such portion being in the
proportion which such electing Non-Defaulting Party's Percentage
Interest, or Participating Interest, as applicable with respect
to each piece of the Defaulting Party's Interest, bears to the
total Percentage Interests or Participating Interests of the Non-
Defaulting Parties. To that end the Defaulting Party shall
promptly join in such actions as may be necessary or (in the
judgment of any electing Non-Defaulting Parties)
<PAGE>
desirable to obtain any necessary consent of the Ministry and any
other governmental or regulatory authorities in order to render
such transfer legally valid, and shall execute and deliver all
documents and instruments and take such other actions as may be
necessary in order to effect prompt and valid transfers of said
Non-Defaulting Party's share of the Defaulting Party's Interest,
free of all liens, charges, burdens, overriding royalties and
encumbrances. In the event all governmental and other regulatory
approval are not timely obtained, the Defaulting Party shall hold
said Non-Defaulting Party's share of the Defaulting Party's
Interest in trust for the benefit of the Non-Defaulting Party. A
Non-Defaulting Party which elects to acquire its share of the
Defaulting Party's Interest pursuant to this Article 14.3.3,
shall be entitled to recover from the Defaulting Party, as a
debt, the Proportionate Default Amount, with interest thereon,
paid by such Non-Defaulting Party with respect to Default Amounts
which accrued or were incurred by the Defaulting Party prior to
the Default Date and said Non-Defaulting Party shall thereafter
be responsible as owner of such interest for the costs and
expenses attributable to the interest thus acquired which accrued
or are incurred after the Default Date and which are solely
attributable to events, burdens, liens, charges, overriding
royalties and encumbrances incurred or arising after the Default
Date; but such Non-Defaulting Party shall not be required under
Article 14.1.1 to contribute to the Operator any additional
Proportionate Default Amount or share of amounts of costs or
expenses becoming due from the Defaulting Party after making of
such election attributable to the remaining share (if any) of
such Defaulting Party's Interest which any other Non-Defaulting
Party has elected not to acquire as provided for in Article
14.3.4, and such remaining share of the Defaulting Party's
Interest not acquired by a Non-Defaulting Party pursuant to
Article 14.3.3 shall be deemed the "Percentage Interest" or
"Participating Interest" of the Defaulting Party.
14.3.4 In the event that the default continues for more than thirty
(30) Days after the Default Date then, without prejudice to any
other rights of the Non-Defaulting Parties to recover the Default
Amount, any of the Non-Defaulting Parties may elect to not
acquire its proportionate share of the Defaulting Party's
Interest to which it is entitled as provided in Article 14.3.3
and elects to continue to bear the its proportionate share of
Defaulting Party's liabilities and expenses, then the Non-
Defaulting Parties shall accumulate all such liabilities and
expenses as a debt pursuant to Article 14, but the Defaulting
Party shall continue to be a Party subject to Article 14.3.2 and
Article 14.3.5. If Operator disposes of any Joint Property or
other property in which the Defaulting Party held a Participating
Interest, or any other credit or adjustment is made to the Joint
Account, or if Operator sells any of the Defaulting Party's
Participating Interest share of Petroleum, then, in respect of
the Defaulting Party's Participating Interest share of the
proceeds of such
<PAGE>
disposal, credit or adjustment or sale, Operator shall be
entitled to retain and to set off the same against all amounts,
together with interest accrued on such amount at the Agreed
Interest Rate, due and owing from the Defaulting Party plus an
accrued amount equal to the Defaulting Party's Participating
Interest share of the estimated cost to abandon any of such
Defaulting Party's Interest. Any surplus remaining after setting
off the same as aforesaid shall be paid promptly to the
Defaulting Party.
14.3.5 If a Party defaults after the commencement of commercial
production and the default continues for more than thirty (30)
Days after the Default Date then, during the continuance of such
default, the Defaulting Party shall not be entitled to its
Participating Interest share of Petroleum which shall vest in and
be the property of the Non-Defaulting Parties that did not make
any election pursuant to Article 14.3.3, and Operator shall be
authorized to sell such Petroleum at the best price obtainable
under the circumstances (which shall conclusively be deemed to be
the current sales price under any long term sales contract to
which such production is committed, if applicable) and, after
deducting all costs, charges and expenses incurred by Operator in
connection with such sale, pay the proceeds proportionately to
the Non-Defaulting Parties that did not make any election
pursuant to Article 14.3.3, which proceeds shall be credited
against all monies advanced pursuant to Article 14.1.1, together
with interest accrued thereon at the Agreed Interest Rate. Each
purchaser of Petroleum shall be entitled to rely on Operator's
statement concerning the Default Amount and the interest payable
thereon and each Defaulting Party waives recourse against such
purchasers for releasing, withholding, or escrowing production
proceeds under this Article 14.3.5. Likewise, if Operator
disposes of any Joint Property or other property in which the
Defaulting Party held a Participating Interest, or any other
credit or adjustment is made to the Joint Account or any Non-
Consent Operation Account, then the Defaulting Party's Percentage
Interest share or Participating Interest Share of the proceeds of
such disposition or credit or adjustment shall be paid or
credited proportionately to the Non-Defaulting Parties who did
not elect to acquire a share of the Defaulting Party's Interest
pursuant to Article 14.3.3 and credited against moneys advanced
pursuant to Article 14.1.1, together with interest accrued
thereon at the Agreed Interest Rate. Any surplus remaining after
satisfaction in full of all amounts due and owing by any
Defaulting Party to the Non-Defaulting Parties shall be paid to
the Defaulting Party, and any deficiency shall remain a debt due
from the Defaulting Party to the Non-Defaulting Parties that did
not make any election pursuant to Article 14.3.3.
Notwithstanding any such bales by Operator, at any time prior to
the satisfaction in full of the Default Amount, any Non-
<PAGE>
Defaulting Party may make an election to acquire its
proportionate share of the Defaulting Party's Interest pursuant
to Article 14.3.3
14.3.6 Each Party and its Affiliates acknowledge and accept that a
fundamental principle of this Agreement is that each Party pays
its Participating Interest share of all amounts due under this
Agreement as and when required. Accordingly, any Party which
becomes a Defaulting Party undertakes that, in respect of either
any exercise by a Non-defaulting Party of any right under or the
application of any of the provisions of this Article, neither
such Party nor any of its Affiliates shall raise by way of set
off or invoke as a defense, whether in law or equity, any failure
to pay amounts due and owing under this Agreement or any alleged
or unliquidated claim that such Party or its Affiliate may have
against Operator or any Non-Operator, whether such claim arises
under this Agreement or otherwise. Such Party, on its own behalf
and on behalf of its Affiliates further undertakes not to raise
by way of defense, whether in law or in equity, that the nature
or the amount of the remedies granted to the Non-Defaulting
Parties is unreasonable or excessive.
14.3.7 If the default continues for more than thirty (30) Days
after the date of notification given by Operator in accordance
within 14.1.1(a) the Defaulting Party shall have no rights under
the Tantawan approval or this Agreement save as provided in this
Article 14.
14.4 OTHER REMEDIES
14.4.1 All remedies provided hereunder shall be without prejudice
to the rights of the Non-Defaulting Parties whether at common
law, pursuant to statute or otherwise.
14.4.2 In addition to any other security rights and remedies
provided by law with respect to services rendered or materials
and equipment furnished under this Agreement, each Party and its
Affiliates hereby grants a lien in, and mortgages, pledges,
affects, and hypothecates to Operator its entire right, title and
interest in the Tantawan Approval, the Facilities, and all other
property, real and personal, tangible and intangible, that relate
to operations conducted either (a) on the Tantawan Area or (b)
under this Agreement, and all proceeds therefrom, including
proceeds from the sale of Petroleum produced and saved from the
Tantawan Area, in order to secure payment of the costs charged
against each such Party's Participating Interest, together with
interest thereon at the Agreed Interest Rate, plus reasonable
attorney's fees, court costs and other related collections cost.
On request, each Non-Operator shall execute such documents as
shall be (in the opinion of Operator) necessary or appropriate to
perfect such security interest in
<PAGE>
the such jurisdictions as Operator shall determine are necessary
or advisable. Each Non-Defaulting Party shall have comparable
security rights on any Defaulting Party's Interest and shall
become subrogated to the Operator's security rigs to the extent
of any Proportionate Default Amount paid by such Non-Defaulting
Party, with interest thereon as herein provided.
14.4.3 Any overriding royalty, production payment, net proceeds
interest, carried interest, or any other interest carved out of a
Percentage Interest in the Concession Agreement or any Production
Approval covering any portion thereof shall be subordinated to
the rights of the Parties to this Agreement, and any Party whose
Percentage Interest is so encumbered shall be solely responsible
therefor. If a Defaulting Party does not pay the Default Amount
and the proceeds from the sale of Petroleum under Article 14.3.5
which are allocable to the Defaulting Party's Interest are
insufficient to satisfy the Default Amount, the security rights
provided for in Article 14.4.2, may be applied against the
carved-out interest with which the Defaulting Party's Interest is
burdened. In such event, the rights of the owner of such carved-
out interest shall be subordinated to the security rights granted
by Article 14.4.2.
15. DISPOSAL OF PETROLEUM
15.1 RIGHT TO TAKE IN KIND
Subject to Article 14 and to the provisions hereinafter contained,
each of the Parties shall have the right to take in kind and separately
dispose of its proportionate share of the Petroleum produced and saved from
the Tantawan Area based upon its Participating Interest in the various
operations on the Tantawan Area, provided always that the Operator shall
have the right to use in any operations on the Tantawan Area as much of
each Participating Party's share of the Petroleum as may be required by it
therefor in proportion to such Participating Party's interest as to such
operations. Any Party shall have the right, at its sole risk and expense,
to construct Facilities for taking its share of production in kind,
provided that such Facilities at the time of installation do not interfere
with continuing or planned operations on the Tantawan Area and adequate
space is available therefore. Any extra expenditure incurred in the taking
in kind or separate disposition by any Party of its proportionate share of
production shall be borne by such Party.
<PAGE>
15.2 CONTRACTS FOR SALE
Each Party shall execute such division orders as tide Operator shall
reasonably require and such contracts as may be required for the sale of
its interest in production from the Tantawan Area, and, subject to Article
14, shall be entitled to receive payment direct from the purchaser or
purchasers thereof for its share of all production.
15.3 FAILURE TO TAKE IN KIND
If any Party fails to take in kind or dispose of its share of the oil
and/or gas from the Tantawan Area, the other Parties may, subject to
revocation at will by the non-taking Party: (a) purchase or sell to others
oil at the price prevailing in the area for oil of the same kind, gravity
and quality, but in no event for less than the taking Party is receiving
for its oil; and (b) purchase or sell to others gas at the best price
obtainable in the area but in any event at not less than the price which
the taking Party is receiving for its gas. All contracts for sale of
another Party's share of oil or gas shall be only for such reasonable
periods of time as are consistent with the minimum needs of the industry
under the circumstances, but in no event shall any contract be for a period
in excess of one (1) Year; PROVIDED HOWEVER, that no sale of another
Party's share of gas production shall be made without first giving the non-
taking Party thirty (30) Days advance written notice. Proceeds of all sales
made pursuant to this Article shall be paid to the Parties entitled
thereto. Unless required by governmental authority or judicial process, no
Party shall be forced to share an available market with any non-taking
Party.
15.4 GAS BALANCING
Notwithstanding Article 15.3 the Parties agree that gas balancing
shall be handled in accordance with EXHIBIT "D". In the event of a conflict
between EXHIBIT "D" and this Agreement, the terms and provisions of EXHIBIT
"D" shall prevail.
16. CONFIDENTIALITY
16.1 CONFIDENTIAL DATA AND INFORMATION
16.1.1 All data and information acquired or received by any Party
under this Agreement relating to the Tantawan Area shall be held
confidential during the term of this Agreement and for a period
of five (5) Years thereafter and shall not be divulged to any
Person not a Party to this Agreement without the prior written
approval of all the Parties provided that:
<PAGE>
(a) any Party may, without such approval, disclose such data and
information in good faith:
(i) to any Affiliate of such Party upon obtaining an undertaking
of Confidentiality given to each of the Parties to this
Agreement from such Affiliate in the same terms MUTATIS
MUTANDIS as this undertaking
(ii) to a bona fide prospective transferee of a Party's
Percentage Interest (including a Person with whom a Party or
its Affiliates is conducting bona fide negotiations directed
towards a merger, consolidation or the Disposal of a
majority of such Party's or its Affiliates shares), but only
during the period that such negotiations are being
conducted, and only upon notifying all Parties no later than
forty-eight (48) hours in advance of the name of the Person,
and the place, time, and identification of the data or
information to be disclosed and only upon obtaining an
undertaking of confidentiality given to each of the Parties
to this Agreement from such Person in the same terms MUTATIS
MUTANDIS as this undertaking;
(iii) to any outside contractors, subcontractors, attorneys,
professionals or consultants engaged by or on behalf of
such Party and where disclosure of such data and
information is essential to their acting in such
capacity, upon obtaining a similar undertaking of
confidentiality from such contractors, subcontractors,
attorneys, professionals or consultants;
(iv) to any bank or financial institution from whom such Party is
seeking or obtaining financing, upon obtaining a similar
undertaking of confidentiality from such bank or financial
institution;
(v) to the extent required by any applicable law or regulation,
or as reasonably required in connection with any legal
proceedings or because of any order of any court binding
upon a Party;
(vi) to the extent such data and information is required, in the
opinion of such Party, to be disclosed pursuant to any rules
or requirements of any governmental authority, stock
exchange or self regulatory organization;
<PAGE>
(vii) to its and its Affiliates respective employees for the
purpose of operations pursuant to this Agreement, subject to
each such Party taking customary precautions to ensure that
such data and information is kept confidential; and
(viii) where through no fault of such Party, such data or
information becomes a part of the public domain.
(b) The Operator may disclose such data and information to such
Persons as may in the judgment of the Operator be necessary in
connection with the conduct of operations upon or related to the
Tantawan Area, upon obtaining a similar undertaking of
confidentiality from such Persons provided that the Operator
shall inform the other Parties of the names of such Persons and
the data and information disclosed to them.
16.1.2 The obligations contained in Article 16.1.1 shall continue,
during the term of this Agreement and for a period of five (5)
Years thereafter, to bind any Party which forfeits or otherwise
loses its Percentage Interest under this Agreement pursuant to
Article 14 or which makes a Disposal of its interest in the
Tantawan Approval in accordance with Article 18 or which
withdraws from this Agreement under Article 19.
16.1.3 The Parties acknowledge that a Party or one or more of its
Affiliates may now be or hereafter become subject to laws, rules
and regulations of governmental authorities and other non-
governmental self regulatory organizations which regulate the
trading of securities or use of information that is non-public
and considered confidential under this Article 16 and that
trading of securities or the use of such confidential information
may give rise to liabilities, both criminal and civil, under such
laws, rules and regulations. Each Party agrees to indemnify and
hold harmless each other Party and its Affiliates for any civil
liability under applicable laws, rules and regulations of
governmental authorities and other non-governmental self
regulatory organizations resulting from such Party's or its
Affiliates' or its or their employees', officers' or directors'
breach, whether willfully or negligently, of such laws, rules and
regulations as they pertain to the trading of securities or use
of information considered confidential under this Agreement.
16.2 TRADING RIGHTS
16.2.1 The Operator may, subject to its giving prior written
notification to and obtaining the written consent of Parties
represented on the Operating Committee owning a majority of the
Percentage Interest of any data, exchange any such data and
information for other data and information and the Operator shall
promptly provide all Non-Operators
<PAGE>
with a copy of the Agreement relating to such exchange and all
such other data and information.
16.2.2 Parties having acquired any data and information by the
conduct of a Non-Consent Operation shall, subject to the prior
approval of all other Participating Parties to such Non-Consent
Operation (if any), have the right to trade such data and
information as their exclusive property without seeking the prior
approval of the Non-Participating Party(s) to such Non-Consent
Operation.
16.3 PROPRIETARY TECHNOLOGY
Nothing in this Agreement shall require a Party to divulge proprietary
technology to the other Parties; provided that where the cost of
development of proprietary technology has been charged to the Joint
Account, such proprietary technology shall be disclosed to all Parties
bearing a portion of such cost and may be used by such Party or its
Affiliates in other operations.
17. PUBLIC ANNOUNCEMENTS
No public announcement or statement regarding this Agreement or
operations on or related to the Tantawan Area shall be issued by any Party
save by the Operator after consultation with the Parties; provided that no
Party or Affiliate of such Party shall be prohibited from issuing or making
any such public announcement or statement if it in good faith believes that
it is necessary to do so in order to comply with any applicable law, rule
or regulation of any governmental agency or the rules and regulations of
any recognized stock exchange or other self regulatory organization having
jurisdiction over such Party or its Affiliate, or on which any securities
of such Party or its Affiliate are traded and further provided that a copy
of any such announcement or statement shall be sent to all other Parties
prior to (or if this is not permissible, then simultaneously with) the
release of the public announcement or statement that such Party or its
Affiliate believes in good faith complies with said law, rules or
regulations.
18. DISPOSALS, ASSIGNMENTS AND ENCUMBRANCES
18.1 RIGHT
18.1.1 Each of the Parties may, subject to any necessary
governmental or regulatory consent(s) and to the provisions
hereinafter contained, at any time upon notice to the other
Parties make any Disposal (whether by sale, transfer, merger,
consolidation, reorganization, amalgamation or otherwise) of all
or part of its interest under this Agreement and the Tantawan
Approval to any Affiliate of such Party which has demonstrated to
the satisfaction of the Parties represented on the
<PAGE>
Operating Committee its financial capability to meet its
prospective obligations hereunder.
For the purpose of this Agreement the sale or transfer of
fifty percent (50%) or more of the voting stock or partnership
interest of any Party or Affiliate in a parental relationship
to such Party (other than the sale or transfer of the voting
stock or partnership interest of the ultimate corporate parent
of any Party on a recognized securities exchange or in
the over the counter market, which sales or transfers are
specifically excluded from the provisions of this Agreement)
to any third Person (other than (a) to an Affiliate of the Party
hereto or (b) through the means of any public offering on any
recognized securities exchange or in the over the counter market
which results at all times thereafter in no Person, other than
the Party or the Affiliate making such offering, obtaining or
retaining (either directly or indirectly) beneficial ownership
of more than ten percent (10%) of the outstanding voting stock
or general partnership interest of such Party or Affiliate)
shall be deemed to be a Disposal by the Party to this Agreement
of its interest in or under the Tantawan Approval and this
Agreement.
18.1.2 The Parties hereby agree and undertake, both on behalf of
themselves and their successors and assigns, that they will not
make or permit to be made any Disposal of whatsoever sort
(other than in a public offering as described in Article
18.1.1 above) of any part or portion of their interest in
the Tantawan Approval or under this Agreement which would
have any of the following effects:
(a) such Percentage Interest is divided among two (2) or more
third Persons;
(b) reducing the level of the Percentage Interest of the Party
after such Disposal to a level greater than nil and less than
ten percent (10%); or
(c) conferring on a single assignee or transferee a Percentage
Interest of less than ten percent (10%);
provided that, with the approval of the Operator, a Disposal that would
otherwise violate this Article 18.1.2 will be permitted if the transferees
or assignees or remaining Party (or parties) have a combined Percentage
Interest in excess of ten percent (10%) and such transferees, assignees and
the Party (if applicable) agree to and in fact do appoint a single trustee
or agent with full authority to receive notices, approve expenditures,
receive billings for, and approve and pay their combined share of the joint
expenses, and to represent them on the Operating Committee and to deal
generally with, and with power to bind the co-owners of the Percentage
Interest within the scope of the operations embraced in this Agreement.
18.1.3 Save as provided by Articles 14.3, 18.1.1 and 18.6 hereof, if any
Party shall wish to make a Disposal to a third Person it shall give
written notice to the other Parties of the proposed Disposal and
provide the other Parties with full particulars thereof, including
the full and complete final terms and conditions of such Disposal,
and a detailed description of the prospective transferee, provided
that if the whole or any part of the consideration to be paid by the
prospective transferee is not expressed in cash terms, such
notice shall also specify the fair cash value of the same. In the
case of a package sale of oil and gas interests that includes all
or part of the transferring Party's Percentage Interest, or if
the proposed transaction is structured as a non-simultaneous,
like-kind exchange under Section 1031 of the Code, the Percentage
Interest that is subject to this preferential right shall be
separately and fairly valued and the notice shall state the value
attributed to the Percentage Interest by the prospective
transferee. The other Parties shall then have for a period of
thirty (30) Days a preferential right to acquire the Disposing
Interest either on the said terms and conditions or at the fair
cash value and, unless otherwise agreed between them, in
proportion to their Percentage Interests and, in such event, the
transferring Party's Percentage Interest shall, subject to any
necessary consent of the Ministry and to the provisions
hereinafter contained, be assigned to them.
18.1.4 If none of the other Parties exercise such right, the
transferring Party may, subject to any necessary consent of the
Ministry and to the provisions hereinafter contained, assign the
Disposing Interest within thirty (30) Days after the expiry of
thirty (30) Day period referred to in Article 18.1.3 to its
prospective transferee provided that such disposal must be on the
same terms and conditions as were specified in the notice
referred to in Article 18.3 and the prospective transferee
must have demonstrated to the other Parties its technical and.
financial capability to meet its prospective obligations
hereunder. If the proposed Disposal is not consummated within six
(6) Months after receipt of the notice by the other Parties, the
Percentage Interest shall again be governed by Article 18.1.3
and the preferential right shall again arise for the offered
interest as herein described.
18.2 No assignment of any interest in the Tantawan Approval or rights
under this Agreement shall be effective or binding upon the Parties
until the date upon which the assignor or assignee furnishes all the
Parties with:
(a) an executed or photostatic copy of an instrument evidencing such
assignment; together with any necessary consent of the Ministry
or other applicable governmental authority;
<PAGE>
(b) a written instrument (in form and content satisfactory to the
Parties and duly executed by the assignee) accepting and assuming
all of the obligations under this Agreement in so far as the
interest assigned is concerned; and
(c) where required by any one of the Parties, a Parental Company
Guarantee provided by the ultimate parent company of the assignee
or any other guarantor acceptable to all of the non-disposing
Parties in a form substantially identical to that attached hereto
as EXHIBIT "B".
18.3 CONTINUING OBLIGATIONS
18.3.1 A Disposal by a Party of all or a part of its Percentage
Interest shall not release such Party from any of its obligations
to the other Parties, financial or otherwise, which attached or
are related to the Percentage Interest disposed of pursuant to
this Article 18 and which arose, or were incurred or accrued
liabilities prior to the effective date of such Disposal, and
such obligations shall in addition become the obligations of the
assignee. Such obligations shall include, without limitation,
any proposed expenditure approved by the Operating Committee
prior to the disposing Party notifying the other Parties of its
proposed Disposal. The transferring Party agrees that it shall
remain liable for all costs, expenses, and liabilities, net of
salvage proceeds, for well plugging and abandonment, Platform and
Facilities removal and disposal, and site clearance for property
and equipment attributable to the Percentage Interest being
disposed of that were placed in service on or for the benefit of
the operations on the Tantawan Area before the effective date of
the Disposal.
18.3.2 A Party assigning only part or proportion of its Percentage
Interest shall furthermore remain liable to the other Parties for
all obligations attaching to the Percentage Interest not
assigned.
18.4 CONSENTS
The Parties shall promptly join in such reasonable actions as may be
necessary or desirable to obtain any consent of the Ministry and any other
relevant governmental or regulatory authority in connection with, and shall
promptly execute and deliver any and all documents reasonably necessary to
effect, any Disposal made in accordance with the terms of this Agreement or
approved of by the Operating Committee; PROVIDED, HOWEVER, that the Parties
shall have no obligation to cooperate with or assist in the Disposal of
such Percentage Interest if the Party to such Disposal has not paid all
monies due and accounts payable accruing out of operations under this
Agreement.
<PAGE>
18.5. COSTS
All costs and expenses pertaining to any such Disposal shall be the
joint and several responsibility of the transferor and the transferee.
18.6 ENCUMBRANCES
18.6.1 Nothing in this Article 18 shall prevent a Party from
assigning, mortgaging, charging, pledging or otherwise
encumbering the whole or part of its interest by way of security
for borrowing provided that:
(a) it obtains any necessary consent from the Ministry and/or any
other relevant governmental or regulatory authorities; and
(b) the Party so charging or pledging the whole or part of its
interest shall remain liable for all the obligations arising in
respect of that Party's entire interest.
Prior to foreclosure or other realization, no such assignment, mortgage,
charge, pledge or other encumbrance shall entitle the holder thereof to
become, or to exercise any rights or powers of a Party under this
Agreement. Any sale upon any such foreclosure or other realization
thereupon shall be treated as a Disposal and shall be subject to the other
provisions of this Article 18.
19. VOLUNTARY WITHDRAWAL
19.1 RESTRICTION
No Party may voluntarily withdraw from the Tantawan Approval or this
Agreement otherwise than in accordance with the following provisions of
this Article 19.
19.2 RIGHTS
Subject to Article 19.3 and to complete compliance with the provisions
of Article 20, any Party may voluntarily withdraw from the Tantawan
Approval or this Agreement and thereby be relieved of all future
obligations and responsibilities under the Tantawan Approval and this
Agreement.
19.3 CONDITIONS
With respect to Article 19.2:
(a) a written notice of withdrawal shall be delivered to all other
Parties and shall specify the effective date, which shall be not
less than ninety (90) Days after receipt by the other Parties of
such
<PAGE>
notice and any other Party may also give notice of its intention
to withdraw within forty-five (45) Days of receipt of such
notice;
(b) in the notice of withdrawal, the withdrawing Party shall offer to
convey to the other Parties, subject to Ministry approval, all of
its right, title and interest in and to the Tantawan Approval,
all Petroleum located on or under the Tantawan Area and all
Facilities and other property (real and personal, tangible and
intangible) related thereto;
(c) a withdrawing Party shall promptly join in such actions as may be
necessary or desirable to obtain any consent of the Ministry and
any other applicable governmental and/or regulatory authorities
in connection with, and shall promptly execute and deliver any
and all documents necessary to effect, any such assignment and a
withdrawal shall not be effective and binding upon the Parties
until the date upon which the same shall have been done ("the
effective date of withdrawal");
(d) a withdrawing Party shall promptly join in all actions required
by the other Parties for the maintenance of the Tantawan
Approval, provided that its participation in such actions shall
not cause it to incur, any cost or liability after the first Day
of the Month following the effective date of the withdrawal;
(e) a withdrawing Party shall pay all fines and penalties which may
be prescribed by the Ministry and any other governmental and/or
regulating authority and all direct costs and expenses incurred
by the other Parties in connection with such withdrawal;
(f) a withdrawing Party shall not be allowed to withdraw from the
Tantawan Approval and this Agreement if its said interest is
subject to any liens, overriding royalties, production payments,
other excess burdens on production or other encumbrances unless
the other Parties are willing to accept the assignment subject to
such additional liens, overriding royalties, production payments,
other excess burdens on production or other encumbrances;
(g) if one or more of the other Parties elect to acquire such
interest, it shall be assigned to them (i) in the proportions
that the interest in the Tantawan Approval owned by each
acquiring Party bears to the total interest in the Tantawan
Approval owned by all acquiring Parties, unless the acquiring
Parties agree otherwise, and (ii) upon such other terms and
conditions as agreed upon by the Parties in interest;
<PAGE>
(h) in the event no Party elects to acquire the interest of the
withdrawing Party:
(i) if the remaining Parties wish to continue operations on
the Tantawan Area, each remaining Party shall
proportionately acquire the interest of the withdrawing
Party, the withdrawing Party shall pay to the remaining
Parties its share of the estimated costs of plugging and
abandoning all wells and the removal of all Platforms,
structures and other Facilities and equipment on the
Tantawan Area in which it owns an interest, less the salvage
value thereof, and the assignment from the withdrawing Party
shall be made free and clear of overriding royalties,
production payments or other excess burdens on production.
(ii) if the remaining Parties do not wish to continue
operations on the Tantawan Area, all Parties shall proceed
to abandon all operations and to surrender and release the
Tantawan Approval;
(i) No Party shall be relieved of its obligations hereunder
during a well or Platform fire, blowout or other emergency, but
may withdraw from this Agreement and be relieved of such
obligations after termination of such emergency; provided, such
Party shall remain liable for its share of all costs of control
of said emergency, including the drilling of relief wells,
containment and cleanup of oil spill and pollution, and all costs
of debris removal made necessary by the emergency.
(j) a withdrawing Party shall remain liable and obligated for
(i) its Participating Interest share of all currently due
and outstanding obligations to the Ministry by the Parties,
including all reasonable general and administrative costs in
defraying such obligation;
(ii) the outstanding expenditures of any Work Program and
Budget approved by the Operating Committee;
(iii) its Percentage Interest of any Obligation or liability
referable to any Work Program agreed to prior to withdrawal;
and
(iv) any cost, expense, liability or damage theretofore
accrued or arising out of any event occurring prior to
withdrawal and attributable to an operation in which the
withdrawing Party was a Participating Party.
provided always that this Article shall not render a withdrawing
Party liable for any amounts which such Party would not have been
obliged to pay had it not withdrawn.
<PAGE>
20. ABANDONMENT
20.1 ABANDONMENT OF OBSOLETE FACILITIES
If the Operator shall consider float any item of Joint Property or any
Facility is no longer needed or suitable for the Joint Operations or, if
used in Non- Consent Operations, is no longer needed or suitable for such
Non-Consent Operations, the Operator shall, subject to the provisions of
the Accounting Procedure, dispose of the same in such manner and to such
persons as it shall deem suitable. The costs, risks and net proceeds, if
any, resulting from such disposition shall be shared by the Participating
Parties in such Joint Property or Facility, in proportion to their
ownership interests therein. The Operator shall notify the Non-Operators of
such disposal as soon as practicable thereafter.
20.2 FACILITIES ABANDONMENT AND SALVAGE
If the Parties unanimously decide to abandon the Joint Operations or
any part thereof, or the Participating Parties unanimously decide to
abandon any Non-Consent Operations or any part thereof, the Operator shall
recover and endeavor to dispose of as much of the Joint Property, or
property used in such Non-Consent Operations, as the Operating Committee
directs can economically and reasonably be recovered or, in the case of
Non-Consent Operations, as the Operator believes can economically and
reasonably be recovered, or as may be required to be recovered under the
Tantawan Approval or any applicable law, and the net costs or net proceeds
therefrom shall be charged or credited to the Joint Account for eventual
allocation in proportion to the Participation Interests of the Parties in
proportion to their ownership interests therein. To the extent that the
decision to abandon any Facility is not unanimous among the Parties owning
an interest in such Facility, then the Parties desiring to abandon such
Facility shall pay such abandonment costs as may be required pursuant to
Article 20.4 and shall assign their Participating Interest in such Facility
in accordance with the provisions of Article 20.5.
20.3 SECURITY FOR ABANDONMENT COSTS
With due regard to and in accordance with any requirements of the
Tantawan Approval and any applicable law or direction or request from the
Ministry and/or relevant authorities and taking into account the varying
Participating Interest of the Parties in the Facilities located on the
Tantawan Area or acquired in connection with operations to be conducted
under this Agreement, the Parties agree that:
<PAGE>
(a) each Party shall bear its proportionate share of the liability to
meet the costs and other obligations relating to the abandonment
of such Facilities and the other property acquired in connection
with operations pursuant to this Agreement, based upon the
Participating Interest of each Party in each portion of the
Facilities and such operations conducted pursuant to this
Agreement;
(b) the Operator shall prepare and periodically submit to the
Parties, estimates of the likely costs to allocable to each of
the Parties of such abandonment and of the amount and value of
the net recoverable reserves on any Production Approval, provided
that any Party shall have the right to reasonably require the
preparation of further reports and studies in relation thereto;
(c) when, in the Operator's considered opinion, the estimated
discounted present value of net recoverable reserves on any
Production Approval that are attributable to any Party equals or
is less than one hundred and thirty-five percent (135%) of such
Party's proportionate share of the estimated abandonment costs
attributable to such Production Approval, such Party shall
provide to the other Participating Parties in such Production
Approval adequate security for its liability to meet such
abandonment costs, which adequate security may include, at the
discretion of the Operator and, if applicable, in the amounts
reasonably requested by Operator:
(i) an irrevocable guarantee from such Party's parent company or
Affiliate;
(ii) an irrevocable letter of credit from a bank or other
financial institution reasonably acceptable to Operator;
(iii) security in favor of the other Parties over assets of
such Party or a third Person; or
(iv) a levy on such Party's entitlement to production from the
Production Approval in question;
(d) in the event that such Party's entitlement to production from the
Production Approval in question shall be subject to a levy as
provided in Article 20.3(c)(iv), the proceeds of which shall be
deposited and retained by the Operator or an independent third
party as trustee for the Parties in an interest-bearing trust
account; property rights in the payments into such account shall
pass to the trustee at the time of their payment into the
account; upon the occurrence of such Party failing to meet its
proportionate share of
<PAGE>
the abandonment obligations for such Production Approval, such
proceeds shall be applied in the discharge of such abandonment
liability and any balance shall be returned to such Party;
20.4 ABANDONMENT OF FACILITIES OR WELLS
Any Party may propose the abandonment of a Facility or a well in which
it has an ownership interest by notifying the other Participating Parties.
No well Facility shall be abandoned without the mutual consent of the
Participating Parties therein. If all Participating Parties do not approve
abandoning the Facility or well, the Party desiring to abandon it shall pay
the non-abandoning Participating Parties for that Party's share of the
estimated costs of abandonment, removal, and site clearance of the
Facility, or the plugging and abandonment of the well, as applicable, less
estimated salvage costs as determined by the Operator in good faith
pursuant to the Accounting Procedure. If an abandoning Party's respective
share of the estimated salvage value is greater than its share of the
estimated costs, the Operator, on behalf of the Participating Parties,
shall credit such Party's obligations to the Joint Account for such amount.
20.5 ASSIGNMENT OF INTEREST
Each Participating Party desiring to abandon a Facility or a well
pursuant to Article 20.2 or Article 20.4, respectively, shall assign,
effective as of the last applicable election date, to the non-abandoning
Participating Parties, in proportion to their Participating Interests, all
of its interest in such Facility or well, as applicable, and the equipment
related thereto and its ownership in the production of Petroleum from such
Facility or well, as applicable. Any Party so assigning shall be relieved
from any further liability with respect to said Facility or well; PROVIDED,
HOWEVER, such assignment shall not absolve said Party of its
responsibilities for Facilities removal if only the Party's interest in the
well is assigned.
21. FORCE MAJEURE
The obligations of each of the Parties hereunder, other than the
obligations to make payments of money or to furnish security, shall be suspended
while such Party is prevented or hindered from complying therewith by any cause
beyond the reasonable control of such Party; provided that a lack of funds or
inability to furnish the requisite security shall not be deemed to be a cause
beyond the reasonable control of such Party. In such event, such Party shall
give notice of suspension as soon as reasonably possible to the other Parties
stating the date and extent of the suspension and the cause thereof. Any of the
Parties whose obligations have been suspended as aforesaid shall resume the
performance of such obligations as soon as reasonably possible after the
cessation of the cause and shall so notify all the other Parties.
<PAGE>
22. ROYALTIES AND OTHER PAYMENTS
22.1 OVERRIDING ROYALTY AND OTHER BURDENS
Any Party whose interest in the Tantawan Approval or the Tantawan Area
is encumbered by an overriding royalty, production payment, net profits
interest, mortgage, lien, security interest, or other burden or
encumbrance, the Party so burdening its interest shall pay and bear all
liabilities and obligations created or secured by the burden or encumbrance
and shall indemnify and hold all other Parties free and harmless from all
claims and demands for payment asserted by the owners of the burdens or
encumbrances. If a Party becomes entitled to an assignment under this
Agreement or as a result of Non-Consent Operations or a default by a
Defaulting Party, or becomes entitled to receive a relinquishment interest
from a Party that has so burdened or encumbered its interest, the Party
entitled to receive the assignment from the Party shall receive such
assignment free and clear of all such burdens and encumbrances, and the
assigning or relinquishing Party whose interest is subject to the burdens
and encumbrances shall hold the Parties receiving such interest harmless
for the burdens and encumbrances, and will bear same at its own expense. In
addition such overriding royalty, production payment, net profits interest,
mortgage, lien, security interest, or other burden, encumbrance or interest
(a "Subsequently Created Interest") shall be made specifically subject to
this Agreement. If the Party owning the interest from which the
Subsequently Created Interest was established defaults in any payment
pursuant to Article 14, then the Operator, pursuant to Article 14 may
enforce against the Subsequently Created Interest the lien and other rights
granted or recognized pursuant to Article 14 to secure and enforce
collection of the amount in default against the Subsequently Created
Interest. The rights of the owner of the Subsequently Created Interest
shall be, and hereby are, subordinated to the rights granted or recognized
in Article 14.
22.2 OTHER PAYMENTS
Any payments to governmental authorities, other than payments
discussed in Article 22.3 below, which may be required under terms of the
Tantawan Approval shall be paid by Operator and shall be charged to the
Parties based on their Percentage Interest. Any Party may request and shall
be entitled to receive proper evidence of all such payments. In the event
of failure to make proper payment of any payment where such payment is
required to continue any portion of the Tantawan Approval in force, any
loss which results from such non-payment shall be borne proportionately by
all the Parties. Operator shall not be liable for failure to make such
payments, or for erroneous payment, unless such failure or error results
from its Gross Negligence or Willful Misconduct.
<PAGE>
22.3 ROYALTY PAYMENTS
Each Party shall be responsible for and shall separately bear and
properly pay or cause to be paid all royalty and other amounts due on
production that it takes from the Tantawan Area for its account and on its
share of production used, consumed, lost or vented on the Tantawan Area, if
applicable. During any period in which the Participating Parties in a Non-
Consent Operation are entitled to receive a Non-Participating Party's share
of production, the Participating Parties shall pay and bear the royalty on
such production.
23. APPLICABLE LAW AND ARBITRATION
23.1 APPLICABLE LAW
All aspects of this Agreement., including, but not being limited to,
the construction, performance, execution and enforcement of this Agreement
and any dispute, whether in contract or tort, of whatsoever nature arising
in connection with this Agreement or performance under it, including any
remedy thereof, shall be governed exclusively by the Laws of the State of
Texas (to the exclusion of its rules on the conflict of law).
23.2 ARBITRATION OF DISPUTES
Any dispute or controversy between any of the Parties arising out of
or relating to this Agreement or the conduct of operations on the Tantawan
Area, including without limitation, a dispute or controversy relating to
the construction of any provision or the validity or enforceability of any
term or condition (including this paragraph) or of the entire Agreement, or
any claim that all or any part of this Agreement (including this provision)
is void or voidable, shall be conducted in the English language and shall
be submitted to arbitration in accordance with the Commercial Rules of
Arbitration of the American Arbitration Association then in effect at an
office of the American Arbitration Association in Houston, Texas. Within
seven (7) Days after any Party shall have given notice of a dispute or
difference the Parties agree to meet and attempt to select a single
arbitrator to hear any dispute. If a single arbitrator cannot be mutually
agreed upon by the Parties, such dispute shall be heard by a panel of three
arbitrators, with a single arbitrator being selected by Parties on each
side of the dispute and the third arbitrator being selected by the two
arbitrators previously selected. The Parties agree that any decision or
award rendered by the arbitrators appointed shall be final and binding on
the Parties to this Agreement and judgment upon the decision or award shall
be enforceable in the Courts of the United States or any other court having
jurisdiction thereof. In connection with the enforcement of any decision or
award by the arbitrators, and to the fullest extent permitted by law, the
Parties irrevocably submit to the jurisdiction of such courts and waive any
objection it may have to either the jurisdiction or venue of such courts.
<PAGE>
23.3 AGENTS FOR SERVICE
Each of the Parties shall nominate the following to (a) accept service
of any proceedings under this Article 23 on its behalf and (b) to receive
notices pursuant to Article 24:
PARTY APPOINTEE AND ADDRESS
Thaipo R. Phil Laney
Thaipo Limited
c/o Pogo Producing Company
5 Greenway Plaza, Suite 2700
Houston, Texas 77046-0504
U.S.A.
Phone: 1 713 297 5000
Telecopy: 1 713 297 4950
ThaiRomo Mike D. McCoy
Thai Romo Ltd.
c/o Rutherford Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046-0504
U.S.A.
Phone: 1 713 622 5555
Telecopy: 1 713 621 7072
Sophonpanich Managing Director
Sophon Thai Gulf Limited
c/o The Sophonpanich Co., Ltd
61/1 Soi Watana
Sukhumvit 19
Bangkok 10110
Thailand
Phone: 1 011 66 2 260 7242
Telecopy: 1 011 66 2 260 7247
24. NOTICES
24.1 GIVING AND RECEIVING NOTICES
All notices of proposals required herein shall be given in the English
language, in writing by delivery in person, by certified or registered
mail, courier service, telegram, telecopier, or any other form of generally
recognized electronic transmission, with postage and charges prepaid;
PROVIDED HOWEVER, if a drilling rig is on location and standby charges are
accumulating, such notices and
<PAGE>
responses shall be given by telephone and immediately confirmed in writing.
The originating notice shall be deemed to have been delivered when received
by the Party to whom it was directed, except that any notice by certified
mail or equivalent, telegraph, or cable properly addressed, and with all
postage and charges prepaid shall be deemed given seventy-two (72) hours
after such notice is deposited in overnight next day delivery or courier
service, or twenty-four (24) hours after such notice is sent by telecopy,
facsimile or other electronic transmission with an electronic or telephonic
confirmation of receipt and the period for a Party to deliver a response or
notice in response thereto shall begin on the date that the originating
notice is received. "Receipt," for oral or telephone notice, means actual
and immediate communication to the Party to be notified, as specified in
the Agreement, or to the telegraph, telecopy, facsimile or other electronic
terminal of that Party. A responsive notice shall be deemed to have been
delivered when it is deposited in the U.S. mail, delivered to a courier or
telegraph service, transmitted by telecopy, facsimile or other electronic
transmission, receipt confirmed either electronically or by telephone
contact, or personally delivered to the Party to be notified. Each Party's
proper address shall be that shown in Article 23 until such Party gives
written notice to the other Parties of a different address for the purposes
of this Article.
24.2 RESPONSES TO NOTICES
When notice of a proposal other than the calling of an Operating
Committee meeting pursuant to Article 8 hereof (in which case the
notice and response times set forth in Article 8 shall be applicable)
has been given, each Party shall respond in writing to the Party
making the proposal within the maximum response time in this Article
24.2 for such proposal.
24.2.1 When any proposal for Appraisal Operations or Development
Operations includes the construction of a Platform, the maximum
response time shall be ninety (90) Days.
24.2.2 When any proposal for Appraisal Operations or Development
Operations does not require construction of a Platform, the
maximum response time shall be thirty (30) Days, provided that if
a drilling rig is on the Tantawan Area with rig standby charges
accumulating or the Parties would have an obligation to the
drilling contractor for similar charges, the maximum response
time shall be forty-eight (48) hours.
24.2.3 Unless otherwise provided, for all other matters requiring a
notice, the maximum response time shall be thirty (30) Days.
<PAGE>
24.3 FAILURE TO RESPOND IN A TIMELY MANNER
Except as otherwise specifically provided herein, failure of any Party
to respond to a notice which calls for a response within the required
period shall be deemed to be a negative response.
24.4 CONTENT OF NOTICE
Any notice which requires a response shall include sufficient
information to allow each Party to make a decision as to the response to be
given, and shall indicate the maximum response time specified in Article
24.2, above. Where a proposal involves the drilling, Deepening,
Sidetracking to an objective other than that originally proposed, or
Recompletion of a well, the notice shall include the location, proposed
depth of the operation, Objective Horizon to be tested, proposed size of
drilling and/or spacing units, if any, estimated costs of the operation
including those which would be required for completing and equipping the
well through the wellhead, details regarding directional drilling as
applicable, and the type of equipment which will be used, such as mobile
drilling rig, floating drilling vessel, or Platform.
25. COMPLIANCE WITH THE CONCESSION AGREEMENT,
PRODUCTION APPROVALS AND REGULATIONS
It is understood and agreed that each of the Parties has read and
understood and is aware of the obligations which the Operator and the Parties
have undertaken in accepting the Concession Agreement and the Tantawan Approval.
26. PARENT COMPANY GUARANTEES
It is hereby agreed by each of the Parties to this Agreement that it shall
be a condition precedent to the coming into force of this Agreement that the
ultimate parent of each Party to the Agreement shall irrevocably and
unconditionally guarantee as primary obligator and not merely as surety the due
performance and discharge of any and all obligations of its respective Affiliate
that is a Party to this Agreement by executing a Parent Company Guarantee.
27. NO WAIVER
No failure to exercise or delay in exercising any right, power or privilege
under this Agreement on the part of any of the Parties, shall operate as a
waiver nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise or the exercise of any other
right, power or privilege. The rights and remedies provided in this Agreement
are cumulative and severable and shall not exclude any rights or remedies
otherwise provided by law.
<PAGE>
28. CONTRIBUTIONS
28.1 NOTICE OF CONTRIBUTION OTHER THAN ADVANCE FOR SALE OF PRODUCTION
Each Party shall promptly notify the other Parties of any contribution
which it obtains, or is attempting to obtain, concerning the drilling of
any well on the Tantawan Area, other than contributions made as
consideration for entering into a contract for sale of production from the
Tantawan Area
28.2 CONTRIBUTION WHERE ALL PARTIES ARE PARTICIPATING
In the event any Party receives such a contribution, in cash, toward a
well which constitutes a Joint Operation, said contribution shall be turned
over to Operator, and Operator shall credit the amount thereof to all the
Parties based upon their Percentage Interest. Any contribution of acreage
toward the drilling of a well shall be shared by the Parties in accordance
with their respective Percentage Interests.
28.3 CONTRIBUTION WHERE LESS THAN ALL PARTIES PARTICIPATE
In the event any Party receives a contribution, in cash, toward a well
in which all Parties are not Participating Parties, said cash contribution
shall be turned over to Operator, and Operator shall credit the amount
thereof to the Participating Parties in accordance with their Participating
Interests. Said cash contribution shall be deducted from the cost of
drilling and completing the well prior to computation of the amount the
Participating Parties shall be entitled to recoup out of production. Any
contribution of acreage toward the drilling of a well by less than all of
the Parties hereto shall be shared by the Participating Parties in
accordance with their Participating Interests.
29. TAXES
29.1 PROPERTY TAXES
Operator shall render property covered by this Agreement as may be
subject to ad valorem taxation, and shall pay such property taxes far the
benefit of each Party.
29.2 CONTEST OF PROPERTY TAX VALUATION
Operator shall timely and diligently protest to a final determination
any property valuation it deems unreasonable. Pending such determination,
Operator may elect to pay under protest. Upon final determination, Operator
shall pay the taxes and any interest, penalty or cost accrued as a result
of such protest. In either event, Operator shall charge each Party its
share of such taxes based upon
<PAGE>
its Participating Interest in the property subject to the tax.
Additionally, if permitted by applicable law, each Party shall be entitled
to protest any such determination insofar as it relates to its
Participating Interest if such protest shall not, in the opinion of the
other Participating Parties, harm their interests.
29.3 PRODUCTION AND SEVERANCE TAXES
Each Party shall pay, or cause to be paid, all production and
severance, and similar taxes due on any production which it receives
pursuant to the terms of this Agreement.
29.4 OTHER TAXES AND ASSESSMENTS
Except as otherwise provided in this Agreement, Operator shall pay
other applicable taxes or assessments and charge each Party its share.
30. COUNTERPART EXECUTION
This Agreement may be executed in counterparts, each of which when so
executed shall be given the effect of execution of the original instrument. When
so executed the signatures of the Parties as affixed hereto may be combined in,
and treated and given effect for all purposes as, a single instrument.
WITNESS the hands of the duly authorized representatives of the Parties hereto,
effective as the day and Year first above written.
THAIPO LIMITED
- ---------------
Witness
By:
---------------------------------------------------
Name:
- --------------- -------------------------------------------------
Witness Title: Director
THAI ROMO LTD.
- ---------------
Witness
By:
---------------------------------------------------
Name:
- --------------- -------------------------------------------------
Witness Title: Director
<PAGE>
SOPHON THAI GULF LIMITED
- ---------------
Witness
By:
---------------------------------------------------
Name:
- --------------- -------------------------------------------------
Witness Title: Director
By:
---------------------------------------------------
Name:
------------------------------------------------
Title: Director
WITNESS the hands of the duly authorized representatives of the Parties hereto,
effective as the day and Year first above written.
THAIPO LIMITED
- ---------------
Witness
By:
---------------------------------------------------
Name:
- --------------- -------------------------------------------------
Witness Title: Director
THAI ROMO LTD.
- ---------------
Witness
By:
---------------------------------------------------
Name:
- --------------- -------------------------------------------------
Witness Title: Director
SOPHON THAI GULF LIMITED
- ---------------
Witness
By:
---------------------------------------------------
Name:
- --------------- -------------------------------------------------
Witness Title: Director
By:
---------------------------------------------------
Name:
------------------------------------------------
Title: Director
<PAGE>
EXHIBIT "A"
Attached to and made a part of that certain Joint Operating Agreement (the
"Agreement") dated effective as of March 3, 1995, by and among Thaipo Limited,
as Operator, and Thai Romo Ltd. and Thai Sophon Gulf Limited as Non-Operators.
THE ACCOUNTING PROCEDURE
ARTICLE 1: PREFACE AND GENERAL PROVISIONS
1.1 PREFACE
The purpose of this Accounting Procedure is to establish accounting
principles and procedures which will aid the proper and efficient carrying out
of the operations of the Tantawan License and under the Agreement and will
result in the true cost of such operations being reflected in, as applicable,
the Joint Account and any Non-Consent Account (as defined in Article 1.5). It is
the intent and understanding of the Parties that the Operator shall, subject to
the provisions of the Agreement, neither gain nor lose by reason of the fact
that he acts as the Operator unless otherwise specified herein. Each of the
Parties shall provide funds sufficient to cover all costs of the Joint
Operations and the Non-Consent Operations in which such Party is a Participating
Party. Such funds to be provided to the Operator by each Party in proportion to
its Percentage Interest or Participating Interest, as applicable, at the time of
the incurrence of the costs.
It is recognized that Operator will incur costs common to all Parties
relating, but not limited to, Operating Committee meetings, for review and
decision making with respect to its own Percentage Interest. Such costs will not
be charged to the Joint Account.
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting Procedure
is attached, the provisions of the Agreement shall prevail.
1.2 REPORTING TO AUTHORITIES
The Operator shall at all times ensure that all accounting data and other
information relating to the Joint Operations and Non-Consent Operations is
available in such a form as to facilitate all required reporting to the Ministry
and any other governmental authorities, both for the Operator and for the Non-
Operators. Each Party shall receive a copy of such accounting reports relating
to the Joint Operations which are forwarded to the Ministry and any other
governmental authorities by the Operator.
A-1
<PAGE>
1.3 CHANGE OF ACCOUNTING PROCEDURE
If one (1) of the Parties represented on the Operating Committee is of the
opinion that a change in the Accounting Procedure is desirable to rectify an
inequity or for any other reason, it may forward a proposal for amendment of the
Accounting Procedure to the Operator who will arrange for the matter to be
discussed at an Operating Committee meeting. The Accounting Procedure may be
amended only with the agreement of all the Parties.
1.4 CURRENCY
The Joint Account and all Non-Consent Accounts shall be maintained in
Dollars, except for accounts maintained in Thailand or, if applicable, other
countries, iii furtherance of operations contemplated under the Agreement, in
which case such accounts may, at the discretion of the Operator, be kept in Baht
or the currency of the country where such account is located. Translation of
currency transactions shall be based on the actual rate used at time of
transaction.
1.5 DEFINITIONS
In addition to the definitions in the Agreement, the following shall apply
in this Accounting Procedure:
(a) "Agreement" shall mean the Joint Operating Agreement of which this
EXHIBIT "A" forms part;
(b) "Accounting Committee" shall mean an accounting sub-committee
established by the Operating Committee pursuant to the Agreement;
(c) "Accounting Period" shall mean any Year as defined in Article 1.68 of
the Agreement;
(d) "Accruals" shall mean recording of charges and credits for work
performed but not booked at the end of the accounting period,
regardless of whether invoices or credits have been received;
(e) "Applicable Account" shall mean the Joint Account(s) with respect to
Joint Operations and each Non-Consent Account as it relates to the
Non-Consent Operation for which it was created or is currently used;
(f) "Controllable Material" shall mean the Material which in the petroleum
industry usually is subject to record, control and inventory; and
(g) "Non-Consent Account" shall mean an account or accounts established
and maintained by the Operator, or a Person it designates, to record
all Advances, expenditures and receipts in the conduct of Non-Consent
Operations.
2
<PAGE>
1.6 DISAGREEMENTS
In the event of a conflict between the Parties with respect to this
Accounting Procedure, the Accounting Committee, if any, or the Operating
Committee shall meet to settle the conflict with the intent that, except as
provided in the Agreement, no Party shall gain or lose at the expense of the
other Parties.
1.7 MONETARY LIMITS
The monetary limits set forth in various sections of the Agreement shall be
reviewed and adjusted from time to time by agreement of the Operating Committee
in order to be in accordance with increased expenditure levels in the
development phase.
1.8 NON-CONSENT OPERATIONS
In the event that one (1) or more of the Parties engages in Non-Consent
Operations, then to the extent deemed appropriate by the Operator, the
Accounting Procedure shall apply to such Non-Consent Operations but separate
Non-Consent Accounts, books, bank accounts and other records shall be
established and maintained for such Non-Consent Operations in such a manner that
the statements and billings relating to the Joint Account do not reflect the
Non-Consent Operations (and vice versa), except as they relate to the recording
of penalties, reversionary interests, etc., contemplated under the Agreement.
1.9 SEPARATE ACCOUNTING
If it becomes appropriate to segregate Joint Account matters, the Operator
shall maintain books and records and act otherwise with respect to the Joint
Operations in order to facilitate such segregation. If requests from other
Parties for special records should cause a significant additional workload
and/or costs, such costs and the cost to the Operator of any additional workload
shall be borne by the requesting Party(ies).
1.10 ADJUSTMENTS
All billings and statements presented by the Operator to the other Parties
shall be presumed to be true and correct until shown otherwise, and shall be
paid as presented except for obvious errors. Such payment shall not prejudice
the right of any Non-Operator to question the charges or credits accruing to the
Joint Account (or any Non-Consent Account with respect to Non-Consent
Operations) and the Operator shall take immediate steps to clarify, explain and
adjust any queried charges or credits. Requests for corrections shall be made
within the time limit specified in Article 7.1.7 or shall be deemed to have been
forever waived.
3
<PAGE>
ARTICLE 2: BUDGETS AND FORECASTS
2.1 EXPLORATION AND APPRAISAL BUDGETS
Each exploration and appraisal Budget prepared under and in accordance with
the Operating Agreement shall reflect activities and obligations in accordance
with normal practice in the petroleum industry and shall include:
(a) an estimate of the total cost of the relevant Programs in Dollars and
a subdivision of such total into each main classification of cost and
with a reference to assumptions regarding exchange rates, inflation,
etc.;
(b) the number of employees engaged on basis of an organizational chart;
(c) a schedule of estimated Joint Account warehouse stock movement;
(d) such other estimates relating to currently anticipated expenditures to
be made during the two (2) Years after the period covered by such
Budget, as shall be reasonably requested by any Party.
2.2 DEVELOPMENT AND PRODUCTION BUDGETS
Each development and operating Budget prepared under and in accordance with
the Operating Agreement shall reflect activities and obligations in accordance
with normal practice in the petroleum industry and shall include:
(a) an estimate in Dollars of the total cost of the relevant Program and
subdivision of such total under each main classification of cost and
with a reference to assumptions regarding exchange rates, inflation,
etc;
(b) a schedule of estimated Joint Account warehouse stock movement;
(c) such other estimates relating to currently anticipated expenditures to
be made during the two (2) Years after the period covered by such
Budget, as shall be reasonably requested by any Party, and
(d) in support of the Budget, four (4) additional Years forecast for a
production operation covering the quantities of Material that will
need to be acquired during such period.
2.3 BUDGET APPROVAL AND AMENDMENT
4
<PAGE>
2.3.1 CAPITAL BUDGETS
Approval of capital Budgets does not permit the Operator to enter into
any commitments or incur any expenditures for any item included in said
Budgets until an AFE is approved by the Participating Parties as provided
in the Agreement.
2.3.2 ADMINISTRATIVE AND OPERATING EXPENSE
Approval of administrative and operating expense Budgets permits the
Operator to issue AFE's covering the full year and to record such
expenditures in the Joint Account without prior approval of the Operating
Committee.
Without the prior approval of the Operating Committee, the Operator
may incur overruns on administrative and operating expense Budgets in any
Accounting Period not to exceed ten percent (10%) of the approved
administrative and operating expense Budget.
ARTICLE 3: JOINT AND NON-CONSENT ACCOUNTS
3.1 CHARGES
Subject to the limitations hereinafter set forth and to the other relevant
provisions of the Agreement, the Operator shall, with proper documentation,
charge the Applicable Account with the following items of expenditure in so far
as the expenditure has been duly authorized and relates to and is necessary for
the conduct of the Joint Operations or a Non-Consent Operation, as applicable:
3.1.1 CONCESSION AGREEMENT AND PRODUCTION LICENSE(S) FEES
All costs, if any, attributable to fees, bonuses, or other charges
paid to any governmental or quasi-governmental authority arising under the
Concession Agreement in respect of the Tantawan Area and any Production
License(s) covering all or any portion of the Tantawan Area that are paid
by the Operator on behalf of the Parties in connection with the Joint
Operations, or Non-Consent Operations, as applicable.
3.1.2 DAMAGES AND LOSSES
All expenses incurred for the repair or replacement of damaged or lost
Joint Property and all property used in connection with Non-Consent
Operations. Operator shall separately and without delay inform the Non-
Operators in writing of any incident involving expenses estimated to be in
excess of one hundred thousand Dollars (USD 100,000), with documentation as
may be
5
<PAGE>
reasonably requested. Incidents involving smaller amounts not included in
the approved Budget shall be reported on a quarterly basis.
3.1.3 OFFICES AND FIELD EXPENSES
The cost of establishing and operating offices, field offices,
warehouses, shore bases and other facilities in Thailand and other
countries (other than the United States of America) where operations under
this Agreement are being conducted and which will be used for the Joint
Operations or Non-Consent Operations, including the cost of office
services, office equipment and furnishings, computer and data processing
charges. If any such Facilities serve more than the Joint Operations, the
costs shall be allocated in an equitable manner in accordance with the
Agreement as approved by the Operating Committee.
3.1.4 INSURANCE AND THIRD PERSON CLAIMS
Premiums paid for insurance coverage obtained in accordance with the
Agreement and expenditures incurred in settlement of claims from third
Persons.
3.1.5 MATERIAL
(a) Material purchased by the Operator from third Persons for use in the
Joint Operations and Non-Consent Operations, as applicable, shall be
charged to the Applicable Account at cost after deducting all trade
discounts received. Transport costs and handling, insurance, duties
and other related costs are also chargeable to the Appropriate
Account.
(b) Material transferred from the Operator, Non-Operators or its or their
Affiliates for use in the operations on the Tantawan License or under
the Agreement shall be charged to the Applicable Account at a value
determined as follows:
NEW MATERIAL - CONDITION A"
Material which has not been used and is in a new condition shall
be classified as Condition "A" and charged to the Applicable Account
at direct cost to the Operator or at Market Price at time of transfer
whichever is the less.
"Market Price" shall be determined by securing competitive prices
from reliable suppliers with the most economical price to represent
Market Price. Any Party not agreeing to the cost of transfer as
charged by the Operator according to the forgoing provision shall at
its own initiative and at its own cost and upon notice to the Operator
be allowed
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to secure the necessary information to assist the Operator in
establishing the Market Price.
USED MATERIAL - CONDITION "B"
Material which has been used but is in sound and serviceable
condition and suitable to be reused without repair shall be classified
as Condition "B" and charged to the Applicable Account at seventy-five
percent (75%) of what its value would be if it were in Condition "A".
USED MATERIAL - CONDITION "C"
Material which is suitable for use after reconditioning shall be
classified as Condition "C" and charged to the Applicable Account at
fifty percent (50%) or less of what its value would be if it were in
Condition "A". After reconditioning the material will not exceed the
Condition "B" value.
MATERIAL - CONDITION "D"
Material which is obsolete or not usable for its original purpose
shall be priced at a value commensurate with its use.
(c) Accumulation of surplus stocks of Material shall be avoided.
(d) Material which will be partially used or used on a temporary basis may
be charged to the Applicable Account on terms and conditions to be
agreed by the Participating Parties. Such charges shall never exceed
Market Price available through third Persons for comparable Material.
(e) Operator shall promptly credit the Applicable Account for Material
returned to the Operator or with any adjustments received from a
supplier or manufacturer.
(f) Operator shall in no way be obligated to purchase surplus Materials
from any Applicable Account, either for its own account or for use in
any operations under this Agreement.
3.1.6 DIRECT EXPENSES
Operator shall charge the Applicable Account for its share of any
general, personnel and administrative expenses incurred in respect of the
Tantawan License and operations under this Agreement, to be charged to the
Applicable Account in accordance with the terms of the Agreement and this
Accounting Procedure.
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Direct expenses shall include the salary, wages, related salary burden
and other related costs of:
(a) The employees of Operator and its Affiliates in the Kingdom of
Thailand or such other country (other than the United States of
America) where operations under the Agreement are being conducted
who are directly engaged in Joint Operations, or Non-Consent
Operations, as applicable, whether temporarily or permanently
assigned.
(b) The employees of Operator and its Affiliates outside the Kingdom
of Thailand or such other country (other than the United States
of America) where operations under the Agreement are being
conducted who are directly engaged in Joint Operations or Non-
Consent Operations, as applicable, whether temporarily or
permanently assigned.
(c) Salaries and wages shall include everything constituting the
employees' total compensation. To the extent not included in
salaries and wages, the Applicable Account shall also be charged
with the cost to Operator, or its Affiliate, of holiday,
vacation, sickness, disability benefits, living and housing
allowances, travel time, bonuses, and other customary allowances
applicable to the salaries and wages chargeable hereunder, as
well as costs to Operator, or its Affiliate, for employee
benefits, including but not limited to employee group life
insurance, group medical insurance, hospitalization, retirement,
and other benefit plans of a like nature applicable to labor
costs of Operator. Operator's or its Affiliate's, employees
participating in benefit plans in the Kingdom of Thailand or such
other country (other than the United States of America) where
operations under the Agreement are being conducted may be charged
at a percentage rate to reflect payments or accruals applicable
to such employees that are made by Operator, or its Affiliate, as
applicable. Such accruals for benefit plans established in the
Kingdom of Thailand or such other country (other than the United
States of America) where operations under the Agreement are being
conducted shall not be paid by Non-Operators, unless otherwise
approved by the Operating Committee, until the same are due and
payable to the employee, upon withdrawal of a Party pursuant to
the Agreement, or upon termination of the Agreement, whichever
occurs first.
(d) Expenditures or contributions made pursuant to assessments
imposed by a governmental authority for payments with respect
thereto or on account of such employees.
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(e) Salaries and wages shall be charged in accordance with
Operator's, or its Affiliate's usual practice, when and as paid
or accrued, or on a basis of the Operator's, or its Affiliate's,
average cost per employee for each job category; and the rates to
be charged shall be reviewed at least annually. In determining
the average cost per employee for each job category, expatriate
and national employee salaries and wages shall be calculated
separately. During a given period of time it is understood that
some costs for salaries and wages may be charged on an actual
basis while the remaining costs for salaries and wages are
charged at a rate based upon the above described average cost.
(f) Reasonable business and travel expenses of employees of the
Operator and its Affiliates (wherever located) incurred in
connection with operations under the Agreement. Such business and
travel expenses shall include reasonable relocation costs of
personnel and their families that are reimbursed under the
Operator's internal practices.
3.1.7 INDIRECT EXPENSES
For costs not covered by Article 3.1.6. nor elsewhere in this
Accounting Procedure, the Operator shall be entitled to charge the
Applicable Account the expenses incurred by it and its Affiliates in
support of the Joint Operations, and Non-Consent Operations, as applicable,
including indirect administrative costs and expenses incurred in the
Operator's and its Affiliates' United States offices, by means of an
Operator's fee computed on a Monthly basis at the rate of:
(a) four percent (4%) of the first three million Dollars (USD
3,000,000) of expenditures accrued in any Year in support of such
Joint Operations or Non-Consent Operations, as applicable;
(b) two percent (2%) of the second three million Dollars (USD
3,000,000) of expenditures accrued in any Year in support of such
Joint Operations or Non-Consent Operations, as applicable; and
(c) one percent (1%) of all expenditures in excess of the first six
million Dollars (USD 6,000,000) that are accrued in any Year in
support of such Joint Operations or Non-Consent Operations, as
applicable.
The Monthly Operator's fee chargeable to the Applicable Account shall be
subject to a Monthly minimum of fifteen thousand Dollars (USD 15,000) per
Month while there remain any operations under this Agreement. Such minimum
charges during any Year shall be recoupable during such Year and credited
against
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expenditures incurred during subsequent months of that Year only.
Expenditures for the purpose of applying the percentage charge stipulated
above shall be adjusted to exclude major construction expenditures (in
excess of ten million Dollars (USD 10,000,000) per AFE) with respect to
which a flat Operator's fee of one and one half percent (11/2%) shall be
charged to the Applicable Account.
3.1.8 PROFESSIONAL SERVICES
Expenditures made by or at the direction of the Operator or an
Affiliate of all Participating Parties to third Persons including, without
limitation, accountants, attorneys, engineers, consultants, experts,
technicians, other professionals and any other third Person (including Non-
Operators), wherever located, for services rendered and facilities used in
connection with the design, structuring and implementation of the Joint
Operations and, if applicable, any Non-Consent Operations, as well as the
preparation of any tax returns or other reports required to be filed by any
Affiliates of all of the Participating Parties established for the purpose
of conducting operations under the Agreement and not otherwise chargeable
hereunder.
The costs of services and facilities provided by the Operator, its
Affiliates and any Non-Operators, if applicable, shall be charged to the
Applicable Account on an equitable basis, provided that such charges shall
not exceed the rates for comparable services available to the Joint
Operations and Non-Consent Operations from third Persons and that the prior
approval of the Operating Committee is necessary if the Operator or its
Affiliates wish to provide services or facilities the Charges of which
exceed five hundred thousand Dollars (USD 500,000) per service rendered.
3.1.9 TAXES
All taxes, duties and other governmental levies which have been
incurred and paid by the Operator or its Affiliates on behalf of the Joint
Operations or Non-Consent Operations, as applicable, shall be charged to
the Applicable Account. For the avoidance of doubt, royalties and direct
taxes imposed on the Parties are not chargeable to the Joint Account.
3.1.10 TRANSPORTATION
(a) Travel and relocation expenses, when these are required for the
conduct of the Joint Operation or Non-Consent Operations, shall be
chargeable to the Applicable Account and may include expenses for
families and households, when appropriate. Relocation expenses at the
termination of work for the Joint Operation or Non-Consent Operations,
as applicable, shall be based on a return to the home of record,
except if the employee is relocated for the benefit of another
operation, in which case the costs shall not be charged to the
Parties.
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(b) All costs to transport and handle Material for use in the Joint
Operations and Non-Consent Operations, unless otherwise chargeable
under this Accounting Procedure.
3.1.11 NON-CONSENT OPERATIONS
No expenditures directly attributable to a Non-Consent Operation shall
be charged to the Joint Account. However, indirect expenses shall be
allocated between the Joint Operations and any Non-Consent Operation on a
consistent and equitable basis, consistent with standard practices in the
oil and gas industry.
3.1.12 OTHER EXPENDITURES
Any other expenditures not otherwise covered in this Accounting
Procedure which are incurred by the Operator in accordance with the
Agreement and which are reasonably necessary and proper for the Joint
Operations and Non-Consent Operations including, without limitation,
interest at the Agreed Interest Rate on funds that the Operator or its
Affiliates are required to advance that such funds must be advanced) to pay
costs and expenses of operations under the Agreement that become due and
for which the Operator has issued a Cash Call that, for whatever reason,
has not yet been paid by all Participating Parties.
3.1.13 PRODUCTION EXPENSES
This shall cover the cost of production of Petroleum in Joint
Operations and Non-Consent Operations from the Producible Reservoir up to
and including the agreed points of delivery to the Parties including, but
not limited to, the cost of lifting, gathering, gauging, handling,
treating, processing, compressing, storing, transporting and delivering,
operating field Facilities, well repairs, supervision and laboratory work.
3.2 CREDITS
The Operator shall credit to the Applicable Account the following:
3.2.1 DISPOSALS
Any amounts received from the disposal of Material or other property
used in operations under this Agreement.
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3.2.2 INTERESTS AND MISCELLANEOUS
Any amounts received as interest or otherwise with respect to the
property used in operations under the Agreement or accumulated in
connection with the Joint Operations or Non-Consent Operations, other than
interest payable to the Operator in accordance with Article 3.1.12.
3.2.3 MATERIAL AND PROPERTY
Any amounts received as a result of the return of Material or other
property.
3.2.4 NON-CONSENT OPERATIONS AND CONTRIBUTIONS
Any amounts received from (a) third Persons pursuant to Article 28 of
the Agreement or (b) Participating Parties engaged in Non-Consent
Operations in connection with their use of Joint Property.
3.2.5 INSURANCE
Any amounts received pursuant to (a) insurance claims made by the
Operator in respect of insurance carried for the benefit of all the
Participating Parties or (b) the settlement or prosecution of claims
involved in litigation or other disputes involving property of the
Participating Parties, in either case arising out of claims related to
operations under the Agreement.
3.2.6 CLAIMS
Any amounts received pursuant to claims made by the Operator on behalf
of the Parties arising out of claims related to operations under the
Agreement and, except as otherwise provided in the Agreement or under this
Accounting Procedure, any other event giving rise to a receipt (including
interest) by the Operator on behalf of the Parties.
3.2.7 OTHER
Except as otherwise provided in the Agreement or under this Accounting
Procedure, any other amounts of revenues or credits which accrue in any
manner in connection with the operations under this Agreement.
3.3 MULTIPLE ACCOUNTS
In the conduct of Joint Operations and Non-Consent Operations, the
Operator may establish such Applicable Accounts as the Operator deems
necessary for the conduct of operations pursuant to the Agreement. Each
such
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Applicable Account mad be established in the name of the Operator or such
other Person as the Operator may designate. References in this Accounting
Procedure to the Operator shall be deemed to include references to such
Person as has been designated by Operator to maintain an Applicable
Account.
ARTICLE 4: BOOKS AND RECORDS
4.1 ACCOUNTING RECORDS
4.1.1 ACCOUNTING CODES
The Operator shall provide the Non-Operators with a copy of any
accounting codes it uses or proposes to use in connection with the
Accounting Procedure.
4.1.2 THE APPLICABLE ACCOUNTS
Each Applicable Account shall be maintained to reflect the current
status of the operations to which it relates, to the extent that all major
amounts for work carried out, but not yet paid, shall be included and
identified in the Applicable Accounts as Accruals in connection with Year-
end closings.
4.1.3 ACCESS
Each Participating Party shall, with reasonable notice, have free
access to all books and records containing charges and credits to the
Applicable Account, including the supporting detail.
4.1.4 INVESTMENT RECORDS
The Operator shall maintain records of the investments carried in each
Applicable Account in such a manner as to enable an effective
reconciliation of a physical inventory.
4.1.5 PRESENCE IN THE UNITED STATES AND/OR THAILAND
All books and records, including the supporting detail or true copies
thereof, relating to the Joint Account shall be physically present in the
United States and/or Thailand, as appropriate.
4.1.6 AFE REFERENCE
Investments recorded in each Applicable Account shall carry a
reference number to the AFE(s) under which the expenditure has been
approved.
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4.2 BANK ACCOUNTS
The Operator shall establish separate bank accounts, if possible interest
bearing, into which Cash Calls are made to cover transactions for each
Applicable Account and in such other currencies as may be desirable. Upon
request, each Participating Party shall be notified of the banks, the account
numbers, and other relevant information relating to accounts containing funds
relating to operations in which they are Participating Parties. The bank
accounts shall at all times be kept at the lowest possible level consistent with
an effective operation.
4.3 MATERIAL CLASSIFICATION
The Operator shall use the "Material Classification Manual" approved by the
Operating Committee. The Operator shall also include such other Material in the
Controllable Material category as is considered desirable for operational or
financial control purposes.
4.4 OTHER PROPERTY
All property used in connection with operations under this Agreement shall
be marked in such a manner as to enable an effective reconciliation of a
physical inventory.
4.5 WAREHOUSE
4.5.1 MARKINGS
Materials shall be marked or stored in such manner as to enable an
affective reconciliation of a physical inventory.
4.5.2 RECORDS
The Operator shall maintain detailed records of all Controllable
Materials charged to and/or stored in a warehouse for operations under this
Agreement. The records shall be segregated by category to include all
Materials which are physically present in the warehouse.
4.5.3 MAJOR MATERIAL HANDLING CHARGES
Transportation costs, customs duties and other significant amounts
shall be recorded as part of the Material cost.
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4.5.4 MINOR MATERIAL HANDLING CHARGES
Local and minor transportation and handling charges for Material which
are chargeable to the warehouse stock account may be accumulated in a
separate warehouse sub-account containing handling and transportation costs
from vendor to warehouse. When Materials are issued from the warehouse
stock to an operation under this Agreement, a proportionate share of the
subaccount shall be charged to the Joint Operations or Non-Consent
Operations, as applicable, in addition to the cost of the item, the basic
principle being that when the warehouse stock has been exhausted, the
balance in the transportation sub-account will also be nil.
4.5.5 FORWARDING
Transportation and handling expenses from the warehouse to the
operations and return shall be charged directly to the operation involved.
ARTICLE 5: MATERIAL
5.1 DISPOSALS
5.1.1 SURPLUS MATERIALS
The Operator shall make timely disposal of idle and surplus Material
charged to each Applicable Account.
5.1.2 NOTIFICATION TO NON-OPERATORS
For all items which have an original value of one hundred thousand
Dollars (USD 100,000) or more, the Non-Operators shall be notified of the
intended disposal, the original purchase price, current book value and an
estimate of the price which can be obtained by sale to a third Person.
5.1.3 DISPOSAL
If no Parties are interested in making a purchase, the Operator may
proceed with the disposal, provided that all disposals of items having an
original value in excess of one hundred thousand Dollars (USD 100,000)
shall be approved by a majority Participating Interest in the ownership of
such items.
5.1.4 DONATIONS
Any donation on behalf of the Joint Account requires Operating
Committee approval.
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5.1.5 LIMITATION ON DISPOSALS
If disposal of any property other than Materials is required,
Participating Parties owning an interest in such property shall decide the
terms and conditions of such disposal for all items having an original
value of one hundred thousand Dollars (USD 100,000) or more. Items with an
original value under one hundred thousand Dollars (USD 100,000) may be
disposed of by the Operator without the consent of the Participating
Parties, by with due regard to their interests.
5.1.6 CONDITION "D" MATERIAL
Notwithstanding the other provisions of this Article, Material
classified as Condition "D" (as defined under Article 3.1.6) may be
disposed of by the Operator at such time and in such manner as the Operator
deems necessary or desirable.
5.2 EVALUATION
The Operator shall annually review the jointly owned Material and determine
if a change in the value thereof is warranted. If so, the Operator shall make a
proper charge to the Applicable Account reflecting the change and inform the
Non-Operators of the action taken and the reasons for the change in value.
Write-offs of one hundred thousand Dollars (USD) 100,000) in total shall be
approved by Participating Parties holding a majority interest in the item to be
written off.
5.3 WARRANTY
The Operator does not warrant the Material used in operations under this
Agreement and charged to the Applicable Account, PROVIDED, HOWEVER, the Operator
shall promptly credit the Applicable Account with any adjustment received from a
supplier or manufacturer on account of any Material. Material transferred from
the Operator, Non-Operators or Affiliates which appears to be detective at the
time it was transferred shall either be promptly repaired for the account of the
transferring Party or returned for a full credit to the Applicable Account,
unless otherwise agreed between the Parties.
5.4 CHARGES TO THE APPLICABLE ACCOUNT
Material purchased by the Operator shall be charged to the Applicable
Account as provided in Article 3.1.6.
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5.5 SALES
The Operator may sell, rent or lend Joint Property to Participating Parties
in Non-Consent Operations or to third Persons, if the Operator believes that
such action will not have a material detrimental effect on the Joint Operations.
The Operator shall inform the Non-Operators of all such transactions and,
subject to the terms and provisions of the Agreement and this Accounting
Procedure, seek their prior approval if (a) such approval is otherwise required,
(b) the Operator in good faith believes that there is any financial or
operational risk involved in such transaction, or the Market Price of such Joint
Property or if the transaction to be taken with respect to such Joint Property
is valued at in excess of one hundred thousand Dollars (USD 100,000).
ARTICLE 6: CASH CALL, BILLING AND REPORTING REQUIREMENTS
6.1 CASH CALLS AND ADVANCES
6.1.1 CASH CALLS
On or about the fifteenth (15th) Day of each Month, the Operator shall
furnish the Parties with a Cash Call requesting an Advance or Advances for
the succeeding Month. The amount requested in a Cash Call shall be the
Operator's estimate of the amount required from the Parties to enable the
Operator to defray the net cash payments, being cash payments less cash
receipts, due in the relevant Month under obligations properly incurred by
the Operator in connection with the Joint Operations and Non-Consent
Operations. Any difference between the Advances and charges as recorded in
the Applicable Account shall be taken into account in the Cash Call for
funds for the month following the determination of such difference.
6.1.2 SPECIFICATION
(a) Each Cash Call shall specify, in respect of each Advance, the amount
of each currency required, the bank, account or accounts to which
payment is to be made, and the due date on which payment is required.
The due date or dates on which payment of an Advance or Advances is or
are required shall be specified in the Cash Call and shall typically
be the earlier of (i) the eleven (11) Working Days after the date that
the Cash Call is sent to Participating Parties and (ii) the date or
dates on which the Operator estimates that it will be making a
substantial amount of the net cash payments for which the Cash Call is
principally issued. The amount requested in each such Advance shall be
the Operator's estimate, as applicable, of either (i) the aggregate
anticipated net cash payments for the succeeding Month, or (ii) the
net cash payments to be made on each such date together with any
smaller sums which it estimates will be payable between the due date
for payment of such Advance and the due date on which payment of the
next Advance will
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be required. Such estimate shall be based on the latest information
available to the Operator at the time the Cash Call is made.
(b) In addition to the monthly Cash Calls specified in Article 6.1.1,
extraordinary Cash Calls can be required by the Operator if it becomes
necessary during special circumstances. In such case, the Operator
shall provide at least five (5) Working Days' notice to the
Participating Parties of its intent to issue such an extraordinary
Cash Call. Such extraordinary Cash Calls shall contain the information
required by, and shall be due in accordance with, the applicable
provisions of Article 6.1.2(a).
6.1.3 CURRENCY
Cash Calls shall be made in Dollars or in a currency other than
Dollars if all of the Participating Parties being cash called shall so
agree.
6.1.4 PAYMENTS
Following a Cash Call, each Participating Party shall pay to the
Operator for the Applicable Account a share of each Advance (as specified
in the Cash Call) in proportion to its Participating Interest in the
operation or operations to which such Cash Call relates. Each Participating
Party shall pay its Participating Interest share of each Advance in
sufficient time so that its payment will be credited to the designated bank
account on the due date specified in the Cash Call. ff any Party falls to
pay in full its Participating Interest share of any Advance by the due
date, such Party's Participating Interest share shall begin accruing
interest, from and after the due date of the Cash Call at the Agreed
Interest Rate. If such Party pays in full its Participating Interest share
of any Advance within five (5) Days after the due date, all accrued
interest on its Participating Interest share of such Advance will be
waived. If, at the end of five (5) Days after the due date of an Advance,
such Party's Participating Interest share of such Advance has not been
credited to the designated bank account, such Party shall be considered in
default under its obligations to the other Participating Parties. Interest
at the Agreed Interest Rate on such Defaulting Party's Participating
Interest share of the Advance shall become due and payable, from and after
the due date and through the date that payment in full (including accrued
interest) of such Defaulting Party's Participating Interest share of such
Advance is either (i) finally received from the Participating Party and
credited to the designated bank account, or (ii) the other Participating
Parties exercise their rights under Article 14 of the Agreement including,
without limitation, their right to acquire their proportionate share of the
Defaulting Party's Interest.
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6.1.5 LIMITATIONS
The Operator shall restrict the funds of the Participating Parties
held for each Applicable Account to a level that the Operator believes is
consistent with that required for the conduct of the Joint Operations or
Non-Consent Operations, as applicable.
6.1.6 INTEREST
Any interest from the bank accounts containing funds received or paid
by the Operator, other than interest received by the Operator pursuant to
Article 3.1.12, shall be credited/debited to the Applicable Account.
6.1.7 FORECAST
Each Cash Call forwarded by the Operator shall be accompanied by a
forecast pursuant to which the Operator estimates the amount of the
anticipated Cash Calls for the two (2) Months succeeding the Month covered
by the forwarded Cash Call.
6.2 BILLING STATEMENT AND SCHEDULES
6.2.1 MONTHLY BILLING STATEMENT
The Operator shall send a report to the Parties within twenty (20)
Working Days following the end of each Month on all charges made and all
credits obtained by the Operator, or its Affiliates, in connection with the
Joint Operations and Non-Consent Operations to which such Party was a
Participating Party during such Month, in sufficient detail to form the
basis for the annual tax return and other reports required by governmental
authorities in the jurisdictions in which the Parties are doing business
under the Agreement.
6.2.2 CLASSIFICATIONS
Such report shall be made on a billing statement which shall show the
net total of all payments (less all receipts) relating to that Party's
Applicable Accounts and such Party's Participating Interest share thereof
and shall be accompanied by billing schedules dividing such charges and
credits into main classifications of expenditure indicative of the nature
thereof and in accordance with the approved budgets. In addition, any
interest received and any unusual payments and receipts shall be indicated
separately.
6.2.3 CURRENCY
All billing statements and schedules shall be in Dollars.
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6.3 MONTHLY CASH RECONCILIATION
As at the end of each Month in which funds have been received by the
Operator, the Operator shall make a separate reconciliation for each
currency between:
(a) the monthly total of advances received by the Operator from the
Parties in such currency, and
(b) the monthly total of cash payments, net of cash receipts other
than interest, made in such currency by the Operator as reflected
in the billing statement for such Month.
6.4 INVENTORIES
6.4.1 INVENTORIES
A complete inventory shall be taken of warehouse stock at least bi-
annually, and shall include all Controllable Material charged to all
Applicable Accounts.
6.4.2 NOTICE
The Non-Operators shall receive at least thirty (30) Days' notice from
the Operator of its intention to take an inventory and shall have the right
to be represented when the inventory is taken. If the Operator is taking an
inventory on a continuous basis, the Non-Operators shall be informed of the
inventory schedule so as to enable them to be present if desired. Failure
of a Non-Operator to be present after having received such notice shall
bind such Non-Operator to accept the result of the inventory.
6.4.3 SURPLUSES SHORTAGES AND ADJUSTMENTS
The Operator shall, within sixty (60) Days of the completion of an
inventory, furnish the Non-Operators with copies of the inventory, showing
surpluses, shortages and adjustments made, including relevant explanations
thereof.
6.4.4 SPECIAL INVENTORIES
Any Non-Operator may, upon reasonable notice and at its own expense,
require the Operator to take a special inventory of the Material charged to
any Applicable Account in which it has a Participating Interest.
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6.5 PRODUCTION REPORT
Reporting will be established as stated in Article 5 of the Agreement.
ARTICLE 7: CONTROL PROCEDURES
7.1 AUDITS
7.1.1 ACCESS
The Operator shall attempt to ensure that all Non-Operators shall at
reasonable times during normal business hours have free access to all
books, records and inventories maintained by any auditor of the Operator
and its Affiliates so far as the same shall relate to operations under the
Agreement in which such Non-Operator has a Participating Interest and only
insofar as such books, records and inventories maintained by such auditor
pertain to the Operator in its capacity as Operator and not as a
Participating Party.
7.1.2 NOTICE
The Non-Operators shall give at least ninety (90) Days' written notice
pursuant to the Agreement of their intention to conduct an audit of the
Operator's books, records and inventories, and shall make every reasonable
effort to conduct any audits pursuant to this Article jointly or
simultaneously in a manner which will result in a minimum of inconvenience
to the Operator. The Operator shall make all reasonable efforts to co-
operate with any audit and will provide reasonable assistance in relation
thereto.
7.1.3 COSTS
The cost of an audit by the Non-Operators is not chargeable to the
Joint Account.
7.1.4 REPORT
The audit report shall include all claims arising from the audit and
comments relating to the settlement of outstanding matters, as well as
comments to the accounts and records. A copy of the audit report shall be
distributed to the other Parties within ninety (90) Days of the completion
of the audit.
7.1.5 ADJUSTMENTS
The Operator shall reply to the report in writing within ninety (90)
Days and shall promptly record all adjustments which have been agreed upon
between the Operator and the Non-Operators. If the Operator does not reply
in the
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aforementioned ninety (90) Days, consideration shall also be given to the
gain or loss of interest which the Parties may have incurred during such
period that the Parties either have had the use of or were denied the use
of the relevant funds. The computation of any such interest shall be
calculated in the manner and with the rates described in Article 14 of the
Agreement.
7.1.6 DISAGREEMENTS
Outstanding claims which cannot be agreed upon shall be referred to
the Accounting Committee, if any, or the Operating Committee for settlement
before going to arbitration.
7.1.7 TIME LIMITS
The Parties' right to claim any adjustment shall cease twenty four
(24) Months after the end of each Year, unless a written request for such
adjustment is given to the other Parties during such twenty-four (24) Month
period. Adjustments involving or resulting from third Person claims,
physical inventories or statutory claims are exempt from the twenty-four
(24) Month limitation. Non-Operators shall have the right to conduct
further investigations of the relevant books, records and inventories in
relation to the outstanding matter until such matter has been settled.
7.1.8 PROPRIETARY AND CONFIDENTIAL INFORMATION
If an audit of the Operator and its applicable Affiliates by the Non-
Operators involves information which is generally accepted as proprietary
and confidential, the Operator may require that such audit is carried out
by an external auditor of international standing acting under the
instructions of the Non-Operators. Such assistance shall, however, be
chargeable to the Joint Account.
7.1.9 THIRD PERSON CONTRACTS
The Operator shall use its best efforts to obtain audit rights in all
contracts. Where the Operator obtains such rights, such Audit may be
carried out in accordance with Article 7.1.8 above.
7.2 AFES
7.2.1 REQUEST FOR AFE
With the exception of expenditures mentioned in Article 2.3.2 of this
accounting Procedure, and except as otherwise provided elsewhere in the
Agreement, before commencing any Appraisal Operation or Development
Operation the Operator shall request the Parties to authorize an ME
covering
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such operation and giving the Parties sufficient time (as provided in the
Agreement) to consider the matter.
7.2.2 INFORMATION
Each AFE shall set forth the following information:
(a) a brief summary of the scope of work covered by the ME;
(b) an itemized breakdown of estimated expenditures and estimated
allowances for contingencies relating to the scope of work
described above;
(c) an estimate of phasing of estimated expenditures on a Monthly
basis; and
(d) each Party's total share of the estimated expenditure.
Necessary further details to support estimated costs will be included as
attachments to the ME to the extent customary in the oil and gas industry
or reasonably requested by the Party's evaluating such ME.
7.2.3 APPROVAL
After the Participating Parties approve an AFE, copies thereof showing
a sufficient number of authorizations by the Participating Parties shall be
promptly distributed to the Parties by the Operator.
7.3 COST CONTROL
The Operator shall establish and maintain an effective cost control system
for the benefit of the operations to be conducted under the Agreement. Such
system shall include such controls as may be decided by the Operating Committee.
23
<PAGE>
EXHIBIT "B-1"
PARENTAL COMPANY GUARANTEE
of
POGO PRODUCING COMPANY
WHEREAS
POGO PRODUCING COMPANY,
having its registered office at 5 Greenway Plaza, Suite 2700, Houston, Texas
77046-0504, USA; AND
THE RUTHERFORD/MORAN OIL CORPORATION,
having its registered office at 5 Greenway Plaza, Suite 220, Houston, Texas
77046-0504, U.S.A.; AND
THE SOPHONPANICH CO., LTD.,
having its registered office at 61/1 Soi Watana Sukhumvit 19, Bangkok, Thailand
10110,
were granted through their wholly owned subsidiaries, Thaipo Limited, Thai Romo
Ltd. and Sophon Thai Gulf Limited, respectively), together with Maersk Oil
(Thailand) Ltd., that certain Petroleum Concession No. 1/2534/36 covering Block
B8/32 in the Gulf of Thailand effective August 1, 1991 (as amended and modified
through the date hereof, the "Concession"); and
WHEREAS Thaipo Limited, Thai Romo Ltd. and Sophon Thai Gulf Limited
(collectively, the "Parties") have been successful in the exploration for oil
and gas on the Concession and have proposed to commence operations to develop
certain portions of the Concession at considerable cost, expense and risk to
each of the Parties; and
WHEREAS in connection with such development plans, the Parties have entered into
a joint operating agreement dated as of March 3, 1995 (the "Agreement") defining
certain rights, duties, obligations and liabilities of the Parties in connection
with their operations on a portion of the Concession known as the Tantawan
License (as defined in the Agreement) and also appointing Thaipo Limited as
operator (in such capacity, the "Operator") under the Agreement; and
WHEREAS the Agreement requires the ultimate corporate parent company of each
Party to the Agreement irrevocably and unconditionally guarantee as primary
obligor, and not merely as a surety, the due performance and discharge of any
and all obligations of its respective subsidiary by executing a Parent Company
Guaranty in favor of the Operator;
B-1
<PAGE>
NOW THEREFORE, in consideration of the mutual obligations and covenants between
the Parties to the Agreement and further in consideration of the sum of US$
1.00, Pogo Producing Company does hereby irrevocably and unconditionally
guarantee to Thaipo Limited, having its registered address at 5 Greenway Plaza,
Suite 2700, Houston, Texas, 77046-0504, as a primary obligor, and not merely as
a surety, the full and faithful performance of all obligations and payment when
due, which now or in the future may rest with Thaipo Limited and/or its
assignees and/or successors that may arise under or be related in any way to the
Tantawan License and any operations under or related to the Agreement and any
applicable laws, rules or regulations which are or may in the future become
enforceable on any of the Parties.
THIS GUARANTEE shall be governed and construed in accordance with the laws
of the State of Texas, and any dispute or difference arising out of or in
connection with this Guarantee including but without limitation to any question
regarding its existence, validity, termination or enforcement shall be referred
to and finally resolved exclusively in a court having jurisdiction over the
matter in dispute that is situated in Houston, Harris County, Texas, United
States of America.
THIS GUARANTEE is dated as of this ____ day of ______, 1996, but shall be
deemed to be effective from and after March 3, 1995, is personal to the
Guarantor and shall not be assignable, in whole or in part by Guarantor.
POGO PRODUCING COMPANY
By:
--------------------------------------------------------
Name:
------------------------------------------------------
Title:
-----------------------------------------------------
B-2
<PAGE>
EXHIBIT "B-2"
PARENTAL COMPANY GUARANTEE
of
THE RUTHERFORD/MORAN OIL CORPORATION
WHEREAS
POGO PRODUCING COMPANY,
having its registered office at 5 Greenway Plaza, Suite 2700, Houston, Texas
77046-0504, USA; AND
THE RUTHERFORD/MORAN OIL CORPORATION,
having its registered office at 5 Greenway Plaza, Suite 220, Houston, Texas
77046-0504, U.S.A.; AND
THE SOPHONPANICH CO., LTD.,
having its registered office at 61/1 Soi Watana Sukhumvit 19, Bangkok, Thailand
10110,
were granted (through their wholly owned subsidiaries, Thaipo Limited, Thai Romo
Ltd. and Sophon Thai Gulf Limited, respectively), together with Maersk Oil
(Thailand) Ltd., that certain Petroleum Concession No. 1/2534/36 covering Block
B8/32 in the Gulf of Thailand effective August 1, 1991 (as amended and modified
through the date hereof, the "Concession"); and
WHEREAS Thaipo Limited, Thai Romo Ltd. and Sophon Thai Gulf Limited
(collectively, the "Parties") have been successful in the exploration for oil
and gas on the Concession and have proposed to commence operations to develop
certain portions of the Concession at considerable cost, expense and risk to
each of the Parties; and
WHEREAS in connection with such development plans, the Parties have entered into
a joint operating agreement dated as of March 3, 1995 (the "Agreement") defining
certain rights, duties, obligations and liabilities of the Parties in connection
with their operations on a portion of the Concession known as the Tantawan
License (as defined in the Agreement) and also appointing Thaipo Limited as
operator (in such capacity, the "Operator") under the Agreement; and
WHEREAS the Agreement requires the ultimate corporate parent company of each
Party to the Agreement irrevocably and unconditionally guarantee as primary
obligor, and merely as a surety, the due performance and discharge of any and
all obligations of its respective subsidiary by executing a Parent Company
Guaranty in favor of the Operator;
B-2-1
<PAGE>
NOW THEREFORE, in consideration of the mutual obligations and covenants between
the Parties to the Agreement and further in consideration of the sum of US$1.00,
The Rutherford/Moran Oil Corporation does hereby irrevocably and unconditionally
guarantee to Thaipo Limited, having its registered address at 5 Greenway Plaza,
Suite 2700, Houston, Texas, 77046-0504, as a primary obligor, and not merely as
a surety, the full and faithful performance of all obligations and payment when
due, which now or in the future may rest with ThaiRomo, Ltd. and/or its
assignees and/or successors that may arise under or be related in any way to the
Tantawan License and any operations under or related to the Agreement and any
applicable laws, rules or regulations which are or may in the future become
enforceable on any of the Parties.
THIS GUARANTEE shall be governed and construed in accordance with the laws
of the State of Texas, and any dispute or difference arising out of or in
connection with this Guarantee including but without limitation to any question
regarding its existence, validity, termination or enforcement shall be referred
to and finally resolved exclusively in a court having jurisdiction over the
matter in dispute that is situated in Houston, Harris County, Texas, United
States of America.
THIS GUARANTEE is dated as of this ____ day of______________, 1996, but
shall be deemed to be effective from and after March 3, 1995, is personal to the
Guarantor and shall not be assignable, in whole or in part by Guarantor.
THE RUTHERFORD/MORAN OIL CORPORATION
By:
--------------------------------------------------------
Name:
------------------------------------------------------
Title:
-----------------------------------------------------
B-2-2
<PAGE>
EXHIBIT "B-3"
PARENTAL COMPANY GUARANTEE
of
THE SOPHONPANICH CO., LTD.
WHEREAS
POGO PRODUCING COMPANY,
having its registered office at 5 Greenway Plaza, Suite 2700, Houston, Texas
77046-0504, USA; AND
THE RUTHERFORD/MORAN OIL CORPORATION,
having its registered office at 5 Greenway Plaza, Suite 220, Houston, Texas
77046-0504, U.S.A.; AND
THE SOPHONPANICH CO., LTD.,
having its registered office at 61/1 Soi Watana Sukhumvit 19, Bangkok, Thailand
10110, were granted (through their wholly owned subsidiaries, Thaipo Limited,
Thai Romo Ltd. and Sophon Thai Gulf Limited, respectively), together with Maersk
Oil (Thailand) Ltd., that certain Petroleum Concession No. 1/2534/36 covering
Block B8/32 in the Gulf of Thailand effective August 1, 1991 (as amended and
modified through the date hereof, the "Concession"); and
WHEREAS Thaipo Limited, Thai Romo Ltd. and Sophon Thai Gulf Limited
(collectively, the "Parties") have been successful in the exploration for oil
and gas on the Concession and have proposed to commence operations to develop
certain portions of the Concession at considerable cost, expense and risk to
each of the Parties; and
WHEREAS in connection with such development plans, the Parties have entered into
a joint operating agreement dated as of March 3, 1995 (the "Agreement") defining
certain rights, duties, obligations and liabilities of the Parties in connection
with their operations on a portion of the Concession known as the Tantawan
License (as defined in the Agreement) and also appointing Thaipo Limited as
operator (in such capacity, the "Operator") under the Agreement; and
WHEREAS the Agreement requires the ultimate corporate parent company of each
Party to the Agreement irrevocably and unconditionally guarantee as primary
obligor, and merely as a surety, the due performance and discharge of any and
all obligations of its respective subsidiary by executing a Parent Company
Guaranty in favor of the Operator;
B-3-1
<PAGE>
NOW THEREFORE, in consideration of the mutual obligations and covenants between
the Parties to the Agreement made further in consideration of the sum of
US$1.00, The Sophonpanich Co., Ltd. does hereby irrevocably and unconditionally
guarantee to Thaipo Limited, having its registered address at 5 Greenway Plaza,
Suite 2700, Houston, Texas, 77046-0504, as a primary obligor, and not merely as
a surety, the full and faithful performance of all obligations and payment when
due, which now or in the future may rest with Sophon Thai Gulf Limited and/or
its assignees and/or successors that may arise under or be related in any way to
the Tantawan License and any operations under or related to the Agreement and
any applicable laws, rules or regulations which are or may in the future become
enforceable on any of the Parties.
THIS GUARANTEE shall be governed and construed in accordance with the laws
of the State of Texas, and any dispute or difference arising out of or in
connection with this Guarantee including but without limitation to any question
regarding its existence, validity, termination or enforcement shall be referred
to and finally resolved exclusively in a court having jurisdiction over the
matter in dispute that is situated in Houston, Harris County, Texas, United
States of America.
THIS GUARANTEE is dated as of this ____ day of______________, 1996, but
shall be deemed to be effective from and after March 3, 1995, is personal to the
Guarantor and shall not be assignable, in whole or in part by Guarantor.
THE SOPHONPANICH CO., LTD.
By:
--------------------------------------------------------
Name:
------------------------------------------------------
Title:
-----------------------------------------------------
B-3-2
<PAGE>
EXHIBIT "C"
Attached to and made a part of that certain Joint Operating Agreement (the
"Agreement") dated effective as of March 3, 1995, by and among Thaipo Limited,
as Operator, and Thai Romo Ltd. and Sophon Thai Gulf Limited, as Non-Operators.
DESCRIPTION OF THE TANTAWAN AREA
That certain portion of Petroleum Concession No. 1/2534/36 covering Block
B8/32 in the Gulf of Thailand that was awarded by the Ministry to Maersk Oil
(Thailand) Ltd., Thaipo, Limited and Thai Romo Ltd. on August 1, 1991, as
supplemented by Supplementary Petroleum Concession No. 1 to Petroleum Concession
No. 1/2534/36 dated March 6, 1992 pursuant to which The Sophonpanich Co., Ltd.,
became a party to Petroleum Concession No. 1/2534/36, as supplemented by
Supplementary Petroleum Concession No. 2 to Petroleum Concession No. 1/2534/36
dated September 4, 1995, as modified by that certain letter from the Department
of Mineral Resources Serial No. OrKor 0306/10332 dated August 23, 1995 as more
fully defined by the map coordinates set forth below:
POINT NO. LATITUDE (NORTH) LONGITUDE (EAST)
1 10DEG. 18' 00.0" 101DEG. 24' 00.0"
2 10DEG. 18' 00.0" intersecting with the
declared Cambodian
continental shelf (1972)
3 10DEG. 16' 00.0" 101DEG. 29' 00.0"
4 10DEG. 9' 00.0" 101DEG. 30' 00.0"
5 10DEG. 9' 00.0" 101DEG. 27' 00.0"
6 10DEG. 0' 00.0" 101DEG. 28' 20.0"
7 10DEG. 0' 00.0" 101DEG. 24' 00.0"
4. Each Party producing and/or delivering gas to its purchaser shall pay any
and all royalties and production taxes due on such gas. Nothing herein shall
cause a producing Party to account for or pay overriding or other leasehold
burdens created by or burdening the interest of any non-producing or
underproducing Party.
5. The provisions of this Gas Balancing Agreement shall be separately
applicable to each well and each Reservoir to the end that, subject to the
provision of paragraph 6 below, production from one Reservoir may not be
utilized for the purpose of balancing underproduction from other Reservoirs
unless agreed to by the balancing Parties and the gas is of similar quality.
C-1
<PAGE>
6. (a) When production from a Reservoir permanently ceases, Operator shall be
responsible to determine the final accounting of underproduction and
overproduction. Each overproduced Party shall have the option of
furnishing each underproduced Party gas of like quality from other
sources ("make-up gas") or settling the imbalance in cash as provided
below. Make-up gas shall be supplied from sources determined solely by
the overproduced Party; PROVIDED, HOWEVER, that no such source may be
included unless a delivery point for the gas can be agreed upon by the
overproduced and underproduced Parties involved.
(b) If any overproduced Party does not elect to supply make-up gas, or if
such Parties do not agree on a delivery point for the make-up gas
within thirty (30) Days from termination of such production, a
monetary settlement will be made between the underproduced and
overproduced Parties. Such settlement shall be made within sixty (60)
Days from termination of production. In making such settlement, each
such overproduced Party shall remit to the Operator for the account of
each underproduced Party an amount of money calculated by multiplying
the volume of overproduced gas by the actual amount of money per
thousand British thermal units such gas that such overproduced Party
actually received from sales to any Person not an Affiliate, less
taxes and royalties theretofore paid by the overproduced Party. The
Operator will disburse to each underproduced Party its proportionate
share of monies collected. Such amount shall be shared by each
underproduced Party in the proportion that the underproduction of each
bears to the underproduction of all Parties. If any overproduced party
has paid royalties or taxes attributable to his overproduction, the
amount of such royalties shall be deducted from such payment made by
him. The amount of payment for all such overproduction shall be
determined in the order of accrual.
7. Nothing in this Gas Balancing Agreement shall cause the Operator to produce
a well or reservoir at higher than maximum allowable rates which might have
been established by a regulatory authority or above that rate which
Operator believes may result in damage to the reservoir or decrease the
total reserves recoverable from such well.
Completed Reservoir and the denominator is the total number of Days spent
on the well beginning on the date the rig arrives on location and
terminating when the rig is released
C-2
<PAGE>
2. WELL COMPLETED IN MULTIPLE RESERVOIRS:
(a) Material costs, including wellhead equipment and casing strings, etc.
other than tubing from the surface to a depth 100 feet below the base
of the upper Completed Reservoir shall be divided equally between the
Completed Reservoirs and charged to the Parties participating in each
Reservoir.
(b) Casing strings and Material costs other than tubing from a depth 100
feet below the base of the upper Completed Reservoir to a depth 100
feet below the base of the second Completed Reservoir shall be divided
equally between the second and any other Completed Reservoir below
such depth and charged to the Parties participating in each Completed
Reservoir. If the well is Completed in triple or quadruple Reservoirs,
etc., the costs applicable to the triple and quad Completed Reservoirs
shall be determined and charged to the owners thereof in the same
manner as described for the dual Completed Reservoir.
(c) Casing strings and controllable Material costs other than tubing from
a depth 100 feet below the base of the lower Completed Reservoir to
total depth shall be charged to the Parties participating in costs to
total depth.
(d) Tubing strings serving each separate Completed Reservoir shall be
charged to the Parties participating in such Completed Reservoirs.
(e) Intangible drilling and Completion costs including non-controllable
Materials from the surface to a depth 100 feet below the base of the
upper Completed Reservoir shall be divided equally between the
Completed Reservoirs and charged to the Parties participating in each
Completed Reservoir on the basis set out in (h) below.
(f) Intangible drilling and Completion costs including non-controllable
Materials from a depth 100 feet below the base of the upper Completed
Reservoir to a depth 100 feet below the base of the second Completed
Reservoir shall be divided equally between the second Completed
Reservoir and any other Completed Reservoirs below such depth and
charged to the Parties participating in each such Completed Reservoir,
on the basis set out in (h) below. If the well is Completed in triple
or quadruple Reservoirs, etc., the costs applicable to the triple or
quad Completed Reservoirs, etc. shall be determined and charged to the
owners thereof in the like manner as described for the dual Completed
Reservoir.
C-3
<PAGE>
(g) Intangible drilling and Completion costs including non-controllable
Materials from a depth 100 feet below the base of the lower Completed
Reservoir to total depth shall be charged to the Parties participating
in costs from 100 feet below the lowest Completed Reservoir to total
depth, on the basis set out in (h) below.
(h) Intangible drilling and Completion costs including non-controllable
Materials shall be allocated between Completed Reservoirs including
the interval from the lower Completed Reservoir to total depth, on a
drilling day ratio basis, where the factor for each Completed
Reservoir is determined by a fraction of which the numerator is the
number of drilling and Completion Days applicable to that Completed
Reservoir and the denominator is the total number of Days spent on the
well beginning on the date the rig arrives on location and terminating
when the rig is released.
For the purposes of allocating tangible and intangible costs between
Reservoirs that occur at less than 100 foot intervals, the distance from
the base of the upper Reservoir to the top of the next lower Reservoir
shall be allocated equally between Reservoirs.
3. IF WELL IS A DRY HOLE.
a) The costs to drill, Plug and abandon a well proposed for Completion in
single, dual, or multiple Reservoirs shall be charged to the
Participating Parties in the same manner as if the well were Completed
as a producer in all Reservoirs as proposed.
b) Plugging and abandoning of any well following any Deepening operation,
Completion attempt, or other operation shall be at the sole risk and
expense of the Parties participating in such operation.
C-4
<PAGE>
EXHIBIT "F"
Attached to and made a part of that certain Joint Operating Agreement (the
"Agreement") dated effective as of March 3, 1995, by and among Thaipo Limited,
as Operator, and Thai Romo Ltd. and Sophon Thai Gulf Limited as Non-Operators.
MINIMUM INSURANCE REQUIREMENTS
1. Operator shall, at all times while conducting Joint Operations on the
Tantawan Area, carry or cause to be carried, pay for, and charge to the
Joint Account premiums for Workman's Compensation and Employer's Liability
insurance in accordance with laws of governmental bodies having
jurisdiction in the areas in which Joint Operations are conducted. Such
policies shall contain underwriter's waiver of subrogation in favor of the
Parties.
2. Each Party shall, at all times while the Agreement is in effect, carry or
cause to be carried, the following coverages pertaining to its share of the
liability assumed under the Agreement.
(a) AUTOMOBILE LIABILITY INSURANCE policy with limits of $1,000,000 per
occurrence covering personal injury, death, or property of third
parties.
(b) THIRD-PARTY LIABILITY INSURANCE policy with limits of $50,000,000 per
occurrence covering all losses or damages resulting from claims for
personal injury, death, or property of third parties, and including
coverage for protection and indemnity liability claims and aircraft
liability claims, if applicable.
(c) OPERATOR'S EXTRA EXPENSE policy with limits of $50,000,000 per
occurrence covering all losses or damages resulting from loss of well
control, explosions, fire, cratering, including expenses of clean-up,
containment, seepage, pollution or contamination.
F-1
<PAGE>
EXHIBIT 10.19
FORM OF SECTION 351 EXCHANGE AGREEMENT
This Section 351 Exchange Agreement (the "Agreement") by and among
Rutherford--Moran Oil Corporation, a Delaware corporation (the "Company"), The
Chase Manhattan Bank, N.A., Bangkok Branch ("Chase"), Rutherford--Moran
Exploration Company, a Texas corporation ("RMEC"), Thai Romo Limited, a company
organized under the laws of the Kingdom of Thailand ("Thai Romo"), Thai Romo
Holdings, Inc., a Delaware corporation ("TRH"), and the parties listed on
SCHEDULES A AND B hereto (collectively, the "Exchanging Shareholders").
WHEREAS, the Company will be capitalized by a series of integrated
transfers of properties now held or beneficially owned by the Exchanging
Shareholders and by cash proceeds from an initial public offering of common
stock of the Company (the "Offering"), and upon completion of such transfers of
properties, the Exchanging Shareholders will receive common stock, $.01 par
value ("Common Stock"), of the Company; and
WHEREAS, the parties hereto desire to evidence that all transfers of
property and cash to the Company, and exchanges of the Common Stock therefor,
specified in this Agreement and in the Company's Registration Statement on Form
S-1 (the "Registration Statement") are intended to be part of an integrated
Section 351 exchange, within the meaning of Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by each of the parties, the
parties hereby agree as follows:
ARTICLE 1
ISSUANCE OF COMPANY SHARES AND TRANSFER OF PROPERTIES
1.1 ISSUANCE OF THE COMPANY SHARES. The Company agrees to issue shares of
Common Stock (the "Company Shares") to be delivered on the Effective Date (as
defined in Section 1.3 hereof) to the Exchanging Shareholders in such amounts as
are set forth on SCHEDULE A.
1.2 CONSIDERATION FOR THE COMPANY SHARES. As consideration for the
Company Shares issued pursuant to Section 1.1 hereof, each of the Exchanging
Shareholders will transfer to the Company on the Effective Date all of its
right, title and interest in and to the properties listed next to its name on
SCHEDULE B (the "Properties"). Immediately following the transfer of the
Properties to the Company, the Company shall transfer all of the Properties
except for the shares of common stock of RMEC to its wholly-owned subsidiary,
TRH, in exchange for common stock of TRH, in a transaction intended to qualify
as a tax free exchange pursuant to Section 351 of the Code.
<PAGE>
1.3 EFFECTIVENESS OF THE TRANSFERS. The parties shall by mutual agreement
set the date on which the transfers contemplated by this Article 1 shall occur
and become effective (the "Effective Date"), which date (unless otherwise agreed
by the parties) shall be not less than three days prior to the day pricing of
the Offering occurs and the underwriting agreement between the Company and its
several underwriters (the "Underwriting Agreement") is executed. The Exchanging
Shareholders acknowledge that the terms of the Offering (including, without
limitation, the Offering price per share and number of shares subject to the
Offering) are within the sole discretion of the Company.
1.4 NO EFFECTIVE DATE. If the Underwriting Closing (as defined in Section
2.2) shall not have occurred by December 31, 1996, this Agreement may be
terminated by the Company, by written notice to each Exchanging Shareholder, or
by any Exchanging Shareholder, by written notice to the Company.
ARTICLE 2
THAI ROMO STOCKHOLDERS AGREEMENT
2.1 WAIVER. RMEC, Thai Romo and the Exchanging Shareholders hereby waive
any and all provisions of the Stockholders Agreement dated July 7, 1995, among
RMEC, Thai Romo and the Exchanging Shareholders (the "Stockholders Agreement"),
to the extent that said provisions are breached or violated by, or would prevent
the consummation of, the transactions contemplated under this Agreement.
2.2 TERMINATION. RMEC, Thai Romo and the Exchanging Shareholders agree
that the Stockholders Agreement shall terminate and have no further force or
effect upon the consummation of the transactions to occur on the closing date of
the Underwriting Agreement (the "Underwriting Closing"). From and after the
Effective Date and until the Underwriting Closing, the agreements and
arrangements among Thai Romo and the Exchanging Stockholders pursuant to the
Stockholders Agreement
(a) shall remain in full force and effect;
(b) shall apply to the Company in the same respect as they applied
prior to the Effective Date to Thai Romo; and
(c) shall apply to the Company Shares in the same respect as they
applied prior to the Effective Date to the securities of Thai Romo in
respect of which they were issued;
all with the effect that the substance of the agreements and arrangements among
Thai Romo and the Exchanging Shareholders with respect to the governance,
securities and affairs of Thai Romo pursuant to the Stockholders Agreement shall
be preserved and, to the extent that such agreements and arrangements remain
relevant, apply with equal force to the governance,
2
<PAGE>
securities and affairs of the Company, unless and until the Underwriting Closing
occurs. This Section 2.2 shall survive any termination of this Agreement
pursuant to Section 1.4 hereof. Each party to the Stockholders Agreement agrees
to waive without further action upon termination of the Stockholders Agreement
any prior breach or violation thereof of which such party has knowledge,
including without limitation any breach or violation of Section 18 of the
Stockholders Agreement that may be caused by disclosures made in connection with
the Offering.
ARTICLE 3
LOAN AGREEMENT
3.1 DESCRIPTION OF AGREEMENTS WITH CHASE. Thai Romo and Chase have
entered into a Loan Agreement dated November 28, 1994, as amended by letter
agreements dated April 7, 1995, May 31, 1995, June 14, 1995, June 30, 1995, July
7, 1995, December 20, 1995, April 24, 1996, and on or about May 29, 1996 (the
"Loan Agreement"). In connection with the Loan Agreement, each shareholder of
Thai Romo has been required to pledge its shares in Thai Romo pursuant to a
Share Pledge Agreement dated July 13, 1995, as amended on April 24, 1996, and
June 12, 1996 (the "Share Pledge"), and has pledged certain promissory notes
issued by Thai Romo and evidencing shareholder loans pursuant to a Pledge of
Shareholder Loan Notes Agreement and individual loan note pledges dated July 13,
1995, as amended on April 24, 1996, and June 12, 1996 (the "Note Pledge").
Additionally, certain Exchanging Shareholders, RMEC and Chase have entered into
a Subordination and Sponsor Support Agreement dated November 28, 1994, as
amended by letter agreements dated April 7, 1995, July 7, 1995, December 20,
1995, April 24, 1996, on or about May 29, 1996 and June 12, 1996 (the
"Subordination and Sponsor Support Agreement").
3.2 CHASE CONSENT AND CONTINUATION OF PLEDGES. Chase hereby consents to
the transactions contemplated under this Agreement, provided that, prior to the
Effective Date, the Company becomes a party to the Subordination and Sponsor
Support Agreement and TRH becomes a party to the Share Pledge and the Note
Pledge. The parties hereto acknowledge and agree that the Share Pledge and the
Note Pledge and the security interests created thereunder shall continue in full
force and effect after consummation of the exchanges contemplated hereunder and
that the Properties pledged to Chase which are transferred to the Company and
thereafter to TRH in accordance with this Agreement shall remain subject to the
rights and interests of Chase under the Share Pledge and the Note Pledge.
3.3 NO PLEDGE OF COMPANY SHARES. Chase acknowledges and agrees that,
notwithstanding provisions of the Share Pledge and the Note Pledge to the
contrary, the Company Shares received by the Exchanging Shareholders in the
exchange contemplated hereunder shall be free and clear of any rights or
interests of Chase under the Share Pledge and the Note Pledge, and that Chase
shall assert no such rights or interests in the Company Shares.
3
<PAGE>
3.4 INDIVIDUAL PLEDGE AGREEMENTS. Each party listed on SCHEDULE C hereto
shall execute and deliver concurrently herewith an agreement effective on or as
of the Effective Date evidencing, in a form reasonably satisfactory to Chase,
the pledge to Chase of the shares and promissory notes of Thai Romo owned by
such party as set forth next to such party's name on SCHEDULE C, which pledge
shall secure the proportion of the total amount of credit extended to Thai Romo
pursuant to the Loan Agreement that its individual shareholding in Thai Romo
bears to the total issued share capital of Thai Romo.
3.5 OTHER ACTIONS. The Company and TRH agree to take all other actions
and execute such documents, instruments, certificates, agreements or other items
that Chase reasonably requests to effectuate the intent of this Article 3.
3.6 SUBORDINATION AND SPONSOR SUPPORT AGREEMENT. Chase acknowledges and
agrees that performance of this Agreement by the parties to the Subordination
and Sponsor Support Agreement will not breach or violate any provision of the
Subordination and Sponsor Support Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company makes the
following representations and warranties to each of the other parties hereto:
(a) The Company is a corporation duly incorporated and validly
existing under the laws of the State of Delaware and has the corporate
power and authority to execute, deliver and perform its obligations under
this Agreement, the Custodial Agreement (as defined in Section 6.1) and the
Pledged Shares Custodial Agreement (as defined in Section 6.2) and to
consummate the transactions contemplated hereby and thereby. (The
Custodial Agreement and the Pledged Shares Custodial Agreement are referred
to collectively hereinafter as the "Custodial Agreements.")
(b) This Agreement and the Custodial Agreements constitute valid and
legally binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other laws relating to or affecting creditors rights
generally or by equitable principles.
(c) The Company Shares to be issued pursuant to Section 1.1 hereof
have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable and will not be issued in violation of the
preemptive rights of any person and will be free and clear of any liens,
charges or encumbrances arising by, through or under the Company.
4
<PAGE>
(d) Other than consents, waivers or approvals already obtained or
obtained hereunder, the performance of this Agreement by the Company will
not require the Company to obtain the consent, waiver or approval of any
person, and will not violate, result in a breach of or constitute a default
under any statute, regulation, agreement, trust instrument, judgment,
consent, decree, order or restriction applicable to the Company or by which
the Company is bound.
(e) The Company is entering into this Agreement in good faith without
knowledge of any liens, charges, or encumbrances on the Properties, except
as described on SCHEDULE B hereto.
(f) On the date hereof, the authorized capital stock of the Company
consists of 40,000,000 shares of common stock, par value $.01 per share, of
which 1,000 shares are issued and outstanding and no shares of such capital
stock are held in the treasury of the Company. All of the issued and
outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable.
(g) After giving effect to the transactions contemplated by
Sections 1.1 and 1.2 hereof, the authorized capital stock of the Company
will consist of 40,000,000 shares of common stock, par value $.01 per
share, of which 20,955,662 shares will be issued and outstanding and no
shares of such capital stock will be held in the treasury of the Company.
When issued in accordance with the terms of this Agreement, all such
outstanding shares of capital stock of the Company will be duly authorized,
validly issued, fully paid and nonassessable.
4.2 REPRESENTATIONS AND WARRANTIES OF TRH. TRH makes the following
representations and warranties to each of the other parties hereto:
(a) TRH is a corporation duly incorporated and validly existing under
the laws of the State of Delaware and has the corporate power and authority
to execute, deliver and perform its obligations under, this Agreement, the
Custodial Agreements and the agreements contemplated by Section 3.4 and
Section 3.5 hereof, and to consummate the transactions contemplated hereby
and thereby.
(b) This Agreement and the Custodial Agreements constitute valid and
legally binding obligations of TRH enforceable against TRH in accordance
with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other laws relating to or affecting creditors rights generally or by
equitable principles.
(c) Other than consents, waivers or approvals already obtained or
obtained hereunder, the performance of this Agreement by TRH will not
require TRH to obtain the consent, waiver or approval of any person, and
will not violate, result in a breach of or constitute a default under any
statute, regulation, agreement, trust instrument, judgment, consent,
decree, order or restriction applicable to TRH or by which TRH is bound.
5
<PAGE>
(d) After giving effect to the transactions contemplated by
Section 1.2 hereof, the authorized capital stock of TRH will consist of
1,000 shares of common stock, par value $.01 per share, of which 1,000
shares will be issued and outstanding and no shares of such capital stock
will be held in the treasury of TRH. When issued in accordance with the
terms of this Agreement, all such outstanding shares of capital stock of
TRH will be duly authorized, validly issued, fully paid and nonassessable
and will be owned by the Company free and clear of all liens, liabilities,
encumbrances, pledges, trusts, voting trusts or stockholder agreements,
equities, charges, options, conditional sale or retention agreements,
restrictions or other burdens.
4.3 REPRESENTATIONS AND WARRANTIES OF RMEC. RMEC makes the following
representations and warranties to each of the other parties hereto:
(a) RMEC is a corporation duly incorporated and validly existing
under the laws of the State of Texas and has the corporate power and
authority to execute, deliver and perform its obligations under, this
Agreement, the Custodial Agreements and the agreements contemplated by
Section 3.4 and Section 3.5 hereof, and to consummate the transactions
contemplated hereby and thereby.
(b) This Agreement and the Custodial Agreements constitute valid and
legally binding obligations of RMEC enforceable against RMEC in accordance
with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other laws relating to or affecting creditors rights generally or by
equitable principles.
(c) Other than consents, waivers or approvals already obtained or
obtained hereunder, the performance of this Agreement by RMEC will not
require RMEC to obtain the consent, waiver or approval of any person, and
will not violate, result in a breach of or constitute a default under any
statute, regulation, agreement, trust instrument, judgment, consent,
decree, order or restriction applicable to RMEC or by which RMEC is bound.
(d) After giving effect to the transactions contemplated by
Sections 1.1 and 1.2 hereof, the authorized capital stock of RMEC will
consist of 5,000,000 shares of common stock, par value $1.00 per share, of
which 1,194,033 shares will be issued and outstanding and 55,967 shares of
such capital stock will be held in the treasury of RMEC. All such
outstanding shares of capital stock of RMEC will be duly authorized,
validly issued, fully paid and nonassessable and will be owned by the
Company free and clear of all liens, liabilities, encumbrances, pledges,
trusts, voting trusts or stockholder agreements, equities, charges,
options, conditional sale or retention agreements, restrictions or other
burdens.
4.4 REPRESENTATIONS AND WARRANTIES OF THAI ROMO. Thai Romo makes the
following representations and warranties to each of the other parties hereto:
6
<PAGE>
(a) Thai Romo is a company organized and existing under the laws of
the Kingdom of Thailand and has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the
Custodial Agreements and to consummate the transactions contemplated hereby
and thereby.
(b) This Agreement and the Custodial Agreements constitute valid and
legally binding obligations of Thai Romo enforceable against Thai Romo in
accordance with their terms, except as such enforceability may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
or other laws relating to or affecting creditors rights generally or by
equitable principles.
(c) Other than consents, waivers or approvals already obtained or
obtained hereunder, the performance of this Agreement by Thai Romo will not
require Thai Romo to obtain the consent, waiver or approval of any person,
and will not violate, result in a breach of or constitute a default under
any statute, regulation, agreement, trust instrument, judgment, consent,
decree, order or restriction applicable to Thai Romo or by which Thai Romo
is bound.
(d) After giving effect to the transactions contemplated by
Section 1.2 hereof, 1,065,317 shares of common stock, par value of 100 Baht
per share, will be issued and outstanding. All such outstanding shares of
capital stock of Thai Romo will be duly authorized, validly issued, fully
paid and nonassessable and will be owned by the parties and in the amounts
listed on SCHEDULE C.
4.5 REPRESENTATIONS AND WARRANTIES OF THE EXCHANGING SHAREHOLDERS. Each
of the Exchanging Shareholders makes the following representations and
warranties, with respect to itself but not with respect to any other Exchanging
Shareholder, to each of the other parties hereto:
(a) The Exchanging Shareholder has the requisite legal capacity and
right, power and authority to enter into and perform its obligations under
this Agreement and the Custodial Agreements, if applicable.
(b) If the Exchanging Shareholder is a corporation, the execution,
delivery and performance of this Agreement have been duly authorized by all
necessary corporate action on the part of the Exchanging Shareholder, and
this Agreement, the Custodial Agreements and the agreements contemplated by
Section 3.4 and Section 3.5, as applicable, have been duly executed by a
duly authorized officer of the Exchanging Shareholder.
(c) If the Exchanging Shareholder is a partnership or other entity,
the execution, delivery and performance of this Agreement have been duly
authorized by its general partner or otherwise in accordance with its
partnership agreement or other governing and constituent documents and
agreements, as the case may be, and this Agreement, the Custodial
Agreements, and the agreements contemplated by Section 3.4
7
<PAGE>
and Section 3.5, as applicable, have been duly executed on its behalf by an
authorized person or by its duly authorized representative.
(d) If the Exchanging Shareholder is an individual, the execution,
delivery and performance of this Agreement by such individual does not
require the further authorization, execution, delivery or performance by
any other individual or entity, including, without limitation, pursuant to
any applicable community property laws.
(e) Other than consents, waivers or approvals already obtained or
obtained hereunder, the performance of this Agreement by the Exchanging
Shareholder will not require the Exchanging Shareholder to obtain the
consent, waiver or approval of any person, and will not violate, result in
a breach of or constitute a default under any statute, regulation,
agreement, trust instrument, judgment, consent, decree, order or
restriction applicable to the Exchanging Shareholder or by which the
Exchanging Shareholder is bound.
(f) The Exchanging Shareholder is the record and beneficial owner
of, and has good title to, the Properties listed next to the Exchanging
Shareholder's name on SCHEDULE B hereto, and, except as described on
SCHEDULE B hereto, such Properties are owned free and clear of all liens,
liabilities, encumbrances, pledges, trusts, voting trusts or stockholder
agreements (other than the Thai Romo Stockholders Agreement), equities,
charges, options, conditional sale or retention agreements restrictions or
other burdens, and that all liabilities, if any, assumed by the Company
with respect to such Properties by, through or under such Exchanging
Shareholder and all liabilities to which such Properties are subject, as of
the Effective Date, for the several Properties transferred are accurately
set forth on SCHEDULE B hereto.
(g) The receipt of the Company Shares pursuant to Section 1.1 hereof
constitutes fair consideration for the transfer of Properties to the
Company by the Exchanging Shareholder and none of the Company Shares
received under the terms of this Agreement represents consideration for
services that have been performed or that will be performed in the future
for the Company.
(h) Except as described in SCHEDULE B hereto and in the Stockholders
Agreement, the Exchanging Shareholder has, and will have on the Effective
Date, the unqualified right, power and authority to transfer pursuant to
this Agreement and the Custodial Agreements all of the Properties listed
next to the Exchanging Shareholder's name on SCHEDULE B.
(i) This Agreement and the Custodial Agreements constitute valid and
legally binding obligations of the Exchanging Shareholder enforceable
against the Exchanging Shareholder in accordance with their terms, except
as such enforceability may be limited by bankruptcy or other laws relating
to or affecting creditors' rights generally or by equitable principles.
8
<PAGE>
(j) The Exchanging Shareholder is an experienced and knowledgeable
investor in the oil and gas business and is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended. Prior to entering into this Agreement, the Exchanging Shareholder
was advised by and has relied solely on its own legal, tax and other
professional counsel concerning this Agreement and the Company and the
value of the Company Shares. The Exchanging Shareholder is acquiring the
Company Shares for its own account and not for distribution or resale. The
Exchanging Shareholder acknowledges that it understands that (i) the sale
of the Company Shares has not been registered under any federal or state
securities laws, (ii) the Company Shares are being sold hereunder in
reliance on exemptions from such registration based in part on the
representations of the Exchanging Shareholder set forth herein and
(iii) the Company Shares cannot be resold by the Exchanging Shareholder
unless such resale is registered under applicable federal and state
securities laws or exemptions from such registration are available.
ARTICLE 5
PROHIBITION AGAINST SALE OR TRANSFER
Except as contemplated by this Agreement, each Exchanging Shareholder
represents, warrants, covenants and agrees that, prior to the Effective Date,
such Exchanging Shareholder will not contract to sell, encumber or otherwise
transfer or dispose of any of the Properties listed next to the Exchanging
Shareholder's name in SCHEDULE B hereto, or grant any option or other right in
respect thereof, or grant any voting rights with respect thereto. The Company
represents, warrants, covenants and agrees that from the date on which this
Agreement is executed until the Effective Date it will not sell, issue or
repurchase any shares of Common Stock.
ARTICLE 6
TRANSFER PROCEDURES
6.1 CUSTODIAL AGREEMENT. Contemporaneously with the execution of this
Agreement, the parties shall execute the Custodial Agreement, a form of which is
attached hereto as EXHIBIT A, and make the following deposits to be held in
escrow in accordance therewith:
(a) Each of the parties shall deposit with the Escrow Agent (as
defined in the Custodial Agreement) a counterpart of this Agreement,
together with nine originally executed signature pages.
(b) Patrick R. Rutherford, John A. Moran and Sidney F. Jones
shall deposit with the Escrow Agent stock certificates representing
the Properties set forth opposite their names on SCHEDULE B, together
with stock powers sufficient to transfer said stock certificates to
the Company.
9
<PAGE>
(c) TRH shall deposit with the Escrow Agent a share certificate
evidencing 999 shares of its common stock issued in the name of the
Company.
(d) The Company shall deposit with the Escrow Agent stock
certificates representing the Company Shares in the names and amounts
set forth on SCHEDULE A.
6.2 PLEDGED SHARES CUSTODIAL AGREEMENT. Contemporaneously with the
execution of this Agreement, certain parties hereto shall execute the Pledged
Shares Custodial Agreement attached hereto as EXHIBIT B, and make the following
deposits to be held in escrow in accordance therewith:
(a) Except for shares and promissory notes of Thai Romo issued to
RMEC, Thai Romo shall deposit with the Agent (as defined in the Pledged
Shares Custodial Agreement) new share certificates of Thai Romo registered
in the names and amounts set forth on SCHEDULE C and promissory notes of
Thai Romo payable to the order of the entities and in the amounts set forth
on SCHEDULE C.
(b) Chase shall deposit with the Agent all of the share certificates
of Thai Romo and the promissory notes of Thai Romo pledged to Chase by the
Exchanging Shareholders. The Thai Romo shares and promissory notes issued
to RMEC will not be exchanged and will remain in the possession of Chase
subject to the Share Pledge and the Note Pledge.
(c) The Exchanging Shareholders of Thai Romo shall deposit with the
Agent executed share transfer documents and note assignments sufficient to
effectuate the transfer to the Company of each share certificate and
promissory note of Thai Romo deposited with the Agent hereunder.
6.3 351 EXCHANGE TRANSACTIONS ON THE EFFECTIVE DATE. The parties agree
that, on the Effective Date, each of the Exchanging Shareholders will be treated
as having transferred to the Company the Properties listed next to its name on
SCHEDULE B in exchange for Company Shares, as set forth on SCHEDULE A, in a
Section 351 exchange and, immediately thereafter, the Company will be treated as
having transferred the Properties (except for shares of the common stock of
RMEC) to TRH in exchange for shares of common stock of TRH in a second
Section 351 exchange. The mechanics for effecting these Section 351 exchanges
on the Effective Date are as follows:
(a) The Escrow Agent shall deliver to the Company (i) all of the
Properties held by the Escrow Agent pursuant to the Custodial
Agreement, each accompanied by the appropriate executed stock power
and (ii) the TRH share certificates deposited with the Escrow Agent
pursuant to clause 6.1(c) above.
(b) The Thai Romo shares and promissory notes transferred to the
Company as described on SCHEDULE B shall be transferred with immediate
effect
10
<PAGE>
from the Company to TRH in exchange for the shares of TRH deposited with
the Escrow Agent.
(c) The Escrow Agent shall deliver to each of the Exchanging
Shareholders stock certificates evidencing Company Shares in the names
and amounts set forth on Schedule A.
(d) The Agent shall deliver to Chase the Thai Romo share
certificates and promissory notes deposited pursuant to clause 6.2(a)
above, to be held by Chase subject to the terms of the Share Pledge
and the Note Pledge.
(e) The Agent shall deliver to the Company or its representative
the Thai Romo share certificates and promissory notes deposited
pursuant to clause 6.2(b) above, together with their respective share
transfer documents or note assignments deposited pursuant to clause
6.2(c) above. The Company shall then cause Thai Romo to cancel said
share certificates and promissory notes.
(f) The Escrow Agent shall deliver to each of the parties its
original executed counterpart of this Agreement with signature pages
executed by each other party.
ARTICLE 7
MISCELLANEOUS
7.1 RELEASE OF THAI ROMO NOTES. Each of the Exchanging Shareholders, from
and after the Effective Date, releases and holds harmless Thai Romo from and
against any and all obligations on or with respect to their respective Thai Romo
promissory notes.
7.2 QUALIFYING SHARES. THAIJAM, L.P., JAMTHAI, Inc., MDMTHAI, Inc.,
THAIPRR, L.P., and PRRTHAI, Inc. acknowledge and agree that (i) they will each
hold one Thai Romo share (the "Qualifying Shares") for the purpose of satisfying
a minimum shareholder requirement under Thai law, (ii) the Qualifying Shares
shall be pledged to Chase pursuant to the Share Pledge and (iii) in connection
with any future financing obtained by the Company or any subsidiary of the
Company, if required by the lenders, they shall pledge the Qualifying Shares,
deliver possession thereof and execute such pledge agreements as may be required
by the terms of the credit.
7.3 LOCK UP. Each Exchanging Shareholder agrees that it will not, without
the prior written consent of J. P. Morgan Securities Inc., offer for sale, sell
or otherwise dispose of any Company Shares or securities convertible into or
exchangeable for Company Shares or sell or grant options, rights or warrants
with respect to any Company Shares, for a period of 180 days after the date of
the prospectus relating to the Offering.
11
<PAGE>
7.4 AMENDMENT. This Agreement may be amended, modified or supplemented
only by the written consent of all of the undersigned.
7.5 BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon each of the undersigned and their respective heirs, executors,
legal representatives, successors, and assigns. Nothing in this Agreement
confers upon any other person any rights or remedies by reason of this
Agreement. No waiver, alteration or modification of any of the provisions
hereof shall be binding unless it is in writing and signed by each of the
undersigned.
7.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.7 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas (regardless of laws that might otherwise govern under applicable
principles of conflicts of laws).
7.8 FURTHER ASSURANCES. After the Effective Date, each of the parties
will execute, acknowledge and deliver to the other such further instruments, and
take such other action, as may be reasonably requested in order to more
effectively assure to such party all of the respective properties, rights,
titles, interests, estates, and privileges intended to be assigned or delivered
to, or to inure to the benefit of, such party in consummation of the
transactions contemplated hereby.
(SIGNATURES ON THE FOLLOWING PAGE)
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Company and the undersigned and shall become effective on the Effective Date.
RUTHERFORD--MORAN OIL CORPORATION
By: PATRICK R. RUTHERFORD
-------------------------------------
Its: Prsident
------------------------------------
THE CHASE MANHATTAN BANK, N.A., BANGKOK
BRANCH
By: TIM CHAPMAN
-------------------------------------
Its: Second Vice President
------------------------------------
RUTHERFORD--MORAN EXPLORATION
COMPANY
By: PATRICK R. RUTHERFORD
-------------------------------------
Its: President
------------------------------------
THAI ROMO LIMITED
By: MICHAEL D. McCOY
-------------------------------------
Its: Managing Director
------------------------------------
THAI ROMO HOLDINGS, INC.
By: MICHAEL D. McCOY
-------------------------------------
Its: Vice President
------------------------------------
13
<PAGE>
/s/ JOHN A. MORAN
----------------------------------------
John A. Moran
----------------------------------------
[Spouse]
/s/ PATRICK R. RUTHERFORD
----------------------------------------
Patrick R. Rutherford
SUSAN R. RUTHERFORD
----------------------------------------
[Spouse]
/s/ SIDNEY F. JONES
----------------------------------------
Sidney F. Jones
MARYANN P. JONES
----------------------------------------
[Spouse]
RED OAK HOLDINGS, INC.
By: DONALD V. PELOSO
-------------------------------------
Its: Vice President
------------------------------------
MDMTHAI, INC.
By: MICHAEL D. MALOY
-------------------------------------
Its: President
------------------------------------
SRRTHAI, INC.
By: SUSAN R. RUTHERFORD
-------------------------------------
Its: President
------------------------------------
14
<PAGE>
THAIJAM, L.P.
By: JAMTHAI, INC.
-------------------------------------
Its: General Partner
By: JOHN A. MORAN
-------------------------------------
Its: President
------------------------------------
JAMTHAI, INC.
By: JOHN A. MORAN
-------------------------------------
Its: President
------------------------------------
THAIPRR, L.P.
By: PRRTHAI, INC.
-------------------------------------
Its: General Partner
By: PATRICK R. RUTHERFORD
-------------------------------------
Its: President
------------------------------------
PRRTHAI, INC.
By: PATRICK R. RUTHERFORD
-------------------------------------
Its: President
------------------------------------
15
<PAGE>
THAISFJ, L.P.
By: SFJTHAI, INC.
-------------------------------------
Its: General Partner
By: SIDNEY F. JONES
-------------------------------------
Its: President
------------------------------------
SFJTHAI, INC.
By: SIDNEY F. JONES
-------------------------------------
Its: President
------------------------------------
16
<PAGE>
SCHEDULE A
EXCHANGING SHAREHOLDERS
- --------------------------------------------------------------------------------
NAME OF TRANSFEROR NUMBER OF COMPANY
OF PROPERTY SHARES TO BE ISSUED
- --------------------------------------------------------------------------------
John A. Moran 5,676,903
- --------------------------------------------------------------------------------
Patrick R. Rutherford 6,017,346
- --------------------------------------------------------------------------------
Sidney F. Jones 356,833
- --------------------------------------------------------------------------------
Red Oak Holdings, Inc. 1,034,913
- --------------------------------------------------------------------------------
MDMTHAI, Inc. 179,485
- --------------------------------------------------------------------------------
SRRTHAI, Inc. 144,587
- --------------------------------------------------------------------------------
THAIJAM, L.P. 2,557,330
- --------------------------------------------------------------------------------
JAMTHAI, Inc. 1,113,874
- --------------------------------------------------------------------------------
THAIPRR, L.P. 19,673
- --------------------------------------------------------------------------------
PRRTHAI, Inc. 3,625,488
- --------------------------------------------------------------------------------
THAISFJ, L.P. 171,183
- --------------------------------------------------------------------------------
SFJTHAI, Inc. 57,047
- --------------------------------------------------------------------------------
17
<PAGE>
SCHEDULE B
PROPERTIES
- --------------------------------------------------------------------------------
ASSUMED LIABILITIES
AND SPECIFIC
LIABILITIES TO WHICH
NAME OF DESCRIPTION OF PROPERTY TRANSFERRED TRANSFERRED PROPERTY
TRANSFEROR TO COMPANY IS SUBJECT
- --------------------------------------------------------------------------------
John A. Moran 562,481 shares of common stock of none
Rutherford-Moran Exploration
Company, a Texas corporation
("RMEC")
- --------------------------------------------------------------------------------
Patrick R. 596,202 shares of common stock of RMEC none
Rutherford
- --------------------------------------------------------------------------------
Sidney F. Jones 35,350 shares of common stock of RMEC none
- --------------------------------------------------------------------------------
Red Oak 52,609 shares of Thai Romo and pledged to Chase to
Holdings, Inc. promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$1,410,969 US$2,321,020
- --------------------------------------------------------------------------------
MDMTHAI, Inc. 9,124 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$124,451 US$402,531
- --------------------------------------------------------------------------------
SRRTHAI, Inc. 7,350 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$124,451 US$324,267
- --------------------------------------------------------------------------------
THAIJAM, L.P. 129,999 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$2,283,279 US$5,735,382
- --------------------------------------------------------------------------------
JAMTHAI, Inc. 56,622 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$1,104,641 US$2,498,111
- --------------------------------------------------------------------------------
THAIPRR, L.P. 999 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$17,116 US$44,114
- --------------------------------------------------------------------------------
PRRTHAI, Inc. 184,298 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$3,244,910 US$8,130,962
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
ASSUMED LIABILITIES
AND SPECIFIC
LIABILITIES TO WHICH
NAME OF DESCRIPTION OF PROPERTY TRANSFERRED TRANSFERRED PROPERTY
TRANSFEROR TO COMPANY IS SUBJECT
- --------------------------------------------------------------------------------
THAISFJ, L.P. 8,702 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$80,616 US$383,915
- --------------------------------------------------------------------------------
SFJTHAI, Inc. 2,900 shares of Thai Romo and pledged to Chase to
promissory notes payable by Thai secure Thai Romo
Romo in the aggregate face amount of indebtedness of
US$26,911 US$127,939
- --------------------------------------------------------------------------------
19
<PAGE>
SCHEDULE C
SUMMARY OF OWNERSHIP OF THAI ROMO
FOLLOWING TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
ASSUMED
LIABILITIES AND
SPECIFIC
LIABILITIES TO
WHICH PROPERTY IS
SUBJECT FOLLOWING
NAME DESCRIPTION OF PROPERTY TRANSACTIONS
- --------------------------------------------------------------------------------
Thai Romo 452,704 shares of Thai Romo and pledged to Chase
Holdings, Inc. promissory notes payable by Thai Romo to secure Thai
in the aggregate face amount of Romo indebtedness
US$8,417,344. of US$19,972,537
- --------------------------------------------------------------------------------
Rutherford--Mor 612,608 shares of Thai Romo and pledged to Chase
an Exploration promissory notes payable by Thai Romo to secure Thai
Company in the aggregate face amount of Romo indebtedness
US$20,504,962. of US$27,027,237
- --------------------------------------------------------------------------------
THAIJAM, L.P. one share of Thai Romo pledged to Chase
to secure Thai
Romo indebtedness
of US$42
- --------------------------------------------------------------------------------
JAMTHAI, Inc. one share of Thai Romo pledged to Chase
to secure Thai
Romo indebtedness
of US$42
- --------------------------------------------------------------------------------
MDMTHAI, Inc. one share of Thai Romo pledged to Chase
to secure Thai
Romo indebtedness
of US$42
- --------------------------------------------------------------------------------
THAIPRR, L.P. one share of Thai Romo pledged to Chase
to secure Thai
Romo indebtedness
of US$42
- --------------------------------------------------------------------------------
PRRTHAI, Inc. one share of Thai Romo pledged to Chase
to secure Thai
Romo indebtedness
of US$42
- --------------------------------------------------------------------------------
20
<PAGE>
EXHIBIT A TO EXCHANGE AGREEMENT
CUSTODIAL AGREEMENT
THIS CUSTODIAL AGREEMENT is entered into and effective this ___ day of
___________, 1996 (this "Custodial Agreement") by and among Texas Commerce Bank
National Association (the "Escrow Agent"), Rutherford--Moran Oil Corporation, a
Delaware corporation (the "Company"); Rutherford--Moran Exploration Company, a
Texas Corporation ("RMEC"); The Chase Manhattan Bank N.A., Bangkok Branch
("Chase"); Thai Romo Limited, a company organized under the laws of the Kingdom
of Thailand ("Thai Romo"); Thai Romo Holdings, Inc., a Delaware corporation
("TRH"); and the parties listed on SCHEDULE A hereto (the "Shareholders");
WHEREAS, the Company intends to issue and sell up to 4,600,000 shares of
common stock, $.01 par value ("Common Stock"), which includes 600,000 shares
subject to an underwriters' over-allotment option, pursuant to an Underwriting
Agreement (the "UA") to be executed between the Company and the Representatives
(as defined in the UA);
WHEREAS, the Company has prepared and filed with the Securities and
Exchange Commission a registration statement on Form S-1 relating to the shares
to be covered by the UA;
WHEREAS, the parties hereunder (other than the Escrow Agent) have entered
into that certain Section 351 Exchange Agreement of even date herewith (the
"Exchange Agreement"), whereby the Company agreed to issue Company Shares (as
defined in the Exchange Agreement) to each of the Shareholders in exchange for
shares of stock of Thai Romo or RMEC and promissory notes of Thai Romo held by
the Shareholders;
WHEREAS, the share exchanges contemplated by the Exchange Agreement shall
occur and be effective on, and as of, the Effective Date (as defined in the
Exchange Agreement); and
WHEREAS, the parties to the Exchange Agreement desire to lodge certain
share certificates, promissory notes, pledge instruments and other items
required to be executed and delivered pursuant to Section 6.1 of the Exchange
Agreement (collectively, the "Instruments") with the Escrow Agent until such
Instruments can be delivered on the Effective Date, and the parties wish to set
forth herein the terms and conditions of such escrow with respect to the
Instruments to be delivered to the Escrow Agent;
NOW, THEREFORE, in consideration of the premises herein, the parties hereto
agree as follows:
1. APPOINTMENT OF THE ESCROW AGENT. The Company, Chase, RMEC, Thai Romo,
TRH and the Shareholders hereby appoint Texas Commerce Bank, National
Association, as the
<PAGE>
Escrow Agent. The Escrow Agent agrees to serve hereunder for the purposes and
on the terms hereinafter set forth.
2. ESCROW OF INSTRUMENTS. Contemporaneously with the execution of this
Agreement, each of the parties shall deposit in escrow with the Escrow Agent the
Instruments listed on EXHIBIT A hereto. By execution of this Escrow
Agreement, the Escrow Agent acknowledges receipt of the Instruments. The Escrow
Agent shall hold and safeguard the Instruments during the term of this Escrow
Agreement. Each of the parties agrees that the deposit of the Instruments shall
be irrevocable, except as set forth in Section 3 hereof.
3. DISBURSEMENT OF INSTRUMENTS. Immediately following execution of the
UA on the Effective Date, the Company shall cause to be delivered to the Escrow
Agent an original (or a facsimile followed by an original within three business
days) executed certificate in the form attached hereto as EXHIBIT B (the
"Certificate") from Michael D. McCoy, Executive Vice President and Chief
Operating Officer of the Company, or Patrick R. Rutherford, President and Chief
Executive Officer of the Company, and upon receipt of the Certificate (or
facsimile thereof), the Escrow Agent shall release and deliver the Instruments
as set forth in EXHIBIT C hereto and in accordance with the instructions set
forth in the Certificate. At any time prior to the Effective Date or prior to
such distribution as required hereunder, the Escrow Agent shall return the
Instruments to the respective depositing parties upon written notice from all
parties to the Exchange Agreement of termination of such agreement.
4. ADDITIONAL PROPERTY. In the event that any of the parties receives
any distribution in cash, stock or other property, by reason of any stock
dividend, split-up, recapitalization, combination, conversion, exchange of
shares or other change in the corporate or capital structure of Thai Romo, RMEC
or the Company, such parties shall promptly deposit such cash, stock or property
with the Escrow Agent to be held by the Escrow Agent pursuant to the terms of
this Agreement. The term "Instruments" shall include any property received by
the Escrow Agent, pursuant to this Section 4.
5. LIMITATION OF THE ESCROW AGENT'S CAPACITY.
(a) This Agreement expressly and exclusively sets forth the duties of
the Escrow Agent with respect to any and all matters pertinent hereto and
no implied duties or obligations shall be read into this Agreement against
the Escrow Agent.
(b) The Escrow Agent acts hereunder as a depository only, and is not
responsible or liable in any manner whatsoever for the sufficiency,
correctness, genuineness or validity of the subject matter of this
Agreement or any part thereof, or of any person executing or depositing
such subject matter.
(c) This Agreement constitutes the entire agreement between the
Escrow Agent, on the one hand, and the other parties hereto, on the other
hand, in connection with the subject matter of this escrow, and no other
agreement entered into between the parties, or any of them, shall be
considered as adopted or binding, in whole or in part,
-2-
<PAGE>
upon the Escrow Agent notwithstanding that any such other agreement may be
deposited with Escrow Agent or the Escrow Agent may have knowledge thereof.
6. AUTHORITY TO ACT.
(a) The Escrow Agent is hereby authorized and directed by the
undersigned (other than the Escrow Agent) to deliver the subject matter of
this Agreement only in accordance with the written directions contained in
Section 3 hereof, or as the Escrow Agent may otherwise be instructed in a
writing executed by each of the undersigned (except the Escrow Agent).
(b) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, certificate, receipt, authorization,
power of attorney or other paper or document which the Escrow Agent in good
faith believes to be genuine and what it purports to be, including, but not
limited to, items directing investment or non-investment of funds, items
requesting or authorizing release, disbursement or retainage of the subject
matter of this Agreement and items amending the terms of this Agreement.
(c) The Escrow Agent may consult with legal counsel in the event of
any dispute or question as to the construction of any of the provisions
hereof or its duties hereunder, and it shall incur no liability and shall
be fully protected in acting in accordance with the advice of such counsel.
(d) In the event of any disagreement between any of the parties to
this Agreement, or between any of them and any other persons, resulting in
adverse claims or demands being made in connection with the matters covered
by this Agreement, or in the event that the Escrow Agent, in good faith, be
in doubt as to what action it should take hereunder, the Escrow Agent may,
at its option, refuse to comply with any claims or demands on it, or refuse
to take any other action hereunder, so long as such disagreement continues
or such doubt exists, and in any such event, the Escrow Agent shall not be
or become liable in any way or to any person for its failure or refusal to
act, and the Escrow Agent shall be entitled to continue so to refrain from
acting until (i) the rights of all interested parties shall have been fully
and finally adjudicated by a court of competent jurisdiction, or (ii) all
differences shall have been adjudged and all doubt resolved by agreement
among all of the interested persons, and the Escrow Agent shall have been
notified thereof in writing signed by all such persons. Notwithstanding
the preceding, the Escrow Agent may in its discretion obey the order,
judgment, decree or levy of any court, whether with or without
jurisdiction, or of an agency of the United States or any political
subdivision thereof, or of any agency of the State of Texas or of any
political subdivision thereof, and the Escrow Agent is hereby authorized in
its sole discretion, to comply with and obey any such orders, judgments,
decrees or levies. The rights of the Escrow Agent under this sub-paragraph
are cumulative of all other rights which it may have by law or otherwise.
-3-
<PAGE>
(e) The Escrow Agent shall not be liable for any actions it may take
or refrain from taking in good faith, in connection herewith, excepting
such as may arise through or be caused by the Escrow Agent's willful
misconduct or gross negligence.
(f) In the event that any controversy should arise among the parties
with respect to this Agreement or should the Escrow Agent resign and the
parties fail to select another escrow agent to act in its stead, the Escrow
Agent shall have the right to institute a bill of interpleader in any court
of competent jurisdiction to determine the rights of the parties.
7. COMPENSATION. The Escrow Agent shall be entitled to reasonable
compensation as well as reimbursement for its reasonable costs and expenses
incurred in connection with the performance by it of services under this
Agreement (including reasonable fees and expenses of the Escrow Agent's
counsel). The Company hereby binds and obligates itself to pay to the Escrow
Agent the compensation and reimbursement to which it is entitled and shall have
the right of offset against amounts in the Escrow Fund for its fees and expenses
if such fees and expenses are not otherwise paid. The Escrow Agent's fee is
anticipated to be in the amount of $3,000 plus expense reimbursement.
8. INDEMNITY. The Company agrees to indemnify and hold the Escrow Agent
harmless from all loss, cost, claims, demands, expenses, damages, and attorney's
fees suffered or incurred by the Escrow Agent as a result of any litigation or
cause of action arising from or in conjunction with the Escrow Fund or monies
deposited hereunder or for any interest upon any such monies, which does not
arise from the Escrow Agent's willful misconduct or gross negligence. This
indemnity shall include, but not be limited to, all costs incurred in
conjunction with any interpleader which the Escrow Agent may enter into
regarding this Agreement. In the event the Company is unable to fully meet its
obligations under this Section 8, each other party hereto (other than the Escrow
Agent) shall be obligated to contribute to the indemnification of the Escrow
Agent under this Section 8 on a pro rata basis (based on the number of shares of
the Company's common stock, $.01 par value, to be issued to each party pursuant
to the Exchange Agreement).
9. RESIGNATION. The Escrow Agent may resign at any time (such
resignation to be effective upon the earlier of (i) the appointment of a
successor escrow agent and (ii) 30 days after giving such notice of resignation)
by giving written notice to parties hereto whereupon the parties hereto, will
immediately appoint a successor escrow agent (upon appointment such successor
escrow agent shall thereafter be deemed to be the Escrow Agent for purposes of
this Agreement). If a successor escrow agent shall not have accepted the duties
of the Escrow Agent pursuant to this Agreement within 30 days after the
giving of such notice of resignation, the resigning Escrow Agent may, at the
several and equal expense of the other parties hereto, petition any court of
competent jurisdiction for the appointment of a successor escrow agent.
-4-
<PAGE>
10. GENERAL PROVISIONS.
(a) The Escrow Agent, upon the delivery of all of the subject matter
or monies pursuant to the terms of this Agreement, shall be discharged from
any further obligation hereunder.
(b) Where directions or instructions from more than one of the
undersigned are required, such directions or instructions may be given by
separate instruments of similar tenor. Any of the undersigned may act
hereunder through an agent or attorney-in-fact, provided satisfactory
written evidence of authority is first furnished to any party relying on
such authority.
(c) Any payment, notice, request for consent, report, or any other
communication required or permitted in this Agreement shall be in writing
and shall be deemed to have been given when delivered by facsimile or when
personally delivered to the party hereunder specified when placed in the
United States mail, registered or certified, with return receipt requested,
postage prepaid and addressed as follows:
If to the Escrow Agent:
Texas Commerce Bank National Association
P.O. Box 4717
Houston, Texas 77210-8097
Attention: Joanne Gulliver
Facsimile: (713) 216-5476
If to the Company, RMEC, Thai Romo or TRH:
Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
If to the Shareholders:
At the addresses listed on EXHIBIT B
Any party may designate a different address by giving notice of such change
in the manner specified above to each other party.
(d) This Agreement is being made in, and is intended to be construed
according to the laws of, the State of Texas (regardless of laws that might
otherwise govern under applicable principles of conflict of laws). It
shall inure to and be binding upon the parties hereto and their respective
successors, heirs and assigns.
-5-
<PAGE>
(e) Words used in the singular number may include the plural and the
plural may include the singular.
(f) The terms of this Agreement may be altered, amended, modified or
revoked only by an instrument in writing signed by all the parties hereto.
(g) The captions or section headings set forth in this Agreement are
for convenience only and shall not be considered as part of this Agreement
or to in any way limit or amplify the terms and provisions hereof.
(h) If any provision of this Agreement shall be held or deemed to be
or shall in fact, be illegal, inoperative or unenforceable, the same shall
not affect any other provision or provisions herein contained or render the
same invalid, inoperative or unenforceable to any extent whatsoever.
(SIGNATURES ON THE FOLLOWING PAGE)
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Company
and the undersigned and shall become effective on the date first written above.
RUTHERFORD--MORAN OIL CORPORATION
By
--------------------------------------
Its
-------------------------------------
THE CHASE MANHATTAN BANK, N.A., BANGKOK
BRANCH
By
--------------------------------------
Its
-------------------------------------
RUTHERFORD--MORAN EXPLORATION COMPANY
By
--------------------------------------
Its
-------------------------------------
THAI ROMO LIMITED
By
--------------------------------------
Its
-------------------------------------
THAI ROMO HOLDINGS, INC.
By
--------------------------------------
Its
-------------------------------------
<PAGE>
----------------------------------------
John A. Moran
----------------------------------------
[Spouse]
----------------------------------------
Patrick R. Rutherford
----------------------------------------
[Spouse]
----------------------------------------
Sidney F. Jones
----------------------------------------
[Spouse]
RED OAK HOLDINGS, INC.
By
--------------------------------------
Its
-------------------------------------
MDMTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
SRRTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
<PAGE>
THAIJAM, L.P.
By
--------------------------------------
Its: General Partner
By
--------------------------------------
Its
-------------------------------------
JAMTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
THAIPRR, L.P.
By
--------------------------------------
Its: General Partner
By
--------------------------------------
Its
-------------------------------------
PRRTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
<PAGE>
THAISFJ, L.P.
By
--------------------------------------
Its
-------------------------------------
By
--------------------------------------
Its
-------------------------------------
SFJTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
<PAGE>
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By
--------------------------------------
Its
-------------------------------------
<PAGE>
SCHEDULE A
LIST OF SHAREHOLDERS
- --------------------------------------------------------------------------------
NAME ADDRESS
- --------------------------------------------------------------------------------
John A. Moran c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
JAMTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
THAIJAM, L.P. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
Patrick R. Rutherford c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
PRRTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
THAIPRR, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NAME ADDRESS
- --------------------------------------------------------------------------------
Sidney F. Jones c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
SFJTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
THAISFJ, L.P. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
MDMTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
SRRTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
Facsimile: (713) 621-7072
- --------------------------------------------------------------------------------
Red Oak Holdings, Inc. c/o Chase Capital Partners
125 London Wall
London EC2Y 5AJ, United Kingdom
Attention: Jonathan Meggs
with a copy (which will not constitute
notice) to:
Kirkland & Ellis
153 E. 53rd Street
New York, NY 10022
Attention: John L. Kuehn
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
LIST OF INSTRUMENTS TO BE DELIVERED TO THE ESCROW AGENT
I. Executed Copies of the Exchange Agreement from each of the following
parties:
A. Rutherford--Moran Oil Corporation
B. Rutherford--Moran Exploration Company
C. Chase Manhattan Bank N.A., Bangkok Branch
D. Thai Romo Limited
E. Thai Romo Holdings, Inc.
F. JAMTHAI, Inc.
G. THAIJAM, L.P.
H. PRRTHAI, Inc.
I. THAIPRR, Inc.
J. SFJTHAI, Inc.
K. THAISFJ, L.P.
L. SRRTHAI, Inc.
M. MDMTHAI, Inc.
N. Red Oak Holdings, Inc.
O. Patrick R. Rutherford
P. John A. Moran
Q. Sidney F. Jones
II. Stock Certificates of Rutherford--Moran Exploration Company, a Texas
corporation (formerly named Rutherford/Moran Oil Corporation)("RMEC"), as
follows:
A. Certificate(s) for 596,202 shares issued in the name of Patrick R.
Rutherford
B. Certificate(s) for 562,481 shares issued in the name of John A.
Moran
C. Certificate(s) for 35,350 shares issued in the name of Sidney F.
Jones.
III. Stock Powers executed in favor of Rutherford--Moran Oil Corporation, a
Delaware corporation, relating to the following stock certificates of
RMEC:
A. Certificate(s) for 596,202 shares issued in the name of Patrick R.
Rutherford
B. Certificate(s) for 562,481 shares issued in the name of John A.
Moran
C. Certificate(s) for 35,350 shares issued in the name of Sidney F.
Jones.
IV. Stock Certificates of Rutherford--Moran Oil Corporation, a Delaware
corporation, as follows:
A. Certificate for 3.625,488 shares issued in the name of PRRTHAI, Inc.
B. Certificate for 19,673 shares issued in the name of THAIPRR, L.P.
C. Certificate for 1,113,874 shares issued in the name of JAMTHAI, Inc.
D. Certificate for 2,557,330 shares issued in the name of THAIJAM, L.P.
E. Certificate for 57,047 shares issued in the name of SFJTHAI, Inc.
F. Certificate for 171,183 shares issued in the name of THAISFJ, L.P.
G. Certificate for 144,587 shares issued in the name of SRRTHAI, Inc.
H. Certificate for 179,485 shares issued in the name of MDMTHAI, Inc.
J. Certificate for 1,034,913 shares issued in the name of Red Oak
Holdings, Inc.
<PAGE>
K. Certificate for 6,017,346 shares issued in the name of Patrick R.
Rutherford
L. Certificate for 5,676,903 shares issued in the name of John A. Moran
M. Certificate for 356,833 shares issued in the name of Sidney F.
Jones.
V. Stock certificate of Thai Romo Holdings, Inc. for 999 shares issued in the
name of Rutherford--Moran Oil Corporation.
<PAGE>
EXHIBIT B
FORM OF OFFICER'S CERTIFICATE
The undersigned, being the duly elected and qualified __________________ of
Rutherford-Moran Oil Corporation, a Delaware corporation (the "Company")
pursuant to Section 3 of the Custodial Agreement dated ___________________, 1996
(the "Custodial Agreement") between ___________________________ (the "Escrow
Agent"), the Company, The Chase Manhattan Bank N.A., Bangkok Branch, Thai Romo
Limited, a company organized under the laws of the Kingdom of Thailand, Thai
Romo Holdings, Inc., a Delaware corporation and the parties listed on Schedule A
thereto, does hereby certify as follows:
1. Capitalized terms used herein but not otherwise defined
shall have the meanings assigned to them in the Custodial Agreement;
and
2. The parties to the Exchange Agreement have mutually agreed
that the Effective Date is _____.
Furthermore, the Undersigned instructs the Escrow Agent to deliver the
Instruments (as set forth on Schedule C) to ____________________ on
_____________________ and at the following time and location .
RUTHERFORD--MORAN OIL CORPORATION
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT C
INSTRUMENTS TO BE DISTRIBUTED BY THE ESCROW AGENT
I. Executed Copies of the Exchange Agreement by each of the following parties
shall be delivered to each of the following individuals or entities or to
their designee as set forth in the Certificate:
A. Rutherford--Moran Oil Corporation
B. Rutherford--Moran Exploration Company
C. Chase Manhattan Bank N.A., Bangkok Branch
D. Thai Romo Limited
E. Thai Romo Holdings, Inc.
F. JAMTHAI, Inc.
G. THAIJAM, L.P.
H. PRRTHAI, Inc.
I. THAIPRR, Inc.
J. SFJTHAI, Inc.
K. THAISFJ, L.P.
L. SRRTHAI, Inc.
M. MDMTHAI, Inc.
N. Red Oak Holdings, Inc.
O. Patrick R. Rutherford
P. John A. Moran
Q. Sidney F. Jones
II. The following stock certificates of Rutherford--Moran Exploration Company,
a Texas corporation (formerly named Rutherford/Moran Oil Corporation)
shall be delivered (for cancellation) to Michael D. McCoy, Executive Vice
President, Chief Operating Officer and Director of Rutherford--Moran Oil
Corporation, or Patrick R. Rutherford, President and Chief Executive
Officer of Rutherford--Moran Oil Corporation (or their designee as set
forth in the Certificate):
A. Certificate(s) for 596,202 shares issued in the name of Patrick R.
Rutherford.
B. Certificate(s) for 562,481 shares issued in the name of John A.
Moran.
C. Certificate(s) for 35,350 shares issued in the name of Sidney F.
Jones.
III. The following stock powers executed in favor of Rutherford--Moran Oil
Corporation, a Delaware corporation, shall be delivered to Michael D.
McCoy, Executive Vice President, Chief Operating Officer and Director of
Rutherford--Moran Oil Corporation, or Patrick R. Rutherford, President and
Chief Executive Officer of the Rutherford--Moran Oil Corporation:
A. Certificate(s) for 596,202 shares issued in the name of Patrick R.
Rutherford
B. Certificate(s) for 562,481 shares issued in the name of John A.
Moran
C. Certificate(s) for 35,350 shares issued in the name of Sidney F.
Jones.
<PAGE>
IV. The following stock certificates of Rutherford--Moran Oil Corporation, a
Delaware corporation, to the entities of individuals named on such
certificates or their designee as set forth in the Certificate:
A. Certificate for 3.625,488 shares issued in the name of PRRTHAI, Inc.
B. Certificate for 19,673 shares issued in the name of THAIPRR, L.P.
C. Certificate for 1,113,874 shares issued in the name of JAMTHAI, Inc.
D. Certificate for 2,557,330 shares issued in the name of THAIJAM, L.P.
E. Certificate for 57,047 shares issued in the name of SFJTHAI, Inc.
F. Certificate for 171,183 shares issued in the name of THAISFJ, L.P.
G. Certificate for 144,687 shares issued in the name of SRRTHAI, Inc.
H. Certificate for 179,485 shares issued in the name of MDMTHAI, Inc.
J. Certificate for 1,034,913 shares issued in the name of Red Oak
Holdings, Inc.
K. Certificate for 6,017,346 shares issued in the name of Patrick R.
Rutherford
L. Certificate for 5,676,903 shares issued in the name of John A. Moran
M. Certificate for 356,833 shares issued in the name of Sidney F.
Jones.
V. The stock certificate of Thai Romo Holdings, Inc. for 999 shares issued in
the name of Rutherford--Moran Oil Corporation.
<PAGE>
EXHIBIT B TO THE EXCHANGE AGREEMENT
PLEDGED SHARES CUSTODIAL AGREEMENT
THIS PLEDGED SHARES CUSTODIAL AGREEMENT is entered into and effective this
___ day of ___________, 1996 (this "Custodial Agreement") by and among
_____________________ (the "Escrow Agent"), Rutherford--Moran Oil Corporation, a
Delaware corporation (the "Company"); Thai Romo Limited, a company organized
under the laws of the Kingdom of Thailand ("Thai Romo"); and the parties listed
on SCHEDULE A hereto (the "Shareholders");
WHEREAS, the Company intends to issue and sell up to 4,600,000 shares of
common stock, $.01 par value ("Common Stock"), which includes 600,000 shares
subject to an underwriters' over-allotment option, pursuant to an Underwriting
Agreement (the "UA") to be executed between the Company and the Representatives
(as defined in the UA);
WHEREAS, the Company has prepared and filed with the Securities and
Exchange Commission a registration statement on Form S-1 relating to the shares
to be covered by the UA;
WHEREAS, the parties hereunder (other than the Escrow Agent) have entered
into that certain Section 351 Exchange Agreement of even date herewith (the
"Exchange Agreement"), whereby the Company agreed to issue Company Shares (as
defined in the Exchange Agreement) to each of the Shareholders in exchange for
shares of stock of Thai Romo or RMEC and promissory notes of Thai Romo held by
the Shareholders;
WHEREAS, the share exchanges contemplated by the Exchange Agreement shall
occur and be effective on, and as of, the Effective Date (as defined in the
Exchange Agreement); and
WHEREAS, the parties to the Exchange Agreement desire to lodge certain
share certificates, promissory notes, pledge instruments and other items
required to be executed and delivered pursuant to Section 6.2 of the Exchange
Agreement (collectively, the "Instruments") with the Escrow Agent until such
Instruments can be delivered on the Effective Date, and the parties wish to set
forth herein the terms and conditions of such escrow with respect to the
Instruments to be delivered to the Escrow Agent;
NOW, THEREFORE, in consideration of the premises herein, the parties hereto
agree as follows:
1. APPOINTMENT OF THE ESCROW AGENT. The Company, Chase, Thai Romo and
the Shareholders hereby appoint ________________________, as the Escrow Agent.
The Escrow Agent agrees to serve hereunder for the purposes and on the terms
hereinafter set forth.
<PAGE>
2. ESCROW OF INSTRUMENTS. Contemporaneously with the execution of this
Agreement, Thai Romo shall deposit with the Escrow Agent the Instruments
contemplated by Section 6.2(a) of the Exchange Agreement, and Chase shall
deposit, on behalf of each of the applicable parties, the Instruments
contemplated by Section 6.2(b) of the Exchange Agreement. By execution of this
Escrow Agreement, the Escrow Agent acknowledges receipt of the Instruments. The
Escrow Agent shall hold and safeguard the Instruments during the term of this
Escrow Agreement. Each of the parties agrees that the deposit of the
Instruments shall be irrevocable, except as set forth in Section 3 hereof.
3. DISBURSEMENT OF INSTRUMENTS. Immediately following execution of the
UA on the Effective Date, the Company shall cause to be delivered to the Escrow
Agent an original (or a facsimile followed by an original within three business
days) executed certificate in the form attached hereto as EXHIBIT A (the
"Certificate") from Michael D. McCoy, Executive Vice President and Chief
Operating Officer of the Company, or Patrick R. Rutherford, President and Chief
Executive Officer, and upon receipt of the Certificate (or facsimile thereof),
the Escrow Agent shall release and deliver the Instruments in the manner set
forth in Section 6.3 to the Exchange Agreement. At any time prior to the
Effective Date or prior to such distribution as required hereunder, the Escrow
Agent shall return the Instruments to the respective depositing parties upon
written notice from all parties to the Exchange Agreement of termination of such
agreement.
4. ADDITIONAL PROPERTY. In the event that any of the parties receives
any distribution in cash, stock or other property, by reason of any stock
dividend, split-up, recapitalization, combination, conversion, exchange of
shares or other change in the corporate or capital structure of Thai Romo, RMEC
or the Company, such parties shall promptly deposit such cash, stock or property
with the Escrow Agent to be held by the Escrow Agent pursuant to the terms of
this Agreement. The term "Instruments" shall include any property received by
the Escrow Agent, pursuant to this Section 4.
5. LIMITATION OF THE ESCROW AGENT'S CAPACITY.
(a) This Agreement expressly and exclusively sets forth the duties of
the Escrow Agent with respect to any and all matters pertinent hereto and
no implied duties or obligations shall be read into this Agreement against
the Escrow Agent.
(b) The Escrow Agent acts hereunder as a depository only, and is not
responsible or liable in any manner whatsoever for the sufficiency,
correctness, genuineness or validity of the subject matter of this
Agreement or any part thereof, or of any person executing or depositing
such subject matter.
(c) This Agreement constitutes the entire agreement between the
Escrow Agent, on the one hand, and the other parties hereto, on the other
hand, in connection with the subject matter of this escrow, and no other
agreement entered into between the parties, or any of them, shall be
considered as adopted or binding, in whole or in part, upon the Escrow
Agent notwithstanding that any such other agreement may be deposited with
Escrow Agent or the Escrow Agent may have knowledge thereof.
-2-
<PAGE>
6. AUTHORITY TO ACT.
(a) The Escrow Agent is hereby authorized and directed by the
undersigned (other than the Escrow Agent) to deliver the subject matter of
this Agreement only in accordance with the written directions contained in
Section 3 hereof, or as the Escrow Agent may otherwise be instructed in
writing executed by each of the undersigned (except the Escrow Agent).
(b) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, certificate, receipt, authorization,
power of attorney or other paper or document which the Escrow Agent in good
faith believes to be genuine and what it purports to be, including, but not
limited to, items directing investment or non-investment of funds, items
requesting or authorizing release, disbursement or retainage of the subject
matter of this Agreement and items amending the terms of this Agreement.
(c) The Escrow Agent may consult with legal counsel in the event of
any dispute or question as to the construction of any of the provisions
hereof or its duties hereunder, and it shall incur no liability and shall
be fully protected in acting in accordance with the advice of such counsel.
(d) In the event of any disagreement between any of the parties to
this Agreement, or between any of them and any other persons, resulting in
adverse claims or demands being made in connection with the matters covered
by this Agreement, or in the event that the Escrow Agent, in good faith, be
in doubt as to what action it should take hereunder, the Escrow Agent may,
at its option, refuse to comply with any claims or demands on it, or refuse
to take any other action hereunder, so long as such disagreement continues
or such doubt exists, and in any such event, the Escrow Agent shall not be
or become liable in any way or to any person for its failure or refusal to
act, and the Escrow Agent shall be entitled to continue so to refrain from
acting until (i) the rights of all interested parties shall have been fully
and finally adjudicated by a court of competent jurisdiction, or (ii) all
differences shall have been adjudged and all doubt resolved by agreement
among all of the interested persons, and the Escrow Agent shall have been
notified thereof in writing signed by all such persons. Notwithstanding
the preceding, the Escrow Agent may in its discretion obey the order,
judgment, decree or levy of any court, whether with or without
jurisdiction, or of an agency of the United States or any political
subdivision thereof, or of any agency of the State of Texas or of any
political subdivision thereof, and the Escrow Agent is hereby authorized in
its sole discretion, to comply with and obey any such orders, judgments,
decrees or levies. The rights of the Escrow Agent under this sub-paragraph
are cumulative of all other rights which it may have by law or otherwise.
(e) The Escrow Agent shall not be liable for any actions it may take
or refrain from taking in good faith, in connection herewith, excepting
such as may arise through or be caused by the Escrow Agent's willful
misconduct or gross negligence.
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<PAGE>
(f) In the event that any controversy should arise among the parties
with respect to this Agreement or should the Escrow Agent resign and the
parties fail to select another escrow agent to act in its stead, the Escrow
Agent shall have the right to institute a bill of interpleader in any court
of competent jurisdiction to determine the rights of the parties.
7. COMPENSATION. The Escrow Agent shall be entitled to reasonable
compensation as well as reimbursement for its reasonable costs and expenses
incurred in connection with the performance by it of services under this
Agreement (including reasonable fees and expenses of the Escrow Agent's
counsel). The Company hereby binds and obligates itself to pay to the Escrow
Agent the compensation and reimbursement to which it is entitled. The Escrow
Agent's fee is anticipated to be in the amount of $_______________ plus expense
reimbursement.
8. INDEMNITY. The Company agrees to indemnify and hold the Escrow Agent
harmless from all loss, cost, claims, demands, expenses, damages, and attorney's
fees suffered or incurred by the Escrow Agent as a result of any litigation or
cause of action arising from or in conjunction with the Escrow Fund or monies
deposited hereunder or for any interest upon any such monies, which does not
arise from the Escrow Agent's willful misconduct or gross negligence. This
indemnity shall include, but not be limited to, all costs incurred in
conjunction with any interpleader which the Escrow Agent may enter into
regarding this Agreement. In the event the Company is unable to fully meet its
obligations under this Section 8, each other party hereto (other than the Escrow
Agent) shall be obligated to contribute to the indemnification of the Escrow
Agent under this Section 8 on a pro rata basis (based on the number of shares of
the Company's common stock, $.01 par value, to be issued to each party pursuant
to the Exchange Agreement).
9. RESIGNATION. The Escrow Agent may resign at any time (such
resignation to be effective upon the earlier of (i) the appointment of a
successor escrow agent and (ii) 30 days after giving such notice of resignation)
by giving written notice to parties hereto whereupon the parties hereto, will
immediately appoint a successor escrow agent (upon appointment such successor
escrow agent shall thereafter be deemed to be the Escrow Agent for purposes of
this Agreement). If a successor escrow agent shall not have accepted the duties
of the Escrow Agent pursuant to this Agreement within 30 days after the giving
of such notice of resignation, the resigning Escrow Agent may, at the several
and equal expense of the other parties hereto, petition any court of competent
jurisdiction for the appointment of a successor escrow agent.
10. GENERAL PROVISIONS.
(a) The Escrow Agent, upon the delivery of all of the subject matter
or monies pursuant to the terms of this Agreement, shall be discharged from
any further obligation hereunder.
(b) Where directions or instructions from more than one of the
undersigned are required, such directions or instructions may be given by
separate instruments of similar tenor. Any of the undersigned may act
hereunder through an agent or attorney-
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<PAGE>
in-fact, provided satisfactory written evidence of authority is first
furnished to any party relying on such authority.
(c) Any payment, notice, request for consent, report, or any other
communication required or permitted in this Agreement shall be in writing
and shall be deemed to have been given when personally delivered to the
party hereunder specified or when placed in the United States mail,
registered or certified, with return receipt requested, postage prepaid and
addressed as follows:
If to the Escrow Agent:
Allen & Overy
One New Change
London EC4M 9QQ
Attention: Simon Black
If to the Company, RMEC, Thai Romo or TRH:
Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
If to the Shareholders:
At the addresses listed on SCHEDULE A
Any party may designate a different address by giving notice of such change
in the manner specified above to each other party.
(d) This Agreement is being made in, and is intended to be construed
according to the laws of, the State of Texas (regardless of laws that might
otherwise govern under applicable principles of conflict of laws). It
shall inure to and be binding upon the parties hereto and their respective
successors, heirs and assigns.
(e) Words used in the singular number may include the plural and the
plural may include the singular.
(f) The terms of this Agreement may be altered, amended, modified or
revoked only by an instrument in writing signed by all the parties hereto.
(g) The captions or section headings set forth in this Agreement are
for convenience only and shall not be considered as part of this Agreement
or to in any way limit or amplify the terms and provisions hereof.
-5-
<PAGE>
(h) If any provision of this Agreement shall be held or deemed to be
or shall in fact, be illegal, inoperative or unenforceable, the same shall
not affect any other provision or provisions herein contained or render the
same invalid, inoperative or unenforceable to any extent whatsoever.
The parties herein below execute this Agreement on this _____ day of
________________________, 1996.
(SIGNATURES ON THE FOLLOWING PAGE)
-6-
<PAGE>
RUTHERFORD--MORAN OIL CORPORATION
By
--------------------------------------
Its
-------------------------------------
RED OAK HOLDINGS, INC.
By
--------------------------------------
Its
-------------------------------------
MDMTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
SRRTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
THAIJAM, L.P.
By
--------------------------------------
Its General Partner
By
--------------------------------------
Its
-------------------------------------
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<PAGE>
JAMTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
THAIPRR, L.P.
By
--------------------------------------
Its
-------------------------------------
PRRTHAI, INC.
By
--------------------------------------
Its
-------------------------------------
THAISFJ, L.P.
By
--------------------------------------
Its General Partner
By
--------------------------------------
Its
-------------------------------------
SFJTHAI, Inc.
By
--------------------------------------
Its
-------------------------------------
-8-
<PAGE>
Thai Romo Limited
By
--------------------------------------
Its
-------------------------------------
Allen & Overy
By
--------------------------------------
Its
-------------------------------------
-9-
<PAGE>
SCHEDULE A
LIST OF SHAREHOLDERS
- --------------------------------------------------------------------------------
NAME ADDRESS
- --------------------------------------------------------------------------------
JAMTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
THAIJAM, L.P. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
PRRTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
THAIPRR, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
SFJTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
THAISFJ, L.P. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
MDMTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
SRRTHAI, Inc. c/o Rutherford--Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Attention: General Counsel
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
NAME ADDRESS
- --------------------------------------------------------------------------------
Red Oak Holdings, Inc. c/o Chase Capital Partners
125 London Wall
London EC2Y 5AJ, United Kingdom
Attention: Jonathan Meggs
with a copy to (which will not
constitute notice):
Kirkland & Ellis
153 E. 53rd Street
New York, NY 10022
Attention: John L. Kuehn
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT A
FORM OF OFFICER'S CERTIFICATE
The undersigned, being the duly elected and qualified
_______________________ of Rutherford-Moran Oil Corporation, a Delaware
corporation (the "Company") pursuant to Section 3 of the Custodial Agreement
dated ___________________, 1996 (the "Custodial Agreement") between
___________________________ (the "Escrow Agent"), the Company, Thai Romo
Limited, a company organized under the laws of the Kingdom of Thailand, Thai
Romo Holdings, Inc., a Delaware corporation and the parties listed on Schedule A
thereto, does hereby certify as follows:
1. Capitalized terms used herein but not otherwise defined
shall have the meanings assigned to them in the Custodial Agreement;
and
2. The parties to the Exchange Agreement have mutually agreed
that the Effective Date is _________.
Furthermore, the Undersigned instructs the Escrow Agent to deliver the
Instruments to Chase and RMOC, as applicable, and in the manner described in
Section 3 to the Custodial Agreement on _____________________ and at the
following time and location:________________.
RUTHERFORD--MORAN OIL CORPORATION
By
--------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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<PAGE>
EXHIBIT 23.2
The Board of Directors
Rutherford-Moran Oil Corporation, and
Rutherford-Moran Exploration Company, and
Thai Romo Limited:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
June 19, 1996
<PAGE>
EXHIBIT 23.5
[Baker & McKenzie letterhead]
June 13, 1996
Rutherford-Moran Oil Corporation
5 Greenway Plaza, Suite 200
Houston, Texas 77046
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (Registration No.
333-4122), as amended (the "Registration Statement"), filed by Rutherford-Moran
Oil Corporation, a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, relating to the offer by
the Company of 4,000,000 shares of the Company's Common Stock, $.01 par value
per share (the "Common Stock"), and up to 600,000 shares of Common Stock, which
may be sold in the event the underwriters for the offering elect to exercise
their over-allotment option.
We hereby consent to the use of our Firm's name under the caption
"Business and Properties-Tax Regulation" in the Prospectus included as part
of the Registration Statement insofar as such disclosure relates to matters
of Thai taxation and to the filing of this consent as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
Baker & McKenzie
