<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-04122
PROSPECTUS
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.
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>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share $23.00 $1.61 $21.39
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Total (3) $92,000,000 $6,440,000 $85,560,000
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</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 $740,000.
(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 $105,800,000, $7,406,000 and $98,394,000, 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 June 26, 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.
June 21, 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
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PAGE
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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
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PAGE
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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 JULY 16, 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
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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
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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
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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."
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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>
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(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.
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DECEMBER 31,
1993 1994 1995
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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
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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.
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THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
DOLLARS IN THOUSANDS 1993 1994 1995 1995 1996
--------- --------- ----------- ----------- -----------
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(UNAUDITED) (UNAUDITED)
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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
--------- --------- ----------- ----------- -----------
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(UNAUDITED) (UNAUDITED)
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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)
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BALANCE SHEET DATA:
Working capital (deficit) $ (3,504) $ (32,900) $(43,098) $26,372
Oil and gas properties, at cost 18,944 55,951 65,748 65,748
Total assets 19,427 67,669 73,287 95,041
Stockholders' equity 15,484 23,269 22,765 90,272
</TABLE>
8
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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.
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<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
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<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.
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<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
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<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 $437 million based upon the initial offering price of $23.00 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 has been 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
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.
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<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 $19.39 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."
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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."
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<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.
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USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $84.8 million (or $97.7 million if the U.S. Underwriters'
over-allotment option is exercised in full), based on the initial public
offering price of $23.00 per share and after deducting underwriting discounts
and estimated 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 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 90,022
Deficit accumulated during the development stage(4) (1,645) --
--------- -----------
Total stockholders'/partners' equity 22,765 90,272
--------- -----------
Total capitalization $ 70,155 $ 90,272
--------- -----------
--------- -----------
</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 $3.61 per share.
<TABLE>
<S> <C> <C>
--------------------
Initial public offering price per share of Common Stock $ 23.00
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 2.53
---------
Pro forma net tangible book value per share after the Transactions and the
Offerings(2) 3.61
---------
Dilution per share to new investors $ 19.39
---------
---------
</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 $2.95, $4.03 and $18.97, 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) 5.5%
Investors in the Common Stock Offerings 4,000,000 16.0 23.00 92,000,000 94.5
--------- --------- ---------- ---------- ---------
Total 25,000,000 100.0% $ 3.90 $97,402,302 100.0%
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
</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 and Moran, 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) $26,372
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 95,041
Stockholders' equity 1,459 4,219 8,689 15,484 23,269 22,765 90,272
</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 9.6875% 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 8.4375% 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.
32
<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.
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<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
37
<PAGE>
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.
38
<PAGE>
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.
39
<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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<PAGE>
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
41
<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.
44
<PAGE>
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.
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.
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<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 substantially 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.
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<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.
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<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.
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<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.
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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.................................................................................. 580,000
Morgan Stanley & Co. Incorporated........................................................................... 580,000
PaineWebber Incorporated.................................................................................... 580,000
Smith Barney Inc............................................................................................ 580,000
CS First Boston Corporation................................................................................. 88,000
Dillon, Read & Co. Inc...................................................................................... 88,000
Donaldson, Lufkin & Jenrette Securities Corporation......................................................... 88,000
Goldman, Sachs & Co......................................................................................... 88,000
Howard, Weil, Labouisse, Friedrichs Inc..................................................................... 88,000
Lehman Brothers Inc......................................................................................... 88,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................................................... 88,000
Rauscher Pierce Refsnes, Inc................................................................................ 88,000
Sanders Morris Mundy Inc.................................................................................... 88,000
Salomon Brothers Inc........................................................................................ 88,000
--------
Subtotal 3,200,000
<CAPTION>
INTERNATIONAL MANAGERS NUMBER OF SHARES
----------------
<S> <C>
J.P. Morgan Securities Ltd.................................................................................. 192,000
Morgan Stanley & Co. International Limited.................................................................. 192,000
PaineWebber International (U.K.) Ltd........................................................................ 192,000
Smith Barney Inc............................................................................................ 192,000
Barclays De Zoete Wedd Limited.............................................................................. 16,000
NatWest Securities Limited.................................................................................. 16,000
--------
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
52
<PAGE>
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 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 $0.97 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 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
53
<PAGE>
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 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 were the state of the economy in
Thailand and the United States, the history of and 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 expenditures 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 $92,000,000, less costs of the Offering of $7,180,000, 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 Prospectus 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 $ 21,746,184(1) $24,693,182
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 21,746,184 28,526,760
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 $ 21,704,126 $95,041,429
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
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)
108,979,961(7) 90,022,302
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 67,456,870 90,272,302
-------------- -------------- ----------- --------------
Total liabilities and
stockholders'/partners' equity $50,000 $73,287,303 $ 21,704,126 $95,041,429
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
</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 $92,000,000
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 7,180,000
----------
$21,746,184
----------
----------
</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 $92,000,000
Estimated costs of Offering (7,180,000)
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)
-----------
$108,979,961
-----------
-----------
</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 21,726,244
---------
---------
</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, 726,244, whose proceeds would be
necessary to complete the Redemption and exercise the Call Option based on
the anticipated offering price of $23 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 21,726,244
---------
---------
</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, 726,244 whose proceeds would be
necessary to complete the Redemption and exercise the Call Option based on
the anticipated offering price of $23 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 and 1.75
MMBbl of aggregate oil volumes for January through December 1998 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 for
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 as 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>
PROSPECTUS
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.
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 $23.00 $1.61 $21.39
- ------------------------------------------------------------------------------------------------------
Total (3) $92,000,000 $6,440,000 $85,560,000
- ------------------------------------------------------------------------------------------------------
</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 $740,000.
(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 $105,800,000, $7,406,000 and $98,394,000, 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 June 26, 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.
June 21, 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 JULY 16, 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) $26,372
Oil and gas properties, at cost 18,944 55,951 65,748 65,748
Total assets 19,427 67,669 73,287 95,041
Stockholders' equity 15,484 23,269 22,765 90,272
</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 $437 million based upon the initial offering price of $23.00 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 has been 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
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 $19.39 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 $84.8 million (or $97.7 million if the U.S. Underwriters'
over-allotment option is exercised in full), based on the initial public
offering price of $23.00 per share and after deducting underwriting discounts
and estimated 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 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 90,022
Deficit accumulated during the development stage(4) (1,645) --
--------- -----------
Total stockholders'/partners' equity 22,765 90,272
--------- -----------
Total capitalization $ 70,155 $ 90,272
--------- -----------
--------- -----------
</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 $3.61 per share.
<TABLE>
<S> <C> <C>
--------------------
Initial public offering price per share of Common Stock $ 23.00
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 2.53
---------
Pro forma net tangible book value per share after the Transactions and the
Offerings(2) 3.61
---------
Dilution per share to new investors $ 19.39
---------
---------
</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 $2.95, $4.03 and $18.97, 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) 5.5%
Investors in the Common Stock Offerings 4,000,000 16.0 23.00 92,000,000 94.5
--------- --------- ---------- ---------- ---------
Total 25,000,000 100.0% $ 3.90 $97,402,302 100.0%
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
</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 and Moran, 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) $26,372
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 95,041
Stockholders' equity 1,459 4,219 8,689 15,484 23,269 22,765 90,272
</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 9.6875% 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 8.4375% 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.
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<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.
32
<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.
39
<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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<PAGE>
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
41
<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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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.
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.
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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 substantially 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
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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.
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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.
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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.................................................................................. 580,000
Morgan Stanley & Co. Incorporated........................................................................... 580,000
PaineWebber Incorporated.................................................................................... 580,000
Smith Barney Inc............................................................................................ 580,000
CS First Boston Corporation................................................................................. 88,000
Dillon, Read & Co. Inc...................................................................................... 88,000
Donaldson, Lufkin & Jenrette Securities Corporation......................................................... 88,000
Goldman, Sachs & Co......................................................................................... 88,000
Howard, Weil, Labouisse, Friedrichs Inc..................................................................... 88,000
Lehman Brothers Inc......................................................................................... 88,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................................................... 88,000
Rauscher Pierce Refsnes, Inc................................................................................ 88,000
Sanders Morris Mundy Inc.................................................................................... 88,000
Salomon Brothers Inc........................................................................................ 88,000
--------
Subtotal 3,200,000
<CAPTION>
INTERNATIONAL MANAGERS NUMBER OF SHARES
----------------
<S> <C>
J.P. Morgan Securities Ltd.................................................................................. 192,000
Morgan Stanley & Co. International Limited.................................................................. 192,000
PaineWebber International (U.K.) Ltd........................................................................ 192,000
Smith Barney Inc............................................................................................ 192,000
Barclays De Zoete Wedd Limited.............................................................................. 16,000
NatWest Securities Limited.................................................................................. 16,000
--------
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
52
<PAGE>
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 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 $0.97 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 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
53
<PAGE>
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 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 were the state of the economy in
Thailand and the United States, the history of and 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 expenditures 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 $92,000,000, less costs of the Offering of $7,180,000, 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 Prospectus 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 $ 21,746,184(1) $24,693,182
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 21,746,184 28,526,760
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 $ 21,704,126 $95,041,429
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
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)
108,979,961(7) 90,022,302
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 67,456,870 90,272,302
-------------- -------------- ----------- --------------
Total liabilities and
stockholders'/partners' equity $50,000 $73,287,303 $ 21,704,126 $95,041,429
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
</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 $92,000,000
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 7,180,000
----------
$21,746,184
----------
----------
</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 $92,000,000
Estimated costs of Offering (7,180,000)
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)
-----------
$108,979,961
-----------
-----------
</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 21,726,244
---------
---------
</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, 726,244, whose proceeds would be
necessary to complete the Redemption and exercise the Call Option based on
the anticipated offering price of $23 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 21,726,244
---------
---------
</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, 726,244 whose proceeds would be
necessary to complete the Redemption and exercise the Call Option based on
the anticipated offering price of $23 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 and 1.75
MMBbl of aggregate oil volumes for January through December 1998 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 for
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 as 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
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